As filed with the Securities and Exchange Commission on August 13, 2003
Securities Act Registration No. 811-3886
U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-effective Amendment No. Post-effective Amendment No.
------- ------
(Check appropriate box or boxes)
AIM ADVISOR FUNDS
----------------------------------------
(Exact Name of Registrant as Specified in Charter)
11 Greenway Plaza, Suite 100, Houston, Texas 77046
----------------------------------------
(Address of Principal Executive Offices)
Registrant's Telephone Number: (713) 626-1919
Name and Address of Agent for Service: Copy to:
NANCY L. MARTIN, ESQUIRE MARTHA J. HAYS, ESQUIRE
A I M Advisors, Inc. Ballard Spahr Andrews & Ingersoll, LLP
11 Greenway Plaza 1735 Market Street
Suite 100 51st Floor
Houston, TX 77046 Philadelphia, PA 19103
Approximate Date of Proposed Public Offering: As soon as practicable
after the Registration Statement becomes effective under the Securities Act of
1933.
The title of the securities being registered is AIM Real Estate Fund
Classes A, B, C and Investor Class. No filing fee is due in reliance on Section
24(f) of the Investment Company Act of 1940.
(INVESCO LOGO)
INVESCO REAL ESTATE OPPORTUNITY FUND,
A PORTFOLIO OF INVESCO SECTOR FUNDS, INC.
4350 SOUTH MONACO STREET
DENVER, COLORADO 80237
August 25, 2003
Dear Shareholder:
As you may be aware, AMVESCAP PLC, the parent company of your Fund's
investment advisor, has undertaken an integration initiative for its North
American mutual fund operations.
In the first phase of the integration initiative, A I M Distributors, Inc.
became the sole distributor for all AMVESCAP PLC mutual funds in the United
States. A I M Distributors, Inc. is now the distributor for all INVESCO Funds
(including your Fund) and the AIM Funds.
AMVESCAP PLC also reviewed all INVESCO Funds and AIM Funds and concluded
that it would be appropriate to reduce the number of smaller and less efficient
funds that compete for limited shareholder assets and to consolidate certain
funds having similar investment objectives and strategies. Your Fund is one of
the funds that AMVESCAP PLC recommended, and your Board of Directors approved,
be consolidated with another fund. The attached proxy statement/prospectus seeks
your approval of this consolidation.
As part of the integration initiative, AMVESCAP PLC has recommended
restructuring the advisory and administrative servicing arrangements so that A I
M Advisors, Inc. is the advisor and administrator for all INVESCO Funds and AIM
Funds. Your Board has approved a new advisory agreement under which A I M
Advisors, Inc. will serve as the investment advisor for your Fund, and a new
sub-advisory agreement under which INVESCO Institutional (N.A.), Inc., an
affiliate of INVESCO Funds Group, Inc., which is currently serving as your
Fund's investment advisor, will serve as sub-advisor. The portfolio management
team for your Fund will not change as a result of this restructuring. The
attached proxy statement/prospectus seeks your approval of these new investment
advisory and sub-advisory agreements. If approved, these new agreements will
become effective only if shareholders do not approve the proposal to consolidate
your Fund.
The integration initiative also calls for changing the organizational
structure of the INVESCO Funds and the AIM Funds. To accomplish this goal,
AMVESCAP PLC has recommended that all INVESCO Funds and AIM Funds organized as
Maryland corporations change their form and state of organization to Delaware
statutory trusts. Your Board has approved redomesticating your Fund as a series
of a Delaware statutory trust. The attached proxy statement/prospectus seeks
your approval of this redomestication. If approved, the redomestication will
occur prior to the consolidation of your Fund.
Finally, the independent directors of your Board believe that your
interests would best be served if the INVESCO Funds and the AIM Funds had a
unified board of directors/trustees. The attached proxy statement/prospectus
seeks your vote in favor of the persons nominated to serve as directors.
Your vote is important. Please take a moment after reviewing the enclosed
materials to sign and return your proxy card in the enclosed postage paid return
envelope. If you attend the meeting, you may vote your shares in person. If you
expect to attend the meeting in person, or have questions, please notify us by
calling (800) 952-3502. You may also vote your shares by telephone or through a
website established for that purpose by following the instructions that appear
on the enclosed proxy card. If we do not hear from you after a reasonable amount
of time, you may receive a telephone call from our proxy solicitor, Georgeson
Shareholder Communications Inc., reminding you to vote your shares.
Sincerely,
-s- Raymond R. Cunningham
Raymond R. Cunningham
President
INVESCO REAL ESTATE OPPORTUNITY FUND,
A PORTFOLIO OF
INVESCO SECTOR FUNDS, INC.
4350 SOUTH MONACO STREET
DENVER, COLORADO 80237
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON OCTOBER 21, 2003
To the Shareholders of INVESCO Real Estate Opportunity Fund:
We cordially invite you to attend our Special Meeting of Shareholders to:
1. Approve an Agreement and Plan of Reorganization (the "Agreement") under
which all of the assets of your Fund, an investment portfolio of INVESCO Sector
Funds, Inc. ("Company"), will be transferred to AIM Real Estate Fund ("Buying
Fund"), an investment portfolio of AIM Advisor Funds ("Buyer"), Buying Fund will
assume the liabilities of your Fund and Buyer will issue shares of each class of
Buying Fund to shareholders of the corresponding class of shares of your Fund.
2. Elect 16 directors to the Board of Directors of Company, each of whom
will serve until his or her successor is elected and qualified.
3. Approve a new investment advisory agreement with A I M Advisors, Inc.
("AIM") for your Fund.
4. Approve a new sub-advisory agreement between AIM and INVESCO
Institutional (N.A.), Inc. for your Fund.
5. Approve an Agreement and Plan of Reorganization (the "Plan") which
provides for the redomestication of Company as a Delaware statutory trust and,
in connection therewith, the sale of all of Company's assets and the dissolution
of Company as a Maryland corporation.
6. Transact any other business, not currently contemplated, that may
properly come before the Special Meeting, in the discretion of the proxies or
their substitutes.
We are holding the Special Meeting at 11 Greenway Plaza, Suite 100,
Houston, Texas 77046-1173 on October 21, 2003, at 3:00 p.m., Central Time.
Shareholders of record as of the close of business on July 25, 2003 are
entitled to notice of, and to vote at, the Special Meeting or any adjournment of
the Special Meeting.
WE REQUEST THAT YOU EXECUTE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE
THE ACCOMPANYING PROXY, WHICH IS BEING SOLICITED BY THE BOARD OF DIRECTORS OF
COMPANY. YOU MAY ALSO VOTE YOUR SHARES BY TELEPHONE OR THROUGH A WEBSITE
ESTABLISHED FOR THAT PURPOSE BY FOLLOWING THE INSTRUCTIONS ON THE ENCLOSED PROXY
MATERIALS. YOUR VOTE IS IMPORTANT FOR THE PURPOSE OF ENSURING A QUORUM AT THE
SPECIAL MEETING. YOU MAY REVOKE YOUR PROXY AT ANY TIME BEFORE IT IS EXERCISED BY
EXECUTING AND SUBMITTING A REVISED PROXY, BY GIVING WRITTEN NOTICE OF REVOCATION
TO THE SECRETARY OF COMPANY OR BY VOTING IN PERSON AT THE SPECIAL MEETING.
-s- Glen A. Payne
Glen A. Payne
Secretary
August 25, 2003
<Table>
INVESCO REAL ESTATE OPPORTUNITY FUND, AIM REAL ESTATE FUND,
A PORTFOLIO OF A PORTFOLIO OF
INVESCO SECTOR FUNDS, INC. AIM ADVISOR FUNDS
4350 SOUTH MONACO STREET 11 GREENWAY PLAZA, SUITE 100
DENVER, COLORADO 80237 HOUSTON, TEXAS 77046
(800) 525-8085 (800) 347-4246
</Table>
COMBINED PROXY STATEMENT AND PROSPECTUS
AUGUST 25, 2003
This document is a combined Proxy Statement and Prospectus ("Proxy
Statement/Prospectus"). We are sending you this Proxy Statement/Prospectus in
connection with the Special Meeting of Shareholders (the "Special Meeting") of
INVESCO Real Estate Opportunity Fund (your Fund). The Special Meeting will be
held on October 21, 2003. We intend to mail this Proxy Statement/Prospectus, the
enclosed Notice of Special Meeting of Shareholders and the enclosed proxy card
on or about August 25, 2003 to all shareholders entitled to vote.
At the Special Meeting, we are asking shareholders of your Fund to vote on
five Proposals. The first Proposal to be voted on is an Agreement and Plan of
Reorganization (the "Agreement") which provides for the combination of your
Fund, an investment portfolio of INVESCO Sector Funds, Inc. ("Company"), with
AIM Real Estate Fund ("Buying Fund"), an investment portfolio of AIM Advisor
Funds ("Buyer") (the "Reorganization").
Under the Agreement, all of the assets of your Fund will be transferred to
Buying Fund, Buying Fund will assume the liabilities of your Fund and Buyer will
issue shares of each class of Buying Fund to shareholders of the corresponding
class of shares of your Fund, as set forth on Exhibit A.
The value of your account with Buying Fund immediately after the
Reorganization will be the same as the value of your account with your Fund
immediately prior to the Reorganization. The Reorganization has been structured
as a tax-free transaction. No sales charges will be imposed in connection with
the Reorganization.
The Board of Directors of Company (the "Board") has approved the Agreement
and the Reorganization as being advisable and in the best interests of your
Fund.
Company and Buyer are both registered open-end management investment
companies that issue their shares in separate series. Your Fund is a series of
Company and Buying Fund is a series of Buyer. INVESCO Funds Group, Inc.
("INVESCO") serves as the investment advisor to your Fund and A I M Advisors,
Inc. ("AIM") serves as the investment advisor to Buying Fund. Both AIM and
INVESCO are wholly owned subsidiaries of AMVESCAP PLC ("AMVESCAP"), an
independent global investment management company.
The investment objective of Buying Fund is similar to that of your Fund.
See "Comparison of Investment Objectives and Principal Strategies."
This Proxy Statement/Prospectus sets forth the information that you should
know before voting on the Agreement and the other Proposals described below. It
is both the Proxy Statement of your Fund and the Prospectus of Buying Fund. You
should read and retain this Proxy Statement/Prospectus for future reference.
The Prospectus of your Fund dated July 31, 2003, as supplemented August 1,
2003 and August 14, 2003 (the "Selling Fund Prospectus"), together with the
related Statement of Additional Information dated July 31, 2003, as supplemented
August 14, 2003, are on file with the Securities and Exchange Commission (the
"SEC"). The Selling Fund Prospectus is incorporated by reference into this Proxy
Statement/Prospectus. The Prospectus of Buying Fund dated July 21, 2003 (the
"Buying Fund Prospectus"), and the related Statement of Additional Information
dated July 21, 2003, as supplemented
i
August 14, 2003, and the Statement of Additional Information relating to the
Reorganization dated August 15, 2003, are on with the SEC. The Buying Fund
Prospectus is incorporated by reference into this Proxy Statement/Prospectus and
a copy of the Buying Fund Prospectus is attached as Appendix II to this Proxy
Statement/Prospectus. The Statement of Additional Information relating to the
Reorganization dated August 15, 2003 also is incorporated by reference into this
Proxy Statement/Prospectus. The SEC maintains a website at www.sec.gov that
contains the Prospectuses and Statements of Additional Information described
above, material incorporated by reference, and other information about Company
and Buyer.
Copies of the Buying Fund Prospectus, the Selling Fund Prospectus and the
related Statements of Additional Information are available without charge by
writing to A I M Fund Services, Inc., P.O. Box 4739, Houston, Texas 77210-4739,
or by calling (800) 347-4246. Additional information about your Fund and Buying
Fund may be obtained on the internet at www.aiminvestments.com.
The remaining four Proposals to be voted on are: the election of 16
directors to the Board of Directors of Company; the approval of a new advisory
agreement with AIM for your Fund; the approval of a new sub-advisory agreement
between AIM and INVESCO Institutional (N.A.), Inc. ("INVESCO Institutional") for
your Fund; and the approval of an Agreement and Plan of Reorganization (the
"Plan") which provides for the redomestication of Company as a Delaware
statutory trust and, in connection therewith, the sale of all of Company's
assets and the dissolution of Company as a Maryland corporation. The Board has
approved the nomination of the persons set forth in this Proxy
Statement/Prospectus for election as directors of Company and has approved the
new advisory agreement with AIM and the new sub-advisory agreement between AIM
and INVESCO Institutional. Finally, the Board has approved the Plan as being
advisable.
All five Proposals are being submitted to you to implement an integration
initiative undertaken by AMVESCAP with respect to its North American mutual fund
operations, which includes your Fund.
Company has previously sent to shareholders the most recent annual report
for your Fund, including financial statements, and the most recent semiannual
report succeeding the annual report, if any. If you have not received such
report(s) or would like to receive an additional copy, please contact A I M Fund
Services, Inc., P.O. Box 4739, Houston, Texas 77210-4739, or call (800)
347-4246. Such report(s) will be furnished free of charge.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
ii
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
----
INTRODUCTION 1
PROPOSAL 1 -- APPROVAL OF THE AGREEMENT TO COMBINE YOUR FUND
AND BUYING FUND........................................... 2
SUMMARY..................................................... 2
The Reorganization........................................ 2
Comparison of Investment Objectives and Principal
Strategies............................................. 3
Comparison of Principal Service Providers................. 5
Comparison of Performance................................. 5
Comparison of Fees and Expenses........................... 6
Comparison of Multiple Class Structures................... 6
Comparison of Sales Charges............................... 6
Comparison of Distribution, Purchase and Redemption
Procedures and Exchange Rights......................... 7
The Board's Recommendation on Proposal 1.................. 7
RISK FACTORS................................................ 7
Risks Associated with Buying Fund......................... 7
Comparison of Risks of Buying Fund and Your Fund.......... 8
INFORMATION ABOUT BUYING FUND............................... 9
Description of Buying Fund Shares......................... 9
Management's Discussion of Fund Performance............... 9
Financial Highlights...................................... 9
ADDITIONAL INFORMATION ABOUT THE AGREEMENT.................. 9
Terms of the Reorganization............................... 9
The Reorganization........................................ 9
Board Considerations...................................... 10
Other Terms............................................... 11
Federal Income Tax Consequences........................... 11
Accounting Treatment...................................... 12
RIGHTS OF SHAREHOLDERS...................................... 12
General................................................... 12
Liability of Shareholders................................. 13
Election of Directors/Trustees; Terms..................... 13
Removal of Directors/Trustees............................. 13
Meetings of Shareholders.................................. 13
Liability of Directors/Trustees and Officers;
Indemnification........................................ 14
Dissolution and Termination............................... 14
Voting Rights of Shareholders............................. 14
Dissenters' Rights........................................ 15
Amendments to Organization Documents...................... 15
CAPITALIZATION.............................................. 15
INTERESTS OF CERTAIN PERSONS................................ 16
LEGAL MATTERS............................................... 16
ADDITIONAL INFORMATION ABOUT BUYING FUND AND YOUR FUND...... 16
INFORMATION FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION................................................ 17
</Table>
iii
<Table>
<Caption>
PAGE
----
PROPOSAL 2 -- ELECTION OF DIRECTORS......................... 17
Background................................................ 17
Structure of the Board of Directors....................... 18
Nominees for Directors.................................... 18
The Board's Recommendation on Proposal 2.................. 22
Current Committees of the Board........................... 22
Board and Committee Meeting Attendance.................... 24
Future Committee Structure................................ 24
Director's Compensation................................... 25
Current Retirement Plan for Directors..................... 25
Current Deferred Compensation Plan........................ 26
New Retirement Plan for Directors......................... 26
New Deferred Compensation Agreements...................... 26
Officers of Company....................................... 27
Security Ownership of Management.......................... 27
Director Ownership of Your Fund's Shares.................. 27
PROPOSAL 3 -- APPROVAL OF A NEW INVESTMENT ADVISORY
AGREEMENT................................................. 28
Background................................................ 28
Your Fund's Current Investment Advisor.................... 28
The Proposed New Investment Advisor for Your Fund......... 29
Positions with AIM Held by Company's Directors or
Executive Officers..................................... 29
Terms of the Current Advisory Agreement................... 29
Additional Services Provided by INVESCO and its
Affiliates............................................. 30
Advisory Fees Charged by AIM for Similar Funds it
Manages................................................ 31
Terms of the Proposed Advisory Agreement.................. 31
Factors the Directors Considered in Approving the Advisory
Agreement.............................................. 34
The Board's Recommendation on Proposal 3.................. 36
PROPOSAL 4 -- APPROVAL OF NEW SUB-ADVISORY AGREEMENT........ 36
Background................................................ 36
The Proposed Sub-Advisor for Your Fund.................... 37
Positions with INVESCO Institutional Held by Company's
Directors or Executive Officers........................ 37
Terms of the Proposed Sub-Advisory Agreement.............. 37
Advisory Fees Charged by INVESCO Institutional for Similar
Funds for which it Serves as Advisor................... 38
Factors the Directors Considered in Approving the Proposed
Sub-Advisory Agreement................................. 38
The Board's Recommendation on Proposal 4.................. 39
PROPOSAL 5 -- APPROVAL OF THE PLAN TO REDOMESTICATE COMPANY
AS A DELAWARE STATUTORY TRUST............................. 39
Background................................................ 39
Reasons for the Proposed Redomestication.................. 40
What the Proposed Redomestication Will Involve............ 40
The Federal Income Tax Consequences of the
Redomestication........................................ 42
Appraisal Rights.......................................... 42
The Trust Compared to Company............................. 42
The Board's Recommendation on Proposal 5.................. 43
</Table>
iv
<Table>
<Caption>
PAGE
----
INFORMATION ABOUT THE SPECIAL MEETING AND VOTING............ 43
Proxy Statement/Prospectus................................ 43
Time and Place of Special Meeting......................... 43
Voting in Person.......................................... 44
Voting by Proxy........................................... 44
Voting by Telephone or the Internet....................... 44
Quorum Requirement and Adjournment........................ 44
Vote Necessary to Approve Each Proposal................... 45
Proxy Solicitation........................................ 45
Other Matters............................................. 45
Shareholder Proposals..................................... 46
Ownership of Shares....................................... 46
INDEPENDENT PUBLIC ACCOUNTANTS.............................. 46
Fees Paid to the Auditor Related to Company............... 46
Fees Paid to the Auditor Not Related to Company........... 47
</Table>
<Table>
EXHIBIT A Classes of Shares of Your Fund and Corresponding Classes of
Shares of Buying Fund....................................... A-1
EXHIBIT B Comparison of Performance of Your Fund and Buying Fund...... B-1
EXHIBIT C Comparison Fee Table and Expense Example.................... C-1
EXHIBIT D Director Compensation Table................................. D-1
EXHIBIT E Officers of Company......................................... E-1
EXHIBIT F Security Ownership of Management............................ F-1
EXHIBIT G Director Ownership of Fund Shares........................... G-1
EXHIBIT H Principal Executive Officer and Directors of A I M Advisors,
Inc. ....................................................... H-1
EXHIBIT I Compensation to INVESCO Funds Group, Inc. .................. I-1
EXHIBIT J Fees Paid to INVESCO Funds Group, Inc. and Affiliates in
Most Recent Fiscal Year..................................... J-1
EXHIBIT K Advisory Fee Schedules for Other AIM Funds.................. K-1
EXHIBIT L Proposed Compensation to A I M Advisors, Inc. .............. L-1
EXHIBIT M Principal Executive Officer and Directors of INVESCO
Institutional (N.A.), Inc. ................................. M-1
EXHIBIT N Proposed Compensation to INVESCO Institutional (N.A.),
Inc......................................................... N-1
EXHIBIT O Advisory Fee Schedules for Other INVESCO Institutional
(N.A.), Inc. Advised Funds.................................. O-1
EXHIBIT P Shares Outstanding of Each Class of Your Fund on Record
Date........................................................ P-1
EXHIBIT Q Ownership of Shares of Your Fund............................ Q-1
EXHIBIT R Ownership of Shares of Buying Fund.......................... R-1
APPENDIX I Agreement and Plan of Reorganization for Your Fund
(to Effect the Reorganization).............................. I-1
APPENDIX II Prospectus of Buying Fund................................... II-1
APPENDIX III Discussion of Performance of Buying Fund.................... III-1
APPENDIX IV Form of Investment Advisory Agreement with A I M Advisors,
Inc. ....................................................... IV-1
APPENDIX V Form of Sub-Advisory Agreement.............................. V-1
APPENDIX VI Agreement and Plan of Reorganization for Your Fund (to
Effect the Redomestication)................................. VI-1
</Table>
v
THE AIM FAMILY OF FUNDS, AIM AND DESIGN, AIM, AIM FUNDS, AIM FUNDS AND
DESIGN, AIM INVESTOR, AIM LIFETIME AMERICA, AIM LINK, AIM INSTITUTIONAL FUNDS,
AIMFUNDS.COM, LA FAMILIA AIM DE FONDOS, LA FAMILIA AIM DE FONDOS AND DESIGN,
INVIERTA CON DISCIPLINA AND INVEST WITH DISCIPLINE ARE REGISTERED SERVICE MARKS
AND AIM BANK CONNECTION, AIM INTERNET CONNECT, AIM PRIVATE ASSET MANAGEMENT, AIM
PRIVATE ASSET MANAGEMENT AND DESIGN, AIM STYLIZED AND/OR DESIGN, AIM ALTERNATIVE
ASSETS AND DESIGN, AIM INVESTMENTS, AIM INVESTMENTS AND DESIGN, MYAIM.COM, THE
AIM COLLEGE SAVINGS PLAN, AIM SOLO 401(K) AND YOUR GOALS. OUR SOLUTIONS. ARE
SERVICE MARKS OF A I M MANAGEMENT GROUP INC.
INVESCO, THE OPEN CIRCLE DESIGN, INVESCO FUNDS, INVESCO FUNDS GROUP,
INVESCO - YOUR GLOBAL INVESTMENT PARTNER AND YOU SHOULD KNOW WHAT INVESCO KNOWS
ARE REGISTERED SERVICE MARKS OF AMVESCAP PLC.
No dealer, salesperson or any other person has been authorized to give any
information or to make any representation other than those contained in this
Proxy Statement/Prospectus, and you should not rely on such other information or
representations.
vi
INTRODUCTION
Your Fund is one of 46 portfolios advised by INVESCO and Buying Fund is one
of 86 portfolios advised by AIM. Proposals 1 through 5 that you are being asked
to vote on relate to or result from an integration initiative announced on March
27, 2003, by AMVESCAP, the parent company of AIM and INVESCO, with respect to
its North American mutual fund operations. The primary components of AMVESCAP's
integration initiative are:
- Using a single distributor for all AMVESCAP mutual funds in the United
States. To that end, A I M Distributors, Inc., the distributor for the
retail mutual funds advised by AIM (the "AIM Funds"), replaced INVESCO
Distributors, Inc. as the distributor for the retail mutual funds advised
by INVESCO (the "INVESCO Funds") effective July 1, 2003.
- Integrating back office support and creating a single platform for back
office support of AMVESCAP's mutual fund operations in the United States,
including such support services as transfer agency and information
technology. One result of this integration will be that shares of the AIM
Funds and shares of the INVESCO Funds generally will be able to be
exchanged for shares of the same or a similar class of each other.
- Rationalizing and streamlining of the various AIM Funds and INVESCO
Funds. In that regard, AMVESCAP has undertaken an extensive review of
these funds and concluded that it would be appropriate to reduce the
number of smaller and less efficient funds that compete for limited
shareholder assets and to consolidate certain funds having similar
investment objectives and strategies. Reducing both the number of AIM
Funds and INVESCO Funds will allow AIM and INVESCO to concentrate on
managing their core products. The Reorganization is one of a number of
fund reorganizations proposed by AMVESCAP as a result of this review
process. AMVESCAP's belief is that the Reorganization will allow Buying
Fund the best available opportunities for investment management, growth
prospects and potential economies of scale. Proposal 1 relates to this
component of AMVESCAP's integration initiative.
- Rationalizing the contractual arrangements for the provision of
investment advisory and administrative services to the AIM Funds and the
INVESCO Funds. The objective of this component is to have AIM assume
primary responsibility for the investment advisory, administrative,
accounting and legal and compliance services for the INVESCO Funds. To
implement this component, each INVESCO Fund is seeking shareholder
approval to enter into a new investment advisory agreement with AIM.
These changes will simplify AMVESCAP's mutual fund operations in the
United States in that there will be a uniform arrangement for investment
management for both the AIM Funds and the INVESCO Funds. Proposals 3 and
4 relate to this component of AMVESCAP's integration initiative.
- Simplifying the organizational structure of the AIM Funds and the INVESCO
Funds so that they are all organized as Delaware statutory trusts, using
as few entities as practicable. To implement this component, each AIM
Fund and each INVESCO Fund that currently is organized as a Maryland
corporation is seeking shareholder approval to redomesticate as a new
Delaware statutory trust, which also should provide these Funds with
greater flexibility in conducting their business operations. In addition,
certain series portfolios of AIM Funds with few portfolios are seeking
shareholder approval to be restructured as new series portfolios of
existing AIM Funds that are organized as Delaware statutory trusts.
Proposal 5 relates to this component of AMVESCAP's integration
initiative.
In considering the integration initiative proposed by AMVESCAP, the
directors of the INVESCO Funds and the directors/trustees of the AIM Funds who
are not "interested persons" (as defined in the Investment Company Act of 1940
(the "1940 Act")) of the Funds or their advisors determined that the
shareholders of both the AIM Funds and the INVESCO Funds would benefit if one
set of directors/trustees was responsible for overseeing the operation of both
the AIM Funds and the INVESCO Funds and the services provided by AIM, INVESCO
and their affiliates. Accordingly, these
1
directors/trustees agreed to combine the separate boards and create a unified
board of directors/trustees. Proposal 2 relates to the election of directors of
your Fund.
You are being asked to approve Proposals 2 through 4 so that, in the event
that Proposal 1 is not approved, your Fund will still be able to take advantage
of these other benefits of AMVESCAP's integration initiative. If Proposal 1 is
approved but Proposal 5 is not approved, your Fund will be combined with Buying
Fund but will not be redomesticated as a new series portfolio of a Delaware
statutory trust. We will be unable to determine whether a particular Proposal
other than Proposal 1, if approved, should go forward until we have determined
whether Proposal 1 has been approved. Therefore, even if you vote in favor of
Proposal 1, it is still important that you vote on each remaining Proposal. For
information about the Special Meeting and voting on Proposals 1 through 5, see
"Information About the Special Meeting and Voting." For a description of the
vote necessary to approve each of Proposals 1 through 5, see "Information About
the Special Meeting and Voting -- Vote Necessary to Approve Each Proposal."
PROPOSAL 1 --
APPROVAL OF THE AGREEMENT
TO COMBINE YOUR FUND AND BUYING FUND
SUMMARY
The Board, including the independent directors, has determined that the
Reorganization is advisable and in the best interests of your Fund and that the
interests of the shareholders of your Fund will not be diluted as a result of
the Reorganization. The Board believes that a larger combined fund should be
more viable and have greater market presence and should have greater investment
leverage in that portfolio managers should have broader investment opportunities
and lower trading costs. The Board also believes that a larger combined fund
should result in greater operating efficiencies by providing economies of scale
to the combined fund in that certain fixed costs, such as legal, accounting,
shareholder services and director/trustee expenses, will be spread over the
greater assets of the combined fund. For additional information concerning the
factors the Board considered in approving the Agreement, see "Additional
Information About the Agreement -- Board Considerations."
The following summary discusses some of the key features of the
Reorganization and highlights certain differences between your Fund and Buying
Fund. This summary is not complete and does not contain all of the information
that you should consider before voting on whether to approve the Agreement. For
more complete information, please read this entire Proxy Statement/Prospectus.
THE REORGANIZATION
The Reorganization will result in the combination of your Fund with Buying
Fund. Your Fund is a series of Company, a Maryland corporation. Buying Fund is a
series of Buyer, a Delaware statutory trust. The Board of Trustees of Buyer is
soliciting the proxies of the shareholders of Buying Fund and Buyer's other
series portfolio to vote on an agreement and plan of reorganization to
restructure Buying Fund and such series portfolio as new series portfolios of
AIM Investment Securities Funds, an existing Delaware statutory trust. The
purpose of this restructuring is to simplify the organizational structure and
reduce the costs of the AIM Funds, as it will result in certain operational
efficiencies. If approved by Buyer's shareholders, the consummation of the
restructuring of Buying Fund and Buyer's other series portfolio as new series
portfolios of AIM Investment Securities Funds will occur after the consummation
of the Reorganization.
If shareholders of your Fund approve the Agreement and other closing
conditions are satisfied, all of the assets of your Fund will be transferred to
Buying Fund and Buying Fund will assume the liabilities of your Fund, and Buyer
will issue shares of each class of Buying Fund to shareholders of the
corresponding class of shares of your Fund, as set forth on Exhibit A. For a
description of certain of the closing conditions that must be satisfied, see
"Additional Information About the Agreement -- Other Terms."
2
The shares of Buying Fund issued in the Reorganization will have an
aggregate net asset value equal to the net value of the assets of your Fund
transferred to Buying Fund. The value of your account with Buying Fund
immediately after the Reorganization will be the same as the value of your
account with your Fund immediately prior to the Reorganization. A copy of the
Agreement is attached as Appendix I to this Proxy Statement/Prospectus. See
"Additional Information About the Agreement."
Company and Buyer will receive an opinion of Ballard Spahr Andrews &
Ingersoll, LLP to the effect that the Reorganization will constitute a tax-free
reorganization for Federal income tax purposes. Thus, shareholders will not have
to pay additional Federal income tax as a result of the Reorganization except to
the extent your Fund disposes of securities at a net gain in anticipation of the
Reorganization, which gain would be included in a taxable distribution. See
"Additional Information About the Agreement -- Federal Income Tax Consequences."
No sales charges will be imposed in connection with the Reorganization.
COMPARISON OF INVESTMENT OBJECTIVES AND PRINCIPAL STRATEGIES
Your Fund and Buying Fund pursue similar investment objectives and invest
in similar types of securities. As a result, the Reorganization is not expected
to cause significant portfolio turnover or transaction expenses from the sale of
securities that are incompatible with the investment objective of Buying Fund.
The investment objective or goal of your Fund is classified as fundamental,
which means that the Board cannot change it without shareholder approval. The
investment objective of Buying Fund is not classified as fundamental, which
means that the Board of Trustees of Buyer can change it without shareholder
approval. Having the ability to change the investment objective without
shareholder approval allows the Board of Trustees to respond more quickly and
efficiently to changing market conditions and to save Buying Fund and its
shareholders money by eliminating the need to solicit proxies to obtain
shareholder approval to change an investment objective to respond to changing
market conditions.
A description of the fundamental and non-fundamental restrictions and
policies applicable to your Fund and Buying Fund can be found in each Fund's
Statement of Additional Information. While your Fund and Buying Fund have
slightly different approaches to disclosing and characterizing these
restrictions and policies, in substance your Fund and Buying Fund operate under
the same general restrictions and are subject to the same general policies.
The chart below provides a summary for comparison purposes of the
investment objectives and principal investment strategies of your Fund and
Buying Fund. You can find more detailed information about the investment
objectives, strategies and other investment policies of your Fund and Buying
Fund in the Selling Fund Prospectus and the Buying Fund Prospectus,
respectively.
3
<Table>
<Caption>
INVESCO REAL ESTATE OPPORTUNITY FUND AIM REAL ESTATE FUND
(YOUR FUND) (BUYING FUND)
- --------------------------------------------- ---------------------------------------------
INVESTMENT OBJECTIVE
- - capital growth and income - high total return
INVESTMENT STRATEGIES
- - invests at least 80% of its assets in the - invests, normally, at least 80% of its
equity securities and equity-related assets in securities of real estate and
instruments of companies doing business in real-estate related companies. Securities
the real estate industry, including real that may be purchased include debt and
estate investment trusts ("REITs"), which equity securities, including convertible
invest in real estate or interests in real securities, and may also include synthetic
estate instruments such as warrants, futures,
options, exchange-traded funds and American
Depositary Receipts
- - a company is doing business in the real - a company is considered to be a real
estate industry if: estate-related company if at least 50% of
- - at least 50% of its gross income or its net its assets, gross income or net profits are
sales come from activities in the real attributable to ownership, construction,
estate sector; management or sale of residential,
- - at least 50% of its assets are devoted to commercial or industrial real estate (these
producing revenues from the sector; or companies include equity REITs that own
- - based on other available information, property and mortgage REITs that make
INVESCO determines that its primary short-term construction and development
business is within the sector. mortgage loans or that invest in long-term
mortgages or mortgage pools, or companies
Companies in which it invests may also whose products and services are related to
include real estate brokers, home builders the real estate industry, such as
or real estate developers, companies with manufacturers and distributors of building
substantial real estate holdings, and supplies and financial institutions that
companies with significant involvement in issue or services mortgages)
the real estate industry or other real
estate-related companies.
- - no one property type will represent more - no corresponding limitation
than 50% of its total assets
- - may invest 20% of its assets in securities - may invest in equity, debt or convertible
of companies not in the real estate securities of companies unrelated to the
industry real estate industry that the portfolio
managers believe are undervalued and have
potential for growth of capital, although
it will limit its investment in debt
securities to those that are
investment-grade or deemed by the fund's
portfolio manager to be of comparable
quality
- - may invest up to 25% of its assets in the - invests up to 25% of its total assets in
securities of non U.S. issuers. Securities foreign securities
of Canadian issuers and American Depositary
Receipts are not subject to this
limitation.
- - may be concentrated in a single industry - may be concentrated in a single industry
- - although not a principal investment - may participate in the initial public
strategy, may invest a portion of its offering (IPO) market in some market cycles
assets in securities of companies offering
shares in initial public offerings (IPOs)
</Table>
4
<Table>
<Caption>
INVESCO REAL ESTATE OPPORTUNITY FUND AIM REAL ESTATE FUND
(YOUR FUND) (BUYING FUND)
- --------------------------------------------- ---------------------------------------------
- - advisor uses a bottom-up investment - advisor uses fundamental real estate
approach to create the portfolio, focusing analysis and quantitative securities
on company fundamentals and growth analysis to select investments for Buying
prospects when selecting securities. Your Fund, including analyzing a company's
Fund emphasizes companies that INVESCO management and strategic focus, evaluating
believes are strongly managed and will the location, physical attributes and cash
generate above-average, long-term capital flow generating capacity of a company's
appreciation. properties and calculating expected
returns, among other things
- - INVESCO actively manages and trades your - does not normally engage in active and
Fund's portfolio frequent trading
</Table>
COMPARISON OF PRINCIPAL SERVICE PROVIDERS
The following is a list of the current principal service providers for your
Fund and Buying Fund.
<Table>
<Caption>
SERVICE PROVIDERS
--------------------------------------------------------------------------
INVESCO REAL ESTATE
OPPORTUNITY FUND AIM REAL ESTATE FUND
SERVICE (YOUR FUND) (BUYING FUND)
- ---------------------------- ----------------------------------- -----------------------------------
Investment Advisor INVESCO Funds Group, Inc.* A I M Advisors, Inc.
4350 South Monaco Street 11 Greenway Plaza, Suite 100
Denver, Colorado 80237 Houston, Texas 77046-1173
Sub-advisor None INVESCO Institutional (N.A.), Inc.
INVESCO Realty Advisors Division
One Lincoln Center
5400 LBJ Freeway/LB2, Suite 700
Dallas, Texas 75240
Distributor A I M Distributors, Inc.** A I M Distributors, Inc.
11 Greenway Plaza, Suite 100 11 Greenway Plaza, Suite 100
Houston, Texas 77046-1173 Houston, Texas 77046-1173
Administrator INVESCO Funds Group, Inc.*** A I M Advisors, Inc.
4350 South Monaco Street 11 Greenway Plaza, Suite 100
Denver, Colorado 80237 Houston, Texas 77046-1173
Custodian State Street Bank and Trust Company State Street Bank and Trust Company
Transfer Agent and INVESCO Funds Group, Inc.**** A I M Fund Services, Inc.
Dividend Disbursing Agent
Independent Auditors PricewaterhouseCoopers LLP Ernst & Young LLP
</Table>
- ---------------
* If Proposal 3 is approved by shareholders of your Fund and Proposal 1 is
not, AIM will replace INVESCO as investment advisor for your Fund effective
November 5, 2003.
** A I M Distributors, Inc. replaced INVESCO Distributors, Inc. as distributor
of your Fund effective July 1, 2003.
*** If Proposal 3 is approved by shareholders of your Fund and Proposal 1 is
not, AIM will replace INVESCO as administrator for your Fund effective
November 5, 2003.
**** A I M Fund Services, Inc. will replace INVESCO as transfer agent and
dividend disbursing agent for your Fund on or about October 1, 2003.
COMPARISON OF PERFORMANCE
A bar chart showing the annual total returns for calendar years ended
December 31 for Investor Class shares of your Fund and Class C shares of Buying
Fund can be found at Exhibit B. Also included as part of Exhibit B is a table
showing the average annual total returns for the periods indicated for your Fund
and Buying Fund, including sales charges. For more information regarding the
total return of your Fund, see the "Financial Highlights" section of the Selling
Fund Prospectus, which has been made a part of this Proxy Statement/Prospectus
by reference. For more information regarding the total return of Buying Fund,
5
see "Information About Buying Fund -- Financial Highlights." Past performance
cannot guarantee comparable future results.
COMPARISON OF FEES AND EXPENSES
A comparison of shareholder fees and annual operating expenses of each
class of shares of your Fund, as of March 31, 2003, and Buying Fund, as of July
31, 2002, expressed as a percentage of net assets ("Expense Ratio"), can be
found at Exhibit C. Pro forma estimated Expense Ratios for each class of shares
of Buying Fund after giving effect to the Reorganization are also provided as of
July 31, 2002 as part of Exhibit C.
COMPARISON OF MULTIPLE CLASS STRUCTURES
A comparison of the share classes of your Fund that are available to
investors and the corresponding share classes of Buying Fund that shareholders
of your Fund will receive in the Reorganization can be found as Exhibit A. For
information regarding the features of the various share classes of your Fund and
Buying Fund, see the Selling Fund Prospectus and the Buying Fund Prospectus,
respectively.
COMPARISON OF SALES CHARGES
No initial sales charges are applicable to shares of Buying Fund received
by holders of your Fund's shares in connection with the Reorganization. No
redemption of your Fund's shares that could cause the imposition of a contingent
deferred sales charge ("CDSC") will result in connection with the
Reorganization. The holding period for purposes of determining whether to charge
a CDSC upon redemptions of shares of Buying Fund received by holders of your
Fund's shares in connection with the Reorganization will begin at the time your
Fund's shares were originally purchased.
The chart below provides a summary for comparison purposes of the initial
sales charges and CDSCs applicable to each class of shares of your Fund and
Buying Fund. The fee tables at Exhibit C include comparative information about
maximum initial sales charges on purchases of Class A shares of your Fund and
Buying Fund and the maximum CDSC on redemptions of certain classes of shares of
your Fund and Buying Fund. For more detailed information on initial sales
charges, including volume purchase breakpoints and waivers, and reductions of
CDSCs over time, see the Selling Fund Prospectus and the Buying Fund Prospectus.
<Table>
<Caption>
CLASS A CLASS B CLASS C INVESTOR CLASS
- ---------------------- ---------------------- ---------------------- ----------------------
- - subject to an - not subject to an - not subject to an - not subject to an
initial sales initial sales charge initial sales charge initial sales charge
charge*
- - may be subject to a - subject to a CDSC on - subject to a CDSC on - not subject to a
CDSC on redemptions certain redemptions certain redemptions CDSC
made within 18 made within 6 years made within 12
months from the date from the date of months from the date
of certain large purchase of purchase***
purchases**
</Table>
- ---------------
* Both your Fund and Buying Fund waive initial sales charges on Class A shares
for certain categories of investors, including certain of their affiliated
entities and certain of their employees, officers and directors/trustees and
those of their investment advisor.
** For qualified plans investing in Class A shares of your Fund, this period is
12 months rather than 18 months.
*** Prior to August 18, 2003, Class C shares of your Fund are subject to a CDSC
on certain redemptions made within 13 months from the date of purchase. This
13 month period changes to 12 months effective August 18, 2003.
The CDSC on redemptions of shares of Buying Fund is computed based on the
lower of their original purchase price or current market value. Prior to August
18, 2003, the CDSC on redemptions of shares of
6
your Fund is computed based on their original purchase price. This method of
computation changes to conform to Buying Fund's method of computation effective
August 18, 2003.
COMPARISON OF DISTRIBUTION, PURCHASE AND REDEMPTION PROCEDURES AND EXCHANGE
RIGHTS
Shares of your Fund and Buying Fund are distributed by A I M Distributors,
Inc. ("AIM Distributors"), a registered broker-dealer and wholly owned
subsidiary of AIM. AIM Distributors replaced INVESCO Distributors, Inc. as
distributor of your Fund effective July 1, 2003.
Both your Fund and Buying Fund have adopted a distribution plan that allows
the payment of distribution and service fees for the sale and distribution of
the shares of each of their respective classes. Both your Fund and Buying Fund
have engaged AIM Distributors to provide such services either directly or
through third parties The fee tables at Exhibit C include comparative
information about the distribution and service fees payable by each class of
shares of your Fund and Buying Fund. Overall, each class of shares of Buying
Fund has the same or lower aggregate distribution and service fees as the
corresponding class of shares of your Fund.
Although there are differences in the purchase, redemption and exchange
procedures of your Fund and Buying Fund as of the date of this Proxy
Statement/Prospectus, it is currently anticipated that the purchase, redemption
and exchange procedures of your Fund and/or Buying Fund will be changed so that
they are substantially the same prior to the consummation of the Reorganization.
For information regarding the current purchase, redemption and exchange
procedures of your Fund and Buying Fund, see the Selling Fund Prospectus and the
Buying Fund Prospectus, respectively.
As of the date of this Proxy Statement/Prospectus, shares of your Fund
generally may be exchanged for shares of the same or a similar class of funds
within the INVESCO Family of Funds and shares of Buying Fund generally may be
exchanged for shares of the same or a similar class of funds within The AIM
Family of Funds(R). It is currently anticipated that, prior to the consummation
of the Reorganization, shares of The AIM Family of Funds(R) and shares of the
INVESCO Family of Funds generally will be able to be exchanged for shares of the
same or a similar class of each other. If this exchangeability feature is not
offered to shareholders prior to the consummation of the Reorganization, the
consummation of the Reorganization will be delayed until such time as it is
offered. See "Additional Information About the Agreement - The Reorganization."
For more detailed information regarding the current exchange rights of your Fund
and Buying Fund, see the Selling Fund Prospectus and the Buying Fund Prospectus,
respectively.
THE BOARD'S RECOMMENDATION ON PROPOSAL 1
Your Board, including the independent directors, unanimously recommends
that you vote "FOR" this Proposal.
RISK FACTORS
RISKS ASSOCIATED WITH BUYING FUND
The following is a discussion of the principal risks associated with Buying
Fund.
There is a risk that you could lose all or a portion of your investment in
Buying Fund and that the income you may receive from your investment may vary.
The value of your investment in Buying Fund will go up and down with the prices
of the securities in which Buying Fund invests. The prices of equity securities
change in response to many factors, including the historical and prospective
earnings of the issuer, the value of its assets, general economic conditions,
interest rates, investor perceptions and market liquidity. Debt securities are
particularly vulnerable to credit risk and interest rate fluctuations. Interest
rate increases can cause the price of a debt security to decrease. The longer a
debt security's duration, the more sensitive it is to this risk. The issuer of a
debt security may default or otherwise be unable to honor a financial
obligation.
7
Foreign securities have additional risks, including exchange rate changes,
political and economic upheaval, the relative lack of information about foreign
companies, relatively low market liquidity and the potential lack of strict
financial and accounting controls and standards.
Buying Fund could conceivably hold real estate directly if a company
defaults on debt securities Buying Fund owns. In that event, an investment in
Buying Fund may have additional risks relating to direct ownership in real
estate, including difficulties in valuing and trading real estate, declines in
value of the properties, risk relating to general and local economic conditions,
changes in the climate for real estate, increases in taxes, expenses and costs,
changes in laws, casualty and condemnation losses, rent control limitations and
increases in interest rates.
The value of Buying Fund's investment in REITs is affected by the factors
listed above, as well as the management skill of the persons managing the REIT.
Since REITs have expenses of their own, you will bear a proportionate share of
those expenses in addition to those of Buying Fund. Because Buying Fund focuses
its investments in REITs and other companies related to the real estate
industry, the value of your shares may rise and fall more than the value of
shares of a fund that invests in a broader range of companies.
Buying Fund may participate in the initial public offering (IPO) market in
some market cycles. Because of Buying Fund's small asset base, any investment
Buying Fund may make in IPOs may significantly affect Buying Fund's total
return. As Buying Fund's assets grow, the impact of IPO investments will
decline, which may reduce the effect of IPO investments on Buying Fund's total
return.
An investment in Buying Fund is not a deposit in a bank and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
COMPARISON OF RISKS OF BUYING FUND AND YOUR FUND
Because of the similarities in their investment objectives and strategies,
your Fund and Buying Fund are subject to similar investment risks. The following
is a brief discussion of the comparative risks associated with your Fund and
Buying Fund. You can find more detailed descriptions of specific risks
associated with your Fund in the Selling Fund Prospectus.
Buying Fund may invest to a greater extent in debt securities. Debt
securities are particularly vulnerable to credit risk and interest rate
fluctuations. Interest rate increases can cause the price of debt security to
decrease. This will expose Buying Fund to greater risk of volatility in the
value of its assets should interest rates fluctuate. Buying Fund does not limit
the percentage of its assets that may be invested in any one property type, as
does your Fund. Concentration of assets in a particular property type could
expose Buying Fund to additional risks associated with that property type.
Active trading of your Fund's securities may increase short-term gains and
losses, which may affect the taxes you have to pay. If your Fund engages in
active trading in portfolio securities, it may incur increased transaction
costs, which can lower the actual return on your investment.
Your Fund may also focus its investments in one or more sectors, resulting
in the risk that a certain sector may underperform other sectors or the market
as a whole. If the portfolio managers allocate more of your Fund's portfolio
holdings to a particular economic sector, as compared to Buying Fund, your
Fund's overall performance will be more susceptible to the economic, business,
or other developments which generally affect that sector.
Buying Fund may participate in the IPO market in some market cycles, while
your Fund generally will not purchase IPOs as part of its principal investment
strategy and therefore is generally not subject to the risks associated with
IPOs.
8
INFORMATION ABOUT BUYING FUND
DESCRIPTION OF BUYING FUND SHARES
Shares of Buying Fund are redeemable at their net asset value (subject, in
certain circumstances, to a contingent deferred sales charge) at the option of
the shareholder or at the option of Buyer in certain circumstances. Each share
of Buying Fund represents an equal proportionate interest in Buying Fund with
each other share and is entitled to such dividends and distributions out of the
income belonging to Buying Fund as are declared by the Board of Trustees of
Buying Fund. Each share of Buying Fund generally has the same voting, dividend,
liquidation and other rights; however, each class of shares of Buying Fund is
subject to different sales loads, conversion features, exchange privileges and
class-specific expenses. When issued, shares of Buying Fund are fully paid and
nonassessable, have no preemptive or subscription rights, and are freely
transferable. Other than the automatic conversion of Class B shares to Class A
shares, there are no conversion rights.
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
A discussion of the performance of Buying Fund taken from its annual report
to shareholders for the fiscal year ended July 31, 2003 is set forth in Appendix
III to this Proxy Statement/Prospectus.
FINANCIAL HIGHLIGHTS
For more information about Buying Fund's financial performance, see the
"Financial Highlights" section of the Buying Fund Prospectus, which is attached
to this Proxy Statement/Prospectus as Appendix II.
ADDITIONAL INFORMATION ABOUT THE AGREEMENT
TERMS OF THE REORGANIZATION
The terms and conditions under which the Reorganization may be consummated
are set forth in the Agreement. Significant provisions of the Agreement are
summarized below; however, this summary is qualified in its entirety by
reference to the Agreement, a copy of which is attached as Appendix I to this
Proxy Statement/Prospectus.
THE REORGANIZATION
Consummation of the Reorganization (the "Closing") is expected to occur on
November 3, 2003, at 8:00 a.m., Eastern Time (the "Effective Time") on the basis
of values calculated as of the close of regular trading on the New York Stock
Exchange on October 31, 2003 (the "Valuation Date"). At the Effective Time, all
of the assets of your Fund will be delivered to Buyer's custodian for the
account of Buying Fund in exchange for the assumption by Buying Fund of the
liabilities of your Fund and delivery by Buyer directly to the holders of record
as of the Effective Time of the issued and outstanding shares of each class of
your Fund of a number of shares of each corresponding class of Buying Fund
(including, if applicable, fractional shares rounded to the nearest thousandth),
having an aggregate net asset value equal to the value of the net assets of your
Fund so transferred, assigned and delivered, all determined and adjusted as
provided in the Agreement. Upon delivery of such assets, Buying Fund will
receive good and marketable title to such assets free and clear of all liens.
In order to ensure continued qualification of your Fund for treatment as a
"regulated investment company" for tax purposes and to eliminate any tax
liability of your Fund arising by reason of undistributed investment company
taxable income or net capital gain, Company will declare on or prior to the
Valuation Date to the shareholders of your Fund a dividend or dividends that,
together with all previous such dividends, shall have the effect of distributing
(a) all of your Fund's investment company taxable income (determined without
regard to any deductions for dividends paid) for the taxable year
9
ended March 31, 2003 and for the short taxable year beginning on April 1, 2003
and ending on the Closing and (b) all of your Fund's net capital gain recognized
in its taxable year ended March 31, 2003 and in such short taxable year (after
reduction for any capital loss carryover).
Buying Fund will proceed with the Reorganization if the shareholders of
your Fund approve the Agreement.
It is anticipated that, prior to the Closing, shares of The AIM Family of
Funds(R) and shares of the INVESCO Family of Funds generally will be able to be
exchanged for shares of the same or a similar class of each other. If this
exchangeability feature is not offered to shareholders prior to the Closing, the
Closing will be postponed until a mutually acceptable date not later than
December 31, 2003 (the "Termination Date").
Following receipt of the requisite shareholder vote and as soon as
reasonably practicable after the Closing, Company will redeem the outstanding
shares of your Fund from shareholders in accordance with its Charter and the
Maryland General Corporation Law.
BOARD CONSIDERATIONS
AMVESCAP initially proposed that the Board consider the Reorganization at a
telephone meeting of the Board held on May 5, 2003. Preliminary discussions of
the Reorganization took place at the May 5, 2003 telephone meeting and at an
in-person meeting of the Board held on May 13-15, 2003. A special task force of
the Board met to consider the Reorganization on June 3, 2003. The Board
determined that the Reorganization is advisable and in the best interests of
your Fund and will not dilute the interests of your Fund's shareholders, and
approved the Agreement and the Reorganization, at an in-person meeting of the
Board held on June 9, 2003.
Over the course of the three Board meetings, the Board received from AIM
and INVESCO written materials that contained information concerning your Fund
and Buying Fund, including comparative total return and fee and expense
information, a comparison of investment objectives and strategies of your Fund
and Buying Fund and pro forma expense ratios for Buying Fund. AIM and INVESCO
also provided the Board with written materials concerning the structure of the
proposed Reorganization and the Federal tax consequences of the Reorganization.
In evaluating the Reorganization, the Board considered a number of factors,
including:
- The investment objective and principal investment strategies of your Fund
and Buying Fund.
- The comparative expenses of your Fund and Buying Fund and the pro forma
expenses of Buying Fund after giving effect to the Reorganization.
- The comparative performance of your Fund and Buying Fund.
- The comparative sizes of your Fund and Buying Fund.
- The consequences of the Reorganization for Federal income tax purposes,
including the treatment of capital loss carryforwards, if any, available
to offset future capital gains of both your Fund and Buying Fund.
- Any fees and expenses that will be borne directly or indirectly by your
Fund or Buying Fund in connection with the Reorganization.
The Board noted that AMVESCAP, on behalf of INVESCO, will bear the costs
and expenses incurred in connection with the Reorganization.
The Board also noted that no sales charges or other charges would be
imposed on any of the shares of Buying Fund issued to the shareholders of your
Fund in connection with the Reorganization.
Based on the foregoing and the information presented at the three Board
meetings discussed above, the Board determined that the Reorganization is
advisable and in the best interests of your Fund and will
10
not dilute the interests of your Fund's shareholders. Therefore, the Board
recommends the approval of the Agreement by the shareholders of your Fund at the
Special Meeting.
AMVESCAP initially proposed that the Board of Trustees of Buyer consider
the Reorganization at an in-person meeting of the Board of Trustees held on May
13-14, 2003, at which preliminary discussions of the Reorganization took place.
The Board of Trustees of Buyer determined that the Reorganization is in the best
interests of Buying Fund and will not dilute the interests of Buying Fund
shareholders, and approved the Agreement and the Reorganization, at an in-person
meeting of the Board of Trustees held on June 10-11, 2003.
OTHER TERMS
If any amendment is made to the Agreement which would have a material
adverse effect on shareholders, such change will be submitted to the affected
shareholders for their approval. However, the Agreement may be amended without
shareholder approval by mutual agreement of the parties.
Company and Buyer have made representations and warranties in the Agreement
that are customary in matters such as the Reorganization. The obligations of
Company and Buyer pursuant to the Agreement are subject to various conditions,
including the following mutual conditions:
- the assets of your Fund to be acquired by Buying Fund shall constitute at
least 90% of the fair market value of the net assets and at least 70% of
the fair market value of the gross assets held by your Fund immediately
prior to the Reorganization;
- Buyer's Registration Statement on Form N-14 under the Securities Act of
1933 (the "1933 Act") shall have been filed with the SEC and such
Registration Statement shall have become effective, and no stop-order
suspending the effectiveness of the Registration Statement shall have
been issued, and no proceeding for that purpose shall have been initiated
or threatened by the SEC (and not withdrawn or terminated);
- the shareholders of your Fund shall have approved the Agreement; and
- Company and Buyer shall have received an opinion from Ballard Spahr
Andrews & Ingersoll, LLP that the consummation of the transactions
contemplated by the Agreement will not result in the recognition of gain
or loss for Federal income tax purposes for your Fund, Buying Fund or
their shareholders.
The Board of Directors of Company and the Board of Trustees of Buyer may
waive without shareholder approval any default by Company or Buyer or any
failure by Company or Buyer to satisfy any of the above conditions as long as
such a waiver is mutual and will not have a material adverse effect on the
benefits intended under the Agreement for the shareholders of your Fund. The
Agreement may be terminated and the Reorganization may be abandoned at any time
by mutual agreement of the parties, or by either party if the shareholders of
your Fund do not approve the Agreement or if the Closing does not occur on or
before the Termination Date.
FEDERAL INCOME TAX CONSEQUENCES
The following is a general summary of the material Federal income tax
consequences of the Reorganization and is based upon the current provisions of
the Internal Revenue Code of 1986, as amended (the "Code"), the existing U.S.
Treasury regulations thereunder, current administrative rulings of the Internal
Revenue Service ("IRS") and published judicial decisions, all of which are
subject to change. The principal Federal income tax consequences that are
expected to result from the Reorganization, under currently applicable law, are
as follows:
- the Reorganization will qualify as a "reorganization" within the meaning
of Section 368(a) of the Code;
11
- no gain or loss will be recognized by your Fund upon the transfer of its
assets to Buying Fund solely in exchange for shares of Buying Fund and
Buying Fund's assumption of the liabilities of your Fund or on the
distribution of those shares to your Fund's shareholders; notwithstanding
the foregoing, no conclusion is expressed as to the effect of the
Reorganization on your Fund or any shareholder of your Fund with respect
to any asset as to which any unrealized gain or loss is required to be
recognized for Federal income tax purposes at the end of a taxable year
(or on the termination or transfer of a taxpayer's rights (or
obligations) with respect to such asset) under a mark-to-market system of
accounting;
- no gain or loss will be recognized by Buying Fund on its receipt of
assets of your Fund in exchange for shares of Buying Fund issued directly
to your Fund's shareholders;
- no gain or loss will be recognized by any shareholder of your Fund upon
the exchange of shares of your Fund for shares of Buying Fund;
- the tax basis of the shares of Buying Fund to be received by a
shareholder of your Fund will be the same as the shareholder's tax basis
of the shares of your Fund surrendered in exchange therefor;
- the holding period of the shares of Buying Fund to be received by a
shareholder of your Fund will include the period for which such
shareholder held the shares of your Fund exchanged therefor, provided
that such shares of your Fund are capital assets in the hands of such
shareholder as of the Closing; and
- the tax year of your Fund will end on the date of the Closing, and Buying
Fund will thereafter succeed to and take into account any capital loss
carryover and certain other tax attributes of your Fund, subject to all
relevant conditions and limitations on the use of such tax benefits.
Neither Company nor Buyer has requested or will request an advance ruling
from the IRS as to the Federal tax consequences of the Reorganization. As a
condition to Closing, Ballard Spahr Andrews & Ingersoll, LLP will render a
favorable opinion to Company and Buyer as to the foregoing Federal income tax
consequences of the Reorganization, which opinion will be conditioned upon,
among other things, the accuracy, as of the Effective Time, of certain
representations of Company and Buyer upon which Ballard Spahr Andrews &
Ingersoll, LLP will rely in rendering its opinion. The conclusions reached in
that opinion could be jeopardized if the representations of Company or Buyer are
incorrect in any material respect.
THE FOREGOING DESCRIPTION OF THE FEDERAL INCOME TAX CONSEQUENCES OF THE
REORGANIZATION IS MADE WITHOUT REGARD TO THE PARTICULAR FACTS AND CIRCUMSTANCES
OF ANY SHAREHOLDER OF YOUR FUND. YOUR FUND'S SHAREHOLDERS ARE URGED TO CONSULT
THEIR OWN TAX ADVISORS AS TO THE SPECIFIC CONSEQUENCES TO THEM OF THE
REORGANIZATION, INCLUDING THE APPLICABILITY AND EFFECT OF STATE, LOCAL, FOREIGN
AND OTHER TAX LAWS.
ACCOUNTING TREATMENT
The Reorganization will be accounted for on a tax-free combined basis.
Accordingly, the book cost basis to Buying Fund of the assets of your Fund will
be the same as the book cost basis of such assets to your Fund.
RIGHTS OF SHAREHOLDERS
GENERAL
Company is a Maryland corporation. Buyer is a Delaware statutory trust.
There is much that is similar between Maryland corporations and Delaware
statutory trusts. For example, the responsibilities, powers and fiduciary duties
of the directors of Company are substantially similar to those of the trustees
of Buyer.
There are, however, certain differences between the two forms of
organization. The operations of Company, as a Maryland corporation, are governed
by its Articles of Incorporation, and any restatements,
12
amendments and supplements thereto (the "Articles of Incorporation"), and
applicable Maryland law. The operations of Buyer, as a Delaware statutory trust,
are governed by its Amended and Restated Agreement and Declaration of Trust, as
amended (the "Declaration of Trust"), and applicable Delaware law.
LIABILITY OF SHAREHOLDERS
Shareholders of a Maryland corporation generally do not have personal
liability for the corporation's obligations, except that a shareholder may be
liable to the extent that he or she receives any distribution which exceeds the
amount which he or she could properly receive under Maryland law or where such
liability is necessary to prevent fraud.
The Delaware Statutory Trust Act provides that shareholders of a Delaware
statutory trust shall be entitled to the same limitations of liability extended
to shareholders of private for-profit corporations. There is, however, a remote
possibility that, under certain circumstances, shareholders of a Delaware
statutory trust might be held personally liable for the trust's obligations to
the extent the courts of another state that does not recognize such limited
liability were to apply the laws of such state to a controversy involving such
obligations. The Declaration of Trust provides that shareholders of the Trust
shall not be subject to any personal liability for acts or obligations of the
Trust and that every written agreement, obligation or other undertaking made or
issued by the Trust shall contain a provision to the effect that shareholders
are not personally liable thereunder. In addition, the Declaration of Trust
provides for indemnification out of the Trust's property for any shareholder
held personally liable solely by reason of his or her being or having been a
shareholder. Therefore, the risk of any shareholder incurring financial loss
beyond his or her investment due to shareholder liability is limited to
circumstances in which the Trust itself is unable to meet its obligations and
the express disclaimer of shareholder liabilities is determined not to be
effective. Given the nature of the assets and operations of the Trust, the
possibility of the Trust being unable to meet its obligations is considered
remote, and even if a claim were brought against the Trust and a court
determined that shareholders were personally liable, it would likely not impose
a material obligation on a shareholder.
ELECTION OF DIRECTORS/TRUSTEES; TERMS
The shareholders of Company have elected a majority of the directors of
Company. Each director serves until a successor is elected, subject to his or
her earlier death, resignation or removal in the manner provided by law (see
below). In the case of a vacancy on the Board of Directors (other than a vacancy
created by removal by the shareholders), a majority of the directors may appoint
a successor to fill such vacancy. The right of the Board of Directors to appoint
directors to fill vacancies without shareholder approval is subject to the
provisions of the 1940 Act.
The shareholders of Buyer have elected a majority of the trustees of Buyer.
Such trustees serve for the life of Buyer, subject to their earlier death,
incapacitation, resignation, retirement or removal (see below). In the case of
any vacancy on the Board of Trustees, a majority of the trustees may appoint a
successor to fill such vacancy. The right of the Board of Trustees to appoint
trustees to fill vacancies without shareholder approval is subject to the
provisions of the 1940 Act.
REMOVAL OF DIRECTORS/TRUSTEES
A director of Company may be removed by the affirmative vote of a majority
of the holders of a majority of the outstanding shares of Company.
A trustee of Buyer may be removed at any time by a written instrument
signed by at least two-thirds of the trustees or by vote of two-thirds of the
outstanding shares of Buyer.
MEETINGS OF SHAREHOLDERS
Company is not required to hold annual meetings of shareholders and does
not intend to do so unless required by the 1940 Act. The bylaws of Company
provide that a special meeting of shareholders may be
13
called by the president or, in his or her absence, the vice-president or by a
majority of the Board of Directors or holders of shares entitled to cast at
least 10% of the votes entitled to be cast at the special meeting. Requests for
special meetings must, among other things, state the purpose of such meeting and
the matters to be voted upon. No special meeting need be called to consider any
matter previously voted upon at a special meeting called by the shareholders
during the preceding twelve months, unless requested by a majority of all shares
entitled to vote at such meeting.
Buyer is not required to hold annual meetings of shareholders unless
required by the 1940 Act and does not intend to do so. The bylaws of Buyer
provide that any trustee may call a special meeting of shareholders and the
trustees shall call a special meeting of the shareholders solely for the purpose
of removing one or more trustees upon written request of the holders of not less
than 10% of the outstanding shares of Buyer. Special meetings may be called for
the purpose of electing trustees or for any other action requiring shareholder
approval, or for any matter deemed by the trustees to be necessary or desirable.
LIABILITY OF DIRECTORS/TRUSTEES AND OFFICERS; INDEMNIFICATION
Maryland law permits a corporation to eliminate liability of its directors
and officers to the corporation or its stockholders, except for liability
arising from receipt of an improper benefit or profit and from active and
deliberate dishonesty. The Articles of Incorporation eliminate director and
officer liability to the fullest extent permitted under Maryland law. Under
Maryland law, indemnification of a corporation's directors and officers is
mandatory if a director or officer has been successful on the merits or
otherwise in the defense of certain proceedings. Maryland law permits
indemnification for other matters unless it is established that the act or
omission giving rise to the proceeding was committed in bad faith, a result of
active and deliberate dishonesty, or one in which a director or officer actually
received an improper benefit.
Delaware law provides that trustees of a statutory trust shall not be
liable to the statutory trust or its shareholders for acting in good faith
reliance on the provisions of its governing instrument and that the trustee's
liabilities may be expanded or restricted by such instrument. Under the
Declaration of Trust, the trustees and officers of Buyer are not liable for any
act or omission or any conduct whatsoever in their capacity as trustees, except
for liability to the trust or shareholders due to willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of the office of trustee. Delaware law allows a statutory trust to
indemnify and hold harmless any trustee or other person against any and all
claims and demands. The Declaration of Trust provides for the indemnification of
its trustees and officers to the extent that such trustees and officers act in
good faith and reasonably believe that their conduct is in the best interests of
Buyer, except with respect to any matter in which it has been determined that
such trustee acted with willful misfeasance, bad faith, gross negligence or
reckless disregard of his or her duties.
DISSOLUTION AND TERMINATION
Maryland law provides that Company may be dissolved by the vote of a
majority of the Board of Directors and two-thirds of the shares entitled to vote
on the dissolution; however the Articles of Incorporation reduce the required
shareholder vote from two-thirds to a majority of the shares entitled to vote on
the dissolution.
Pursuant to the Declaration of Trust, Buyer or any series or class of
shares of beneficial interest in Buyer may be terminated by: (1) a majority
shareholder vote of Buyer or the affected series or class, respectively; or (2)
if there are fewer than 100 shareholders of record of Buyer or of such
terminating series or class, the trustees pursuant to written notice to the
shareholders of Buyer or the affected series or class.
VOTING RIGHTS OF SHAREHOLDERS
Shareholders of a Maryland corporation such as Company are entitled to vote
on, among other things, those matters which effect fundamental changes in the
corporate structure (such as a merger, consolidation or sale of substantially
all of the assets of the corporation) as provided by Maryland law.
14
The Declaration of Trust grants shareholders power to vote only with
respect to the following: (i) election of trustees, provided that a meeting of
shareholders has been called for that purpose; (ii) removal of trustees,
provided that a meeting of shareholders has been called for that purpose; (iii)
termination of Buyer or a series or class of its shares of beneficial interest,
provided that a meeting of shareholders has been called for that purpose; (iv)
sale of all or substantially all of the assets of Buyer or one of its investment
portfolios; (v) merger or consolidation of Buyer or any of its investment
portfolios, with certain exceptions; (vi) approval of any amendments to
shareholders' voting rights under the Declaration of Trust; and (vii) approval
of such additional matters as may be required by law or as the trustees, in
their sole discretion, shall determine.
DISSENTERS' RIGHTS
Under Maryland law, shareholders may not demand the fair value of their
shares from the successor company in a transaction involving the transfer of the
corporation's assets and are, therefore, bound by the terms of the transaction
if the stock is that of an open-end investment company registered with the SEC
under the 1940 Act and the value placed on the stock in the transaction is its
net asset value.
Neither Delaware law nor the Declaration of Trust confers upon shareholders
rights of appraisal or dissenters' rights.
AMENDMENTS TO ORGANIZATION DOCUMENTS
Consistent with Maryland law, Company reserves the right to amend, alter,
change or repeal any provision contained in the Articles of Incorporation in the
manner prescribed by statute, including any amendment that alters the contract
rights, as expressly set forth in the Articles of Incorporation, of any
outstanding stock, and all rights conferred on shareholders are granted subject
to this reservation. The Board of Directors of Company may approve amendments to
the Articles of Incorporation to classify or reclassify unissued shares of a
class of stock without shareholder approval. Other amendments to the Articles of
Incorporation may be adopted if approved by the affirmative vote of a majority
of all the votes entitled to be cast on the matter. The directors shall have the
power to alter, amend or repeal the bylaws of Company or adopt new bylaws at any
time.
Consistent with Delaware law, the Board of Trustees of Buyer may, without
shareholder approval, amend the Declaration of Trust at any time, except to
eliminate any voting rights pertaining to the shares of Buyer, without approval
of the majority of the shares of Buyer. The trustees shall have the power to
alter, amend or repeal the bylaws of Buyer or adopt new bylaws at any time.
15
CAPITALIZATION
The following table sets forth, as of March 31, 2003, (i) the
capitalization of each class of shares of your Fund, (ii) the capitalization of
each class of shares of Buying Fund, and (iii) the pro forma capitalization of
each class of shares of Buying Fund as adjusted to give effect to the
transactions contemplated by the Agreement.
<Table>
<Caption>
PRO FORMA
YOUR FUND BUYING FUND BUYING FUND
CLASS A SHARES CLASS A SHARES CLASS A SHARES
-------------- -------------- --------------
Net Assets................................. $2,408,956 $117,978,949 $120,387,905
Shares Outstanding......................... 323,993 7,871,480 8,032,288
Net Asset Value Per Share.................. $ 7.44 $ 14.99 $ 14.99
</Table>
<Table>
<Caption>
PRO FORMA
YOUR FUND BUYING FUND BUYING FUND
CLASS B SHARES CLASS B SHARES CLASS B SHARES
-------------- -------------- --------------
Net Assets.................................. $133,153 $94,111,996 $94,245,149
Shares Outstanding.......................... 17,952 6,258,270 6,267,127
Net Asset Value Per Share................... $ 7.42 $ 15.04 $ 15.04
</Table>
<Table>
<Caption>
PRO FORMA
YOUR FUND BUYING FUND BUYING FUND
CLASS C SHARES CLASS C SHARES CLASS C SHARES
-------------- -------------- --------------
Net Assets.................................. $837,551 $50,323,175 $51,160,726
Shares Outstanding.......................... 108,403 3,352,539 3,408,365
Net Asset Value Per Share................... $ 7.73 $ 15.01 $ 15.01
</Table>
<Table>
<Caption>
PRO FORMA
YOUR FUND BUYING FUND BUYING FUND
INVESTOR INVESTOR INVESTOR
CLASS SHARES CLASS SHARES(1) CLASS SHARES
------------ --------------- ------------
Net Assets.................................. $20,922,661 0 $20,922,661
Shares Outstanding.......................... 2,778,366 0 1,395,670
Net Asset Value Per Share................... $ 7.53 $14.99 $ 14.99
</Table>
- ---------------
(1) As of March 31, 2003, Investor Class shares of Buying Fund did not exist.
Investor Class shares were added to Buying Fund in connection with the
Reorganization. Investor Class shares of Buying Fund will commence
operations at the net asset value per share of Buying Fund's Class A shares.
Therefore, the Net Asset Value Per Share shown for Investor Class shares of
Buying Fund in the table above is that of Buying Fund's Class A shares.
INTERESTS OF CERTAIN PERSONS
If the Reorganization is consummated, AIM, as the investment advisor of
Buying Fund, will gain approximately $24 million in additional assets under
management (based on your Fund's net assets as of March 31, 2003), upon which
AIM will receive advisory fees. Exhibit C sets forth AIM's advisory fees
applicable to Buying Fund.
LEGAL MATTERS
Certain legal matters concerning the tax consequences of the Reorganization
will be passed upon by Ballard Spahr Andrews & Ingersoll, LLP, 1735 Market
Street, Philadelphia, PA 19103-7599.
16
ADDITIONAL INFORMATION ABOUT BUYING FUND AND YOUR FUND
For more information with respect to Buying Fund concerning the following
topics, please refer to the following sections of the Buying Fund Prospectus,
which has been made a part of this Proxy Statement/ Prospectus by reference and
which is attached to this Proxy Statement/Prospectus as Appendix II: (i) see
"Performance Information" for more information about the performance of Buying
Fund; (ii) see "Fund Management" for more information about the management of
Buying Fund; (iii) see "Other Information" for more information about Buying
Fund's policy with respect to dividends and distributions; and (iv) see "Other
Information" and "Shareholder Information" for more information about sales
charges, including contingent deferred sales charges, applicable to shares of
Buying Fund, the pricing, purchase, redemption and repurchase of shares of
Buying Fund, tax consequences to shareholders of various transactions in shares
of Buying Fund, distribution arrangements and the multiple class structure of
Buying Fund.
For more information with respect to your Fund concerning the following
topics, please refer to the following sections of the Selling Fund Prospectus,
which has been made a part of this Proxy Statement/ Prospectus by reference: (i)
see "Fund Performance" for more information about the performance of your Fund;
(ii) see "Fund Management" and "Portfolio Managers" for more information about
the management of your Fund; (iii) see "Share Price" for more information about
the pricing of shares of your Fund; (iv) see "Taxes" for more information about
tax consequences to shareholders of various transactions in shares of your Fund;
(v) see "Dividends And Capital Gain Distributions" for more information about
your Fund's policy with respect to dividends and distributions; and (vi) see
"How To Buy Shares", "How To Sell Shares" and "Your Account Services" for more
information about sales charges, including contingent deferred sales charges,
applicable to shares of your Fund, the purchase, redemption and repurchase of
shares of your Fund, distribution arrangements and the multiple class structure
of your Fund.
INFORMATION FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION
This Proxy Statement/Prospectus and the related Statement of Additional
Information do not contain all the information set forth in the registration
statements and the exhibits relating thereto and annual reports which Company
and Buyer have filed with the SEC pursuant to the requirements of the 1933 Act
and the 1940 Act, to which reference is hereby made. The SEC file number of
Company's registration statement containing the Selling Fund Prospectus and
related Statement of Additional Information is Registration No. 811-3826. Such
Selling Fund Prospectus is incorporated herein by reference. The SEC file number
for Buyer's registration statement containing the Buying Fund Prospectus and
related Statement of Additional Information is Registration No. 811-3886. Such
Buying Fund Prospectus is incorporated herein by reference.
Company and Buyer are subject to the informational requirements of the
Securities Exchange Act of 1934 and the 1940 Act and in accordance therewith
file reports and other information with the SEC. Reports, proxy material,
registration statements and other information filed by Company and Buyer
(including the Registration Statement of Buyer relating to Buying Fund on Form
N-14 of which this Proxy Statement/Prospectus is a part) may be inspected
without charge and copied at the public reference facilities maintained by the
SEC at Room 1014, Judiciary Plaza, 450 Fifth Street, NW, Washington, DC 20549,
and at the following regional office of the SEC: 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of such material may also be obtained from
the Public Reference Section of the SEC at 450 Fifth Street, NW, Washington, DC
20549, at the prescribed rates. The SEC maintains a website at www.sec.gov that
contains information regarding Company and Buyer and other registrants that file
electronically with the SEC.
17
PROPOSAL 2 --
ELECTION OF DIRECTORS
BACKGROUND
In considering the integration initiative proposed by AMVESCAP, the
independent directors of the INVESCO Funds and the independent
directors/trustees of the AIM Funds determined that the shareholders of all the
AIM Funds and the INVESCO Funds would benefit if a unified board of
directors/trustees was responsible for overseeing the operation of both the AIM
Funds and the INVESCO Funds and the services provided by AIM, INVESCO and their
affiliates. Accordingly, the Boards of Directors of the INVESCO Funds and the
Boards of Directors/Trustees of the AIM Funds agreed to combine the separate
boards and create a unified board of directors/trustees.
You are being asked to approve Proposal 2 so that, in the event that
Proposal 1 is not approved, your Fund will still be able to benefit from having
a combined board of directors.
STRUCTURE OF THE BOARD OF DIRECTORS
The Board currently consists of the following 11 persons: Bob R. Baker,
Sueann Ambron, Victor L. Andrews, Lawrence H. Budner, James T. Bunch, Raymond R.
Cunningham, Richard W. Healey, Gerald L. Lewis, John W. McIntyre, Larry Soll,
Ph.D. and Mark H. Williamson. Eight of the current directors are "independent,"
meaning they are not "interested persons" of Company within the meaning of the
1940 Act. Three of the current directors are "interested persons" because of
their business and financial relationships with Company and INVESCO, its
investment advisor, and/or INVESCO's parent, AMVESCAP. Six of the current
directors have declined to stand for re-election as directors of Company.
Therefore, their terms as directors of Company will end upon the election and
qualification of their successor directors at the Special Meeting.
NOMINEES FOR DIRECTORS
Company's nominating committee (which consists solely of independent
directors) has approved the nomination of five of the 11 current directors, as
set forth below, each to serve as director until his successor is elected and
qualified. In addition, the nominating committee has approved the nomination of
11 new nominees, as set forth below, each to serve as director until his or her
successor is elected and qualified. These 11 new nominees were nominated to
effect the proposed combination of the Boards of Directors/Trustees of the AIM
Funds and the Boards of Directors of the INVESCO Funds.
Each nominee who is a current director serves as a director of the ten
registered investment companies comprising the INVESCO Funds. Each nominee who
is a current director oversees 46 portfolios which comprise the INVESCO Funds.
The business address of each nominee who is a current director is 4350 South
Monaco Street, Denver, Colorado 80237.
Each new nominee serves as a director or trustee of the 17 registered
investment companies comprising the AIM Funds. Each new nominee currently
oversees 86 portfolios which comprise the AIM Funds. The business address of
each new nominee is 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173.
If elected, each nominee would oversee a total of 27 registered investment
companies currently comprising 132 portfolios.
18
NOMINEES WHO CURRENTLY ARE INDEPENDENT DIRECTORS
<Table>
<Caption>
DIRECTOR PRINCIPAL OCCUPATION(S)
NAME AND YEAR OF BIRTH SINCE DURING PAST 5 YEARS OTHER DIRECTORSHIP(S) HELD
- ---------------------- -------- ------------------------------ --------------------------
Bob R. Baker - 1936 1983 Consultant (2000-present); None
formerly, President and Chief
Executive Officer (1988-2000)
of AMC Cancer Research Center,
Denver, Colorado; until mid-
December 1988, Vice Chairman
of the Board of First Columbia
Financial Corporation,
Englewood, Colorado; formerly,
Chairman of the Board and
Chief Executive Officer of
First Columbia Financial
Corporation.
James T. Bunch - 1942 2000 Co-President and Founder of None
Green, Manning & Bunch Ltd.,
Denver, Colorado
(1988-present) (investment
banking firm); Director and
Vice President of Western Golf
Association and Evans Scholars
Foundation; Executive
Committee, United States Golf
Association; formerly, General
Counsel and Director of
Boettcher & Co., Denver,
Colorado; and formerly,
Chairman and Managing Partner,
law firm of Davis, Graham &
Stubbs, Denver, Colorado.
Gerald J. Lewis - 1933 2000 Chairman of Lawsuit Resolution General Chemical Group,
Services, San Diego, Inc., Hampdon, New
California (1987-present); Hampshire (1996- present),
formerly, Associate Justice of Wheelabrator Technologies,
the California Court of Inc. (waste management
Appeals; and Of Counsel, law company), Fisher
firm of Latham & Watkins, San Scientific, Inc.
Diego, California (1987-1997). (laboratory supplies),
Henley Manufacturing,
Inc., and California
Coastal Properties, Inc.
Larry Soll, Ph.D. - 1942 1997 Retired; formerly, Chairman of Synergen Inc. (since
the Board (1987-1994), Chief incorporation in 1982) and
Executive Officer (1982-1989 Isis Pharmaceuticals, Inc.
and 1993-1994) and President
(1982-1989) of Synergen Inc.
(biotechnology company); and
formerly, trustee of INVESCO
Global Health Sciences Fund.
</Table>
19
NOMINEE WHO CURRENTLY IS AN INTERESTED PERSON
<Table>
<Caption>
DIRECTOR PRINCIPAL OCCUPATION(S)
NAME AND YEAR OF BIRTH SINCE DURING PAST 5 YEARS OTHER DIRECTORSHIP(S) HELD
- ---------------------- -------- ------------------------------ --------------------------
Mark H. Williamson(1) - 1951 1998 Director, President and Chief Director/trustee of each
Executive Officer, A I M of the 17 AIM Funds
Management Group Inc.;
Director, Chairman and
President, A I M Advisors,
Inc. (registered investment
advisor); Director, A I M
Distributors, Inc. (registered
broker dealer); and Chief
Executive Officer of the AIM
Division of AMVESCAP PLC
(2003-present); formerly,
Chief Executive Officer,
Managed Products Division,
AMVESCAP PLC (2001-2002);
Chairman of the Board
(1998-2002), President
(1998-2002) and Chief
Executive Officer (1998-2002)
of INVESCO Funds Group, Inc.
(registered investment
advisor) and INVESCO
Distributors, Inc. (registered
broker dealer); Chief
Operating Officer and Chairman
of the Board of INVESCO Global
Health Sciences Fund; Chairman
and Chief Executive Officer of
NationsBanc Advisors, Inc.;
and Chairman of NationsBanc
Investments, Inc.
</Table>
- ---------------
(1) Mr. Williamson is considered an interested person of Company because he is
an officer and a director of the advisor to, and a director of the principal
underwriter of, Company.
20
NEW NOMINEES WHO WILL BE INDEPENDENT DIRECTORS
<Table>
<Caption>
PRINCIPAL OCCUPATION(S)
NAME AND YEAR OF BIRTH DURING PAST 5 YEARS OTHER DIRECTORSHIP(S) HELD
- ---------------------- ------------------------------- -------------------------------
Frank S. Bayley - 1939 Of Counsel, law firm of Baker & Badgley Funds, Inc. (registered
McKenzie investment company)
Bruce L. Crockett - 1944 Chairman, Crockett Technology ACE Limited (insurance
Associates (technology company); Captaris, Inc.
consulting company) and (unified messaging provider)
Captaris, Inc. (unified
messaging provider)
Albert R. Dowden - 1941 Director of a number of public Cortland Trust, Inc. (Chairman)
and private business (registered investment
corporations, including the company); Annuity and Life Re
Boss Group, Ltd. (private (Holdings), Ltd. (insurance
investment and management) and company)
Magellan Insurance Company;
formerly, President, Chief
Executive Officer and Director,
Volvo Group North America,
Inc.; Senior Vice President, AB
Volvo and director of various
affiliated Volvo Group
companies
Edward K. Dunn, Jr. - 1935 Formerly, Chairman, Mercantile None
Mortgage Corp.; President and
Chief Operating Officer,
Mercantile-Safe Deposit & Trust
Co.; and President, Mercantile
Bankshares Corp.
Jack M. Fields - 1952 Chief Executive Officer, Twenty Administaff
First Century Group, Inc.
(government affairs company)
and Texana Timber LP
Carl Frischling - 1937 Partner, law firm of Kramer Cortland Trust, Inc.
Levin Naftalis & Frankel LLP (registered investment company)
Prema Mathai-Davis - 1950 Formerly, Chief Executive None
Officer, YWCA of the USA
Lewis F. Pennock - 1942 Partner, law firm of Pennock & None
Cooper
Ruth H. Quigley - 1935 Retired None
Louis S. Sklar - 1939 Executive Vice President, None
Development and Operations,
Hines Interests Limited
Partnership (real estate
development company)
</Table>
21
NEW NOMINEE WHO WILL BE AN INTERESTED PERSON
<Table>
<Caption>
PRINCIPAL OCCUPATION(S)
NAME AND YEAR OF BIRTH DURING PAST 5 YEARS OTHER DIRECTORSHIP(S) HELD
- ---------------------- ------------------------------- -------------------------------
Robert H. Graham(1) - 1946 Director and Chairman, A I M None
Management Group Inc.
(financial services holding
company); and Director and Vice
Chairman, AMVESCAP PLC (parent
of AIM and a global investment
management firm) and Chairman,
AMVESCAP PLC - AIM Division;
formerly, President and Chief
Executive Officer, A I M
Management Group Inc.;
Director, Chairman and
President, A I M Advisors, Inc.
(registered investment
advisor); Director and
Chairman, A I M Capital
Management, Inc. (registered
investment advisor), A I M
Distributors, Inc. (registered
broker dealer), A I M Fund
Services, Inc. (registered
transfer agent), and Fund
Management Company (registered
broker dealer); and Chief
Executive Officer, AMVESCAP
PLC - Managed Products
</Table>
- ---------------
(1) Mr. Graham will be considered an interested person of Company because he is
a director of AMVESCAP PLC, parent of the advisor to, and principal
underwriter of, Company.
THE BOARD'S RECOMMENDATION ON PROPOSAL 2
Your Board, including the independent directors, unanimously recommends
that you vote "FOR" these 16 nominees.
CURRENT COMMITTEES OF THE BOARD
The Board currently has nine standing committees: an audit committee, an
investments and management liaison committee, a brokerage committee, a
derivatives committee, a valuation committee, a legal committee, a compensation
committee, a retirement plan committee and a nominating committee.
AUDIT COMMITTEE
Company has an audit committee established for the purpose of overseeing
the accounting and financial reporting process of Company and audits of the
financial statements of Company. The audit committee is comprised entirely of
independent directors. The committee meets quarterly with Company's independent
accountants and officers to review accounting principles used by Company, the
adequacy of internal controls, the responsibilities and fees of the independent
accountants, and other matters. The current members of the audit committee are
Messrs. Baker, Budner, Lewis and McIntyre.
EXECUTIVE COMMITTEE
Company has an executive committee. On occasion, the committee acts upon
the current and ordinary business of Company between the meetings of the Board.
Except for certain powers which, under
22
applicable law, may only be exercised by the full Board, the committee may
exercise all powers and authority of the Board in the management of the business
of Company. All decisions are subsequently submitted for ratification by the
Board. The current members of the executive committee are Messrs. Baker, Bunch,
McIntyre and Williamson.
INVESTMENTS AND MANAGEMENT LIAISON COMMITTEE
Company has an investments and management liaison committee which meets
quarterly with various management personnel of INVESCO in order to facilitate
better understanding of management and operations of Company, and to review
investment, legal and operational matters which have been assigned to the
committee by the Board, in furtherance of the Board's overall duty of
supervision. The current members of the investments and management liaison
committee are Messrs. Andrews, Baker, Bunch, Soll and Dr. Ambron.
BROKERAGE COMMITTEE
Company has a brokerage committee. The committee meets periodically to
review soft dollar and other brokerage transactions by your Fund and to review
policies and procedures of INVESCO with respect to brokerage transactions. It
reports on these matters to the Board. The current members of the brokerage
committee are Messrs. Budner, Bunch and McIntyre.
DERIVATIVES COMMITTEE
Company has a derivatives committee. The committee meets periodically to
review derivatives investments made by your Fund. It monitors the use of
derivatives by your Fund and the procedures utilized by INVESCO to ensure that
the use of such instruments follows the policies adopted by the Board. The
committee reports on these matters to the Board. The current members of the
derivatives committee are Messrs. Andrews, Lewis and Soll.
NOMINATING COMMITTEE
Company has a nominating committee. The committee meets periodically to
review and nominate candidates for positions as independent directors to fill
vacancies on the board of directors. The nominating committee will consider
nominees recommended by shareholders. If a shareholder desires to nominate a
candidate, the shareholder must submit a request in writing to the Chairman of
the nominating committee. The current members of the nominating committee are
Messrs. Baker, Bunch, Lewis and Soll.
LEGAL COMMITTEE
Company has a legal committee. The committee meets periodically to review
compensation arrangements with counsel to Company and to its independent
directors. The committee reports on these matters to the Board. The current
members of the legal committee are Messrs. Bunch, Lewis and McIntyre.
COMPENSATION COMMITTEE
Company has a compensation committee. The committee meets periodically to
review compensation arrangements of Company's independent directors. The
committee reports on these matters to the Board. The current members of the
compensation committee are Messrs. Andrews, Baker, Budner and Soll.
VALUATION COMMITTEE
Company has a valuation committee. The committee meets periodically to
review valuation issues regarding investments made by your Fund. The committee
reports on these matters to the Board. The current members of the valuation
committee are Messrs. Baker, Bunch, Cunningham and McIntyre.
23
RETIREMENT PLAN COMMITTEE
Company has a retirement plan committee. The committee meets periodically
to review Company's retirement arrangements for its independent directors. The
committee reports on these matters to the Board. The current members of the
retirement plan committee are Messrs. Andrews, Baker, Budner, Cunningham and
Soll.
BOARD AND COMMITTEE MEETING ATTENDANCE
During the fiscal year ended March 31, 2003, the Board met six times, the
audit committee met four times, the executive committee did not meet, the
investments and management liaison committee met four times, the brokerage
committee met four times, the derivatives committee met four times, the
nominating committee met four times, the legal committee met three times, the
compensation committee met two times, and the valuation and retirement plan
committees did not meet. All of the current directors then serving attended at
least 75% of the meetings of the Board or applicable committee during the most
recent fiscal year.
FUTURE COMMITTEE STRUCTURE
As a result of the combination of the Boards of Directors of the INVESCO
Funds and the Boards of Directors/Trustees of the AIM Funds, it is expected that
the Board will adopt a committee structure that is the same as that which is in
effect for the AIM Funds, so that the Board will have four committees: an Audit
Committee, a Committee on Directors/Trustees, an Investments Committee and a
Valuation Committee. These committees are described below.
AUDIT COMMITTEE
The Audit Committee will be comprised entirely of independent directors.
The Audit Committee will be responsible for: (i) the appointment, compensation
and oversight of any independent auditors employed by your Fund (including
resolution of disagreements between your Fund's management and the auditor
regarding financial reporting) for the purpose of preparing or issuing an audit
report or related work; (ii) overseeing the financial reporting process of your
Fund; (iii) monitoring the process and the resulting financial statements
prepared by management to promote accuracy of financial reporting and asset
valuation; and (iv) pre-approving permissible non-audit services that are
provided to your Fund by its independent auditors.
COMMITTEE ON DIRECTORS/TRUSTEES
The Committee on Directors/Trustees will be comprised entirely of
independent directors. It will be responsible for: (i) nominating persons who
are not interested persons of Company for election or appointment: (a) as
additions to the Board, (b) to fill vacancies which, from time to time, may
occur in the Board and (c) for election by shareholders of Company at meetings
called for the election of directors; (ii) nominating persons who are not
interested persons of Company for selection as members of each committee of the
Board, including, without limitation, the audit committee, the committee on
directors, the investments committee and the valuation committee, and to
nominate persons for selection as chair and vice chair of each such committee;
(iii) reviewing from time to time the compensation payable to the independent
directors and making recommendations to the Board regarding compensation; (iv)
reviewing and evaluating from time to time the functioning of the Board and the
various committees of the Board; (v) selecting independent legal counsel to the
independent trustees and approving the compensation paid to independent legal
counsel; and (vi) approving the compensation paid to independent counsel and
other advisers, if any, to the Audit Committee of Company.
INVESTMENTS COMMITTEE
The Investments Committee will be responsible for: (i) overseeing the
advisor's investment-related compliance systems and procedures to ensure their
continued adequacy; and (ii) considering and acting,
24
on an interim basis between meetings of the full Board, on investment-related
matters requiring Board consideration, including dividends and distributions,
brokerage policies and pricing matters.
VALUATION COMMITTEE
The Valuation Committee will be responsible for: (i) periodically
reviewing the advisor's procedures for valuing securities ("Procedures"), and
making any recommendations to the advisor with respect thereto; (ii) reviewing
proposed changes to the Procedures recommended by the advisor from time to time;
(iii) periodically reviewing information provided by the advisor regarding
industry developments in connection with valuation; (iv) periodically reviewing
information from the advisor regarding fair value and liquidity determinations
made pursuant to the Procedures, and making recommendations to the full Board in
connection therewith (whether such information is provided only to the committee
or to the committee and the full Board simultaneously); and (v) if requested by
the advisor, assisting the advisor's internal valuation committee and/or the
full Board in resolving particular valuation anomalies.
DIRECTOR'S COMPENSATION
Each director who is independent is compensated for his or her services
according to a fee schedule which recognizes the fact that such director also
serves as a director of other INVESCO Funds. Each such director receives a fee,
allocated among the INVESCO Funds for which he or she serves as a director,
which consists of an annual retainer component and a meeting fee component.
Information regarding compensation paid or accrued for each continuing
director of Company who was not affiliated with INVESCO during the year ended
December 31, 2002 is found in Exhibit D.
CURRENT RETIREMENT PLAN FOR DIRECTORS
The Boards of Directors of the INVESCO Funds have adopted a Retirement Plan
(the "Retirement Plan") and a Deferred Retirement Plan Account Agreement (the
"Account Agreement"). Certain of the independent directors of Company
participate either in the Retirement Plan or in the Account Agreement. Under the
Retirement Plan and the Account Agreement, each participating director who is
not an interested person of the INVESCO Funds and who has served for at least
five years (a "Participating Qualified Director") is entitled to receive a
benefit upon retirement.
Commencing with attainment of age 72 by a Participating Qualified Director
who has elected to participate in the Retirement Plan and who voluntarily
retires prior to reaching age 72, and commencing with the date of retirement of
a Participating Qualified Director who retires upon reaching age 72 or at any
time subsequent to age 72 up to the mandatory retirement age of 75, a
Participating Qualified Director shall receive quarterly payments at an annual
rate of $34,000 (the "Annual Benefit"). Directors who became Participating
Qualified Directors on or before January 1, 2001 who retire upon reaching age 72
(or at age 73 or 74, if the director extends his retirement date for one to two
years, but less than three years) are entitled to payment for one year of twice
the Annual Benefit. Payment of the Annual Benefit will continue for the
remainder of the Participating Qualified Director's life or ten years, whichever
is longer. If a Participating Qualified Director becomes disabled before the
date upon which his or her Annual Benefit payments would normally commence, such
benefit payments will begin. If a Participating Qualified Director dies prior to
the receipt of the Annual Benefit for ten years, the Annual Benefit will be paid
to his/her beneficiary or estate until an aggregate of ten years of payments has
been received. A Participating Qualified Director who has elected to participate
in the Retirement Plan receives no benefits from the Account Agreement. The cost
of the Retirement Plan will be allocated among the INVESCO Funds in a manner
determined to be fair and equitable by the committee administering the
Retirement Plan.
A Participating Qualified Director who has elected to participate in the
Account Agreement receives no benefits from the Retirement Plan. Pursuant to the
terms of the Account Agreement, a deferred retirement account is established for
a Qualified Participating Director (the "Account"). The dollar amount credited
to the Account is in an amount which, based upon an assumed account appreciation
rate
25
per annum (currently 5.75%), will provide the Participating Qualified Director
with an account value of $340,000 upon reaching age 72. Once the initial dollar
amount of the Account is established, Account proceeds are invested in shares of
one or more of the INVESCO Funds. The value of the Account fluctuates with the
appreciation or depreciation in the shares of the INVESCO Funds owned by the
Account and Account shares are increased by the amount of any dividends and
capital gains distributions paid with respect to the shares. Upon retirement, a
Participating Qualified Director is entitled to receive the value in the Account
either in a lump sum payment or in payments over a stipulated number of months.
The Account value continues to fluctuate as long as monthly payments are made.
If a Participating Qualified Director becomes disabled or dies prior to his or
her retirement and if, at the time of disability or death, the value of a
Participating Qualified Director's Account is less than $340,000, the Director
or the Director's beneficiary or estate will not be paid the value in the
Account but will receive $34,000 per annum for ten years. If, at the time of the
Participating Qualified Director's death or disability prior to retirement, the
value in the director's Account is $340,000 or more, the Participating Qualified
Director or his or her estate or beneficiary will receive the value in the
Account either in a lump sum or in quarterly installments. The cost of providing
the initial dollar amount to be allocated to a Participating Qualified
Director's Account and the cost of payment of any death or disability benefit
that aggregates more than the Account value will be allocated among the INVESCO
Funds in a manner determined to be fair and equitable by a committee appointed
to administer the Account Agreement.
Company has no stock options, pension, or retirement plans for affiliated
directors of the INVESCO Funds or for management or other personnel, and pays no
salary or compensation to any of its officers.
CURRENT DEFERRED COMPENSATION PLAN
The independent directors have contributed to a deferred compensation plan,
pursuant to which they have deferred receipt of a portion of the compensation
which they would otherwise have been paid as directors of the INVESCO Funds.
Certain of the deferred amounts have been invested in the shares of all INVESCO
Funds except INVESCO Funds offered by INVESCO Variable Investment Funds, Inc.,
in which the directors are legally precluded from investing. Each independent
director may, therefore, be deemed to have an indirect interest in shares of
each such INVESCO Fund, in addition to any INVESCO Fund shares the independent
director may own either directly or beneficially. Each of the independent
directors has agreed to invest a minimum of $100,000 of his or her own resources
in shares of the INVESCO Funds. Compensation contributed to a deferred
compensation plan may constitute all or a portion of this $100,000 commitment.
NEW RETIREMENT PLAN FOR DIRECTORS
The Boards of Directors of the INVESCO Funds intend to adopt a new
retirement plan (the "New Retirement Plan") for the directors of Company who are
not affiliated with INVESCO, which will be effective as of the date of the
Special Meeting. The New Retirement Plan also will be adopted by the Boards of
Directors/Trustees of the AIM Funds. The reason for adoption of the New
Retirement Plan is to provide for consistency in the retirement plans for the
Boards of Directors of the INVESCO Funds and the Boards of Directors/Trustees of
the AIM Funds. The retirement plan will include a retirement policy as well as
retirement benefits for independent directors.
The retirement policy will permit each independent director to serve until
December 31 of the year in which the director turns 72. A majority of the
directors will be able to extend from time to time the retirement date of a
director.
Annual retirement benefits will be available to each independent director
of Company and/or the other INVESCO Funds and AIM Funds (each, a "Covered Fund")
who has at least five years of credited service as a director (including service
to a predecessor fund) for a Covered Fund. The retirement benefits will equal
75% of the director's annual retainer paid or accrued by any Covered Fund to
such director during the twelve-month period prior to retirement, including the
amount of any retainer deferred under a separate deferred compensation agreement
between the Covered Fund and the director. The annual
26
retirement benefits will be payable in quarterly installments for a number of
years equal to the lesser of (i) ten or (ii) the number of such director's
credited years of service. A death benefit will also be available under the New
Retirement Plan that will provide a surviving spouse with a quarterly
installment of 50% of a deceased director's retirement benefits for the same
length of time that the director would have received the benefits based on his
or her service. A director must have attained the age of 65 (55 in the event of
death or disability) to receive any retirement benefit. Payment of benefits
under the New Retirement Plan will not be secured or funded by Company.
Upon the effectiveness of the New Retirement Plan, the independent
directors will cease to accrue benefits under the Retirement Plan and the
Account Agreement. Messrs. Baker and Soll will not receive any additional
benefits under the Retirement Plan or the Account Agreement, but will be
entitled to amounts which have been previously funded under the Retirement Plan
or the Account Agreement for their benefit. An affiliate of INVESCO will
reimburse Company for any amounts funded by Company for Messrs. Baker and Soll
under the Retirement Plan and the Account Agreement.
NEW DEFERRED COMPENSATION AGREEMENTS
The Boards of Directors of the INVESCO Funds intend to adopt new deferred
compensation agreements which are consistent with the deferred compensation
agreements adopted by the Boards of Directors/Trustees of the AIM Funds.
Pursuant to the new deferred compensation agreements ("New Compensation
Agreements"), a director will have the option to elect to defer receipt of up to
100% of his or her compensation payable by Company, and such amounts are placed
into a deferral account. The deferring directors will have the option to select
various INVESCO Funds in which all or part of their deferral account will be
deemed to be invested. The list of funds may change from time to time and may
include AIM Funds in addition to INVESCO Funds. Distributions from the deferring
directors' deferral accounts will be paid in cash, generally in equal quarterly
installments over a period of up to ten years (depending on the New Compensation
Agreement) beginning on the date selected under the New Compensation Agreement.
The Board, in its sole discretion, will be able to accelerate or extend the
distribution of such deferral accounts after the deferring directors' retirement
benefits commence under the New Retirement Plan. The Board, in its sole
discretion, also will be able to accelerate or extend the distribution of such
deferral accounts after the deferring directors' termination of service as a
director of Company. If a deferring director dies prior to the distribution of
amounts in his or her deferral account, the balance of the deferral account will
be distributed to his or her designated beneficiary. The New Compensation
Agreements will not be funded and, with respect to the payments of amounts held
in the deferral accounts, the deferring directors will have the status of
unsecured creditors of Company and of each other INVESCO Fund or AIM Fund from
which they will be deferring compensation.
OFFICERS OF COMPANY
Information regarding the current officers of Company can be found in
Exhibit E.
SECURITY OWNERSHIP OF MANAGEMENT
Information regarding the ownership of each class of your Fund's shares by
the directors, nominees and current executive officers of Company can be found
in Exhibit F.
DIRECTOR OWNERSHIP OF YOUR FUND'S SHARES
The dollar range of equity securities beneficially owned by each continuing
director and nominee as of December 31, 2002 (i) in your Fund and (ii) on an
aggregate basis, in all registered investment companies overseen by the director
within the INVESCO Funds and the AIM Funds complex can be found in Exhibit G.
27
PROPOSAL 3 --
APPROVAL OF A NEW INVESTMENT ADVISORY AGREEMENT
BACKGROUND
INVESCO currently serves as the investment advisor to your Fund. AMVESCAP
has recommended restructuring the advisory and administrative servicing
arrangements so that AIM is the advisor and administrator for all INVESCO Funds
and AIM Funds. Your Board has approved a new advisory agreement under which AIM
will serve as the investment advisor for your Fund, and a new sub-advisory
agreement under which INVESCO Institutional, an affiliate of INVESCO, which is
currently serving as your Fund's investment advisor, will serve as sub-advisor.
The portfolio management team for your Fund will not change as a result of this
restructuring.
You are being asked to approve Proposal 3 so that, in the event that
Proposal 1 is not approved, your Fund will still be able to benefit from a new
investment advisory agreement between AIM and Company.
The Board recommends that you approve the new advisory agreement between
AIM and Company for your Fund. The Board is asking you to vote on this new
agreement because Company may enter into a new advisory agreement for your Fund
only with shareholder approval. If approved, this new agreement would replace
the current advisory agreement between INVESCO and Company for your Fund. The
form of Company's proposed Master Investment Advisory Agreement with AIM is at
Appendix IV.
Under the new arrangements, the advisory fees paid by your Fund will not
change. If shareholders of your Fund approve Proposal 3, Company will also enter
into a new Master Administrative Services Agreement with AIM that will replace
the current Administrative Services Agreement between Company and INVESCO, and
move the provision of certain administrative services currently provided by
INVESCO pursuant to the current advisory agreement between Company and INVESCO
to the Master Administrative Services Agreement with AIM. If the proposed
advisory agreement is approved and these new arrangements are implemented, the
aggregate fees paid by your Fund for advisory and administrative services will
not increase.
Any voluntary or contractual expense limitations and fee waivers that have
been agreed to by INVESCO and Company with respect to your Fund will not be
terminated if the proposed new advisory agreement with AIM is approved. Instead,
AIM will assume INVESCO's obligations with respect to these voluntary and
contractual expense limitations and fee waivers, on the same terms and
conditions.
If INVESCO and Company have entered into voluntary or contractual expense
limitations or fee waivers with respect to your Fund, INVESCO currently is
entitled to reimbursement from a share class of your Fund that has fees and
expenses absorbed pursuant to this arrangement if such reimbursement does not
cause such share class to exceed the expense limitation and the reimbursement is
made within three years after INVESCO incurred the expense. If the proposed new
advisory agreement with AIM is approved, INVESCO will assign to AIM its right to
be reimbursed with respect to fees and expenses absorbed by it. Other than
substituting AIM for INVESCO as the party having the right to be reimbursed,
this assignment will not alter in any way the rights or obligations of your Fund
or its shareholders.
A description of how the proposed advisory agreement differs from the
current advisory agreement is set forth below under "Terms of the Proposed
Advisory Agreement." At an in-person meeting of the Board held on August 12-13,
2003, the Board, including a majority of the independent directors, voted to
recommend that shareholders approve a proposal to adopt the proposed advisory
agreement for your Fund.
YOUR FUND'S CURRENT INVESTMENT ADVISOR
INVESCO, the current investment advisor for your Fund, became the
investment advisor for your Fund under the current advisory agreement on
February 14, 2000. Your Fund's initial shareholder initially approved the
agreement and your Fund's public shareholders have not subsequently voted on the
28
agreement. The Board, including a majority of the independent directors, last
approved the current advisory agreement on May 15, 2003.
THE PROPOSED NEW INVESTMENT ADVISOR FOR YOUR FUND
AIM is a wholly owned subsidiary of A I M Management Group Inc. ("AIM
Management"), a holding company with its principal offices at 11 Greenway Plaza,
Suite 100, Houston, Texas 77046-1173. AIM Management is an indirect wholly owned
subsidiary of AMVESCAP, 30 Finsbury Square, London EC2A1AG, United Kingdom.
AMVESCAP and its subsidiaries are an independent investment management group. A
list of the names, addresses and principal occupations of the principal
executive officer and directors of AIM is in Exhibit H.
POSITIONS WITH AIM HELD BY COMPANY'S DIRECTORS OR EXECUTIVE OFFICERS
Mark H. Williamson, who is a director and/or executive officer of Company,
also is a director and/or officer of AIM. He also beneficially owns shares of
AMVESCAP and/or options to purchase shares of AMVESCAP.
TERMS OF THE CURRENT ADVISORY AGREEMENT
Under the terms of the current advisory agreement with INVESCO for your
Fund, INVESCO acts as investment manager and administrator for your Fund. As
investment manager, INVESCO provides a continuous investment program for your
Fund, including investment research and management, with respect to all
securities, investments and cash equivalents of your Fund. INVESCO also makes
recommendations as to the manner in which voting rights, rights to consent to
actions of your Fund and any other rights pertaining to your Fund's securities
shall be exercised. INVESCO provides sub-accounting, recordkeeping and
administrative services to your Fund under an administrative services agreement.
Under the advisory agreement, as administrator, INVESCO also provides, at its
expense and at the request of your Fund, executive, statistical, administrative,
internal accounting and clerical services and office space, equipment and
facilities.
The current advisory agreement for your Fund continues in effect from year
to year only if such continuance is specifically approved at least annually by
(i) the Board or the vote of a majority of the outstanding voting securities (as
defined in the 1940 Act) of your Fund and each other series portfolio of
Company, and (ii) the vote of a majority of the directors of Company who are not
interested persons of INVESCO or Company by votes cast in person at a meeting
called for such purpose. The current advisory agreement provides that the Board,
a majority of the outstanding voting securities of your Fund and each other
series portfolio of Company or INVESCO may terminate the agreement with respect
to your Fund on 60 days' written notice without penalty. The agreement
terminates automatically in the event of its assignment, unless an order is
issued by the SEC conditionally or unconditionally exempting such assignment
from the applicable provisions of the 1940 Act.
The current advisory agreement for your Fund provides that your Fund will
pay or cause to be paid all of its expenses not assumed by INVESCO, including
without limitation:
- brokerage commissions, issue and transfer taxes and other costs related
to securities transactions;
- fees, charges and expenses related to accounting, custodian, depository,
dividend disbursing agent, dividend reinvestment agent, transfer agent,
registrar, independent pricing services and legal services performed for
your Fund;
- interest on indebtedness incurred by Company or your Fund;
- taxes;
- fees for maintaining the registration and qualification of your Fund or
its shares under federal and state law;
29
- compensation and expenses of the independent directors;
- costs of printing and distributing reports, notices of shareholders'
meetings, proxy statements, dividend notices, prospectuses, statements of
additional information and other communications to your Fund's
shareholders, including expenses relating to Board and shareholder
meetings;
- costs, fees and other expenses arising in connection with the
organization and filing of Company's Articles of Incorporation,
determinations of tax status of your Fund, initial registration and
qualification of your Fund's securities under federal and state
securities laws and approval of Company's operations by any other federal
or state authority;
- expenses of repurchasing and redeeming shares of your Fund;
- insurance premiums;
- costs of designing, printing and issuing certificates representing shares
of your Fund;
- extraordinary expenses, including fees and disbursements of Company's
counsel, in connection with litigation by or against Company or your
Fund;
- premiums for the fidelity bond maintained by your Fund pursuant to the
1940 Act (except those premiums that may be allocated to INVESCO as an
insured);
- association and institute dues;
- expenses, if any, of distributing shares of your Fund pursuant to a 12b-1
plan of distribution;
- fees under the administrative services agreement; and
- all other costs and expenses of your Fund's operations and organization
unless otherwise explicitly provided.
The current advisory agreement requires INVESCO to reimburse your Fund
monthly for any salaries paid by your Fund to officers, directors and full-time
employees of your Fund who are also officers, general partners or employees of
INVESCO or its affiliates. Although INVESCO has this obligation under the
current advisory agreement, your Fund does not pay salaries to its officers,
non-independent directors or employees for services rendered to your Fund.
If, in any given year, the sum of your Fund's expenses exceed the most
restrictive state-imposed annual expense limitation, INVESCO is required to
promptly reimburse such excess expenses to your Fund pursuant to the current
advisory agreement. Interest, taxes, extraordinary expenses and expenses which
are capitalized are not deemed expenses for purposes of this reimbursement
obligation.
The annual rates at which INVESCO receives fees from your Fund under the
current advisory agreement, the total net assets of your Fund, the dollar
amounts of advisory fees paid to INVESCO by your Fund net of any expense
limitations and the reimbursement, if any, made by INVESCO to your Fund for the
most recent fiscal year are in Exhibit I.
ADDITIONAL SERVICES PROVIDED BY INVESCO AND ITS AFFILIATES
INVESCO and its affiliates also provide additional services to Company and
your Fund. INVESCO currently provides or arranges for others to provide
accounting and administrative services to your Fund. INVESCO currently serves as
your Fund's transfer agent. Prior to July 1, 2003, INVESCO Distributors, Inc.
served as the principal underwriter for your Fund. This company is an indirect
wholly owned subsidiary of AMVESCAP, the parent company of INVESCO. Information
concerning fees paid to INVESCO and its affiliates for these services is in
Exhibit J.
ADVISORY FEES CHARGED BY AIM FOR SIMILAR FUNDS IT MANAGES
The advisory fee schedules for other funds advised by AIM with similar
investment objectives as your Fund are in Exhibit K.
30
TERMS OF THE PROPOSED ADVISORY AGREEMENT
Under the terms of the proposed advisory agreement, AIM would act as
investment manager and administrator for your Fund. As investment manager, AIM
would provide a continuous investment program for your Fund, including
supervision of all aspects of your Funds' operations, including the investment
and reinvestment of cash, securities or other properties comprising your Funds'
assets and investment research and management, subject at all times to the
policies and control of the Board. AIM would also provide administrative
services pursuant to a Master Administrative Services Agreement.
The proposed advisory agreement states that in the absence of willful
misfeasance, bad faith, gross negligence, or reckless disregard of obligations
or duties under the agreement on the part of AIM or any of its officers,
directors, or employees, AIM would not be subject to liability to Company or
your Fund or to any shareholders of your Fund for any act or omission in the
course of, or connected with, rendering services under the agreement or for any
losses that may be sustained in the purchase, holding or sale of any security.
The proposed advisory agreement for your Fund would continue in effect from
year to year only if such continuance is specifically approved at least annually
by (i) the Board or the vote of a majority of the outstanding voting securities
(as defined in the 1940 Act) of your Fund, and (ii) the affirmative vote of a
majority of the directors of Company who are not interested persons of AIM or
Company by votes cast in person at a meeting called for such purpose. The
proposed advisory agreement provides that the Board, a majority of the
outstanding voting securities of your Fund or AIM may terminate the agreement
with respect to your Fund on 60 days' written notice without penalty. The
proposed agreement terminates automatically in the event of its "assignment" (as
defined in the 1940 Act).
The proposed advisory agreement for your Fund provides that your Fund will
pay or cause to be paid all of the ordinary business expenses incurred in the
operations of your Fund and the offering of its shares. These expenses borne by
your Fund would include, without limitation, brokerage commissions, taxes,
legal, accounting, auditing, or governmental fees, the cost of preparing share
certificates, custodian, transfer and shareholder service agent costs, expenses
of issue, sale, redemption and repurchase of shares, expenses of registering and
qualifying shares for sale, expenses relating to trustees and shareholder
meetings, the cost of preparing and distributing reports and notices to
shareholders, the fees and other expenses incurred by Company on behalf of your
Fund in connection with membership in investment company organizations and the
cost of printing copies of prospectuses and statements of additional information
distributed to your Fund's shareholders.
The compensation to be paid to AIM under the proposed advisory agreement
would be calculated by applying annual rates to the average daily net assets of
your Fund for each calendar year. The annual rates at which AIM will receive
advisory fees from your Fund under the proposed advisory agreement are in
Exhibit L.
If Proposal 3 is approved, Company will be able to take advantage of an
exemptive order obtained from the SEC by AIM and certain of the AIM Funds. This
exemptive order will allow your Fund and each other series portfolio of Company
(each, an "Investing Fund") to invest their uninvested cash in money market
funds that have AIM or an affiliate of AIM as an investment advisor (the
"Affiliated Money Market Funds"), provided that investments in Affiliated Money
Market Funds do not exceed 25% of the total assets of the Investing Fund. AIM
will receive advisory fees from the Affiliated Money Market Fund to the extent
an Investing Fund invests uninvested cash in such Affiliated Money Market Fund.
If the Board approves AIM's use of the exemptive order for Company, AIM intends
to waive a portion of the advisory fees payable by each Investing Fund in an
amount equal to 25% of the advisory fee AIM receives from the Affiliated Money
Market Fund as a result of such Investing Fund's investment of uninvested cash
in such Affiliated Money Market Fund.
31
The primary differences between the current advisory agreement with INVESCO
and the proposed advisory agreement with AIM that the Board approved are to:
- replace INVESCO with AIM as the investment advisor for your Fund;
- move certain administrative services to an administrative services
agreement with AIM;
- add provisions relating to certain functions to be performed by AIM in
connection with your Fund's securities lending program;
- change certain obligations regarding payment of expenses of your Fund;
- revise non-exclusivity provisions that are set forth in the current
advisory agreement;
- amend delegation provisions that are set forth in the current advisory
agreement;
- add to the limitation of liability provisions that are set forth in the
current advisory agreement to, among other things, specifically state the
limitation of liability of Company's shareholders; and
- change the governing state law set forth in the current advisory
agreement.
Although certain terms and provisions in the current advisory agreement
with INVESCO and the proposed advisory agreement with AIM are described slightly
differently, there are few substantive differences between these agreements. The
substantive differences are discussed below.
Administrative Services
For your Fund, the Board, in approving the proposed advisory agreement with
AIM, has approved removing the provision of certain administrative services that
are covered under the current advisory agreement with INVESCO, and consolidating
those administrative services with your Fund's accounting and recordkeeping
services in a new Master Administrative Services Agreement with AIM. The primary
reason for this change is to make your Fund's agreements consistent with similar
agreements for the AIM Funds. If shareholders approve the proposed advisory
agreement, your Fund will continue to receive substantially the same accounting
and administrative services it currently receives and at the same or lower costs
pursuant to the new Master Administrative Services Agreement. As a result, there
would be no loss of services nor would there by any increase in costs borne by
your Fund as a result of the transfer of administrative duties from the advisory
agreement to the Master Administrative Services Agreement.
Securities Lending
If your Fund engages in securities lending, AIM will provide it with
investment advisory services and related administrative services. The proposed
advisory agreement includes a new provision that specifies the administrative
services to be rendered by AIM if your Fund engages in securities lending
activities, as well as the compensation AIM may receive for such administrative
services. Administrative services to be provided include: (a) overseeing
participation in the securities lending program to ensure compliance with all
applicable regulatory and investment guidelines; (b) assisting the securities
lending agent or principal (the "agent") in determining which specific
securities are available for loans; (c) monitoring the agent to ensure that
securities loans are effected in accordance with AIM's instructions and with
procedures adopted by the Board; (d) preparing appropriate periodic reports for,
and seeking appropriate approvals from, the Board with respect to securities
lending activities; (e) responding to agent inquiries; and (f) performing such
other duties as may be necessary.
In accordance with an exemptive order issued by the SEC, before your Fund
may participate in a securities lending program, the Board must approve such
participation. In addition, the Board must evaluate the securities lending
arrangements annually, and must determine that it is in the best interests of
the shareholders of your Fund to invest in AIM-advised money market funds any
cash collateral your Fund receives as security for the borrower's obligation to
return the loaned securities. If your Fund invests the cash collateral in
AIM-advised money market funds, AIM will receive additional advisory fees from
32
these money market funds, because the invested cash collateral will increase the
assets of these funds and AIM receives advisory fees based upon the assets of
these funds.
AIM does not receive any additional compensation for advisory services
rendered in connection with securities lending activities. As compensation for
the related administrative services AIM will provide, your Fund will pay AIM a
fee equal to 25% of the net monthly interest or fee income retained or paid to
your Fund from such activities. AIM intends to waive this fee, and has agreed to
seek Board approval prior to its receipt of all or a portion of such fee.
Payment of Expenses and Restrictions on Fees Received
Under the current advisory agreement with INVESCO, INVESCO has the
obligation to reimburse your Fund for any salaries paid by your Fund to
officers, non-independent directors and employees of your Fund. Your Fund does
not currently pay any such salaries. Such provision is not included in the
proposed advisory agreement with AIM.
The current advisory agreement provides that if annual fees exceed the most
restrictive state-imposed annual expense limitation, INVESCO is required to
reimburse any such excess to your Fund. Such state-imposed limitations are no
longer applicable because the National Securities Market Improvements Act of
1996 (NSMIA) preempted state laws under which mutual funds such as your Fund
previously were regulated. Accordingly, under the proposed advisory agreement,
such annual expense limitation has been removed. Removing this state-imposed
annual expense limitation will not result in an increase in fees paid by your
Fund.
Non-Exclusivity Provisions
The current advisory agreement with INVESCO provides that the services
furnished by INVESCO are not deemed to be exclusive and that INVESCO shall be
entitled to furnish similar services to others, including other investment
companies with similar objectives, and that INVESCO may aggregate orders for its
other customers together with any securities of the same type to be sold or
purchased for your Fund in order to obtain best execution and lower brokerage
commissions. In such event, INVESCO must allocate the securities purchased or
sold and the expenses incurred in the transaction in a manner it considers most
equitable.
AIM has proposed and the Board has agreed that the non-exclusivity
provisions in the proposed advisory agreement with AIM should be divided into
two separate provisions: one dealing with services provided by AIM to other
investment accounts and the other dealing with employees of AIM. Under the new
provisions, AIM will act as investment manager or advisor to fiduciary and other
managed accounts and to other investment companies and accounts, including
off-shore entities or accounts. The proposed advisory agreement states that
whenever your Fund and one or more other investment companies or accounts
advised by AIM have moneys available for investment, investments suitable and
appropriate for each will be allocated in accordance with a formula believed to
be equitable to your Fund and such other companies and accounts. Such allocation
procedure may adversely affect the size of the positions obtainable and the
prices realized by your Fund. The non-exclusivity provisions of the proposed
advisory agreement also explicitly recognize that officers and directors of AIM
may serve as officers or directors of Company, and that officers and directors
of Company may serve as officers or directors of AIM to the extent permitted by
law; and that officers and directors of AIM do not owe an exclusive duty to
Company. As described above, unlike the current advisory agreement, the proposed
advisory agreement does not require AIM to reimburse Company for any salaries
paid by Company to officers, directors and full-time employees of Company who
are also officers, directors or employees of AIM or its affiliates. Your Fund
does not currently pay any such salaries.
Delegation
The current advisory agreement provides that INVESCO may, in compliance
with applicable law and with the prior written approval of your Fund, make use
of affiliated companies and their employees in
33
connection with rendering of the services required of INVESCO. INVESCO must
supervise all such services and remain fully responsible for the services
provided.
The proposed advisory agreement expands the extent to which AIM can
delegate its rights, duties and obligations by expressly providing that AIM may
delegate any or all of its rights, duties or obligations under the agreement to
one or more sub-advisors rather than solely certain specified advisory services.
The proposed advisory agreement also provides that AIM may replace sub-advisors
from time to time, in accordance with applicable federal securities laws, rules
and regulations in effect or interpreted from time to time by the SEC or with
exemptive orders or other similar relief. Any such delegation shall require
approval by the applicable Board and the shareholders unless, in accordance with
applicable federal securities laws, rules, interpretations and exemptions, AIM
is not required to seek shareholder approval of the appointment of a
sub-advisor. AIM currently intends to appoint INVESCO Institutional as the sub-
advisor to your Fund if the shareholders approve the proposed sub-advisory
agreement described under Proposal 4.
Limitation of Liability of AIM, Company and Shareholders
The current advisory agreement does not explicitly state the limitation of
liability for INVESCO for acts or omissions in the course of, or connected with,
rendering advisory services under the current advisory agreement. The limitation
of liability provisions of the 1940 Act apply to both INVESCO and AIM in their
capacity as advisor. In addition, the proposed advisory agreement states that no
series of Company shall be liable for the obligations of other series of Company
and the liability of AIM to one series of Company shall not automatically render
AIM liable to any other series of Company. Consistent with applicable law, the
proposed advisory agreement would also include a provision stating that AIM's
obligations under the agreement are not binding on any shareholders of Company
individually and that shareholders are entitled to the same limitation on
personal liability as shareholders of private corporations for profit. The
primary reason for this change is to make your Fund's agreement consistent with
similar agreements for the AIM Funds.
State Law Governing the Agreement
Questions of state law under the current advisory agreement with INVESCO
are governed by the laws of Colorado. Under the proposed advisory agreement with
AIM, Texas law would apply. The Board determined that, because the services
under the proposed advisory agreement with AIM will primarily be provided in
Texas, it was more appropriate to apply Texas law to the proposed advisory
agreement.
FACTORS THE DIRECTORS CONSIDERED IN APPROVING THE ADVISORY AGREEMENT
At the request of AIM, the Board discussed the approval of the proposed
advisory agreement at an in-person meeting held on August 12-13, 2003. The
independent directors also discussed the approval of the proposed advisory
agreement with independent counsel prior to that meeting. In evaluating the
proposed advisory agreement, the Board requested and received information from
AIM to assist in its deliberations.
The Board considered the following factors in determining reasonableness
and fairness of the proposed changes between the current advisory agreement with
INVESCO and the proposed advisory agreement with AIM:
- The qualifications of AIM to provide investment advisory services. The
Board reviewed the credentials and experience of the officers and
employees of AIM who will provide investment advisory services to your
Fund and the proposal, if approved by shareholders, to appoint INVESCO
Institutional as sub-advisor to your Fund, and noted that the persons
providing portfolio management services to your Fund would not change if
Proposals 3 and 4 are approved by shareholders.
34
- The range of advisory services provided by AIM. The Board reviewed the
services to be provided by AIM under the proposed advisory agreement, and
noted that no material changes in the level or type of services provided
under the current advisory agreement with INVESCO would occur if the
proposed advisory agreement is approved by the shareholders, other than
the provision by AIM of certain administrative services if your Fund
engages in securities lending.
- Qualifications of AIM to provide a range of management and administrative
services. The Board reviewed the general nature of the non-investment
advisory services performed by AIM and its affiliates, such as
administrative, transfer agency and distribution services, and the fees
received by AIM and its affiliates for performing such services. In
addition to reviewing such services, the Board also considered the
organizational structure employed by AIM and its affiliates to provide
those services. The Board reviewed the proposed elimination from the
proposed advisory agreement of the provision of administrative services
to your Fund. The Board also reviewed the proposed form of Master
Administrative Services Agreement, noted that the overall services to be
provided under the existing arrangements and under the proposed Master
Administrative Services Agreements are the same, and concluded that the
overall accounting and administrative services to be provided by AIM
would not change under the combination of the proposed advisory agreement
and the Master Administrative Services Agreement.
- The performance record of your Fund. The Board reviewed your Fund's
performance record and determined that AIM has developed the expertise
and resources for managing funds with an investment objective and
strategies similar to those of your Fund and is able, therefore, to
provide advisory and administrative services to your Fund.
- Advisory fees and expenses. The Board examined the expense ratio and the
level of advisory fees for your Fund under the current advisory agreement
and compared them with the advisory fees expected to be incurred under
the proposed advisory agreement. The Board concluded that your Fund's
projected expense ratio and advisory fees under the proposed advisory
agreement were fair and reasonable in comparison with those of other
similar funds (including similar funds advised by AIM) and in light of
the investment management services to be provided by AIM under the
proposed advisory agreement. The advisory fees that are being proposed
under the proposed advisory agreement are the same as the advisory fees
paid to INVESCO under the current advisory agreement, other than the
removal of the reimbursement obligation related to services provided to
both your Fund and AIM by officers and directors which is not currently
applicable, and the provisions that permit AIM's receipt of fees for
providing administrative services in connection with securities lending
activities. Such fees would be paid only to the extent that your Fund
engages in securities lending. The Board noted that AIM intends to waive
its right to receive any fees under the proposed investment advisory
agreement for the administrative services it provides in connection with
securities lending activities. The Board also noted that AIM has agreed
to seek the Board's approval prior to its receipt of all or a portion of
such fees.
- The profitability of AIM. The Board reviewed information concerning the
profitability of AIM's (and its affiliates') investment advisory and
other activities and its financial condition. The Board noted that,
except as described above, no changes to the advisory fees were being
proposed, other than to permit AIM's receipt of fees for providing
services in connection with securities lending, and further noted that
AIM intends to waive its right to receive any such fees and has agreed to
seek the Board's approval prior to its receipt of all or a portion of
such fees. The Board also noted that, in accordance with an exemptive
order issued by the SEC, before your Fund may participate in a securities
lending program, the Board must approve such participation. In addition,
the Board must evaluate the securities lending arrangements annually and
determine that it is in the best interests of the shareholders of your
Fund to invest in AIM-advised money market funds any cash collateral your
Fund receives as security for the borrower's obligation to return the
loaned securities. If your Fund invests the cash collateral in
AIM-advised money market funds, AIM will receive additional advisory fees
from these money market funds, because the invested cash collateral will
increase the assets of these funds and AIM receives advisory fees based
upon the assets of these
35
funds. The Board noted that the cash collateral relates to assets of your
Fund that have already been invested, and the investment of the cash
collateral is intended to benefit your Fund by providing it with
additional income. The Board also noted that an investment of the cash
collateral in an AIM-advised money market fund would have a positive
effect on the profitability of AIM.
- The terms of the proposed advisory agreement. The Board reviewed the
terms of the proposed advisory agreement, including changes being made to
clarify or expand non-exclusivity, delegation and liability provisions,
to separate administrative services from advisory services and to have
AIM assist your Fund if it engages in securities lending. The Board
determined that these changes reflect the current environment in which
your Fund operates, and that AIM should have the flexibility to operate
in that environment.
After considering the above factors, the Board concluded that it is in the
best interests of your Fund and its shareholders to approve the proposed
advisory agreement between Company and AIM for your Fund.
The Board reached this conclusion after careful discussion and analysis.
The Board believes that it has carefully and thoroughly examined the pertinent
issues and alternatives. In recommending that you approve the proposed advisory
agreement, the independent directors have taken the action which they believe to
be in your best interests. In so doing, they were advised by independent
counsel, retained by the independent directors and paid for by Company, as to
the nature of the matters to be considered and the standards to be used in
reaching their decision.
If approved, the proposed advisory agreement will become effective on
November 5, 2003, and will expire, unless renewed, on or before June 30, 2005.
If shareholders of your Fund do not approve both Proposals 3 and 4, the current
advisory agreement with INVESCO will continue in effect for your Fund.
THE BOARD'S RECOMMENDATION ON PROPOSAL 3
The Board, including the independent directors, unanimously recommends that
you vote "FOR" this Proposal.
PROPOSAL 4 --
APPROVAL OF NEW SUB-ADVISORY AGREEMENT
BACKGROUND
INVESCO currently serves as the investment advisor to your Fund. AMVESCAP
has recommended restructuring the advisory and administrative servicing
arrangements so that AIM is the advisor and administrator for all INVESCO Funds
and AIM Funds. Your Board has approved a proposed advisory agreement under which
AIM will serve as the investment advisor for your Fund, and a proposed sub-
advisory agreement under which INVESCO Institutional, an affiliate of INVESCO,
will serve as sub-advisor. The portfolio management team for your Fund will not
change as a result of this restructuring.
You are being asked to approve Proposal 4 so that, in the event that
Proposal 1 is not approved, your Fund will still be able to benefit from the
proposed sub-advisory agreement between AIM and INVESCO Institutional.
The Board recommends that you approve the proposed sub-advisory agreement
between AIM and INVESCO Institutional for your Fund. The Board is asking you to
vote on this proposed sub-advisory agreement because the proposed sub-advisory
agreement for your Fund may only be entered into with shareholder approval. The
form of the proposed Master Intergroup Sub-Advisory Contract for Mutual Funds
between AIM and INVESCO Institutional for your Fund is at Appendix V.
36
At an in-person meeting of the Board held on August 12-13, 2003, the Board,
including a majority of the independent directors, voted to recommend that
shareholders approve a proposal to adopt the proposed sub-advisory agreement for
your Fund.
THE PROPOSED SUB-ADVISOR FOR YOUR FUND
INVESCO Institutional is an indirect wholly owned subsidiary of AMVESCAP. A
list of the names, addresses and principal occupations of the principal
executive officer and directors of INVESCO Institutional is in Exhibit M.
POSITIONS WITH INVESCO INSTITUTIONAL HELD BY COMPANY'S DIRECTORS OR EXECUTIVE
OFFICERS
None of the directors or executive officers of Company also are directors
and/or officers of INVESCO Institutional.
TERMS OF THE PROPOSED SUB-ADVISORY AGREEMENT
Under the proposed sub-advisory agreement between AIM and INVESCO
Institutional, INVESCO Institutional will provide general investment advice and
portfolio management to your Fund and, subject to the supervision of the
directors of Company and AIM and in conformance with the stated policies of your
Fund, INVESCO Institutional will manage the investment operations of your Fund.
INVESCO Institutional will not only make investment decisions for your Fund, but
will also place the purchase and sale orders for the portfolio transactions of
your Fund. INVESCO Institutional may purchase and sell portfolio securities from
and to brokers and dealers who sell shares of your Fund or provide your Fund,
AIM's other clients or INVESCO Institutional's other clients with research,
analysis, advice and similar services. INVESCO Institutional may pay to brokers
and dealers, in return for such research and analysis, a higher commission or
spread than may be charged by other brokers and dealers, subject to INVESCO
Institutional determining in good faith that such commission or spread is
reasonable in terms either of the particular transaction or of the overall
responsibility of AIM and INVESCO Institutional to your Fund and their other
clients and that that the total commissions or spreads paid by each fund will be
reasonable in relation to the benefits to the fund over the long term.
Specifically, INVESCO Institutional will be required to perform the
following services under the proposed sub-advisory agreement:
- To provide a continuous investment program for your Fund, including
investment research and management, with respect to all of your Fund's
assets in conformity with (i) Company's Articles of Incorporation, bylaws
and registration statement, and (ii) the requirements of the 1940 Act,
the rules thereunder, and all other applicable federal and state laws and
regulations;
- To determine what securities and other investments are to be purchased or
sold for your Fund and the brokers and dealers through whom trades will
be executed;
- Whenever INVESCO Institutional simultaneously places orders to purchase
or sell the same security on behalf of your Fund and one or more accounts
advised by INVESCO Institutional, to allocate as to price and amount
among all such accounts in a manner believed to be equitable to each
account; and
- To maintain all books and records with respect to the securities
transactions of your Fund in compliance with the requirements of the 1940
Act and to furnish the Board and AIM with periodic and special reports as
the Board or AIM reasonably may request.
The proposed sub-advisory agreement will continue from year to year for
your Fund only if such continuance is specifically approved at least annually by
(i) the Board or the vote of a majority of the outstanding voting securities (as
defined in the 1940 Act) of your Fund, and (ii) the vote of a majority of
independent directors cast at a meeting called for such purpose. The proposed
sub-advisory agreement is
37
terminable on 60 days' written notice by either party thereto, by the Board, or
by a vote of a majority of the outstanding voting securities of your Fund, and
will terminate automatically if assigned.
For the services to be rendered and the expenses to be assumed by INVESCO
Institutional under the proposed sub-advisory agreement, AIM will pay to INVESCO
Institutional a fee that is computed daily and paid on or before the last day of
the next succeeding calendar month on the basis of AIM's compensation on the
sub-advised assets per year. The annual rate at which INVESCO Institutional will
receive fees from AIM under the proposed sub-advisory agreement is in Exhibit N.
ADVISORY FEES CHARGED BY INVESCO INSTITUTIONAL FOR SIMILAR TYPES OF ACCOUNTS FOR
WHICH IT SERVES AS ADVISOR
The annual advisory fee rates paid to INVESCO Institutional by certain
types of accounts with similar investment objectives as your Fund are in Exhibit
O.
FACTORS THE DIRECTORS CONSIDERED IN APPROVING THE PROPOSED SUB-ADVISORY
AGREEMENT
At the request of AIM and INVESCO Institutional, the Board discussed the
approval of the proposed sub-advisory agreement at an in-person meeting held on
August 12-13, 2003. The independent directors also discussed the approval of the
proposed sub-advisory agreement with independent counsel prior to that meeting.
In evaluating the proposed sub-advisory agreement, the Board requested and
received information from AIM and INVESCO Institutional to assist in its
deliberations.
The Board considered the following factors in determining the
reasonableness and fairness of the proposed sub-advisory agreement between AIM
and INVESCO Institutional for your Fund:
- The range of sub-advisory services provided by INVESCO
Institutional. The Board reviewed the services to be provided by INVESCO
Institutional under the proposed sub-advisory agreement, and noted that,
if the proposed sub-advisory agreement is approved by shareholders, the
level and type of investment advisory services under the proposed
sub-advisory agreement will be comparable to those currently provided by
INVESCO under Company's current advisory agreement with INVESCO.
- The fees payable to INVESCO Institutional for its services. The Board
noted that if the proposed sub-advisory agreement is approved, INVESCO
Institutional will receive compensation based on that portion of the
assets of your Fund that it manages (the sub-advised assets). In
addition, the fees paid would be a percentage of the advisory fees that
AIM receives on the sub-advised assets. The Board noted that these fees
had been agreed to by AIM and INVESCO Institutional, as well as by
AMVESCAP, the indirect parent of AIM and INVESCO Institutional. The Board
also noted that the proposed changes to the compensation to INVESCO
Institutional would have no effect on your Fund, since the fees are
payable by AIM.
- The performance record of your Fund. The Board reviewed the performance
record of your Fund and noted that the same portfolio management team
will be providing investment advisory services to your Fund under the
proposed sub-advisory agreement. The Board determined that such portfolio
management team had provided satisfactory services with respect to your
Fund, after considering performance information that it received during
the past year from INVESCO.
- The profitability of INVESCO Institutional. The Board considered
information concerning the profitability of INVESCO Institutional's (and
its affiliates') investment advisory and other activities and its
financial condition. The Board noted that INVESCO Institutional would
receive an annual fee equal to a percentage of AIM's compensation on the
sub-advised assets. The Board noted that the proposed sub-advisory fees
are less than the advisory fees currently received by INVESCO under the
current advisory agreement, but that INVESCO Institutional assured the
Board that such reduction would not affect the nature or quality of the
services provided by it to your Fund.
38
- The terms of the proposed agreement. The Board reviewed the terms of the
proposed agreement. The Board determined that this new agreement reflects
the current environment in which your Fund operates, and that INVESCO
Institutional should have the flexibility to operate in that environment.
After considering the above factors, the Board concluded that it is in the
best interests of your Fund and its shareholders to approve the proposed
sub-advisory agreement between AIM and INVESCO Institutional for your Fund.
The Board reached this conclusion after careful discussion and analysis.
The Board believes that it has carefully and thoroughly examined the pertinent
issues and alternatives. In recommending that you approve the proposed
sub-advisory agreement, the independent directors have taken the action which
they believe to be in your best interests. In so doing, they were advised by
independent counsel, retained by the independent directors and paid for by
Company, as to the nature of the matters to be considered and the standards to
be used in reaching their decision.
If approved, the proposed sub-advisory agreement will become effective on
November 5, 2003, and will expire, unless renewed, on or before June 30, 2005.
If shareholders of your Fund do not approve both Proposals 3 and 4, the current
advisory agreement with INVESCO will continue in effect for your Fund and AIM
and INVESCO Institutional will not enter into the proposed sub-advisory
agreement for your Fund.
THE BOARD'S RECOMMENDATION ON PROPOSAL 4
The Board, including the independent directors, unanimously recommends that
you vote "FOR" this Proposal.
PROPOSAL 5 --
APPROVAL OF THE PLAN
TO REDOMESTICATE COMPANY AS A DELAWARE STATUTORY TRUST
BACKGROUND
Company currently is organized as a Maryland corporation. AMVESCAP has
identified each series portfolio of Company as appropriate to be redomesticated
as a new series portfolio of a newly created open-end management investment
company organized as a statutory trust under the Delaware Statutory Trust Act
(the "Trust").
If both Proposals 1 and 5 are approved by the shareholders of your Fund,
your Fund will first be redomesticated as a new series portfolio of the Trust
and, after such redomestication has occurred, your Fund will be combined with
Buying Fund.
The Board has approved the Plan, which provides for a series of
transactions to convert your Fund and each other series portfolio of Company
(each, a "Current Fund") to a corresponding series (a "New Fund") of the Trust.
Under the Plan, each Current Fund will transfer all its assets to a
corresponding New Fund in exchange solely for voting shares of beneficial
interest in the New Fund and the New Fund's assumption of all the Current Fund's
liabilities (collectively, the "Redomestication"). A form of the Plan relating
to the proposed Redomestication is set forth in Appendix VI.
Approval of the Plan requires the affirmative vote of a majority of the
issued and outstanding shares of Company. The Board is soliciting the proxies of
the shareholders of your Fund to vote on the Plan with this Proxy
Statement/Prospectus. The Board is soliciting the proxies of the shareholders of
Company's other series portfolios to vote on the Plan with a separate proxy
statement.
The Redomestication is being proposed primarily to provide Company with
greater flexibility in conducting its business operations. The operations of
each New Fund following the Redomestication will be substantially similar to
those of its predecessor Current Fund. As described below, the Trust's
39
Declaration of Trust differs from Company's Articles of Incorporation in certain
respects that are expected to improve Company's and each Current Fund's
operations. The Trust, like Company, will operate as an open-end management
investment company registered with the SEC under the 1940 Act.
REASONS FOR THE PROPOSED REDOMESTICATION
The Redomestication is being proposed because, as noted above, INVESCO and
the Board believe that the Delaware statutory trust organizational form offers a
number of advantages over the Maryland corporate organizational form. As a
result of these advantages, the Delaware statutory trust organizational form has
been increasingly used by mutual funds, including the majority of the AIM Funds.
The Delaware statutory trust organizational form offers greater flexibility
than the Maryland corporate form. A Maryland corporation is governed by the
detailed requirements imposed by Maryland corporate law and by the terms of its
Articles of Incorporation. A Delaware statutory trust is subject to fewer
statutory requirements. The Trust will be governed primarily by the terms of its
Declaration of Trust. In particular, the Trust will have greater flexibility to
conduct business without the necessity of engaging in expensive proxy
solicitations to shareholders. For example, under Maryland corporate law,
amendments to Company's Articles of Incorporation would typically require
shareholder approval. Under Delaware law, unless the Declaration of Trust of a
Delaware statutory trust provides otherwise, amendments to it may be made
without first obtaining shareholder approval. In addition, unlike Maryland
corporate law, which restricts the delegation of a board of directors'
functions, Delaware law permits the board of trustees of a Delaware statutory
trust to delegate certain of its responsibilities. For example, the board of
trustees of a Delaware statutory trust may delegate the responsibility of
declaring dividends to duly empowered committees of the board or to appropriate
officers. Finally, Delaware law permits the trustees to adapt a Delaware
statutory trust to future contingencies. For example, the trustees may, without
a shareholder vote, change a Delaware statutory trust's domicile or
organizational form. In contrast, under Maryland corporate law, a company's
board of directors would be required to obtain shareholder approval prior to
changing domicile or organizational form.
The Redomestication will also have certain other effects on Company, its
shareholders and management, which are described below under the heading "The
Trust Compared to Company."
WHAT THE PROPOSED REDOMESTICATION WILL INVOLVE
To accomplish the Redomestication, the Trust has been formed as a Delaware
statutory trust pursuant to its Declaration of Trust, and each New Fund has been
established as a series portfolio of the Trust. On the closing date, each
Current Fund will transfer all of its assets to the corresponding classes of the
corresponding New Fund in exchange solely for a number of full and fractional
classes of shares of the New Fund equal to the number of full and fractional
shares of common stock of the corresponding classes of the Current Fund then
outstanding and the New Fund's assumption of the Current Fund's liabilities.
Immediately thereafter, each Current Fund will distribute those New Fund shares
to its shareholders in complete liquidation of such Current Fund. Upon
completion of the Redomestication, each shareholder of each Current Fund will be
the owner of full and fractional shares of the corresponding New Fund equal in
number and aggregate net asset value to the shares he or she held in the Current
Fund. As soon as practicable after the consummation of the Redomestication, each
Current Fund will be terminated and Company will be dissolved as a Maryland
corporation.
The obligations of Company and the Trust under the Plan are subject to
various conditions stated therein. To provide against unforeseen events, the
Plan may be terminated or amended at any time prior to the closing of the
Redomestication by action of the Board, notwithstanding the approval of the Plan
by the shareholders of any Current Fund. However, no amendments may be made that
would materially adversely affect the interests of shareholders of any Current
Fund. Company and the Trust may at any time waive compliance with any condition
contained in the Plan, provided that the waiver does not materially adversely
affect the interests of shareholders of any Current Fund.
40
The Plan authorizes Company to acquire one share of each class of each New
Fund and, as the sole shareholder of the Trust prior to the Redomestication, to
do each of the following:
- Approve with respect to each New Fund a new investment advisory agreement
with AIM with an effective date of November 5, 2003 that will be
substantially identical to that described in Proposal 3 and a new
investment advisory agreement with INVESCO that is substantially
identical to the corresponding Current Fund's existing investment
advisory agreement with INVESCO for the interim period between the
consummation of the Redomestication and November 5, 2003. Information on
the new advisory agreement, including a description of the differences
between it and Company's current advisory agreement, is set forth above
under Proposal 3. If Proposal 3 is not approved by shareholders of a
Current Fund, Company will approve for the corresponding New Fund an
investment advisory agreement with INVESCO that is substantially
identical to such Current Fund's existing investment advisory agreement
with INVESCO.
- Approve with respect to each New Fund a new sub-advisory agreement
between AIM and INVESCO Institutional effective November 5, 2003 that
will be substantially identical to that described in Proposal 4.
Information on the new sub-advisory agreement is set forth above in
Proposal 4. If Proposal 3 is not approved by shareholders of a Current
Fund, Company will not approve a sub-advisory agreement between AIM and
INVESCO Institutional for the corresponding New Fund.
- Assuming that Proposal 3 is approved by shareholders, approve with
respect to each New Fund a new administrative services agreement with AIM
with an effective date of November 5, 2003 that will be substantially
identical to the new administrative services agreement with AIM that will
be entered into by Company if shareholders approve Proposal 3 and a new
administrative services agreement with INVESCO that is substantially
identical to the corresponding Current Fund's existing administrative
services agreement with INVESCO for the interim period between the
consummation of the Redomestication and November 5, 2003. If Proposal 3
is not approved by shareholders of a Current Fund, Company will approve
for the corresponding New Fund an administrative services agreement with
AIM that is substantially identical to such Current Fund's existing
administrative services agreement with INVESCO.
- Approve with respect to each New Fund a distribution agreement with AIM
Distributors. The proposed distribution agreement will provide for
substantially identical distribution services as currently provided to
each corresponding Current Fund by AIM Distributors.
- Approve a distribution plan pursuant to Rule 12b-1 under the 1940 Act
with respect to each class of each New Fund that will be substantially
identical to the corresponding Current Fund's existing distribution plan
for that class.
- Approve with respect to each New Fund a custodian agreement with State
Street Bank and Trust Company and a transfer agency and servicing
agreement with AIM Fund Services, Inc., each of which currently provides
such services to the corresponding Current Fund, and a multiple class
plan pursuant to Rule 18f-3 of the 1940 Act which will be substantially
identical to the multiple class plan that has been approved by the Board
for the corresponding Current Fund and which is expected to become
effective prior to the consummation of the Redomestication.
- Elect the directors of Company as the trustees of the Trust to serve
without limit in time, except as they may resign or be removed by action
of the Trust's trustees or shareholders, and except as they retire in
accordance with the Trust's retirement policy for trustees. The Trust's
retirement policy for trustees will replace Company's retirement policy
for directors.
- Ratify the selection of PricewaterhouseCoopers LLP, the accountants for
each Current Fund, as the independent public accountants for each New
Fund.
- Approve such other agreements and plans as are necessary for each New
Fund's operation as a series of an open-end management investment
company.
41
The Trust's transfer agent will establish for each shareholder an account
containing the appropriate number of shares of each class of each New Fund. Such
accounts will be identical in all respects to the accounts currently maintained
by Company's transfer agent for each shareholder of the Current Funds. Shares
held in the Current Fund accounts will automatically be designated as shares of
the New Funds. Certificates for Current Fund shares issued before the
Redomestication will represent shares of the corresponding New Fund after the
Redomestication. Shareholders of the New Funds will not have the right to demand
or require the Trust to issue share certificates. Any account options or
privileges on accounts of shareholders under the Current Funds will be
replicated on the New Fund account. No sales charges will be imposed in
connection with the Redomestication.
Assuming your approval of Proposal 5, Company currently contemplates that
the Redomestication will be consummated on October 23, 2003.
THE FEDERAL INCOME TAX CONSEQUENCES OF THE REDOMESTICATION
Company and the Trust will receive an opinion of Ballard Spahr Andrews &
Ingersoll, LLP to the effect that the Redomestication will qualify as a
"reorganization" within the meaning of Section 368(a) of the Code. Accordingly,
the Current Funds, the New Funds and the shareholders of the New Funds will
recognize no gain or loss for Federal income tax purposes as a result of the
Redomestication. Shareholders of the Current Funds should consult their tax
advisers regarding the effect, if any, of the Redomestication in light of their
individual circumstances and as to state and local consequences, if any, of the
Redomestication.
APPRAISAL RIGHTS
Appraisal rights are not available to shareholders. However, shareholders
retain the right to redeem their shares of the Current Funds or the New Funds,
as the case may be, at any time before or after the Redomestication.
THE TRUST COMPARED TO COMPANY
Structure of the Trust
The Trust has been established under the laws of the State of Delaware by
the filing of a certificate of trust in the office of the Secretary of State of
Delaware. The Trust has established series corresponding to and having identical
designations as the series portfolios of Company. The Trust has also established
classes with respect to each New Fund corresponding to and having identical
designations as the classes of each Current Fund. Each New Fund will have the
same investment objectives, policies, and restrictions as its predecessor
Current Fund. The Trust's fiscal year is the same as that of Company. The Trust
will not have any operations prior to the Redomestication. Initially, Company
will be the sole shareholder of the Trust.
As a Delaware statutory trust, the Trust's operations are governed by its
Declaration of Trust and Amended and Restated Bylaws and applicable Delaware law
rather than by Company's Articles of Incorporation and Amended and Restated
Bylaws and applicable Maryland law. Certain differences between the two
domiciles and organizational forms are summarized below. The operations of the
Trust will continue to be subject to the provisions of the 1940 Act and the
rules and regulations thereunder.
Trustees of the Trust
Subject to the provisions of the Declaration of Trust, the business of the
Trust will be managed by its trustees, who have all powers necessary or
convenient to carry out their responsibilities. The responsibilities, powers,
and fiduciary duties of the trustees of the Trust are substantially the same as
those of the directors of Company.
42
The trustees of the Trust would be those persons elected at this Special
Meeting to serve as directors of Company. Information concerning the nominees
for election as directors of Company is set forth above under Proposal 2.
Shares of the Trust
The beneficial interests in the New Funds will be represented by
transferable shares, par value $0.01 per share. Shareholders do not have the
right to demand or require the Trust to issue share certificates. The trustees
have the power under the Declaration of Trust to establish new series and
classes of shares; Company's directors currently have a similar right. The
Declaration of Trust permits the trustees to issue an unlimited number of shares
of each class and series. Company is authorized to issue only the number of
shares specified in the Articles of Incorporation and may issue additional
shares only with Board approval and after payment of a fee to the State of
Maryland on any additional shares authorized.
Your Fund currently has the classes of shares set forth in Exhibit A. The
Trust has established for each New Fund the classes that currently exist for its
predecessor Current Fund. Except as discussed in this Proxy
Statement/Prospectus, shares of each class of each New Fund will have rights,
privileges, and terms substantially similar to those of the corresponding class
of the Current Fund.
For a discussion of certain differences between and among Company's
Articles of Incorporation and Amended and Restated Bylaws and Maryland law and
the Trust's Declaration of Trust and Amended and Restated Bylaws and Delaware
law, see "Rights of Shareholders" in Proposal 1 above. The foregoing discussion
and the discussion under the caption "Rights of Shareholders" in Proposal 1
above is only a summary of certain differences and is not a complete description
of all the differences. Shareholders should refer to the provisions of the
governing documents of Company and Trust and state law directly for a more
thorough comparison. Copies of the Articles of Incorporation and Amended and
Restated Bylaws of Company and of the Declaration of Trust and the Trust's
Amended and Restated Bylaws are available to shareholders without charge upon
written request to Company.
THE BOARD'S RECOMMENDATION ON PROPOSAL 5
Your Board, including the independent directors, unanimously recommends
that you vote "FOR" this Proposal.
INFORMATION ABOUT THE SPECIAL MEETING AND VOTING
PROXY STATEMENT/PROSPECTUS
We are sending you this Proxy Statement/Prospectus and the enclosed proxy
card because the Board is soliciting your proxy to vote at the Special Meeting
and at any adjournments of the Special Meeting. This Proxy Statement/Prospectus
gives you information about the business to be conducted at the Special Meeting.
However, you do not need to attend the Special Meeting to vote your shares.
Instead, you may simply complete, sign and return the enclosed proxy card or
vote by telephone or through a website established for that purpose.
Company intends to mail this Proxy Statement/Prospectus, the enclosed
Notice of Special Meeting of Shareholders and the enclosed proxy card on or
about August 25, 2003 to all shareholders entitled to vote. Shareholders of
record as of the close of business on July 25, 2003 (the "Record Date") are
entitled to vote at the Special Meeting. The number of shares outstanding of
each class of shares of your Fund on the Record Date can be found at Exhibit P.
Each share is entitled to one vote for each full share held, and a fractional
vote for a fractional share held.
TIME AND PLACE OF SPECIAL MEETING
We are holding the Special Meeting at 11 Greenway Plaza, Suite 100,
Houston, Texas 77046-1173 on October 21, 2003, at 3:00 p.m., Central Time.
43
VOTING IN PERSON
If you do attend the Special Meeting and wish to vote in person, we will
provide you with a ballot prior to the vote. However, if your shares are held in
the name of your broker, bank or other nominee, you must bring a letter from the
nominee indicating that you are the beneficial owner of the shares on the Record
Date and authorizing you to vote. Please call Company at (800) 952-3502 if you
plan to attend the Special Meeting.
VOTING BY PROXY
Whether you plan to attend the Special Meeting or not, we urge you to
complete, sign and date the enclosed proxy card and to return it promptly in the
envelope provided. Returning the proxy card will not affect your right to attend
the Special Meeting and vote.
If you properly fill in and sign your proxy card and send it to us in time
to vote at the Special Meeting, your "proxy" (the individual named on your proxy
card) will vote your shares as you have directed. If you sign your proxy card
but do not make specific choices, your proxy will vote your shares as
recommended by the Board as follows and in accordance with management's
recommendation on other matters:
- FOR the proposal to approve the Agreement.
- FOR the election of all 16 nominees for director.
- FOR the proposal to approve a new investment advisory agreement with AIM
for your Fund.
- FOR the proposal to approve a new sub-advisory agreement between AIM and
INVESCO Institutional for your Fund.
- FOR the proposal to approve the Plan.
Your proxy will have the authority to vote and act on your behalf at any
adjournment of the Special Meeting.
If you authorize a proxy, you may revoke it at any time before it is
exercised by sending in another proxy card with a later date or by notifying the
Secretary of Company in writing to the address of the Company set forth on the
cover page of this Proxy Statement/Prospectus before the Special Meeting that
you have revoked your proxy. In addition, although merely attending the Special
Meeting will not revoke your proxy, if you are present at the Special Meeting
you may withdraw your proxy and vote in person. Shareholders may also transact
any other business not currently contemplated that may properly come before the
Special Meeting in the discretion of the proxies or their substitutes.
VOTING BY TELEPHONE OR THE INTERNET
You may vote your shares by telephone or through a website established for
that purpose by following the instructions that appear on the proxy card
accompanying this Proxy Statement/Prospectus.
QUORUM REQUIREMENT AND ADJOURNMENT
A quorum of shareholders is necessary to hold a valid meeting. A quorum
will exist for Proposals 1, 3 and 4 if shareholders entitled to vote one-third
of the issued and outstanding shares of your Fund on the Record Date are present
at the Special Meeting in person or by proxy. A quorum will exist for Proposals
2 and 5 if shareholders entitled to vote one-third of the issued and outstanding
shares of Company on the Record Date are present at the Special Meeting in
person or by proxy.
Under the rules applicable to broker-dealers, if your broker holds your
shares in its name, the broker will not be entitled to vote your shares if it
has not received instructions from you. A "broker non-vote" occurs when a broker
has not received voting instructions from a shareholder and is barred from
voting the shares without shareholder instructions because the proposal is
non-routine.
44
Abstentions and broker non-votes will count as shares present at the
Special Meeting for purposes of establishing a quorum.
If a quorum is not present at the Special Meeting or a quorum is present
but sufficient votes to approve a Proposal are not received, the persons named
as proxies may propose one or more adjournments of the Special Meeting to permit
further solicitation of proxies. Any such adjournment will require the
affirmative vote of a majority of those shares represented at the Special
Meeting in person or by proxy. The persons named as proxies will vote those
proxies that they are entitled to vote FOR a Proposal in favor of such an
adjournment and will vote those proxies required to be voted AGAINST such
Proposal against such adjournment. A shareholder vote may be taken on a Proposal
in this Proxy Statement/ Prospectus prior to any such adjournment if sufficient
votes have been received and it is otherwise appropriate.
VOTE NECESSARY TO APPROVE EACH PROPOSAL
PROPOSALS 1, 3 AND 4. Approval of Proposals 1, 3 and 4 requires the lesser
of (a) the affirmative vote of 67% or more of the voting securities of your Fund
present or represented by proxy at the Special Meeting, if the holders of more
than 50% of the outstanding voting securities of your Fund are present or
represented by proxy, or (b) the affirmative vote of more than 50% of the
outstanding voting securities of your Fund. Abstentions and broker non-votes are
counted as present but are not considered votes cast at the Special Meeting. As
a result, they have the same effect as a vote against Proposals 1, 3 and 4
because approval of Proposals 1, 3 and 4 requires the affirmative vote of a
percentage of the voting securities present or represented by proxy or a
percentage of the outstanding voting securities.
PROPOSAL 2. The affirmative vote of a plurality of votes cast at the
Special Meeting is necessary to elect directors, meaning that the director
nominee with the most affirmative votes for a particular slot is elected for
that slot. In an uncontested election for directors, the plurality requirement
is not a factor. Abstentions will not count as votes cast and will have no
effect on the outcome of this proposal. We expect that brokers will be entitled
to vote on this proposal, but any broker non-vote will have no effect on the
outcome of this proposal.
PROPOSAL 5. Approval of Proposal 5 requires the affirmative vote of a
majority of the issued and outstanding shares of Company. Abstentions and broker
non-votes are counted as present but are not considered votes cast at the
Special Meeting. As a result, they have the same effect as a vote against the
Plan because approval of the Plan requires the affirmative vote of a percentage
of the outstanding voting securities.
PROXY SOLICITATION
Company has engaged the services of Georgeson Shareholder Communications
Inc. ("Solicitor") to assist in the solicitation of proxies for the Special
Meeting. Solicitor's costs are estimated to be approximately $5,700. Company
expects to solicit proxies principally by mail, but Company or Solicitor may
also solicit proxies by telephone, facsimile or personal interview. Company's
officers will not receive any additional or special compensation for any such
solicitation. AMVESCAP, on behalf of INVESCO, will bear the costs and expenses
incurred in connection with the Reorganization, including Solicitor's costs.
OTHER MATTERS
Management does not know of any matters to be presented at the Special
Meeting other than those discussed in this Proxy Statement/Prospectus. If any
other matters properly come before the Special Meeting, the shares represented
by proxies will be voted with respect thereto in accordance with management's
recommendation.
45
SHAREHOLDER PROPOSALS
As a general matter, your Fund does not hold regular meetings of
shareholders. If you wish to submit a proposal for consideration at a meeting of
shareholders of your Fund, you should send such proposal to Company at the
address set forth on the first page of this Proxy Statement/Prospectus. To be
considered for presentation at a meeting of shareholders, Company must receive
proposals a reasonable time before proxy materials are prepared for the meeting.
Your proposal also must comply with applicable law.
For a discussion of how to propose an individual for nomination as a
director, please refer to the section of this Proxy Statement/Prospectus
entitled "Proposal 2 -- Current Committees of the Board -- Nominating
Committee."
OWNERSHIP OF SHARES
A list of the name, address and percent ownership of each person who, as of
July 25, 2003, to the knowledge of Company owned 5% or more of any class of the
outstanding shares of your Fund can be found at Exhibit Q.
A list of the name, address and percent ownership of each person who, as of
July 25, 2003, to the knowledge of Buyer owned 5% or more of any class of the
outstanding shares of Buying Fund can be found at Exhibit R.
INDEPENDENT PUBLIC ACCOUNTANTS
The audit committee of the Board has appointed PricewaterhouseCoopers LLP
(the "Auditor") as Company's independent public accountants for the fiscal year
ending March 31, 2004. A representative of the Auditor is expected to be
available at the Special Meeting and to have the opportunity to make a statement
and respond to appropriate questions from the shareholders. The audit committee
of the Board has considered whether the provision of the services below is
compatible with maintaining the Auditor's independence.
FEES PAID TO THE AUDITOR RELATED TO COMPANY
The Auditor billed Company (consisting of nine separate series portfolios)
aggregate fees for professional services rendered for the 2003 fiscal year as
follows:
<Table>
Audit Fees.................................................. $218,050
Financial Information Systems Design and Implementation
Fees...................................................... $ 0
All Other Fees*............................................. $ 35,543
--------
Total Fees.................................................. $253,593
</Table>
- ---------------
* All Other Fees includes fees billed for all other non-audit services,
including fees for tax-related services rendered to Company.
46
FEES PAID TO THE AUDITOR NOT RELATED TO COMPANY
The Auditor billed INVESCO aggregate fees for professional services
rendered for the 2003 fiscal year to INVESCO, or any affiliate that provided
services to Company, as follows:
<Table>
Financial Information Systems Design and Implementation
Fees...................................................... $ 0
All Other Fees**............................................ $52,500
-------
Total Fees.................................................. $52,500
</Table>
- ---------------
** As required by SEC rules, All Other Fees includes amounts paid to the Auditor
by your Fund's advisor and other related entities that provide support for
the operations of Company. All Other Fees include services relating to tax
services, controls review on the transfer agency, research on accounting
consultations, a CRM project and other agreed upon procedures. The services
performed for your Fund's advisor and related entities benefit many legal
entities of INVESCO, including many sister funds within the investment
company complex.
47
EXHIBIT A
<Table>
<Caption>
CLASSES OF SHARES OF YOUR FUND CORRESPONDING CLASSES OF SHARES OF BUYING FUND
- ------------------------------ ----------------------------------------------
Class A shares Class A shares
Class B shares Class B shares
Class C shares Class C shares
Investor Class shares Investor Class shares
</Table>
A-1
EXHIBIT B
COMPARISON OF PERFORMANCE OF YOUR FUND AND BUYING FUND
INVESCO REAL ESTATE OPPORTUNITY FUND (YOUR FUND)
Performance information in the bar chart below is that of the Fund's
Investor Class shares, which has the longest operating history of the Fund's
classes.
The bar chart below shows the Fund's Investor Class actual yearly
performance (commonly known as its "total return") for the years ended December
31 over the past decade or since inception. The table below shows the pre-tax
and after-tax average annual total returns of Investor Class for various periods
ended December 31, 2002 compared to the NAREIT -- Equity REIT Index.
After-tax returns are provided on a pre-redemption and post-redemption
basis. Pre-redemption returns assume you continue to hold your shares and pay
taxes on Fund distributions (i.e., dividends and capital gains) but do not
reflect taxes that may be incurred upon selling or exchanging shares.
Post-redemption returns assume payment of taxes on fund distributions and also
that you close your account and pay remaining federal taxes. After-tax returns
are calculated using the highest individual federal income tax rates in effect
at the time the distribution is paid. State and local taxes are not considered.
Actual after-tax returns depend on an investor's tax situation and may differ
from those shown. For investors holding their shares in tax-deferred
arrangements such as 401(k) plans or individual retirement accounts, the
after-tax return shown is not relevant.
The information in the bar chart and table illustrates the variability of
the Fund's total return and how its performance compared to a broad measure of
market performance. Remember, past performance (before and after taxes) does not
indicate how the Fund will perform in the future.
REAL ESTATE OPPORTUNITY FUND -- INVESTOR CLASS
ACTUAL ANNUAL TOTAL RETURN(1)(2)(3)
<Table>
1997........................................................ 21.50%
1998........................................................ (23.48)%
1999........................................................ (5.50)%
2000........................................................ 24.72%
2001........................................................ (1.91)%
2002........................................................ 5.81%
</Table>
Best Calendar Qtr. 9/97 14.19%
Worst Calendar Qtr. 9/98 (20.46%)
B-1
<Table>
<Caption>
AVERAGE ANNUAL TOTAL RETURN
AS OF 12/31/02
-----------------------------
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
Real Estate Opportunity Fund(1)(2)
Return Before Taxes....................................... 5.81% (1.32)% 2.17%(3)
Return After Taxes on Distributions....................... 4.56% (3.55)% (0.55)%(3)
Return After Taxes on Distributions and Sale of Fund
Shares................................................. 3.58% (2.21)% 0.35%(3)
NAREIT -- Equity REIT Index(4) (reflects no deduction for
fees, expenses or taxes).................................. 3.82% 3.30% 5.95%(3)
</Table>
- ---------------
(1) Total return figures include reinvested dividends and capital gain
distributions and the effect of the class' expenses.
(2) Returns before taxes for Investor Class shares of Real Estate Opportunity
Fund year-to-date as of the calendar quarter ended June 30, 2003 was 15.14%.
(3) The Fund (Investor Class shares) commenced investment operations on January
2, 1997. Index comparison begins on January 2, 1997.
(4) The NAREIT -- Equity REIT Index is an unmanaged index considered
representative of the U.S. real estate investment trust equity markets.
Please keep in mind that the Indexes do not pay brokerage, management,
administrative, or distribution expenses, all of which are paid by the
classes and are reflected in their annual returns. Index returns also do not
include sales charges or CDSCs that may be paid by the shareholder.
AIM REAL ESTATE FUND
The bar chart and table shown below provide an indication of the risks of
investing in the fund. The fund's past performance (before and after taxes) is
not necessarily an indication of its future performance.
ANNUAL TOTAL RETURNS
The following bar chart shows changes in the performance of the fund's
Class C shares from year to year. The bar chart does not reflect sales loads. If
it did, the annual total returns shown would be lower.
<Table>
<Caption>
ANNUAL
YEAR ENDED TOTAL
DECEMBER 31 RETURNS
- ----------- -------
1996................................................................... 36.44%
1997................................................................... 18.88%
1998................................................................... -23.16%
1999................................................................... -3.54%
2000................................................................... 28.25%
2001................................................................... 9.49%
2002................................................................... 8.06%
</Table>
The Class C share's year-to-date total return as of June 30, 2003 was
13.94%.
During the period shown in the bar chart, the highest quarterly return was
19.39% (quarter ended December 31, 1996) and the lowest quarterly return was
- -15.54% (quarter ended September 30, 1998).
B-2
PERFORMANCE TABLE
The following performance table compares the fund's performance to that of
a broad-based securities market index. The fund's performance reflects payment
of sales loads, if applicable. The indices do not reflect payment of fees,
expenses or taxes.
Average Annual Total Returns (for the periods ended December 31, 2002)
<Table>
<Caption>
SINCE INCEPTION
1 YEAR 5 YEARS INCEPTION DATE
------ ------- --------- ---------
Class C
Return Before Taxes................................. 7.06% 2.38% 9.39% 05/01/95
S&P 500(1)............................................ (22.09)% (0.58)% 9.02% 04/30/95(4)
Morgan Stanley Real Estate Index(2)................... 3.65% 3.30% 10.79% 04/30/95(4)
Lipper Real Estate Fund Index(3)...................... 3.63% 2.75% N/A 04/30/95(4)
</Table>
- ---------------
(1) The Standard & Poor's 500 Index is an unmanaged index of common stocks
frequently used as a general measure of U.S. stock market performance. The
fund has also included the Morgan Stanley Real Estate Index, which the fund
believes more closely reflects the performance of the types of securities in
which the fund invests. In addition, the Lipper Real Estate Fund Index
(which may or may not include the fund) is included for comparison to a peer
group.
(2) The Morgan Stanley Real Estate Index is a total-return index comprised of
the most actively traded real estate investment trusts and is designed to be
a measure of real estate equity performance.
(3) The Lipper Real Estate Fund Index is an equally weighted representation of
the 30 largest funds within the Lipper Real Estate category.
(4) The average annual total return given is since the date closest to the
inception date of the class with the longest performance history.
B-3
EXHIBIT C
COMPARISON FEE TABLE AND EXPENSE EXAMPLE
FEE TABLE
This table compares the shareholder fees and annual operating expenses,
expressed as a percentage of net assets ("Expense Ratios"), of Class A, Class B,
Class C and Investor Class shares of INVESCO Real Estate Opportunity Fund
("Selling Fund"), and of Class A, Class B and Class C shares of AIM Real Estate
Fund ("Buying Fund"). Pro Forma Combined Expense Ratios of Buying Fund giving
effect to the reorganization of Selling Fund into Buying Fund are also provided.
<Table>
<Caption>
SELLING FUND BUYING FUND
(AS OF 3/31/03) (AS OF 7/31/02)
--------------------------------------------- ----------------------------------
INVESTOR
CLASS A CLASS B CLASS C CLASS CLASS A CLASS B CLASS C
SHARES SHARES SHARES SHARES SHARES SHARES SHARES
------- ------- ------- -------- ------- ------- -------
SHAREHOLDER FEES
(fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on
Purchases
(as a percentage of offering price)...... 5.50% None None None 4.75% None None
Maximum Deferred Sales Charge (Load)(1).... None(2)(3) 5.00% 1.00% None None(2)(4) 5.00% 1.00%
ANNUAL FUND OPERATING EXPENSES(5)
(expenses that are deducted from fund
assets)
Management Fees............................ 0.75% 0.75% 0.75% 0.75% 0.90% 0.90% 0.90%
Distribution and/or Service (12b-1)
Fees(6).................................. 0.35% 1.00% 1.00% 0.25% 0.35% 1.00% 1.00%
Other Expenses(7).......................... 1.25% 1.25% 0.97% 1.25% 0.51% 0.51% 0.51%
Total Annual Fund Operating Expenses(8).... 2.35% 3.00% 2.72% 2.25% 1.76% 2.41% 2.41%
Fee Waiver................................. 0.25% 0.25% None None None None None
Net Expenses............................... 2.10% 2.75% 2.72% 2.25% 1.76% 2.41% 2.41%
<Caption>
BUYING FUND
PRO FORMA COMBINED
(AS OF 7/31/02)
---------------------------------------------
INVESTOR
CLASS A CLASS B CLASS C CLASS
SHARES SHARES SHARES SHARES
------- ------- ------- --------
SHAREHOLDER FEES
(fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on
Purchases
(as a percentage of offering price)...... 4.75% None None None
Maximum Deferred Sales Charge (Load)(1).... None(2)(4) 5.00% 1.00% None
ANNUAL FUND OPERATING EXPENSES(5)
(expenses that are deducted from fund
assets)
Management Fees............................ 0.90% 0.90% 0.90% 0.90%
Distribution and/or Service (12b-1)
Fees(6).................................. 0.35% 1.00% 1.00% 0.25%
Other Expenses(7).......................... 0.53% 0.53% 0.53% 0.53%
Total Annual Fund Operating Expenses(8).... 1.78% 2.43% 2.43% 1.68%
Fee Waiver................................. None None None None
Net Expenses............................... 1.78% 2.43% 2.43% 1.68%
</Table>
- ---------------
(1) For Selling Fund, calculated as a percentage of original purchase price. For
Buying Fund and Buying Fund Pro Forma Combined, calculated as a percentage
of original purchase price or redemption proceeds, whichever is less.
(2) If you buy $1,000,000 or more of Class A shares and redeem those shares
within 18 months from the date of purchase, you may pay a 1% contingent
deferred sales charge (CDSC) at the time of redemption.
(3) For qualified plans investing in Class A shares, you may pay a CDSC of 1% on
your Class A shares if the plan is redeemed within 12 months from the
initial deposit in the plan's INVESCO account.
(4) Effective November 1, 2002, if you are a retirement plan participant and you
bought $1,000,000 or more of Class A shares, you may pay a 1% CDSC if a
total redemption of the retirement plan assets occurs within 12 months from
the date of the retirement plan's initial purchase.
(5) There is no guarantee that actual expenses will be the same as those shown
in the table.
C-1
(6) Because each class pays a 12b-1 distribution and service fee which is based
upon such class' assets, if you own such shares for a long period of time,
you may pay more than the economic equivalent of the maximum front-end sales
charge permitted for mutual funds by the National Association of Securities
Dealers, Inc.
(7) Other Expenses for Selling Fund's Class A and Class B shares are based on
estimated expenses for the current fiscal year. Other Expenses for Buying
Fund have been restated to reflect expense arrangements in effect as of
March 4, 2002.
(8) INVESCO has contractually agreed to waive fees and bear any expenses on
Selling Fund through April 30, 2004 to limit Total Annual Operating Expenses
(excluding interest, taxes, brokerage commissions, extraordinary expenses
and increases in expenses due to expense offset arrangements, if any) to
2.10%, 2.75%, and 2.75% on Class A, Class B and Class C shares,
respectively. INVESCO has also voluntarily agreed to limit Total Annual
Operating Expenses (excluding interest, taxes, brokerage commissions,
extraordinary expenses and increases in expenses due to expense offset
arrangements, if any) to 1.70%, 2.35%, 2.35% and 1.60% on Class A, Class B,
Class C and Investor Class shares, respectively. The voluntary expense
limitations cannot be revoked by INVESCO prior to May 2004. Effective June
1, 2002, INVESCO is entitled to reimbursement by Selling Fund of any fees
waived pursuant to this arrangement if such reimbursement does not cause
Selling Fund to exceed the current expense limitation and the reimbursement
is made within three years in which INVESCO incurred the expenses.
C-2
EXPENSE EXAMPLE
This Example is intended to help you compare the costs of investing in
different classes of Selling Fund and Buying Fund with the cost of investing in
other mutual funds. Pro Forma Combined costs of investing in different classes
of Buying Fund giving effect to the reorganization of Selling Fund into Buying
Fund are also provided. All costs are based upon the information set forth in
the Fee Table above.
The Example assumes that you invest $10,000 for the time periods indicated
and shows the expenses that you would pay both if you redeem all of your shares
at the end of those periods and if you do not redeem your shares. The Example
also assumes that your investment has a 5% return each year and that the
operating expenses remain the same. The Example reflects fee waivers and/or
expense reimbursements that are contractual, if any, but does not reflect
voluntary fee waivers and/or expense reimbursements. To the extent fees are
waived and/or expenses are reimbursed on a voluntary basis, your expenses will
be lower. Although your actual returns and costs may be higher or lower, based
on these assumptions your costs would be:
<Table>
<Caption>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
---- ------ ------ ------
SELLING FUND
Class A shares(1)
Assuming complete redemption at end of period............. $751 $1,197 $1,692 $3,051
Assuming no redemption.................................... $751 $1,197 $1,692 $3,051
Class B shares
Assuming complete redemption at end of period(2)(3)....... $778 $1,179 $1,732 $3,129
Assuming no redemption(3)................................. $278 $ 879 $1,532 $3,129
Class C shares
Assuming complete redemption at end of period(2).......... $375 $ 844 $1,440 $3,051
Assuming no redemption.................................... $275 $ 844 $1,440 $3,051
Investor Class shares
Assuming complete redemption at end of period............. $228 $ 703 $1,205 $2,585
Assuming no redemption.................................... $228 $ 703 $1,205 $2,585
BUYING FUND
Class A shares(1)
Assuming complete redemption at end of period............. $645 $1,003 $1,384 $2,450
Assuming no redemption.................................... $645 $1,003 $1,384 $2,450
Class B shares
Assuming complete redemption at end of period(2)(3)....... $744 $1,051 $1,485 $2,585
Assuming no redemption.................................... $244 $ 751 $1,285 $2,585
Class C shares
Assuming complete redemption at end of period(2).......... $344 $ 751 $1,285 $2,746
Assuming no redemption.................................... $244 $ 751 $1,285 $2,746
BUYING FUND -- PRO FORMA COMBINED
Class A shares(1)
Assuming complete redemption at end of period............. $647 $1,009 $1,394 $2,470
Assuming no redemption.................................... $647 $1,009 $1,394 $2,470
Class B shares
Assuming complete redemption at end of period(2)(3)....... $746 $1,058 $1,496 $2,606
Assuming no redemption.................................... $246 $ 758 $1,296 $2,606
Class C shares
Assuming complete redemption at end of period(2).......... $346 $ 758 $1,296 $2,766
Assuming no redemption.................................... $246 $ 758 $1,296 $2,766
Investor Class shares
Assuming complete redemption at end of period............. $171 $ 530 $ 913 $1,987
Assuming no redemption.................................... $171 $ 530 $ 913 $1,987
</Table>
(footnotes on following page)
C-3
- ---------------
(1) Assumes payment of maximum sales charge by the investor.
(2) Assumes payment of the applicable CDSC.
(3) Assumes conversion of Class B shares to Class A shares at the end of the
eighth year.
THE EXAMPLE IS NOT A REPRESENTATION OF PAST OR FUTURE EXPENSES. SELLING
FUND'S AND BUYING FUND'S ACTUAL EXPENSES, AND AN INVESTOR'S DIRECT AND INDIRECT
EXPENSES, MAY BE MORE OR LESS THAN THOSE SHOWN. THE TABLE AND THE ASSUMPTION IN
THE EXAMPLE OF A 5% ANNUAL RETURN ARE REQUIRED BY REGULATIONS OF THE SEC
APPLICABLE TO ALL MUTUAL FUNDS. THE 5% ANNUAL RETURN IS NOT A PREDICTION OF AND
DOES NOT REPRESENT SELLING FUND'S OR BUYING FUND'S PROJECTED OR ACTUAL
PERFORMANCE.
THE ACTUAL EXPENSES ATTRIBUTABLE TO EACH CLASS OF A FUND'S SHARES WILL
DEPEND UPON, AMONG OTHER THINGS, THE LEVEL OF AVERAGE NET ASSETS AND THE EXTENT
TO WHICH A FUND INCURS VARIABLE EXPENSES, SUCH AS TRANSFER AGENCY COSTS.
C-4
EXHIBIT D
DIRECTOR COMPENSATION TABLE
Set forth below is information regarding compensation paid or accrued for
each continuing director of Company who was not affiliated with INVESCO during
the year ended December 31, 2002.
<Table>
<Caption>
AGGREGATE RETIREMENT BENEFITS ESTIMATED ANNUAL TOTAL COMPENSATION
COMPENSATION ACCRUED BY BENEFITS UPON FROM ALL INVESCO
NAME OF DIRECTOR FROM COMPANY(1) COMPANY(2) RETIREMENT(3) FUNDS(4)
- ---------------- --------------- ------------------- ---------------- ------------------
Bob R. Baker................ $34,423 $0 $34,000 $138,000
James T. Bunch.............. $31,203 0 0 124,625
Gerald J. Lewis............. $28,870 0 0 116,500
Larry Soll, Ph.D. .......... $31,522 0 0 126,000
</Table>
- ---------------
(1) The vice chairman of the Board, the chairs of certain of your Fund's
committees who are independent directors, and the members of your Fund's
committees who are independent directors each receive compensation for
serving in such capacities in addition to the compensation paid to all
independent directors. Amounts shown are based on the fiscal year ended
March 31, 2003.
(2) Represents estimated benefits accrued with respect to the current Retirement
Plan and Deferred Retirement Plan Account Agreement, and not compensation
deferred at the election of the directors. Amounts shown are based on the
fiscal year ended March 31, 2003.
(3) These amounts represent the estimated annual benefits payable by the ten
INVESCO Funds upon the directors' retirement under the current Retirement
Plan and Deferred Retirement Plan Account Agreement, calculated using the
current method of allocating director compensation among the INVESCO Funds.
These estimated benefits assume retirement at age 72. With the exception of
Messrs. Bunch and Lewis, each of these directors has served as a director of
one or more of the INVESCO Funds for the minimum five-year period required
to be eligible to participate in the current Retirement Plan.
(4) All continuing directors currently serve as directors of ten registered
investment companies advised by INVESCO.
D-1
EXHIBIT E
OFFICERS OF COMPANY
The following table provides information with respect to the current
officers of Company. Each officer is elected by the Board and serves until his
or her successor is chosen and qualified or until his or her resignation or
removal by the Board. The business address of all officers of Company is 4350
South Monaco Street, Denver, Colorado 80237.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND OFFICER
POSITION(S) HELD WITH COMPANY SINCE PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
- ----------------------------- ------- ------------------------------------------------
Mark H. Williamson - 1951 1998 Director, President and Chief Executive Officer,
Chairman of the Board A I M Management Group Inc.; Director, Chairman
and President, A I M Advisors, Inc. (registered
investment advisor); Director, A I M
Distributors, Inc. (registered broker dealer);
and Chief Executive Officer of the AIM Division
of AMVESCAP PLC (2003-present); formerly, Chief
Executive Officer, Managed Products Division,
AMVESCAP PLC (2001-2002); Chairman of the Board
(1998-2002), President (1998-2002) and Chief
Executive Officer (1998-2002) of INVESCO Funds
Group, Inc. (registered investment advisor) and
INVESCO Distributors, Inc. (registered broker
dealer); Chief Operating Officer and Chairman of
the Board of INVESCO Global Health Sciences
Fund; Chairman and Chief Executive Officer of
NationsBanc Advisors, Inc.; and Chairman of
NationsBanc Investments, Inc.
Raymond R. Cunningham - 1951 2001 President (2001-present) and Chief Executive
President and Chief Executive Officer (2003-present) of INVESCO Funds Group,
Officer Inc.; Chairman of the Board (2003-present) and
President (2003-present) of INVESCO
Distributors, Inc.; formerly, Chief Operating
Officer (2001-2003) and Senior Vice President
(1999-2002) of INVESCO Funds Group, Inc. and
INVESCO Distributors, Inc.; and Senior Vice
President of GT Global - North America
(1992-1998).
Glen A. Payne - 1947 1989 Senior Vice President, General Counsel and
Secretary Secretary of INVESCO Funds Group, Inc.; Senior
Vice President, Secretary and General Counsel of
INVESCO Distributors, Inc.; formerly, Secretary
of INVESCO Global Health Sciences Fund; General
Counsel of INVESCO Trust Company (1989-1998);
and employee of the Securities and Exchange
Commission, Washington, DC (1973-1989).
Ronald L. Grooms - 1946 1988 Senior Vice President and Treasurer of INVESCO
Chief Accounting Officer, Funds Group, Inc.; and Senior Vice President and
Chief Financial Officer and Treasurer of INVESCO Distributors, Inc.;
Treasurer formerly, Treasurer and Principal Financial and
Accounting Officer of INVESCO Global Health
Sciences Fund; and Senior Vice President and
Treasurer of INVESCO Trust Company (1988-1998).
William J. Galvin, Jr. - 1956 1992 Senior Vice President and Assistant Secretary
Assistant Secretary INVESCO Funds Group, Inc.; and Senior Vice
President and Assistant Secretary of INVESCO
Distributors, Inc.; formerly, Trust Officer of
INVESCO Trust Company (1995-1998).
</Table>
E-1
<Table>
<Caption>
NAME, YEAR OF BIRTH AND OFFICER
POSITION(S) HELD WITH COMPANY SINCE PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
- ----------------------------- ------- ------------------------------------------------
Pamela J. Piro - 1960 1999 Vice President and Assistant Treasurer of
Assistant Treasurer INVESCO Funds Group, Inc.; and Assistant
Treasurer of INVESCO Distributors, Inc.;
formerly, Assistant Vice President (1996-1997).
Tane T. Tyler - 1965 2002 Vice President and Assistant General Counsel of
Assistant Secretary INVESCO Funds Group, Inc.
</Table>
E-2
EXHIBIT F
SECURITY OWNERSHIP OF MANAGEMENT
To the best knowledge of Company, the following table sets forth certain
information regarding the ownership as of July 25, 2003 of the shares of common
stock of each class of each series portfolio of Company by the directors,
nominees, and current executive officers of Company:
<Table>
<Caption>
NUMBER OF SHARES
OWNED BENEFICIALLY AND
SERIES AND CLASS PERCENTAGE OF CLASS*
---------------- ------------------------
Bob R. Baker......................................
Sueann Ambron.....................................
Victor L. Andrews.................................
Lawrence H. Budner................................
James T. Bunch....................................
Raymond R. Cunningham.............................
Richard W. Healey.................................
Gerald J. Lewis...................................
John W. McIntyre..................................
Larry Soll, Ph.D. ................................
Mark H. Williamson................................
Frank S. Bayley...................................
Bruce L. Crockett.................................
Albert R. Dowden..................................
Edward K. Dunn, Jr. ..............................
Jack M. Fields....................................
Carl Frischling...................................
Robert H. Graham..................................
Prema Mathai-Davis................................
Lewis F. Pennock..................................
Ruth H. Quigley...................................
Louis S. Sklar....................................
Glen A. Payne.....................................
Ronald L. Grooms..................................
William J. Galvin, Jr. ...........................
Pamela J. Piro....................................
Tane T. Tyler.....................................
</Table>
--------------------
* To the best knowledge of Company, the ownership of shares of each series
portfolio of Company by current directors, nominees, and current
executive officers of Company as a group constituted less than 1% of each
class of each series portfolio of Company as of July 25, 2003.
F-1
EXHIBIT G
DIRECTOR OWNERSHIP OF FUND SHARES
Set forth below is the dollar range of equity securities beneficially owned
by each continuing director and nominee as of December 31, 2002 (i) in your Fund
and (ii) on an aggregate basis, in all registered investment companies overseen
by the director within the INVESCO Funds complex:
<Table>
<Caption>
AGGREGATE DOLLAR RANGE OF
EQUITY SECURITIES IN ALL
REGISTERED INVESTMENT
DOLLAR RANGE OF COMPANIES OVERSEEN BY
EQUITY SECURITIES IN DIRECTOR IN THE INVESCO
NAME OF DIRECTOR YOUR FUND FUNDS COMPLEX
- ---------------- -------------------- -------------------------
INDEPENDENT DIRECTORS
Bob R. Baker................................... $1-$10,000 $10,001- $50,000
James T. Bunch................................. $1-$10,000 $50,001-$100,000
Gerald J. Lewis................................ $1-$10,000 $50,001-$100,000
Larry Soll, Ph.D............................... $1-$10,000 Over $100,000
INTERESTED DIRECTOR
Mark H. Williamson............................. None Over $100,000
INDEPENDENT NOMINEES
Frank S. Bayley................................ None None
Bruce L. Crockett.............................. None None
Albert R. Dowden............................... None None
Edward K. Dunn................................. None None
Jack M. Fields................................. None None
Carl Frischling................................ None None
Prema Mathai-Davis............................. None None
Lewis F. Pennock............................... None None
Ruth H. Quigley................................ None None
Louis S. Sklar................................. None None
NOMINEE WHO WILL BE INTERESTED
Robert H. Graham............................... None None
</Table>
G-1
EXHIBIT H
PRINCIPAL EXECUTIVE OFFICER AND DIRECTORS OF
AIM ADVISORS, INC.
The following table provides information with respect to the principal
executive officer and the directors of AIM Advisors, Inc. ("AIM"). The business
address of the principal executive officer and the directors of AIM is 11
Greenway Plaza, Suite 100, Houston, Texas 77046.
<Table>
<Caption>
NAME POSITION WITH AIM PRINCIPAL OCCUPATION
- ---- ------------------------------- -------------------------------
Mark H. Williamson Director, Chairman and Director, President and Chief
President Executive Officer, AIM
Management Group Inc.;
Director, Chairman and
President, AIM Advisors, Inc.
(registered investment
advisor); Director, AIM
Distributors, Inc. (registered
broker dealer); and Chief
Executive Officer of the AIM
Division of AMVESCAP PLC
Kevin M. Carome Director, Senior Vice Director, Senior Vice
President, General Counsel and President, Secretary and
Secretary General Counsel, AIM Management
Group Inc.; Vice President, AIM
Capital Management Inc., AIM
Distributors, Inc. and AIM Fund
Services, Inc., and Director,
Vice President and General
Counsel, Fund Management
Company
Gary T. Crum Director and Senior Vice Chairman, Director and Director
President of Investments, AIM Capital
Management, Inc.; Director and
Executive Vice President, AIM
Management Group Inc.;
Director, AIM Distributors,
Inc. and AMVESCAP PLC
Dawn M. Hawley Director, Senior Vice President Director, Senior Vice President
and Chief Financial Officer and Chief Financial Officer,
AIM Management Group Inc.; Vice
President and Treasurer, AIM
Capital Management, Inc. and A
I M Distributors, Inc.;
Director, Vice President and
Chief Financial Officer, AIM
Fund Services, Inc.; and Vice
President and Chief Financial
Officer, Fund Management
Company
</Table>
H-1
EXHIBIT I
COMPENSATION TO INVESCO FUNDS GROUP, INC.
Company pays INVESCO Funds Group, Inc., out of the assets of your Fund, as
full compensation for all services rendered, an advisory fee for your Fund set
forth below. Such fee shall be calculated by applying the following annual rate
to the average daily net assets of your Fund for the calendar year, computed in
the manner used for the determination of the net asset value of shares of your
Fund.
<Table>
<Caption>
NET FEES PAID TO FEE WAIVERS OR
TOTAL NET ASSETS INVESCO FUNDS EXPENSE
FOR THE MOST GROUP, INC. FOR THE REIMBURSEMENTS FOR
ANNUAL RATE RECENTLY COMPLETED MOST RECENTLY THE MOST RECENTLY
(BASED ON AVERAGE FISCAL PERIOD OR COMPLETED FISCAL COMPLETED FISCAL
DAILY NET ASSETS) YEAR PERIOD OR YEAR PERIOD OR YEAR
- ----------------- ------------------ ------------------- ------------------
0.75% of the first $500 million; 0.65% of $23,693,111 $0 $207,889
the next $500 million; 0.55% from $1
billion; 0.45% from $2 billion; 0.40% from
$4 billion; 0.375% from $6 billion; 0.35%
from $8 billion
</Table>
I-1
EXHIBIT J
FEES PAID TO INVESCO FUNDS GROUP, INC. AND AFFILIATES IN MOST RECENT FISCAL YEAR
The following chart sets forth the non-advisory fees paid by your Fund
during its most recently completed fiscal year to INVESCO Funds Group, Inc. and
to affiliates of INVESCO Funds Group, Inc.
<Table>
<Caption>
INVESCO
(ADMINISTRATIVE INVESCO INVESCO
NAME OF FUND SERVICES)* DISTRIBUTORS, INC.** (TRANSFER AGENCY)
- ------------ --------------- -------------------- -----------------
INVESCO Real Estate Opportunity Fund........... $21,559 $35,163 $214,102
</Table>
- ---------------
* Fees paid to INVESCO for administrative services for the prior fiscal year
were paid pursuant to an agreement other than the advisory agreement.
** Net amount received from Rule 12b-1 fees. Excluded are amounts reallowed to
broker-dealers, agents and other service providers.
J-1
EXHIBIT K
ADVISORY FEE SCHEDULES FOR OTHER AIM FUNDS
The following table provides information with respect to the annual
advisory fee rates paid to A I M Advisors, Inc. by certain funds that have a
similar investment objective as your Fund.
<Table>
<Caption>
TOTAL NET ASSETS FEE WAIVER, EXPENSE LIMITATIONS
FOR THE MOST AND/OR EXPENSE REIMBURSEMENTS
ANNUAL RATE (BASED ON AVERAGE RECENTLY COMPLETED FOR THE MOST RECENTLY COMPLETED
NAME OF FUND DAILY NET ASSETS) FISCAL OR YEAR FISCAL PERIOD OR YEAR
- ------------ ----------------------------- ------------------ -------------------------------
AIM Basic Balanced Fund 0.65% of the first $1 $ 95,737,649 Waive advisory fee and/or
billion; 0.60% over $1 reimburse expenses on Class A,
billion up to and including Class B and Class C to extent
$5 billion; 0.55% of the necessary to limit Total
excess over $5 billion Operating Expenses (excluding
interest, taxes, dividends on
short sales, extraordinary
items and increases in expenses
due to expense offset
arrangements, if any) of Class
A shares to 1.50%
AIM Blue Chip Fund 0.75% of the first $350 $2,903,854,053 Waive 0.025% of advisory fee on
million; 0.625% of the excess each $5 billion increment on
over $350 million net assets in excess of $5
billion up to a maximum waiver
of 0.175% on net assets in
excess of $35 billion
AIM Development Markets 0.975% of the first $500 $ 157,833,643 Waive advisory fee and
Fund million; 0.95% over $500 reimburse expenses on Class A,
million up to and including Class B and Class C to extent
$1 billion; 0.925% over $1 necessary to limit Total
billion up to and including Operating Expenses (excluding
$1.5 billion; 0.90% of the interest, taxes, dividends on
excess over $1.5 billion short sales, extraordinary
items and increases in expenses
due to expense offset
arrangements, if any) of Class
A shares to 2.00%
AIM Diversified Dividend 0.75% of the first $1 $ 16,049,354 Waive advisory fee and/or
Fund billion; 0.70% over $1 reimburse expenses on Class A,
billion up to and including Class B and Class C to the
$2 billion; 0.625% of the extent necessary to limit Total
excess over $2 billion Operating Expenses (excluding
interest, taxes, dividends on
short sales, extraordinary
items and increases in expenses
due to expense offset
arrangements, if any) of Class
A shares to 1.75%
</Table>
K-1
<Table>
<Caption>
TOTAL NET ASSETS FEE WAIVER, EXPENSE LIMITATIONS
FOR THE MOST AND/OR EXPENSE REIMBURSEMENTS
ANNUAL RATE (BASED ON AVERAGE RECENTLY COMPLETED FOR THE MOST RECENTLY COMPLETED
NAME OF FUND DAILY NET ASSETS) FISCAL OR YEAR FISCAL PERIOD OR YEAR
- ------------ ----------------------------- ------------------ -------------------------------
AIM Large Cap Basic 0.60% of the first $1 $ 180,146,221 N/A
Value Fund billion; 0.575% over $1
billion up to and including
$2 billion; 0.55% of the
excess over $2 billion
AIM Premier Equity Fund 0.80% of the $150 million; $9,364,213,634 Waive 0.025% of advisory fee on
0.625% of the excess over each $5 billion increment on
$150 million net assets in excess of $5
billion up to a maximum waiver
of 0.175% on net assets in
excess of $35 billion
AIM V.I. Blue Chip Fund 0.75% of the first $350 $ 65,762,832 N/A
million; 0.625% of the excess
over $350 million
AIM V.I. Premier Equity 0.65% of the first $250 $1,530,358,905 N/A
Fund million; 0.60% of the excess
over $250 million
</Table>
K-2
EXHIBIT L
PROPOSED COMPENSATION TO AIM ADVISORS, INC.
The following table provides information with respect to the annual
advisory fee rates proposed to be paid to AIM Advisors, Inc. by your Fund under
the proposed advisory agreement.
<Table>
<Caption>
ANNUAL RATE
NET ASSETS (BASED ON AVERAGE DAILY NET ASSETS)
- ---------- -----------------------------------
First $500 Million............................... 0.75%
Next $500 Million................................ 0.65%
From $1 Billion.................................. 0.55%
From $2 Billion.................................. 0.45%
From $4 Billion.................................. 0.40%
From $6 Billion.................................. 0.375%
From $8 Billion.................................. 0.35%
</Table>
L-1
EXHIBIT M
PRINCIPAL EXECUTIVE OFFICER AND DIRECTORS OF
INVESCO INSTITUTIONAL (N.A.), INC.
The following table provides information with respect to the principal
executive officer and the directors of INVESCO Institutional (N.A.), Inc., all
of whose business address is 1360 Peachtree Street, Atlanta, Georgia 30309.
<Table>
<Caption>
NAME AND ADDRESS POSITION WITH INVESCO INSTITUTIONAL PRINCIPAL OCCUPATION
- ---------------- ------------------------------------ ------------------------------------
John D. Rogers Director, Chairman, President and Chief Executive Officer, AMVESCAP
Chief Executive Officer PLC -- INVESCO Division
David A. Hartley Director and Chief Financial Officer Chief Financial Officer, INVESCO
Division
</Table>
M-1
EXHIBIT N
PROPOSED COMPENSATION TO INVESCO INSTITUTIONAL (N.A.), INC.
AIM proposes to pay INVESCO Institutional (N.A.), Inc., as full
compensation for all investment advisory services rendered to your Fund, a
sub-advisory fee. Such fee shall be computed daily and paid monthly, at the rate
of 40% of AIM's compensation on the sub-advised assets per year, on or before
the last day of the next succeeding calendar month.
N-1
EXHIBIT O
ADVISORY FEE SCHEDULES FOR OTHER INVESCO INSTITUTIONAL (N.A.), INC.
ADVISED TYPES OF ACCOUNTS
The following table provides information with respect to the annual
advisory fee rates paid to INVESCO Institutional (N.A.), Inc. by certain types
of accounts that have a similar investment objective as your Fund.
<Table>
INVESCO Realty Advisors Division* 0.75% of the first $10 million
(for secured real estate) 0.70% of the next $20 million
0.65% of the next $20 million
and 0.60% on amounts over $50 million
</Table>
- ---------------
* Negotiable management fee schedule for publicly traded U.S. real estate
securities separate accounts.
O-1
EXHIBIT P
SHARES OUTSTANDING OF EACH CLASS OF YOUR FUND ON RECORD DATE
As of July 25, 2003, there were the following number of shares outstanding
of each class of your Fund:
Class A shares
795,776.11
Class B shares
30,764.07
Class C shares
103,831.96
Investor Class shares
3,019,890.38
P-1
EXHIBIT Q
OWNERSHIP OF SHARES OF YOUR FUND
SIGNIFICANT HOLDERS
Listed below is the name, address and percent ownership of each person who,
as of July 25, 2003, to the best knowledge of Company owned 5% or more of any
class of the outstanding shares of your Fund. A shareholder who owns
beneficially 25% or more of the outstanding securities of your Fund is presumed
to "control" your Fund as defined in the 1940 Act. Such control may affect the
voting rights of other shareholders.
<Table>
<Caption>
NUMBER OF SHARES PERCENT OWNED OF
NAME AND ADDRESS CLASS OF SHARES OWNED RECORD*
- ---------------- --------------- ---------------- ----------------
FTC & Co. ...................................... Class A 619,664.62 77.87%
P.O. Box 173736
Denver, CO 80217-3736
FTC & Co. ...................................... Class A 89,741.70 11.28%
P.O. Box 173736
Denver, CO 80217-3736
Valgean M. Smeltzer Trustee..................... Class B 9,626.23 31.29%
Valgean M. Smeltzer Trust
3227 Caughey Rd.
Erie, PA 16506-2739
American Enterprise Investment Svcs. ........... Class B 4,168.71 13.55%
P.O. Box 9446
Minneapolis, MN 55440-9446
American Enterprise Investment Svcs. ........... Class B 2,912.97 9.47%
P.O. Box 9446
Minneapolis, MN 55440-9446
First Clearing Corporation...................... Class B 1,916.43 6.23%
Michael J. McGlynn IRA
1 Woodstream Ct.
New Hartford, NY 13413-2712
Carroll M. Bahnsen TTEE......................... Class C 5,317.68 5.12%
Carroll M. Bahnsen Trust
U/A/ 11/31/97
210 Geitner Avenue
Newton, NC 28658-9647
Charles Schwab & Co. Inc........................ Investor 391,574.25 12.97%
Special Custody Acct. for the Exclusive
Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104-4122
AUL Insurance Co. .............................. Investor 157,552.76 5.22%
American Individual Variable Annuity Unit
Trust
One American Square
P.O. Box 1995
Indianapolis, IN 46206-9102
</Table>
- ---------------
* Company has no knowledge of whether all or any portion of the shares owned of
record are also owned beneficially.
Q-1
EXHIBIT R
OWNERSHIP OF SHARES OF BUYING FUND
SIGNIFICANT HOLDERS
Listed below is the name, address and percent ownership of each person who,
as of July 25, 2003, to the best knowledge of Buyer owned 5% or more of any
class of the outstanding shares of Buying Fund. A shareholder who owns
beneficially 25% or more of the outstanding securities of Buying Fund is
presumed to "control" Buying Fund as defined in the 1940 Act. Such control may
affect the voting rights of other shareholders.
<Table>
<Caption>
NUMBER OF SHARES PERCENT OWNED OF
NAME AND ADDRESS CLASS OF SHARES OWNED RECORD*
- ---------------- --------------- ---------------- ----------------
</Table>
- ---------------
* Buyer has no knowledge of whether all or any portion of the shares owned of
record are also owned beneficially.
R-1
APPENDIX I
AGREEMENT
AND
PLAN OF REORGANIZATION
FOR
INVESCO REAL ESTATE OPPORTUNITY FUND,
A SEPARATE PORTFOLIO OF
INVESCO SECTOR FUNDS, INC.
AUGUST 13, 2003
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
----
ARTICLE 1 DEFINITIONS........................................................ I-1
SECTION 1.1. Definitions................................................. I-1
ARTICLE 2 TRANSFER OF ASSETS................................................. I-4
SECTION 2.1. Reorganization of Selling Fund.............................. I-4
SECTION 2.2. Computation of Net Asset Value.............................. I-4
SECTION 2.3. Valuation Date.............................................. I-4
SECTION 2.4. Delivery.................................................... I-5
SECTION 2.5. Termination of Series and Redemption of Selling Fund
Shares...................................................... I-5
SECTION 2.6. Issuance of Buying Fund Shares.............................. I-5
SECTION 2.7. Investment Securities....................................... I-5
SECTION 2.8. Liabilities................................................. I-6
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF SELLER........................... I-6
SECTION 3.1. Organization; Authority..................................... I-6
SECTION 3.2. Registration and Regulation of Seller....................... I-6
SECTION 3.3. Financial Statements........................................ I-6
SECTION 3.4. No Material Adverse Changes; Contingent Liabilities......... I-6
SECTION 3.5. Selling Fund Shares; Business Operations.................... I-6
SECTION 3.6. Accountants................................................. I-7
SECTION 3.7. Binding Obligation.......................................... I-7
SECTION 3.8. No Breaches or Defaults..................................... I-7
SECTION 3.9. Authorizations or Consents.................................. I-7
SECTION 3.10. Permits..................................................... I-8
SECTION 3.11. No Actions, Suits or Proceedings............................ I-8
SECTION 3.12. Contracts................................................... I-8
SECTION 3.13. Properties and Assets....................................... I-8
SECTION 3.14. Taxes....................................................... I-8
SECTION 3.15. Benefit and Employment Obligations.......................... I-9
SECTION 3.16. Brokers..................................................... I-9
SECTION 3.17. Voting Requirements......................................... I-9
SECTION 3.18. State Takeover Statutes..................................... I-9
SECTION 3.19. Books and Records........................................... I-9
SECTION 3.20. Prospectus and Statement of Additional Information.......... I-9
SECTION 3.21. No Distribution............................................. I-9
SECTION 3.22. Liabilities of Selling Fund................................. I-9
SECTION 3.23. Value of Shares............................................. I-10
SECTION 3.24. Shareholder Expenses........................................ I-10
SECTION 3.25. Intercompany Indebtedness; Consideration.................... I-10
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF BUYER............................ I-10
SECTION 4.1. Organization; Authority..................................... I-10
SECTION 4.2. Registration and Regulation of Buyer........................ I-10
SECTION 4.3. Financial Statements........................................ I-10
</Table>
I-i
<Table>
<Caption>
PAGE
----
SECTION 4.4. No Material Adverse Changes; Contingent Liabilities......... I-10
SECTION 4.5. Registration of Buying Fund Shares.......................... I-11
SECTION 4.6. Accountants................................................. I-11
SECTION 4.7. Binding Obligation.......................................... I-11
SECTION 4.8. No Breaches or Defaults..................................... I-11
SECTION 4.9. Authorizations or Consents.................................. I-12
SECTION 4.10. Permits..................................................... I-12
SECTION 4.11. No Actions, Suits or Proceedings............................ I-12
SECTION 4.12. Taxes....................................................... I-12
SECTION 4.13. Brokers..................................................... I-13
SECTION 4.14. Representations Concerning the Reorganization............... I-13
SECTION 4.15. Prospectus and Statement of Additional Information.......... I-13
SECTION 4.16. Value of Shares............................................. I-13
SECTION 4.17. Intercompany Indebtedness; Consideration.................... I-13
ARTICLE 5 COVENANTS.......................................................... I-14
SECTION 5.1. Conduct of Business......................................... I-14
SECTION 5.2. Announcements............................................... I-14
SECTION 5.3. Expenses.................................................... I-14
SECTION 5.4. Further Assurances.......................................... I-14
SECTION 5.5. Notice of Events............................................ I-14
SECTION 5.6. Access to Information....................................... I-15
SECTION 5.7. Consents, Approvals and Filings............................. I-15
SECTION 5.8. Submission of Agreement to Shareholders..................... I-15
SECTION 5.9. Delay of Consummation of Reorganization..................... I-15
ARTICLE 6 CONDITIONS PRECEDENT TO THE REORGANIZATION......................... I-15
SECTION 6.1. Conditions Precedent of Buyer............................... I-15
SECTION 6.2. Mutual Conditions........................................... I-16
SECTION 6.3. Conditions Precedent of Seller.............................. I-17
ARTICLE 7 TERMINATION OF AGREEMENT........................................... I-17
SECTION 7.1. Termination................................................. I-17
SECTION 7.2. Survival After Termination.................................. I-17
ARTICLE 8 MISCELLANEOUS...................................................... I-18
SECTION 8.1. Survival of Representations, Warranties and Covenants....... I-18
SECTION 8.2. Governing Law............................................... I-18
SECTION 8.3. Binding Effect, Persons Benefiting, No Assignment........... I-18
SECTION 8.4. Obligations of Buyer and Seller............................. I-18
SECTION 8.5. Amendments.................................................. I-18
SECTION 8.6. Enforcement................................................. I-18
SECTION 8.7. Interpretation.............................................. I-18
SECTION 8.8. Counterparts................................................ I-19
SECTION 8.9. Entire Agreement; Exhibits and Schedules.................... I-19
SECTION 8.10. Notices..................................................... I-19
</Table>
I-ii
<Table>
<Caption>
PAGE
----
SECTION 8.11. Representations by Seller Investment Adviser................ I-19
SECTION 8.12. Representations by Buyer Investment Adviser................. I-19
SECTION 8.13. Successors and Assigns; Assignment.......................... I-20
Exhibit A Excluded Liabilities of Selling Fund
Schedule 2.1 Classes of Shares of Selling Fund and Corresponding Classes
of Shares of Buying Fund
Schedule 3.4 Certain Contingent Liabilities of Selling Fund
Schedule 3.5(d) Permitted Restructurings and Redomestications of Funds
Schedule 4.4 Certain Contingent Liabilities of Buying Fund
Schedule 4.5(a) Portfolios of Buyer
Schedule 4.5(b) Classes of Shares of Buying Fund and Number of Shares of
Each Class Buyer is Authorized to Issue
Schedule 5.1 Permitted Combinations of Funds
Schedule 6.2(f) Tax Opinions
</Table>
I-iii
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION, dated as of August 13, 2003 (this
"Agreement"), by and among INVESCO Sector Funds, Inc., a Maryland corporation
("Seller"), acting on behalf of INVESCO Real Estate Opportunity Fund ("Selling
Fund"), a separate series of Seller, AIM Advisor Funds, a Delaware statutory
trust ("Buyer"), acting on behalf of AIM Real Estate Fund ("Buying Fund"), a
separate series of Buyer, A I M Advisors, Inc., a Delaware corporation, and
INVESCO Funds Group, Inc., a Delaware corporation.
WITNESSETH
WHEREAS, Seller is a management investment company registered with the SEC
(as defined below) under the Investment Company Act (as defined below) that
offers separate series of its shares representing interests in its investment
portfolios, including Selling Fund, for sale to the public; and
WHEREAS, Buyer is a management investment company registered with the SEC
under the Investment Company Act that offers separate series of its shares
representing interests in investment portfolios, including Buying Fund, for sale
to the public; and
WHEREAS, Buyer Investment Adviser (as defined below) provides investment
advisory services to Buyer; and
WHEREAS, Seller Investment Adviser (as defined below) provides investment
advisory services to Seller; and
WHEREAS, Selling Fund desires to provide for its reorganization through the
transfer of all of its assets to Buying Fund in exchange for the assumption by
Buying Fund of all of the Liabilities (as defined below) of Selling Fund and the
issuance by Buyer of shares of Buying Fund in the manner set forth in this
Agreement; and
WHEREAS, this Agreement is intended to be and is adopted by the parties
hereto as a Plan of Reorganization within the meaning of the regulations under
Section 368(a) of the Code (as defined below).
NOW, THEREFORE, in consideration of the foregoing premises and the
agreements and undertakings contained in this Agreement, Seller, Buyer, Buyer
Investment Adviser and Seller Investment Adviser agree as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.1. Definitions. For all purposes in this Agreement, the
following terms shall have the respective meanings set forth in this Section 1.1
(such definitions to be equally applicable to both the singular and plural forms
of the terms herein defined):
"Advisers Act" means the Investment Advisers Act of 1940, as amended, and
all rules and regulations of the SEC adopted pursuant thereto.
"Affiliated Person" means an affiliated person as defined in Section
2(a)(3) of the Investment Company Act.
"Agreement" means this Agreement and Plan of Reorganization, together with
all exhibits and schedules attached hereto and all amendments hereto and
thereof.
"Applicable Law" means the applicable laws of the state in which each of
Buyer and Seller has been organized and shall include, as applicable, the
Maryland General Corporation Law and the Delaware Statutory Trust Act.
I-1
"Benefit Plan" means any material "employee benefit plan" (as defined in
Section 3(3) of ERISA) and any material bonus, deferred compensation, incentive
compensation, stock ownership, stock purchase, stock option, phantom stock,
vacation, retirement, profit sharing, welfare plans or other plan, arrangement
or understanding maintained or contributed to by Seller on behalf of Selling
Fund, or otherwise providing benefits to any current or former employee, officer
or director/trustee of Seller.
"Buyer" means AIM Advisor Funds, a Delaware statutory trust.
"Buyer Counsel" means Ballard Spahr Andrews & Ingersoll, LLP.
"Buyer Custodian" means State Street Bank and Trust Company acting in its
capacity as custodian for the assets of Buying Fund.
"Buyer Investment Adviser" means A I M Advisors, Inc.
"Buyer Registration Statement" means the registration statement on Form
N-1A of Buyer, as amended, 1940 Act Registration No. 811-03886.
"Buying Fund" means AIM Real Estate Fund, a separate series of Buyer.
"Buying Fund Auditors" means Ernst & Young LLP.
"Buying Fund Financial Statements" means the audited financial statements
of Buying Fund for the fiscal year ended July 31, 2002 and the unaudited
financial statements of Buying Fund for the period ended January 31, 2003.
"Buying Fund Shares" means shares of each class of Buying Fund issued
pursuant to Section 2.6 of this Agreement.
"Closing" means the transfer of the assets of Selling Fund to Buying Fund,
the assumption of all of Selling Fund's Liabilities by Buying Fund and the
issuance of Buying Fund Shares directly to Selling Fund Shareholders as
described in Section 2.1 of this Agreement.
"Closing Date" means October 31, 2003, or such other date as the parties
may mutually agree upon.
"Code" means the Internal Revenue Code of 1986, as amended, and all rules
and regulations adopted pursuant thereto.
"corresponding" means, when used with respect to a class of shares of
Selling Fund or Buying Fund, the classes of their shares set forth opposite each
other on Schedule 2.1.
"Effective Time" means 8:00 a.m. Eastern Time on the Closing Date.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and all rules or regulations adopted pursuant thereto.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
all rules and regulations adopted pursuant thereto.
"Exchangeability Date" means the first date on which Buyer Investment
Adviser determines that shares of retail mutual funds advised by Buyer
Investment Adviser and shares of retail mutual funds advised by Seller
Investment Adviser generally may be exchanged for shares of the same or a
similar class of each other.
"Governing Documents" means the organic documents which govern the business
and operations of each of Buyer and Seller and shall include, as applicable, the
Charter, Amended and Restated Agreement and Declaration of Trust, Amended and
Restated Bylaws and Bylaws.
"Governmental Authority" means any foreign, United States or state
government, government agency, department, board, commission (including the SEC)
or instrumentality, and any court, tribunal or arbitrator of competent
jurisdiction, and any governmental or non-governmental self-regulatory
organization, agency or authority (including the NASD Regulation, Inc., the
Commodity Futures Trading
I-2
Commission, the National Futures Association, the Investment Management
Regulatory Organization Limited and the Office of Fair Trading).
"Investment Company Act" means the Investment Company Act of 1940, as
amended, and all rules and regulations adopted pursuant thereto.
"Liabilities" means all of the liabilities of any kind of Selling Fund,
including without limitation all liabilities included in the calculation of the
net asset value per share of each class of Selling Fund Shares on the Closing
Date, but not including the excluded liabilities set forth on Exhibit A.
"Lien" means any pledge, lien, security interest, charge, claim or
encumbrance of any kind.
"Material Adverse Effect" means an effect that would cause a change in the
condition (financial or otherwise), properties, assets or prospects of an entity
having an adverse monetary effect in an amount equal to or greater than $50,000.
"NYSE" means the New York Stock Exchange.
"Permits" shall have the meaning set forth in Section 3.10 of this
Agreement.
"Person" means an individual or a corporation, partnership, joint venture,
association, trust, unincorporated organization or other entity.
"Reorganization" means the acquisition of the assets of Selling Fund by
Buying Fund in consideration of the assumption by Buying Fund of all of the
Liabilities of Selling Fund and the issuance by Buyer of Buying Fund Shares
directly to Selling Fund Shareholders as described in this Agreement, and the
termination of Selling Fund's status as a designated series of shares of Seller.
"Required Shareholder Vote" means the lesser of (a) the affirmative vote of
67% or more of the voting securities of Selling Fund present or represented by
proxy at the Shareholders Meeting, if the holders of more than 50% of the
outstanding voting securities of Selling Fund are present or represented by
proxy, or (b) the affirmative vote of more than 50% of the outstanding voting
securities of Selling Fund.
"Return" means any return, report or form or any attachment thereto
required to be filed with any taxing authority.
"SEC" means the United States Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, and all
rules and regulations adopted pursuant thereto.
"Seller" means INVESCO Sector Funds, Inc., a Maryland corporation.
"Seller Custodian" means State Street Bank and Trust Company acting in its
capacity as custodian for the assets of Selling Fund.
"Seller Investment Adviser" means INVESCO Funds Group, Inc.
"Seller Registration Statement" means the registration statement on Form
N-1A of Seller, as amended, 1940 Act Registration No. 811-03826.
"Selling Fund" means INVESCO Real Estate Opportunity Fund, a separate
series of Seller.
"Selling Fund Auditors" means PricewaterhouseCoopers LLP.
"Selling Fund Financial Statements" means the audited financial statements
of Selling Fund for the fiscal year ended March 31, 2003.
"Selling Fund Shareholders" means the holders of record of the outstanding
shares of each class of Selling Fund as of the close of regular trading on the
NYSE on the Valuation Date.
"Selling Fund Shares" means the outstanding shares of each class of Selling
Fund.
I-3
"Shareholders Meeting" means a meeting of the shareholders of Selling Fund
convened in accordance with Applicable Law and the Governing Documents of Seller
to consider and vote upon the approval of this Agreement.
"Tax" means any tax or similar governmental charge, impost or levy
(including income taxes (including alternative minimum tax and estimated tax),
franchise taxes, transfer taxes or fees, sales taxes, use taxes, gross receipts
taxes, value added taxes, employment taxes, excise taxes, ad valorem taxes,
property taxes, withholding taxes, payroll taxes, minimum taxes, or windfall
profit taxes), together with any related penalties, fines, additions to tax or
interest, imposed by the United States or any state, county, local or foreign
government or subdivision or agency thereof.
"Termination Date" means December 31, 2003, or such later date as the
parties may mutually agree upon.
"Treasury Regulations" means the Federal income tax regulations adopted
pursuant to the Code.
"Valuation Date" shall have the meaning set forth in Section 2.2 of this
Agreement.
ARTICLE 2
TRANSFER OF ASSETS
SECTION 2.1. Reorganization of Selling Fund. At the Effective Time, all
of the assets of Selling Fund shall be delivered to Buyer Custodian for the
account of Buying Fund in exchange for the assumption by Buying Fund of all of
the Liabilities of Selling Fund and delivery by Buyer directly to the holders of
record as of the Effective Time of the issued and outstanding shares of each
class of Selling Fund of a number of shares of each corresponding class of
Buying Fund, as set forth on Schedule 2.1 (including, if applicable, fractional
shares rounded to the nearest thousandth), having an aggregate net asset value
equal to the value of the net assets of Selling Fund so transferred, assigned
and delivered, all determined and adjusted as provided in Section 2.2 below.
Upon delivery of such assets, Buying Fund will receive good and marketable title
to such assets free and clear of all Liens.
SECTION 2.2. Computation of Net Asset Value.
(a) The net asset value per share of each class of Buying Fund Shares, and
the value of the assets and the amount of the Liabilities of Selling Fund,
shall, in each case, be determined as of the close of regular trading on the
NYSE on the business day next preceding the Closing Date (the "Valuation Date").
(b) The net asset value per share of each class of Buying Fund Shares shall
be computed in accordance with the policies and procedures of Buying Fund as
described in the Buyer Registration Statement.
(c) The value of the assets and the amount of the Liabilities of Selling
Fund to be transferred to Buying Fund pursuant to this Agreement shall be
computed in accordance with the policies and procedures of Selling Fund as
described in the Seller Registration Statement.
(d) Subject to Sections 2.2(b) and (c) above, all computations of value
regarding the assets and Liabilities of Selling Fund and the net asset value per
share of each class of Buying Fund Shares to be issued pursuant to this
Agreement shall be made by agreement of Seller and Buyer. The parties agree to
use commercially reasonable efforts to resolve any material pricing differences
between the prices of portfolio securities determined in accordance with their
respective pricing policies and procedures.
SECTION 2.3. Valuation Date. The share transfer books of Selling Fund
will be permanently closed as of the close of business on the Valuation Date and
only requests for the redemption of shares of Selling Fund received in proper
form prior to the close of regular trading on the NYSE on the Valuation Date
shall be accepted by Selling Fund. Redemption requests thereafter received by
Selling Fund shall be deemed to be redemption requests for Buying Fund Shares of
the corresponding class (assuming that the
I-4
transactions contemplated by this Agreement have been consummated), to be
distributed to Selling Fund Shareholders under this Agreement.
SECTION 2.4. Delivery.
(a) No later than three (3) business days preceding the Closing Date,
Seller shall instruct Seller Custodian to transfer all assets held by Selling
Fund to the account of Buying Fund maintained at Buyer Custodian. Such assets
shall be delivered by Seller to Buyer Custodian on the Closing Date. The assets
so delivered shall be duly endorsed in proper form for transfer in such
condition as to constitute a good delivery thereof, in accordance with the
custom of brokers, and shall be accompanied by all necessary state stock
transfer stamps, if any, or a check for the appropriate purchase price thereof.
Cash held by Selling Fund shall be delivered on the Closing Date and shall be in
the form of currency or wire transfer in Federal funds, payable to the order of
the account of Buying Fund at Buyer Custodian.
(b) If, on the Closing Date, Selling Fund is unable to make delivery in the
manner contemplated by Section 2.4(a) of securities held by Selling Fund for the
reason that any of such securities purchased prior to the Closing Date have not
yet been delivered to Selling Fund or its broker, then Buyer shall waive the
delivery requirements of Section 2.4(a) with respect to said undelivered
securities if Selling Fund has delivered to Buyer Custodian by or on the Closing
Date, and with respect to said undelivered securities, executed copies of an
agreement of assignment and escrow and due bills executed on behalf of said
broker or brokers, together with such other documents as may be required by
Buyer or Buyer Custodian, including brokers' confirmation slips.
SECTION 2.5. Termination of Series and Redemption of Selling Fund
Shares. Following receipt of the Required Shareholder Vote and as soon as
reasonably practicable after the Closing Date, the status of Selling Fund as a
designated series of Seller shall be terminated and Seller shall redeem the
outstanding shares of Selling Fund from Selling Fund Shareholders in accordance
with its Charter and the Maryland General Corporation Law; provided, however,
that the termination of Selling Fund as a designated series of Seller and the
redemption of the outstanding shares of Selling Fund shall not be required if
the Reorganization shall not have been consummated.
SECTION 2.6. Issuance of Buying Fund Shares. At the Effective Time,
Selling Fund Shareholders holding shares of a class of Selling Fund shall be
issued that number of full and fractional shares of the corresponding class of
Buying Fund having a net asset value equal to the net asset value of such shares
of such class of Selling Fund held by Selling Fund Shareholders on the Valuation
Date. All issued and outstanding shares of Selling Fund shall thereupon be
canceled on the books of Seller. Seller shall provide instructions to the
transfer agent of Buyer with respect to the shares of each class of Buying Fund
to be issued to Selling Fund Shareholders. Buyer shall have no obligation to
inquire as to the validity, propriety or correctness of any such instruction,
but shall, in each case, assume that such instruction is valid, proper and
correct. Buyer shall record on its books the ownership of the shares of each
class of Buying Fund by Selling Fund Shareholders and shall forward a
confirmation of such ownership to Selling Fund Shareholders. No redemption or
repurchase of such shares credited to former Selling Fund Shareholders in
respect of Selling Fund Shares represented by unsurrendered share certificates
shall be permitted until such certificates have been surrendered to Buyer for
cancellation, or if such certificates are lost or misplaced, until lost
certificate affidavits have been executed and delivered to Buyer.
SECTION 2.7. Investment Securities. On or prior to the Valuation Date,
Seller shall deliver a list setting forth the securities Selling Fund then owned
together with the respective Federal income tax bases thereof and holding
periods therefor. Seller shall provide to Buyer on or before the Valuation Date
detailed tax basis accounting records for each security to be transferred to it
pursuant to this Agreement. Such records shall be prepared in accordance with
the requirements for specific identification tax lot accounting and clearly
reflect the bases used for determination of gain and loss realized on the sale
of any security transferred to Buying Fund hereunder. Such records shall be made
available by Seller prior to the Valuation Date for inspection by the Treasurer
(or his or her designee) or the auditors of Buyer upon reasonable request.
I-5
SECTION 2.8. Liabilities. Selling Fund shall use reasonable best efforts
to discharge all of its known liabilities, so far as may be possible, prior to
the Closing Date.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller, on behalf of Selling Fund, represents and warrants to Buyer as
follows:
SECTION 3.1. Organization; Authority. Seller is duly organized, validly
existing and in good standing under Applicable Law, with all requisite corporate
or trust power, as applicable, and authority to enter into this Agreement and
perform its obligations hereunder.
SECTION 3.2. Registration and Regulation of Seller. Seller is duly
registered with the SEC as an investment company under the Investment Company
Act and all Selling Fund Shares which have been or are being offered for sale
have been duly registered under the Securities Act and have been duly
registered, qualified or are exempt from registration or qualification under the
securities laws of each state or other jurisdiction in which such shares have
been or are being offered for sale, and no action has been taken by Seller to
revoke or rescind any such registration or qualification. Selling Fund is in
compliance in all material respects with all applicable laws, rules and
regulations, including, without limitation, the Investment Company Act, the
Securities Act, the Exchange Act and all applicable state securities laws.
Selling Fund is in compliance in all material respects with the investment
policies and restrictions applicable to it set forth in the Seller Registration
Statement. The value of the net assets of Selling Fund is determined using
portfolio valuation methods that comply in all material respects with the
requirements of the Investment Company Act and the policies of Selling Fund and
all purchases and redemptions of Selling Fund Shares have been effected at the
net asset value per share calculated in such manner.
SECTION 3.3. Financial Statements. The books of account and related
records of Selling Fund fairly reflect in reasonable detail its assets,
liabilities and transactions in accordance with generally accepted accounting
principles applied on a consistent basis. The audited Selling Fund Financial
Statements previously delivered to Buyer present fairly in all material respects
the financial position of Selling Fund as of the date(s) indicated and the
results of operations and changes in net assets for the period(s) then ended in
accordance with generally accepted accounting principles applied on a consistent
basis for the period(s) then ended.
SECTION 3.4. No Material Adverse Changes; Contingent Liabilities. Since
the date of the most recent financial statements included in the Selling Fund
Financial Statements, no material adverse change has occurred in the financial
condition, results of operations, business, assets or liabilities of Selling
Fund or the status of Selling Fund as a regulated investment company under the
Code, other than changes resulting from any change in general conditions in the
financial or securities markets or the performance of any investments made by
Selling Fund or occurring in the ordinary course of business of Selling Fund or
Seller. Except as set forth on Schedule 3.4, there are no contingent liabilities
of Selling Fund not disclosed in the Selling Fund Financial Statements and no
contingent liabilities of Selling Fund have arisen since the date of the most
recent financial statements included in the Selling Fund Financial Statements.
SECTION 3.5. Selling Fund Shares; Business Operations.
(a) Selling Fund Shares have been duly authorized and validly issued and
are fully paid and non-assessable.
(b) During the five-year period ending on the date of the Reorganization,
neither Selling Fund nor any person related to Selling Fund (as defined in
Section 1.368-1(e)(3) of the Treasury Regulations without regard to Section
1.368-1(e)(3)(i)(A)) will have directly or through any transaction, agreement,
or arrangement with any other person, (i) acquired shares of Selling Fund for
consideration other than shares of Selling Fund, except for shares redeemed in
the ordinary course of Selling Fund's business as an open-end investment company
as required by the Investment Company Act, or (ii) made distributions with
respect to Selling Fund's shares, except for (a) distributions necessary to
satisfy the requirements of
I-6
Sections 852 and 4982 of the Code for qualification as a regulated investment
company and avoidance of excise tax liability and (b) additional distributions,
to the extent such additional distributions do not exceed 50 percent of the
value (without giving effect to such distributions) of the proprietary interest
in Selling Fund on the Effective Date.
(c) At the time of its Reorganization, Selling Fund shall not have
outstanding any warrants, options, convertible securities or any other type of
right pursuant to which any Person could acquire Selling Fund Shares, except for
the right of investors to acquire Selling Fund Shares at net asset value in the
normal course of its business as a series of an open-end management investment
company operating under the Investment Company Act.
(d) From the date it commenced operations and ending on the Closing Date,
Selling Fund will have conducted its historic business within the meaning of
Section 1.368-1(d)(2) of the Treasury Regulations in a substantially unchanged
manner. In anticipation of its Reorganization, Selling Fund will not dispose of
assets that, in the aggregate, will result in less than fifty percent (50%) of
its historic business assets (within the meaning of Section 1.368-1(d)(3) of the
Treasury Regulations) being transferred to Buying Fund; provided, however, that
this Section 3.5(d) shall not preclude any of the restructurings or
redomestications of funds set forth on Schedule 3.5(d).
(e) Seller does not have, and has not had during the six (6) months prior
to the date of this Agreement, any employees, and shall not hire any employees
from and after the date of this Agreement through the Closing Date.
SECTION 3.6. Accountants. Selling Fund Auditors, which have reported upon
the Selling Fund Financial Statements for the fiscal year or period, as
applicable, ended on the date of the most recent financial statements included
in the Selling Fund Financial Statements are independent public accountants as
required by the Securities Act and the Exchange Act.
SECTION 3.7. Binding Obligation. This Agreement has been duly authorized,
executed and delivered by Seller on behalf of Selling Fund and, assuming this
Agreement has been duly executed and delivered by Buyer and approved by the
shareholders of Selling Fund, constitutes the legal, valid and binding
obligation of Seller enforceable against Seller in accordance with its terms
from and with respect to the revenues and assets of Selling Fund, except as the
enforceability hereof may be limited by bankruptcy, insolvency, reorganization
or similar laws relating to or affecting creditors rights generally, or by
general equity principles (whether applied in a court of law or a court of
equity and including limitations on the availability of specific performance or
other equitable remedies).
SECTION 3.8. No Breaches or Defaults. The execution and delivery of this
Agreement by Seller on behalf of Selling Fund and performance by Seller of its
obligations hereunder has been duly authorized by all necessary corporate or
trust action, as applicable, on the part of Seller, other than approval by the
shareholders of Selling Fund, and (i) do not, and on the Closing Date will not,
result in any violation of the Governing Documents of Seller and (ii) do not,
and on the Closing Date will not, result in a breach of any of the terms or
provisions of, or constitute (with or without the giving of notice or the lapse
of time or both) a default under, or give rise to a right of termination,
cancellation or acceleration of any obligation or to the loss of a material
benefit under, or result in the creation or imposition of any Lien upon any
property or assets of Selling Fund (except for such breaches or defaults or
Liens that would not reasonably be expected, individually or in the aggregate,
to have a Material Adverse Effect) under (A) any indenture, mortgage or loan
agreement or any other material agreement or instrument to which Seller is a
party or by which it may be bound and which relates to the assets of Selling
Fund or to which any property of Selling Fund may be subject; (B) any Permit (as
defined below); or (C) any existing applicable law, rule, regulation, judgment,
order or decree of any Governmental Authority having jurisdiction over Seller or
any property of Selling Fund. Seller is not under the jurisdiction of a court in
a proceeding under Title 11 of the United States Code or similar case within the
meaning of Section 368(a)(3)(A) of the Code.
SECTION 3.9. Authorizations or Consents. Other than those which shall
have been obtained or made on or prior to the Closing Date and those that must
be made after the Closing Date to comply with
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Section 2.5 of this Agreement, no authorization or approval or other action by,
and no notice to or filing with, any Governmental Authority will be required to
be obtained or made by Seller in connection with the due execution and delivery
by Seller of this Agreement and the consummation by Seller of the transactions
contemplated hereby.
SECTION 3.10. Permits. Seller has in full force and effect all approvals,
consents, authorizations, certificates, filings, franchises, licenses, notices,
permits and rights of Governmental Authorities (collectively, "Permits")
necessary for it to conduct its business as presently conducted as it relates to
Selling Fund, and there has occurred no default under any Permit, except for the
absence of Permits and for defaults under Permits the absence or default of
which would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect. To the knowledge of Seller there are no
proceedings relating to the suspension, revocation or modification of any
Permit, except for such that would not reasonably be expected, individually or
in the aggregate, to have a Material Adverse Effect.
SECTION 3.11. No Actions, Suits or Proceedings.
(a) There is no pending action, suit or proceeding, nor, to the knowledge
of Seller, has any litigation been overtly threatened in writing or, if probable
of assertion, orally, against Seller before any Governmental Authority which
questions the validity or legality of this Agreement or of the actions
contemplated hereby or which seeks to prevent the consummation of the
transactions contemplated hereby, including the Reorganization.
(b) There are no judicial, administrative or arbitration actions, suits, or
proceedings instituted or pending or, to the knowledge of Seller, threatened in
writing or, if probable of assertion, orally, against Seller affecting any
property, asset, interest or right of Selling Fund, that could reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect
with respect to Selling Fund. There are not in existence on the date hereof any
plea agreements, judgments, injunctions, consents, decrees, exceptions or orders
that were entered by, filed with or issued by any Governmental Authority
relating to Seller's conduct of the business of Selling Fund affecting in any
significant respect the conduct of such business. Seller is not, and has not
been, to the knowledge of Seller, the target of any investigation by the SEC or
any state securities administrator with respect to its conduct of the business
of Selling Fund.
SECTION 3.12. Contracts. Seller is not in default under any contract,
agreement, commitment, arrangement, lease, insurance policy or other instrument
to which it is a party and which involves or affects the assets of Selling Fund,
by which the assets, business, or operations of Selling Fund may be bound or
affected, or under which it or the assets, business or operations of Selling
Fund receives benefits, and which default could reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect, and, to the
knowledge of Seller there has not occurred any event that, with the lapse of
time or the giving of notice or both, would constitute such a default.
SECTION 3.13. Properties and Assets. Selling Fund has good and marketable
title to all properties and assets reflected in the Selling Fund Financial
Statements as owned by it, free and clear of all Liens, except as described in
the Selling Fund Financial Statements.
SECTION 3.14. Taxes.
(a) Selling Fund has elected to be a regulated investment company under
Subchapter M of the Code and is a fund that is treated as a separate corporation
under Section 851(g) of the Code. Selling Fund has qualified for treatment as a
regulated investment company for each taxable year since inception that has
ended prior to the Closing Date and will have satisfied the requirements of Part
I of Subchapter M of the Code to maintain such qualification for the period
beginning on the first day of its current taxable year and ending on the Closing
Date. Selling Fund has no earnings and profits accumulated in any taxable year
in which the provisions of Subchapter M of the Code did not apply to it. In
order to (i) ensure continued qualification of Selling Fund for treatment as a
"regulated investment company" for tax purposes and (ii) eliminate any tax
liability of Selling Fund arising by reason of undistributed investment company
taxable income or net capital gain, Seller will declare on or prior to the
Valuation Date to the shareholders of Selling Fund a dividend or dividends that,
together with all previous such dividends, shall have the
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effect of distributing (A) all of Selling Fund's investment company taxable
income (determined without regard to any deductions for dividends paid) for the
taxable year ended March 31, 2003 and for the short taxable year beginning on
April 1, 2003 and ending on the Closing Date and (B) all of Selling Fund's net
capital gain recognized in its taxable year ended March 31, 2003 and in such
short taxable year (after reduction for any capital loss carryover).
(b) Selling Fund has timely filed all Returns required to be filed by it
and all Taxes with respect thereto have been paid, except where the failure so
to file or so to pay, would not reasonably be expected, individually or in the
aggregate, to have a Material Adverse Effect. Adequate provision has been made
in the Selling Fund Financial Statements for all Taxes in respect of all periods
ended on or before the date of such financial statements, except where the
failure to make such provisions would not reasonably be expected, individually
or in the aggregate, to have a Material Adverse Effect. No deficiencies for any
Taxes have been proposed, assessed or asserted in writing by any taxing
authority against Selling Fund, and no deficiency has been proposed, assessed or
asserted, in writing, where such deficiency would reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect. No waivers
of the time to assess any such Taxes are outstanding nor are any written
requests for such waivers pending and no Return of Selling Fund is currently
being or has been audited with respect to income taxes or other Taxes by any
Federal, state, local or foreign Tax authority.
SECTION 3.15. Benefit and Employment Obligations. As of the Closing Date,
Selling Fund will have no obligation to provide any post-retirement or
post-employment benefit to any Person, including but not limited to under any
Benefit Plan, and will have no obligation to provide unfunded deferred
compensation or other unfunded or self-funded benefits to any Person.
SECTION 3.16. Brokers. No broker, finder or similar intermediary has
acted for or on behalf of Seller in connection with this Agreement or the
transactions contemplated hereby, and no broker, finder, agent or similar
intermediary is entitled to any broker's, finder's or similar fee or other
commission in connection therewith based on any agreement, arrangement or
understanding with Seller or any action taken by it.
SECTION 3.17. Voting Requirements. The Required Shareholder Vote is the
only vote of the holders of any class of shares of Selling Fund necessary to
approve this Agreement.
SECTION 3.18. State Takeover Statutes. No state takeover statute or
similar statute or regulation applies or purports to apply to this Agreement or
any of the transactions contemplated by this Agreement.
SECTION 3.19. Books and Records. The books and records of Seller relating
to Selling Fund, reflecting, among other things, the purchase and sale of
Selling Fund Shares, the number of issued and outstanding shares owned by each
Selling Fund Shareholder and the state or other jurisdiction in which such
shares were offered and sold, are complete and accurate in all material
respects.
SECTION 3.20. Prospectus and Statement of Additional Information. The
current prospectus and statement of additional information for Selling Fund as
of the date on which they were issued did not contain, and as supplemented by
any supplement thereto dated prior to or on the Closing Date do not contain, any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading.
SECTION 3.21. No Distribution. Buying Fund Shares are not being acquired
for the purpose of any distribution thereof, other than in accordance with the
terms of this Agreement.
SECTION 3.22. Liabilities of Selling Fund. The Liabilities of Selling
Fund that are to be assumed by Buying Fund in connection with the
Reorganization, or to which the assets of Selling Fund to be transferred in the
Reorganization are subject, were incurred by Selling Fund in the ordinary course
of its business. The fair market value of the assets of Selling Fund to be
transferred to Buying Fund in the Reorganization will equal or exceed the sum of
the Liabilities to be assumed by Buying Fund, plus the amount of liabilities, if
any, to which such transferred assets will be subject. The total adjusted basis
of the assets of Selling Fund to be transferred to Buying Fund in the
Reorganization will equal or exceed the
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sum of the Liabilities to be assumed by Buying Fund, plus the amount of
liabilities, if any, to which such transferred assets will be subject.
SECTION 3.23. Value of Shares. The fair market value of the shares of
each class of Buying Fund received by Selling Fund Shareholders in the
Reorganization will be approximately equal to the fair market value of the
shares of each corresponding class of Selling Fund constructively surrendered in
exchange therefor.
SECTION 3.24. Shareholder Expenses. Selling Fund Shareholders will pay
their own expenses, if any, incurred in connection with the Reorganization.
SECTION 3.25. Intercompany Indebtedness; Consideration. There is no
intercompany indebtedness between Seller and Buyer that was issued or acquired,
or will be settled, at a discount. No consideration other than Buying Fund
Shares (and Buying Fund's assumption of Selling Fund's Liabilities, including
for this purpose any liabilities to which the assets of Selling Fund are
subject) will be given in exchange for the assets of Selling Fund acquired by
Buying Fund in connection with the Reorganization.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer, on behalf of Buying Fund, represents and warrants to Seller as
follows:
SECTION 4.1. Organization; Authority. Buyer is duly organized, validly
existing and in good standing under Applicable Law, with all requisite corporate
or trust power, as applicable, and authority to enter into this Agreement and
perform its obligations hereunder.
SECTION 4.2. Registration and Regulation of Buyer. Buyer is duly
registered with the SEC as an investment company under the Investment Company
Act. Buying Fund is in compliance in all material respects with all applicable
laws, rules and regulations, including, without limitation, the Investment
Company Act, the Securities Act, the Exchange Act and all applicable state
securities laws. Buying Fund is in compliance in all material respects with the
applicable investment policies and restrictions set forth in the Buyer
Registration Statement. The value of the net assets of Buying Fund is determined
using portfolio valuation methods that comply in all material respects with the
requirements of the Investment Company Act and the policies of Buying Fund and
all purchases and redemptions of Buying Fund Shares have been effected at the
net asset value per share calculated in such manner.
SECTION 4.3. Financial Statements. The books of account and related
records of Buying Fund fairly reflect in reasonable detail its assets,
liabilities and transactions in accordance with generally accepted accounting
principles applied on a consistent basis. The audited Buying Fund Financial
Statements previously delivered to Seller present fairly in all material
respects the financial position of Buying Fund as of the date(s) indicated and
the results of operations and changes in net assets for the period(s) then ended
in accordance with generally accepted accounting principles applied on a
consistent basis for the period(s) then ended.
SECTION 4.4. No Material Adverse Changes; Contingent Liabilities. Since
the date of the most recent financial statements included in the Buying Fund
Financial Statements, no material adverse change has occurred in the financial
condition, results of operations, business, assets or liabilities of Buying Fund
or the status of Buying Fund as a regulated investment company under the Code,
other than changes resulting from any change in general conditions in the
financial or securities markets or the performance of any investments made by
Buying Fund or occurring in the ordinary course of business of Buying Fund or
Buyer. There are no contingent liabilities of Buying Fund not disclosed in the
Buying Fund Financial Statements which are required to be disclosed in
accordance with generally accepted accounting principles. Except as set forth on
Schedule 4.4, no contingent liabilities of Buying Fund have arisen since the
date of the most recent financial statements included in the Buying Fund
Financial Statements which are required to be disclosed in accordance with
generally accepted accounting principles.
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SECTION 4.5. Registration of Buying Fund Shares.
(a) The shares of Buyer are divided into those portfolios, including Buying
Fund, that are set forth on Schedule 4.5(a).
(b) Buying Fund currently has those classes of shares that are set forth on
Schedule 4.5(b). Under its Governing Documents, Buyer is authorized to issue the
number of shares of each such class that is set forth on Schedule 4.5(b).
(c) Buying Fund Shares to be issued pursuant to Section 2.6 shall on the
Closing Date be duly registered under the Securities Act by a Registration
Statement on Form N-14 of Buyer then in effect.
(d) Buying Fund Shares to be issued pursuant to Section 2.6 are duly
authorized and on the Closing Date will be validly issued and fully paid and
non-assessable and will conform to the description thereof contained in the
Registration Statement on Form N-14 then in effect. At the time of its
Reorganization, Buying Fund shall not have outstanding any warrants, options,
convertible securities or any other type of right pursuant to which any Person
could acquire shares of Buying Fund, except for the right of investors to
acquire shares of Buying Fund at net asset value in the normal course of its
business as a series of an open-end management investment company operating
under the Investment Company Act.
(e) The combined proxy statement/prospectus (the "Combined Proxy
Statement/Prospectus"), which forms a part of Buyer's Registration Statement on
Form N-14, shall be furnished to the shareholders of Selling Fund entitled to
vote at the Shareholders Meeting. The Combined Proxy Statement/Prospectus and
related Statement of Additional Information of Buying Fund, when they become
effective, shall conform to the applicable requirements of the Securities Act
and the Investment Company Act and shall not include any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not materially misleading, provided, however, that no
representation or warranty is made with respect to written information provided
by Seller for inclusion in the Combined Proxy Statement/Prospectus.
(f) The shares of Buying Fund which have been or are being offered for sale
(other than the Buying Fund Shares to be issued in connection with the
Reorganization) have been duly registered under the Securities Act by the Buyer
Registration Statement and have been duly registered, qualified or are exempt
from registration or qualification under the securities laws of each state or
other jurisdiction in which such shares have been or are being offered for sale,
and no action has been taken by Buyer to revoke or rescind any such registration
or qualification.
SECTION 4.6. Accountants. Buying Fund Auditors, which have reported upon
the Buying Fund Financial Statements for the fiscal year or period, as
applicable, ended on the date of the most recent financial statements included
in the Buying Fund Financial Statements are independent public accountants as
required by the Securities Act and the Exchange Act.
SECTION 4.7. Binding Obligation. This Agreement has been duly authorized,
executed and delivered by Buyer on behalf of Buying Fund and, assuming this
Agreement has been duly executed and delivered by Seller, constitutes the legal,
valid and binding obligation of Buyer, enforceable against Buyer in accordance
with its terms from and with respect to the revenues and assets of Buying Fund,
except as the enforceability hereof may be limited by bankruptcy, insolvency,
reorganization or similar laws relating to or affecting creditors' rights
generally, or by general equity principles (whether applied in a court or law or
a court of equity and including limitations on the availability of specific
performance or other equitable remedies).
SECTION 4.8. No Breaches or Defaults. The execution and delivery of this
Agreement by Buyer on behalf of Buying Fund and performance by Buyer of its
obligations hereunder have been duly authorized by all necessary corporate or
trust action, as applicable, on the part of Buyer and (i) do not, and on the
Closing Date will not, result in any violation of the Governing Documents of
Buyer and (ii) do not, and on the Closing Date will not, result in a breach of
any of the terms or provisions of, or constitute (with or
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without the giving of notice or the lapse of time or both) a default under, or
give rise to a right of termination, cancellation or acceleration of any
obligation or to the loss of a material benefit under, or result in the creation
or imposition of any Lien upon any property or assets of Buying Fund (except for
such breaches or defaults or Liens that would not reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect) under (A)
any indenture, mortgage or loan agreement or any other material agreement or
instrument to which Buyer is a party or by which it may be bound and which
relates to the assets of Buying Fund or to which any properties of Buying Fund
may be subject; (B) any Permit; or (C) any existing applicable law, rule,
regulation, judgment, order or decree of any Governmental Authority having
jurisdiction over Buyer or any property of Buying Fund. Buyer is not under the
jurisdiction of a court in a proceeding under Title 11 of the United States Code
or similar case within the meaning of Section 368(a)(3)(A) of the Code.
SECTION 4.9. Authorizations or Consents. Other than those which shall
have been obtained or made on or prior to the Closing Date, no authorization or
approval or other action by, and no notice to or filing with, any Governmental
Authority will be required to be obtained or made by Buyer in connection with
the due execution and delivery by Buyer of this Agreement and the consummation
by Buyer of the transactions contemplated hereby.
SECTION 4.10. Permits. Buyer has in full force and effect all Permits
necessary for it to conduct its business as presently conducted as it relates to
Buying Fund, and there has occurred no default under any Permit, except for the
absence of Permits and for defaults under Permits the absence or default of
which would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect. To the knowledge of Buyer there are no
proceedings relating to the suspension, revocation or modification of any
Permit, except for such that would not reasonably be expected, individually or
in the aggregate, to have a Material Adverse Effect.
SECTION 4.11. No Actions, Suits or Proceedings.
(a) There is no pending action, suit or proceeding, nor, to the knowledge
of Buyer, has any litigation been overtly threatened in writing or, if probable
of assertion, orally, against Buyer before any Governmental Authority which
questions the validity or legality of this Agreement or of the transactions
contemplated hereby, or which seeks to prevent the consummation of the
transactions contemplated hereby, including the Reorganization.
(b) There are no judicial, administrative or arbitration actions, suits, or
proceedings instituted or pending or, to the knowledge of Buyer, threatened in
writing or, if probable of assertion, orally, against Buyer, affecting any
property, asset, interest or right of Buying Fund, that could reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect
with respect to Buying Fund. There are not in existence on the date hereof any
plea agreements, judgments, injunctions, consents, decrees, exceptions or orders
that were entered by, filed with or issued by any Governmental Authority
relating to Buyer's conduct of the business of Buying Fund affecting in any
significant respect the conduct of such business. Buyer is not, and has not
been, to the knowledge of Buyer, the target of any investigation by the SEC or
any state securities administrator with respect to its conduct of the business
of Buying Fund.
SECTION 4.12. Taxes.
(a) Buying Fund has elected to be a regulated investment company under
Subchapter M of the Code and is a fund that is treated as a separate corporation
under Section 851(g) of the Code. Buying Fund has qualified for treatment as a
regulated investment company for each taxable year since inception that has
ended prior to the Closing Date and will satisfy the requirements of Part I of
Subchapter M of the Code to maintain such qualification for its current taxable
year. Buying Fund has no earnings or profits accumulated in any taxable year in
which the provisions of Subchapter M of the Code did not apply to it.
(b) Buying Fund has timely filed all Returns required to be filed by it and
all Taxes with respect thereto have been paid, except where the failure so to
file or so to pay, would not reasonably be expected, individually or in the
aggregate, to have a Material Adverse Effect. Adequate provision has been made
in the Buying Fund Financial Statements for all Taxes in respect of all periods
ending on or before the date
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of such financial statements, except where the failure to make such provisions
would not reasonably be expected, individually or in the aggregate, to have a
Material Adverse Effect. No deficiencies for any Taxes have been proposed,
assessed or asserted in writing by any taxing authority against Buying Fund, and
no deficiency has been proposed, assessed or asserted, in writing, where such
deficiency would reasonably be expected, individually or in the aggregate, to
have a Material Adverse Effect. No waivers of the time to assess any such Taxes
are outstanding nor are any written requests for such waivers pending and no
Return of Buying Fund is currently being or has been audited with respect to
income taxes or other Taxes by any Federal, state, local or foreign Tax
authority.
SECTION 4.13. Brokers. No broker, finder or similar intermediary has
acted for or on behalf of Buyer in connection with this Agreement or the
transactions contemplated hereby, and no broker, finder, agent or similar
intermediary is entitled to any broker's, finder's or similar fee or other
commission in connection therewith based on any agreement, arrangement or
understanding with Buyer or any action taken by it.
SECTION 4.14. Representations Concerning the Reorganization.
(a) Buyer has no plan or intention to reacquire any Buying Fund Shares
issued in the Reorganization, except to the extent that Buying Fund is required
by the Investment Company Act to redeem any of its shares presented for
redemption at net asset value in the ordinary course of its business as an
open-end, management investment company.
(b) Buying Fund has no plan or intention to sell or otherwise dispose of
any of the assets of Selling Fund acquired in the Reorganization, other than in
the ordinary course of its business and to the extent necessary to maintain its
status as a "regulated investment company" under the Code; provided, however,
that this Section 4.14(b) shall not preclude any of the restructurings or
redomestications of funds set forth on Schedule 3.5(d).
(c) Following the Reorganization, Buying Fund will continue an "historic
business" of Selling Fund or use a significant portion of Selling Fund's
"historic business assets" in a business. For purposes of this representation,
the terms "historic business" and "historic business assets" shall have the
meanings ascribed to them in Section 1.368-1(d) of the Treasury Regulations;
provided, however, that this Section 4.14(c) shall not preclude any of the
restructurings or redomestications of funds set forth on Schedule 3.5(d).
(d) Prior to or in the Reorganization, neither Buying Fund nor any person
related to Buying Fund (for purposes of this paragraph as defined in Section
1.368-1(e)(3) of the Treasury Regulations) will have acquired directly or
through any transaction, agreement or arrangement with any other person, shares
of Selling Fund with consideration other than shares of Buying Fund. There is no
plan or intention by Buying Fund or any person related to Buying Fund to acquire
or redeem any of the Buying Fund Shares issued in the Reorganization either
directly or through any transaction, agreement, or arrangement with any other
person, other than redemptions in the ordinary course of Buying Fund's business
as an open-end investment company as required by the Investment Company Act.
SECTION 4.15. Prospectus and Statement of Additional Information. The
current prospectus and statement of additional information for Buying Fund as of
the date on which it was issued does not contain, and as supplemented by any
supplement thereto dated prior to or on the Closing Date does not contain, any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading.
SECTION 4.16. Value of Shares. The fair market value of the shares of
each class of Buying Fund received by Selling Fund Shareholders in the
Reorganization will be approximately equal to the fair market value of the
shares of each corresponding class of Selling Fund constructively surrendered in
exchange therefor.
SECTION 4.17. Intercompany Indebtedness; Consideration. There is no
intercompany indebtedness between Seller and Buyer that was issued or acquired,
or will be settled, at a discount. No consideration
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other than Buying Fund Shares (and Buying Fund's assumption of Selling Fund's
Liabilities, including for this purpose any liabilities to which the assets of
Selling Fund are subject) will be given in exchange for the assets of Selling
Fund acquired by Buying Fund in connection with the Reorganization. The fair
market value of the assets of Selling Fund transferred to Buying Fund in the
Reorganization will equal or exceed the sum of the Liabilities assumed by Buying
Fund, plus the amount of liabilities, if any, to which such transferred assets
are subject.
ARTICLE 5
COVENANTS
SECTION 5.1. Conduct of Business.
(a) From the date of this Agreement up to and including the Closing Date
(or, if earlier, the date upon which this Agreement is terminated pursuant to
Article 7), Seller shall conduct the business of Selling Fund only in the
ordinary course and substantially in accordance with past practices, and shall
use its reasonable best efforts to preserve intact its business organization and
material assets and maintain the rights, franchises and business and customer
relations necessary to conduct the business operations of Selling Fund in the
ordinary course in all material respects; provided, however, that this Section
5.1(a) shall not preclude any of the restructurings or redomestications of funds
set forth on Schedule 3.5(d) or any of the combinations of funds set forth on
Schedule 5.1.
(b) From the date of this Agreement up to and including the Closing Date
(or, if earlier, the date upon which this Agreement is terminated pursuant to
Article 7), Buyer shall conduct the business of Buying Fund only in the ordinary
course and substantially in accordance with past practices, and shall use its
reasonable best efforts to preserve intact its business organization and
material assets and maintain the rights, franchises and business and customer
relations necessary to conduct the business operations of Buying Fund in the
ordinary course in all material respects; provided, however, that this Section
5.1(b) shall not preclude any of the restructurings or redomestications of funds
set forth on Schedule 3.5(d) or any of the combinations of funds set forth on
Schedule 5.1.
SECTION 5.2. Announcements. Seller and Buyer shall consult with each
other before issuing any press release or otherwise making any public statements
with respect to this Agreement and the transactions contemplated by this
Agreement, and neither Seller nor Buyer shall issue any such press release or
make any public statement without the prior written approval of the other party
to this Agreement, such approval not to be unreasonably withheld, except as may
be required by law.
SECTION 5.3. Expenses. AMVESCAP PLC, on behalf of either Buyer Investment
Adviser or Seller Investment Adviser, shall bear the costs and expenses incurred
in connection with this Agreement and the Reorganization and other transactions
contemplated hereby; provided that any such expenses incurred by or on behalf of
Buying Fund or Selling Fund shall not be reimbursed or paid for by another
Person unless those expenses are solely and directly related to the
Reorganization.
SECTION 5.4. Further Assurances. Each of the parties hereto shall execute
such documents and other papers and perform such further acts as may be
reasonably required to carry out the provisions hereof and the transactions
contemplated hereby. Each such party shall, on or prior to the Closing Date, use
its reasonable best efforts to fulfill or obtain the fulfillment of the
conditions precedent to the consummation of the Reorganization, including the
execution and delivery of any documents, certificates, instruments or other
papers that are reasonably required for the consummation of the Reorganization.
SECTION 5.5. Notice of Events. Buyer shall give prompt notice to Seller,
and Seller shall give prompt notice to Buyer, of (a) the occurrence or
non-occurrence of any event which to the knowledge of Buyer or to the knowledge
of Seller, the occurrence or non-occurrence of which would be likely to result
in any of the conditions specified in (i) in the case of Seller, Sections 6.1
and 6.2 or (ii) in the case of Buyer, Sections 6.2 and 6.3, not being satisfied
so as to permit the consummation of the Reorganization and (b) any material
failure on its part, or on the part of the other party hereto of which it has
knowledge,
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to comply with or satisfy any covenant, condition or agreement to be complied
with or satisfied by it hereunder; provided, however, that the delivery of any
notice pursuant to this Section 5.5 shall not limit or otherwise affect the
remedies available hereunder to any party.
SECTION 5.6. Access to Information.
(a) Seller will, during regular business hours and on reasonable prior
notice, allow Buyer and its authorized representatives reasonable access to the
books and records of Seller pertaining to the assets of Selling Fund and to
officers of Seller knowledgeable thereof; provided, however, that any such
access shall not significantly interfere with the business or operations of
Seller.
(b) Buyer will, during regular business hours and on reasonable prior
notice, allow Seller and its authorized representatives reasonable access to the
books and records of Buyer pertaining to the assets of Buying Fund and to
officers of Buyer knowledgeable thereof; provided, however, that any such access
shall not significantly interfere with the business or operations of Buyer.
SECTION 5.7. Consents, Approvals and Filings. Each of Seller and Buyer
shall make all necessary filings, as soon as reasonably practicable, including,
without limitation, those required under the Maryland General Corporation Law,
the Securities Act, the Exchange Act, the Investment Company Act and the
Advisers Act, in order to facilitate prompt consummation of the Reorganization
and the other transactions contemplated by this Agreement. In addition, each of
Seller and Buyer shall use its reasonable best efforts, and shall cooperate
fully with each other (i) to comply as promptly as reasonably practicable with
all requirements of Governmental Authorities applicable to the Reorganization
and the other transactions contemplated herein and (ii) to obtain as promptly as
reasonably practicable all necessary permits, orders or other consents of
Governmental Authorities and consents of all third parties necessary for the
consummation of the Reorganization and the other transactions contemplated
herein. Each of Seller and Buyer shall use reasonable efforts to provide such
information and communications to Governmental Authorities as such Governmental
Authorities may request.
SECTION 5.8. Submission of Agreement to Shareholders. Seller shall take
all action necessary in accordance with applicable law and its Governing
Documents to convene the Shareholders Meeting. Seller shall, through its Board
of Directors/Trustees, recommend to the shareholders of Selling Fund approval of
this Agreement. Seller shall use its reasonable best efforts to hold a
Shareholders Meeting as soon as practicable after the date hereof.
SECTION 5.9. Delay of Consummation of Reorganization. The parties
acknowledge and agree that if the Exchangeability Date has not occurred prior to
the Closing Date, consummation of the Reorganization shall not occur on the
Closing Date but instead shall be postponed until a mutually acceptable date
occurring subsequent to the Exchangeability Date; provided, however, that in no
event shall the consummation of the Reorganization occur on a date subsequent to
the Termination Date. In the case of such postponement of the consummation of
the Reorganization, the parties agree that the term "Closing Date" in this
Agreement shall mean in each instance such mutually acceptable date subsequent
to the Exchangeability Date as the parties may choose to consummate the
Reorganization.
ARTICLE 6
CONDITIONS PRECEDENT TO THE REORGANIZATION
SECTION 6.1. Conditions Precedent of Buyer. The obligation of Buyer to
consummate the Reorganization is subject to the satisfaction, at or prior to the
Closing Date, of all of the following conditions, any one or more of which may
be waived in writing by Buyer.
(a) The representations and warranties of Seller on behalf of Selling Fund
set forth in this Agreement shall be true and correct in all material respects
as of the date of this Agreement and as of the Closing Date with the same effect
as though all such representations and warranties had been made as of the
Closing Date.
I-15
(b) Seller shall have complied with and satisfied in all material respects
all agreements and conditions relating to Selling Fund set forth herein on its
part to be performed or satisfied at or prior to the Closing Date.
(c) Buyer shall have received at the Closing Date (i) a certificate, dated
as of the Closing Date, from an officer of Seller, in such individual's capacity
as an officer of Seller and not as an individual, to the effect that the
conditions specified in Sections 6.1(a) and (b) have been satisfied and (ii) a
certificate, dated as of the Closing Date, from the Secretary or Assistant
Secretary of Seller certifying as to the accuracy and completeness of the
attached Governing Documents of Seller, and resolutions, consents and
authorizations of or regarding Seller with respect to the execution and delivery
of this Agreement and the transactions contemplated hereby.
(d) The dividend or dividends described in the last sentence of Section
3.14(a) shall have been declared.
(e) Buyer shall have received from Seller confirmations or other adequate
evidence as to the tax costs and holding periods of the assets and property of
Selling Fund transferred to Buying Fund in accordance with the terms of this
Agreement.
(f) To the extent applicable, Seller Investment Adviser shall have
terminated or waived, in either case in writing, any rights to reimbursement
from Selling Fund to which it is entitled for fees and expenses absorbed by
Seller Investment Adviser pursuant to voluntary and contractual fee waiver or
expense limitation commitments between Seller Investment Adviser and Selling
Fund.
SECTION 6.2. Mutual Conditions. The obligations of Seller and Buyer to
consummate the Reorganization are subject to the satisfaction, at or prior to
the Closing Date, of all of the following further conditions, any one or more of
which may be waived in writing by Seller and Buyer, but only if and to the
extent that such waiver is mutual.
(a) All filings required to be made prior to the Closing Date with, and all
consents, approvals, permits and authorizations required to be obtained on or
prior to the Closing Date from Governmental Authorities in connection with the
execution and delivery of this Agreement and the consummation of the
transactions contemplated herein by Seller and Buyer shall have been made or
obtained, as the case may be; provided, however, that such consents, approvals,
permits and authorizations may be subject to conditions that would not
reasonably be expected, individually or in the aggregate, to have a Material
Adverse Effect.
(b) This Agreement, the Reorganization of Selling Fund and related matters
shall have been approved and adopted at the Shareholders Meeting by the
shareholders of Selling Fund on the record date by the Required Shareholder
Vote.
(c) The assets of Selling Fund to be acquired by Buying Fund shall
constitute at least 90% of the fair market value of the net assets and at least
70% of the fair market value of the gross assets held by Selling Fund
immediately prior to the Reorganization. For purposes of this Section 6.2(c),
assets used by Selling Fund to pay the expenses it incurs in connection with
this Agreement and the Reorganization and to effect all shareholder redemptions
and distributions (other than regular, normal dividends and regular, normal
redemptions pursuant to the Investment Company Act, and not in excess of the
requirements of Section 852 of the Code, occurring in the ordinary course of
Selling Fund's business as a series of an open-end management investment
company) after the date of this Agreement shall be included as assets of Selling
Fund held immediately prior to the Reorganization.
(d) No temporary restraining order, preliminary or permanent injunction or
other order issued by any Governmental Authority preventing the consummation of
the Reorganization on the Closing Date shall be in effect; provided, however,
that the party or parties invoking this condition shall use reasonable efforts
to have any such order or injunction vacated.
(e) The Registration Statement on Form N-14 filed by Buyer with respect to
Buying Fund Shares to be issued to Selling Fund Shareholders in connection with
the Reorganization shall have become effective
I-16
under the Securities Act and no stop order suspending the effectiveness thereof
shall have been issued and, to the best knowledge of the parties hereto, no
investigation or proceeding for that purpose shall have been instituted or be
pending, threatened or contemplated under the Securities Act.
(f) Seller and Buyer shall have received on or before the Closing Date an
opinion of Buyer Counsel in form and substance reasonably acceptable to Seller
and Buyer, as to the matters set forth on Schedule 6.2(f). In rendering such
opinion, Buyer Counsel may request and rely upon representations contained in
certificates of officers of Seller, Buyer and others, and the officers of Seller
and Buyer shall use their best efforts to make available such truthful
certificates.
SECTION 6.3. Conditions Precedent of Seller. The obligation of Seller to
consummate the Reorganization is subject to the satisfaction, at or prior to the
Closing Date, of all of the following conditions, any one or more of which may
be waived in writing by Seller.
(a) The representations and warranties of Buyer on behalf of Buying Fund
set forth in this Agreement shall be true and correct in all material respects
as of the date of this Agreement and as of the Closing Date with the same effect
as though all such representations and warranties had been made as of the
Closing Date.
(b) Buyer shall have complied with and satisfied in all material respects
all agreements and conditions relating to Buying Fund set forth herein on its
part to be performed or satisfied at or prior to the Closing Date.
(c) Seller shall have received on the Closing Date (i) a certificate, dated
as of the Closing Date, from an officer of Buyer, in such individual's capacity
as an officer of Buyer and not as an individual, to the effect that the
conditions specified in Sections 6.3(a) and (b) have been satisfied and (ii) a
certificate, dated as of the Closing Date, from the Secretary or Assistant
Secretary of Buyer certifying as to the accuracy and completeness of the
attached Governing Documents of Buyer and resolutions, consents and
authorizations of or regarding Buyer with respect to the execution and delivery
of this Agreement and the transactions contemplated hereby.
ARTICLE 7
TERMINATION OF AGREEMENT
SECTION 7.1. Termination. This Agreement may be terminated on or prior to
the Closing Date as follows:
(a) by mutual written consent of Seller and Buyer; or
(b) at the election of Seller or Buyer, to be effectuated by the delivery
by the terminating party to the other party of a written notice of such
termination:
(i) if the Closing Date shall not be on or before the Termination
Date, unless the failure to consummate the Reorganization is the result of
a willful and material breach of this Agreement by the party seeking to
terminate this Agreement;
(ii) if, upon a vote at the Shareholders Meeting or any final
adjournment thereof, the Required Shareholder Vote shall not have been
obtained as contemplated by Section 5.8; or
(iii) if any Governmental Authority shall have issued an order, decree
or ruling or taken any other action permanently enjoining, restraining or
otherwise prohibiting the Reorganization and such order, decree, ruling or
other action shall have become final and nonappealable.
SECTION 7.2. Survival After Termination. If this Agreement is terminated
in accordance with Section 7.1 hereof and the Reorganization of Selling Fund is
not consummated, this Agreement shall become void and of no further force and
effect with respect to the Reorganization and Selling Fund, except for the
provisions of Section 5.3.
I-17
ARTICLE 8
MISCELLANEOUS
SECTION 8.1. Survival of Representations, Warranties and Covenants. The
representations and warranties in this Agreement, and the covenants in this
Agreement that are required to be performed at or prior to the Closing Date,
shall terminate upon the consummation of the transactions contemplated
hereunder. The covenants in this Agreement that are required to be performed in
whole or in part subsequent to the Closing Date shall survive the consummation
of the transactions contemplated hereunder for a period of one (1) year
following the Closing Date.
SECTION 8.2. Governing Law. This Agreement shall be construed and
interpreted according to the laws of the State of Delaware applicable to
contracts made and to be performed wholly within such state.
SECTION 8.3. Binding Effect, Persons Benefiting, No Assignment. This
Agreement shall inure to the benefit of and be binding upon the parties hereto
and the respective successors and assigns of the parties and such Persons.
Nothing in this Agreement is intended or shall be construed to confer upon any
entity or Person other than the parties hereto and their respective successors
and permitted assigns any right, remedy or claim under or by reason of this
Agreement or any part hereof. Without the prior written consent of the parties
hereto, this Agreement may not be assigned by any of the parties hereto.
SECTION 8.4. Obligations of Buyer and Seller.
(a) Seller and Buyer hereby acknowledge and agree that Buying Fund is a
separate investment portfolio of Buyer, that Buyer is executing this Agreement
on behalf of Buying Fund, and that any amounts payable by Buyer under or in
connection with this Agreement shall be payable solely from the revenues and
assets of Buying Fund. Seller further acknowledges and agrees that this
Agreement has been executed by a duly authorized officer of Buyer in his or her
capacity as an officer of Buyer intending to bind Buyer as provided herein, and
that no officer, trustee or shareholder of Buyer shall be personally liable for
the liabilities or obligations of Buyer incurred hereunder. Finally, Seller
acknowledges and agrees that the liabilities and obligations of Buying Fund
pursuant to this Agreement shall be enforceable against the assets of Buying
Fund only and not against the assets of Buyer generally or assets belonging to
any other series of Buyer.
(b) Seller and Buyer hereby acknowledge and agree that Selling Fund is a
separate investment portfolio of Seller, that Seller is executing this Agreement
on behalf of Selling Fund and that any amounts payable by Seller under or in
connection with this Agreement shall be payable solely from the revenues and
assets of Selling Fund.
SECTION 8.5. Amendments. This Agreement may not be amended, altered or
modified except by a written instrument executed by Seller and Buyer.
SECTION 8.6. Enforcement. The parties agree irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court of the United States or
any state having jurisdiction, in addition to any other remedy to which they are
entitled at law or in equity.
SECTION 8.7. Interpretation. When a reference is made in this Agreement
to a Section, Exhibit or Schedule, such reference shall be to a Section of, or
an Exhibit or a Schedule to, this Agreement unless otherwise indicated. The
table of contents and headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement. Whenever the words "include," "includes" or "including" are used
in this Agreement, they shall be deemed to be followed by the words "without
limitation." Each representation and warranty contained in Article 3 or 4 that
relates to a general category of a subject matter shall be deemed superseded by
a specific representation and warranty relating to a subcategory thereof to the
extent of such specific representation or warranty.
I-18
SECTION 8.8. Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original and each of which shall
constitute one and the same instrument.
SECTION 8.9. Entire Agreement; Exhibits and Schedules. This Agreement,
including the Exhibits, Schedules, certificates and lists referred to herein,
and any documents executed by the parties simultaneously herewith or pursuant
thereto, constitute the entire understanding and agreement of the parties hereto
with respect to the subject matter hereof and supersedes all other prior
agreements and understandings, written or oral, between the parties with respect
to such subject matter.
SECTION 8.10. Notices. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given when delivered by hand or by overnight courier, two days after being
sent by registered mail, return receipt requested, or when sent by telecopier
(with receipt confirmed), provided, in the case of a telecopied notice, a copy
is also sent by registered mail, return receipt requested, or by courier,
addressed as follows (or to such other address as a party may designate by
notice to the other):
(a) If to Seller:
INVESCO Sector Funds, Inc.
4350 South Monaco Street
Denver, CO 80237
Attn: Glen A. Payne
with a copy to:
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N.W., 2nd Floor
Washington, D.C. 20036-1800
Attn: Clifford J. Alexander
(b) If to Buyer:
AIM Advisor Funds
11 Greenway Plaza, Suite 100
Houston, TX 77046-1173
Attn: Kevin M. Carome
with a copy to:
Ballard Spahr Andrews & Ingersoll, LLP
1735 Market Street, 51st Floor
Philadelphia, PA 19103-7599
Attn: Martha J. Hays
SECTION 8.11. Representations by Seller Investment Adviser. In its
capacity as investment adviser to Seller, Seller Investment Adviser represents
to Buyer that to the best of its knowledge the representations and warranties of
Seller and Selling Fund contained in this Agreement are true and correct as of
the date of this Agreement. For purposes of this Section 8.11, the best
knowledge standard shall be deemed to mean that the officers of Seller
Investment Adviser who have substantive responsibility for the provision of
investment advisory services to Seller do not have actual knowledge to the
contrary after due inquiry.
SECTION 8.12. Representations by Buyer Investment Adviser. In its
capacity as investment adviser to Buyer, Buyer Investment Adviser represents to
Seller that to the best of its knowledge the representations and warranties of
Buyer and Buying Fund contained in this Agreement are true and correct as of the
date of this Agreement. For purposes of this Section 8.12, the best knowledge
standard shall be deemed to mean that the officers of Buyer Investment Adviser
who have substantive responsibility for the provision of investment advisory
services to Buyer do not have actual knowledge to the contrary after due
inquiry.
I-19
SECTION 8.13. Successors and Assigns; Assignment. This Agreement shall be
binding upon and inure to the benefit of Seller, on behalf of Selling Fund, and
Buyer, on behalf of Buying Fund, and their respective successors and assigns.
The parties hereto expressly acknowledge and agree that this Agreement shall be
binding upon and inure to the benefit of those Delaware statutory trusts that
are the resulting entities in the permitted restructurings and redomestications
of funds set forth on Schedule 3.5(d).
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
INVESCO SECTOR FUNDS, INC., acting on
behalf of
INVESCO REAL ESTATE OPPORTUNITY FUND
By: /s/ RAYMOND R. CUNNINGHAM
------------------------------------
AIM ADVISOR FUNDS, acting on
behalf of AIM REAL ESTATE FUND
By: /s/ ROBERT H. GRAHAM
------------------------------------
A I M ADVISORS, INC.
By: /s/ MARK H. WILLIAMSON
------------------------------------
INVESCO FUNDS GROUP, INC.
By: /s/ RAYMOND R. CUNNINGHAM
------------------------------------
I-20
EXHIBIT A
EXCLUDED LIABILITIES OF SELLING FUND
None.
SCHEDULE 2.1
<Table>
<Caption>
CORRESPONDING CLASSES OF
CLASSES OF SHARES OF SELLING FUND SHARES OF BUYING FUND
- --------------------------------- ------------------------
Class A shares.............................................. Class A shares
Class B shares.............................................. Class B shares
Class C shares.............................................. Class C shares
Investor Class shares....................................... Investor Class shares
</Table>
SCHEDULE 3.4
CERTAIN CONTINGENT LIABILITIES OF SELLING FUND
None.
SCHEDULE 3.5(d)
PERMITTED RESTRUCTURINGS AND REDOMESTICATIONS OF FUNDS
<Table>
<Caption>
CURRENT FUNDS CORRESPONDING NEW FUNDS
- ------------- -----------------------
AIM ADVISOR FUNDS................................ AIM INVESTMENT SECURITIES FUNDS
(DELAWARE STATUTORY TRUST) (DELAWARE STATUTORY TRUST)
AIM International Core Equity Fund............... AIM International Core Equity Fund
AIM Real Estate Fund............................. AIM Real Estate Fund
AIM INTERNATIONAL FUNDS, INC..................... AIM INTERNATIONAL MUTUAL FUNDS
(MARYLAND CORPORATION) (DELAWARE STATUTORY TRUST)
AIM European Growth Fund......................... AIM European Growth Fund
INVESCO BOND FUNDS, INC.......................... AIM BOND FUNDS
(MARYLAND CORPORATION) (DELAWARE STATUTORY TRUST)
INVESCO High Yield Fund.......................... INVESCO High Yield Fund
INVESCO Select Income Fund....................... INVESCO Select Income Fund
INVESCO Tax-Free Bond Fund....................... INVESCO Tax-Free Bond Fund
INVESCO U.S. Government Securities Fund.......... INVESCO U.S. Government Securities Fund
INVESCO COMBINATION STOCK & BOND FUNDS, INC...... AIM COMBINATION STOCK & BOND FUNDS
(MARYLAND CORPORATION) (DELAWARE STATUTORY TRUST)
INVESCO Balanced Fund............................ INVESCO Balanced Fund
INVESCO Total Return Fund........................ INVESCO Total Return Fund
INVESCO COUNSELOR SERIES FUNDS, INC.............. AIM COUNSELOR SERIES TRUST
(MARYLAND CORPORATION) (DELAWARE STATUTORY TRUST)
INVESCO Advantage Fund........................... INVESCO Advantage Fund
INVESCO INTERNATIONAL FUNDS, INC................. AIM INTERNATIONAL MUTUAL FUNDS
(MARYLAND CORPORATION) (DELAWARE STATUTORY TRUST)
INVESCO European Fund............................ INVESCO European Fund
INVESCO International Blue Chip Value Fund....... INVESCO International Blue Chip Value Fund
INVESCO MONEY MARKET FUNDS, INC.................. AIM TREASURER'S SERIES TRUST
(MARYLAND CORPORATION) (DELAWARE STATUTORY TRUST)
INVESCO Cash Reserves Fund....................... INVESCO Cash Reserves Fund
INVESCO Tax-Free Money Fund...................... INVESCO Tax-Free Money Fund
INVESCO SECTOR FUNDS, INC........................ AIM SECTOR FUNDS
(MARYLAND CORPORATION) (DELAWARE STATUTORY TRUST)
INVESCO Energy Fund.............................. INVESCO Energy Fund
INVESCO Financial Services Fund.................. INVESCO Financial Services Fund
INVESCO Real Estate Opportunity Fund............. INVESCO Real Estate Opportunity Fund
INVESCO Technology Fund.......................... INVESCO Technology Fund
INVESCO Telecommunications Fund.................. INVESCO Telecommunications Fund
INVESCO Utilities Fund........................... INVESCO Utilities Fund
INVESCO STOCK FUNDS, INC......................... AIM STOCK FUNDS
(MARYLAND CORPORATION) (DELAWARE STATUTORY TRUST)
INVESCO Growth Fund.............................. INVESCO Growth Fund
INVESCO Growth & Income Fund..................... INVESCO Growth & Income Fund
INVESCO Value Equity Fund........................ INVESCO Value Equity Fund
</Table>
SCHEDULE 4.4
CERTAIN CONTINGENT LIABILITIES OF BUYING FUND
None.
SCHEDULE 4.5(a)
PORTFOLIOS OF BUYER
AIM International Core Equity Fund
AIM Real Estate Fund
SCHEDULE 4.5(b)
<Table>
<Caption>
NUMBER OF SHARES OF EACH CLASS
CLASSES OF SHARES OF BUYING FUND BUYER IS AUTHORIZED TO ISSUE
- -------------------------------- ------------------------------
Class A shares.............................................. Unlimited
Class B shares.............................................. Unlimited
Class C shares.............................................. Unlimited
Investor Class shares....................................... Unlimited
</Table>
SCHEDULE 5.1
PERMITTED COMBINATIONS OF FUNDS
<Table>
INVESCO Advantage Fund into AIM Opportunities III Fund
INVESCO Growth Fund into AIM Large Cap Growth Fund
INVESCO Growth & Income Fund into AIM Blue Chip Fund
INVESCO European Fund into AIM European Growth Fund
AIM International Core Equity Fund into INVESCO
International Blue Chip Value Fund
AIM New Technology Fund into INVESCO Technology Fund
AIM Global Science & Technology Fund into INVESCO Technology
Fund
INVESCO Telecommunications Fund into INVESCO Technology Fund
AIM Global Financial Services Fund into INVESCO Financial
Services Fund
AIM Global Energy Fund into INVESCO Energy Fund
AIM Global Utilities Fund into INVESCO Utilities Fund
INVESCO Real Estate Opportunity Fund into AIM Real Estate
Fund
INVESCO Tax-Free Bond Fund into AIM Municipal Bond Fund
INVESCO High Yield Fund into AIM High Yield Fund
INVESCO Select Income Fund into AIM Income Fund
INVESCO U.S. Government Securities Fund into AIM
Intermediate Government Fund
INVESCO Cash Reserves Fund into AIM Money Market Fund
INVESCO Tax-Free Money Fund into AIM Tax-Exempt Cash Fund
INVESCO Balanced Fund into INVESCO Total Return Fund
INVESCO Value Equity Fund into AIM Large Cap Basic Value
Fund
AIM Premier Equity Fund II into AIM Premier Equity Fund
</Table>
SCHEDULE 6.2(f)
TAX OPINIONS
(i) The transfer of the assets of Selling Fund to Buying Fund in exchange
solely for Buying Fund Shares distributed directly to Selling Fund Shareholders
and Buying Fund's assumption of the Liabilities, as provided in the Agreement,
will constitute a "reorganization" within the meaning of Section 368(a) of the
Code and Selling Fund and Buying Fund will be "a party to a reorganization"
within the meaning of Section 368(b) of the Code.
(ii) In accordance with Section 361(a) and Section 361(c)(1) of the Code,
no gain or loss will be recognized by Selling Fund on the transfer of its assets
to Buying Fund solely in exchange for Buying Fund Shares and Buying Fund's
assumption of the Liabilities or on the distribution of Buying Fund Shares to
Selling Fund Shareholders; provided that, no opinion is expressed as to the
effect of the Reorganization on Selling Fund or any Selling Fund Shareholder
with respect to any asset as to which any unrealized gain or loss is required to
be recognized for Federal income tax purposes at the end of a taxable year (or
on the termination or transfer of a taxpayer's rights (or obligations) with
respect to such asset) under a mark-to-market system of accounting.
(iii) In accordance with Section 1032 of the Code, no gain or loss will be
recognized by Buying Fund upon the receipt of assets of Selling Fund in exchange
for Buying Fund Shares issued directly to Selling Fund Shareholders.
(iv) In accordance with Section 354(a)(1) of the Code, no gain or loss will
be recognized by Selling Fund Shareholders on the receipt of Buying Fund Shares
in exchange for Selling Fund Shares.
(v) In accordance with Section 362(b) of the Code, the basis to Buying Fund
of the assets of Selling Fund will be the same as the basis of such assets in
the hands of Selling Fund immediately prior to the Reorganization.
(vi) In accordance with Section 358(a) of the Code, a Selling Fund
Shareholder's basis for Buying Fund Shares received by the Selling Fund
Shareholder will be the same as his or her basis for Selling Fund Shares
exchanged therefor.
(vii) In accordance with Section 1223(1) of the Code, a Selling Fund
Shareholder's holding period for Buying Fund Shares will be determined by
including such Selling Fund Shareholder's holding period for Selling Fund Shares
exchanged therefor, provided that such Selling Fund Shareholder held such
Selling Fund Shares as a capital asset.
(viii) In accordance with Section 1223(2) of the Code, the holding period
with respect to the assets of Selling Fund transferred to Buying Fund in the
Reorganization will include the holding period for such assets in the hands of
Selling Fund.
(ix) In accordance with Section 381(a)(2) of the Code, Buying Fund will
succeed to and take into account the items of Selling Fund described in Section
381(c) of the Code, subject to the conditions and limitations specified in
Sections 381 through 384 of the Code and the Treasury Regulations thereunder.
APPENDIX II
AIM REAL ESTATE FUND
July 21, 2003
Prospectus
AIM Real Estate Fund seeks to achieve high total return.
--------------------------------------------------------
This prospectus contains important information about the
Class A, B, C and Investor Class shares of the funds.
Please read it before investing and keep it for future
reference.
Investor Class shares offered by this prospectus are
offered only to grandfathered investors. Please see the
section of the prospectus entitled "Purchasing
Shares -- Grandfathered Investors."
As with all other mutual fund securities, the Securities
and Exchange Commission has not approved or disapproved
these securities or determined whether the information
in this prospectus is adequate or accurate. Anyone who
tells you otherwise is committing a crime.
An investment in the fund:
- is not FDIC insured;
- may lose value; and
- is not guaranteed by a bank.
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
--Servicemark-- --Servicemark--
--------------------
AIM REAL ESTATE FUND
--------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<Table>
INVESTMENT OBJECTIVE AND STRATEGIES 1
- ------------------------------------------------------
PRINCIPAL RISKS OF INVESTING IN THE FUND 1
- ------------------------------------------------------
PERFORMANCE INFORMATION 2
- ------------------------------------------------------
Annual Total Returns 2
Performance Table 3
FEE TABLE AND EXPENSE EXAMPLE 4
- ------------------------------------------------------
Fee Table 4
Expense Example 4
FUND MANAGEMENT 5
- ------------------------------------------------------
The Advisors 5
Advisor Compensation 5
Portfolio Managers 5
OTHER INFORMATION 5
- ------------------------------------------------------
Sales Charges 5
Dividends and Distributions 5
FINANCIAL HIGHLIGHTS 6
- ------------------------------------------------------
SHAREHOLDER INFORMATION A-1
- ------------------------------------------------------
Choosing a Share Class A-1
Purchasing Shares A-4
Redeeming Shares A-5
Exchanging Shares A-8
Pricing of Shares A-10
Taxes A-11
OBTAINING ADDITIONAL INFORMATION Back Cover
- ------------------------------------------------------
</Table>
The AIM Family of Funds, AIM and Design, AIM, AIM Funds, AIM Funds and Design,
AIM Investor, AIM Lifetime America, AIM LINK, AIM Institutional Funds,
aimfunds.com, La Familia AIM de Fondos, La Familia AIM de Fondos and Design,
Invierta con DISCIPLINA and Invest with DISCIPLINE are registered service marks
and AIM Bank Connection, AIM Internet Connect, AIM Private Asset Management, AIM
Private Asset Management and Design, AIM Stylized and/or Design, AIM Alternative
Assets and Design, AIM Investments, AIM Investments and Design, myaim.com, The
AIM College Savings Plan, AIM Solo 401(k) and Your goals. Our solutions. are
service marks of A I M Management Group Inc.
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
prospectus, and you should not rely on such other information or
representations.
--------------------
AIM REAL ESTATE FUND
--------------------
INVESTMENT OBJECTIVE AND STRATEGIES
- --------------------------------------------------------------------------------
The fund's investment objective is to achieve high total return. The investment
objective of the fund may be changed by the Board of Trustees without
shareholder approval.
The fund seeks to meet its objective by investing, normally, at least 80% of
its assets in securities of real estate and real estate-related companies. In
complying with this 80% investment requirement, the fund may invest in debt and
equity securities, including convertible securities, and its investments may
include other securities, such as synthetic instruments. Synthetic instruments
are investments that have economic characteristics similar to the fund's direct
investments, and may include warrants, futures, options, exchange-traded funds
and American Depositary Receipts. The fund considers a company to be a real
estate-related company if at least 50% of its assets, gross income or net
profits are attributable to ownership, construction, management or sale of
residential, commercial or industrial real estate. These companies include
equity real estate investment trusts (REITs) that own property and mortgage
REITs that make short-term construction and development mortgage loans or that
invest in long-term mortgages or mortgage pools, or companies whose products and
services are related to the real estate industry, such as manufacturers and
distributors of building supplies and financial institutions that issue or
service mortgages.
The fund may invest in equity, debt or convertible securities of companies
unrelated to the real estate industry that the portfolio managers believe are
undervalued and have potential for growth of capital. The fund will limit its
investment in debt securities to those that are investment-grade or deemed by
the fund's portfolio manager to be of comparable quality. The fund may invest up
to 25% of its total assets in foreign securities. For cash management purposes,
the fund may also hold a portion of its assets in cash or cash equivalents,
including shares of affiliated money market funds. Any percentage limitations
with respect to assets of the fund are applied at the time of purchase.
The portfolio managers utilize fundamental real estate analysis and
quantitative securities analysis to select investments for the fund, including
analyzing a company's management and strategic focus, evaluating the location,
physical attributes and cash flow generating capacity of a company's properties
and calculating expected returns, among other things. The portfolio managers
consider whether to sell a particular security when any of these factors
materially changes.
In anticipation of or in response to adverse market or other conditions, or
atypical circumstances such as unusually large cash inflows or redemptions, the
fund may temporarily hold all or a portion of its assets in cash, cash
equivalents, or high-quality debt instruments. As a result, the fund may not
achieve its investment objective.
PRINCIPAL RISKS OF INVESTING IN THE FUND
- --------------------------------------------------------------------------------
There is a risk that you could lose all or a portion of your investment in the
fund and that the income you may receive from your investment may vary. The
value of your investment in the fund will go up and down with the prices of the
securities in which the fund invests. The prices of equity securities change in
response to many factors, including the historical and prospective earnings of
the issuer, the value of its assets, general economic conditions, interest
rates, investor perceptions and market liquidity. Debt securities are
particularly vulnerable to credit risk and interest rate fluctuations. Interest
rate increases can cause the price of a debt security to decrease. The longer a
debt security's duration, the more sensitive it is to this risk. The issuer of a
debt security may default or otherwise be unable to honor a financial
obligation.
Foreign securities have additional risks, including exchange rate changes,
political and economic upheaval, the relative lack of information about these
companies, relatively low market liquidity and the potential lack of strict
financial and accounting controls and standards.
The fund could conceivably hold real estate directly if a company defaults
on debt securities the fund owns. In that event, an investment in the fund may
have additional risks relating to direct ownership in real estate, including
difficulties in valuing and trading real estate, declines in value of the
properties, risks relating to general and local economic conditions, changes in
the climate for real estate, increases in taxes, expenses and costs, changes in
laws, casualty and condemnation losses, rent control limitations and increases
in interest rates.
The value of the fund's investment in REITs is affected by the factors
listed above, as well as the management skill of the persons managing the REIT.
Since REITs have expenses of their own, you will bear a proportionate share of
those expenses in addition to those of the fund. Because the fund focuses its
investments in REITs and other companies related to the real estate industry,
the value of your shares may rise and fall more than the value of shares of a
fund that invests in a broader range of companies.
The fund may participate in the initial public offering (IPO) market in some
market cycles. Because of the fund's small asset base, any investment the fund
may make in IPOs may significantly increase the fund's total return. As the
fund's assets grow, the impact of IPO investments will decline, which may reduce
the effect of IPO investments on the fund's total return.
An investment in the fund is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
1
--------------------
AIM REAL ESTATE FUND
--------------------
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
The bar chart and table shown below provide an indication of the risks of
investing in the fund. The fund's past performance (before and after taxes) is
not necessarily an indication of its future performance.
ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
The following bar chart shows changes in the performance of the fund's Class C
shares from year to year. The bar chart does not reflect sales loads. If it did,
the annual total returns shown would be lower.
<Table>
<Caption>
ANNUAL
YEAR ENDED TOTAL
DECEMBER 31 RETURNS
- ----------- -------
1996................................................................... 36.44%
1997................................................................... 18.88%
1998................................................................... -23.16%
1999................................................................... -3.54%
2000................................................................... 28.25%
2001................................................................... 9.49%
2002................................................................... 8.06%
</Table>
The Class C shares' year-to-date total return as of June 30, 2003 was
13.94%.
During the period shown in the bar chart, the highest quarterly return was
19.39% (quarter ended December 31, 1996) and the lowest quarterly return was
- -15.54% (quarter ended September 30, 1998).
2
--------------------
AIM REAL ESTATE FUND
--------------------
PERFORMANCE TABLE
The following performance table compares the fund's performance to that of a
broad-based securities market index. The fund's performance reflects payment of
sales loads, if applicable. The indices do not reflect payment of fees, expenses
or taxes.
<Table>
<Caption>
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
(for the periods ended SINCE INCEPTION
December 31, 2002) 1 YEAR 5 YEARS INCEPTION DATE
- --------------------------------------------------------------------------------
Class A 12/31/96
Return Before Taxes 3.58% 2.11% 4.86%
Return After Taxes on
Distributions 2.37 0.43 2.97
Return After Taxes on
Distributions and Sale of
Fund Shares 2.20 0.77 2.94
Class B
Return Before Taxes 3.13 N/A 2.69 03/03/98
Class C
Return Before Taxes 7.06 2.38 9.39 05/01/95
Investor Class(1)
Return Before Taxes 8.77 3.10 5.71 12/31/96(1)
- --------------------------------------------------------------------------------
S&P 500(2) (22.09)% (0.58)% 9.02% 04/30/95(5)
Morgan Stanley Real Estate
Index(3) 3.65 3.30 10.79 04/30/95
Lipper Real Estate Fund Index(4) 3.63 2.75 N/A 04/30/95
- --------------------------------------------------------------------------------
</Table>
After-tax returns are calculated using the historical highest individual federal
marginal income tax rates and do not reflect the impact of state and local
taxes. Actual after-tax returns depend on an investor's tax situation and may
differ from those shown, and after-tax returns shown are not relevant to
investors who hold their fund shares through tax-deferred arrangements, such as
401(k) plans or individual retirement accounts. After-tax returns are shown for
Class A only and after-tax returns for Class B, C and Investor Class will vary.
(1) The returns shown for these periods are the restated historical performance
of the fund's Class A shares at the net asset value and reflect the higher
Rule 12b-1 fees applicable to Class A shares. Investor Class shares would
have different returns because, although the shares are invested in the same
portfolio of securities, the Investor Class has a different expense
structure. The inception date shown in the table is that of the fund's Class
A shares. As of July 21, 2003, Investor Class shares have not commenced
operations.
(2) The Standard & Poor's 500 Index is an unmanaged index of common stocks
frequently used as a general measure of U.S. stock market performance. The
fund has also included the Morgan Stanley Real Estate Index, which the fund
believes more closely reflects the performance of the types of securities in
which the fund invests. In addition, the Lipper Real Estate Fund Index
(which may or may not include the fund) is included for comparison to a peer
group.
(3) The Morgan Stanley Real Estate Index is a total-return index comprised of
the most actively traded real estate investment trusts and is designed to be
a measure of real estate equity performance.
(4) The Lipper Real Estate Fund Index is an equally weighted representation of
the 30 largest funds within the Lipper Real Estate category.
(5) The average annual total return given is since the date closest to the
inception date of the class with the longest performance history.
3
--------------------
AIM REAL ESTATE FUND
--------------------
FEE TABLE AND EXPENSE EXAMPLE
- --------------------------------------------------------------------------------
FEE TABLE
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
<Table>
<Caption>
SHAREHOLDER FEES
- -------------------------------------------------------------------------------
(fees paid directly from INVESTOR
your investment) CLASS A CLASS B CLASS C CLASS
- -------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Purchases
(as a percentage of
offering price) 4.75% None None None
Maximum Deferred
Sales Charge (Load)
(as a percentage of
original purchase price
or redemption proceeds,
whichever is less) None(1,2) 5.00% 1.00% None
- -------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
ANNUAL FUND OPERATING EXPENSES(3)
- ---------------------------------------------------------------------------------
(expenses that are deducted INVESTOR
from fund assets) CLASS A CLASS B CLASS C CLASS
- ---------------------------------------------------------------------------------
Management Fees 0.90% 0.90% 0.90% 0.90%
Distribution and/or
Service (12b-1) Fees 0.35 1.00 1.00 0.25
Other Expenses(4,5) 0.51 0.51 0.51 0.51
Total Annual Fund
Operating Expenses 1.76 2.41 2.41 1.66
- ---------------------------------------------------------------------------------
</Table>
(1) If you buy $1,000,000 or more of Class A shares and redeem these shares
within 18 months from the date of purchase, you may pay a 1.00% contingent
deferred sales charge (CDSC) at the time of redemption.
(2) Effective November 1, 2002, if you are a retirement plan participant and you
bought $1,000,000 or more of Class A shares, you may pay a 1.00% CDSC if a
total redemption of the retirement plan assets occurs within 12 months from
the date of the retirement plan's initial purchase.
(3) There is no guarantee that actual expenses will be the same as those shown
in the table.
(4) Other Expenses have been restated to reflect expense arrangements in effect
as of March 4, 2002.
(5) Other Expenses for Investor Class shares are based on estimated average net
assets for the current fiscal year.
You may also be charged a transaction or other fee by the financial institution
managing your account.
As a result of 12b-1 fees, long-term shareholders in the fund may pay more
than the maximum permitted initial sales charge.
EXPENSE EXAMPLE
This example is intended to help you compare the costs of investing in different
classes of the fund with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
fund's operating expenses remain the same. To the extent fees are waived and/or
expenses are reimbursed, your expenses will be lower. Although your actual
returns and costs may be higher or lower, based on these assumptions your costs
would be:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------------------------------------
Class A $645 $1,003 $1,384 $2,450
Class B 744 1,051 1,485 2,585
Class C 344 751 1,285 2,746
Investor Class 169 523 902 1,965
- --------------------------------------------------------------------------------------------------------------
</Table>
You would pay the following expenses if you did not redeem your shares:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------------------------------------
Class A $645 $1,003 $1,384 $2,450
Class B 244 751 1,285 2,585
Class C 244 751 1,285 2,746
Investor Class 169 523 902 1,965
- --------------------------------------------------------------------------------------------------------------
</Table>
4
--------------------
AIM REAL ESTATE FUND
--------------------
FUND MANAGEMENT
- --------------------------------------------------------------------------------
THE ADVISORS
A I M Advisors, Inc. (the advisor) serves as the fund's investment advisor and
manages the investment operations of the fund and has agreed to perform or
arrange for the performance of the fund's day-to-day management. The advisor is
located at 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173. INVESCO
Institutional (N.A.), Inc. (the subadvisor) is located at INVESCO Realty
Advisors division, One Lincoln Center, 5400 LBJ Freeway/LB2, Suite 700, Dallas,
TX 75240. The subadvisor is responsible for the fund's day-to-day management,
including the fund's investment decisions and the execution of securities
transactions with respect to the fund.
The advisor has acted as an investment advisor since its organization in
1976 and the subadvisor has acted as an investment advisor and qualified
professional asset manager since 1979. Today, the advisor, together with its
subsidiaries, advises or manages over 190 investment portfolios, including the
fund, encompassing a broad range of investment objectives.
ADVISOR COMPENSATION
During the fiscal year ended July 31, 2002, the advisor received compensation of
0.90% of average daily net assets.
PORTFOLIO MANAGERS
The sub-advisor uses a team approach to investment management. The individual
members of the team who are primarily responsible for the management of the
fund's portfolio are
- - Joe V. Rodriguez, Jr., (lead manager), Portfolio Manager, who has been
responsible for the fund since 1995 and has been associated with the
subadvisor and/or its affiliates since 1990.
- - Mark Blackburn, Portfolio Manager, who has been responsible for the fund since
2000 and has been associated with the subadvisor and/or its affiliates since
1998. From 1995 to 1997, he was Senior Analyst and Associate Director of
Research for Southwest Securities.
- - James W. Trowbridge, Portfolio Manager, who has been responsible for the fund
since 1995 and has been associated with the subadvisor and/or its affiliates
since 1989.
They are assisted by the Real Estate Team. More information on the fund's
management team may be found on our website (http://www.aiminvestments.com).
OTHER INFORMATION
- --------------------------------------------------------------------------------
SALES CHARGES
Purchases of Class A shares of AIM Real Estate Fund are subject to the maximum
4.75% initial sales charge as listed under the heading "CATEGORY II Initial
Sales Charges" in the "Shareholder Information--Choosing a Share Class" section
of this prospectus. Certain purchases of Class A shares at net asset value may
be subject to the contingent deferred sales charge listed in that section.
Purchases of Class B and Class C shares are subject to the contingent deferred
sales charges listed in that section.
DIVIDENDS AND DISTRIBUTIONS
The fund expects that its distributions, if any, will consist primarily of
income.
DIVIDENDS
The fund generally declares and pays dividends, if any, quarterly.
CAPITAL GAINS DISTRIBUTIONS
The fund generally distributes long-term and short-term capital gains, if any,
annually.
5
--------------------
AIM REAL ESTATE FUND
--------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the fund's
financial performance. Certain information reflects financial results for a
single fund share.
The total returns in the table represent the rate that an investor would
have earned (or lost) on an investment in the fund (assuming reinvestment of all
dividends and distributions).
The information for the fiscal years ended 2002 and 2001 has been audited by
Ernst & Young LLP, whose report, along with the fund's financial statements, is
included in the fund's annual report, which is available upon request.
Information for the prior fiscal years was audited by other public accountants.
<Table>
<Caption>
CLASS A
---------------------------------------------------------------------------------
SIX MONTHS YEAR ENDED SEVEN MONTHS
ENDED JULY 31, ENDED YEAR ENDED DECEMBER 31,
JANUARY 31, ------------------- JULY 31, ------------------------------
2003 2002 2001 2000 1999 1998 1997
----------- ------- ------- ------------ ------- ------- -------
Net asset value, beginning of period $ 15.25 $ 13.56 $ 13.04 $ 10.61 $ 11.46 $ 15.74 $ 14.19(a)
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.24(b) 0.47(b) 0.50 0.30(b) 0.42 0.58(b) 0.34
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) (0.82) 1.68 0.54 2.38 (0.75) (4.11) 2.39
=================================================================================================================================
Total from investment operations (0.58) 2.15 1.04 2.68 (0.33) (3.53) 2.73
=================================================================================================================================
Less distributions:
Dividends from net investment income (0.23) (0.46) (0.52) (0.25) (0.52) (0.50) (0.44)
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- -- -- -- (0.25) (0.74)
=================================================================================================================================
Total distributions (0.23) (0.46) (0.52) (0.25) (0.52) (0.75) (1.18)
=================================================================================================================================
Net asset value, end of period $ 14.44 $ 15.25 $ 13.56 $ 13.04 $ 10.61 $ 11.46 $ 15.74
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) (3.81)% 16.10% 8.23% 25.61% (2.88)% (22.54)% 19.78%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $113,723 $86,411 $28,400 $23,187 $16,279 $20,087 $16,507
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 1.67%(d) 1.77% 1.63% 1.62%(e) 1.61% 1.55% 1.60%
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers 1.67%(d) 1.77% 1.79% 2.05%(e) 1.73% 1.71% 1.70%
=================================================================================================================================
Ratio of net investment income to average net
assets 3.20%(d) 3.25% 3.88% 4.49%(e) 3.70% 4.37% 3.26%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(f) 51% 77% 85% 39% 52% 69% 57%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Net asset value has been restated to reflect a 4 for 1 stock split, effected
in the form of a 300% stock dividend, on November 7, 1997.
(b) Calculated using average shares outstanding.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges and
is not annualized for periods less than one year.
(d) Ratios are annualized and based on average daily net assets of $100,492,776.
(e) Annualized.
(f) Not annualized for periods less than one year.
6
--------------------
AIM REAL ESTATE FUND
--------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
<Table>
<Caption>
CLASS B
---------------------------------------------------------------------------------
MARCH 3, 1998
(DATE SALES
SIX MONTHS YEAR ENDED SEVEN MONTHS COMMENCED)
ENDED JULY 31, ENDED YEAR ENDED TO
JANUARY 31, ------------------- JULY 31, DECEMBER 31, DECEMBER 31,
2003 2002 2001 2000 1999 1998
----------- ------- ------- ------------ ------------ ---------------
Net asset value, beginning of period $ 15.29 $ 13.59 $ 13.07 $ 10.64 $11.48 $ 15.34
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.19(a) 0.38(a) 0.41 0.25(a) 0.32 0.37(a)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) (0.82) 1.68 0.53 2.39 (0.72) (3.58)
=================================================================================================================================
Total from investment operations (0.63) 2.06 0.94 2.64 (0.40) (3.21)
=================================================================================================================================
Less distributions:
Dividends from net investment income (0.18) (0.36) (0.42) (0.21) (0.44) (0.40)
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- -- -- -- (0.25)
=================================================================================================================================
Total distributions (0.18) (0.36) (0.42) (0.21) (0.44) (0.65)
=================================================================================================================================
Net asset value, end of period $ 14.48 $ 15.29 $ 13.59 $ 13.07 $10.64 $ 11.48
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) (4.11)% 15.40% 7.42% 25.08% (3.53)% (21.02)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $86,709 $69,557 $16,917 $12,722 $9,839 $ 6,901
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 2.32%(c) 2.41% 2.36% 2.37%(d) 2.35% 2.31%(d)
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers 2.32%(c) 2.41% 2.43% 2.70%(d) 2.37% 2.35%(d)
=================================================================================================================================
Ratio of net investment income to average net
assets 2.55%(c) 2.61% 3.15% 3.73%(d) 2.96% 3.62%(d)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(e) 51% 77% 85% 39% 52% 69%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include contingent
deferred sales charges and is not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of $80,500,140.
(d) Annualized.
(e) Not annualized for periods less than one year.
7
--------------------
AIM REAL ESTATE FUND
--------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
<Table>
<Caption>
CLASS C
-------------------------------------------------------------------------------------
SIX MONTHS YEAR ENDED SEVEN MONTHS
ENDED JULY 31, ENDED YEAR ENDED DECEMBER 31,
JANUARY 31, ------------------- JULY 31, ----------------------------------
2003 2002 2001 2000 1999 1998 1997(a)
----------- ------- ------- ------------ ------- ------- -------
Net asset value, beginning of period $ 15.26 $ 13,57 $ 13.05 $ 10.62 $ 11.46 $ 15.74 $ 14.19
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.19(b) 0.38(b) 0.41 0.25(b) 0.33(b) 0.50(b) 0.36(b)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) (0.82) 1.67 0.53 2.39 (0.73) (4.13) 2.26
=================================================================================================================================
Total from investment operations (0.63) 2.05 0.94 2.64 (0.40) (3.63) 2.62
=================================================================================================================================
Less distributions:
Dividends from net investment income (0.18) (0.36) (0.42) (0.21) (0.44) (0.40) (0.33)
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- -- -- -- (0.25) (0.74)
=================================================================================================================================
Total distributions (0.18) (0.36) (0.42) (0.21) (0.44) (0.65) (1.07)
=================================================================================================================================
Net asset value, end of period $ 14.45 $ 15.26 $ 13.57 $ 13.05 $ 10.62 $ 11.46 $ 15.74
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) (4.12)% 15.35% 7.43% 25.13% (3.54)% (23.16)% 18.88%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $45,412 $37,733 $22,722 $20,306 $19,992 $32,921 $43,934
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 2.32%(d) 2.41% 2.36% 2.37%(e) 2.35% 2.31% 2.35%
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers 2.32%(d) 2.41% 2.43% 2.70%(e) 2.37% 2.37% 2.35%
=================================================================================================================================
Ratio of net investment income to average
net assets 2.55%(d) 2.61% 3.15% 3.73%(e) 2.96% 3.62% 2.54%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(f) 51% 77% 85% 39% 52% 69% 57%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Net asset value has been restated to reflect a 4 for 1 stock split, effected
in the form of a 300% stock dividend, on November 7, 1997.
(b)Calculated using average shares outstanding.
(c)Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include contingent
deferred sales charges and is not annualized for periods less than one year.
(d)Ratios are annualized and based on average daily net assets of $42,028,440.
(e)Annualized.
(f)Not annualized for periods less than one year.
8
-------------
THE AIM FUNDS
-------------
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
In addition to the fund, A I M Advisors, Inc. serves as investment advisor to
many other mutual funds (the AIM Funds). The following information is about all
the AIM Funds.
CHOOSING A SHARE CLASS
Many of the AIM Funds have multiple classes of shares, each class representing
an interest in the same portfolio of investments. When choosing a share class,
you should consult your financial advisor as to which class is most suitable for
you. In addition, you should consider the factors below.
<Table>
<Caption>
CLASS A(1) CLASS A3 CLASS B CLASS C CLASS R INVESTOR CLASS(6)
- ----------------------------------------------------------------------------------------------------------------------------
- - Initial sales - No initial sales - No initial sales - No initial sales - No initial sales - No initial sales
charge charge charge charge charge charge
- - Reduced or waived - No contingent - Contingent - Contingent - Generally, no - No contingent
initial sales deferred sales deferred sales deferred sales contingent deferred sales
charge for charge charge on charge on deferred sales charge
certain redemptions redemptions charge(2)
purchases(2,3) within six years within one
year(5)
- - Generally, lower - 12b-1 fee of - 12b-1 fee of - 12b-1 fee of - 12b-1 fee of - 12b-1 fee of
distribution and 0.35% 1.00% 1.00% 0.50% 0.25%(7)
service (12b-1)
fee than Class B,
Class C or Class
R shares (See
"Fee Table and
Expense Example")
- Does not convert - Converts to Class - Does not convert - Does not convert - Does not convert
to Class A shares A shares at the to Class A shares to Class A shares to Class A shares
end of the month
which is eight
years after the
date on which
shares were
purchased along
with a pro rata
portion of its
reinvested
dividends and
distributions(4)
- - Generally more - Generally more - Purchase orders - Generally more - Generally, only - Closed to new
appropriate for appropriate for limited to appropriate for available to the investors, except
long-term short- term amounts less than short- term following types as described in
investors investors $250,000 investors of retirement the "Purchasing
plans: (i) all Shares -- Grandfathered
section 401 and Investors"
457 plans, (ii) section of your
section 403 plans prospectus
sponsored by
section 501(c)(3)
organizations,
and (iii) IRA
rollovers from
such plans if an
AIM Fund was
offered
- ----------------------------------------------------------------------------------------------------------------------------
</Table>
Certain AIM Funds also offer Institutional Class shares to certain eligible
institutional investors; consult the fund's Statement of Additional Information
for details.
(1) As of the close of business on October 30, 2002, Class A shares of AIM
Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund were
closed to new investors.
(2) A contingent deferred sales charge may apply in some cases.
(3) AIM Opportunities I Fund will not accept any single purchase order in excess
of $250,000.
(4) AIM Money Market Fund: Class B shares convert to AIM Cash Reserve Shares.
AIM Global Trends Fund: If you held Class B shares on May 29, 1998 and
continue to hold them, those shares will convert to Class A shares of that
fund at the end of the month which is seven years after the date on which
shares were purchased. If you exchange those shares for Class B shares of
another AIM Fund, the shares into which you exchanged will not convert to
Class A shares until the end of the month which is eight years after the
date on which you purchased your original shares.
(5) A contingent deferred sales charge (CDSC) does not apply to redemption of
Class C shares of AIM Short Term Bond Fund unless you exchange Class C
shares of another AIM Fund that are subject to a CDSC into AIM Short Term
Bond Fund.
(6) As of July 21, 2003 Investor Class shares of AIM Blue Chip Fund, AIM
European Growth Fund, AIM High Yield Fund, AIM Income Fund, AIM Intermediate
Government Fund, AIM Large Cap Basic Value Fund, AIM Large Cap Growth Fund,
AIM Money Market Fund, AIM Municipal Bond Fund, AIM Real Estate Fund and AIM
Tax-Exempt Cash Fund have not commenced operations.
(7) Investor Class shares of AIM Money Market Fund and AIM Tax-Exempt Cash Fund
do not have a 12b-1 fee.
- --------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE (12b-1) FEES
Each AIM Fund (except AIM Tax-Free Intermediate Fund with respect to its Class A
shares) has adopted 12b-1 plans that allow the AIM Fund to pay distribution fees
to A I M Distributors, Inc. (the distributor) for the sale and distribution of
its shares and fees for services provided to shareholders, all or a substantial
portion of which are paid to the dealer of record. Because the AIM Fund pays
these fees out of its assets on an ongoing basis, over time these fees will
increase the cost of your investment and may cost you more than paying other
types of sales charges.
MCF--07/03
A-1
-------------
THE AIM FUNDS
-------------
SALES CHARGES
Sales charges on the AIM Funds and classes of those Funds are detailed below. As
used below, the term "offering price" with respect to all categories of Class A
shares includes the initial sales charge.
INITIAL SALES CHARGES
The AIM Funds are grouped into three categories with respect to initial sales
charges. The "Other Information" section of your prospectus will tell you in
what category your particular AIM Fund is classified.
<Table>
<Caption>
CATEGORY I INITIAL SALES CHARGES
- ------------------------------------------------------------------------------
INVESTOR'S
SALES CHARGE
---------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION(1) OFFERING PRICE INVESTMENT
- ------------------------------------------------------------------------------
Less than $ 25,000 5.50% 5.82%
$ 25,000 but less than $ 50,000 5.25 5.54
$ 50,000 but less than $ 100,000 4.75 4.99
$100,000 but less than $ 250,000 3.75 3.90
$250,000 but less than $ 500,000 3.00 3.09
$500,000 but less than $1,000,000 2.00 2.04
- ------------------------------------------------------------------------------
</Table>
(1) AIM Opportunities I Fund will not accept any single purchase order in excess
of $250,000.
<Table>
<Caption>
CATEGORY II INITIAL SALES CHARGES
- ------------------------------------------------------------------------------
INVESTOR'S
SALES CHARGE
---------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
- ------------------------------------------------------------------------------
Less than $ 50,000 4.75% 4.99%
$ 50,000 but less than $ 100,000 4.00 4.17
$100,000 but less than $ 250,000 3.75 3.90
$250,000 but less than $ 500,000 2.50 2.56
$500,000 but less than $1,000,000 2.00 2.04
- ------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
CATEGORY III INITIAL SALES CHARGES
- ------------------------------------------------------------------------------
INVESTOR'S
SALES CHARGE
---------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
- ------------------------------------------------------------------------------
Less than $ 100,000 1.00% 1.01%
$100,000 but less than $ 250,000 0.75 0.76
$250,000 but less than $1,000,000 0.50 0.50
- ------------------------------------------------------------------------------
</Table>
SHARES SOLD WITHOUT A SALES CHARGE
You will not pay an initial sales charge on purchases of Class A shares of AIM
Tax-Exempt Cash Fund and AIM Cash Reserve Shares of AIM Money Market Fund.
You will not pay an initial sales charge or a contingent deferred sales
charge (CDSC) on Class A3 shares of AIM Limited Maturity Treasury Fund and AIM
Tax-Free Intermediate Fund.
You will not pay an initial sales charge or a CDSC on Investor Class
shares of any AIM Fund.
CONTINGENT DEFERRED SALES CHARGES FOR CLASS A SHARES AND AIM CASH RESERVE SHARES
OF AIM MONEY MARKET FUND
You can purchase $1,000,000 or more (a Large Purchase) of Class A shares of
Category I and II Funds at net asset value. However, if you redeem these shares
prior to 18 months after the date of purchase, they will be subject to a CDSC of
1%.
If you made a Large Purchase of Class A shares of Category III Funds at
net asset value during the period November 15, 2001 through October 30, 2002,
such shares will be subject to a 0.25% CDSC if you redeem them prior to 12
months after the date of purchase.
If you currently own Class A shares of a Category I, II or III Fund and
make additional purchases (through October 30, 2002 for Category III Funds only)
at net asset value that result in account balances of $1,000,000 or more, the
additional shares purchased will be subject to a CDSC (an 18-month, 1% CDSC for
Category I and II Fund shares, and a 12-month, 0.25% CDSC for Category III Fund
shares). The CDSC for Category III Fund shares will not apply to additional
purchases made prior to November 15, 2001 or after October 30, 2002.
Some retirement plans can purchase Class A shares at their net asset
value per share. Effective November 1, 2002, if the distributor paid a
concession to the dealer of record in connection with a Large Purchase of Class
A shares by a retirement plan, the Class A shares may be subject to a 1% CDSC at
the time of redemption if all retirement plan assets are redeemed within one
year from the date of the plan's initial purchase.
You may be charged a CDSC when you redeem AIM Cash Reserve Shares of AIM
Money Market Fund or Class A shares of AIM Tax-Exempt Cash Fund if you acquired
those shares through an exchange, and the shares originally purchased were
subject to a CDSC.
The distributor may pay a dealer concession and/or a service fee for
Large Purchases and purchases by certain retirement plans.
CONTINGENT DEFERRED SALES CHARGES FOR CLASS B AND CLASS C SHARES
You can purchase Class B and Class C shares at their net asset value per share.
However, when you redeem them, they are subject to a CDSC in the following
percentages:
<Table>
<Caption>
YEAR SINCE
PURCHASE MADE CLASS B CLASS C
- --------------------------------------------------------------------------------
First 5% 1%
Second 4 None
Third 3 None
Fourth 3 None
Fifth 2 None
Sixth 1 None
Seventh and following None None
- --------------------------------------------------------------------------------
</Table>
You can purchase Class C shares of AIM Short Term Bond Fund at their net asset
value and not subject to a CDSC. However, you may be charged a CDSC when you
redeem Class C shares of AIM Short Term Bond Fund if you acquired those shares
through an exchange, and the shares originally purchased were subject to a CDSC.
MCF--07/03
A-2
-------------
THE AIM FUNDS
-------------
CONTINGENT DEFERRED SALES CHARGES FOR CLASS R SHARES
You can purchase Class R shares at their net asset value per share. If the
distributor pays a concession to the dealer of record, however, the Class R
shares are subject to a 0.75% CDSC at the time of redemption if all retirement
plan assets are redeemed within 12 months from the date of the retirement plan's
initial purchase.
COMPUTING A CDSC
The CDSC on redemptions of shares is computed based on the lower of their
original purchase price or current market value, net of reinvested dividends and
capital gains distributions. In determining whether to charge a CDSC, we will
assume that you have redeemed shares on which there is no CDSC first and, then,
shares in the order of purchase.
REDUCED SALES CHARGES AND SALES CHARGE EXCEPTIONS
You may qualify for reduced sales charges or sales charge exceptions. To qualify
for these reductions or exceptions, you or your financial consultant must
provide sufficient information at the time of purchase to verify that your
purchase qualifies for such treatment.
REDUCED SALES CHARGES
You may be eligible to buy Class A shares at reduced initial sales charge rates
under Rights of Accumulation or Letters of Intent under certain circumstances.
Purchases of Class A shares of AIM Tax-Exempt Cash Fund, Class A3 shares
of AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund, AIM
Cash Reserve Shares of AIM Money Market Fund and Class B and Class C shares of
AIM Floating Rate Fund and Investor Class shares of any AIM fund will not be
taken into account in determining whether a purchase qualifies for a reduction
in initial sales charges pursuant to Rights of Accumulation or Letters of
Intent.
RIGHTS OF ACCUMULATION
You may combine your new purchases of Class A shares with shares currently owned
(Class A, B, C or R) for the purpose of qualifying for the lower initial sales
charge rates that apply to larger purchases. The applicable initial sales charge
for the new purchase is based on the total of your current purchase and the
current value of all other shares you own.
LETTERS OF INTENT
Under a Letter of Intent (LOI), you commit to purchase a specified dollar amount
of Class A shares of AIM Funds during a 13-month period. The amount you agree to
purchase determines the initial sales charge you pay. If the full face amount of
the LOI is not invested by the end of the 13-month period, your account will be
adjusted to the higher initial sales charge level for the amount actually
invested.
INITIAL SALES CHARGE EXCEPTIONS
You will not pay initial sales charges
- - on shares purchased by reinvesting dividends and distributions;
- - when exchanging shares among certain AIM Funds;
- - when using the reinstatement privileges; and
- - when a merger, consolidation, or acquisition of assets of an AIM Fund occurs.
CONTINGENT DEFERRED SALES CHARGE (CDSC) EXCEPTIONS
You will not pay a CDSC
- - if you redeem Class B shares you held for more than six years;
- - if you redeem Class C shares you held for more than one year;
- - if you redeem Class C shares of an AIM Fund other than AIM Short Term Bond
Fund and you received such Class C shares by exchanging Class C shares of AIM
Short Term Bond Fund;
- - if you redeem Class C shares of AIM Short Term Bond Fund unless you received
such Class C shares by exchanging Class C shares of another AIM Fund and the
original purchase was subject to a CDSC;
- - if you are a participant in a retirement plan and your plan redeems, at any
time, less than all of the Class R shares held through such plan that would
otherwise be subject to a CDSC;
- - if you are a participant in a retirement plan and your plan redeems, after
having held them for more than one year from the date of the plan's initial
purchase, all of the Class R shares held through such plan that would
otherwise be subject to a CDSC;
- - if you redeem shares acquired through reinvestment of dividends and
distributions; and
- - on increases in the net asset value of your shares.
There may be other situations when you may be able to purchase or redeem shares
at reduced or without sales charges. Consult the fund's Statement of Additional
Information for details.
MCF--07/03
A-3
-------------
THE AIM FUNDS
-------------
PURCHASING SHARES
MINIMUM INVESTMENTS PER AIM FUND ACCOUNT
There are no minimum investments with respect to Class R shares for AIM Fund
accounts. The minimum investments with respect to Class A, A3, B and C shares
and Investor Class shares for AIM Fund accounts (except for investments in AIM
Opportunities I Fund, AIM Opportunities II Fund and AIM Opportunities III Fund)
are as follows:
<Table>
<Caption>
INITIAL ADDITIONAL
TYPE OF ACCOUNT INVESTMENTS INVESTMENTS
- -------------------------------------------------------------------------------------------------------------------------
Savings Plans (money-purchase/profit sharing plans, 401(k) $ 0 ($25 per AIM Fund investment for $25
plans, Simplified Employee Pension (SEP) accounts, Salary salary deferrals from Savings
Reduction (SARSEP) accounts, Savings Incentive Match Plans Plans)
for Employee IRA (Simple IRA) accounts, 403(b) or 457 plans)
Systematic Purchase Plan 50 25(1)
IRA, Education IRA or Roth IRA 250 50
All other accounts 500(2) 50
- -------------------------------------------------------------------------------------------------------------------------
</Table>
(1) $50 for Investor Class shares.
(2) $1,000 for Investor Class shares.
The minimum initial investment for AIM Opportunities I Fund, AIM Opportunities
II Fund and AIM Opportunities III Fund (the Special Opportunities Funds)
accounts is $10,000. The minimum subsequent investment is $1,000. The maximum
amount for a single purchase order of AIM Opportunities I Fund is $250,000.
HOW TO PURCHASE SHARES
You may purchase shares using one of the options below. Purchase orders will not
be processed unless the account application and purchase payment are received in
good order. In accordance with the USA PATRIOT Act, if you fail to provide all
the required information requested in the current account application, your
purchase order will not be processed.
PURCHASE OPTIONS
- --------------------------------------------------------------------------------
<Table>
<Caption>
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
- -------------------------------------------------------------------------------------------------------------------------
Through a Financial Consultant Contact your financial consultant. Same
By Mail Mail completed account application and Mail your check and the remittance slip
check to the transfer agent, A I M Fund from your confirmation statement to the
Services, Inc., P.O. Box 4739, Houston, transfer agent.
TX 77210-4739.
By Wire Mail completed account application to Call the transfer agent to receive a
the transfer agent. Call the transfer reference number. Then, use the wire
agent at (800) 959-4246 to receive a instructions at left.
reference number. Then, use the
following wire instructions:
Beneficiary Bank ABA/Routing #:
113000609
Beneficiary Account Number: 00100366807
Beneficiary Account Name: A I M Fund
Services, Inc.
RFB: Fund Name, Reference #
OBI: Your Name, Account #
By Telephone Open your account using one of the Select the AIM Bank
methods described above. Connection--Servicemark-- option on
your completed account application or
complete an AIM Bank Connection form.
Mail the application or form to the
transfer agent. Once the transfer agent
has received the form, call the
transfer agent to place your purchase
order.
Call the AIM 24-hour Automated Investor
Line. You may place your order after
you have provided the bank instructions
that will be requested.
By Internet Open your account using one of the Access your account at
methods described above. www.aiminvestments.com. The proper bank
instructions must have been provided on
your account. You may not purchase
shares in AIM prototype retirement
accounts on the internet.
- -------------------------------------------------------------------------------------------------------------------------
</Table>
MCF--07/03
A-4
-------------
THE AIM FUNDS
-------------
GRANDFATHERED INVESTORS
As of July 21, 2003, Investor Class shares of certain funds that intend to offer
such shares have not commenced operations (for a listing of funds that intend to
offer Investor Class shares see the "Choosing a Share Class" section of your
prospectus). Once operations commence, Investor Class shares of such funds may
be purchased only by: (1) persons or entities who had established an account,
prior to April 1, 2002, in Investor Class shares of any of the funds currently
distributed by A I M Distributors, Inc. (the "Grandfathered Funds") and have
continuously maintained such account in Investor Class shares since April 1,
2002; (2) any person or entity listed in the account registration for any
Grandfathered Funds, which account was established prior to April 1, 2002 and
continuously maintained since April 1, 2002, such as joint owners, trustees,
custodians and designated beneficiaries; (3) customers of certain financial
institutions, wrap accounts or other fee-based advisory programs, or insurance
company separate accounts, which have had relationships with A I M Distributors,
Inc. and/or any of the Grandfathered Funds prior to April 1, 2002 and
continuously maintained such relationships since April 1, 2002; (4) defined
benefit, defined contribution and deferred compensation plans; and (5) INVESCO
Funds directors, employees of AMVESCAP PLC and its subsidiaries.
SPECIAL PLANS
SYSTEMATIC PURCHASE PLAN
You can arrange for periodic investments in any of the AIM Funds by authorizing
the AIM Fund to withdraw the amount of your investment from your bank account on
a day or dates you specify and in an amount of at least $25 ($1,000 for any of
the Special Opportunities Funds). You may stop the Systematic Purchase Plan at
any time by giving the transfer agent notice ten days prior to your next
scheduled withdrawal.
DOLLAR COST AVERAGING
Dollar Cost Averaging allows you to make automatic monthly or quarterly
exchanges, if permitted, from one AIM Fund account to one or more other AIM Fund
accounts with the identical registration. The account from which exchanges are
to be made must have a minimum balance of $5,000 before you can use this option.
Exchanges will occur on (or about) the 10th or 25th day of the month, whichever
you specify, in the amount you specify. The minimum amount you can exchange to a
Special Opportunities Fund is $1,000. The minimum amount you can exchange to
another AIM Fund is $25.
AUTOMATIC DIVIDEND INVESTMENT
All of your dividends and distributions may be paid in cash or invested in any
AIM Fund at net asset value. Unless you specify otherwise, your dividends and
distributions will automatically be reinvested in the same AIM Fund. You may
invest your dividends and distributions (1) into another AIM Fund in the same
class of shares; or (2) from Class A shares into AIM Cash Reserve Shares of AIM
Money Market Fund, or vice versa.
You must comply with the following requirements to be eligible to invest
your dividends and distributions in shares of another AIM Fund:
(1) Your account balance (a) in the AIM Fund paying the dividend must be at
least $5,000; and (b) in the AIM Fund receiving the dividend must be at
least $500;
(2) Both accounts must have identical registration information; and
(3) You must have completed an authorization form to reinvest dividends into
another AIM Fund.
PORTFOLIO REBALANCING PROGRAM
If you have at least $5,000 in your account, you may participate in the
Portfolio Rebalancing Program. Under this Program, you can designate how the
total value of your AIM Fund holdings should be rebalanced, on a percentage
basis, between two and ten of your AIM Funds on a quarterly, semiannual or
annual basis. Your portfolio will be rebalanced through the exchange of shares
in one or more of your AIM Funds for shares of the same class of one or more
other AIM Funds in your portfolio. If you wish to participate in the Program,
make changes or cancel the Program, the transfer agent must receive your request
to participate, changes, or cancellation in good order at least five business
days prior to the next rebalancing date, which is normally the 28th day of the
last month of the period you choose. You may realize taxable gains from these
exchanges. We may modify, suspend or terminate the Program at any time on 60
days prior written notice.
RETIREMENT PLANS
Shares of most of the AIM Funds can be purchased through tax-sheltered
retirement plans made available to corporations, individuals and employees of
non-profit organizations and public schools. A plan document must be adopted to
establish a retirement plan. You may use AIM sponsored retirement plans, which
include IRAs, Education IRAs, Roth IRAs, 403(b) plans, 401(k) plans, SIMPLE IRA
plans, SEP/SARSEP plans and Money Purchase/Profit Sharing plans, or another
sponsor's retirement plan. The plan custodian of the AIM sponsored retirement
plan assesses an annual maintenance fee of $10. Contact your financial
consultant for details.
REDEEMING SHARES
REDEMPTION FEES
Generally, we will not charge you any fees to redeem your shares. Your broker or
financial consultant may charge service fees for handling redemption
transactions. Your shares also may be subject to a contingent deferred sales
charge (CDSC).
REDEMPTION OF CLASS A SHARES AND AIM CASH RESERVE SHARES ACQUIRED BY EXCHANGE
FOR PURCHASES MADE PRIOR TO NOVEMBER 15, 2001.
If you purchased $1,000,000 or more of Class A shares of any AIM Fund at net
asset value prior to November 15, 2001, or entered into a Letter of Intent prior
to November 15, 2001 to purchase
MCF--07/03
A-5
-------------
THE AIM FUNDS
-------------
$1,000,000 or more of Class A shares of a Category I, II or III Fund at net
asset value, your shares may be subject to a CDSC upon redemption, as described
below.
<Table>
<Caption>
SHARES
INITIALLY SHARES HELD CDSC APPLICABLE UPON
PURCHASED AFTER AN EXCHANGE REDEMPTION OF SHARES
--------- ----------------- --------------------
- - Class A shares of Category I - Class A shares of Category I or - 1% if shares are redeemed
or II Fund II Fund within 18 months of initial
- Class A shares of Category III purchase of Category I or II
Fund(1) Fund shares
- AIM Cash Reserve Shares of AIM
Money Market Fund
- - Class A shares of Category III - Class A shares of Category III - No CDSC
Fund(1) Fund(1)
- Class A shares of AIM Tax-Exempt
Cash Fund
- AIM Cash Reserve Shares of AIM
Money Market Fund
</Table>
(1) Beginning on February 17, 2003, Class A shares of a Category I, II or III
Fund may not be exchanged for Class A shares of a Category III Fund.
REDEMPTION OF CLASS A SHARES AND AIM CASH RESERVE SHARES ACQUIRED BY EXCHANGE
FOR PURCHASES MADE ON AND AFTER NOVEMBER 15, 2001
If you purchase $1,000,000 or more of Class A shares of any AIM Fund on and
after November 15, 2001 (and through October 30, 2002 with respect to Class A
shares of Category III Funds), or if you make additional purchases of Class A
shares on and after November 15, 2001 (and through October 30, 2002 with respect
to Class A shares of Category III Funds) at net asset value, your shares may be
subject to a CDSC upon redemption, as described below.
<Table>
<Caption>
SHARES
INITIALLY SHARES HELD CDSC APPLICABLE UPON
PURCHASED AFTER AN EXCHANGE REDEMPTION OF SHARES
--------- ----------------- --------------------
- - Class A shares of Category I - Class A shares of Category I or - 1% if shares are redeemed
or II Fund II Fund within 18 months of initial
- Class A shares of Category III purchase of Category I or II
Fund(1) Fund shares
- AIM Cash Reserve Shares of AIM
Money Market Fund
- - Class A shares of Category III - Class A shares of Category I or - 1% if shares are redeemed
Fund II Fund within 18 months of initial
purchase of Category III Fund
shares
- - Class A shares of Category III - Class A shares of Category III - 0.25% if shares are redeemed
Fund Fund(1) within 12 months of initial
- Class A shares of AIM Tax-Exempt purchase of Category III Fund
Cash Fund shares
- AIM Cash Reserve Shares of AIM
Money Market Fund
</Table>
(1) Beginning on February 17, 2003, Class A shares of a Category I, II or III
Fund may not be exchanged for Class A shares of a Category III Fund.
REDEMPTION OF CLASS A SHARES AND AIM CASH RESERVE SHARES ACQUIRED BY EXCHANGE
FOR PURCHASES MADE AFTER OCTOBER 30, 2002
If you purchase $1,000,000 or more of Class A shares of any AIM Fund on or after
October 31, 2002, or if you make additional purchases of Class A shares on and
after October 31, 2002 at net asset value, your shares may be subject to a CDSC
upon redemption as described below.
<Table>
<Caption>
SHARES
INITIALLY SHARES HELD CDSC APPLICABLE UPON
PURCHASED AFTER AN EXCHANGE REDEMPTION OF SHARES
--------- ----------------- --------------------
- - Class A shares of Category - Class A shares of Category I - 1% if shares are redeemed
I or II Fund or II Fund within 18 months of initial
- Class A shares of Category III purchase of Category I or II
Fund(2) Fund shares
- AIM Cash Reserve Shares of AIM
Money Market Fund
- - Class A shares of Category - Class A shares of Category I - 1% if shares are redeemed
III Fund(1) or II Fund within 18 months of initial
purchase of Category III Fund
shares
- - Class A shares of Category - Class A shares of Category III - No CDSC
III Fund(1) Fund(2)
- Class A shares of AIM Tax-
Exempt Cash Fund
- AIM Cash Reserve Shares of AIM
Money Market
</Table>
(1) As of the close of business on October 30, 2002, only existing shareholders
of Class A shares of a Category III Fund may purchase such shares.
(2) Beginning on February 17, 2003, Class A shares of a Category I, II or III
Fund may not be exchanged for Class A shares of Category III Fund.
REDEMPTION OF CLASS B SHARES ACQUIRED BY EXCHANGE FROM AIM FLOATING RATE FUND
If you redeem Class B shares you acquired by exchange via a tender offer by AIM
Floating Rate Fund, the early withdrawal charge applicable to shares of AIM
Floating Rate Fund will be applied instead of the CDSC normally applicable to
Class B shares.
MCF--07/03
A-6
-------------
THE AIM FUNDS
-------------
HOW TO REDEEM SHARES
- --------------------------------------------------------------------------------
<Table>
Through a Financial Consultant Contact your financial consultant.
By Mail Send a written request to the transfer
agent. Requests must include (1) original
signatures of all registered owners; (2) the
name of the AIM Fund and your account
number; (3) if the transfer agent does not
hold your shares, endorsed share
certificates or share certificates
accompanied by an executed stock power; and
(4) signature guarantees, if necessary (see
below). The transfer agent may require that
you provide additional information, such as
corporate resolutions or powers of attorney,
if applicable. If you are redeeming from an
IRA account, you must include a statement of
whether or not you are at least 59 1/2 years
old and whether you wish to have federal
income tax withheld from your proceeds. The
transfer agent may require certain other
information before you can redeem from an
employer-sponsored retirement plan. Contact
your employer for details.
By Telephone Call the transfer agent or our AIM 24-hour
Automated Investor Line. You will be allowed
to redeem by telephone if (1) the proceeds
are to be mailed to the address on record
(if there has been no change communicated to
us within the last 30 days) or transferred
electronically to a pre-authorized checking
account; (2) you do not hold physical share
certificates; (3) you can provide proper
identification information; (4) the proceeds
of the redemption do not exceed $250,000;
and (5) you have not previously declined the
telephone redemption privilege. Certain
accounts, including retirement accounts and
403(b) plans, may not be redeemed by
telephone. The transfer agent must receive
your call during the hours of the customary
trading session of the New York Stock
Exchange (NYSE) in order to effect the
redemption at that day's closing price. You
may, with limited exceptions, redeem from an
IRA account by telephone. Redemptions from
other types of retirement accounts must be
requested in writing.
By Internet Place your redemption request at
www.aiminvestments.com. You will be allowed
to redeem by internet if (1) you do not hold
physical share certificates; (2) you can
provide proper identification information;
(3) the proceeds of the redemption do not
exceed $250,000; and (4) you have already
provided proper bank information. AIM
prototype retirement accounts may not be
redeemed on the internet. The transfer agent
must confirm your transaction during the
hours of the customary trading session of
the NYSE in order to effect the redemption
at that day's closing price.
</Table>
- --------------------------------------------------------------------------------
TIMING AND METHOD OF PAYMENT
We normally will send out checks within one business day, and in any event no
more than seven days, after we accept your request to redeem. If you redeem
shares recently purchased by check, you will be required to wait up to ten
business days before we will send your redemption proceeds. This delay is
necessary to ensure that the purchase check has cleared.
REDEMPTION BY MAIL
If you mail us a request in good order to redeem your shares, we will mail you a
check in the amount of the redemption proceeds to the address on record with us.
If your request is not in good order, you may have to provide us with additional
documentation in order to redeem your shares.
REDEMPTION BY TELEPHONE
If you redeem by telephone, we will mail you a check in the amount of the
redemption proceeds to your address of record (if there has been no change
communicated to the transfer agent within the previous 30 days) or transmit them
electronically to your pre-authorized bank account. We use reasonable procedures
to confirm that instructions communicated by telephone are genuine and are not
liable for telephone instructions that are reasonably believed to be genuine.
REDEMPTION BY INTERNET
If you redeem by internet, we will transmit your redemption proceeds
electronically to your pre-authorized bank account. We use reasonable procedures
to confirm that instructions communicated by internet are genuine and are not
liable for internet instructions that are reasonably believed to be genuine.
PAYMENT FOR SYSTEMATIC REDEMPTIONS
You may arrange for regular monthly or quarterly withdrawals from your account
of at least $50. You also may make annual withdrawals if you own Class A shares.
We will redeem enough shares from your account to cover the amount withdrawn.
You must have an account balance of at least $5,000 to establish a Systematic
Redemption Plan. You can stop this plan at any time by giving ten days prior
notice to the transfer agent.
EXPEDITED REDEMPTIONS
(AIM CASH RESERVE SHARES OF AIM MONEY MARKET FUND ONLY)
If we receive your redemption order before 11:30 a.m. Eastern Time, we will try
to transmit payment of redemption proceeds on that same day. If we receive your
redemption order after 11:30 a.m. Eastern Time and before the close of the
customary trading session of the NYSE, we generally will transmit payment on the
next business day.
MCF--07/03
A-7
-------------
THE AIM FUNDS
-------------
REDEMPTIONS BY CHECK
(CLASS A SHARES OF AIM TAX-EXEMPT CASH FUND AND AIM CASH RESERVE SHARES OF AIM
MONEY MARKET FUND ONLY)
You may redeem shares of these AIM Funds by writing checks in amounts of $250 or
more if you have completed an authorization form. Redemption by check is not
available for retirement accounts.
SIGNATURE GUARANTEES
We require a signature guarantee when you redeem by mail and
(1) the amount is greater than $250,000;
(2) you request that payment be made to someone other than the name registered
on the account;
(3) you request that payment be sent somewhere other than the bank of record on
the account; or
(4) you request that payment be sent to a new address or an address that changed
in the last 30 days.
The transfer agent will accept a guarantee of your signature by a number of
financial institutions. Call the transfer agent for additional information. Some
institutions have transaction amount maximums for these guarantees. Please check
with the guarantor institution.
REINSTATEMENT PRIVILEGES
You may, within 120 days after you sell shares (except Class R shares, Class A
shares of AIM Tax-Exempt Cash Fund, AIM Cash Reserve Shares of AIM Money Market
Fund, Class A shares and Class A3 shares of AIM Limited Maturity Treasury Fund
and AIM Tax-Free Intermediate Fund and Investor Class shares), reinvest all or
part of your redemption proceeds in Class A shares of any Category I or II AIM
Fund at net asset value in an identically registered account.
You may, within 120 days after you sell some but not all of your Class A
shares of a Category III Fund, reinvest all or part of your redemption proceeds
in Class A shares of that same Category III Fund at net asset value in an
identically registered account.
The reinvestment amount must meet the subsequent investment minimum as
indicated in the section "Purchasing Shares".
If you paid an initial sales charge on any reinstated amount, you will
receive credit on purchases of Class A shares of a Category I or II Fund.
If you paid a contingent deferred sales charge (CDSC) on any reinstated
amount, you will not be subject to a CDSC if you later redeem that amount.
You must notify the transfer agent in writing at the time you reinstate
that you are exercising your reinstatement privilege.
REDEMPTIONS BY THE AIM FUNDS
If your account (Class A, Class A3, Class B, Class C and Investor Class shares
only) has been open at least one year, you have not made an additional purchase
in the account during the past six calendar months, and the value of your
account falls below $500 ($250 for Investor Class shares) for three consecutive
months due to redemptions or exchanges (excluding retirement accounts), the AIM
Funds have the right to redeem the account after giving you 60 days' prior
written notice. You may avoid having your account redeemed during the notice
period by bringing the account value up to $500 ($250 for Investor Class shares)
or by utilizing the Automatic Investment Plan.
If an AIM Fund determines that you have not provided a correct Social
Security or other tax ID number on your account application, the AIM Fund may,
at its discretion, redeem the account and distribute the proceeds to you.
EXCHANGING SHARES
You may, under certain circumstances, exchange shares in one AIM Fund for those
of another AIM Fund. Before requesting an exchange, review the prospectus of the
AIM Fund you wish to acquire. Exchange privileges also apply to holders of the
Connecticut General Guaranteed Account, established for tax-qualified group
annuities, for contracts purchased on or before June 30, 1992.
PERMITTED EXCHANGES
Except as otherwise stated under "Exchanges Not Permitted," you generally may
exchange your shares for shares of the same class of another AIM Fund.
You may also exchange:
(1) Class A shares of an AIM Fund for AIM Cash Reserve Shares of AIM Money
Market Fund;
(2) Class A shares of an AIM Fund (excluding AIM Limited Maturity Treasury Fund,
AIM Tax-Exempt Cash Fund and AIM Tax-Free Intermediate Fund) for Class A3
shares of an AIM Fund;
(3) Class A3 shares of an AIM Fund for AIM Cash Reserve shares of AIM Money
Market Fund;
(4) Class A3 shares of an AIM Fund for Class A shares of any AIM Fund (excluding
AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund);
(5) AIM Cash Reserve Shares of AIM Money Market Fund for Class A3 shares of an
AIM Fund;
(6) AIM Cash Reserve Shares of AIM Money Market Fund for Class A shares of any
AIM Fund (excluding AIM Limited Maturity Treasury Fund and AIM Tax-Free
Intermediate Fund, effective February 17, 2003, and AIM Tax-Exempt Cash
Fund);
(7) Investor Class shares of an AIM Fund for Class A shares of any AIM Fund
(excluding AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate
Fund) or Class A3 shares of an AIM Fund; or
(8) Class A or A3 shares of an AIM Fund for Investor Class shares of any AIM
Fund as long as you own Investor Class shares of any AIM Fund at the time of
exchange.
You may be required to pay an initial sales charge when exchanging from a
Fund with a lower initial sales charge than the one into which you are
exchanging. If you exchange into shares that are subject to a CDSC, we will
begin the holding period for purposes of calculating the CDSC on the date you
made your initial purchase.
MCF--07/03
A-8
-------------
THE AIM FUNDS
-------------
EXCHANGES NOT SUBJECT TO A SALES CHARGE
You will not pay an initial sales charge when exchanging:
(1) Class A shares with an initial sales charge (excluding Class A shares of AIM
Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund) for
(a) Class A shares of another AIM Fund;
(b) AIM Cash Reserve Shares of AIM Money Market Fund; or
(c) Class A3 shares of AIM Limited Maturity Treasury Fund or AIM
Tax-Free Intermediate Fund.
(2) Class A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free
Intermediate Fund with an initial sales charge for
(a) one another;
(b) AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares
of AIM Tax-Exempt Cash Fund; or
(c) Class A shares of another AIM Fund, but only if
(i) you acquired the original shares before May 1, 1994; or
(ii) you acquired the original shares on or after May 1, 1994 by way
of an exchange from shares with higher initial sales charges; or
(3) AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of AIM
Tax-Exempt Cash Fund for
(a) Class A shares of an AIM Fund subject to an initial sales charge
(excluding Class A shares of AIM Limited Maturity Treasury Fund and
AIM Tax-Free Intermediate Fund), but only if you acquired the
original shares
(i) prior to May 1, 1994 by exchange from Class A shares subject to
an initial sales charge;
(ii) on or after May 1, 1994 by exchange from Class A shares subject
to an initial sales charge (excluding Class A shares of AIM
Limited Maturity Treasury Fund and AIM Tax-Free Intermediate
Fund); or
(4) Class A3 shares of AIM Limited Maturity Treasury Fund or AIM Tax-Free
Intermediate Fund for
(a) AIM Cash Reserve Shares of AIM Money Market Fund; or
(b) Class A shares of AIM Tax-Exempt Cash Fund.
You will not pay a CDSC or other sales charge when exchanging:
(1) Class A shares for other Class A shares;
(2) Class B shares for other Class B shares;
(3) Class C shares for other Class C shares;
(4) Class R shares for other Class R shares.
EXCHANGES NOT PERMITTED
Certain classes of shares are not covered by the exchange privilege.
You may not exchange:
(1) Class A shares of a Category I or II Fund for Class A shares of a Category
III Fund after February 16, 2003; or
(2) Class A shares of a Category III Fund for Class A shares of another Category
III Fund after February 16, 2003.
For shares purchased prior to November 15, 2001, you may not exchange:
(1) Class A shares of Category I or II Funds (i) subject to an initial sales
charge or (ii) purchased at net asset value and subject to a contingent
deferred sales charge (CDSC) for Class A shares of AIM Tax-Exempt Cash Fund;
(2) Class A shares of Category III Funds purchased at net asset value for Class
A shares of a Category I or II Fund;
(3) AIM Cash Reserve Shares of AIM Money Market Fund for Class B or Class C
shares of any AIM Fund;
(4) AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of AIM
Tax-Exempt Cash Fund for Class A shares of Category I or II Funds that are
subject to a CDSC; or
(5) on or after January 15, 2002, AIM Cash Reserve Shares of AIM Money Market
Fund or Class A shares of AIM Tax-Exempt Cash Fund for Class A shares of
Category III Funds that are subject to a CDSC.
For shares purchased on or after November 15, 2001, you may not exchange:
(1) Class A shares of Category I or II Funds (i) subject to an initial sales
charge or (ii) purchased at net asset value and subject to a CDSC for Class
A shares of AIM Tax-Exempt Cash Fund;
(2) Class A shares of AIM Tax-Exempt Cash Fund for Class A shares of any other
AIM Fund (i) subject to an initial sales charge or (ii) purchased at net
asset value and subject to a CDSC or for AIM Cash Reserve Shares of AIM
Money Market Fund; or
(3) AIM Cash Reserve Shares of AIM Money Market Fund for Class B or Class C
shares of any AIM Fund or for Class A shares of any AIM Fund that are
subject to a CDSC, however, if you originally purchased Class A shares of a
Category I or II Fund, and exchanged those shares for AIM Cash Reserve
Shares of AIM Money Market Fund, you may further exchange the AIM Cash
Reserve Shares for Class A shares of a Category I or II Fund.
EXCHANGE CONDITIONS
The following conditions apply to all exchanges:
- - You must meet the minimum purchase requirements for the AIM Fund into which
you are exchanging;
- - Shares of the AIM Fund you wish to acquire must be available for sale in your
state of residence;
- - Exchanges must be made between accounts with identical registration
information;
- - The account you wish to exchange from must have a certified tax identification
number (or the Fund has received an appropriate Form W-8 or W-9);
- - Shares must have been held for at least one day prior to the exchange;
MCF--07/03
A-9
-------------
THE AIM FUNDS
-------------
- - If you have physical share certificates, you must return them to the transfer
agent prior to the exchange; and
- - You are limited to a maximum of 10 exchanges per calendar year, because
excessive short-term trading or market-timing activity can hurt fund
performance. If you exceed that limit, or if an AIM Fund or the distributor
determines, in its sole discretion, that your short-term trading is excessive
or that you are engaging in market-timing activity, it may reject any
additional exchange orders. An exchange is the movement out of (redemption)
one AIM Fund and into (purchase) another AIM Fund.
TERMS OF EXCHANGE
Under unusual market conditions, an AIM Fund may delay the purchase of shares
being acquired in an exchange for up to five business days if it determines that
it would be materially disadvantaged by the immediate transfer of exchange
proceeds. There is no fee for exchanges. The exchange privilege is not an option
or right to purchase shares. Any of the participating AIM Funds or the
distributor may modify or terminate this privilege at any time. The AIM Fund or
the distributor will provide you with notice of such modification or termination
whenever it is required to do so by applicable law, but may impose changes at
any time for emergency purposes.
BY MAIL
If you wish to make an exchange by mail, you must include original signatures of
each registered owner exactly as the shares are registered, the account
registration and account number, the dollar amount or number of shares to be
exchanged and the names of the AIM Funds from which and into which the exchange
is to be made.
BY TELEPHONE
Conditions that apply to exchanges by telephone are the same as redemptions by
telephone, including that the transfer agent must receive exchange requests
during the hours of the customary trading session of the NYSE; however, you
still will be allowed to exchange by telephone even if you have changed your
address of record within the preceding 30 days.
BY INTERNET
You will be allowed to exchange by internet if you do not hold physical share
certificates and you provide the proper identification information.
EXCHANGING CLASS B, CLASS C AND CLASS R SHARES
If you make an exchange involving Class B or Class C shares or Class R shares
subject to a CDSC, the amount of time you held the original shares will be
credited to the holding period of the Class B, Class C or Class R shares,
respectively, into which you exchanged for the purpose of calculating contingent
deferred sales charges (CDSC) if you later redeem the exchanged shares. If you
redeem Class B or Class C shares acquired by exchange via a tender offer by AIM
Floating Rate Fund, you will be credited with the time period you held the Class
B or Class C shares of AIM Floating Rate Fund for the purpose of computing the
early withdrawal charge applicable to those shares.
- --------------------------------------------------------------------------------
EACH AIM FUND AND ITS AGENTS RESERVE THE RIGHT AT ANY TIME TO:
- REJECT OR CANCEL ALL OR ANY PART OF ANY PURCHASE OR EXCHANGE ORDER;
- MODIFY ANY TERMS OR CONDITIONS OF PURCHASE OF SHARES OF ANY AIM FUND;
- REJECT OR CANCEL ANY REQUEST TO ESTABLISH THE SYSTEMATIC PURCHASE PLAN AND
SYSTEMATIC REDEMPTION PLAN OPTIONS ON THE SAME ACCOUNT; OR
- SUSPEND, CHANGE OR WITHDRAW ALL OR ANY PART OF THE OFFERING MADE BY THIS
PROSPECTUS.
- --------------------------------------------------------------------------------
PRICING OF SHARES
DETERMINATION OF NET ASSET VALUE
The price of each AIM Fund's shares is the fund's net asset value per share. The
AIM Funds value portfolio securities for which market quotations are readily
available at market value. The AIM Funds' short-term investments are valued at
amortized cost when the security has 60 days or less to maturity. AIM Money
Market Fund and AIM Tax-Exempt Cash Fund value all of their securities at
amortized cost. AIM High Income Municipal Fund, AIM Municipal Bond Fund and AIM
Tax-Free Intermediate Fund value variable rate securities that have an
unconditional demand or put feature exercisable within seven days or less at
par, which reflects the market value of such securities.
The AIM Funds value all other securities and assets at their fair value.
Securities and other assets quoted in foreign currencies are valued in U.S.
dollars based on the prevailing exchange rates on that day. In addition, if,
between the time trading ends on a particular security and the close of the
customary trading session of the NYSE, events occur that may materially affect
the value of the security, the AIM Funds may value the security at its fair
value as determined in good faith by or under the supervision of the Board of
Directors or Trustees of the AIM Fund. The effect of using fair value pricing is
that an AIM Fund's net asset value will be subject to the judgment of the Board
of Directors or Trustees or its designee instead of being determined by the
market. Because some of the AIM Funds may invest in securities that are
primarily listed on foreign exchanges that trade on days when the AIM Funds do
not price their shares, the value of those funds' assets may change on days when
you will not be able to purchase or redeem fund shares.
Each AIM Fund determines the net asset value of its shares on each day
the NYSE is open for business, as of the close of the customary trading session,
or any earlier NYSE closing time that day. AIM Money Market Fund also determines
its net asset value as of 12:00 noon Eastern Time on each day the NYSE is open
for business.
TIMING OF ORDERS
You can purchase, exchange or redeem shares during the hours of the customary
trading session of the NYSE. The AIM Funds price
MCF--07/03
A-10
-------------
THE AIM FUNDS
-------------
purchase, exchange and redemption orders at the net asset value calculated after
the transfer agent receives an order in good order. An AIM Fund may postpone the
right of redemption only under unusual circumstances, as allowed by the
Securities and Exchange Commission, such as when the NYSE restricts or suspends
trading.
TAXES
In general, dividends and distributions you receive are taxable as ordinary
income or long-term capital gains for federal income tax purposes, whether you
reinvest them in additional shares or take them in cash. Distributions are
generally taxable to you at different rates depending on the length of time the
fund holds its assets and the type of income that the fund earns. Different tax
rates apply to ordinary income, qualified dividend income, and long-term capital
gain distributions, regardless of how long you have held your shares. Every
year, you will be sent information showing the amount of dividends and
distributions you received from each AIM Fund during the prior year.
Any long-term or short-term capital gains realized from redemptions of
AIM Fund shares will be subject to federal income tax. Exchanges of shares for
shares of another AIM Fund are treated as a sale, and any gain realized on the
transaction will generally be subject to federal income tax.
INVESTORS IN TAX-EXEMPT FUNDS SHOULD READ THE INFORMATION UNDER THE
HEADING "OTHER INFORMATION -- SPECIAL TAX INFORMATION REGARDING THE FUND" IN
THEIR PROSPECTUS.
The foreign, state and local tax consequences of investing in AIM Fund
shares may differ materially from the federal income tax consequences described
above. In addition, the preceding discussion concerning the taxability of fund
dividends and distributions and of redemptions and exchanges of AIM Fund shares
is inapplicable to investors that are generally exempt from federal income tax,
such as retirement plans that are qualified under Section 401 of the Internal
Revenue Code, individual retirement accounts (IRAs) and Roth IRAs. You should
consult your tax advisor before investing.
MCF--07/03
A-11
--------------------
AIM REAL ESTATE FUND
--------------------
OBTAINING ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
More information may be obtained free of charge upon request. The Statement of
Additional Information (SAI), a current version of which is on file with the
Securities and Exchange Commission (SEC), contains more details about the fund
and is incorporated by reference into the prospectus (is legally a part of this
prospectus). Annual and semiannual reports to shareholders contain additional
information about the fund's investments. The fund's annual report also
discusses the market conditions and investment strategies that significantly
affected the fund's performance during its last fiscal year.
If you have questions about this fund, another fund in The AIM Family of
Funds--Registered Trademark-- or your account, or wish to obtain free copies of
the fund's current SAI or annual or semiannual reports, please contact us
<Table>
- --------------------------------------------------------
BY MAIL: A I M Fund Services, Inc.
P.O. Box 4739
Houston, TX 77210-4739
BY TELEPHONE: (800) 347-4246
ON THE INTERNET: You can send us a request
by e-mail or download
prospectuses, annual or
semiannual reports via
our website:
http://www.aiminvestments.com
- --------------------------------------------------------
</Table>
You also can review and obtain copies of the fund's SAI, reports and other
information at the SEC's Public Reference Room in Washington, DC; on the EDGAR
database on the SEC's Internet website (http://www.sec.gov); or, after paying a
duplication fee, by sending a letter to the SEC's Public Reference Section,
Washington, DC 20549-0102 or by sending an electronic mail request to
publicinfo@sec.gov. Please call the SEC at 1-202-942-8090 for information about
the Public Reference Room.
- --------------------------------------
AIM REAL ESTATE FUND
SEC 1940 Act file number: 811-3886
- --------------------------------------
AIMinvestments.com REA-PRO-1
APPENDIX III
REITS POST STRONG PERFORMANCE, OUTPACE OTHER EQUITIES
HOW DID AIM REAL ESTATE FUND PERFORM DURING THE FISCAL YEAR?
Despite the U.S. economy's struggles to escape the lingering impact of
recession, real estate investment trusts (REITs) continued their solid
performance during the reporting period. And the fund benefited from that trend.
For the fiscal year ended July 31, 2002, AIM Real Estate Fund posted total
returns of 16.10% for Class A shares, 15.40% for Class B shares, and 15.35% for
Class C shares. (These returns are at net asset value, and do not include sales
charges.)
By comparison, benchmark indexes failed to match the fund's performance. The
NAREIT Equity Index (NAREIT) showed a gain for the reporting period. The NAREIT
was up 12.37% for the year ended July 31. By contrast, the S&P 500 returned
- -23.62%.
Net assets in the fund grew to $193.7 million, and the number of holdings
reached 61 during the reporting period.
WHAT WAS THE MARKET ENVIRONMENT OVER THE REPORTING PERIOD?
As the fund's fiscal year began, the economy was weakening and the events of
September 11, 2001 would soon shock the world. Gross domestic product (GDP)
contracted in the first three quarters of 2001, and in November, the National
Bureau of Economic Research declared that the country had slipped into a
recession in March 2002.
In an effort to stimulate economic growth, the Federal Reserve Board
aggressively cut short-term interest rates throughout 2001, and the Federal
fund's rate ended the fiscal year at 1.75%, a 41-year low.
GDP inched into positive territory in the fourth quarter of 2001 and
remained positive for the first two quarters of 2002. First quarter GDP grew at
a robust annualized rate of 5.0%, suggesting that the economy was clearly
rebounding. But second quarter GDP growth, while positive, was just 1.1%.
At its March 2002 meeting, the Federal Reserve adopted a neutral stance,
indicating its belief that future risks to the economy were evenly weighted
between weakness and inflation. And it retained this stance through the close of
the fiscal year. More positively, personal income, consumer spending and retail
sales remained relatively strong, and inflation remained under control.
HOW WERE REITS AFFECTED BY MARKET CONDITIONS?
The investment performance of the REIT market was buoyed as a result of
investors seeking stocks that offered lower volatility than the broader equity
market. Investors continued to gravitate toward the relatively attractive
dividend yield of REITs (approximately 6.5%) in the current market environment.
As a result of investor interest, dedicated REIT mutual funds have attracted
more than $3.7 billion in new capital through July 31, 2002.
Apart from the investor interest garnered by REITs over the past year, the
lingering effects of a slowdown in business activity and corporate profits have
resulted in lower commercial tenant space needs and a reduction in lodging
requirements. Historically, low interest rates have also been a double-edged
sword for REITs.
On the one hand, the industry has benefited from lower borrowing costs. And
retail oriented REITs (those with regional malls and shopping centers) have
experienced positive fundamentals (higher sales per square foot and increased
occupancies) because of sustained consumer consumption. On the other hand, low
interest rates have afforded many renters the opportunity to purchase homes,
which has resulted in lower apartment occupancy rates.
HOW DID YOU MANAGE THE FUND?
The fund has continued its emphasis on defensive property sectors like retail,
self-storage and health care. These tend to offer lower sensitivity to slow GDP
growth. As GDP growth improves and as business related travel increases, the
fund's exposure to office and hotel properties may increase. We may also
increase multi-family REIT positions once interest rates
================================================================================
GROWTH OF TOTAL NET ASSETS
IN MILLIONS
[BAR CHART]
$56 $68 $194
7/31/00 7/31/01 7/31/02
================================================================================
FUND PERFORMANCE VS INDEXES
(TOTAL RETURNS (AS OF 7/31/02) EXCLUDING SALES CHARGES.)
[BAR CHART]
AIM Real Estate Fund 16.10%
Class A Shares
NAREIT Equity Index 12.37%
S&P 500 -23.62%
================================================================================
2
PORTFOLIO COMPOSITION
As of 7/31/02, based on total net assets
<Table>
<Caption>
================================================================================================================================
TOP 10 HOLDINGS PROPERTY DIVERSIFICATION [PIE CHART]
- --------------------------------------------------------------------------------------------------------------------------------
1. ProLogis 4.8% Other 11% Regional Malls 16%
2. Simon Property Group, Inc. 4.5 Industrial Properties 8% Shopping Centers 13%
3. Vornado Realty Trust 4.4 Health Care 8% Office Properties 13%
4. General Growth Properties, Inc. 4.3 Industrial/Office Properties 6% Apartments 12%
5. SL Green Realty Corp. 3.6 Self-Storage Facilities 5%
6. United Dominion Realty Trust, Inc. 3.5 Diversified 5%
7. Public Storage, Inc. 3.5 Specialty Properties 3%
8. PS Business Parks, Inc. 2.8
9. Plum Creek Timber Co., Inc. 2.8
10. Liberty Property Trust 2.8
TOTAL NET ASSETS: $193.7 MILLION TOTAL NUMBER OF HOLDINGS: 61
The fund's portfolio is subject to change, and there is no assurance that the fund will continue to hold any
particular security.
================================================================================================================================
</Table>
begin to rise or values have sufficiently adjusted downward to account for lower
occupancies. Apartment occupancies have been under pressure from tenants moving
out to purchase homes.
We remain focused on companies with above-average market capitalization and
liquidity, strong balance sheets, plus superior asset quality. Over the
near-term, we expect to retain an emphasis on property markets with high
barriers to new construction, mainly in the Northeastern U.S. and Southern
California.
Fund performance has benefited as we increased holdings in four property
types during the reporting period--health care, self-storage, retail and
industrial. Similarly, we have benefited the fund by decreasing holdings in four
property types--apartments, diversified, office and hotels--all of which have
struggled because of the slow recovery in commercial space demand.
WHAT COMPANIES HELPED FUND PERFORMANCE?
Four stocks are discussed below. All contributed positive results to fund
performance.
Simon Property Group is the fund's second largest holding and is the largest
owner of regional malls in the U.S. The real estate investment company owns,
develops and manages more than 250 properties in 36 states. Simon also owns
retail properties in Europe. The company has benefited from favorable
acquisitions and increasing occupancies.
Vornado Realty Trust concentrates on New York office space, with 70
buildings in the New York City area providing about half its revenue. The REIT
also owns 55 shopping centers in six states and Puerto Rico. The company is
attractive because of its strong management team, attractive valuations and
superior earnings growth compared to its peers.
General Growth Properties is the second-largest owner and operator of malls
in the U.S. It owns or operates more than 160 shopping malls, encompassing 100
million square feet of retail space, and occupied by more than 15,000 retail
tenants. The company dominates middle-sized markets, and the stock trades at
attractive levels compared to its peers.
ProLogis provides warehouse distribution facilities and services. The
company has distribution facilities owned, managed, and under development in
markets throughout North America, Europe and Japan. The company's European
property development has helped maintain better earnings growth compared to
peers.
WHAT WERE CONDITIONS AT THE CLOSE OF THE PERIOD?
Economic indexes continued to give conflicting signals at the close of the
fiscal year. Conditions remained uncertain throughout all financial markets.
Manufacturing activity grew in July, but at a slow rate. Productivity grew
in the second quarter and the Producer Price Index declined in July, both
positive signs for REITs. The Conference Board's Consumer Confidence
Index--considered an indicator of future spending patterns--declined in June and
then fell sharply in July. Nonetheless, July retail sales grew by 1.2%. The
unemployment rate was unchanged at 5.9% in July from June. Consumer spending
continues to depend heavily on the perception by individuals that their jobs are
secure.
Investor concerns about the safety of invested principal is also likely to
be crucial. In light of the strong new legislation on corporate governance that
was enacted by the U.S. Congress during the period, business practices and the
reliability of financial statements appear likely to improve. But it will take
time for investors to regain trust in corporate governance and accounting
practices, and meanwhile volatility will probably remain high.
As of the end of the period, investors remained extremely sensitive to every
news item, with stock markets volatile and uncertain.
See important fund and index disclosures inside front cover.
PORTFOLIO MANAGEMENT TEAM
Joe Rodriguez, Jr. (Lead manager)
Mark Blackburn
Jim Trowbridge
3
YOUR FUND'S LONG-TERM PERFORMANCE
================================================================================
AVERAGE ANNUAL TOTAL RETURNS
As of 7/31/02, including sales charges
CLASS A SHARES
Inception (12/31/96) 5.59%
5 Years 4.23
1 Year 10.56
CLASS B SHARES
Inception (3/3/98) 3.45%
1 Year 10.40
CLASS C SHARES
Inception (5/1/95) 10.29%
5 Years 4.50
1 Year 14.35
DUE TO RECENT SIGNIFICANT MARKET VOLATILITY, RESULTS OF AN INVESTMENT MADE TODAY
MAY DIFFER SUBSTANTIALLY FROM THE HISTORICAL PERFORMANCE SHOWN. CALL YOUR
FINANCIAL ADVISOR FOR MORE CURRENT PERFORMANCE.
================================================================================
RESULTS OF A $10,000 INVESTMENT
5/1/95-7/31/02
[HYPO CHART]
<Table>
<Caption>
AIM REAL ESTATE FUND
CLASS C SHARES S&P 500 NAREIT EQUITY INDEX
4/30/95 10000 4/30/95 10000 10000
7/31/95 10311 7/31/95 10992 10588
10/31/95 10293 10/31/95 11444 11087
1/31/96 11097 1/31/96 12589 11546
4/30/96 11090 4/30/96 13017 11809
7/31/96 11468 7/31/96 12810 12334
10/31/96 12688 10/31/96 14197 13141
1/31/97 14874 1/31/97 15900 15618
4/30/97 14229 4/30/97 16285 15727
7/31/97 16317 7/31/97 19483 16509
10/31/97 17287 10/31/97 18750 18460
1/31/98 17510 1/31/98 20175 18782
4/30/98 17073 4/30/98 22970 18695
7/31/98 15425 7/31/98 23242 17838
10/31/98 13455 10/31/98 22876 15961
1/31/99 13167 1/31/99 26732 15495
4/30/99 14216 4/30/99 27980 14748
7/31/99 13713 7/31/99 27933 16235
10/31/99 12758 10/31/99 28743 14930
1/31/00 13161 1/31/00 29492 14779
4/30/00 14531 4/30/00 30809 15133
7/31/00 16419 7/31/00 30437 16727
10/31/00 15605 10/31/00 30492 18006
1/31/01 16651 1/31/01 29229 18676
4/30/01 16610 4/30/01 26815 18750
7/31/01 17626 7/31/01 26081 20814
10/31/01 17328 10/31/01 22907 20268
1/31/02 18543 1/31/02 24518 21278
4/30/02 20163 4/30/02 23437 23035
7/31/02 20342 7/31/02 19926 24187
Past performance cannot guarantee comparable future results.
================================================================================
</Table>
================================================================================
CLASS C SHARES
CALENDAR YEAR TOTAL RETURNS (%) EXCLUDING SALES CHARGES
1995* 1996 1997 1998 1999 2000 2001
9.12 36.44 18.88 -23.16 -3.54 28.25 9.49
*Inception year
================================================================================
This chart (top right) compares the performance of AIM Real Estate Fund Class C
shares to its benchmark indexes. It is intended to give you a general idea of
how your fund performed compared to these indexes over the period
5/1/95-7/31/02.
It is important to understand the difference between your fund and an index.
A market index such as the S&P 500 or the NAREIT Equity Index is not managed and
incurs no sales charges, expenses or fees. If you could buy all the securities
that make up a market index, you would incur expenses that would affect your
investment return.
In addition, it is worth noting that the S&P 500 represents stocks only,
whereas your fund invests primarily in the real estate investment trust (REIT)
securities that produce much of their current income in the form of yields. An
index of REITs, such as the National Association of Real Estate Investment
Trusts (NAREIT) Equity Index, includes all tax-qualified REITs listed on the New
York Stock Exchange, the American Stock Exchange and the Nasdaq National Market
System, regardless of management style and investment strategy.
Performance shown in the chart and table do not reflect deduction of taxes
a shareholder would pay on fund distributions or sale of fund shares. Index
performance does not reflect the effects of taxes either.
4
APPENDIX IV
[REGISTRANT]
MASTER INVESTMENT ADVISORY AGREEMENT
THIS AGREEMENT is made this day of , 200 , by and between
[Registrant], a Delaware statutory trust (the "Trust") with respect to its
series of shares shown on the Appendix A attached hereto, as the same may be
amended from time to time, and A I M Advisors, Inc., a Delaware corporation (the
"Advisor").
RECITALS
WHEREAS, the Trust is registered under the Investment Company Act of 1940,
as amended (the "1940 Act"), as an open-end, diversified management investment
company;
WHEREAS, the Advisor is registered under the Investment Advisers Act of
1940, as amended (the "Advisers Act"), as an investment advisor and engages in
the business of acting as an investment advisor;
WHEREAS, the Trust's Agreement and Declaration of Trust (the "Declaration
of Trust") authorizes the Board of Trustees of the Trust (the "Board of
Trustees") to create separate series of shares of beneficial interest of the
Trust, and as of the date of this Agreement, the Board of Trustees has created
separate series portfolios (such portfolios and any other portfolios
hereafter added to the Trust being referred to collectively herein as the
"Funds"); and
WHEREAS, the Trust and the Advisor desire to enter into an agreement to
provide for investment advisory services to the Funds upon the terms and
conditions hereinafter set forth;
NOW THEREFORE, in consideration of the mutual covenants herein contained
and other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties agree as follows:
1. Advisory Services. The Advisor shall act as investment advisor for the
Funds and shall, in such capacity, supervise all aspects of the Funds'
operations, including the investment and reinvestment of cash, securities or
other properties comprising the Funds' assets, subject at all times to the
policies and control of the Board of Trustees. The Advisor shall give the Trust
and the Funds the benefit of its best judgment, efforts and facilities in
rendering its services as investment advisor.
2. Investment Analysis and Implementation. In carrying out its
obligations under Section 1 hereof, the Advisor shall:
(a) supervise all aspects of the operations of the Funds;
(b) obtain and evaluate pertinent information about significant
developments and economic, statistical and financial data, domestic,
foreign or otherwise, whether affecting the economy generally or the Funds,
and whether concerning the individual issuers whose securities are included
in the assets of the Funds or the activities in which such issuers engage,
or with respect to securities which the Advisor considers desirable for
inclusion in the Funds' assets;
(c) determine which issuers and securities shall be represented in the
Funds' investment portfolios and regularly report thereon to the Board of
Trustees;
(d) formulate and implement continuing programs for the purchases and
sales of the securities of such issuers and regularly report thereon to the
Board of Trustees; and
(e) take, on behalf of the Trust and the Funds, all actions which
appear to the Trust and the Funds necessary to carry into effect such
purchase and sale programs and supervisory functions as aforesaid,
including but not limited to the placing of orders for the purchase and
sale of securities for the Funds.
IV-1
3. Securities Lending Duties and Fees. The Advisor agrees to provide the
following services in connection with the securities lending activities of each
Fund: (a) oversee participation in the securities lending program to ensure
compliance with all applicable regulatory and investment guidelines; (b) assist
the securities lending agent or principal (the "Agent") in determining which
specific securities are available for loan; (c) monitor the Agent to ensure that
securities loans are effected in accordance with the Advisor's instructions and
with procedures adopted by the Board of Trustees; (d) prepare appropriate
periodic reports for, and seek appropriate approvals from, the Board of Trustees
with respect to securities lending activities; (e) respond to Agent inquiries;
and (f) perform such other duties as necessary.
As compensation for such services provided by the Advisor in connection
with securities lending activities of each Fund, a lending Fund shall pay the
Advisor a fee equal to 25% of the net monthly interest or fee income retained or
paid to the Fund from such activities.
4. Delegation of Responsibilities. The Advisor is authorized to delegate
any or all of its rights, duties and obligations under this Agreement to one or
more sub-advisors, and may enter into agreements with sub-advisors, and may
replace any such sub-advisors from time to time in its discretion, in accordance
with the 1940 Act, the Advisers Act, and rules and regulations thereunder, as
such statutes, rules and regulations are amended from time to time or are
interpreted from time to time by the staff of the Securities and Exchange
Commission ("SEC"), and if applicable, exemptive orders or similar relief
granted by the SEC and upon receipt of approval of such sub-advisors by the
Board of Trustees and by shareholders (unless any such approval is not required
by such statutes, rules, regulations, interpretations, orders or similar
relief).
5. Independent Contractors. The Advisor and any sub-advisors shall for
all purposes herein be deemed to be independent contractors and shall, unless
otherwise expressly provided or authorized, have no authority to act for or
represent the Trust in any way or otherwise be deemed to be an agent of the
Trust.
6. Control by Board of Trustees. Any investment program undertaken by the
Advisor pursuant to this Agreement, as well as any other activities undertaken
by the Advisor on behalf of the Funds, shall at all times be subject to any
directives of the Board of Trustees.
7. Compliance with Applicable Requirements. In carrying out its
obligations under this Agreement, the Advisor shall at all times conform to:
(a) all applicable provisions of the 1940 Act and the Advisers Act and
any rules and regulations adopted thereunder;
(b) the provisions of the registration statement of the Trust, as the
same may be amended from time to time under the Securities Act of 1933 and
the 1940 Act;
(c) the provisions of the Declaration of Trust, as the same may be
amended from time to time;
(d) the provisions of the by-laws of the Trust, as the same may be
amended from time to time; and
(e) any other applicable provisions of state, federal or foreign law.
8. Broker-Dealer Relationships. The Advisor is responsible for decisions
to buy and sell securities for the Funds, broker-dealer selection, and
negotiation of brokerage commission rates.
(a) The Advisor's primary consideration in effecting a security
transaction will be to obtain the best execution.
(b) In selecting a broker-dealer to execute each particular
transaction, the Advisor will take the following into consideration: the
best net price available; the reliability, integrity and financial
condition of the broker-dealer; the size of and the difficulty in executing
the order; and the value of the expected contribution of the broker-dealer
to the investment performance of the Funds on a continuing basis.
Accordingly, the price to the Funds in any transaction may be less
favorable than
IV-2
that available from another broker-dealer if the difference is reasonably
justified by other aspects of the fund execution services offered.
(c) Subject to such policies as the Board of Trustees may from time to
time determine, the Advisor shall not be deemed to have acted unlawfully or
to have breached any duty created by this Agreement or otherwise solely by
reason of its having caused the Funds to pay a broker or dealer that
provides brokerage and research services to the Advisor an amount of
commission for effecting a fund investment transaction in excess of the
amount of commission another broker or dealer would have charged for
effecting that transaction, if the Advisor determines in good faith that
such amount of commission was reasonable in relation to the value of the
brokerage and research services provided by such broker or dealer, viewed
in terms of either that particular transaction or the Advisor's overall
responsibilities with respect to a particular Fund, other Funds of the
Trust, and to other clients of the Advisor as to which the Advisor
exercises investment discretion. The Advisor is further authorized to
allocate the orders placed by it on behalf of the Funds to such brokers and
dealers who also provide research or statistical material, or other
services to the Funds, to the Advisor, or to any sub-advisor. Such
allocation shall be in such amounts and proportions as the Advisor shall
determine and the Advisor will report on said allocations regularly to the
Board of Trustees indicating the brokers to whom such allocations have been
made and the basis therefor.
(d) With respect to one or more Funds, to the extent the Advisor does
not delegate trading responsibility to one or more sub-advisors, in making
decisions regarding broker-dealer relationships, the Advisor may take into
consideration the recommendations of any sub-advisor appointed to provide
investment research or advisory services in connection with the Funds, and
may take into consideration any research services provided to such
sub-advisor by broker-dealers.
(e) Subject to the other provisions of this Section 8, the 1940 Act,
the Securities Exchange Act of 1934, and rules and regulations thereunder,
as such statutes, rules and regulations are amended from time to time or
are interpreted from time to time by the staff of the SEC, any exemptive
orders issued by the SEC, and any other applicable provisions of law, the
Advisor may select brokers or dealers with which it or the Funds are
affiliated.
9. Compensation. The compensation that each Fund shall pay the Advisor is
set forth in Appendix B attached hereto.
10. Expenses of the Funds. All of the ordinary business expenses incurred
in the operations of the Funds and the offering of their shares shall be borne
by the Funds unless specifically provided otherwise in this Agreement. These
expenses borne by the Funds include but are not limited to brokerage
commissions, taxes, legal, accounting, auditing, or governmental fees, the cost
of preparing share certificates, custodian, transfer and shareholder service
agent costs, expenses of issue, sale, redemption and repurchase of shares,
expenses of registering and qualifying shares for sale, expenses relating to
trustees and shareholder meetings, the cost of preparing and distributing
reports and notices to shareholders, the fees and other expenses incurred by the
Trust on behalf of the Funds in connection with membership in investment company
organizations and the cost of printing copies of prospectuses and statements of
additional information distributed to the Funds' shareholders.
11. Services to Other Companies or Accounts. The Trust understands that
the Advisor now acts, will continue to act and may act in the future as
investment manager or advisor to fiduciary and other managed accounts, and as
investment manager or advisor to other investment companies, including any
offshore entities, or accounts, and the Trust has no objection to the Advisor so
acting, provided that whenever the Trust and one or more other investment
companies or accounts managed or advised by the Advisor have available funds for
investment, investments suitable and appropriate for each will be allocated in
accordance with a formula believed to be equitable to each company and account.
The Trust recognizes that in some cases this procedure may adversely affect the
size of the positions obtainable and the prices realized for the Funds.
IV-3
12. Non-Exclusivity. The Trust understands that the persons employed by
the Advisor to assist in the performance of the Advisor's duties under this
Agreement will not devote their full time to such service and nothing contained
in this Agreement shall be deemed to limit or restrict the right of the Advisor
or any affiliate of the Advisor to engage in and devote time and attention to
other businesses or to render services of whatever kind or nature. The Trust
further understands and agrees that officers or directors of the Advisor may
serve as officers or trustees of the Trust, and that officers or trustees of the
Trust may serve as officers or directors of the Advisor to the extent permitted
by law; and that the officers and directors of the Advisor are not prohibited
from engaging in any other business activity or from rendering services to any
other person, or from serving as partners, officers, directors or trustees of
any other firm or trust, including other investment advisory companies.
13. Effective Date, Term and Approval. This Agreement shall become
effective with respect to a Fund, if approved by the shareholders of such Fund,
on the Effective Date for such Fund, as set forth in Appendix A attached hereto.
If so approved, this Agreement shall thereafter continue in force and effect
until , 200 , and may be continued from year to year thereafter,
provided that the continuation of the Agreement is specifically approved at
least annually:
(a) (i) by the Board of Trustees or (ii) by the vote of "a majority of
the outstanding voting securities" of such Fund (as defined in Section
2(a)(42) of the 1940 Act); and
(b) by the affirmative vote of a majority of the trustees who are not
parties to this Agreement or "interested persons" (as defined in the 1940
Act) of a party to this Agreement (other than as trustees of the Trust), by
votes cast in person at a meeting specifically called for such purpose.
14. Termination. This Agreement may be terminated as to the Trust or as
to any one or more of the Funds at any time, without the payment of any penalty,
by vote of the Board of Trustees or by vote of a majority of the outstanding
voting securities of the applicable Fund, or by the Advisor, on sixty (60) days'
written notice to the other party. The notice provided for herein may be waived
by the party entitled to receipt thereof. This Agreement shall automatically
terminate in the event of its assignment, the term "assignment" for purposes of
this paragraph having the meaning defined in Section 2(a)(4) of the 1940 Act.
15. Amendment. No amendment of this Agreement shall be effective unless
it is in writing and signed by the party against which enforcement of the
amendment is sought.
16. Liability of Advisor and Fund. In the absence of willful misfeasance,
bad faith, gross negligence or reckless disregard of obligations or duties
hereunder on the part of the Advisor or any of its officers, directors or
employees, the Advisor shall not be subject to liability to the Trust or to the
Funds or to any shareholder of the Funds for any act or omission in the course
of, or connected with, rendering services hereunder or for any losses that may
be sustained in the purchase, holding or sale of any security. Any liability of
the Advisor to one Fund shall not automatically impart liability on the part of
the Advisor to any other Fund. No Fund shall be liable for the obligations of
any other Fund.
17. Liability of Shareholders. Notice is hereby given that, as provided
by applicable law, the obligations of or arising out of this Agreement are not
binding upon any of the shareholders of the Trust individually but are binding
only upon the assets and property of the Trust and that the shareholders shall
be entitled, to the fullest extent permitted by applicable law, to the same
limitation on personal liability as shareholders of private corporations for
profit.
18. Notices. Any notices under this Agreement shall be in writing,
addressed and delivered, telecopied or mailed postage paid, to the other party
entitled to receipt thereof at such address as such party may designate for the
receipt of such notice. Until further notice to the other party, it is agreed
that the address of the Trust and that of the Advisor shall be 11 Greenway
Plaza, Suite 100, Houston, Texas 77046-1173.
19. Questions of Interpretation. Any question of interpretation of any
term or provision of this Agreement having a counterpart in or otherwise derived
from a term or provision of the 1940 Act or the
IV-4
Advisers Act shall be resolved by reference to such term or provision of the
1940 Act or the Advisers Act and to interpretations thereof, if any, by the
United States Courts or in the absence of any controlling decision of any such
court, by rules, regulations or orders of the SEC issued pursuant to said Acts.
In addition, where the effect of a requirement of the 1940 Act or the Advisers
Act reflected in any provision of the Agreement is revised by rule, regulation
or order of the SEC, such provision shall be deemed to incorporate the effect of
such rule, regulation or order. Subject to the foregoing, this Agreement shall
be governed by and construed in accordance with the laws (without reference to
conflicts of law provisions) of the State of Texas.
20. License Agreement. The Trust shall have the non-exclusive right to
use the name "AIM" to designate any current or future series of shares only so
long as A I M Advisors, Inc. serves as investment manager or advisor to the
Trust with respect to such series of shares.
IV-5
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate by their respective officers on the day and year first
written above.
[REGISTRANT]
(a Delaware statutory trust)
Attest:
<Table>
- ----------------------------------------- By: ----------------------------------------------------
Assistant Secretary
President
(SEAL)
Attest:
A I M ADVISORS, INC.
- -----------------------------------------
By: ----------------------------------------------------
Assistant Secretary
President
(SEAL)
</Table>
IV-6
APPENDIX A
FUNDS AND EFFECTIVE DATES
<Table>
<Caption>
NAME OF FUND EFFECTIVE DATE OF ADVISORY AGREEMENT
- ------------ ------------------------------------
[To Be Added] [To Be Added]
</Table>
A-1
APPENDIX B
COMPENSATION TO THE ADVISOR
The Trust shall pay the Advisor, out of the assets of a Fund, as full
compensation for all services rendered, an advisory fee for such Fund set forth
below. Such fee shall be calculated by applying the following annual rates to
the average daily net assets of such Fund for the calendar year computed in the
manner used for the determination of the net asset value of shares of such Fund.
[To Be Added -- Please see Exhibit L for the annual rates applicable to
your Fund]
B-1
APPENDIX V
MASTER INTERGROUP SUB-ADVISORY CONTRACT FOR MUTUAL FUNDS
This contract is made as of , 200 , between A I M Advisors, Inc.
hereinafter "Adviser," 11 Greenway Plaza, Suite 100, Houston, Texas 77046, and
[INVESCO Institutional (N.A.), Inc.] "Sub-Adviser," 1360 Peachtree Street, N.E.,
Suite 100 Atlanta, Georgia 30309.
WHEREAS:
A) Adviser has entered into an investment advisory agreement with
[Registrant] (hereinafter "Trust"), an open-end management investment
company registered under the Investment Company Act of 1940, as amended
(the "1940 Act"), with respect to the funds set forth in Exhibit A
attached hereto (each a "Fund");
B) Sub-Adviser represents that it is licensed under the Investment Advisers
Act of 1940 ("Advisers Act") as an investment adviser and engages in the
business of acting as an investment adviser;
C) Adviser is authorized to delegate certain, any or all of its rights,
duties and obligations under investment advisory agreements to
sub-advisers, including sub-advisers that are affiliated with Adviser.
NOW THEREFORE, in consideration of the promises and the mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. Appointment. Adviser hereby appoints Sub-Adviser as Sub-Adviser of
each Fund for the period and on the terms set forth herein. Sub-Adviser accepts
such appointment and agrees to render the services herein set forth, for the
compensation herein provided.
2. Duties as Sub-Adviser.
(a) Subject to the supervision of the Trust's Board of Trustees ("Board")
and Adviser, the Sub-Adviser will provide a continuous investment program for
each Fund, including investment research and management, with respect to all or
a portion of the securities and investments and cash equivalents of the Fund
(the "Sub-Advised Assets"), such Sub-Advised Assets to be determined by the
Adviser. The Sub-Adviser will determine from time to time what securities and
other investments will be purchased, retained or sold with respect to the
Sub-Advised Assets of each Fund, and the brokers and dealers through whom trades
will be executed.
(b) The Sub-Adviser agrees that, in placing orders with brokers and
dealers, it will attempt to obtain the best net result in terms of price and
execution. Consistent with this obligation, the Sub-Adviser may, in its
discretion, purchase and sell portfolio securities from and to brokers and
dealers who sell shares of the Funds or provide the Funds, Adviser's other
clients, or Sub-Adviser's other clients with research, analysis, advice and
similar services. The Sub-Adviser may pay to brokers and dealers, in return for
such research and analysis, a higher commission or spread than may be charged by
other brokers and dealers, subject to the Sub-Adviser determining in good faith
that such commission or spread is reasonable in terms either of the particular
transaction or of the overall responsibility of the Adviser and the Sub-Adviser
to the Funds and their other clients and that the total commissions or spreads
paid by each Fund will be reasonable in relation to the benefits to the Fund
over the long term. In no instance will portfolio securities be purchased from
or sold to the Sub-Adviser, or any affiliated person thereof, except in
accordance with the applicable securities laws and the rules and regulations
thereunder and any exemptive orders currently in effect. Whenever the
Sub-Adviser simultaneously places orders to purchase or sell the same security
on behalf of a Fund and one or more other accounts advised by the Sub-Adviser,
such orders will be allocated as to price and amount among all such accounts in
a manner believed to be equitable to each account.
(c) The Sub-Adviser will maintain all required books and records with
respect to the securities transactions of the Funds, and will furnish the Board
and Adviser with such periodic and special reports as
V-1
the Board or Adviser reasonably may request. Sub-Adviser hereby agrees that all
records which it maintains for the Adviser are the property of the Adviser, and
agrees to preserve for the periods prescribed by applicable law any records
which it maintains for the Adviser and which are required to be maintained, and
further agrees to surrender promptly to the Adviser any records which it
maintains for the Adviser upon request by the Adviser.
3. Further Duties. In all matters relating to the performance of this
Contract, Sub-Adviser will act in conformity with the Agreement and Declaration
of Trust, By-Laws and Registration Statement of the Trust and with the
instructions and directions of the Board and will comply with the requirements
of the 1940 Act, the rules, regulations, exemptive orders and no-action
positions thereunder, and all other applicable laws and regulations. Sub-Adviser
shall maintain compliance procedures for the Funds that it and the Adviser
reasonably believe are adequate to ensure compliance with the 1940 Act and the
investment objective(s) and policies as stated in the prospectuses and
statements of additional information.
4. Services Not Exclusive. The services furnished by Sub-Adviser
hereunder are not to be deemed exclusive and Sub-Adviser shall be free to
furnish similar services to others so long as its services under this Contract
are not impaired thereby. Nothing in this Contract shall limit or restrict the
right of any director, officer or employee of Sub-Adviser, who may also be a
Trustee, officer or employee of the Trust, to engage in any other business or to
devote his or her time and attention in part to the management or other aspects
of any other business, whether of a similar nature or a dissimilar nature.
5. Compensation.
(a) For the services provided to a Fund under this Contract, Adviser will
pay Sub-Adviser a fee, computed daily and paid monthly, at the rate of 40% of
the Adviser's compensation on the Sub-Advised Assets per year, on or before the
last business day of the next succeeding calendar month.
(b) If this Contract becomes effective or terminates before the end of any
month, the fee for the period from the effective date to the end of the month or
from the beginning of such month to the date of termination, as the case may be,
shall be prorated according to the proportion which such period bears to the
full month in which such effectiveness or termination occurs.
6. Fee Waivers and Expense Limitations. If, for any fiscal year of the
Trust, the amount of the advisory fee which the Fund would otherwise be
obligated to pay to the Adviser is reduced because of contractual or voluntary
fee waivers or expense limitations by the Adviser, the fee payable hereunder to
the Sub-Adviser shall be reduced proportionately; and to the extent that the
Adviser reimburses the Fund as a result of such expense limitations, the
Sub-Adviser shall reimburse the Adviser that proportion of such reimbursement
payments which the sub-advisory fee hereunder bears to the advisory fee under
this Contract.
7. Limitation of Liability of Sub-Adviser and
Indemnification. Sub-Adviser shall not be liable for any costs or liabilities
arising from any error of judgment or mistake of law or any loss suffered by the
Fund or the Trust in connection with the matters to which this Contract relates
except a loss resulting from willful misfeasance, bad faith or gross negligence
on the part of Sub-Adviser in the performance by Sub-Adviser of its duties or
from reckless disregard by Sub-Adviser of its obligations and duties under this
Contract. Any person, even though also an officer, partner, employee, or agent
of Sub-Adviser, who may be or become a Trustee, officer, employee or agent of
the Trust, shall be deemed, when rendering services to a Fund or the Trust or
acting with respect to any business of a Fund or the Trust to be rendering such
service to or acting solely for the Fund or the Trust and not as an officer,
partner, employee, or agent or one under the control or direction of Sub-Adviser
even though paid by it.
8. Duration and Termination.
(a) This Contract shall become effective upon the date hereabove written,
provided that this Contract shall not take effect with respect to any Fund
unless it has first been approved (i) by a vote of a majority of the independent
Trustees who are not parties to this Contract or "interested persons" (as
defined in the 1940 Act) of a party to this Contract, other than as Board
members ("Independent Trustees"), cast in
V-2
person at a meeting called for the purpose of voting on such approval, and (ii)
by vote of a majority of that Fund's outstanding voting securities, when
required by the 1940 Act.
(b) Unless sooner terminated as provided herein, this Contract shall
continue in force and effect until , 200 . Thereafter, if not
terminated, with respect to each Fund, this Contract shall continue
automatically for successive periods not to exceed twelve months each, provided
that such continuance is specifically approved at least annually (i) by a vote
of a majority of the Independent Trustees, cast in person at a meeting called
for the purpose of voting on such approval, and (ii) by the Board or by vote of
a majority of the outstanding voting securities of that Fund.
(c) Notwithstanding the foregoing, with respect to any Fund this Contract
may be terminated at any time, without the payment of any penalty, (i) by vote
of the Board or by a vote of a majority of the outstanding voting securities of
the Fund on sixty days' written notice to Sub-Adviser; or (ii) by the Adviser on
sixty days' written notice to Sub-Adviser; or (iii) by the Sub-Adviser on sixty
days' written notice to the Trust. Termination of this Contract with respect to
one Fund shall not affect the continued effectiveness of this Contract with
respect to any other Fund. This Contract will automatically terminate in the
event of its assignment.
9. Amendment. No provision of this Contract may be changed, waived,
discharged or terminated orally, but only by an instrument in writing signed by
the party against which enforcement of the change, waiver, discharge or
termination is sought, and, when required by the 1940 Act, no amendment of this
Contract shall be effective until approved by vote of a majority of the Fund's
outstanding voting securities.
10. Notices. Any notices under this Contract shall be writing, addressed
and delivered, telecopied or mailed postage paid, to the other party entitled to
receipt thereof at such address as such party may designate for the receipt of
such notice. Until further notice to the other party, it is agreed that the
address of the Trust and the Adviser shall be 11 Greenway Plaza, Suite 100,
Houston, Texas 77046. Until further notice to the other party, it is agreed that
the address of the Sub-Adviser shall be 1360 Peachtree Street, N.E., Suite 100,
Atlanta, Georgia 30309.
11. Governing Law. This Contract shall be construed in accordance with
the laws of the State of Texas and the 1940 Act. To the extent that the
applicable laws of the State of Texas conflict with the applicable provisions of
the 1940 Act, the latter shall control.
12. Miscellaneous. The captions in this Contract are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Contract shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Contract shall not be affected
thereby. This Contract shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors. Any question of
interpretation of any term or provision of this Contract having a counterpart in
or otherwise derived from a term or provision of the 1940 Act or the Advisers
Act shall be resolved by reference to such term or provision of the 1940 Act or
the Advisers Act and to interpretations thereof, if any, by the United States
Courts or in the absence of any controlling decision of any such court, by
rules, regulations or orders of the Securities and Exchange Commission ("SEC")
issued pursuant to said Acts. In addition, where the effect of a requirement of
the 1940 Act or the Advisers Act reflected in any provision of the Contract is
revised by rule, regulation or order of the SEC, such provision shall be deemed
to incorporate the effect of such rule, regulation or order.
V-3
IN WITNESS WHEREOF, the parties hereto have caused this Contract to be
executed by their officers designated as of the day and year first above
written.
<Table>
A I M ADVISORS, INC. [INVESCO INSTITUTIONAL (N.A.), INC.]
Adviser Sub-adviser
By:
- -----------------------------------------
By: ----------------------------------------------------
Name:
- -----------------------------------------
Name: -------------------------------------------------
Title:
- ----------------------------------------- Title:
--------------------------------------------------
</Table>
V-4
EXHIBIT A
TO
MASTER INTERGROUP SUB-ADVISORY CONTRACT FOR MUTUAL FUNDS
FUND
[To Be Added]
V-5
APPENDIX VI
[NAME OF INVESCO FUND]
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement"), dated as of August
13, 2003, by and between [name of current INVESCO Fund], a Maryland corporation
(the "Company"), acting on its own behalf and on behalf of each of its series
portfolios, all of which are identified on Schedule A to this Agreement, and
[name of new Delaware statutory trust], a Delaware statutory trust (the
"Trust"), acting on its own behalf and on behalf of each of its series
portfolios, all of which are identified on Schedule A.
BACKGROUND
The Company is organized as a series management investment company and is
registered with the Securities and Exchange Commission under the Investment
Company Act of 1940, as amended. The Company currently publicly offers shares of
common stock representing interests in one or more separate series portfolios.
Each of these series portfolios is listed on Schedule A and is referred to in
this Agreement as a "Current Fund."
The Board of Directors of the Company has designated one or more classes of
common stock that represent interests in each Current Fund. Each of these
classes is listed on Schedule B to this Agreement and is referred to in this
Agreement as a "Current Fund Class."
The Company desires to change its form and place of organization by
reorganizing as the Trust. In anticipation of such reorganization, the Board of
Trustees of the Trust has established a series portfolio corresponding to each
of the Current Funds (each a "New Fund"), and has designated one or more classes
of shares of beneficial interest in each New Fund corresponding to the Current
Fund Classes (each a "New Fund Class"). Schedule A lists the New Funds and
Schedule B lists the New Fund Classes.
Each Current Fund desires to provide for its Reorganization (each, a
"Reorganization" and collectively, the "Reorganizations") through the transfer
of all of its assets to the corresponding New Fund in exchange for the
assumption by such New Fund of the liabilities of the corresponding Current Fund
and the issuance by the Trust to such Current Fund of shares of beneficial
interest in the New Fund ("New Fund Shares"). New Fund Shares received by a
Current Fund will have an aggregate net asset value equal to the aggregate net
asset value of the shares of the Current Fund immediately prior to the
Reorganization (the "Current Fund Shares"). Each Current Fund will then
distribute the New Fund Shares it has received to its shareholders.
Each Reorganization of each Current Fund is dependent upon the consummation
of the Reorganization of all of the other Current Funds, so that the
Reorganizations of all of the Current Funds must be consummated if any of them
are to be consummated. For convenience, the balance of this Agreement refers
only to a single Reorganization, but the terms and conditions hereof shall apply
separately to each Reorganization and to the Current Fund and the corresponding
New Fund participating therein, as applicable.
The Reorganization is subject to, and shall be effected in accordance with,
the terms of this Agreement. This Agreement is intended to be and is adopted by
the Company, on its own behalf and on behalf of the Current Funds, and by the
Trust, on its own behalf and on behalf of the New Funds, as a Plan of
Reorganization within the meaning of the regulations under Section 368(a) of the
Internal Revenue Code of 1986, as amended.
VI-1
NOW THEREFORE, the parties hereto, intending to be legally bound, hereby
agree as follows:
1. DEFINITIONS
Any capitalized terms used herein and not otherwise defined shall have the
meanings set forth in the preamble or background to this Agreement. In addition,
the following terms shall have the following meanings:
1.1 "Assets" shall mean all assets including, without limitation, all
cash, cash equivalents, securities, receivables (including interest and
dividends receivable), claims and rights of action, rights to register shares
under applicable securities laws, books and records, deferred and prepaid
expenses shown as assets on a Current Fund's books, and other property owned by
a Current Fund at the Effective Time.
1.2 "Closing" shall mean the consummation of the transfer of Assets,
assumption of Liabilities and issuance of shares described in Sections 2.1 and
2.2 of this Agreement, together with the related acts necessary to consummate
the Reorganization, to occur on the date set forth in Section 3.1.
1.3 "Code" shall mean the Internal Revenue Code of 1986, as amended.
1.4 "Current Fund" shall mean each of the series portfolios of the Company
as shown on Schedule A.
1.5 "Current Fund Class" shall mean each class of common stock of the
Company representing an interest in a Current Fund as shown on Schedule B.
1.6 "Current Fund Shares" shall mean the shares of a Current Fund
outstanding immediately prior to the Reorganization.
1.7 "Effective Time" shall have the meaning set forth in Section 3.1.
1.8 "Liabilities" shall mean all liabilities of a Current Fund including,
without limitation, all debts, obligations, and duties of whatever kind or
nature, whether absolute, accrued, contingent, or otherwise, whether or not
determinable at the Effective Time, and whether or not specifically referred to
herein.
1.9 "New Fund" shall mean each of the series portfolios of the Trust, one
of which shall correspond to one of the Current Funds as shown on Schedule A.
1.10 "New Fund Class" shall mean each class of shares of beneficial
interest in a New Fund, one of which shall correspond to one of the Current Fund
Classes as shown on Schedule B.
1.11 "New Fund Shares" shall mean those shares of beneficial interest in a
New Fund issued to a Current Fund hereunder.
1.12 "Registration Statement" shall have the meaning set forth in Section
5.4.
1.13 "RIC" shall mean a "regulated investment company" (as defined under
Subchapter M of the Code).
1.14 "SEC" shall mean the Securities and Exchange Commission.
1.15 "Shareholder(s)" shall mean a Current Fund's shareholder(s) of
record, determined as of the Effective Time.
1.16 "Shareholders Meeting" shall have the meaning set forth in Section
5.1.
1.17 "Transfer Agent" shall have the meaning set forth in Section 2.2.
1.18 "1940 Act" shall mean the Investment Company Act of 1940, as amended.
VI-2
2. PLAN OF REORGANIZATION
2.1 The Company agrees, on behalf of each Current Fund, to assign, sell,
convey, transfer and deliver all of the Assets of each Current Fund to its
corresponding New Fund. The Trust, on behalf of each New Fund, agrees in
exchange therefor:
(a) to issue and deliver to the corresponding Current Fund the number
of full and fractional (rounded to the third decimal place) New Fund Shares
of each New Fund Class designated on Schedule B equal to the number of full
and fractional Current Fund Shares of each corresponding Current Fund Class
designated on Schedule B; and
(b) to assume all of the Current Fund's Liabilities.
Such transactions shall take place at the Closing.
2.2 At the Effective Time (or as soon thereafter as is reasonably
practicable), (a) the New Fund Shares issued pursuant to Section 5.2 shall be
redeemed by each New Fund for $10.00 and (b) each Current Fund shall distribute
the New Fund Shares received by it pursuant to Section 2.1 to the Current Fund's
Shareholders in exchange for such Shareholders' Current Fund Shares. Such
distribution shall be accomplished through opening accounts, by the transfer
agent for the Trust (the "Transfer Agent"), on each New Fund's share transfer
books in the Shareholders' names and transferring New Fund Shares to such
accounts. Each Shareholder's account shall be credited with the respective pro
rata number of full and fractional (rounded to the third decimal place) New Fund
Shares of each New Fund Class due that Shareholder. All outstanding Current Fund
Shares, including those represented by certificates, shall simultaneously be
canceled on each Current Fund's share transfer books. The Trust shall not issue
certificates representing the New Fund Shares in connection with the
Reorganization. However, certificates representing Current Fund Shares shall
represent New Fund Shares after the Reorganization.
2.3 Following receipt of the required shareholder vote and as soon as
reasonably practicable after the Closing, the status of each Current Fund as a
designated series of the Company shall be terminated; provided, however, that
the termination of each Current Fund as a designated series of the Company shall
not be required if the Reorganization shall not have been consummated.
2.4 Following receipt of the required shareholder vote and as soon as
reasonably practicable after distribution of the New Fund Shares pursuant to
Section 2.2, the Company and the Trust shall cause Articles of Transfer to be
filed with the State Department of Assessments and Taxation of Maryland and,
following the filing of Articles of Transfer, the Company shall file Articles of
Dissolution with the State Department of Assessments and Taxation of Maryland to
dissolve the Company as a Maryland corporation; provided, however, that the
filing of Articles of Transfer and Articles of Dissolution as aforesaid shall
not be required if the Reorganization shall not have been consummated.
2.5 Any transfer taxes payable on issuance of New Fund Shares in a name
other than that of the registered holder of the Current Fund Shares exchanged
therefor shall be paid by the person to whom such New Fund Shares are to be
issued, as a condition of such transfer.
2.6 Any reporting responsibility of the Company or each Current Fund to a
public authority is and shall remain its responsibility up to and including the
date on which it is terminated.
3. CLOSING
3.1 The Closing shall occur at the principal office of the Company on
[date], 2003, or on such other date and at such other place upon which the
parties may agree. All acts taking place at the Closing shall be deemed to take
place simultaneously as of the Company's and the Trust's close of business on
the date of the Closing or at such other time as the parties may agree (the
"Effective Time").
3.2 The Company or its fund accounting agent shall deliver to the Trust at
the Closing, a certificate of an authorized officer verifying that the
information (including adjusted basis and holding period, by lot) concerning the
Assets, including all portfolio securities, transferred by the Current Funds to
the New
VI-3
Funds, as reflected on the New Funds' books immediately following the Closing,
does or will conform to such information on the Current Funds' books immediately
before the Closing. The Company shall cause the custodian for each Current Fund
to deliver at the Closing a certificate of an authorized officer of the
custodian stating that (a) the Assets held by the custodian will be transferred
to each corresponding New Fund at the Effective Time and (b) all necessary taxes
in conjunction with the delivery of the Assets, including all applicable federal
and state stock transfer stamps, if any, have been paid or provision for payment
has been made.
3.3 The Company shall deliver to the Trust at the Closing a list of the
names and addresses of each Shareholder of each Current Fund and the number of
outstanding Current Fund Shares of the Current Fund Class owned by each
Shareholder, all as of the Effective Time, certified by the Company's Secretary
or Assistant Secretary. The Trust shall cause the Transfer Agent to deliver at
the Closing a certificate as to the opening on each New Fund's share transfer
books of accounts in the Shareholders' names. The Trust shall issue and deliver
a confirmation to the Company evidencing the New Fund Shares to be credited to
each corresponding Current Fund at the Effective Time or provide evidence
satisfactory to the Company that such shares have been credited to each Current
Fund's account on such books. At the Closing, each party shall deliver to the
other such bills of sale, checks, assignments, stock certificates, receipts, or
other documents as the other party or its counsel may reasonably request.
3.4 The Company and the Trust shall deliver to the other at the Closing a
certificate executed in its name by its President or a Vice President in form
and substance satisfactory to the recipient and dated the Effective Time, to the
effect that the representations and warranties it made in this Agreement are
true and correct at the Effective Time except as they may be affected by the
transactions contemplated by this Agreement.
4. REPRESENTATIONS AND WARRANTIES
4.1 The Company represents and warrants on its own behalf and on behalf of
each Current Fund as follows:
(a) The Company is a corporation duly organized, validly existing, and
in good standing under the laws of the State of Maryland, and its Charter
is on file with the Maryland Department of Assessments and Taxation;
(b) The Company is duly registered as an open-end series management
investment company under the 1940 Act, and such registration is in full
force and effect;
(c) Each Current Fund is a duly established and designated series of
the Company;
(d) At the Closing, each Current Fund will have good and marketable
title to its Assets and full right, power, and authority to sell, assign,
transfer, and deliver its Assets free of any liens or other encumbrances;
and upon delivery and payment for the Assets, the corresponding New Fund
will acquire good and marketable title to the Assets;
(e) The New Fund Shares are not being acquired for the purpose of
making any distribution thereof, other than in accordance with the terms
hereof;
(f) Each Current Fund is a "fund" as defined in Section 851(g)(2) of
the Code; each Current Fund qualified for treatment as a RIC for each
taxable year since it commenced operations that has ended (or will end)
before the Closing and will continue to meet all the requirements for such
qualification for its current taxable year (and the Assets will be invested
at all times through the Effective Time in a manner that ensures compliance
with the foregoing); each Current Fund has no earnings and profits
accumulated in any taxable year in which the provisions of Subchapter M did
not apply to it; and each Current Fund has made all distributions for each
calendar year that has ended (or will end) before the Closing that are
necessary to avoid the imposition of federal excise tax or has paid or
provided for the payment of any excise tax imposed for any such calendar
year;
VI-4
(g) During the five-year period ending on the date of the
Reorganization, neither Company nor any person related to Company (as
defined in Section 1.368-1(e)(3) of the Federal income tax regulations
adopted pursuant to the Code without regard to Section 1.368-1(e)(3)(i)(A))
will have directly or through any transaction, agreement, or arrangement
with any other person, (i) acquired shares of a Current Fund for
consideration other than shares of such Current Fund, except for shares
redeemed in the ordinary course of such Current Fund's business as an
open-end investment company as required by the 1940 Act, or (ii) made
distributions with respect to a Current Fund's shares, except for (a)
distributions necessary to satisfy the requirements of Sections 852 and
4982 of the Code for qualification as a regulated investment company and
avoidance of excise tax liability and (b) additional distributions, to the
extent such additional distributions do not exceed 50 percent of the value
(without giving effect to such distributions) of the proprietary interest
in such Current Fund at the Effective Time. There is no plan or intention
of the Shareholders who individually own 5% or more of any Current Fund
Shares and, to the best of the Company's knowledge, there is no plan or
intention of the remaining Shareholders to redeem or otherwise dispose of
any New Fund Shares to be received by them in the Reorganization. The
Company does not anticipate dispositions of those shares at the time of or
soon after the Reorganization to exceed the usual rate and frequency of
redemptions of shares of the Current Fund as a series of an open-end
investment company. Consequently, the Company is not aware of any plan that
would cause the percentage of Shareholder interests, if any, that will be
disposed of as a result of or at the time of the Reorganization to be one
percent (1%) or more of the shares of the Current Fund outstanding as of
the Effective Time;
(h) The Liabilities were incurred by the Current Funds in the ordinary
course of their business and are associated with the Assets;
(i) The Company is not under the jurisdiction of a court in a
proceeding under Title 11 of the United States Code or similar case within
the meaning of Section 368(a)(3)(A) of the Code;
(j) As of the Effective Time, no Current Fund will have outstanding
any warrants, options, convertible securities, or any other type of rights
pursuant to which any person could acquire Current Fund Shares except for
the right of investors to acquire its shares at net asset value in the
normal course of its business as a series of an open-end diversified
management investment company operating under the 1940 Act;
(k) At the Effective Time, the performance of this Agreement shall
have been duly authorized by all necessary action by the Company's
shareholders;
(l) Throughout the five-year period ending on the date of the Closing,
each Current Fund will have conducted its historic business within the
meaning of Section 1.368-1(d) of the Income Tax Regulations under the Code
in a substantially unchanged manner;
(m) The fair market value of the Assets of each Current Fund
transferred to the corresponding New Fund will equal or exceed the sum of
the Liabilities assumed by the New Fund plus the amount of Liabilities, if
any, to which the transferred Assets are subject; and
(n) The total adjusted basis of the Assets of each Current Fund
transferred to the corresponding New Fund will equal or exceed the sum of
the Liabilities assumed by the New Fund plus the amount of Liabilities, if
any, to which the transferred assets are subject.
4.2 The Trust represents and warrants on its own behalf and on behalf of
each New Fund as follows:
(a) The Trust is a statutory trust duly organized, validly existing,
and in good standing under the laws of the State of Delaware, and its
Certificate of Trust has been duly filed in the office of the Secretary of
State of Delaware;
(b) The Trust is duly registered as an open-end management investment
company under the 1940 Act. At the Effective Time, the New Fund Shares to
be issued pursuant to Section 2.1 of this Agreement shall be duly
registered under the Securities Act of 1933 by a Registration Statement
filed with the SEC;
VI-5
(c) At the Effective Time, each New Fund will be a duly established
and designated series of the Trust;
(d) No New Fund has commenced operations nor will it commence
operations until after the Closing;
(e) Prior to the Effective Time, there will be no issued and
outstanding shares in any New Fund or any other securities issued by the
Trust on behalf of any New Fund, except as provided in Section 5.2;
(f) No consideration other than New Fund Shares (and each New Fund's
assumption of the Liabilities) will be issued in exchange for the Assets in
the Reorganization;
(g) The New Fund Shares to be issued and delivered to each
corresponding Current Fund hereunder will, at the Effective Time, have been
duly authorized and, when issued and delivered as provided herein, will be
duly and validly issued and outstanding shares of the New Fund, fully paid
and nonassessable;
(h) Each New Fund will be a "fund" as defined in Section 851(g)(2) of
the Code and will meet all the requirements to qualify for treatment as a
RIC for its taxable year in which the Reorganization occurs;
(i) The Trust, on behalf of the New Funds, has no plan or intention to
issue additional New Fund Shares following the Reorganization except for
shares issued in the ordinary course of its business as an open-end
investment company; nor does the Trust, on behalf of the New Funds, have
any plan or intention to redeem or otherwise reacquire any New Fund Shares
issued pursuant to the Reorganization, other than in the ordinary course of
such business or to the extent necessary to comply with its legal
obligation under Section 22(e) of the 1940 Act;
(j) Each New Fund will actively continue the corresponding Current
Fund's business in substantially the same manner that the Current Fund
conducted that business immediately before the Reorganization; and no New
Fund has any plan or intention to sell or otherwise dispose of any of the
Assets, except for dispositions made in the ordinary course of its business
or dispositions necessary to maintain its qualification as a RIC, although
in the ordinary course of its business the New Fund will continuously
review its investment portfolio (as each Current Fund did before the
Reorganization) to determine whether to retain or dispose of particular
stocks or securities, including those included in the Assets, provided,
however that this Section 4.2(j) shall not preclude any of the combinations
of funds set forth on Schedule C to this Agreement; and
(k) There is no plan or intention for any of the New Funds to be
dissolved or merged into another corporation or statutory trust or "fund"
thereof (within the meaning of Section 851(g)(2) of the Code) following the
Reorganization, provided, however that this Section 4.2(k) shall not
preclude any of the combinations of Funds set forth on Schedule C.
4.3 Each of the Company and the Trust, on its own behalf and on behalf of
each Current Fund or each New Fund, as appropriate, represents and warrants as
follows:
(a) The fair market value of the New Fund Shares of each New Fund
received by each Shareholder will be equal to the fair market value of the
Current Fund Shares of the corresponding Current Fund surrendered in
exchange therefor;
(b) Immediately following consummation of the Reorganization, the
Shareholders will own all the New Fund Shares of each New Fund and will own
such shares solely by reason of their ownership of the Current Fund Shares
of the corresponding Current Fund immediately before the Reorganization;
(c) The Shareholders will pay their own expenses, if any, incurred in
connection with the Reorganization;
VI-6
(d) There is no intercompany indebtedness between a Current Fund and a
New Fund that was issued or acquired, or will be settled, at a discount;
and
(e) Immediately following consummation of the Reorganization, each New
Fund will hold the same assets, except for assets distributed to
shareholders in the course of its business as a RIC and assets used to pay
expenses incurred in connection with the Reorganization, and be subject to
the same liabilities that the corresponding Current Fund held or was
subject to immediately prior to the Reorganization. Assets used to pay (i)
expenses, (ii) all redemptions (other than redemptions at the usual rate
and frequency of the Current Fund as a series of an open-end investment
company), and (iii) distributions (other than regular, normal
distributions), made by a Current Fund after the date of this Agreement
will, in the aggregate, constitute less than one percent (1%) of its net
assets.
5. COVENANTS
5.1 As soon as practicable after the date of this Agreement, the Company
shall call a meeting of its shareholders (the "Shareholders Meeting") to
consider and act on this Agreement and, in connection therewith, the sale of all
of the Company's assets and the dissolution of the Company as a Maryland
corporation. The Board of Directors of the Company shall recommend that
shareholders approve this Agreement and, in connection therewith, sale of all of
the Company's assets and the dissolution of the Company as a Maryland
corporation. Approval by shareholders of this Agreement will authorize the
Company, and the Company hereby agrees, to vote on the matters referred to in
Sections 5.2 and 5.3.
5.2 Prior to the Closing, the Company shall acquire one New Fund Share in
each New Fund Class of each New Fund for the purpose of enabling the Company to
elect the Company's directors as the Trust's trustees (to serve without limit in
time, except as they may resign or be removed by action of the Trust's trustees
or shareholders), to ratify the selection of the Trust's independent
accountants, and to vote on the matters referred to in Section 5.3.
5.3 Immediately prior to the Closing, the Trust (on its own behalf and
with respect to each New Fund or each New Fund Class, as appropriate) shall
enter into a Master Investment Advisory Agreement, a Master Sub-Advisory
Agreement, if applicable, a Master Administrative Services Agreement, Master
Distribution Agreements, a Custodian Agreement, and a Transfer Agency and
Servicing Agreement; shall adopt plans of distribution pursuant to Rule 12b-l of
the 1940 Act, a multiple class plan pursuant to Rule 18f-3 of the 1940 Act; and
shall enter into or adopt, as appropriate, such other agreements and plans as
are necessary for each New Fund's operation as a series of an open-end
investment company. Each such agreement and plan shall have been approved by the
Trust's trustees and, to the extent required by law, by such of those trustees
who are not "interested persons" of the Trust (as defined in the 1940 Act) and
by the Company as the sole shareholder of each New Fund.
5.4 The Company or the Trust, as appropriate, shall file with the SEC one
or more post-effective amendments to the Company's Registration Statement on
Form N-lA under the Securities Act of 1933, as amended, and the 1940 Act, as
amended (the "Registration Statement"), (i) which will contain such amendments
to such Registration Statement as are determined by the Company to be necessary
and appropriate to effect the Reorganization, (ii) which will register the New
Fund Shares to be issued pursuant to Section 2.1 of this Agreement, and (iii) if
applicable, under which the Trust will succeed to the Registration Statement,
and shall use its best efforts to have such post-effective amendment or
amendments to the Registration Statement become effective as of the Closing.
6. CONDITIONS PRECEDENT
The obligations of the Company, on its own behalf and on behalf of each
Current Fund, and the Trust, on its own behalf and on behalf of each New Fund,
will be subject to (a) performance by the other party of all its obligations to
be performed hereunder at or before the Effective Time, (b) all representations
and warranties of the other party contained herein being true and correct in all
material respects as of the date hereof and, except as they may be affected by
the transactions contemplated
VI-7
hereby, as of the Effective Time, with the same force and effect as if made on
and as of the Effective Time, and (c) the further conditions that, at or before
the Effective Time:
6.1 The shareholders of the Company shall have approved this
Agreement and the transactions contemplated by this Agreement in accordance
with applicable law.
6.2 All necessary filings shall have been made with the SEC and state
securities authorities, and no order or directive shall have been received
that any other or further action is required to permit the parties to carry
out the transactions contemplated hereby. All consents, orders, and permits
of federal, state, and local regulatory authorities (including the SEC and
state securities authorities) deemed necessary by either the Company or the
Trust to permit consummation, in all material respects, of the transactions
contemplated hereby shall have been obtained, except where failure to
obtain such consults, orders, and permits would not involve a risk of a
material adverse effect on the assets or properties of either a Current
Fund or a New Fund, provided that either the Company or the Trust may for
itself waive any of such conditions.
6.3 Each of the Company and the Trust shall have received an opinion
from Ballard Spahr Andrews & Ingersoll, LLP as to the federal income tax
consequences mentioned below. In rendering such opinion, such counsel may
rely as to factual matters, exclusively and without independent
verification, on the representations made in this Agreement (or in separate
letters of representation that the Company and the Trust shall use their
best efforts to deliver to such counsel) and the certificates delivered
pursuant to Section 3.4. Such opinion shall be substantially to the effect
that, based on the facts and assumptions stated therein and conditioned on
consummation of the Reorganization in accordance with this Agreement, for
federal income tax purposes:
(a) The Reorganization will constitute a reorganization within the
meaning of section 368(a) of the Code, and each Current Fund and each
New Fund will be "a party to a reorganization" within the meaning of
section 368(b) of the Code;
(b) No gain or loss will be recognized to a Current Fund on the
transfer of its Assets to the corresponding New Fund in exchange solely
for the New Fund's New Fund Shares and the New Fund's assumption of the
Current Fund's Liabilities or on the subsequent distribution of those
New Fund Shares to its Shareholders, in constructive exchange for their
Current Fund Shares, in liquidation of the Current Fund;
(c) No gain or loss will be recognized to a New Fund on its receipt
of the corresponding Current Fund's Assets in exchange for New Fund
Shares and its assumption of the Current Fund's Liabilities;
(d) Each New Fund's basis for the corresponding Current Fund's
Assets will be the same as the basis thereof in the Current Fund's hands
immediately before the Reorganization, and the New Fund's holding period
for those Assets will include the Current Fund's holding period
therefor;
(e) A Shareholder will recognize no gain or loss on the
constructive exchange of Current Fund Shares solely for New Fund Shares
pursuant to the Reorganization; and
(f) A Shareholder's basis for the New Fund Shares of each New Fund
to be received in the Reorganization will be the same as the basis for
the Current Fund Shares of the corresponding Current Fund to be
constructively surrendered in exchange for such New Fund Shares, and a
Shareholder's holding period for such New Fund Shares will include its
holding period for such Current Fund Shares, provided that such Current
Fund Shares are held as capital assets by the Shareholder at the
Effective Time.
6.4 No stop-order suspending the effectiveness of the Registration
Statement shall have been issued, and no proceeding for that purpose shall
have been initiated or threatened by the SEC (and not withdrawn or
terminated).
VI-8
At any time prior to the Closing, any of the foregoing conditions (except
those set forth in Sections 6.1 and 6.3) may be waived by the directors/trustees
of either the Company or the Trust if, in their judgment, such waiver will not
have a material adverse effect on the interests of the Current Fund's
Shareholders.
7. EXPENSES
Except as otherwise provided in Section 4.3(c), all expenses incurred in
connection with the transactions contemplated by this Agreement (regardless of
whether they are consummated) will be borne by the parties as they mutually
agree.
8. ENTIRE AGREEMENT
Neither party has made any representation, warranty, or covenant not set
forth herein, and this Agreement constitutes the entire agreement between the
parties.
9. AMENDMENT
This Agreement may be amended, modified, or supplemented at any time,
notwithstanding its approval by the Company's shareholders, in such manner as
may be mutually agreed upon in writing by the parties; provided that following
such approval no such amendment shall have a material adverse effect on the
shareholders' interests.
10. TERMINATION
This Agreement may be terminated at any time at or prior to the Effective
Time, whether before or after approval by the Company's shareholders:
10.1 By either the Company or the Trust (a) in the event of the other
party's material breach of any representation, warranty, or covenant
contained herein to be performed at or prior to the Effective Time, (b) if
a condition to its obligations has not been met and it reasonably appears
that such condition will not or cannot be met, or (c) if the Closing has
not occurred on or before December 31, 2003; or
10.2 By the parties' mutual agreement.
Except as otherwise provided in Section 7, in the event of termination
under Sections 10.1(c) or 10.2, there shall be no liability for damages on the
part of either the Company or the Trust or any Current Fund or corresponding New
Fund, to the other.
11. MISCELLANEOUS
11.1 This Agreement shall be governed by and construed in accordance with
the internal laws of the State of Delaware; provided that, in the case of any
conflict between such laws and the federal securities laws, the latter shall
govern.
11.2 Nothing expressed or implied herein is intended or shall be construed
to confer upon or give any person, firm, trust, or corporation other than the
parties and their respective successors and assigns any rights or remedies under
or by reason of this Agreement.
11.3 The execution and delivery of this Agreement have been authorized by
the Trust's trustees, and this Agreement has been executed and delivered by a
duly authorized officer of the Trust in his or her capacity as an officer of the
Trust intending to bind the Trust as provided herein, and no officer, trustee or
shareholder of the Trust shall be personally liable for the liabilities or
obligations of the Trust incurred hereunder. The liabilities and obligations of
the Trust pursuant to this Agreement shall be enforceable against the assets of
the New Funds only and not against the assets of the Trust generally.
VI-9
IN WITNESS WHEREOF, each party has caused this Agreement to be executed and
delivered by its duly authorized officers as of the day and year first written
above.
<Table>
Attest: [NAME OF MARYLAND CORPORATION],
on behalf of each of its series listed in Schedule A
By:
- -------------------------------------------- --------------------------------------------------------
Title:
--------------------------------------------------------
Attest: [NAME OF DELAWARE STATUTORY TRUST],
on behalf of each of its series listed in Schedule A
By:
- -------------------------------------------- --------------------------------------------------------
Title:
--------------------------------------------------------
</Table>
VI-10
SCHEDULE A
<Table>
<Caption>
SERIES OF CORRESPONDING SERIES OF
[MARYLAND CORPORATION] [DELAWARE STATUTORY TRUST]
(EACH A "CURRENT FUND") (EACH A "NEW FUND")
- ----------------------- --------------------------
[To Be Added]............................................... [To Be Added]
</Table>
VI-11
SCHEDULE B
<Table>
<Caption>
CORRESPONDING CLASSES OF
CLASSES OF EACH CURRENT FUND EACH NEW FUND
- ---------------------------- ------------------------
[To Be Added]............................................... [To Be Added]
</Table>
VI-12
SCHEDULE C
PERMITTED COMBINATIONS OF FUNDS
<Table>
INVESCO Advantage Fund into AIM Opportunities III Fund
INVESCO Growth Fund into AIM Large Cap Growth Fund
INVESCO Growth & Income Fund into AIM Blue Chip Fund
INVESCO European Fund into AIM European Growth Fund
AIM International Core Equity Fund into INVESCO
International Blue Chip Value Fund
AIM New Technology Fund into INVESCO Technology Fund
AIM Global Science and Technology Fund into INVESCO
Technology Fund
INVESCO Telecommunications Fund into INVESCO Technology Fund
AIM Global Financial Services Fund into INVESCO Financial
Services Fund
AIM Global Energy Fund into INVESCO Energy Fund
AIM Global Utilities Fund into INVESCO Utilities Fund
INVESCO Real Estate Opportunity Fund into AIM Real Estate
Fund
INVESCO Tax-Free Bond Fund into AIM Municipal Bond Fund
INVESCO High Yield Fund into AIM High Yield Fund
INVESCO Select Income Fund into AIM Income Fund
INVESCO U.S. Government Securities Fund into AIM
Intermediate Government Fund
INVESCO Cash Reserves Fund into AIM Money Market Fund
INVESCO Tax-Free Money Fund into AIM Tax-Exempt Cash Fund
INVESCO Balanced Fund into INVESCO Total Return Fund
INVESCO Value Equity Fund into AIM Large Cap Basic Value
Fund
AIM Premier Equity Fund II into AIM Premier Equity Fund
</Table>
VI-13
AIM REAL ESTATE FUND,
A PORTFOLIO OF AIM ADVISOR FUNDS
11 Greenway Plaza, Suite 100
Houston, Texas 77046-1173
Toll Free: (800) 347-4246
INVESCO REAL ESTATE OPPORTUNITY FUND,
A PORTFOLIO OF INVESCO SECTOR FUNDS, INC.
4350 South Monaco Street
Denver, Colorado 80237
Toll Free: (800) 525-8085
STATEMENT OF ADDITIONAL INFORMATION
(October 21, 2003 Special Meeting of Shareholders of INVESCO Real Estate
Opportunity Fund)
This Statement of Additional Information is not a prospectus but should
be read in conjunction with the Combined Proxy Statement and Prospectus dated
August 25, 2003 of AIM Real Estate Fund for use in connection with the Special
Meeting of Shareholders of INVESCO Real Estate Opportunity Fund to be held on
October 21, 2003. Copies of the Combined Proxy Statement and Prospectus may be
obtained at no charge by writing A I M Fund Services, Inc., P.O. Box 4739,
Houston, Texas 77210-4739 or by calling 1-800-347-4246. Unless otherwise
indicated, capitalized terms used herein and not otherwise defined have the same
meanings as are given to them in the Combined Proxy Statement and Prospectus.
A Statement of Additional Information for AIM Advisor Funds dated July
21, 2003, as supplemented August 14, 2003, has been filed with the Securities
and Exchange Commission and is attached hereto as Appendix I which is
incorporated herein by this reference.
The date of this Statement of Additional Information is August 15, 2003.
TABLE of CONTENTS
THE TRUST.....................................................................3
DESCRIPTION OF PERMITTED INVESTMENTS..........................................3
TRUSTEES AND OFFICERS OF THE TRUST............................................3
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES...........................3
ADVISORY AND MANAGEMENT RELATED SERVICES AGREEMENTS
AND PLANS OF DISTRIBUTION.............................................3
PORTFOLIO TRANSACTIONS........................................................3
DESCRIPTION OF SHARES.........................................................3
DETERMINATION OF NET ASSET VALUE..............................................4
TAXES.........................................................................4
PERFORMANCE DATA..............................................................4
FINANCIAL INFORMATION.........................................................4
Appendix I - Statement of Additional Information of the Trust
Appendix II - Audited Financial Statements of INVESCO Real Estate Opportunity Fund
S-2
THE TRUST
This Statement of Additional Information relates to AIM Advisor Funds (the
"Trust") and its investment portfolio, AIM Real Estate Fund (the "Fund"). The
Trust is registered as an open-end management investment company under the
Investment Company Act of 1940, as amended (the "1940 Act"). The Fund is a
separate series of shares of beneficial interest of the Trust. For additional
information about the Trust, see heading "General Information About the Trust"
in the Trust's Statement of Additional Information attached hereto as Appendix
I.
DESCRIPTION OF PERMITTED INVESTMENTS
For a discussion of the fundamental and nonfundamental investment policies of
the Fund adopted by the Trust's Board of Trustees, see heading "Description of
the Funds and Their Investments and Risks" in the Trust's Statement of
Additional Information attached hereto as Appendix I.
TRUSTEES AND OFFICERS OF THE TRUST
For a disclosure of the names and a brief occupational biography of each of the
Trust's trustees and executive officers identifying those who are interested
persons of the Trust as well as stating their aggregate remuneration, see
heading "Management of the Trust" in the Trust's Statement of Additional
Information attached hereto as Appendix I.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
For a disclosure of the control persons of the Fund, the principal holders of
shares of the Fund and the ownership by officers and trustees of the Fund, see
heading "Control Persons and Principal Holders of Securities" in the Trust's
Statement of Additional Information attached hereto as Appendix I.
ADVISORY AND MANAGEMENT RELATED SERVICES AGREEMENTS
AND PLANS OF DISTRIBUTION
For a discussion of the Trust's advisory and management-related services
agreements and plans of distribution, see headings "Investment Advisory and
Other Services" and "Distribution of Securities" in the Trust's Statement of
Additional Information attached hereto as Appendix I.
PORTFOLIO TRANSACTIONS
For a discussion of the Trust's brokerage policy, see heading "Brokerage
Allocation and Other Practices" in the Trust's Statement of Additional
Information attached hereto as Appendix I.
DESCRIPTION OF SHARES
For a discussion of the Trust's authorized securities and the characteristics of
the Trust's shares of beneficial interest, see heading "General Information
About the Trust" in the Trust's Statement of Additional Information attached
hereto as Appendix I.
S-3
DETERMINATION OF NET ASSET VALUE
For a discussion of the Trust's valuation and pricing procedures and a
description of its purchase and redemption procedures, see heading "Purchase,
Redemption and Pricing of Shares" in the Trust's Statement of Additional
Information attached hereto as Appendix I.
TAXES
For a discussion of any tax information relating to ownership of the Trust's
shares, see heading "Dividends, Distributions and Tax Matters" in the Trust's
Statement of Additional information attached hereto as Appendix I.
PERFORMANCE DATA
For a description and quotation of certain performance data used by the Trust,
see heading "Calculation of Performance Data" in the Trust's Statement of
Additional Information attached hereto as Appendix I.
FINANCIAL INFORMATION
The audited financial statements of the Fund, and the report thereon by Ernst &
Young LLP, are set forth under the heading "Financial Statements" in the Trust's
Statement of Additional Information attached hereto as Appendix I.
The unaudited financial statements of the Fund, and the report thereon by Ernst
& Young LLP, are set forth as Appendix I.
The audited financial statements of INVESCO Real Estate Opportunity Fund, and
the report thereon by PricewaterhouseCoopers LLP, are set forth in the Annual
Report of INVESCO Real Estate Opportunity Fund, dated March 31, 2003, which is
incorporated herein by reference and attached hereto as Appendix II.
S-4
APPENDIX I
STATEMENT OF
ADDITIONAL INFORMATION
AIM ADVISOR FUNDS
11 GREENWAY PLAZA
SUITE 100
HOUSTON, TEXAS 77046-1173
(713) 626-1919
-----------
This Statement of Additional Information relates to the Class A, Class B, Class
C, Class R and Investor Class shares, as applicable, of each portfolio (each a
"Fund", collectively the "Funds") of AIM Advisor Funds listed below. This
Statement of Additional Information is not a Prospectus, and it should be read
in conjunction with the Prospectuses for the Class A, Class B, Class C, Class R
and Investor Class shares, as applicable, of the Funds listed below. You may
obtain a copy of any Prospectus for any Fund listed below from an authorized
dealer or by writing to:
A I M FUND SERVICES, INC.
P.O. BOX 4739
HOUSTON, TEXAS 77210-4739
OR BY CALLING (800) 347-4246
-----------
This Statement of Additional Information, dated July 21, 2003, relates to the
Class A, Class B, Class C, Class R and Investor Class shares, as applicable, of
the following Prospectus:
FUND Dated
---- -----
AIM International Core Equity Fund December 2, 2002
AIM Real Estate Fund July 21, 2003
AIM ADVISOR FUNDS
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
PAGE
GENERAL INFORMATION ABOUT THE TRUST............................................................................. 1
Fund History............................................................................................... 1
Shares of Beneficial Interest.............................................................................. 1
DESCRIPTION OF THE FUNDS AND THEIR INVESTMENTS AND RISKS........................................................ 3
Classification............................................................................................. 3
Investment Strategies and Risks............................................................................ 3
Equity Investments................................................................................. 5
Foreign Investments................................................................................ 6
Debt Investments................................................................................... 8
Other Investments.................................................................................. 11
Investment Techniques.............................................................................. 12
Derivatives........................................................................................ 15
Fund Policies.............................................................................................. 22
Temporary Defensive Positions.............................................................................. 24
MANAGEMENT OF THE TRUST......................................................................................... 24
Board of Trustees.......................................................................................... 24
Management Information..................................................................................... 24
Trustee Ownership of Fund Shares................................................................... 25
Factors Considered in Approving the Investment Advisory Agreement.................................. 26
Compensation............................................................................................... 26
Retirement Plan For Trustees....................................................................... 26
Deferred Compensation Agreements................................................................... 27
Purchase of Class A Shares of the Funds at Net Asset Value......................................... 27
Codes of Ethics............................................................................................ 27
Proxy Voting Policies...................................................................................... 28
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES............................................................. 28
INVESTMENT ADVISORY AND OTHER SERVICES.......................................................................... 28
Investment Advisor......................................................................................... 28
Investment Sub-Advisor..................................................................................... 29
Service Agreements......................................................................................... 30
Other Service Providers.................................................................................... 30
BROKERAGE ALLOCATION AND OTHER PRACTICES........................................................................ 31
Brokerage Transactions..................................................................................... 31
Commissions................................................................................................ 32
Brokerage Selection........................................................................................ 32
Directed Brokerage (Research Services)..................................................................... 33
Regular Brokers or Dealers................................................................................. 33
Allocation of Portfolio Transactions....................................................................... 33
Allocation of Initial Public Offering ("IPO") Transactions................................................. 34
PURCHASE, REDEMPTION AND PRICING OF SHARES...................................................................... 34
Purchase and Redemption of Shares.......................................................................... 34
Offering Price............................................................................................. 50
Redemption In Kind......................................................................................... 51
Backup Withholding......................................................................................... 51
i
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS........................................................................ 52
Dividends and Distributions................................................................................ 52
Tax Matters................................................................................................ 53
DISTRIBUTION OF SECURITIES...................................................................................... 60
Distribution Plans......................................................................................... 60
Distributor................................................................................................ 62
CALCULATION OF PERFORMANCE DATA................................................................................. 63
APPENDICES:
RATINGS OF DEBT SECURITIES...................................................................................... A-1
TRUSTEES AND OFFICERS........................................................................................... B-1
TRUSTEES COMPENSATION TABLE..................................................................................... C-1
PROXY VOTING POLICIES........................................................................................... D-1
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES............................................................. E-1
MANAGEMENT FEES................................................................................................. F-1
ADMINISTRATIVE SERVICES FEES.................................................................................... G-1
BROKERAGE COMMISSIONS........................................................................................... H-1
DIRECTED BROKERAGE (RESEARCH SERVICES) AND PURCHASE OF SECURITIES OF REGULAR BROKERS OR DEALERS................. I-1
AMOUNTS PAID TO A I M DISTRIBUTORS, INC. PURSUANT TO DISTRIBUTION PLANS......................................... J-1
ALLOCATION OF ACTUAL FEES PAID PURSUANT TO DISTRIBUTION PLANS................................................... K-1
TOTAL SALES CHARGES............................................................................................. L-1
PERFORMANCE DATA................................................................................................ M-1
FINANCIAL STATEMENTS............................................................................................ FS
ii
GENERAL INFORMATION ABOUT THE TRUST
FUND HISTORY
AIM Advisor Funds (the "Trust") is a Delaware statutory trust and is
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management investment company. The Trust currently
consists of two separate portfolios: AIM International Core Equity Fund and AIM
Real Estate Fund (each a "Fund" and collectively, the "Funds"). Under the
Amended and Restated Agreement and Declaration of Trust, dated May 15, 2002, as
amended (the "Trust Agreement"), the Board of Trustees is authorized to create
new series of shares without the necessity of a vote of shareholders of the
Trust.
The Trust was originally organized on September 19, 1989 as a Maryland
corporation. Prior to August 4, 1997, the Trust was known as INVESCO Advisor
Funds, Inc. and the Funds were known as INVESCO Advisor International Value
Portfolio and INVESCO Advisor Real Estate Portfolio, respectively. From August
4, 1997 until September 11, 2000, the Trust was known as AIM Advisor Funds, Inc.
The Trust reorganized as a Delaware business trust on September 11, 2000 and
changed its name to AIM Advisor Funds. The following Funds were included in the
reorganization: AIM International Core Equity Fund and AIM Real Estate Fund. As
part of the reorganization, these Funds succeeded to the assets and assumed the
liabilities of series portfolios with the same names (the "Predecessor Funds")
of AIM Advisor Funds, Inc. All historical financial and other information
contained in this Statement of Additional Information for periods prior to
September 11, 2000 relating to these Funds (or a class thereof) is that of the
predecessor funds (or the corresponding class thereof). Prior to July 1, 2001,
AIM International Core Equity Fund and AIM Real Estate Fund were known as AIM
Advisor International Value Fund and AIM Advisor Real Estate Fund, respectively.
Prior to July 1, 2002, AIM International Core Equity Fund was known as AIM
International Value Fund.
SHARES OF BENEFICIAL INTEREST
Shares of beneficial interest of the Trust are redeemable at their net
asset value (subject, in certain circumstances, to a contingent deferred sales
charge) at the option of the shareholder or at the option of the Trust in
certain circumstances.
The Trust allocates moneys and other property it receives from the
issue or sale of shares of each of its series of shares, and all income,
earnings and profits from such issuance and sales, subject only to the rights of
creditors, to the appropriate Fund. These assets constitute the underlying
assets of each Fund, are segregated on the Trust's books of account, and are
charged with the expenses of such Fund and its respective classes. The Trust
allocates any general expenses of the Trust not readily identifiable as
belonging to a particular Fund by or under the direction of the Board of
Trustees, primarily on the basis of relative net assets, or other relevant
factors.
Each share of each Fund represents an equal proportionate interest in
that Fund with each other share and is entitled to such dividends and
distributions out of the income belonging to such Fund as are declared by the
Board. Each Fund offers separate classes of shares as follows:
- ------------------------------------------------------------------------------------------------
Fund Class A Class B Class C Class R Investor Class
- ------------------------------------------------------------------------------------------------
AIM International Core Equity Fund X X X X
- ------------------------------------------------------------------------------------------------
AIM Real Estate Fund X X X X
- ------------------------------------------------------------------------------------------------
Each class of shares represents interests in the same portfolio of
investments. Differing sales charges and expenses will result in differing net
asset values and dividends and distributions. Upon any liquidation of the Trust,
shareholders of each class are entitled to share pro rata in the net assets
belonging to the applicable Fund allocable to such class available for
distribution after satisfaction of outstanding liabilities of the Fund allocable
to such class.
1
Each share of a Fund generally has the same voting, dividend,
liquidation and other rights; however, each class of shares of a Fund is subject
to different sales loads, conversion features, exchange privileges and
class-specific expenses. Only shareholders of a specific class may vote on
matters relating to that class' distribution plan.
Because Class B shares automatically convert to Class A shares at
month-end eight years after the date of purchase, the Fund's distribution plan
adopted pursuant to Rule 12b-1 under the 1940 Act requires that Class B
shareholders must also approve any material increase in distribution fees
submitted to Class A shareholders of that Fund. A pro rata portion of shares
from reinvested dividends and distributions convert along with the Class B
shares.
Except as specifically noted above, shareholders of each Fund are
entitled to one vote per share (with proportionate voting for fractional
shares), irrespective of the relative net asset value of the shares of a Fund.
However, on matters affecting an individual Fund or class of shares, a separate
vote of shareholders of that Fund or class is required. Shareholders of a Fund
or class are not entitled to vote on any matter which does not affect that Fund
or class but that requires a separate vote of another Fund or class. An example
of a matter that would be voted on separately by shareholders of each Fund is
the approval of the advisory agreement with A I M Advisors, Inc. ("AIM"), and an
example of a matter that would be voted on separately by shareholders of each
class of shares is approval of the distribution plans. When issued, shares of
each Fund are fully paid and nonassessable, have no preemptive or subscription
rights, and are freely transferable. Other than the automatic conversion of
Class B shares to Class A shares, there are no conversion rights. Shares do not
have cumulative voting rights, which means that in situations in which
shareholders elect trustees, holders of more than 50% of the shares voting for
the election of trustees can elect all of the trustees of the Trust, and the
holders of less than 50% of the shares voting for the election of trustees will
not be able to elect any trustees.
Under Delaware law, shareholders of a Delaware statutory trust shall be
entitled to the same limitations of liability extended to shareholders of
private for-profit corporations. There is a remote possibility, however, that
shareholders could, under certain circumstances, be held liable for the
obligations of the Trust to the extent the courts of another state which does
not recognize such limited liability were to apply the laws of such state to a
controversy involving such obligations. The Trust Agreement disclaims
shareholder liability for acts or obligations of the Trust and requires that
notice of such disclaimer be given in each agreement, obligation or instrument
entered into or executed by the Trust or the trustees to all parties, and each
party thereto must expressly waive all rights of action directly against
shareholders of the Trust. The Trust Agreement provides for indemnification out
of the property of a Fund for all losses and expenses of any shareholder of such
Fund held liable on account of being or having been a shareholder. Thus, the
risk of a shareholder incurring financial loss due to shareholder liability is
limited to circumstances in which a Fund is unable to meet its obligations and
the complaining party is not held to be bound by the disclaimer.
The trustees and officers of the Trust will not be liable for any act,
omission or obligation of the Trust or any trustee or officer; however, a
trustee or officer is not protected against any liability to the Trust or to the
shareholders to which a trustee or officer would otherwise be subject by reason
of willful misfeasance, bad faith, gross negligence, or reckless disregard of
the duties involved in the conduct of his or her office with the Trust
("Disabling Conduct"). The Trust Agreement provides for indemnification by the
Trust of the trustees, the officers and employees or agents of the Trust,
provided that such persons have not engaged in Disabling Conduct. The Trust
Agreement also authorizes the purchase of liability insurance on behalf of
trustees and officers.
SHARE CERTIFICATES. Shareholders of the Funds do not have the right to
demand or require the Trust to issue share certificates.
2
DESCRIPTION OF THE FUNDS AND THEIR INVESTMENTS AND RISKS
CLASSIFICATION
The Trust is an open-end management investment company. Each Fund is
"diversified" for purposes of the 1940 Act.
INVESTMENT STRATEGIES AND RISKS
The table on the following pages identifies various securities and
investment techniques used by AIM in managing The AIM Family of Funds
- --Registered Marks--. The table has been marked to indicate those securities
and investment techniques that AIM may use to manage a Fund. A Fund may not use
all of these techniques at any one time. A Fund's transactions in a particular
security or use of a particular technique is subject to limitations imposed by
a Fund's investment objective, policies and restrictions described in that
Fund's Prospectus and/or this Statement of Additional Information, as well as
federal securities laws. The Funds' investment objectives, policies,
strategies and practices are non-fundamental unless otherwise indicated. A more
detailed description of the securities and investment techniques, as well as
the risks associated with those securities and investment techniques that the
Funds utilize, follows the table. The descriptions of the securities and
investment techniques in this section supplement the discussion of principal
investment strategies contained in each Fund's Prospectus; where a particular
type of security or investment technique is not discussed in a Fund's
Prospectus, that security or investment technique is not a principal investment
strategy.
3
AIM ADVISOR FUNDS
SUMMARY OF SECURITIES AND INVESTMENT TECHNIQUES
FUND
- ----------
SECURITY/ AIM INTERNATIONAL AIM REAL ESTATE
INVESTMENT
TECHNIQUE CORE EQUITY FUND FUND
- -----------------------------------------------------------------------------------------
EQUITY INVESTMENTS
- -----------------------------------------------------------------------------------------
Common Stock X X
- -----------------------------------------------------------------------------------------
Preferred Stock X X
- -----------------------------------------------------------------------------------------
Convertible Securities X X
- -----------------------------------------------------------------------------------------
Alternative Entity X X
Securities
- -----------------------------------------------------------------------------------------
FOREIGN INVESTMENTS
- -----------------------------------------------------------------------------------------
Foreign Securities X X
- -----------------------------------------------------------------------------------------
Foreign Government X X
Obligations
- -----------------------------------------------------------------------------------------
Foreign Exchange X X
Transactions
- -----------------------------------------------------------------------------------------
DEBT INVESTMENTS
- -----------------------------------------------------------------------------------------
U.S. Government X X
Obligations
- -----------------------------------------------------------------------------------------
Mortgage-Backed and X X
Asset-Backed
Securities
- -----------------------------------------------------------------------------------------
Collateralized X
Mortgage Obligations
- -----------------------------------------------------------------------------------------
Investment Grade X X
Corporate Debt
Obligations
- -----------------------------------------------------------------------------------------
Liquid Assets X X
- -----------------------------------------------------------------------------------------
Junk Bonds
- -----------------------------------------------------------------------------------------
OTHER INVESTMENTS
- -----------------------------------------------------------------------------------------
REITs X X
- -----------------------------------------------------------------------------------------
Other Investment X X
Companies
- -----------------------------------------------------------------------------------------
Defaulted Securities
- -----------------------------------------------------------------------------------------
Municipal Forward
Contracts
- -----------------------------------------------------------------------------------------
Variable or Floating
Rate Instruments
- -----------------------------------------------------------------------------------------
Indexed Securities
- -----------------------------------------------------------------------------------------
Zero-Coupon and
Pay-in-Kind Securities
- -----------------------------------------------------------------------------------------
Synthetic Municipal
Instruments
- -----------------------------------------------------------------------------------------
INVESTMENT TECHNIQUES
- -----------------------------------------------------------------------------------------
Delayed Delivery X X
Transactions
- -----------------------------------------------------------------------------------------
4
AIM ADVISOR FUNDS
SUMMARY OF SECURITIES AND INVESTMENT TECHNIQUES
FUND
- ----------
SECURITY/ AIM INTERNATIONAL AIM REAL ESTATE
INVESTMENT
TECHNIQUE CORE EQUITY FUND FUND
- -----------------------------------------------------------------------------------------
When-Issued Securities X X
- -----------------------------------------------------------------------------------------
Short Sales X X
- -----------------------------------------------------------------------------------------
Margin Transactions
- -----------------------------------------------------------------------------------------
Swap Agreements X X
- -----------------------------------------------------------------------------------------
Interfund Loans X X
- -----------------------------------------------------------------------------------------
Borrowing X X
- -----------------------------------------------------------------------------------------
Lending Portfolio X X
Securities
- -----------------------------------------------------------------------------------------
Repurchase Agreements X X
- -----------------------------------------------------------------------------------------
Reverse Repurchase X X
Agreements
- -----------------------------------------------------------------------------------------
Dollar Rolls
- -----------------------------------------------------------------------------------------
Illiquid Securities X X
- -----------------------------------------------------------------------------------------
Rule 144A Securities X X
- -----------------------------------------------------------------------------------------
Unseasoned Issuers X X
- -----------------------------------------------------------------------------------------
Portfolio Transactions
- -----------------------------------------------------------------------------------------
Sale of Money Market
Securities
- -----------------------------------------------------------------------------------------
Standby Commitments
- -----------------------------------------------------------------------------------------
DERIVATIVES
- -----------------------------------------------------------------------------------------
Equity-Linked X X
Derivatives
- -----------------------------------------------------------------------------------------
Put Options X X
- -----------------------------------------------------------------------------------------
Call Options X X
- -----------------------------------------------------------------------------------------
Straddles X X
- -----------------------------------------------------------------------------------------
Warrants X X
- -----------------------------------------------------------------------------------------
Futures Contracts and X X
Options on Futures
Contracts
- -----------------------------------------------------------------------------------------
Forward Currency X X
Contracts
- -----------------------------------------------------------------------------------------
Cover X X
- -----------------------------------------------------------------------------------------
Equity Investments
COMMON STOCK. Common stock is issued by companies principally to raise
cash for business purposes and represents a residual interest in the issuing
company. A Fund participates in the success
5
or failure of any company in which it holds stock. The prices of equity
securities change in response to many factors including the historical and
prospective earnings of the issuer, the value of its assets, general economic
conditions, interest rates, investor perceptions and market liquidity.
PREFERRED STOCK. Preferred stock, unlike common stock, often offers a
stated dividend rate payable from a corporation's earnings. If interest rates
rise, the fixed dividend on preferred stocks may be less attractive, causing the
price of preferred stocks to decline. Preferred stock may have mandatory sinking
fund provisions, as well as call/redemption provisions prior to maturity, a
negative feature when interest rates decline. Dividends on some preferred stock
may be "cumulative," requiring all or a portion of prior unpaid dividends to be
paid before dividends are paid on the issuer's common stock. Preferred stock
also generally has a preference over common stock on the distribution of a
corporation's assets in the event of liquidation of the corporation, and may be
"participating," which means that it may be entitled to a dividend exceeding the
stated dividend in certain cases. In some cases an issuer may offer auction rate
preferred stock, which means that the interest to be paid is set by auction and
will often be reset at stated intervals. The rights of preferred stocks on the
distribution of a corporation's assets in the event of a liquidation are
generally subordinate to the rights associated with a corporation's debt
securities.
CONVERTIBLE SECURITIES. Convertible securities include bonds,
debentures, notes, preferred stocks and other securities that may be converted
into a prescribed amount of common stock or other equity securities at a
specified price and time. The holder of convertible securities is entitled to
receive interest paid or accrued on debt, or dividends paid or accrued on
preferred stock, until the security matures or is converted.
The value of a convertible security depends on interest rates, the
yield of similar nonconvertible securities, the financial strength of the issuer
and the seniority of the security in the issuer's capital structure. Convertible
securities may be illiquid, and may be required to convert at a time and at a
price that is unfavorable to the Fund.
Both Funds will invest in a convertible debt security based primarily
on the characteristics of the equity security into which it converts, and
without regard to the credit rating of the convertible security (even if the
credit rating is below investment grade). To the extent that a Fund invests in
convertible debt securities with credit ratings below investment grade, such
securities may have a higher likelihood of default, although this may be
somewhat offset by the convertibility feature.
ALTERNATIVE ENTITY SECURITIES. Companies that are formed as limited
partnerships, limited liability companies, business trusts or other
non-corporate entities may issue equity securities that are similar to common or
preferred stock of corporations.
Foreign Investments
FOREIGN SECURITIES. Foreign securities are equity or debt securities
issued by issuers outside the United States, and include securities in the form
of American Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs"),
or other securities representing underlying securities of foreign issuers.
Depositary Receipts are typically issued by a bank or trust company and evidence
ownership of underlying securities issued by foreign corporations.
AIM Real Estate Fund may invest up to 25% of its total assets in
foreign securities. AIM International Core Equity Fund will invest at least 80%
of its net assets, plus the amount of any borrowings for investment purposes, in
foreign securities.
Investments by a Fund in foreign securities, whether denominated in
U.S. dollars or foreign currencies, may entail all of the risks set forth below.
Investments by a Fund in ADRs, EDRs or similar securities also may entail some
or all of the risks described below.
Currency Risk. The value of the Funds' foreign investments will be
affected by changes in currency exchange rates. The U.S. dollar value of a
foreign security decreases when the value of the
6
U.S. dollar rises against the foreign currency in which the security is
denominated, and increases when the value of the U.S. dollar falls against such
currency.
Political and Economic Risk. The economies of many of the countries in
which the Funds may invest may not be as developed as the United States' economy
and may be subject to significantly different forces. Political or social
instability, expropriation or confiscatory taxation, and limitations on the
removal of funds or other assets could also adversely affect the value of the
Funds' investments.
Regulatory Risk. Foreign companies are not registered with the
Securities and Exchange Commission ("SEC") and are generally not subject to the
regulatory controls imposed on United States issuers and, as a consequence,
there is generally less publicly available information about foreign securities
than is available about domestic securities. Foreign companies are not subject
to uniform accounting, auditing and financial reporting standards, corporate
governance practices and requirements comparable to those applicable to domestic
companies. Income from foreign securities owned by the Funds may be reduced by a
withholding tax at the source, which tax would reduce dividend income payable to
the Funds' shareholders.
Market Risk. The securities markets in many of the countries in which
the Funds invest will have substantially less trading volume than the major
United States markets. As a result, the securities of some foreign companies may
be less liquid and experience more price volatility than comparable domestic
securities. Increased custodian costs as well as administrative costs (such as
the need to use foreign custodians) may be associated with the maintenance of
assets in foreign jurisdictions. There is generally less government regulation
and supervision of foreign stock exchanges, brokers and issuers which may make
it difficult to enforce contractual obligations. In addition, transaction costs
in foreign securities markets are likely to be higher, since brokerage
commission rates in foreign countries are likely to be higher than in the United
States.
On January 1, 1999, certain members of the European Economic and
Monetary Union ("EMU") established a common European currency known as the
"euro" and each member's local currency became a denomination of the euro. Each
participating country (currently, Austria, Belgium, Finland, France, Germany,
Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain) has
replaced its local currency with the euro effective January 1, 2002. The
replacement of currencies with the euro may cause market disruptions and
adversely affect the value of securities held by a Fund.
Risks of Developing Countries. AIM International Core Equity Fund and
AIM Real Estate Fund may invest up to 20% and 5%, respectively, of their total
assets in securities of companies located in developing countries. Investments
in developing countries presents risks greater than, and in addition to, those
presented by investments in foreign issuers in general. A number of developing
countries restrict, to varying degrees, foreign investment in stocks.
Repatriation of investment income, capital, and the proceeds of sales by foreign
investors may require governmental registration and/or approval in some
developing countries. A number of the currencies of developing countries have
experienced significant declines against the U.S. dollar in recent years, and
devaluation may occur subsequent to investments in these currencies by the
Funds. Inflation and rapid fluctuations in inflation rates have had and may
continue to have negative effects on the economies and securities markets of
certain emerging market countries. Many of the developing securities markets are
relatively small or less diverse, have low trading volumes, suffer periods of
relative illiquidity, and are characterized by significant price volatility.
There is a risk in developing countries that a future economic or political
crisis could lead to price controls, forced mergers of companies, expropriation
or confiscatory taxation, seizure, nationalization, or creation of government
monopolies, any of which may have a detrimental effect on a Fund's investments.
FOREIGN GOVERNMENT OBLIGATIONS. Debt securities issued by foreign
governments are often, but not always, supported by the full faith and credit of
the foreign governments, or their subdivisions, agencies or instrumentalities,
that issue them. These securities involve the risks discussed above with respect
to foreign securities. Additionally, the issuer of the debt or the governmental
authorities that control repayment of the debt may be unwilling or unable to pay
interest or repay principal when due. Political or economic changes or the
balance of trade may affect a country's willingness or ability to
7
service its debt obligations. Periods of economic uncertainty may result in the
volatility of market prices of sovereign debt obligations, especially debt
obligations issued by the governments of developing countries. Foreign
government obligations of developing countries, and some structures of emerging
market debt securities, both of which are generally below investment grade, are
sometimes referred to as "Brady Bonds".
FOREIGN EXCHANGE TRANSACTIONS. Foreign exchange transactions include
direct purchases of futures contracts with respect to foreign currency, and
contractual agreements to purchase or sell a specified currency at a specified
future date (up to one year) at a price set at the time of the contract. Such
contractual commitments may be forward contracts entered into directly with
another party or exchange traded futures contracts.
Each Fund has authority to deal in foreign exchange between currencies
of the different countries in which it will invest as a hedge against possible
variations in the foreign exchange rates between those currencies. A Fund may
commit the same percentage of its assets to foreign exchange hedges as it can
invest in foreign securities.
The Funds may utilize either specific transactions ("transaction
hedging") or portfolio positions ("position hedging") to hedge foreign currency
exposure through foreign exchange transactions. Transaction hedging is the
purchase or sale of foreign currency with respect to specific receivables or
payables of a Fund accruing in connection with the purchase or sale of its
portfolio securities, the sale and redemption of shares of the Fund, or the
payment of dividends and distributions by the Fund. Position hedging is the
purchase or sale of foreign currency with respect to portfolio security
positions (or underlying portfolio security positions, such as in an ADR)
denominated or quoted in a foreign currency. Additionally, foreign exchange
transactions may involve some of the risks of investments in foreign securities.
Debt Investments
U.S. GOVERNMENT OBLIGATIONS. Obligations issued or guaranteed by the
U.S. Government, its agencies and instrumentalities include bills, notes and
bonds issued by the U.S. Treasury, as well as "stripped" or "zero coupon" U.S.
Treasury obligations representing future interest or principal payments on U.S.
Treasury notes or bonds. Stripped securities are sold at a discount to their
"face value," and may exhibit greater price volatility than interest-bearing
securities since investors receive no payment until maturity. Obligations of
certain agencies and instrumentalities of the U.S. Government, such as the
Government National Mortgage Association ("GNMA"), are supported by the full
faith and credit of the U.S. Treasury; others, such as those of the Federal
National Mortgage Association ("FNMA"), are supported by the right of the issuer
to borrow from the U.S. Treasury; others, such as those of the Student Loan
Marketing Association ("SLMA"), are supported by the discretionary authority of
the U.S. Government to purchase the agency's obligations; still others, though
issued by an instrumentality chartered by the U.S. Government, like the Federal
Farm Credit Bureau ("FFCB"), are supported only by the credit of the
instrumentality. The U.S. Government may choose not to provide financial support
to U.S. Government-sponsored agencies or instrumentalities if it is not legally
obligated to do so.
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES. Mortgage-backed securities
are mortgage-related securities issued or guaranteed by the U.S. Government, its
agencies and instrumentalities, or issued by nongovernment entities.
Mortgage-related securities represent pools of mortgage loans assembled for sale
to investors by various government agencies such as GNMA and government-related
organizations such as FNMA and the Federal Home Loan Mortgage Corporation
("FHLMC"), as well as by nongovernment issuers such as commercial banks, savings
and loan institutions, mortgage bankers and private mortgage insurance
companies. Although certain mortgage-related securities are guaranteed by a
third party or otherwise similarly secured, the market value of the security,
which may fluctuate, is not so secured.
There are a number of important differences among the agencies and
instrumentalities of the U.S. Government that issue mortgage-related securities
and among the securities they issue. Mortgage-
8
related securities issued by GNMA include GNMA Mortgage Pass-Through
Certificates (also known as "Ginnie Maes") which are guaranteed as to the timely
payment of principal and interest. That guarantee is backed by the full faith
and credit of the U.S. Treasury. GNMA is a corporation wholly owned by the U.S.
Government within the Department of Housing and Urban Development.
Mortgage-related securities issued by FNMA include FNMA Guaranteed Mortgage
Pass-Through Certificates (also known as "Fannie Maes") and are guaranteed as to
payment of principal and interest by FNMA itself and backed by a line of credit
with the U.S. Treasury. FNMA is a government-sponsored entity wholly owned by
public stockholders. Mortgage-related securities issued by FHLMC include FHLMC
Mortgage Participation Certificates (also known as "Freddie Macs") guaranteed as
to payment of principal and interest by FHLMC itself and backed by a line of
credit with the U.S. Treasury. FHLMC is a government-sponsored entity wholly
owned by public stockholders.
Other asset-backed securities are structured like mortgage-backed
securities, but instead of mortgage loans or interests in mortgage loans, the
underlying assets may include such items as motor vehicle installment sales or
installment loan contracts, leases of various types of real and personal
property, and receivables from credit card agreements. Regular payments received
in respect of such securities include both interest and principal. Asset-backed
securities typically have no U.S. Government backing. Additionally, the ability
of an issuer of asset-backed securities to enforce its security interest in the
underlying assets may be limited.
If a Fund purchases a mortgage-backed or other asset-backed security at
a premium, that portion may be lost if there is a decline in the market value of
the security whether resulting from changes in interest rates or prepayments in
the underlying collateral. As with other interest-bearing securities, the prices
of such securities are inversely affected by changes in interest rates. However,
though the value of a mortgage-backed or other asset-backed security may decline
when interest rates rise, the converse is not necessarily true, since in periods
of declining interest rates the mortgages and loans underlying the securities
are prone to prepayment, thereby shortening the average life of the security and
shortening the period of time over which income at the higher rate is received.
When interest rates are rising, though, the rate of prepayment tends to
decrease, thereby lengthening the period of time over which income at the lower
rate is received. For these and other reasons, a mortgage-backed or other
asset-backed security's average maturity may be shortened or lengthened as a
result of interest rate fluctuations and, therefore, it is not possible to
predict accurately the security's return.
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOs"). AIM Real Estate Fund may
invest in CMOs. The Fund can also invest in mortgage-backed bonds and
asset-backed securities. A CMO is a hybrid between a mortgage-backed bond and a
mortgage pass-through security. Similar to a bond, interest and prepaid
principal is paid, in most cases, semiannually. CMOs may be collateralized by
whole mortgage loans, but are more typically collateralized by portfolios of
mortgage pass-through securities guaranteed by GNMA, FHLMC, or FNMA, and their
income streams.
CMOs are structured into multiple classes, each bearing a different
stated maturity. Actual maturity and average life will depend upon the
prepayment experience of the collateral. CMOs provide for a modified form of
call protection through a de facto breakdown of the underlying pool of mortgages
according to how quickly the loans are repaid. Monthly payment of principal
received from the pool of underlying mortgages, including prepayments, is first
returned to investors holding the shortest maturity class. Investors holding the
longer maturity classes receive principal only after the first class has been
retired. An investor is partially guarded against a sooner than desired return
of principal because of the sequential payments.
In a typical CMO transaction, a corporation ("issuer") issues multiple
series (e.g., A, B, C, Z) of CMO bonds ("Bonds"). Proceeds of the Bond offering
are used to purchase mortgages or mortgage pass-through certificates
("Collateral"). The Collateral is pledged to a third party trustee as security
for the Bonds. Principal and interest payments from the Collateral are used to
pay principal on the Bonds in the order A, B, C, Z. The Series A, B, and C Bonds
all bear current interest. Interest on Series Z Bond is accrued and added to
principal and a like amount is paid as principal on the Series A, B, or C Bond
currently being paid off. When the Series A, B, and C Bonds are paid in full,
interest and principal on the
9
Series Z Bond begins to be paid currently. With some CMOs, the issuer serves as
a conduit to allow loan originators (primarily builders or savings and loan
associations) to borrow against their loan portfolios.
CMOs that are issued or guaranteed by the U.S. government or by any of
its agencies or instrumentalities will be considered U.S. government securities
by the Funds, while other CMOs, even in collateralized by U.S. government
securities, will have the same status as other privately issued securities for
purposes of applying a Fund's diversification tests.
FHLMC CMOs. FHLMC CMOs are debt obligations of FHLMC issued in multiple
classes having different maturity dates which are secured by the pledge of a
pool of conventional mortgage loans purchased by FHLMC. Unlike FHLMC
Participation Certificates ("PCs"), payments of principal and interest on the
CMOs are made semiannually, as opposed to monthly. The amount of principal
payable on each semiannual payment date is determined in accordance with FHLMC's
mandatory sinking fund schedule, which, in turn, is equal to approximately 100%
of FHA prepayment experience applied to the mortgage collateral pool. All
sinking fund payments in the CMOs are allocated to the retirement of the
individual classes of bonds in the order of their stated maturities. Payment of
principal on the mortgage loans in the collateral pool in excess of the amount
of FHLMC's minimum sinking fund obligation for any payment date are paid to the
holders of the CMOs as additional sinking fund payments. Because of the
"pass-through" nature of all principal payments received on the collateral pool
in excess of FHLMC's minimum sinking fund requirement, the rate at which
principal of the CMOs is actually repaid is likely to be such that each class of
bonds will be retired in advance of its scheduled maturity date.
If collection of principal (including prepayments) on the mortgage
loans during any semiannual payment period is not sufficient to meet FHLMC's
minimum sinking fund obligation on the next sinking fund payment date, FHLMC
agrees to make up the deficiency from its general funds.
Risks of Mortgage-Related Securities. Investment in mortgage-backed
securities poses several risks, including prepayment, market, and credit risk.
Prepayment risk reflects the risk that borrowers may prepay their mortgages
faster than expected, thereby affecting the investment's average life and
perhaps its yield. Whether or not a mortgage loan is prepaid is almost entirely
controlled by the borrower. Borrowers are most likely to exercise prepayment
options at the time when it is least advantageous to investors, generally
prepaying mortgages as interest rates fall, and slowing payments as interest
rates rise. Besides the effect of prevailing interest rates, the rate of
prepayment and refinancing of mortgages may also be affected by home value
appreciation, ease of the refinancing process and local economic conditions.
Market risk reflects the risk that the price of the security may
fluctuate over time. The price of mortgage-backed securities may be particularly
sensitive to prevailing interest rates, the length of time the security is
expected to be outstanding, and the liquidity of the issue. In a period of
unstable interest rates, there may be decreased demand for certain types of
mortgage-backed securities, and a Fund invested in such securities wishing to
sell them may find it difficult to find a buyer, which may in turn decrease the
price at which they may be sold.
Credit risk reflects the risk that a Fund may not receive all or part
of its principal because the issuer or credit enhancer has defaulted on its
obligations. Obligations issued by U.S. government-related entities are
guaranteed as to the payment of principal and interest, but are not backed by
the full faith and credit of the U.S. government. The performance of private
label mortgage-backed securities, issued by private institutions, is based on
the financial health of those institutions. With respect to GNMA certificates,
although GNMA guarantees timely payment even if homeowners delay or default,
tracking the "pass-through" payments may, at times, be difficult.
INVESTMENT GRADE CORPORATE DEBT OBLIGATIONS. Each Fund may invest in
U.S. dollar-denominated debt obligations issued or guaranteed by U.S.
corporations or U.S. commercial banks, U.S. dollar-denominated obligations of
foreign issuers and debt obligations of foreign issuers denominated in foreign
currencies. Such debt obligations include, among others, bonds, notes,
debentures and variable rate demand notes. In choosing corporate debt securities
on behalf of a Fund, its
10
investment adviser may consider (i) general economic and financial conditions;
(ii) the specific issuer's (a) business and management, (b) cash flow, (c)
earnings coverage of interest and dividends, (d) ability to operate under
adverse economic conditions, (e) fair market value of assets, and (f) in the
case of foreign issuers, unique political, economic or social conditions
applicable to such issuer's country; and, (iii) other considerations deemed
appropriate.
Descriptions of debt securities ratings are found in Appendix A.
LIQUID ASSETS. Cash equivalents include money market instruments (such
as certificates of deposit, time deposits, bankers' acceptances from U.S. or
foreign banks, and repurchase agreements), shares of affiliated money market
funds or high-quality debt obligations (such as U.S. Government obligations,
commercial paper, master notes and other short-term corporate instruments and
municipal obligations).
Other Investments
REAL ESTATE INVESTMENT TRUSTS ("REITS"). REITs are trusts that sell
equity or debt securities to investors and use the proceeds to invest in real
estate or interests therein. A REIT may focus on particular projects, such as
apartment complexes, or geographic regions, such as the southeastern United
States, or both.
To the extent consistent with their respective investment objectives
and policies, AIM International Core Equity Fund may invest up to 15% of its
total assets and AIM Real Estate Fund may invest all of its total assets in
equity and/or debt securities issued by REITs.
To the extent that a Fund has the ability to invest in REITs, the Fund
could conceivably own real estate directly as a result of a default on the
securities it owns. A Fund, therefore, may be subject to certain risks
associated with the direct ownership of real estate including difficulties in
valuing and trading real estate, declines in the value of real estate, risks
related to general and local economic conditions, adverse changes in the climate
for real estate, environmental liability risks, increases in property taxes and
operating expenses, changes in zoning laws, casualty or condemnation losses,
limitations on rents, changes in neighborhood values, the appeal of properties
to tenants, and increases in interest rates.
In addition to the risks described above, equity REITs may be affected
by any changes in the value of the underlying property owned by the trusts,
while mortgage REITs may be affected by the quality of any credit extended.
Equity and mortgage REITs are dependent upon management skill, are not
diversified, and are therefore subject to the risk of financing single or a
limited number of projects. Such trusts are also subject to heavy cash flow
dependency, defaults by borrowers, self-liquidation, and the possibility of
failing to maintain an exemption from the 1940 Act. Changes in interest rates
may also affect the value of debt securities held by a Fund. By investing in
REITs indirectly through a Fund, a shareholder will bear not only his/her
proportionate share of the expenses of the Fund, but also, indirectly, similar
expenses of the REITs.
OTHER INVESTMENT COMPANIES. With respect to a Fund's purchase of shares
of another investment company, including Affiliated Money Market Funds (defined
below), the Fund will indirectly bear its proportionate share of the advisory
fees and other operating expenses of such investment company. The Funds have
obtained an exemptive order from the SEC allowing them to invest in money market
funds that have AIM or an affiliate of AIM as an investment advisor (the
"Affiliated Money Market Funds"), provided that investments in Affiliated Money
Market Funds do not exceed 25% of the total assets of the investing Fund.
The following restrictions apply to investments in other investment
companies other than Affiliated Money Market Funds: (i) a Fund may not purchase
more than 3% of the total outstanding voting stock of another investment
company; (ii) a Fund may not invest more than 5% of its total assets in
securities issued by another investment company; and (iii) a Fund may not invest
more than 10% of its total assets in securities issued by other investment
companies.
11
Investment Techniques
DELAYED DELIVERY TRANSACTIONS. Delayed delivery transactions, also
referred to as forward commitments, involve commitments by a Fund to dealers or
issuers to acquire or sell securities at a specified future date beyond the
customary settlement for such securities. These commitments may fix the payment
price and interest rate to be received or paid on the investment. A Fund may
purchase securities on a delayed delivery basis to the extent it can anticipate
having available cash on settlement date. Delayed delivery agreements will not
be used as a speculative or leverage technique.
Investment in securities on a delayed delivery basis may increase a
Fund's exposure to market fluctuation and may increase the possibility that the
Fund will incur short-term gains subject to federal taxation or short-term
losses if the Fund must engage in portfolio transactions in order to honor a
delayed delivery commitment. Until the settlement date, a Fund will segregate
liquid assets of a dollar value sufficient at all times to make payment for the
delayed delivery transactions. Such segregated liquid assets will be
marked-to-market daily, and the amount segregated will be increased if necessary
to maintain adequate coverage of the delayed delivery commitments. No additional
delayed delivery agreements or when-issued commitments (as described below) will
be made by a Fund if, as a result, more than 25% of the Fund's total assets
would become so committed.
The delayed delivery securities, which will not begin to accrue
interest or dividends until the settlement date, will be recorded as an asset of
a Fund and will be subject to the risk of market fluctuation. The purchase price
of the delayed delivery securities is a liability of a Fund until settlement.
Absent extraordinary circumstances, a Fund will not sell or otherwise transfer
the delayed delivery securities prior to settlement.
A Fund may enter into buy/sell back transactions (a form of delayed
delivery agreement). In a buy/sell back transaction, the Fund enters a trade to
sell securities at one price and simultaneously enters a trade to buy the same
securities at another price for settlement at a future date.
WHEN-ISSUED SECURITIES. Purchasing securities on a "when-issued" basis
means that the date for delivery of and payment for the securities is not fixed
at the date of purchase, but is set after the securities are issued. The payment
obligation and, if applicable, the interest rate that will be received on the
securities are fixed at the time the buyer enters into the commitment. A Fund
will only make commitments to purchase such securities with the intention of
actually acquiring such securities, but the Fund may sell these securities
before the settlement date if it is deemed advisable.
Securities purchased on a when-issued basis and the securities held in
a Fund's portfolio are subject to changes in market value based upon the
public's perception of the creditworthiness of the issuer and, if applicable,
changes in the level of interest rates. Therefore, if a Fund is to remain
substantially fully invested at the same time that it has purchased securities
on a when-issued basis, there will be a possibility that the market value of the
Fund's assets will fluctuate to a greater degree. Furthermore, when the time
comes for the Fund to meet its obligations under when-issued commitments, the
Fund will do so by using then available cash flow, by sale of the segregated
liquid assets, by sale of other securities or, although it would not normally
expect to do so, by directing the sale of the when-issued securities themselves
(which may have a market value greater or less than the Fund's payment
obligation).
Investment in securities on a when-issued basis may increase a Fund's
exposure to market fluctuation and may increase the possibility that the Fund
will incur short-term gains subject to federal taxation or short-term losses if
the Fund must sell another security in order to honor a when-issued commitment.
If a Fund purchases a when-issued security, the Fund will segregate liquid
assets in an amount equal to the when-issued commitment. If the market value of
such segregated assets declines, additional liquid assets will be segregated on
a daily basis so that the market value of the segregated assets will equal the
amount of the Fund's when-issued commitments. No additional delayed
12
delivery agreements (as described above) or when-issued commitments will be made
by a Fund if, as a result, more than 25% of the Fund's total assets would become
so committed.
SHORT SALES. In a short sale, a Fund does not immediately deliver the
securities sold and does not receive the proceeds from the sale. A Fund is said
to have a short position in the securities sold until it delivers the securities
sold, at which time it receives the proceeds of the sale. A Fund will make a
short sale, as a hedge, when it believes that the price of a security may
decline, causing a decline in the value of a security owned by the Fund or a
security convertible into or exchangeable for such security, or when the Fund
does not want to sell the security it owns, because it wishes to defer
recognition of gain or loss for federal income tax purposes. In such case, any
future losses in a Fund's long position should be reduced by a gain in the short
position. Conversely, any gain in the long position should be reduced by a loss
in the short position. The extent to which such gains or losses are reduced will
depend upon the amount of the security sold short relative to the amount a Fund
owns, either directly or indirectly, and, in the case where the Fund owns
convertible securities, changes in the conversion premium. In determining the
number of shares to be sold short against a Fund's position in a convertible
security, the anticipated fluctuation in the conversion premium is considered. A
Fund may also make short sales to generate additional income from the investment
of the cash proceeds of short sales.
A Fund will only make short sales "against the box," meaning that at
all times when a short position is open, the Fund owns an equal amount of such
securities or securities convertible into or exchangeable, without payment of
any further consideration, for securities of the same issue as, and in an amount
equal to, the securities sold short. To secure its obligation to deliver the
securities sold short, a Fund will segregate with its custodian an equal amount
to the securities sold short or securities convertible into or exchangeable for
such securities. A Fund may pledge no more than 10% of its total assets as
collateral for short sales against the box.
MARGIN TRANSACTIONS. Neither of the Funds will purchase any security on
margin, except that each Fund may obtain such short-term credits as may be
necessary for the clearance of purchases and sales of portfolio securities. The
payment by a Fund of initial or variation margin in connection with futures or
related options transactions will not be considered the purchase of a security
on margin.
SWAP AGREEMENTS. Each Fund may enter into interest rate, index and
currency exchange rate swap agreements for purposes of attempting to obtain a
particular desired return at a lower cost to the Fund than if it had invested
directly in an instrument that yielded that desired return. Swap agreements are
two-party contracts entered into primarily by institutional investors for
periods ranging from a few weeks to more than one year. In a standard "swap"
transaction, two parties agree to exchange the returns (or differentials in
rates of return) earned or realized on particular predetermined investments or
instruments. The gross returns to be exchanged or "swapped" between the parties
are calculated with respect to a "notional amount," i.e., the return on or
increase in value of a particular dollar amount invested at a particular
interests rate, in a particular foreign currency, or in a "basket" of securities
representing a particular index. Commonly used swap agreements include: (i)
interest rate caps, under which, in return for a premium, one party agrees to
make payments to the other to the extent that interest rates exceed a specified
rate, or "cap"; (ii) interest rate floors, under which, in return for a premium,
one party agrees to make payments to the other to the extent that interest rates
fall below a specified level, or "floor"; and (iii) interest rate collars, under
which a party sells a cap and purchases a floor or vice versa in an attempt to
protect itself against interest rate movements exceeding given minimum or
maximum levels.
The "notional amount" of the swap agreement is only a fictitious basis
on which to calculate the obligations which the parties to a swap agreement have
agreed to exchange. Most swap agreements entered into by a Fund would calculate
the obligations on a "net basis." Consequently, a Fund's obligations (or rights)
under a swap agreement will generally be equal only to the net amount to be paid
or received under the agreement based on the relative values of the positions
held by each party to the agreement (the "net amount"). Obligations under a swap
agreement will be accrued daily (offset against amounts owing to the Fund) and
any accrued but unpaid net amounts owed to a swap counterparty will be covered
by segregating liquid assets, to avoid any potential leveraging of the Fund. A
Fund will not enter into a swap agreement with any single party if the net
amount owed to or to be received under
13
existing contracts with that party would exceed 5% of the Fund's total assets.
For a discussion of the tax considerations relating to swap agreements, see
"Dividends, Distributions and Tax Matters - Swap Agreements."
INTERFUND LOANS. Each Fund may lend uninvested cash up to 15% of its
net assets to other AIM Funds and each Fund may borrow from other AIM Funds to
the extent permitted under such Fund's investment restrictions. During temporary
or emergency periods, the percentage of a Fund's net assets that may be loaned
to other AIM Funds may be increased as permitted by the SEC. If any interfund
borrowings are outstanding, a Fund cannot make any additional investments. If a
Fund has borrowed from other AIM Funds and has aggregate borrowings from all
sources that exceed 10% of such Fund's total assets, such Fund will secure all
of its loans from other AIM Funds. The ability of a Fund to lend its securities
to other AIM Funds is subject to certain other terms and conditions.
BORROWING. The Funds may borrow money to a limited extent for temporary
or emergency purposes. If there are unusually heavy redemptions because of
changes in interest rates or for any other reason, a Fund may have to sell a
portion of its investment portfolio at a time when it may be disadvantageous to
do so. Selling fund securities under these circumstances may result in a lower
net asset value per share or decreased dividend income, or both. The Trust
believes that, in the event of abnormally heavy redemption requests, the Fund's
borrowing ability would help to mitigate any such effects and could make the
forced sale of their portfolio securities less likely.
LENDING PORTFOLIO SECURITIES. The Funds may each lend their portfolio
securities (principally to broker-dealers) where such loans are callable at any
time and are continuously secured by segregated collateral equal to no less than
the market value, determined daily, of the loaned securities. Such collateral
will be cash, letters of credit, or debt securities issued or guaranteed by the
U.S. Government or any of its agencies. Each Fund may lend portfolio securities
to the extent of one-third of its total assets.
The Funds would continue to receive the income on loaned securities and
would, at the same time, earn interest on the loan collateral or on the
investment of any cash collateral. A Fund will not have the right to vote
securities while they are being lent, but it can call a loan in anticipation of
an important vote. Any cash collateral pursuant to these loans would be invested
in short-term money market instruments or Affiliated Money Market Funds. Lending
securities entails a risk of loss to the Fund if and to the extent that the
market value of the securities loaned increases and the collateral is not
increased accordingly or in the event of default by the borrower. The Fund could
also experience delays and costs in gaining access to the collateral.
REPURCHASE AGREEMENTS. Repurchase agreements are agreements under which
a Fund acquires ownership of a security from a broker-dealer or bank that agrees
to repurchase the security at a mutually agreed upon time and price (which is
higher than the purchase price), thereby determining the yield during the Fund's
holding period. A Fund may, however, enter into a "continuing contract" or
"open" repurchase agreement under which the seller is under a continuing
obligation to repurchase the underlying obligation from the Fund on demand and
the effective interest rate is negotiated on a daily basis. Each of the Funds
may engage in repurchase agreement transactions involving the types of
securities in which it is permitted to invest.
If the seller of a repurchase agreement fails to repurchase the
security in accordance with the terms of the agreement, a Fund might incur
expenses in enforcing its rights, and could experience losses, including a
decline in the value of the underlying security and loss of income. The
securities underlying a repurchase agreement will be marked- to- market every
business day so that the value of such securities is at least equal to the
investment value of the repurchase agreement, including any accrued interest
thereon.
The Funds may invest their cash balances in joint accounts with other
AIM Funds for the purpose of investing in repurchase agreements with maturities
not to exceed 60 days, and in certain other money market instruments with
remaining maturities not to exceed 90 days. Repurchase agreements are considered
loans by a Fund under the 1940 Act.
14
REVERSE REPURCHASE AGREEMENTS. Reverse repurchase agreements are
agreements that involve the sale of securities held by a Fund to financial
institutions such as banks and broker-dealers, with an agreement that the Fund
will repurchase the securities at an agreed upon price and date. A Fund may
employ reverse repurchase agreements (i) for temporary emergency purposes, such
as to meet unanticipated net redemptions so as to avoid liquidating other
portfolio securities during unfavorable market conditions; (ii) to cover
short-term cash requirements resulting from the timing of trade settlements; or
(iii) to take advantage of market situations where the interest income to be
earned from the investment of the proceeds of the transaction is greater than
the interest expense of the transaction. At the time it enters into a reverse
repurchase agreement, a Fund will segregate liquid assets having a dollar value
equal to the repurchase price, and will subsequently continually monitor the
account to ensure that such equivalent value is maintained at all times. Reverse
repurchase agreements involve the risk that the market value of securities to be
purchased by the Fund may decline below the price at which it is obligated to
repurchase the securities, or that the other party may default on its
obligation, so that the Fund is delayed or prevented from completing the
transaction. Reverse repurchase agreements are considered borrowings by a Fund
under the 1940 Act.
ILLIQUID SECURITIES. Illiquid securities are securities that cannot be
disposed of within seven days in the normal course of business at the price at
which they are valued. Illiquid securities may include securities that are
subject to restrictions on resale because they have not been registered under
the Securities Act of 1933 (the "1933 Act"). Restricted securities may, in
certain circumstances, be resold pursuant to Rule 144A, and thus may or may not
constitute illiquid securities.
Each Fund may invest up to 15% of its net assets in securities that are
illiquid. Limitations on the resale of restricted securities may have an adverse
effect on their marketability, which may prevent a Fund from disposing of them
promptly at reasonable prices. A Fund may have to bear the expense of
registering such securities for resale, and the risk of substantial delays in
effecting such registrations.
RULE 144A SECURITIES. Rule 144A securities are securities which, while
privately placed, are eligible for purchase and resale pursuant to Rule 144A
under the 1933 Act. This Rule permits certain qualified institutional buyers,
such as the Funds, to trade in privately placed securities even though such
securities are not registered under the 1933 Act. AIM, under the supervision of
the Board of Trustees, will consider whether securities purchased under Rule
144A are illiquid and thus subject to the Funds' restriction on investment in
illiquid securities. Determination of whether a Rule 144A security is liquid or
not is a question of fact. In making this determination AIM will consider the
trading markets for the specific security taking into account the unregistered
nature of a Rule 144A security. In addition, AIM could consider the (i)
frequency of trades and quotes; (ii) number of dealers and potential purchasers;
(iii) dealer undertakings to make a market; and (iv) nature of the security and
of market place trades (for example, the time needed to dispose of the security,
the method of soliciting offers and the mechanics of transfer). AIM will also
monitor the liquidity of Rule 144A securities and, if as a result of changed
conditions, AIM determines that a Rule 144A security is no longer liquid, AIM
will review a Fund's holdings of illiquid securities to determine what, if any,
action is required to assure that such Fund complies with its restriction on
investment in illiquid securities. Investing in Rule 144A securities could
increase the amount of each Fund's investments in illiquid securities if
qualified institutional buyers are unwilling to purchase such securities.
UNSEASONED ISSUERS. Investments in the equity securities of companies
having less than three years' continuous operations (including operations of any
predecessor) involve more risk than investments in the securities of more
established companies because unseasoned issuers have only a brief operating
history and may have more limited markets and financial resources. As a result,
securities of unseasoned issuers tend to be more volatile than securities of
more established companies.
Derivatives
The Funds may each invest in forward currency contracts, futures
contracts, options on securities, options on indices, options on currencies, and
options on futures contracts to attempt to hedge
15
against the overall level of investment and currency risk normally associated
with each Fund's investments. The Funds may also invest in equity-linked
derivative products designed to replicate the composition and performance of
particular indices. These instruments are often referred to as "derivatives,"
which may be defined as financial instruments whose performance is derived, at
least in part, from the performance of another asset (such as a security,
currency or an index of securities).
EQUITY-LINKED DERIVATIVES. Equity-Linked Derivatives are interests in a
securities portfolio designed to replicate the composition and performance of a
particular index. Equity-Linked Derivatives are exchange traded. The performance
results of Equity-Linked Derivatives will not replicate exactly the performance
of the pertinent index due to transaction and other expenses, including fees to
service providers, borne by the Equity-Linked Derivatives. Examples of such
products include S&P Depositary Receipts ("SPDRs"), World Equity Benchmark
Series ("WEBs"), NASDAQ 100 tracking shares ("QQQs"), Dow Jones Industrial
Average Instruments ("DIAMONDS") and Optimised Portfolios As Listed Securities
("OPALS"). Investments in Equity-Linked Derivatives involve the same risks
associated with a direct investment in the types of securities included in the
indices such products are designed to track. There can be no assurance that the
trading price of the Equity-Linked Derivatives will equal the underlying value
of the basket of securities purchased to replicate a particular index or that
such basket will replicate the index. Investments in Equity-Linked Derivatives
may constitute investments in other investment companies and, therefore, a Fund
may be subject to the same investment restrictions with Equity-Linked
Derivatives as with other investment companies. See "Other Investment
Companies."
PUT AND CALL OPTIONS. A call option gives the purchaser the right to
buy the underlying security, contract or foreign currency at the stated exercise
price at any time prior to the expiration of the option (or on a specified date
if the option is a European style option), regardless of the market price or
exchange rate of the security, contract or foreign currency, as the case may be
at the time of exercise. If the purchaser exercises the call option, the writer
of a call option is obligated to sell the underlying security, contract or
foreign currency. A put option gives the purchaser the right to sell the
underlying security, contract or foreign currency at the stated exercise price
at any time prior to the expiration date of the option (or on a specified date
if the option is a European style option), regardless of the market price or
exchange rate of the security, contract or foreign currency, as the case may be
at the time of exercise. If the purchaser exercises the put option, the writer
of a put option is obligated to buy the underlying security, contract or foreign
currency. The premium paid to the writer is consideration for undertaking the
obligations under the option contract. Until an option expires or is offset, the
option is said to be "open." When an option expires or is offset, the option is
said to be "closed."
A Fund will not write (sell) options if, immediately after such sale,
the aggregate value of securities or obligations underlying the outstanding
options exceeds 20% of the Fund's total assets. A Fund will not purchase options
if, at any time of the investment, the aggregate premiums paid for the options
will exceed 5% of the Fund's total assets.
Pursuant to federal securities rules and regulations, if a Fund writes
options it may be required to set aside assets to reduce the risks associated
with writing those options. This process is described in more detail below in
the section "Cover."
Writing Options. A Fund may write put and call options in an attempt to
realize, through the receipt of premiums, a greater current return than would be
realized on the underlying security, contract, or foreign currency alone. A Fund
may only write a call option on a security if it owns an equal amount of such
securities or securities convertible into, or exchangeable, without payment or
any further consideration, for securities of the same issue as, and equal in
amount to, the securities subject to the call option. In return for the premium
received for writing a call option, the Fund foregoes the opportunity for profit
from a price increase in the underlying security, contract, or foreign currency
above the exercise price so long as the option remains open, but retains the
risk of loss should the price of the security, contract, or foreign currency
decline.
A Fund may write a put option without owning the underlying security if
it covers the option as described below in the section "Cover." A fund may only
write a put option on a security as part of an
16
investment strategy, and not for speculative purposes. In return for the premium
received for writing a put option, the Fund assumes the risk that the price of
the underlying security, contract, or foreign currency will decline below the
exercise price, in which case the put would be exercised and the Fund would
suffer a loss.
If an option that a Fund has written expires, it will realize a gain in
the amount of the premium; however, such gain may be offset by a decline in the
market value of the underlying security, contract or currency during the option
period. If the call option is exercised, a Fund will realize a gain or loss from
the sale of the underlying security, contract or currency, which will be
increased or offset by the premium received. A Fund would write a put option at
an exercise price that, reduced by the premium received on the option, reflects
the price it is willing to pay for the underlying security, contract or
currency. The obligation imposed upon the writer of an option is terminated upon
the expiration of the option, or such earlier time at which a Fund effects a
closing purchase transaction by purchasing an option (put or call as the case
may be) identical to that previously sold.
Writing call options can serve as a limited hedge because declines in
the value of the hedged investment would be offset to the extent of the premium
received for writing the option. Closing transactions may be effected in order
to realize a profit on an outstanding call option, to prevent an underlying
security, contract or currency from being called or to permit the sale of the
underlying security, contract or currency. Furthermore, effecting a closing
transaction will permit a Fund to write another call option on the underlying
security, contract or currency with either a different exercise price or
expiration date, or both.
Purchasing Options. A Fund may purchase a call option for the purpose
of acquiring the underlying security, contract or currency for its portfolio.
The Fund is not required to own the underlying security in order to purchase a
call option, and may only cover this transaction with cash, liquid assets and/or
short-term debt securities. Utilized in this fashion, the purchase of call
options would enable a Fund to acquire the security, contract or currency at the
exercise price of the call option plus the premium paid. So long as it holds
such a call option, rather than the underlying security or currency itself, the
Fund is partially protected from any unexpected increase in the market price of
the underlying security, contract or currency. If the market price does not
exceed the exercise price, the Fund could purchase the security on the open
market and could allow the call option to expire, incurring a loss only to the
extent of the premium paid for the option. Each of the Funds may also purchase
call options on underlying securities, contracts or currencies against which it
has written other call options. For example, where a Fund has written a call
option on an underlying security, rather than entering a closing transaction of
the written option, it may purchase a call option with a different exercise
strike and/or expiration date that would eliminate some or all of the risk
associated with the written call. Used in combinations, these strategies are
commonly referred to as "call spreads."
A Fund may only purchase a put option on an underlying security,
contract or currency ("protective put") owned by the Fund in order to protect
against an anticipated decline in the value of the security, contract or
currency. Such hedge protection is provided only during the life of the put
option. The premium paid for the put option and any transaction costs would
reduce any profit realized when the security, contract or currency is delivered
upon the exercise of the put option. Conversely, if the underlying security,
contract or currency does not decline in value, the option may expire worthless
and the premium paid for the protective put would be lost. A Fund may also
purchase put options on underlying securities, contracts or currencies against
which it has written other put options. For example, where a Fund has written a
put option on an underlying security, rather than entering a closing transaction
of the written option, it may purchase a put option with a different exercise
price and/or expiration date that would eliminate some or all of the risk
associated with the written put. Used in combinations, these strategies are
commonly referred to as "put spreads." Likewise, a Fund may write call options
on underlying securities, contracts or currencies against which it has purchased
protective put options. This strategy is commonly referred to as a "collar."
Over-The-Counter Options. Options may be either listed on an exchange
or traded in over-the-counter ("OTC") markets. Listed options are third-party
contracts (i.e., performance of the
17
obligations of the purchaser and seller is guaranteed by the exchange or
clearing corporation) and have standardized strike prices and expiration dates.
OTC options are two-party contracts with negotiated strike prices and expiration
dates. A Fund will not purchase an OTC option unless it believes that daily
valuations for such options are readily obtainable. OTC options differ from
exchange-traded options in that OTC options are transacted with dealers directly
and not through a clearing corporation (which guarantees performance).
Consequently, there is a risk of non-performance by the dealer. Since no
exchange is involved, OTC options are valued on the basis of an average of the
last bid prices obtained from dealers, unless a quotation from only one dealer
is available, in which case only that dealer's price will be used. In the case
of OTC options, there can be no assurance that a liquid secondary market will
exist for any particular option at any specific time. Because purchased OTC
options in certain cases may be difficult to dispose of in a timely manner, the
Fund may be required to treat some or all of these options (i.e., the market
value) as illiquid securities. Although a Fund will enter into OTC options only
with dealers that are expected to be capable of entering into closing
transactions with it, there is no assurance that the Fund will in fact be able
to close out an OTC option position at a favorable price prior to expiration. In
the event of insolvency of the dealer, a Fund might be unable to close out an
OTC option position at any time prior to its expiration.
Index Options. Index options (or options on securities indices) are
similar in many respects to options on securities, except that an index option
gives the holder the right to receive, upon exercise, cash instead of
securities, if the closing level of the securities index upon which the option
is based is greater than, in the case of a call, or less than, in the case of a
put, the exercise price of the option. The amount of cash is equal to the
difference between the closing price of the index and the exercise price of the
call or put times a specified multiple (the "multiplier"), which determines the
total dollar value for each point of such difference.
The risks of investment in index options may be greater than options on
securities. Because index options are settled in cash, when a Fund writes a call
on an index it cannot provide in advance for its potential settlement
obligations by acquiring and holding the underlying securities. A Fund can
offset some of the risk of writing a call index option position by holding a
diversified portfolio of securities similar to those on which the underlying
index is based. However, the Fund cannot, as a practical matter, acquire and
hold a portfolio containing exactly the same securities as underlie the index
and, as a result, bears a risk that the value of the securities held will not be
perfectly correlated with the value of the index.
Pursuant to federal securities rules and regulations, if a Fund writes
index options it may be required to set aside assets to reduce the risks
associated with writing those options. This process is described in more detail
below in the section "Cover."
STRADDLES. The Funds, for hedging purposes, may write straddles
(combinations of put and call options on the same underlying security) to adjust
the risk and return characteristics of the Fund's overall position. A possible
combined position would involve writing a covered call option at one strike
price and buying a call option at a lower price, in order to reduce the risk of
the written covered call option in the event of a substantial price increase.
Because combined options positions involve multiple trades, they result in
higher transaction costs and may be more difficult to open and close out.
WARRANTS. Warrants are, in effect, longer-term call options. They give
the holder the right to purchase a given number of shares of a particular
company at specified prices within certain periods of time. The purchaser of a
warrant expects that the market price of the security will exceed the purchase
price of the warrant plus the exercise price of the warrant, thus giving him a
profit. Since the market price may never exceed the exercise price before the
expiration date of the warrant, the purchaser of the warrant risks the loss of
the entire purchase price of the warrant. Warrants generally trade in the open
market and may be sold rather than exercised. Warrants are sometimes sold in
unit form with other securities of an issuer. Units of warrants and common stock
may be employed in financing young, unseasoned companies. The purchase price of
a warrant varies with the exercise price of the warrant, the current market
value of the underlying security, the life of the warrant and various other
investment factors.
18
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. A Futures Contract
is a two party agreement to buy or sell a specified amount of a specified
security or currency (or delivery of a cash settlement price, in the case of an
index future) for a specified price at a designated date, time and place
(collectively, "Futures Contracts"). A stock index Futures Contract provides for
the delivery, at a designated date, time and place, of an amount of cash equal
to a specified dollar amount times the difference between the stock index value
at the close of trading on the contract and the price agreed upon in the Futures
Contract; no physical delivery of stocks comprising the index is made. Brokerage
fees are incurred when a Futures Contract is bought or sold, and margin deposits
must be maintained at all times when a Futures Contract is outstanding.
A Fund will enter into Futures Contracts for hedging purposes only;
that is, Futures Contracts will be sold to protect against a decline in the
price of securities or currencies that the Fund owns, or Futures Contracts will
be purchased to protect the Fund against an increase in the price of securities
or currencies it has committed to purchase or expects to purchase. A Fund's
hedging may include sales of Futures Contracts as an offset against the effect
of expected increases in interest rates, and decreases in currency exchange
rates and stock prices, and purchases of Futures Contracts as an offset against
the effect of expected declines in interest rates, and increases in currency
exchange rates or stock prices.
The Funds currently may not invest in any security (including futures
contracts or options thereon) that is secured by physical commodities.
The Funds will only enter into Futures Contracts that are traded
(either domestically or internationally) on futures exchanges and are
standardized as to maturity date and underlying financial instrument. Futures
exchanges and trading thereon in the United States are regulated under the
Commodity Exchange Act and by the Commodity Futures Trading Commission ("CFTC").
Foreign futures exchanges and trading thereon are not regulated by the CFTC and
are not subject to the same regulatory controls. For a further discussion of the
risks associated with investments in foreign securities, see "Foreign
Investments" in this Statement of Additional Information.
Closing out an open Futures Contract is effected by entering into an
offsetting Futures Contract for the same aggregate amount of the identical
financial instrument or currency and the same delivery date. There can be no
assurance, however, that a Fund will be able to enter into an offsetting
transaction with respect to a particular Futures Contract at a particular time.
If a Fund is not able to enter into an offsetting transaction, it will continue
to be required to maintain the margin deposits on the Futures Contract.
"Margin" with respect to Futures Contracts is the amount of funds that
must be deposited by a Fund in order to initiate Futures Contracts trading and
maintain its open positions in Futures Contracts. A margin deposit made when the
Futures Contract is entered ("initial margin") is intended to ensure the Fund's
performance under the Futures Contract. The margin required for a particular
Futures Contract is set by the exchange on which the Futures Contract is traded
and may be significantly modified from time to time by the exchange during the
term of the Futures Contract.
Subsequent payments, called "variation margin," to and from the futures
commission merchant through which a Fund entered into the Futures Contract will
be made on a daily basis as the price of the underlying security, currency or
index fluctuates making the Futures Contract more or less valuable, a process
known as marking-to-market.
If a Fund were unable to liquidate a Futures Contract or an option on a
Futures Contract position due to the absence of a liquid secondary market or the
imposition of price limits, it could incur substantial losses. The Fund would
continue to be subject to market risk with respect to the position. In addition,
except in the case of purchased options, the Fund would continue to be required
to make daily variation margin payments and might be required to maintain the
position being hedged by the Futures Contract or option or to maintain cash or
securities in a segregated account.
19
Options on Futures Contracts. Options on Futures Contracts are similar
to options on securities or currencies except that options on Futures Contracts
give the purchaser the right, in return for the premium paid, to assume a
position in a Futures Contract (a long position if the option is a call and a
short position if the option is a put) at a specified exercise price at any time
during the period of the option. Upon exercise of the option, the delivery of
the Futures Contract position by the writer of the option to the holder of the
option will be accompanied by delivery of the accumulated balance in the
writer's Futures Contract margin account. The Funds currently may not invest in
any security (including futures contracts or options thereon) that is secured by
physical commodities.
Limitations on Futures Contracts and Options on Futures Contracts and
on Certain Options on Currencies. To the extent that a Fund enters into Futures
Contracts, options on Futures Contracts and options on foreign currencies traded
on a CFTC-regulated exchange, in each case other than for bona fide hedging
purposes (as defined by the CFTC), the aggregate initial margin and premiums
required to establish those positions (excluding the amount by which options are
"in-the-money") will not exceed 5% of the total assets of the Fund, after taking
into account unrealized profits and unrealized losses on any contracts it has
entered into. This guideline may be modified by the Board, without a shareholder
vote. This limitation does not limit the percentage of the Fund's assets at risk
to 5%.
Pursuant to federal securities rules and regulations, a Fund's use of
Futures Contracts and options on Futures Contracts may require that Fund to set
aside assets to reduce the risks associated with using Futures Contracts and
options on Futures Contracts. This process is described in more detail below in
the section "Cover."
FORWARD CURRENCY CONTRACTS. A forward currency contract is an
obligation, usually arranged with a commercial bank or other currency dealer, to
purchase or sell a currency against another currency at a future date and price
as agreed upon by the parties. A Fund either may accept or make delivery of the
currency at the maturity of the forward currency contract. A Fund may also, if
its contra party agrees prior to maturity, enter into a closing transaction
involving the purchase or sale of an offsetting contract. Forward currency
contracts are traded over-the-counter, and not on organized commodities or
securities exchanges. As a result, it may be more difficult to value such
contracts, and it may be difficult to enter into closing transactions.
Each of the Funds may engage in forward currency transactions in
anticipation of, or to protect itself against, fluctuations in exchange rates. A
Fund may enter into forward currency contracts with respect to a specific
purchase or sale of a security, or with respect to its portfolio positions
generally. When a Fund purchases a security denominated in a foreign currency
for settlement in the near future, it may immediately purchase in the forward
market the currency needed to pay for and settle the purchase. By entering into
a forward currency contract with respect to the specific purchase or sale of a
security denominated in a foreign currency, the Fund can secure an exchange rate
between the trade and settlement dates for that purchase or sale transaction.
This practice is sometimes referred to as "transaction hedging." Position
hedging is the purchase or sale of foreign currency with respect to portfolio
security positions denominated or quoted in a foreign currency.
The cost to a Fund of engaging in forward currency contracts varies
with factors such as the currencies involved, the length of the contract period
and the market conditions then prevailing. Because forward currency contracts
are usually entered into on a principal basis, no fees or commissions are
involved. The use of forward currency contracts does not eliminate fluctuations
in the prices of the underlying securities a Fund owns or intends to acquire,
but it does establish a rate of exchange in advance. In addition, while forward
currency contract sales limit the risk of loss due to a decline in the value of
the hedged currencies, they also limit any potential gain that might result
should the value of the currencies increase.
Pursuant to federal securities rules and regulations, a Fund's use of
forward currency contracts may require that Fund to set aside assets to reduce
the risks associated with using forward currency contracts. This process is
described in more detail below in the section "Cover."
20
COVER. Transactions using forward currency contracts, futures contracts
and options (other than options purchased by a Fund) expose a Fund to an
obligation to another party. A Fund will not enter into any such transactions
unless, in addition to complying with all the restrictions noted in the
disclosure above, it owns either (1) an offsetting ("covered") position in
securities, currencies, or other options, forward currency contracts or futures
contracts or (2) cash, liquid assets and/or short-term debt securities with a
value sufficient at all times to cover its potential obligations not covered as
provided in (1) above. Each Fund will comply with SEC guidelines regarding cover
for these instruments and, if the guidelines so require, set aside cash or
liquid securities. To the extent that a futures contract, forward currency
contract or option is deemed to be illiquid, the assets used to "cover" the
Fund's obligation will also be treated as illiquid for purposes of determining
the Fund's maximum allowable investment in illiquid securities.
Even though options purchased by the Funds do not expose the Funds to
an obligation to another party, but rather provide the Funds with a right to
exercise, the Funds intend to "cover" the cost of any such exercise. To the
extent that a purchased option is deemed illiquid, a Fund will treat the market
value of the option (i.e., the amount at risk to the Fund) as illiquid, but will
not treat the assets used as cover on such transactions as illiquid.
Assets used as cover cannot be sold while the position in the
corresponding forward currency contract, futures contract or option is open,
unless they are replaced with other appropriate assets. If a large portion of a
Fund's assets is used for cover or otherwise set aside, it could affect
portfolio management or the Fund's ability to meet redemption requests or other
current obligations.
GENERAL RISKS OF OPTIONS, FUTURES AND CURRENCY STRATEGIES. The use by
the Funds of options, futures contracts and forward currency contracts involves
special considerations and risks, as described below. Risks pertaining to
particular strategies are described in the sections that follow.
(1) Successful use of hedging transactions depends upon AIM's ability
to correctly predict the direction of changes in the value of the applicable
markets and securities, contracts and/or currencies. While AIM is experienced in
the use of these instruments, there can be no assurance that any particular
hedging strategy will succeed.
(2) There might be imperfect correlation, or even no correlation,
between the price movements of an instrument (such as an option contract) and
the price movements of the investments being hedged. For example, if a
"protective put" is used to hedge a potential decline in a security and the
security does decline in price, the put option's increased value may not
completely offset the loss in the underlying security. Such a lack of
correlation might occur due to factors unrelated to the value of the investments
being hedged, such as changing interest rates, market liquidity, and speculative
or other pressures on the markets in which the hedging instrument is traded.
(3) Hedging strategies, if successful, can reduce risk of loss by
wholly or partially offsetting the negative effect of unfavorable price
movements in the investments being hedged. However, hedging strategies can also
reduce opportunity for gain by offsetting the positive effect of favorable price
movements in the hedged investments.
(4) There is no assurance that a liquid secondary market will exist for
any particular option, futures contract or option thereon or forward currency
contract at any particular time.
(5) As described above, a Fund might be required to maintain assets as
"cover," maintain segregated accounts or make margin payments when it takes
positions in instruments involving obligations to third parties. If a Fund were
unable to close out its positions in such instruments, it might be required to
continue to maintain such assets or accounts or make such payments until the
position expired or matured. The requirements might impair the Fund's ability to
sell a portfolio security or make an investment at a time when it would
otherwise be favorable to do so, or require that the Fund sell a portfolio
security at a disadvantageous time.
21
(6) There is no assurance that a Fund will use hedging transactions.
For example, if a Fund determines that the cost of hedging will exceed the
potential benefit to the Fund, the Fund will not enter into such transaction.
FUND POLICIES
FUNDAMENTAL RESTRICTIONS. Each Fund is subject to the following
investment restrictions, which may be changed only by a vote of such Fund's
outstanding shares, except that AIM Real Estate Fund is not subject to
restriction (4). Fundamental restrictions may be changed only by a vote of the
lesser of (i) 67% or more of the Fund's shares present at a meeting if the
holders of more than 50% of the outstanding shares are present in person or
represented by proxy, or (ii) more than 50% of the Fund's outstanding shares.
Any investment restriction that involves a maximum or minimum percentage of
securities or assets (other than with respect to borrowing) shall not be
considered to be violated unless an excess over or a deficiency under the
percentage occurs immediately after, and is caused by, an acquisition or
disposition of securities or utilization of assets by the Fund.
(1) The Fund is a "diversified company" as defined in the 1940 Act. The
Fund will not purchase the securities of any issuer if, as a result, the Fund
would fail to be a diversified company within the meaning of the 1940 Act, and
the rules and regulations promulgated thereunder, as such statute, rules and
regulations are amended from time to time or are interpreted from time to time
by the SEC staff (collectively, the "1940 Act Laws and Interpretations") or
except to the extent that the Fund may be permitted to do so by exemptive order
or similar relief (collectively, with the 1940 Act Laws and Interpretations, the
"1940 Act Laws, Interpretations and Exemptions"). In complying with this
restriction, however, the Fund may purchase securities of other investment
companies to the extent permitted by the 1940 Act Laws, Interpretations and
Exemptions.
(2) The Fund may not borrow money or issue senior securities, except as
permitted by the 1940 Act Laws, Interpretations and Exemptions.
(3) The Fund may not underwrite the securities of other issuers. This
restriction does not prevent the Fund from engaging in transactions involving
the acquisition, disposition or resale of its portfolio securities, regardless
of whether the Fund may be considered to be an underwriter under the 1933 Act.
(4) The Fund will not make investments that will result in the
concentration (as that term may be defined or interpreted by the 1940 Act Laws,
Interpretations and Exemptions) of its investments in the securities of issuers
primarily engaged in the same industry. This restriction does not limit the
Fund's investments in (i) obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, or (ii) tax-exempt obligations
issued by governments or political subdivisions of governments. In complying
with this restriction, the Fund will not consider a bank-issued guaranty or
financial guaranty insurance as a separate security.
AIM Real Estate Fund will concentrate (as such term may be defined or
interpreted by the 1940 Act Laws, Interpretations and Exemptions) its
investments in the securities of domestic and foreign real estate and real
estate-related companies. For purposes of AIM Real Estate Fund's fundamental
restriction regarding industry concentration, real estate and real
estate-related companies shall consist of companies (i) that at least 50% of its
assets, gross income or net profits are attributable to ownership, construction,
management, or sale of residential, commercial or industrial real estate,
including listed equity REITs that own property, and mortgage REITs which make
short-term construction and development mortgage loans or which invest in
long-term mortgages or mortgage pools, or (ii) whose products and services are
related to the real estate industry, such as manufacturers and distributors of
building supplies and financial institutions which issue or service mortgages.
(5) The Fund may not purchase real estate or sell real estate unless
acquired as a result of ownership of securities or other instruments. This
restriction does not prevent the Fund from investing in
22
issuers that invest, deal, or otherwise engage in transactions in real estate or
interests therein, or investing in securities that are secured by real estate or
interests therein.
(6) The Fund may not purchase physical commodities or sell physical
commodities unless acquired as a result of ownership of securities or other
instruments. This restriction does not prevent the Fund from engaging in
transactions involving futures contracts and options thereon or investing in
securities that are secured by physical commodities.
(7) The Fund may not make personal loans or loans of its assets to
persons who control or are under common control with the Fund, except to the
extent permitted by 1940 Act Laws, Interpretations and Exemptions. This
restriction does not prevent the Fund from, among other things, purchasing debt
obligations, entering into repurchase agreements, loaning its assets to
broker-dealers or institutional investors, or investing in loans, including
assignments and participation interests.
(8) The Fund may, notwithstanding any other fundamental investment
policy or limitation, invest all of its assets in the securities of a single
open-end management investment company with substantially the same fundamental
investment objectives, policies and restrictions as the Fund.
The investment restrictions set forth above provide each of the Funds
with the ability to operate under new interpretations of the 1940 Act or
pursuant to exemptive relief from the SEC without receiving prior shareholder
approval of the change. Even though each of the Funds has this flexibility, the
Board of Trustees has adopted non-fundamental restrictions for each of the Funds
relating to certain of these restrictions which AIM and each Fund's sub-advisor
must follow in managing the Funds. Any changes to these non-fundamental
restrictions, which are set forth below, require the approval of the Board of
Trustees.
NON-FUNDAMENTAL RESTRICTIONS. The following non-fundamental investment
restrictions apply to each of the Funds, except AIM Real Estate Fund is not
subject to restriction (3). They may be changed for any Fund without approval of
that Fund's voting securities.
(1) In complying with the fundamental restriction regarding issuer
diversification, the Fund will not, with respect to 75% of its total assets,
purchase the securities of any issuer (other than securities issued or
guaranteed by the U.S. Government or any of its agencies or instrumentalities),
if, as a result, (i) more than 5% of the Fund's total assets would be invested
in the securities of that issuer, or (ii) the Fund would hold more than 10% of
the outstanding voting securities of that issuer. The Fund may (i) purchase
securities of other investment companies as permitted by Section 12(d)(1) of the
1940 Act and (ii) invest its assets in securities of other money market funds
and lend money to other investment companies or their series portfolios that
have AIM or an affiliate of AIM as an investment advisor (an "AIM Advised
Fund"), subject to the terms and conditions of any exemptive orders issued by
the SEC.
(2) In complying with the fundamental restriction regarding borrowing
money and issuing senior securities, the Fund may borrow money in an amount not
exceeding 33"% of its total assets (including the amount borrowed) less
liabilities (other than borrowings). The Fund may borrow from banks,
broker-dealers or an AIM Advised Fund. The Fund may not borrow for leveraging,
but may borrow for temporary or emergency purposes, in anticipation of or in
response to adverse market conditions, or for cash management purposes. The Fund
may not purchase additional securities when any borrowings from banks exceed 5%
of the Fund's total assets or when any borrowings from an AIM Advised Fund are
outstanding.
(3) In complying with the fundamental restriction regarding industry
concentration, the Fund may invest up to 25% of its total assets in the
securities of issuers whose principal business activities are in the same
industry.
(4) In complying with the fundamental restriction with regard to making
loans, the Fund may lend up to 33"% of its total assets and may lend money to an
AIM Advised Fund, on such terms and conditions as the SEC may require in an
exemptive order.
23
(5) Notwithstanding the fundamental restriction with regard to
investing all assets in an open-end fund, the Fund may not invest all of its
assets in the securities of a single open-end management investment company with
the same fundamental investment objectives, policies and restrictions as the
Fund.
(6) AIM International Core Equity Fund normally invests at least 80% of
its assets in equity securities, including convertible securities, of foreign
companies. For purposes of the foregoing sentence, "assets" means net assets,
plus the amount of any borrowings for investment purposes. The Fund will provide
written notice to its shareholders prior to any change to this policy, as
required by the 1940 Act Laws, Interpretations and Exemptions.
(7) AIM Real Estate Fund normally invests at least 80% of its assets in
securities of real estate and real estate-related companies. For purposes of the
foregoing sentence, "assets" means net assets, plus the amount of any borrowings
for investment purposes. The Fund will provide written notice to its
shareholders prior to any change to this policy, as required by the 1940 Act
Laws, Interpretations and Exemptions.
(8) Notwithstanding the fundamental restriction with regard to engaging
in transactions involving futures contracts and options thereon or investing in
securities that are secured by physical commodities, the Fund currently may not
invest in any security (including futures contracts of options thereon) that is
secured by physical commodities.
TEMPORARY DEFENSIVE POSITIONS
In anticipation of or in response to adverse market conditions, or
other conditions, or atypical circumstances such as unusually large cash inflows
or redemptions, the Funds may temporarily hold all or a portion of their assets
in cash, cash equivalents or high-quality debt instruments. Each of the Funds
may also invest up to 25% of its total assets in Affiliated Money Market Funds
for these purposes.
MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES
The overall management of the business and affairs of the Funds and the
Trust is vested in the Board of Trustees. The Board of Trustees approves all
significant agreements between the Trust, on behalf of one or more of the Funds,
and persons or companies furnishing services to the Funds. The day-to-day
operations of each Fund are delegated to the officers of the Trust and to AIM,
subject always to the objective(s), restrictions and policies of the applicable
Fund and to the general supervision of the Board of Trustees. Certain trustees
and officers of the Trust are affiliated with AIM and A I M Management Group
Inc. ("AIM Management"), the parent corporation of AIM. All of the Trust's
executive officers hold similar offices with some or all of the other AIM Funds.
MANAGEMENT INFORMATION
The trustees and officers of the Trust, and their principal occupations
during at least the last five years and certain other information concerning
them is set forth in Appendix B.
The standing committees of the Board of Trustees are the Audit
Committee, the Investments Committee, the Valuation Committee and the Committee
on Directors/Trustees.
The members of the Audit Committee are Frank S. Bayley, Bruce L.
Crockett, Albert R. Dowden (Vice Chair), Edward K. Dunn, Jr. (Chair), Jack M.
Fields, Lewis F. Pennock, Louis S. Sklar, Dr. Prema Mathai-Davis and Ruth H.
Quigley. The Audit Committee is responsible for: (i) the appointment,
compensation and oversight of any independent auditors employed by each Fund
(including resolution
24
of disagreements between Fund management and the auditor regarding financial
reporting) for the purpose of preparing or issuing an audit report or related
work; (ii) overseeing the financial reporting process of each Fund; (iii)
monitoring the process and the resulting financial statements prepared by Fund
management to promote accuracy of financial reporting and asset valuation; and
(iv) preapproving permissible non-audit services that are provided to each Fund
by its independent auditors. During the fiscal year ended July 31, 2002, the
Audit Committee held five meetings.
The members of the Investments Committee are Messrs. Bayley, Crockett,
Dowden, Dunn, Fields, Pennock and Sklar (Chair), Carl Frischling, Dr.
Mathai-Davis (Vice Chair) and Miss Quigley. The Investments Committee is
responsible for: (i) overseeing AIM's investment-related compliance systems and
procedures to ensure their continued adequacy; and (ii) considering and acting,
on an interim basis between meetings of the full Board, on investment-related
matters requiring Board consideration, including dividends and distributions,
brokerage policies and pricing matters. During the fiscal year ended July 31,
2002, the Investments Committee held five meetings.
The members of the Valuation Committee are Messrs. Dunn and Pennock
(Chair) and Miss Quigley (Vice Chair). The Valuation Committee is responsible
for: (i) periodically reviewing AIM's Procedures for Valuing Securities
("Procedures"), and making any recommendations to AIM with respect thereto; (ii)
reviewing proposed changes to the Procedures recommended by AIM from time to
time; (iii) periodically reviewing information provided by AIM regarding
industry developments in connection with valuation; (iv) periodically reviewing
information from AIM regarding fair value and liquidity determinations made
pursuant to the Procedures, and making recommendations to the full Board in
connection therewith (whether such information is provided only to the Committee
or to the Committee and the full Board simultaneously); and (v) if requested by
AIM, assisting AIM's internal valuation committee and/or the full Board in
resolving particular valuation anomalies. During the fiscal year ended July 31,
2002, the Valuation Committee held one meeting.
The members of the Committee on Directors/Trustees are Messrs. Bayley,
Crockett (Chair), Dowden, Dunn, Fields (Vice Chair), Pennock and Sklar, Dr.
Mathai-Davis and Miss Quigley. The Committee on Directors/Trustees is
responsible for: (i) nominating persons who are not interested persons of the
Fund for election or appointment (a) as additions to the Board, (b) to fill
vacancies which, from time to time, may occur in the Board and (c) for election
by shareholders of the Fund at meetings called for the election of trustees;
(ii) nominating persons who are not interested persons of the Fund for selection
as, members of each committee of the Board, including without limitation, the
Audit Committee, the Committee on Directors/Trustees, the Investments Committee
and the Valuation Committee, and to nominate persons for selection as chair and
vice chair of each such committee; (iii) reviewing from time to time the
compensation payable to the independent trustees and making recommendations to
the Board regarding compensation; (iv) reviewing and evaluating from time to
time the functioning of the Board and the various committees of the Board; (v)
selecting independent legal counsel to the independent trustees and approving
the compensation paid to independent legal counsel; and (vi) approving the
compensation paid to independent counsel and other advisers, if any, to the
Audit Committee of the Fund. During the fiscal year ended July 31, 2002, the
Committee on Directors/Trustees held six meetings.
The Committee on Directors/Trustees will consider nominees recommended
by a shareholder to serve as trustees, provided: (i) that such person is a
shareholder of record at the time he or she submits such names and is entitled
to vote at the meeting of shareholders at which trustees will be elected; and
(ii) that the Committee on Directors/Trustees or the Board, as applicable, shall
make the final determination of persons to be nominated.
Trustee Ownership of Fund Shares
The dollar range of equity securities beneficially owned by each
trustee (i) in the Funds and (ii) on an aggregate basis, in all registered
investment companies overseen by the trustee within the AIM Funds complex, is
set forth in Appendix B.
25
Factors Considered in Approving the Investment Advisory Agreement
The advisory agreement with AIM was re-approved for each Fund by the
Trust's Board at a meeting held on May 13-14, 2003. In evaluating the fairness
and reasonableness of the advisory agreement, the Board of Trustees considered a
variety of factors for each Fund, including: the requirements of each Fund for
investment supervisory and administrative services; the quality of AIM's
services, including a review of each Fund's investment performance and AIM's
investment personnel; the size of the fees in relationship to the extent and
quality of the investment advisory services rendered; fees charged to AIM's
other clients; fees charged by competitive investment advisors; the size of the
fees in light of services provided other than investment advisory services; the
expenses borne by each Fund as a percentage of its assets and relationship to
contractual limitations; any fee waivers (or payments of Fund expenses) by AIM;
AIM's profitability; the benefits received by AIM from its relationship to each
Fund, including soft dollar arrangements, and the extent to which each Fund
shares in those benefits; the organizational capabilities and financial
condition of AIM and conditions and trends prevailing in the economy, the
securities markets and the mutual fund industry; and the historical relationship
between each Fund and AIM.
In considering the above factors, the Board also took into account the
fact that uninvested cash and cash collateral from securities lending
arrangements (collectively, "cash balances") of each Fund may be invested in
money market funds advised by AIM pursuant to the terms of an exemptive order.
The Board found that each Fund may realize certain benefits upon investing cash
balances in AIM advised money market funds, including a higher net return,
increased liquidity, increased diversification or decreased transition costs.
The Board also found that each Fund will not receive reduced services if it
invests its cash balances in such money market funds. The Board further
determined that the proposed securities lending program and related procedures
with respect to each of the lending Funds is in the best interests of each
lending Fund and its respective shareholders. The Board therefore concluded that
the investment of cash collateral received in connection with the securities
lending program in the money market funds according to the procedures is in the
best interests of each lending Fund and its respective shareholders.
After consideration of these factors, the Board found that: (i) the
services provided to each Fund and its shareholders were adequate; (ii) the
agreements were fair and reasonable under the circumstances; and (iii) the fees
payable under the agreements would have been obtained through arm's length
negotiations. The Board therefore concluded that each Fund's advisory agreement
was in the best interests of such Fund and its shareholders and continued the
agreement for an additional year.
COMPENSATION
Each trustee who is not affiliated with AIM is compensated for his or
her services according to a fee schedule which recognizes the fact that such
trustee also serves as a director or trustee of other AIM Funds. Each such
trustee receives a fee, allocated among the AIM Funds for which he or she serves
as a director or trustee, which consists of an annual retainer component and a
meeting fee component.
Information regarding compensation paid or accrued for each trustee of
the Trust who was not affiliated with AIM during the year ended December 31,
2002 is found in Appendix C.
Retirement Plan For Trustees
The trustees have adopted a retirement plan for the trustees of the
Trust who are not affiliated with AIM. The retirement plan includes a retirement
policy as well as retirement benefits for the non-AIM-affiliated trustees.
The retirement policy permits each non-AIM-affiliated trustee to serve
until December 31 of the year in which the trustee turns 72. A majority of the
trustees may extend from time to time the retirement date of a trustee.
26
Annual retirement benefits are available to each non-AIM-affiliated
trustee of the Trust and/or the other AIM Funds (each, a "Covered Fund") who has
at least five years of credited service as a trustee (including service to a
predecessor fund) for a Covered Fund. The retirement benefits will equal 75% of
the trustee's annual retainer paid or accrued by any Covered Fund to such
trustee during the twelve-month period prior to retirement, including the amount
of any retainer deferred under a separate deferred compensation agreement
between the Covered Fund and the trustee. The annual retirement benefits are
payable in quarterly installments for a number of years equal to the lesser of
(i) ten or (ii) the number of such trustee's credited years of service. A death
benefit is also available under the plan that provides a surviving spouse with a
quarterly installment of 50% of a deceased trustee's retirement benefits for the
same length of time that the trustee would have received based on his or her
service. A trustee must have attained the age of 65 (55 in the event of death or
disability) to receive any retirement benefit.
Deferred Compensation Agreements
Messrs. Dunn, Fields, Frischling and Sklar and Dr. Mathai-Davis (for
purposes of this paragraph only, the "Deferring Trustees") have each executed a
Deferred Compensation Agreement (collectively, the "Compensation Agreements").
Pursuant to the Compensation Agreements, the Deferring Trustees have the option
to elect to defer receipt of up to 100% of their compensation payable by the
Trust, and such amounts are placed into a deferral account. Currently, the
Deferring Trustees have the option to select various AIM Funds in which all or
part of their deferral accounts shall be deemed to be invested. Distributions
from the Deferring Trustees' deferral accounts will be paid in cash, generally
in equal quarterly installments over a period of up to ten (10) years (depending
on the Compensation Agreement) beginning on the date selected under the
Compensation Agreement. The Trust's Board of Trustees, in its sole discretion,
may accelerate or extend the distribution of such deferral accounts after the
Deferring Trustee's retirement benefits commence under the Plan. The Board, in
its sole discretion, also may accelerate or extend the distribution of such
deferral accounts after the Deferring Trustee's termination of service as a
trustee of the Trust. If a Deferring Trustee dies prior to the distribution of
amounts in his or her deferral account, the balance of the deferral account will
be distributed to his or her designated beneficiary. The Compensation Agreements
are not funded and, with respect to the payments of amounts held in the deferral
accounts, the Deferring Trustees have the status of unsecured creditors of the
Trust and of each other AIM Fund from which they are deferring compensation.
Purchase of Class A Shares of the Funds at Net Asset Value
The trustees and other affiliated persons of the Trust may purchase
Class A shares of the Funds without paying an initial sales charge. A I M
Distributors, Inc. ("AIM Distributors")permits such purchases because there is a
reduced sales effort involved in sales to such purchasers, thereby resulting in
relatively low expenses of distribution. For a complete description of the
persons who will not pay an initial sales charge on purchases of Class A shares
of the Funds, see "Purchase, Redemption and Pricing of Shares - Purchase and
Redemption of Shares - Purchases of Class A Shares and AIM Cash Reserve Shares
of AIM Money Market Fund - Purchases of Class A Shares at Net Asset Value."
CODES OF ETHICS
AIM, the Trust, AIM Distributors, INVESCO Global Asset Management
(N.A.), Inc. and INVESCO Institutional (N.A.), Inc. have each adopted a Code of
Ethics governing, as applicable, personal trading activities of all
directors/trustees, officers of the Trust, persons who, in connection with their
regular functions, play a role in the recommendation of any purchase or sale of
a security by any of the Funds or obtain information pertaining to such purchase
or sale, and certain other employees. The Codes of Ethics are intended to
prohibit conflicts of interest with the Trust that may arise from personal
trading. Personal trading, including personal trading involving securities that
may be purchased or held by a Fund, is permitted by persons covered under the
relevant Codes subject to certain restrictions; however those persons are
generally required to pre-clear all security transactions with the Compliance
Officer or his designee and to report all transactions on a regular basis.
27
PROXY VOTING POLICIES
The Board of Trustees of the Trust has delegated responsibility for
decisions regarding proxy voting for securities held by each Fund to the Fund's
investment Sub-Advisor. The investment Sub-Advisor will vote such proxies in
accordance with its proxy policies and procedures, which have been reviewed by
the Board of Trustees, and which are found in Appendix D.
Any material changes to the proxy policies and procedures will be
submitted to the Board of Trustees of the Trust for approval. The Board of
Trustees will be supplied with a summary quarterly report of each Fund's proxy
voting record.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
Information about the ownership of each class of each Fund's shares by
beneficial or record owners of such Fund and by trustees and officers as a group
is found in Appendix E. A shareholder who owns beneficially 25% or more of the
outstanding shares of a Fund is presumed to "control" that Fund.
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISOR
AIM, the Funds' investment advisor, was organized in 1976, and along
with its subsidiaries, manages or advises over 190 investment portfolios
encompassing a broad range of investment objectives. AIM is a direct, wholly
owned subsidiary of AIM Management, a holding company that has been engaged in
the financial services business since 1976. AIM Management is an indirect,
wholly owned subsidiary of AMVESCAP PLC. AMVESCAP PLC and its subsidiaries are
an independent global investment management group. Certain of the directors and
officers of AIM are also executive officers of the Trust and their affiliations
are shown under "Management Information" herein.
As investment advisor, AIM supervises all aspects of the Funds'
operations and provides investment advisory services to the Funds. AIM obtains
and evaluates economic, statistical and financial information to formulate and
implement investment programs for the Funds. The Investment Advisory Agreement
provides that, in fulfilling its responsibilities, AIM may engage the services
of other investment managers with respect to one or more of the Funds. The
investment advisory services of AIM and the investment sub-advisory services of
the sub-advisors to the Funds are not exclusive and AIM and sub-advisors are
free to render investment advisory services to others, including other
investment companies.
AIM is also responsible for furnishing to the Funds, at AIM's expense,
the services of persons believed to be competent to perform all supervisory and
administrative services required by the Funds, in the judgment of the trustees,
to conduct their respective businesses effectively, as well as the offices,
equipment and other facilities necessary for their operations. Such functions
include the maintenance of the Fund's accounts and records, and the preparation
of all requisite corporate documents such as tax returns and reports to the SEC
and shareholders.
The Master Investment Advisory Agreement provides that each Fund will
pay or cause to be paid all expenses of such Fund not assumed by AIM, including,
without limitation: brokerage commissions, taxes, legal, auditing or
governmental fees, the cost of preparing share certificates, custodian, transfer
and shareholder service agent costs, expenses of issue, sale, redemption, and
repurchase of shares, expenses of registering and qualifying shares for sale,
expenses relating to trustee and shareholder meetings, the cost of preparing and
distributing reports and notices to shareholders, the fees and other expenses
incurred by the Trust on behalf of each Fund in connection with membership in
investment company organizations, and the cost of printing copies of
prospectuses and statements of additional information distributed to the Funds'
shareholders.
28
AIM, at its own expense, furnishes to the Trust office space and
facilities. AIM furnishes to the Trust all personnel for managing the affairs of
the Trust and each of its series of shares.
Pursuant to its advisory agreement with the Trust, AIM receives a
monthly fee from each Fund calculated at the following annual rates, based on
the average daily net assets of each Fund during the year:
- -----------------------------------------------------------------
FUND NAME NET ASSETS ANNUAL RATE
- -----------------------------------------------------------------
AIM International Core Equity Fund All Assets 1.00%
- -----------------------------------------------------------------
AIM Real Estate Fund All Assets 0.90%
- -----------------------------------------------------------------
AIM may from time to time waive or reduce its fee. Voluntary fee
waivers or reductions may be rescinded at any time without further notice to
investors. During periods of voluntary fee waivers or reductions, AIM will
retain its ability to be reimbursed for such fee prior to the end of each fiscal
year. Contractual fee waivers or reductions set forth in the Fee Table in a
Prospectus may not be terminated or amended to the Funds' detriment during the
period stated in the agreement between AIM and the Fund.
AIM has voluntarily agreed to waive a portion of advisory fees payable
by each Fund. The amount of the waiver will equal 25% of the advisory fee AIM
receives from the Affiliated Money Market Funds as a result of each Fund's
investment of uninvested cash in an Affiliated Money Market Fund. Termination of
this agreement requires approval by the Board of Trustees. See "Description of
the Funds and Their Investments and Risks - Investment Strategies and Risks -
Other Investments - Other Investment Companies."
Effective August 4, 1997, AIM became the investment advisor for the
Funds pursuant to an investment advisory agreement with terms substantially
identical to those of the Trust's prior investment advisory contracts with
INVESCO Services, Inc. INVESCO Global Asset Management (N.A.), Inc. is the
sub-advisor for AIM International Core Equity Fund. INVESCO Institutional (N.A.)
Inc. (formerly known as INVESCO, Inc.) is the sub-advisor for AIM Real Estate
Fund.
INVESTMENT SUB-ADVISOR
AIM has entered into Master Sub-Advisory contracts with INVESCO Global
Asset Management (N.A.), Inc. ("IGAM") and INVESCO Institutional (N.A.), Inc.
("INVESCO, Inc.") (each, a "Sub-Advisor"; collectively, the "Sub-Advisors") to
provide investment sub-advisory services to AIM International Core Equity Fund
and AIM Real Estate Fund, respectively.
IGAM is registered as an investment advisor under the Investment
Advisers Act of 1940, as amended (the "Advisers Act"). IGAM provides investment
supervisory services on both discretionary and non-discretionary bases to
pension and profit sharing plans, endowments and educational institutions,
investment companies, insurance companies, and individuals and personal holding
companies.
INVESCO, Inc. is registered as an investment advisor under the Advisers
Act. INVESCO, Inc. believes it has one of the nation's largest discretionary
portfolios of tax-exempt accounts (such as pension and profit sharing funds for
corporations and state and local governments). Funds are supervised by
investment managers who utilize INVESCO, Inc.'s facilities for investment
research and analysis, review of current economic conditions and trends, and
consideration of long-range investment policy matters.
AIM, INVESCO, Inc. and IGAM are indirect wholly owned subsidiaries of
AMVESCAP (formerly, AMVESCO PLC and INVESCO PLC).
29
For the services to be rendered by IGAM and INVESCO, Inc. under their
respective Master Sub-Advisory Contracts, the Advisor will pay to each
Sub-Advisor a fee which will be computed daily and paid as of the last day of
each month on the basis of each Fund's daily net asset value, using for each
daily calculation the most recently determined net asset value of the Fund. (See
"Computation of Net Asset Value.") On an annual basis, the sub-advisory fee is
equal to 0.40% of the Advisor's compensation of the sub-advised assets per year,
for each of the AIM International Core Equity Fund and AIM Real Estate Fund.
The management fees payable by each Fund, the amounts waived by AIM and
the net fees paid by each Fund for the last four fiscal periods are found in
Appendix F.
SECURITIES LENDING ARRANGEMENTS. If a Fund engages in securities
lending, AIM will provide the Fund investment advisory services and related
administrative services. The advisory agreement describes the administrative
services to be rendered by AIM if a Fund engages in securities lending
activities, as well as the compensation AIM may receive for such administrative
services. Services to be provided include: (a) overseeing participation in the
securities lending program to ensure compliance with all applicable regulatory
and investment guidelines; (b) assisting the securities lending agent or
principal (the "agent") in determining which specific securities are available
for loan; (c) monitoring the agent to ensure that securities loans are effected
in accordance with AIM's instructions and with procedures adopted by the Board;
(d) preparing appropriate periodic reports for, and seeking appropriate
approvals from, the Board with respect to securities lending activities; (e)
responding to agent inquiries; and (f) performing such other duties as may be
necessary.
AIM's compensation for advisory services rendered in connection with
securities lending is included in the advisory fee schedule. As compensation for
the related administrative services AIM will provide, a lending Fund will pay
AIM a fee equal to 25% of the net monthly interest or fee income retained or
paid to the Fund from such activities. AIM currently intends to waive such fee,
and has agreed to seek Board approval prior to its receipt of all or a portion
of such fee.
SERVICE AGREEMENTS
ADMINISTRATIVE SERVICES AGREEMENT. AIM and the Trust have entered into
a Master Administrative Services Agreement ("Administrative Services Agreement")
pursuant to which AIM may perform or arrange for the provision of certain
accounting and other administrative services to each Fund which are not required
to be performed by AIM under the advisory agreement. The Administrative Services
Agreement provides that it will remain in effect and continue from year to year
only if such continuance is specifically approved at least annually by the
Trust's Board of Trustees, including the independent trustees, by votes cast in
person at a meeting called for such purpose. Under the Administrative Services
Agreement, AIM is entitled to receive from the Funds reimbursement of its costs
or such reasonable compensation as may be approved by the Board of Trustees.
Currently, AIM is reimbursed for the services of the Trust's principal financial
officer and her staff, and any expenses related to fund accounting services.
Administrative services fees paid to AIM by each Fund for the last four
fiscal periods are found in Appendix G.
OTHER SERVICE PROVIDERS
TRANSFER AGENT. A I M Fund Services, Inc. ("AFS"), 11 Greenway Plaza,
Suite 100, Houston, Texas 77046, a registered transfer agent and wholly owned
subsidiary of AIM, acts as transfer and dividend disbursing agent for the Funds.
The Transfer Agency and Service Agreement between the Trust and AFS
provides that AFS will perform certain shareholder services for the Funds. The
Transfer Agency and Service Agreement provides that AFS will receive a per
account fee plus out-of-pocket expenses to process orders for purchases,
redemptions and exchanges of shares; prepare and transmit payments for dividends
and
30
distributions declared by the Funds; maintain shareholder accounts and provide
shareholders with information regarding the Funds and their accounts. AFS may
impose certain copying charges for requests for copies of shareholder account
statements and other historical account information older than the current year
and the immediately preceding year.
In addition, Merrill Lynch, Pierce, Fenner & Smith Incorporated
("MLPF&S"), 800 Scudders Mill Road, Plainsboro, New Jersey 08536 has entered
into an agreement with the Trust (and certain other AIM Funds), PFPC Inc.
(formerly known as First Data Investor Service Group) and Financial Data
Services, Inc., pursuant to which MLPF&S is paid a per account fee to perform
certain shareholder sub-accounting services for its customers who beneficially
own shares of the Fund(s).
Primerica Shareholder Services, Inc. ("PSS"), 3120 Breckinridge
Boulevard, Duluth, Georgia 30099-0001 has also entered into an agreement with
the Trust (and certain other AIM Funds) and AFS pursuant to which PSS is paid a
per account fee to perform certain shareholder sub-accounting services for its
customers who beneficially own shares of the Fund(s).
CUSTODIANS. State Street Bank and Trust Company (the "Custodian"), 225
Franklin Street, Boston, Massachusetts 02110, is custodian of all securities and
cash of the Funds. Chase Bank of Texas, N.A., 712 Main, Houston, Texas 77002,
serves as sub-custodian for retail purchases. The Bank of New York, 100 Church
Street, New York, New York 10286, also serves as sub-custodian to facilitate
cash management.
The Custodian is authorized to establish separate accounts in foreign
countries and to cause foreign securities owned by the Funds to be held outside
the United States in branches of U.S. banks and, to the extent permitted by
applicable regulations, in certain foreign banks and securities depositories.
AIM is responsible for selecting eligible foreign securities depositories and
for assessing the risks associated with investing in foreign countries,
including the risk of using eligible foreign securities depositories in a
country; the Custodian is responsible for monitoring eligible foreign securities
depositories.
Under its contract with the Trust, the Custodian maintains the
portfolio securities of the Funds, administers the purchases and sales of
portfolio securities, collects interest and dividends and other distributions
made on the securities held in the portfolios of the Funds and performs other
ministerial duties. These services do not include any supervisory function over
management or provide any protection against any possible depreciation of
assets.
AUDITORS. The Funds' independent public accountants are responsible for
auditing the financial statements of the Funds. The Board of Trustees has
selected Ernst & Young LLP, 5 Houston Center, 1401 McKinney, Suite 1200,
Houston, Texas 77010-4035, as the independent public accountants to audit the
financial statements of the Funds.
COUNSEL TO THE TRUST. Legal matters for the Trust have been passed upon
by Ballard Spahr Andrews & Ingersoll, LLP, 1735 Market Street, Philadelphia,
Pennsylvania 19103-7599.
BROKERAGE ALLOCATION AND OTHER PRACTICES
Each Sub-Advisor has adopted compliance procedures that cover, among
other items, brokerage allocation and other trading practices. Unless
specifically noted, each Sub-Advisor's procedures do not materially differ from
AIM's procedures as set forth below.
BROKERAGE TRANSACTIONS
AIM or the Sub-Advisors make decisions to buy and sell securities for
each Fund, selects broker-dealers, effects the Funds' investment portfolio
transactions, allocates brokerage fees in such transactions and, where
applicable, negotiates commissions and spreads on transactions. AIM's primary
31
consideration in effecting a security transaction is to obtain the most
favorable execution of the order, which includes the best price on the security
and a low commission rate. While AIM seeks reasonably competitive commission
rates, the Funds may not pay the lowest commission or spread available. See
"Brokerage Selection" below.
Some of the securities in which the Funds invest are traded in
over-the-counter markets. Portfolio transactions placed in such markets may be
effected at either net prices without commissions, but which include
compensation to the broker-dealer in the form of a mark up or mark down, or on
an agency basis, which involves the payment of negotiated brokerage commissions
to the broker-dealer, including electronic communication networks.
Traditionally, commission rates have not been negotiated on stock
markets outside the United States. Although in recent years many overseas stock
markets have adopted a system of negotiated rates, a number of markets maintain
an established schedule of minimum commission rates.
Brokerage commissions paid by each of the Funds during the last four
fiscal periods are found in Appendix H.
COMMISSIONS
During the last four fiscal periods, neither of the Funds paid
brokerage commissions to brokers affiliated with the Funds, AIM, AIM
Distributors, or any affiliates of such entities.
The Funds may engage in certain principal and agency transactions with
banks and their affiliates that own 5% or more of the outstanding voting
securities of an AIM Fund, provided the conditions of an exemptive order
received by the AIM Funds from the SEC are met. In addition, a Fund may purchase
or sell a security from or to another AIM Fund or account (and may invest in
Affiliated Money Market Funds) provided the Funds follow procedures adopted by
the Boards of Directors/Trustees of the various AIM Funds, including the Trust.
These inter-fund transactions do not generate brokerage commissions but may
result in custodial fees or taxes or other related expenses.
BROKERAGE SELECTION
Section 28(e) of the Securities Exchange Act of 1934 provides that AIM,
under certain circumstances, lawfully may cause an account to pay a higher
commission than the lowest available. Under Section 28(e)(1), AIM must make a
good faith determination that the commissions paid are "reasonable in relation
to the value of the brokerage and research services provided ... viewed in terms
of either that particular transaction or [AIM's] overall responsibilities with
respect to the accounts as to which [it] exercises investment discretion." The
services provided by the broker also must lawfully and appropriately assist AIM
in the performance of its investment decision-making responsibilities.
Accordingly, in recognition of research services provided to it, a Fund may pay
a broker higher commissions than those available from another broker.
Research services received from broker-dealers supplement AIM's own
research (and the research of its affiliates), and may include the following
types of information: statistical and background information on the U.S. and
foreign economies, industry groups and individual companies; forecasts and
interpretations with respect to the U.S. and foreign economies, securities,
markets, specific industry groups and individual companies; information on
federal, state, local and foreign political developments; portfolio management
strategies; performance information on securities, indexes and investment
accounts; information concerning prices of securities; and information supplied
by specialized services to AIM and to the Trust's trustees with respect to the
performance, investment activities, and fees and expenses of other mutual funds.
Broker-dealers may communicate such information electronically, orally, in
written form or on computer software. Research services may also include the
providing of electronic communication of trade information and the providing of
custody services, as well as the providing of equipment used to communicate
research information, the providing of specialized consultations with AIM
personnel with respect to computerized systems and data furnished to AIM as a
component of other
32
research services, the arranging of meetings with management of companies, and
the providing of access to consultants who supply research information.
The outside research assistance is useful to AIM since the
broker-dealers used by AIM tend to follow a broader universe of securities and
other matters than AIM's staff can follow. In addition, the research provides
AIM with a diverse perspective on financial markets. Research services provided
to AIM by broker-dealers are available for the benefit of all accounts managed
or advised by AIM or by its affiliates. Some broker-dealers may indicate that
the provision of research services is dependent upon the generation of certain
specified levels of commissions and underwriting concessions by AIM's clients,
including the Funds. However, the Funds are not under any obligation to deal
with any broker-dealer in the execution of transactions in portfolio securities.
In some cases, the research services are available only from the
broker-dealer providing them. In other cases, the research services may be
obtainable from alternative sources in return for cash payments. AIM believes
that the research services are beneficial in supplementing AIM's research and
analysis and that they improve the quality of AIM's investment advice. The
advisory fee paid by the Funds is not reduced because AIM receives such
services. However, to the extent that AIM would have purchased research services
had they not been provided by broker-dealers, the expenses to AIM could be
considered to have been reduced accordingly.
AIM may determine target levels of brokerage business with various
brokers on behalf of its clients (including the Funds) over a certain time
period. The target levels will be based upon the following factors, among
others: (1) the execution services provided by the broker; (2) the research
services provided by the broker; and (3) the broker's interest in mutual funds
in general and in the Funds and other mutual funds advised by AIM or A I M
Capital Management, Inc. (collectively, the "AIM Funds") in particular,
including sales of the Funds and of the other AIM Funds. In connection with (3)
above, the Funds' trades may be executed directly by dealers that sell shares of
the AIM Funds or by other broker-dealers with which such dealers have clearing
arrangements, consistent with obtaining best execution. AIM will not enter into
a binding commitment with brokers to place trades with such brokers involving
brokerage commissions in precise amounts.
DIRECTED BROKERAGE (RESEARCH SERVICES)
Directed brokerage (research services) paid by each of the Funds during
the last fiscal year ended July 31, 2002 are found in Appendix I.
REGULAR BROKERS OR DEALERS
Information concerning the Funds' acquisition of securities of their
regular brokers or dealers during the last fiscal year ended July 31, 2002 is
found in Appendix I.
ALLOCATION OF PORTFOLIO TRANSACTIONS
AIM and its affiliates manage numerous other investment accounts. Some
of these accounts may have investment objectives similar to the Funds.
Occasionally, identical securities will be appropriate for investment by one of
the Funds and by another Fund or one or more of these investment accounts.
However, the position of each account in the same securities and the length of
time that each account may hold its investment in the same securities may vary.
The timing and amount of purchase by each account will also be determined by its
cash position. If the purchase or sale of securities is consistent with the
investment policies of the Fund(s) and one or more of these accounts, and is
considered at or about the same time, AIM will fairly allocate transactions in
such securities among the Fund(s) and these accounts. AIM may combine such
transactions, in accordance with applicable laws and regulations, to obtain the
most favorable execution. Simultaneous transactions could, however, adversely
affect a Fund's ability to obtain or dispose of the full amount of a security
which it seeks to purchase or sell.
33
Sometimes the procedure for allocating portfolio transactions among the
various investment accounts advised by AIM results in transactions which could
have an adverse effect on the price or amount of securities available to a Fund.
In making such allocations, AIM considers the investment objectives and policies
of its advisory clients, the relative size of portfolio holdings of the same or
comparable securities, the availability of cash for investment, the size of
investment commitments generally held, and the judgments of the persons
responsible for recommending the investment. This procedure would apply to
transactions in both equity and fixed income securities.
ALLOCATION OF INITIAL PUBLIC OFFERING ("IPO") TRANSACTIONS
On occasion, when the Sub-Advisor is purchasing certain thinly-traded
securities or shares in an initial public offering for the Funds or other
clients, the situation may arise that the Sub-Advisor is unable to obtain
sufficient securities to fill the orders of the Funds or all other relevant
clients. In that situation, the Sub-Advisor is required to use pro-rata
allocation methods that ensure the fair and equitable treatment of all clients.
(Such methods may include, for example, pro-rata allocation on each relevant
trade, or "rotational" allocation).
The requirement of pro-rata allocation is subject to limited exceptions
- - such as when the Funds or accounts are subject to special investment
objectives or size constraints on investment positions.
PURCHASE, REDEMPTION AND PRICING OF SHARES
PURCHASE AND REDEMPTION OF SHARES
Purchases of Class A Shares, Class A3 Shares of AIM Limited Maturity Treasury
Fund and AIM Tax-Free Intermediate Fund and AIM Cash Reserve Shares of AIM Money
Market Fund
INITIAL SALES CHARGES. Each AIM Fund (other than AIM Tax-Exempt Cash
Fund and AIM Money Market Fund) is grouped into one of three categories to
determine the applicable initial sales charge for its Class A Shares. The sales
charge is used to compensate AIM Distributors and participating dealers for
their expenses incurred in connection with the distribution of the Funds'
shares. You may also be charged a transaction or other fee by the financial
institution managing your account.
Class A shares of AIM Tax-Exempt Cash Fund, Class A3 Shares of AIM
Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund and AIM Cash
Reserve Shares of AIM Money Market Fund are sold without an initial sales
charge.
CATEGORY I FUNDS
AIM Aggressive Growth Fund AIM International Core Equity Fund
AIM Asia Pacific Growth Fund
AIM Basic Value Fund AIM Large Cap Basic Value Fund
AIM Blue Chip Fund AIM Large Cap Growth Fund
AIM Capital Development Fund AIM Libra Fund
AIM Charter Fund AIM Mid Cap Basic Value Fund
AIM Constellation Fund AIM Mid Cap Core Equity Fund
AIM Dent Demographic Trends Fund AIM Mid Cap Growth Fund
AIM Diversified Dividend Fund AIM New Technology Fund
AIM Emerging Growth Fund AIM Opportunities I Fund
AIM European Growth Fund AIM Opportunities II Fund
AIM European Small Company Fund AIM Opportunities III Fund
AIM Global Utilities Fund AIM Premier Equity Fund
AIM Global Value Fund AIM Premier Equity II Fund
AIM International Emerging Growth Fund AIM Select Equity Fund
AIM International Growth Fund AIM Small Cap Equity Fund
AIM Small Cap Growth Fund
AIM Weingarten Fund
34
Dealer
Investor's Sales Charge Concession
----------------------- -------------
As a As a As a
Percentage Percentage Percentage
of the Public of the Net of the Public
Amount of Investment in Offering Amount Offering
Single Transaction(1) Price Invested Price
------------------------- ------------- ---------- -------------
Less than $ 25,000 5.50% 5.82% 4.75%
$ 25,000 but less than $ 50,000 5.25 5.54 4.50
$ 50,000 but less than $ 100,000 4.75 4.99 4.00
$ 100,000 but less than $ 250,000 3.75 3.90 3.00
$ 250,000 but less than $ 500,000 3.00 3.09 2.50
$ 500,000 but less than $ 1,000,000 2.00 2.04 1.60
(1) AIM Opportunities I Fund will not accept any single purchase in excess of
$250,000.
CATEGORY II FUNDS
AIM Balanced Fund AIM Global Trends Fund
AIM Basic Balanced Fund AIM High Income Municipal Fund
AIM Developing Markets Fund AIM High Yield Fund
AIM Global Aggressive Growth Fund AIM Income Fund
AIM Global Energy Fund AIM Intermediate Government Fund
AIM Global Financial Services Fund AIM Municipal Bond Fund
AIM Global Growth Fund AIM Real Estate Fund
AIM Global Health Care Fund AIM Total Return Bond Fund
AIM Global Science and Technology
Fund
Dealer
Investor's Sales Charge Concession
-------------------------- ----------
As a As a As a
Percentage Percentage Percentage
of the Public of the Net of the Public
Amount of Investment in Offering Amount Offering
Single Transaction Price Invested Price
---------------------- ------------- ---------- -------------
Less than $ 50,000 4.75% 4.99% 4.00%
$ 50,000 but less than $ 100,000 4.00 4.17 3.25
$100,000 but less than $ 250,000 3.75 3.90 3.00
$250,000 but less than $ 500,000 2.50 2.56 2.00
$500,000 but less than $1,000,000 2.00 2.04 1.60
CATEGORY III FUNDS
AIM Limited Maturity Treasury Fund
AIM Tax-Free Intermediate Fund
35
Dealer
Investor's Sales Charge Concession
------------------------- -------------
As a As a As a
Percentage Percentage Percentage
of the Public of the Net of the Public
Amount of Investment in Offering Amount Offering
Single Transaction Price Invested Price
------------------ ------------- ---------- -------------
Less than $ 100,000 1.00% 1.01% 0.75%
$100,000 but less than $ 250,000 0.75 0.76 0.50
$250,000 but less than $1,000,000 0.50 0.50 0.40
Beginning on October 31, 2002 Class A shares of AIM Limited Maturity
Treasury Fund and AIM Tax-Free Intermediate Fund was closed to new investors.
Current investors must maintain a share balance in order to continue to make
incremental purchases.
LARGE PURCHASES OF CLASS A SHARES. Investors who purchase $1,000,000 or
more of Class A Shares of a Category I, II or III Fund do not pay an initial
sales charge. In addition, investors who currently own Class A shares of
Category I, II, or III Funds and make additional purchases that result in
account balances of $1,000,000 or more do not pay an initial sales charge on the
additional purchases. The additional purchases, as well as initial purchases of
$1,000,000 or more, are referred to as Large Purchases. If an investor makes a
Large Purchase of Class A shares of a Category I or II Fund, however, the shares
generally will be subject to a 1.00% contingent deferred sales charge ("CDSC")
if the investor redeems those shares within 18 months after purchase. Large
Purchases of Class A shares of Category III Funds made on or after November 15,
2001 and through October 30, 2002 will be subject to a 0.25% CDSC if the
investor redeems those shares within 12 months after purchase.
AIM Distributors may pay a dealer concession and/or advance a service
fee on Large Purchases, as set forth below. Exchanges between the AIM Funds may
affect total compensation paid.
AIM Distributors may make the following payments to dealers of record
for Large Purchases of Class A shares of Category I or II Funds by investors
other than (i) retirement plans that are maintained pursuant to Sections 401 and
457 of the Internal Revenue Code of 1986, as amended (the Code), and (ii)
retirement plans that are maintained pursuant to Section 403 of the Code if the
employer or plan sponsor is a tax-exempt organization operated pursuant to
Section 501(c)(3) of the Code:
PERCENT OF PURCHASES
1% of the first $2 million
plus 0.80% of the next $1 million
plus 0.50% of the next $17 million
plus 0.25% of amounts in excess of $20 million
If (i) the amount of any single purchase order plus (ii) the net asset
value of all other shares owned by the same customer submitting the purchase
order on the day on which the purchase order is received equals or exceeds
$1,000,000, the purchase will be considered a "jumbo accumulation purchase."
With regard to any individual jumbo accumulation purchase, AIM Distributors may
make payment to the dealer of record based on the cumulative total of jumbo
accumulation purchases made by the same customer over the life of his or her
account(s).
36
If an investor made a Large Purchase of Class A shares of a Category
III Fund on and after November 15, 2001 and through October 30, 2002, and
exchanges those shares for Class A shares of a Category I or II Fund, AIM
Distributors will pay an additional dealer concession of 0.75% upon exchange.
If an investor makes a Large Purchase of Class A shares of a Category I
or II Fund on and after November 15, 2001 and exchanges those shares for Class A
shares of a Category III Fund, AIM Distributors will not pay any additional
dealer compensation upon the exchange. Beginning February 17, 2003, Class A
shares of a Category 1 or 11 Fund may not be exchanged for Class A shares of a
Category III Fund.
If an investor makes a Large Purchase of Class A3 shares of a Category
III Fund on and after October 31, 2002 and exchanges those shares for Class A
shares of a Category I or II Fund, AIM Distributors will pay 1.00% of such
purchase as dealer compensation upon the exchange. The Class A shares of the
Category I or II Fund received in exchange generally will be subject to a 1.00%
CDSC if the investor redeems such shares within 18 months from the date of
exchange.
If an investor makes a Large Purchase of Class A shares of a Category
III Fund and exchanges those shares for Class A shares of another Category III
Fund, AIM Distributors will not pay any additional dealer concession upon the
exchange. Beginning on February 17, 2003, Class A shares of a Category III Fund
may not be exchanged for Class A shares of another Category III Fund.
PURCHASES OF CLASS A SHARES BY CERTAIN RETIREMENT PLANS AT NAV.
Effective November 1, 2002, for purchases of Class A shares of Category I and II
Funds, AIM Distributors may make the following payments to investment dealers or
other financial service firms for sales of such shares at net asset value
("NAV") to certain retirement plans provided that the applicable dealer of
record is able to establish that the retirement plan's purchase of Class A
shares is a new investment (as defined below):
PERCENT OF PURCHASE
0.50% of the first $20 million
plus 0.25% of amounts in excess of $20 million
This payment schedule will be applicable to purchases of Class A shares
at NAV by the following types of retirement plans: (i) all plans maintained
pursuant to Sections 401 and 457 of the Code, and (ii) plans maintained pursuant
to Section 403 of the Code if the employer or plan sponsor is a tax-exempt
organization operated pursuant to Section 501(c)(3) of the Code.
A "new investment" means a purchase paid for with money that does not
represent (i) the proceeds of one or more redemptions of AIM Fund shares, (ii)
an exchange of AIM Fund shares, or (iii) the repayment of one or more retirement
plan loans that were funded through the redemption of AIM Fund shares. If AIM
Distributors pays a dealer concession in connection with a plan's purchase of
Class A shares at NAV, such shares may be subject to a CDSC of 1.00% of net
assets for 12 months, commencing on the date the plan first invests in Class A
shares of an AIM Fund. If the applicable dealer of record is unable to establish
that a plan's purchase of Class A shares at NAV is a new investment, AIM
Distributors will not pay a dealer concession in connection with such purchase
and such shares will not be subject to a CDSC.
With regard to any individual jumbo accumulation purchase, AIM
Distributors may make payment to the dealer of record based on the cumulative
total of jumbo accumulation purchases made by the same plan over the life of the
plan's account(s).
PURCHASERS QUALIFYING FOR REDUCTIONS IN INITIAL SALES CHARGES. As shown
in the tables above, purchases of certain amounts of AIM Fund shares may reduce
the initial sales charges. These
37
reductions are available to purchasers that meet the qualifications listed
below. We will refer to purchasers that meet these qualifications as "Qualified
Purchasers."
INDIVIDUALS
- an individual (including his or her spouse or domestic partner,
and children);
- any trust established exclusively for the benefit of an
individual;
- a retirement plan established exclusively for the benefit of an
individual, specifically including, but not limited to, a
Traditional IRA, Roth IRA, SEP IRA, SIMPLE IRA, Solo 401(k), Keogh
plan, or a tax-sheltered 403(b)(7) custodial account; and
- a qualified tuition plan account, maintained pursuant to Section
529 of the Code, or a Coverdell Education Savings Account,
maintained pursuant to Section 530 of the Code (in either case,
the account must be established by an individual or have an
individual named as the beneficiary thereof).
EMPLOYER-SPONSORED RETIREMENT PLANS
- a retirement plan maintained pursuant to Sections 401, 403 (only
if the employer or plan sponsor is a tax-exempt organization
operated pursuant to Section 501(c)(3) of the Code), 408 (includes
SEP, SARSEP and SIMPLE IRA plans) or 457 of the Code, if:
a. the employer or plan sponsor submits all contributions for all
participating employees in a single contribution transmittal
(the AIM Funds will not accept separate contributions
submitted with respect to individual participants);
b. each transmittal is accompanied by a single check or wire
transfer; and
c. if the AIM Funds are expected to carry separate accounts in
the names of each of the plan participants, (i) the employer
or plan sponsor notifies AIM Distributors in writing that the
separate accounts of all plan participants should be linked,
and (ii) all new participant accounts are established by
submitting an appropriate Account Application on behalf of
each new participant with the contribution transmittal.
TRUSTEES AND FIDUCIARIES
- a trustee or fiduciary purchasing for a single trust, estate or
fiduciary account.
OTHER GROUPS
- any organized group of persons, whether incorporated or not,
purchasing AIM Fund shares through a single account, provided
that:
a. the organization has been in existence for at least six
months; and
b. the organization has some purpose other than the purchase at a
discount of redeemable securities of a registered investment
company.
HOW TO QUALIFY FOR REDUCTIONS IN INITIAL SALES CHARGES. The following
sections discuss different ways that a Qualified Purchaser can qualify for a
reduction in the initial sales charges for purchases of Class A shares of the
AIM Funds.
38
LETTERS OF INTENT
A Qualified Purchaser may pay reduced initial sales charges by(i)
indicating on the Account Application that he, she or it intends to provide a
Letter of Intent ("LOI"), and (ii) subsequently fulfilling the conditions of
that LOI.
The LOI confirms the total investment in shares of the AIM Funds that
the Qualified Purchaser intends to make within the next 13 months. By marking
the LOI section on the account application and by signing the account
application, the Qualified Purchaser indicates that he, she or it understands
and agrees to the terms of the LOI and is bound by the provisions described
below:
Calculating the Initial Sales Charge
- Each purchase of fund shares normally subject to an initial sales
charge made during the 13-month period will be made at the public
offering price applicable to a single transaction of the total
dollar amount indicated by the LOI (to determine what the
applicable public offering price is, look at the sales charge
table in the section on "Initial Sales Charges" above).
- It is the purchaser's responsibility at the time of purchase to
specify the account numbers that should be considered in
determining the appropriate sales charge.
- The offering price may be further reduced as described below under
"Rights of Accumulation" if the Transfer Agent is advised of all
other accounts at the time of the investment.
- Shares acquired through reinvestment of dividends and capital
gains distributions will not be applied to the LOI.
Calculating the Number of Shares to be Purchased
- Purchases made within 90 days before signing an LOI will be
applied toward completion of the LOI. The LOI effective date will
be the date of the first purchase within the 90-day period.
- Purchases made more than 90 days before signing an LOI will be
applied toward the completion of the LOI based on the value of the
shares purchased that is calculated at the public offering price
on the effective date of the LOI.
- If a purchaser meets the original obligation at any time during
the 13-month period, he or she may revise the intended investment
amount upward by submitting a written and signed request. This
revision will not change the original expiration date.
- The Transfer Agent will process necessary adjustments upon the
expiration or completion date of the LOI.
Fulfilling the Intended Investment
- By signing an LOI, a purchaser is not making a binding commitment
to purchase additional shares, but if purchases made within the
13-month period do not total the amount specified, the purchaser
will have to pay the increased amount of sales charge.
- To assure compliance with the provisions of the 1940 Act, the
Transfer Agent will escrow in the form of shares an appropriate
dollar amount (computed to the nearest full share) out of the
initial purchase (or subsequent purchases if necessary). All
dividends and any capital gain distributions on the escrowed
shares will be credited to the purchaser. All shares purchased,
including those escrowed, will be registered in the purchaser's
name. If the total
39
investment specified under this LOI is completed within the
13-month period, the escrowed shares will be promptly released.
- If the intended investment is not completed, the purchaser will
pay the Transfer Agent the difference between the sales charge on
the specified amount and the sales charge on the amount actually
purchased. If the purchaser does not pay such difference within 20
days of the expiration date, he or she irrevocably constitutes and
appoints the Transfer Agent as his attorney to surrender for
redemption any or all shares, to make up such difference within 60
days of the expiration date.
Canceling the LOI
- If at any time before completing the LOI Program, the purchaser
wishes to cancel the agreement, he or she must give written notice
to AIM Distributors.
- If at any time before completing the LOI Program the purchaser
requests the Transfer Agent to liquidate or transfer beneficial
ownership of his total shares, the LOI will be automatically
canceled. If the total amount purchased is less than the amount
specified in the LOI, the Transfer Agent will redeem an
appropriate number of escrowed shares equal to the difference
between the sales charge actually paid and the sales charge that
would have been paid if the total purchases had been made at a
single time.
Other Persons Eligible for the LOI Privilege
The LOI privilege is also available to holders of the Connecticut
General Guaranteed Account, established for tax qualified group annuities, for
contracts purchased on or before June 30, 1992.
LOIs and Contingent Deferred Sales Charges
If an investor entered into an LOI to purchase $1,000,000 or more of
Class A shares of a Category III Fund on and after November 15, 2001 and through
October 30, 2002, such shares will be subject to a 12-month, 0.25% CDSC.
Purchases of Class A shares of a Category III Fund made pursuant to an LOI to
purchase $1,000,000 or more of shares entered into prior to November 15, 2001 or
after October 30, 2002 will not be subject to this CDSC. All LOIs to purchase
$1,000,000 or more of Class A Shares of Category I and II Funds are subject to
an 18-month, 1% CDSC.
RIGHTS OF ACCUMULATION
A Qualified Purchaser may also qualify for reduced initial sales
charges based upon his, her or its existing investment in shares of any of the
AIM Funds at the time of the proposed purchase. To determine whether or not a
reduced initial sales charge applies to a proposed purchase, AIM Distributors
takes into account not only the money which is invested upon such proposed
purchase, but also the value of all shares of the AIM Funds owned by such
purchaser, calculated at their then current public offering price.
If a purchaser qualifies for a reduced sales charge, the reduced sales
charge applies to the total amount of money being invested, even if only a
portion of that amount exceeds the breakpoint for the reduced sales charge. For
example, if a purchaser already owns qualifying shares of any AIM Fund with a
value of $20,000 and wishes to invest an additional $20,000 in a fund with a
maximum initial sales charge of 5.50%, the reduced initial sales charge of 5.25%
will apply to the full $20,000 purchase and not just to the $15,000 in excess of
the $25,000 breakpoint.
To qualify for obtaining the discount applicable to a particular
purchase, the purchaser or his dealer must furnish the Transfer Agent with a
list of the account numbers and the names in which such accounts of the
purchaser are registered at the time the purchase is made.
40
Rights of Accumulation are also available to holders of the Connecticut
General Guaranteed Account, established for tax-qualified group annuities, for
contract purchased on or before June 30, 1992.
If an investor's new purchase of Class A shares of a Category I or II
Fund is at net asset value, the newly purchased shares will be subject to a CDSC
if the investor redeems them prior to the end of the 18 monthholding period (12
months for Category III Fund shares). For new purchases of Class A shares of
Category III Fundsat net asset value made on and after November 15, 2001 and
through October 30, 2002, the newly purchased shares will be subject to a CDSC
if the investor redeems them prior to the end of the 12 month holding period.
OTHER REQUIREMENTS FOR REDUCTIONS IN INITIAL SALES CHARGES. As
discussed above, investors or dealers seeking to qualify orders for a reduced
initial sales charge must identify such orders and, if necessary, support their
qualification for the reduced charge. AIM Distributors reserves the right to
determine whether any purchaser is entitled to the reduced sales charge based on
the definition of a Qualified Purchaser listed above. No person or entity may
distribute shares of the AIM Funds without payment of the applicable sales
charge other than to Qualified Purchasers.
Purchases of Class A shares of AIM Tax-Exempt Cash Fund, Class A3
shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund,
AIM Cash Reserve Shares of AIM Money Market Fund, Class B and Class C shares of
AIM Floating Rate Fund and Investor Class shares will not be taken into account
in determining whether a purchase qualifies for a reduction in initial sales
charges.
PURCHASES OF CLASS A SHARES AT NET ASSET VALUE. AIM Distributors
permits certain categories of persons to purchase Class A shares of AIM Funds
without paying an initial sales charge. These are typically categories of
persons whose transactions involve little expense, such as:
- Persons who have a relationship with the funds or with AIM and its
affiliates, and are therefore familiar with the funds, and who
place unsolicited orders directly with AIM Distributors; or
- Programs for purchase that involve little expense because of the
size of the transaction and shareholder records required.
AIM Distributors believes that it is appropriate and in the Funds' best
interests that such persons, and certain other persons whose purchases result in
relatively low expenses of distribution, be permitted to purchase shares through
AIM Distributors without payment of a sales charge.
Accordingly, the following purchasers will not pay initial sales
charges on purchases of Class A shares because there is a reduced sales effort
involved in sales to these purchasers:
- AIM Management and its affiliates, or their clients;
- Any current or retired officer, director or employee (and members
of their immediate family) of AIM Management, its affiliates or
The AIM Family of Funds -- Registered Trademark --, and any
foundation, trust or employee benefit plan established exclusively
for the benefit of, or by, such persons;
- Any current or retired officer, director, or employee (and members
of their immediate family) ofDST Systems, Inc. or Personix, a
division of Fiserv Solutions, Inc.;
- Sales representatives and employees (and members of their
immediate family) of selling group members of financial
institutions that have arrangements with such selling group
members;
- Purchases through approved fee-based programs;
41
- Employee sponsored retirement plans that are Qualified Purchasers,
as defined above, provided that:
a. a plan's initial investment is at least $1 million;
b. the employer or plan sponsor signs a $1 million LOI;
c. there are at least 100 employees eligible to participate in
the plan; or
d. all plan transactions are executed through a single omnibus
account per AIM Fund and the financial institution or service
organization has entered into the appropriate agreement with
the distributor; further provided that
e. retirement plans maintained pursuant to Section 403(b) of the
Code are not eligible to purchase shares at NAV based on the
aggregate investment made by the plan or the number of
eligible employees unless the employer or plan sponsor is a
tax-exempt organization operated pursuant to Section 501(c)(3)
of the Code; and
f. purchases of AIM Opportunities I Fund by all retirement plans
are subject to initial sales charges;
- Shareholders of record of Advisor Class shares of AIM
International Growth Fund or AIM Worldwide Growth Fund on February
12, 1999 who have continuously owned shares of the AIM Funds;
- Shareholders of record or discretionary advised clients of any
investment advisor holding shares of AIM Weingarten Fund or AIM
Constellation Fund on September 8, 1986, or of AIM Charter Fund on
November 17, 1986, who have continuously owned shares having a
market value of at least $500 and who purchase additional shares
of the same Fund;
- Unitholders of G/SET series unit investment trusts investing
proceeds from such trusts in shares of AIM Weingarten Fund or AIM
Constellation Fund; provided, however, prior to the termination
date of the trusts, a unitholder may invest proceeds from the
redemption or repurchase of his units only when the investment in
shares of AIM Weingarten Fund and AIM Constellation Fund is
effected within 30 days of the redemption or repurchase;
- A shareholder of a fund that merges or consolidates with an AIM
Fund or that sells its assets to an AIM Fund in exchange for
shares of an AIM Fund;
- Shareholders of the GT Global funds as of April 30, 1987 who since
that date continually have owned shares of one or more of these
funds;
- Certain former AMA Investment Advisers' shareholders who became
shareholders of the AIM Global Health Care Fund in October 1989,
and who have continuously held shares in the GT Global funds since
that time;
- Shareholders of record of Advisor Class shares of an AIM Fund on
February 11, 2000 who have continuously owned shares of that AIM
Fund, and who purchase additional shares of that AIM Fund;
- Shareholders of Investor Class shares of an AIM Fund;
- Qualified Tuition Programs created and maintained in accordance
with Section 529 of the Code; and
42
- Initial purchases made by Qualified Purchasers, as defined above,
within one (1) year after the registered representative who
services their account(s) has become affiliated with a selling
group member with which AIM Distributors has entered into a
written agreement; and
- Participants in select brokerage programs for retirement plans and
rollover IRAs who purchase shares through an electronic brokerage
platform offered by entities with which AIM Distributors has
entered into a written agreement.
As used above, immediate family includes an individual and his or her
spouse or domestic partner, children, parents and parents of spouse or domestic
partner.
In addition, an investor may acquire shares of any of the AIM Funds at
net asset value in connection with:
- the reinvestment of dividends and distributions from a Fund;
- exchanges of shares of certain Funds;
- use of the reinstatement privilege; or
- a merger, consolidation or acquisition of assets of a Fund.
PAYMENTS TO DEALERS. AIM Distributors may elect to re-allow the entire
initial sales charge to dealers for all sales with respect to which orders are
placed with AIM Distributors during a particular period. Dealers to whom
substantially the entire sales charge is re-allowed may be deemed to be
"underwriters" as that term is defined under the 1933 Act.
In addition to, or instead of, amounts paid to dealers as a sales
commission, AIM Distributors may, from time to time, at its expense or as an
expense for which it may be compensated under a distribution plan, if
applicable, pay a bonus or other consideration or incentive to dealers. The
total amount of such additional bonus payments or other consideration shall not
exceed 0.25% of the public offering price of the shares sold or of average daily
net assets of the AIM Fund attributable to that particular dealer. At the option
of the dealer, such incentives may take the form of payment for travel expenses,
including lodging, incurred in connection with trips taken by qualifying
registered representatives and their families to places within or outside the
United States. Any such bonus or incentive programs will not change the price
paid by investors for the purchase of the applicable AIM Fund's shares or the
amount that any particular AIM Fund will receive as proceeds from such sales.
Dealers may not use sales of the AIM Funds' shares to qualify for any incentives
to the extent that such incentives may be prohibited by the laws of any state.
Purchases of Class B Shares
Class B shares are sold at net asset value, and are not subject to an
initial sales charge. Instead, investors may pay a CDSC if they redeem their
shares within six years after purchase. See the Prospectus for additional
information regarding contingent deferred sales charges. AIM Distributors may
pay sales commissions to dealers and institutions who sell Class B shares of the
AIM Funds at the time of such sales. Payments will equal 4.00% of the purchase
price and will consist of a sales commission equal to 3.75% plus an advance of
the first year service fee of 0.25%.
Purchases of Class C Shares
Class C shares are sold at net asset value, and are not subject to an
initial sales charge. Instead, investors may pay a CDSC if they redeem their
shares within the first year after purchase (no CDSC applies to Class C shares
of AIM Short Term Bond Fund unless you exchange shares of another
43
AIM Fund that are subject to a CDSC into AIM Short Term Bond Fund. See the
Prospectus for additional information regarding this CDSC. AIM Distributors may
pay sales commissions to dealers and institutions who sell Class C shares of the
AIM Funds (except for Class C shares of AIM Short Term Bond Fund) at the time of
such sales. Payments will equal 1.00% of the purchase price and will consist of
a sales commission of 0.75% plus an advance of the first year service fee of
0.25%. These commissions are not paid on sales to investors exempt from the
CDSC, including shareholders of record of AIM Advisor Funds, Inc. on April 30,
1995, who purchase additional shares in any of the Funds on or after May 1,
1995, and in circumstances where AIM Distributors grants an exemption on
particular transactions.
AIM Distributors may pay dealers and institutions who sell Class C
shares of AIM Short Term Bond Fund, an annual fee of 0.50% of average daily net
assets. These payments will consist of an asset-based fee of 0.25% and a service
fee of 0.25% and will commence immediately.
Purchases of Class R Shares
Class R shares are sold at net asset value, and are not subject to an
initial sales charge. If AIM Distributors pays a concession to the dealer of
record, however, the Class R shares are subject to a 0.75% CDSC at the time of
redemption if all retirement plan assets are redeemed within one year from the
date of the retirement plan's initial purchase. For purchases of Class R shares
of Category I or II Funds, AIM Distributors may make the following payments to
dealers of record provided that the applicable dealer of record is able to
establish that the purchase of Class R shares is a new investment or a rollover
from a retirement plan in which an AIM Fund was offered as an investment option:
PERCENT OF CUMULATIVE PURCHASES
0.75% of the first $5 million
plus 0.50% of amounts in excess of $5 million
With regard to any individual purchase of Class R shares, AIM
Distributors may make payment to the dealer of record based on the cumulative
total of purchases made by the same plan over the life of the plan's account(s).
Purchases of Investor Class Shares
Investor Class shares are sold at net asset value, and are not subject
to an initial sales charge. or to a CDSC. AIM Distributors may pay dealers and
institutions an annual fee of 0.25% of average daily net assets and such
payments will commence immediately.
Exchanges
TERMS AND CONDITIONS OF EXCHANGES. Normally, shares of an AIM Fund to
be acquired by exchange are purchased at their net asset value or applicable
offering price, as the case may be, determined on the date that such request is
received, but under unusual market conditions such purchases may be delayed for
up to five business days if it is determined that a fund would be materially
disadvantaged by an immediate transfer of the proceeds of the exchange. If a
shareholder is exchanging into a fund paying daily dividends, and the release of
the exchange proceeds is delayed for the foregoing five-day period, such
shareholder will not begin to accrue dividends until the sixth business day
after the exchange.
EXCHANGES BY TELEPHONE. AIM Distributors has made arrangements with
certain dealers and investment advisory firms to accept telephone instructions
to exchange shares between any of the AIM Funds. AIM Distributors reserves the
right to impose conditions on dealers or investment advisors who make telephone
exchanges of shares of the funds, including the condition that any such dealer
or investment advisor enter into an agreement (which contains additional
conditions with respect to exchanges of shares) with AIM Distributors. To
exchange shares by telephone, a shareholder, dealer or
44
investment advisor who has satisfied the foregoing conditions must call AFS at
(800) 959-4246. If a shareholder is unable to reach AFS by telephone, he may
also request exchanges by fax, telegraph or use overnight courier services to
expedite exchanges by mail, which will be effective on the business day received
by AFS as long as such request is received prior to the close of the customary
trading session of the New York Stock Exchange ("NYSE"). AFS and AIM
Distributors may in certain cases be liable for losses due to unauthorized or
fraudulent transactions if they do not follow reasonable procedures for
verification of telephone transactions. Such reasonable procedures may include
recordings of telephone transactions (maintained for six months), requests for
confirmation of the shareholder's Social Security Number and current address,
and mailings of confirmations promptly after the transaction.
Redemptions
GENERAL. Shares of the AIM Funds may be redeemed directly through AIM
Distributors or through any dealer who has entered into an agreement with AIM
Distributors. In addition to the Funds' obligation to redeem shares, AIM
Distributors may also repurchase shares as an accommodation to shareholders. To
effect a repurchase, those dealers who have executed Selected Dealer Agreements
with AIM Distributors must phone orders to the order desk of the Funds at (800)
959-4246 and guarantee delivery of all required documents in good order. A
repurchase is effected at the net asset value per share of the applicable Fund
next determined after the repurchase order is received. Such an arrangement is
subject to timely receipt by AFS, the Funds' transfer agent, of all required
documents in good order. If such documents are not received within a reasonable
time after the order is placed, the order is subject to cancellation. While
there is no charge imposed by a Fund or by AIM Distributors (other than any
applicable contingent deferred sales charge) when shares are redeemed or
repurchased, dealers may charge a fair service fee for handling the transaction.
SUSPENSION OF REDEMPTIONS. The right of redemption may be suspended or
the date of payment postponed when (a) trading on the NYSE is restricted, as
determined by applicable rules and regulations of the SEC, (b) the NYSE is
closed for other than customary weekend and holiday closings, (c) the SEC has by
order permitted such suspension, or (d) an emergency as determined by the SEC
exists making disposition of portfolio securities or the valuation of the net
assets of a Fund not reasonably practicable.
REDEMPTIONS BY TELEPHONE. By signing an account application form, an
investor appoints AFS as his true and lawful attorney-in-fact to surrender for
redemption any and all unissued shares held by AFS in the designated account(s),
present or future, with full power of substitution in the premises. AFS and AIM
Distributors are thereby authorized and directed to accept and act upon any
telephone redemptions of shares held in any of the account(s) listed, from any
person who requests the redemption. An investor acknowledges by signing the form
that he understands and agrees that AFS and AIM Distributors may not be liable
for any loss, expense or cost arising out of any telephone redemption requests
effected in accordance with the authorization set forth in these instructions if
they reasonably believe such request to be genuine, but may in certain cases be
liable for losses due to unauthorized or fraudulent transactions. Procedures for
verification of telephone transactions may include recordings of telephone
transactions (maintained for six months), requests for confirmation of the
shareholder's Social Security Number and current address, and mailings of
confirmations promptly after the transactions. AFS reserves the right to cease
to act as attorney-in-fact subject to this appointment, and AIM Distributors
reserves the right to modify or terminate the telephone redemption privilege at
any time without notice. An investor may elect not to have this privilege by
marking the appropriate box on the application. Then any redemptions must be
effected in writing by the investor.
SYSTEMATIC REDEMPTION PLAN. A Systematic Redemption Plan permits a
shareholder of an AIM Fund to withdraw on a regular basis at least $50 per
withdrawal. Under a Systematic Redemption Plan, all shares are to be held by AFS
and all dividends and distributions are reinvested in shares of the applicable
AIM Fund by AFS. To provide funds for payments made under the Systematic
Redemption Plan, AFS redeems sufficient full and fractional shares at their net
asset value in effect at the time of each such redemption.
45
Payments under a Systematic Redemption Plan constitute taxable events.
Since such payments are funded by the redemption of shares, they may result in a
return of capital and in capital gains or losses, rather than in ordinary
income. Because sales charges are imposed on additional purchases of shares
(other than Class B, Class C or Class R shares of the Funds), it is
disadvantageous to effect such purchases while a Systematic Redemption Plan is
in effect.
Each AIM Fund bears its share of the cost of operating the Systematic
Redemption Plan.
Contingent Deferred Sales Charges Imposed upon Redemption of Shares
A CDSC may be imposed upon the redemption of Large Purchases of Class A
shares of Category I and II Funds or upon the redemption of Class B shares or
Class C shares (no CDSC applies to Class C shares of AIM Short Term Bond Fund
unless you exchange shares of another AIM Fund that are subject to a CDSC into
AIM Short Term Bond Fund) and, in certain circumstances, upon the redemption of
Class R shares. On and after November 15, 2001, and through October 30, 2002, a
CDSC also may be imposed upon the redemption of Large Purchases of Class A
Shares of Category III Funds. See the Prospectus for additional information
regarding CDSCs.
CONTINGENT DEFERRED SALES CHARGE EXCEPTIONS FOR LARGE PURCHASES OF
CLASS A SHARES. An investor who has made a Large Purchase of Class A shares of a
Category I, II or III Fund will not be subject to a CDSC upon the redemption of
those shares in the following situations:
- Redemptions of shares of Category I or II Funds held more than 18
months;
- Redemptions of shares of Category III Funds purchased prior to
November 15, 2001 or after October 30, 2002;
- Redemptions of shares of Category III Funds purchased on or after
November 15, 2001 and through October 30, 2002 and held for more
than 12 months;
- Redemptions of shares held by retirement plans in cases where (i)
the plan has remained invested in Class A shares of an AIM Fund
for at least 12 months, or (ii) the redemption is not a complete
redemption of shares held by the plan;
- Redemptions from private foundations or endowment funds;
- Redemptions of shares by the investor where the investor's dealer
waives the amounts otherwise payable to it by the distributor and
notifies the distributor prior to the time of investment;
- Redemptions of shares of Category I, II or III Funds or AIM Cash
Reserve Shares of AIM Money Market Fund acquired by exchange from
Class A shares of a Category I or II Fund, unless the shares
acquired by exchange (on or after November 15, 2001 and through
October 30, 2002 with respect to Category III Funds) are redeemed
within 18 months of the original purchase of the exchange of
Category I or II Fund shares;
- Redemptions of shares of Category III Funds, shares of AIM
Tax-Exempt Cash Fund or AIM Cash Reserve Shares of AIM Money
Market Fund acquired by exchange from Class A shares of a Category
III Fund purchased prior to November 15, 2001;
- Redemptions of shares of Category I or II Funds acquired by
exchange from Class A shares of a Category III Fund purchased on
and after November 15, 2001 and through October 30, 2002, unless
the shares acquired by exchange are redeemed within 18 months of
the original purchase of the exchanged Category III Fund shares;
46
- Redemptions of shares of Category III Funds, shares of AIM
Tax-Exempt Cash Fund or AIM Cash Reserve Shares of AIM Money
Market Fund acquired by exchange from Class A shares of a Category
III Fund purchased on and after November 15, 2001 and through
October 30, 2002 with respect to Category III Funds, unless the
shares acquired by exchange are redeemed within 12 months of the
original purchase of the exchanged Category III Fund shares;
- Redemptions of shares of Category I or II Funds acquired by
exchange on and after November 15, 2001 from AIM Cash Reserve
Shares of AIM Money Market Fund if the AIM Cash Reserve Shares
were acquired by exchange from a Category I or II Fund, unless the
Category I or II Fund shares acquired by exchange are redeemed
within 18 months of the original purchase of the exchanged
Category I or II Funds shares;
- Redemptions of Category I or II Funds by retirement plan
participants resulting from a total redemption of the plan assets
that occurs more than one year from the date of the plan's initial
purchase; and
- Redemptions of shares of Category I or II Funds held by an
Investor Class shareholder.
CONTINGENT DEFERRED SALES CHARGE EXCEPTIONS FOR CLASS B AND C SHARES.
Investors who purchased former GT Global funds Class B shares before June 1,
1998 are subject to the following waivers from the CDSC otherwise due upon
redemption:
- Total or partial redemptions resulting from a distribution
following retirement in the case of a tax-qualified
employer-sponsored retirement;
- Minimum required distributions made in connection with an IRA,
Keogh Plan or custodial account under Section 403(b) of the Code
or other retirement plan following attainment of age 70 1/2;
- Redemptions pursuant to distributions from a tax-qualified
employer-sponsored retirement plan, which is invested in the
former GT Global funds, which are permitted to be made without
penalty pursuant to the Code, other than tax-free rollovers or
transfers of assets, and the proceeds of which are reinvested in
the former GT Global funds;
- Redemptions made in connection with participant-directed exchanges
between options in an employer-sponsored benefit plan;
- Redemptions made for the purpose of providing cash to fund a loan
to a participant in a tax-qualified retirement plan;
- Redemptions made in connection with a distribution from any
retirement plan or account that is permitted in accordance with
the provisions of Section 72(t)(2) of the Code, and the
regulations promulgated thereunder;
- Redemptions made in connection with a distribution from a
qualified profit-sharing or stock bonus plan described in Section
401(k) of the Code to a participant or beneficiary under Section
401(k)(2)(B)(IV) of the Code upon hardship of the covered employee
(determined pursuant to Treasury Regulation Section
1.401(k)-1(d)(2));
- Redemptions made by or for the benefit of certain states, counties
or cities, or any instrumentalities, departments or authorities
thereof where such entities are prohibited or limited by
applicable law from paying a sales charge or commission.
47
CDSCs will not apply to the following redemptions of Class B or Class C
shares, as applicable:
- Additional purchases of Class C shares of AIM International Core
Equity Fund (formerly knows as AIM International Value Fund) and
AIM Real Estate Fund by shareholders of record on April 30, 1995,
of these Funds, except that shareholders whose broker-dealers
maintain a single omnibus account with AFS on behalf of those
shareholders, perform sub-accounting functions with respect to
those shareholders, and are unable to segregate shareholders of
record prior to April 30, 1995, from shareholders whose accounts
were opened after that date will be subject to a CDSC on all
purchases made after March 1, 1996;
- Redemptions following the death or post-purchase disability of (1)
any registered shareholders on an account or (2) a settlor of a
living trust, of shares held in the account at the time of death
or initial determination of post-purchase disability;
- Certain distributions from individual retirement accounts, Section
403(b) retirement plans, Section 457 deferred compensation plans
and Section 401 qualified plans, where redemptions result from (i)
required minimum distributions to plan participants or
beneficiaries who are age 70 1/2or older, and only with respect to
that portion of such distributions that does not exceed 12%
annually of the participant's or beneficiary's account value in a
particular AIM Fund; (ii) in kind transfers of assets where the
participant or beneficiary notifies the distributor of the
transfer no later than the time the transfer occurs; (iii)
tax-free rollovers or transfers of assets to another plan of the
type described above invested in Class B or Class C shares of one
or more of the AIM Funds; (iv) tax-free returns of excess
contributions or returns of excess deferral amounts; and (v)
distributions on the death or disability (as defined in the Code)
of the participant or beneficiary;
- Amounts from a Systematic Redemption Plan of up to an annual
amount of 12% of the account value on a per fund basis, at the
time the withdrawal plan is established, provided the investor
reinvests his dividends;
- Liquidation by the Fund when the account value falls below the
minimum required account size of $500; and
- Investment account(s) of AIM.
CDSCs will not apply to the following redemptions of Class C shares:
- A total or partial redemption of shares where the investor's
dealer of record notified the distributor prior to the time of
investment that the dealer would waive the upfront payment
otherwise payable to him;
- A total or partial redemption which is necessary to fund a
distribution requested by a participant in a retirement plan
maintained pursuant to Section 401, 403 or 457 of the Code;
- Redemptions of Class C shares of an AIM Fund other than AIM Short
Term Bond Fund if you received such Class C shares by exchanging
Class C shares of AIM Short Term Bond Fund; and
- Redemptions of Class C shares of AIM Short Term Bond Fund unless
you received such Class C shares by exchanging Class C shares of
another AIM Fund and the original purchase was subject to a CDSC.
48
CDSCs will not apply to the following redemptions of Class R shares:
- Class R shares where the retirement plan's dealer of record
notifies the distributor prior to the time of investment that the
dealer waives the upfront payment otherwise payable to him; and
- Redemptions of shares held by retirement plans in cases where (i)
the plan has remained invested in Class R shares of an AIM Fund
for at least 12 months, or (ii) the redemption is not a complete
redemption of all Class R shares held by the plan.
General Information Regarding Purchases, Exchanges and Redemptions
GOOD ORDER. Purchase, exchange and redemption orders must be received
in good order. To be in good order, an investor must supply AFS with all
required information an documentation, including signature guarantees when
required. In addition, if a purchase of shares is made by check, the check must
be received in good order. This means that the check must be properly completed
and signed, and legible to AFS in its sole discretion.
TIMING OF PURCHASE ORDERS. It is the responsibility of the dealer or
other financial intermediary to ensure that all orders are transmitted on a
timely basis to AFS. Any loss resulting from the failure of the dealer or
financial intermediary to submit an order within the prescribed time frame will
be borne by that dealer or financial intermediary. If a check used to purchase
shares does not clear, or if any investment order must be canceled due to
nonpayment, the investor will be responsible for any resulting loss to an AIM
Fund or to AIM Distributors.
SIGNATURE GUARANTEES. In addition to those circumstances listed in the
"Shareholder Information" section of each Fund's prospectus, signature
guarantees are required in the following situations: (1) requests to transfer
the registration of shares to another owner; (2) telephone exchange and
telephone redemption authorization forms; (3) changes in previously designated
wiring or electronic funds transfer instructions; and (4) written redemptions or
exchanges of shares previously reported as lost, whether or not the redemption
amount is under $250,000 or the proceeds are to be sent to the address of
record. AIM Funds may waive or modify any signature guarantee requirements at
any time.
Acceptable guarantors include banks, broker-dealers, credit unions,
national securities exchanges, savings associations and any other organization,
provided that such institution or organization qualifies as an "eligible
guarantor institution" as that term is defined in rules adopted by the SEC, and
further provided that such guarantor institution is listed in one of the
reference guides contained in AFS' current Signature Guarantee Standards and
Procedures, such as certain domestic banks, credit unions, securities dealers,
or securities exchanges. AFS will also accept signatures with either: (1) a
signature guaranteed with a medallion stamp of the STAMP Program, or (2) a
signature guaranteed with a medallion stamp of the NYSE Medallion Signature
Program, provided that in either event, the amount of the transaction involved
does not exceed the surety coverage amount indicated on the medallion. For
information regarding whether a particular institution or organization qualifies
as an "eligible guarantor institution," an investor should contact the Client
Services Department of AFS.
TRANSACTIONS BY TELEPHONE. By signing an account application form, an
investor appoints AFS as his true and lawful attorney-in-fact to surrender for
redemption any and all unissued shares held by AFS in the designated account(s),
or in any other account with any of the AIM Funds, present or future, which has
the identical registration as the designated account(s), with full power of
substitution in the premises. AFS and AIM Distributors are thereby authorized
and directed to accept and act upon any telephone redemptions of shares held in
any of the account(s) listed, from any person who requests the redemption
proceeds to be applied to purchase shares in any one or more of the AIM Funds,
provided that such fund is available for sale and provided that the registration
and mailing address of the shares to be purchased are identical to the
registration of the shares being redeemed. An investor acknowledges by signing
the form that he understands and agrees that AFS and AIM Distributors may not be
liable for any loss, expense or cost arising out of any telephone exchange
requests effected in accordance with the authorization set forth in these
instructions if they reasonably believe such request to be genuine, but may
49
in certain cases be liable for losses due to unauthorized or fraudulent
transactions. Procedures for verification of telephone transactions may include
recordings of telephone transactions (maintained for six months), requests for
confirmation of the shareholder's Social Security Number and current address,
and mailings of confirmations promptly after the transactions. AFS reserves the
right to modify or terminate the telephone exchange privilege at any time
without notice. An investor may elect not to have this privilege by marking the
appropriate box on the application. Then any exchanges must be effected in
writing by the investor.
INTERNET TRANSACTIONS. An investor may effect transactions in his
account through the internet by establishing a Personal Identification Number
(PIN). By establishing a PIN, the investor acknowledges and agrees that neither
AFS nor AIM Distributors will be liable for any loss, expense or cost arising
out of any internet transaction effected by them in accordance with any
instructions submitted by a user who transmits the PIN as authentication of his
or her identity. Procedures for verification of internet transactions include
requests for confirmation of the shareholder's personal identification number
and mailing of confirmations promptly after the transactions. The investor also
acknowledges that the ability to effect internet transactions may be terminated
at any time by the AIM Funds.
ABANDONED PROPERTY. It is the responsibility of the investor to ensure
that AFS maintains a correct address for his account(s). An incorrect address
may cause an investor's account statements and other mailings to be returned to
AFS. Upon receiving returned mail, AFS will attempt to locate the investor or
rightful owner of the account. If unsuccessful, AFS will retain a shareholder
locator service with a national information database to conduct periodic
searches for the investor. If the search firm is unable to locate the investor,
the search firm will determine whether the investor's account has legally been
abandoned. AFS is legally obligated to escheat (or transfer) abandoned property
to the appropriate state's unclaimed property administrator in accordance with
statutory requirements. The investor's last known address of record determines
which state has jurisdiction.
OFFERING PRICE
The following formula may be used to determine the public offering
price per Class A share of an investor's investment:
Net Asset Value / (1 - Sales Charge as % of Offering Price ) = Offering
Price.
For example, at the close of business on July 31, 2002, AIM Real Estate
Fund - Class A shares had a net asset value per share of $15.25. The offering
price, assuming an initial sales charge of 4.75%, therefore was $16.01.
Calculation of Net Asset Value
Each Fund determines its net asset value per share once daily as of the
close of the customary trading session of the NYSE (generally 4:00 p.m. Eastern
time) on each business day of the Fund. In the event the NYSE closes early
(i.e., before 4:00 p.m. Eastern time) on a particular day, each Fund determines
its net asset value per share as of the close of the NYSE on such day. For
purposes of determining net asset value per share, the Fund will generally use
futures and options contract closing prices which are available fifteen (15)
minutes after the close of the customary trading session of the NYSE. The Funds
determine net asset value per share by dividing the value of a Fund's
securities, cash and other assets (including interest accrued but not collected)
attributable to a particular class, less all its liabilities (including accrued
expenses and dividends payable) attributable to that class, by the total number
of shares outstanding of that class. Determination of a Fund's net asset value
per share is made in accordance with generally accepted accounting principles.
Each security (excluding convertible bonds) held by a Fund is valued at
its last sales price on the exchange where the security is principally traded
or, lacking any sales on a particular day, the security is valued at the closing
bid price on that day. Each security traded in the over-the-counter market (but
not including securities reported on the NASDAQ National Market System) is
valued on the basis of prices
50
furnished by independent pricing services or market makers. Each security
reported on the NASDAQ National Market System is valued at the NASDAQ Official
Closing Price ("NOCP") or absent a NOCP, at the closing bid price on that day;
option contracts are valued at the mean between the closing bid and asked prices
on the exchange where the contracts are principally traded; futures contracts
are valued at final settlement price quotations from the primary exchange on
which they are traded. Debt securities (including convertible bonds) are valued
on the basis of prices provided by an independent pricing service. Prices
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 special
securities, dividend rate, yield, quality, coupon rate, maturity, type of issue,
individual trading characteristics and other market data.
Securities for which market prices are not provided by any of the above
methods are valued based upon quotes furnished by independent sources and are
valued at the last bid price in the case of equity securities and in the case of
debt obligations, the mean between the last bid and ask prices. Securities for
which market quotations are not readily available or are questionable are valued
at fair value as determined in good faith by or under the supervision of the
Trust's officers in a manner specifically authorized by the Board of Trustees.
Short-term investments are valued at amortized cost when the security has 60
days or less to maturity.
Foreign securities are converted into U.S. dollars using exchange rates
as of the close of the NYSE. Generally, trading in foreign securities, corporate
bonds, U.S. Government securities and money market instruments is substantially
completed each day at various times prior to the close of the customary trading
session of the NYSE. The values of such securities used in computing the net
asset value of each Fund's shares are determined as of the close of the
respective markets. Occasionally, events affecting the values of such securities
may occur between the times at which such values are determined and the close of
the customary trading session of the NYSE which will not be reflected in the
computation of a Fund's net asset value. If a development/event has actually
caused that closing price to no longer reflect actual value, the closing prices,
as of the close of the applicable market, may be adjusted to reflect the fair
value of the affected securities as of the close of the NYSE as determined in
good faith by or under the supervision of the Board of Trustees.
Fund securities primarily traded in foreign markets may be traded in
such markets on days which are not business days of the Fund. Because the net
asset value per share of each Fund is determined only on business days of the
Fund, the net asset value per share of a Fund may be significantly affected on
days when an investor cannot exchange or redeem shares of the Fund.
REDEMPTION IN KIND
AIM intends to redeem all shares of the Funds in cash. It is possible
that future conditions may make it undesirable for a Fund to pay for redeemed
shares in cash. In such cases, the Fund may make payment in securities or other
property. If a Fund has made an election under Rule 18f-1 under the 1940 Act,
the Fund is obligated to redeem for cash all shares presented to such Fund for
redemption by any one shareholder in an amount up to the lesser of $250,000 or
1% of that Fund's net assets in any 90-day period. Securities delivered in
payment of redemptions are valued at the same value assigned to them in
computing the applicable Fund's net asset value per share. Shareholders
receiving such securities are likely to incur brokerage costs on their
subsequent sales of such securities.
BACKUP WITHHOLDING
Accounts submitted without a correct, certified taxpayer identification
number or, alternatively, a completed Internal Revenue Service ("IRS") Form W-8
(for non-resident aliens) or Form W-9 (certifying exempt status) accompanying
the registration information will generally be subject to backup withholding.
Each AIM Fund, and other payers, generally must withhold 28% of
redemption payments and reportable dividends (whether paid or accrued) in the
case of any shareholder who fails to provide the
51
Fund with a taxpayer identification number ("TIN") and a certification that he
is not subject to backup withholding.
An investor is subject to backup withholding if:
1. the investor fails to furnish a correct TIN to the Fund;
2. the IRS notifies the Fund that the investor furnished an
incorrect TIN;
3. the investor or the Fund is notified by the IRS that the
investor is subject to backup withholding because the investor
failed to report all of the interest and dividends on such
investor's tax return (for reportable interest and dividends
only);
4. the investor fails to certify to the Fund that the investor is
not subject to backup withholding under (3) above (for
reportable interest and dividend accounts opened after 1983
only); or
5. the investor does not certify his TIN. This applies only to
non-exempt mutual fund accounts opened after 1983.
Interest and dividend payments are subject to backup withholding in all
five situations discussed above. Redemption proceeds and long-term gain
distributions are subject to backup withholding only if (1), (2) or (5) above
applies.
Certain payees and payments are exempt from backup withholding and
information reporting. AIM or AFS will not provide Form 1099 to those payees.
Investors should contact the IRS if they have any questions concerning
withholding.
IRS PENALTIES - Investors who do not supply the AIM Funds with a
correct TIN will be subject to a $50 penalty imposed by the IRS unless such
failure is due to reasonable cause and not willful neglect. If an investor
falsifies information on this form or makes any other false statement resulting
in no backup withholding on an account which should be subject to backup
withholding, such investor may be subject to a $500 penalty imposed by the IRS
and to certain criminal penalties including fines and/or imprisonment.
NONRESIDENT ALIENS - Nonresident alien individuals and foreign entities
are not subject to the backup withholding previously discussed, but must certify
their foreign status by attaching IRS Form W-8 to their application. Form W-8
generally remains in effect for a period starting on the date the Form is signed
and ending on the last day of the third succeeding calendar year. Such
shareholders may, however, be subject to federal income tax withholding at a 30%
rate on ordinary income dividends and other distributions. Under applicable
treaty law, residents of treaty countries may qualify for a reduced rate of
withholding or a withholding exemption.
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS
DIVIDENDS AND DISTRIBUTIONS
It is the present policy of AIM International Core Equity Fund to
declare and pay annually net investment income dividends and capital gain
distributions. It is the Fund's intention to distribute substantially all of its
net investment income and realized net capital gains. In determining the amount
of capital gains, if any, available for distribution, capital gains will be
offset against available net capital loss, if any, carried forward from previous
fiscal periods. All dividends and distributions will be automatically reinvested
in additional shares of the same class of each Fund unless the shareholder has
requested in writing to receive such dividends and distributions in cash or that
they be invested in shares of another AIM Fund, subject to the terms and
conditions set forth in the Prospectus under the caption "Special Plans -
Automatic Dividend Investment." Such dividends and distributions will be
reinvested at the net asset value per share determined on the ex-dividend date.
If a shareholder's account does not
52
have any shares in it on a dividend or capital gain distribution payment date,
the dividend or distribution will be paid in cash whether or not the shareholder
has elected to have such dividends or distributions reinvested.
AIM Real Estate Fund makes quarterly distributions of its net
investment income typically during the months of March, June, September and
December. For taxable clients, a portion of the dividends paid by a REIT may be
considered return of capital and would not currently be regarded as taxable
income.
Distributions paid by a fund, other than daily dividends, have the
effect of reducing the net asset value per share on the ex-dividend date by the
amount of the dividend or distribution. Therefore, a dividend or distribution
declared shortly after a purchase of shares by an investor would represent, in
substance, a return of capital to the shareholder with respect to such shares
even though it would be subject to income taxes.
Dividends on Class B and Class C shares are expected to be lower than
those for Class A shares because of higher distribution fees paid by Class B and
Class C shares. Dividends on Class R shares may be lower than those for Class A
shares, depending on whether the Class R shares pay higher distribution fees
than the Class A shares. Other class-specific expenses may also affect dividends
on shares of those classes. Expenses attributable to a particular class ("Class
Expenses") include distribution plan expenses, which must be allocated to the
class for which they are incurred. Other expenses may be allocated as Class
Expenses, consistent with applicable legal principles under the 1940 Act and the
Code.
TAX MATTERS
The following is only a summary of certain additional tax
considerations generally affecting the Funds and their shareholders that are not
described in the Prospectus. No attempt is made to present a detailed
explanation of the tax treatment of each Fund or its shareholders, and the
discussion here and in the Prospectus is not intended as a substitute for
careful tax planning.
QUALIFICATION AS A REGULATED INVESTMENT COMPANY. Each Fund has elected
to be taxed under Subchapter M of the Code as a regulated investment company and
intends to maintain its qualification as such in each of its taxable years. As a
regulated investment company, each Fund is not subject to federal income tax on
the portion of its net investment income (i.e., taxable interest, dividends and
other taxable ordinary income, net of expenses) and capital gain net income
(i.e., the excess of capital gains over capital losses) that it distributes to
shareholders, provided that it distributes (i) at least 90% of its investment
company taxable income (i.e., net investment income, net foreign currency
ordinary gain or loss and the excess of net short-term capital gain over net
long-term capital loss) and (ii) at least 90% of the excess of its tax-exempt
interest income under Code Section 103(a) over its deductions disallowed under
Code Sections 265 and 171(a)(2) for the taxable year (the "Distribution
Requirement"), and satisfies certain other requirements of the Code that are
described below. Distributions by a Fund made during the taxable year or, under
specified circumstances, within twelve months after the close of the taxable
year, will be considered distributions of income and gain of the taxable year
and can therefore satisfy the Distribution Requirement.
Each Fund may use "equalization accounting" in determining the portion
of its net investment income and capital gain net income that has been
distributed. A Fund that elects to use equalization accounting will allocate a
portion of its realized investment income and capital gains to redemptions of
Fund shares and will reduce the amount of such income and gains that it
distributes in cash. However, each Fund intends to make cash distributions for
each taxable year in an aggregate amount that is sufficient to satisfy the
Distribution Requirement without taking into account its use of equalization
accounting. The Internal Revenue Service has not published any guidance
concerning the methods to be used in allocating investment income and capital
gains to redemptions of shares. In the event that the Internal Revenue Service
determines that a Fund is using an improper method of allocation and has
53
underdistributed its net investment income and capital gain net income for any
taxable year, such Fund may be liable for additional federal income tax.
In addition to satisfying the Distribution Requirement, a regulated
investment company must derive at least 90% of its gross income from dividends,
interest, certain payments with respect to securities loans, gains from the sale
or other disposition of stock, securities or foreign currencies (to the extent
such currency gain is directly related to the regulated investment company's
principal business of investing in stock or securities) and other income
(including, but not limited to, gains from options, futures or forward
contracts) derived from its business of investing in such stock, securities or
currencies (the "Income Requirement"). Under certain circumstances, a Fund may
be required to sell portfolio holdings to meet this requirement.
In addition to satisfying the requirements described above, each Fund
must satisfy an asset diversification test in order to qualify as a regulated
investment company (the "Asset Diversification Test"). Under this test, at the
close of each quarter of each Fund's taxable year, at least 50% of the value of
the Fund's assets must consist of cash and cash items, U.S. Government
securities, securities of other regulated investment companies, and securities
of other issuers, as to which the Fund has not invested more than 5% of the
value of the Fund's total assets in securities of such issuer and as to which
the Fund does not hold more than 10% of the outstanding voting securities of
such issuer, and no more than 25% of the value of its total assets may be
invested in the securities of any one issuer (other than U.S. Government
securities and securities of other regulated investment companies), or of two or
more issuers which the Fund controls and which are engaged in the same or
similar trades or businesses.
For purposes of the Asset Diversification Test, the IRS has ruled that
the issuer of a purchased listed call option on stock is the issuer of the stock
underlying the option. The IRS has also informally ruled that, in general, the
issuers of purchased or written call and put options on securities, of long and
short positions on futures contracts on securities and of options on such future
contracts are the issuers of the securities underlying such financial
instruments where the instruments are traded on an exchange.
Where the writer of a listed call option owns the underlying
securities, the IRS has ruled that the Asset Diversification Test will be
applied solely to such securities and not to the value of the option itself.
With respect to options on securities indexes, futures contracts on securities
indexes and options on such futures contracts, the IRS has informally ruled that
the issuers of such options and futures contracts are the separate entities
whose securities are listed on the index, in proportion to the weighing of
securities in the computation of the index. It is unclear under present law who
should be treated as the issuer of forward foreign currency exchange contracts,
of options on foreign currencies, or of foreign currency futures and related
options. It has been suggested that the issuer in each case may be the foreign
central bank or the foreign government backing the particular currency. Due to
this uncertainty and because the Funds may not rely on informal rulings of the
IRS, the Funds may find it necessary to seek a ruling from the IRS as to the
application of the Asset Diversification Test to certain of the foregoing types
of financial instruments or to limit its holdings of some or all such
instruments in order to stay within the limits of such test.
If for any taxable year a Fund does not qualify as a regulated
investment company, all of its taxable income (including its net capital gain)
will be subject to tax at regular corporate rates without any deduction for
distributions to shareholders, and such distributions will be taxable as
ordinary dividends to the extent of such Fund's current and accumulated earnings
and profits. Such distributions generally will be eligible for the dividends
received deduction in the case of corporate shareholders and will be included in
the qualified dividend income of noncorporate shareholders. See "Fund
Distributions" below.
DETERMINATION OF TAXABLE INCOME OF A REGULATED INVESTMENT COMPANY. In
general, gain or loss recognized by a Fund on the disposition of an asset will
be a capital gain or loss. However, gain recognized on the disposition of a debt
obligation purchased by a Fund at a market discount (generally, at a price less
than its principal amount) will be treated as ordinary income to the extent of
the portion of the market discount which accrued during the period of time the
Fund held the debt obligation unless the Fund made an election to accrue market
discount into income. If a Fund purchases a debt obligation that
54
was originally issued at a discount, the Fund is generally required to include
in gross income each year the portion of the original issue discount which
accrues during such year. In addition, under the rules of Code Section 988, gain
or loss recognized on the disposition of a debt obligation denominated in a
foreign currency or an option with respect thereto (but only to the extent
attributable to changes in foreign currency exchange rates), and gain or loss
recognized on the disposition of a foreign currency forward contract or of
foreign currency itself, will generally be treated as ordinary income or loss.
Certain hedging transactions that may be engaged in by certain of the
Funds (such as short sales "against the box") may be subject to special tax
treatment as "constructive sales" under Section 1259 of the Code if a Fund holds
certain "appreciated financial positions" (defined generally as any interest
(including a futures or forward contract, short sale or option) with respect to
stock, certain debt instruments, or partnership interests if there would be a
gain were such interest sold, assigned, or otherwise terminated at its fair
market value). Upon entering into a constructive sales transaction with respect
to an appreciated financial position, a Fund will generally be deemed to have
constructively sold such appreciated financial position and will recognize gain
as if such position were sold, assigned, or otherwise terminated at its fair
market value on the date of such constructive sale (and will take into account
any gain for the taxable year which includes such date).
Some of the forward foreign currency exchange contracts, options and
futures contracts that certain of the Funds may enter into will be subject to
special tax treatment as "Section 1256 contracts." Section 1256 contracts that a
Fund holds are treated as if they are sold for their fair market value on the
last business day of the taxable year, regardless of whether a taxpayer's
obligations (or rights) under such contracts have terminated (by delivery,
exercise, entering into a closing transaction or otherwise) as of such date. Any
gain or loss recognized as a consequence of the year-end deemed disposition of
Section 1256 contracts is combined with any other gain or loss that was
previously recognized upon the termination of Section 1256 contracts during that
taxable year. The net amount of such gain or loss for the entire taxable year
(including gain or loss arising as a consequence of the year-end deemed sale of
such contracts) is deemed to be 60% long-term and 40% short-term gain or loss.
However, in the case of Section 1256 contracts that are forward foreign currency
exchange contracts, the net gain or loss is separately determined and (as
discussed above) generally treated as ordinary income or loss. If such a future
or option is held as an offsetting position and can be considered a straddle
under Section 1092 of the Code, such a straddle will constitute a mixed
straddle. A mixed straddle will be subject to both Section 1256 and Section 1092
unless certain elections are made by the Fund.
Other hedging transactions in which the Funds may engage may result in
"straddles" or "conversion transactions" for U.S. federal income tax purposes.
The straddle and conversion transaction rules may affect the character of gains
(or in the case of the straddle rules, losses) realized by the Funds. In
addition, losses realized by the Funds on positions that are part of a straddle
may be deferred under the straddle rules, rather than being taken into account
in calculating the taxable income for the taxable year in which the losses are
realized. Because only a few regulations implementing the straddle rules and the
conversion transaction rules have been promulgated, the tax consequences to the
Funds of hedging transactions are not entirely clear. The hedging transactions
may increase the amount of short-term capital gain realized by the Funds (and,
if they are conversion transactions, the amount of ordinary income) which is
taxed as ordinary income when distributed to shareholders.
Because application of any of the foregoing rules governing Section
1256 contracts, constructive sales, straddle and conversion transactions may
affect the character of gains or losses, defer losses and/or accelerate the
recognition of gains or losses from the affected investment or straddle
positions, the taxable income of a Fund may exceed its book income. Accordingly,
the amount which must be distributed to shareholders and which will be taxed to
shareholders as ordinary income, qualified dividend income, or long-term capital
gain may also differ from the book income of the Fund and may be increased or
decreased as compared to a fund that did not engage in such transactions.
EXCISE TAX ON REGULATED INVESTMENT COMPANIES. A 4% non-deductible
excise tax is imposed on a regulated investment company that fails to distribute
in each calendar year an amount equal to 98% of ordinary taxable income for the
calendar year and 98% of capital gain net income (excess of capital
55
gains over capital losses) for the one-year period ended on October 31 of such
calendar year (or, at the election of a regulated investment company having a
taxable year ending November 30 or December 31, for its taxable year (a "taxable
year election")). The balance of such income must be distributed during the next
calendar year. For the foregoing purposes, a regulated investment company is
treated as having distributed any amount on which it is subject to income tax
for any taxable year ending in such calendar year.
For purposes of the excise tax, a regulated investment company shall
(1) reduce its capital gain net income (but not below its net capital gain) by
the amount of any net ordinary loss for the calendar year and (2) exclude
Section 988 foreign currency gains and losses incurred after October 31 (or
after the end of its taxable year if it has made a taxable year election) in
determining the amount of ordinary taxable income for the current calendar year
(and, instead, include such gains and losses in determining ordinary taxable
income for the succeeding calendar year).
Each Fund generally intends to make sufficient distributions or deemed
distributions of its ordinary taxable income and capital gain net income prior
to the end of each calendar year to avoid liability for the excise tax. However,
in the event that the Internal Revenue Service determines that a Fund is using
an improper method of allocation for purposes of equalization accounting (as
discussed above), such Fund may be liable for excise tax. Moreover, investors
should note that a Fund may in certain circumstances be required to liquidate
portfolio investments to make sufficient distributions to avoid excise tax
liability. In addition, under certain circumstances, a Fund may elect to pay a
minimal amount of excise tax.
PFIC INVESTMENTS. The Funds are permitted to invest in foreign equity
securities and thus may invest in stocks of foreign companies that are
classified under the Code as passive foreign investment companies ("PFICs"). In
general, a foreign company is classified as a PFIC if at least one-half of its
assets constitute investment-type assets or 75% or more of its gross income is
investment-type income.
The application of the PFIC rules may affect, among other things, the
character of gains, the amount of gain or loss and the timing of the recognition
and character of income with respect to PFIC stock, as well as subject the Funds
themselves to tax on certain income from PFIC stock. For these reasons the
amount that must be distributed to shareholders, and which will be taxed to
shareholders as ordinary income or long-term capital gain, may be increased or
decreased substantially as compared to a fund that did not invest in PFIC stock.
SWAP AGREEMENTS. Each Fund may enter into swap agreements. The rules
governing the tax aspects of swap agreements are in a developing stage and are
not entirely clear in certain respects. Accordingly, while a Fund intends to
account for such transactions in a manner deemed to be appropriate, the IRS
might not accept such treatment. If it did not, the status of a Fund as a
regulated investment company might be affected. Each Fund intends to monitor
developments in this area. Certain requirements that must be met under the Code
in order for a Fund to qualify as a regulated investment company may limit the
extent to which the Fund will be able to engage in swap agreements.
FUND DISTRIBUTIONS. Each Fund anticipates distributing substantially
all of its investment company taxable income for each taxable year. Such
distributions will be taxable to shareholders as ordinary income and treated as
dividends for federal income tax purposes, but they will qualify for the 70%
dividends received deduction for corporations and as qualified dividend income
for individuals and other noncorporate taxpayers to the extent discussed below.
A Fund may either retain or distribute to shareholders its net capital
gain (net long-term capital gain over net short-term capital loss) for each
taxable year. Each Fund currently intends to distribute any such amounts. If net
capital gain is distributed and designated as a capital gain dividend, it will
be taxable to shareholders as long-term capital gain (currently taxable at a
maximum rate of 15% for noncorporate shareholders) regardless of the length of
time the shareholder has held his shares or whether such gain was recognized by
the Fund prior to the date on which the shareholder acquired his shares.
However,
56
certain capital gain dividends distributed to noncorporate shareholders for the
Funds' fiscal year ending July 31, 2003 may be taxable at a maximum rate of 20%.
Conversely, if a Fund elects to retain its net capital gain, the Fund will be
taxed thereon (except to the extent of any available capital loss carry
forwards) at the 35% corporate tax rate. If a Fund elects to retain its net
capital gain, it is expected that the Fund also will elect to have shareholders
treated as if each received a distribution of its pro rata share of such gain,
with the result that each shareholder will be required to report its pro rata
share of such gain on its tax return as long-term capital gain, will receive a
refundable tax credit for its pro rata share of tax paid by the Fund on the
gain, and will increase the tax basis for its shares by an amount equal to the
deemed distribution less the tax credit.
Ordinary income dividends paid by a Fund with respect to a taxable year
will qualify for the 70% dividends received deduction generally available to
corporations (other than corporations, such as "S" corporations, which are not
eligible for the deduction because of their special characteristics and other
than for purposes of special taxes such as the accumulated earnings tax and the
personal holding company tax) to the extent of the amount of qualifying
dividends received by the Fund from domestic corporations for the taxable year.
However, the alternative minimum tax applicable to corporations may reduce the
value of the dividends received deduction.
Ordinary income dividends paid by a Fund to individuals and other
noncorporate taxpayers will be treated as qualified dividend income that is
subject to tax at a maximum rate of 15% to the extent of the amount of
qualifying dividends received by the Fund from domestic corporations and from
foreign corporations that are either incorporated in a possession of the United
States, eligible for benefits under certain income tax treaties with the United
States that include an exchange of information program, or have stock of the
same class with respect to which the dividends are paid that is readily tradable
on an established securities market within the United States. However, dividends
received by the Fund from foreign personal holding companies, foreign investment
companies or PFICs are not qualifying dividends. If the qualifying dividend
income received by a Fund is equal to 95% (or a greater percentage) of the
Fund's gross income (exclusive of net capital gain) in any taxable year, all of
the ordinary income dividends paid by a Fund will be qualifying dividend income.
Alternative minimum tax ("AMT") is imposed in addition to, but only to
the extent it exceeds, the regular tax and is computed at a maximum rate of 28%
for non-corporate taxpayers and 20% for corporate taxpayers on the excess of the
taxpayer's alternative minimum taxable income ("AMTI") over an exemption amount.
However, the AMT on capital gain dividends and qualified dividend income paid by
a Fund to a noncorporate shareholder may not exceed a maximum rate of 15%. The
corporate dividends received deduction is not itself an item of tax preference
that must be added back to taxable income or is otherwise disallowed in
determining a corporation's AMTI. However, corporate shareholders will generally
be required to take the full amount of any dividend received from the Fund into
account (without a dividends received deduction) in determining their adjusted
current earnings, which are used in computing an additional corporate preference
item (i.e., 75% of the excess of a corporate taxpayer's adjusted current
earnings over its AMTI (determined without regard to this item and the AMTI net
operating loss deduction)) that is includable in AMTI. However, certain small
corporations are wholly exempt from the AMT.
Distributions by a Fund that do not constitute earnings and profits
will be treated as a return of capital to the extent of (and in reduction of)
the shareholder's tax basis in his shares; any excess will be treated as gain
from the sale of his shares.
Distributions by a Fund will be treated in the manner described above
regardless of whether such distributions are paid in cash or reinvested in
additional shares of the Fund (or of another Fund). Shareholders receiving a
distribution in the form of additional shares will be treated as receiving a
distribution in an amount equal to the fair market value of the shares received,
determined as of the reinvestment date.
Ordinarily, shareholders are required to take distributions by a Fund
into account in the year in which the distributions are made. However, dividends
declared in October, November or December of
57
any year and payable to shareholders of record on a specified date in such a
month will be deemed to have been received by the shareholders (and made by the
Fund) on December 31 of such calendar year if such dividends are actually paid
in January of the following year. Shareholders will be advised annually as to
the U.S. federal income tax consequences of distributions made (or deemed made)
during the year in accordance with the guidance that has been provided by the
IRS.
If the net asset value of shares is reduced below a shareholder's cost
as a result of a distribution by a Fund, such distribution generally will be
taxable even though it represents a return of invested capital. Investors should
be careful to consider the tax implications of buying shares of a Fund just
prior to a distribution. The price of shares purchased at this time may reflect
the amount of the forthcoming distribution. Those purchasing just prior to a
distribution will receive a distribution which generally will be taxable to
them.
SALE OR REDEMPTION OF SHARES. A shareholder will recognize gain or loss
on the sale or redemption of shares of a Fund in an amount equal to the
difference between the proceeds of the sale or redemption and the shareholder's
adjusted tax basis in the shares. All or a portion of any loss so recognized may
be deferred under the wash sale rules if the shareholder purchases other shares
of the Fund within 30 days before or after the sale or redemption. In general,
any gain or loss arising from (or treated as arising from) the sale or
redemption of shares of a Fund will be considered capital gain or loss and will
be long-term capital gain or loss if the shares were held for longer than one
year. Currently, any long-term capital gain recognized by a non-corporate
shareholder will be subject to tax at a maximum rate of 15%. However, any
capital loss arising from the sale or redemption of shares held for six months
or less will be treated as a long-term capital loss to the extent of the amount
of capital gain dividends received on such shares. Capital losses in any year
are deductible only to the extent of capital gains plus, in the case of a
non-corporate taxpayer, $3,000 of ordinary income.
If a shareholder (a) incurs a sales load in acquiring shares of a Fund,
(b) disposes of such shares less than 91 days after they are acquired, and (c)
subsequently acquires shares of the Fund or another fund at a reduced sales load
pursuant to a right to reinvest at such reduced sales load acquired in
connection with the acquisition of the shares disposed of, then the sales load
on the shares disposed of (to the extent of the reduction in the sales load on
the shares subsequently acquired) shall not be taken into account in determining
gain or loss on the shares disposed of, but shall be treated as incurred on the
acquisition of the shares subsequently acquired.
BACKUP WITHHOLDING. The Funds may be required to withhold 28% of
distributions and/or redemption payments. For more information refer to
"Purchase, Redemption and Pricing of Shares - Backup Withholding".
FOREIGN SHAREHOLDERS. Taxation of a shareholder who, as to the United
States, is a nonresident alien individual, foreign trust or estate, foreign
corporation, or foreign partnership ("foreign shareholder"), depends on whether
the income from a Fund is "effectively connected" with a U.S. trade or business
carried on by such shareholder. If the income from a Fund is not effectively
connected with a U.S. trade or business carried on by a foreign shareholder,
distributions (other than distributions of long-term capital gain) will be
subject to U.S. withholding tax at the rate of 30% (or lower treaty rate) upon
the gross amount of the distribution. Such a foreign shareholder would generally
be exempt from U.S. federal income tax on gain realized on the redemption of
shares of a Fund, capital gain dividends and amounts retained by a Fund that are
designated as undistributed net capital gain.
If the income from a Fund is effectively connected with a U.S. trade or
business carried on by a foreign shareholder, then ordinary income dividends,
capital gain dividends and any gains realized upon the sale or redemption of
shares of the Fund will be subject to U.S. federal income tax at the rates
applicable to U.S. citizens or domestic corporations.
In the case of foreign non-corporate shareholders, a Fund may be
required to withhold U.S. federal income tax at a rate of 28% on distributions
that are otherwise exempt from withholding tax (or
58
taxable at a reduced treaty rate) unless such shareholders furnish the Fund with
proper notification of their foreign status.
Foreign shareholders may be subject to U.S. withholding tax at a rate
of 30% on the income resulting from a Fund's election to treat any foreign
income tax paid by it as paid by its shareholders, but may not be able to claim
a credit or deduction with respect to the withholding tax for the foreign tax
treated as having been paid by them.
Foreign persons who file a United States tax return to obtain a U.S.
tax refund and who are not eligible to obtain a social security number must
apply to the IRS for an individual taxpayer identification number, using IRS
Form W-7. For a copy of the IRS Form W-7 and accompanying instructions, please
contact your tax advisor or the IRS.
Transfers by gift of shares of a Fund by a foreign shareholder who is a
nonresident alien individual will not be subject to U.S. federal gift tax. An
individual who, at the time of death, is a foreign shareholder will nevertheless
be subject to U.S. federal estate tax with respect to shares at the graduated
rates applicable to U.S. citizens and residents, unless a treaty exception
applies. In the absence of a treaty, there is a $13,000 statutory estate tax
credit.
The tax consequences to a foreign shareholder entitled to claim the
benefits of an applicable tax treaty may be different from those described
herein. Foreign shareholders are urged to consult their own tax advisers with
respect to the particular tax consequences to them of an investment in a Fund,
including the applicability of foreign tax.
FOREIGN INCOME TAX. Investment income received by each Fund from
sources within foreign countries may be subject to foreign income tax withheld
at the source. The United States has entered into tax treaties with many foreign
countries which entitle the Funds to a reduced rate of, or exemption from, tax
on such income. It is impossible to determine the effective rate of foreign tax
in advance since the amount of a Fund's assets to be invested in various
countries is not known.
If more than 50% of the value of a Fund's total assets at the close of
each taxable year consists of the stock or securities of foreign corporations,
the Fund may elect to "pass through" to the Fund's shareholders the amount of
foreign income tax paid by the Fund (the "Foreign Tax Election"). Pursuant to
the Foreign Tax Election, shareholders will be required (i) to include in gross
income, even though not actually received, their respective pro-rata shares of
the foreign income tax paid by the Fund that are attributable to any
distributions they receive; and (ii) either to deduct their pro-rata share of
foreign tax in computing their taxable income, or to use it (subject to various
Code limitations) as a foreign tax credit against Federal income tax (but not
both). No deduction for foreign tax may be claimed by a non-corporate
shareholder who does not itemize deductions or who is subject to alternative
minimum tax.
Unless certain requirements are met, a credit for foreign tax is
subject to the limitation that it may not exceed the shareholder's U.S. tax
(determined without regard to the availability of the credit) attributable to
the shareholder's foreign source taxable income. In determining the source and
character of distributions received from a Fund for this purpose, shareholders
will be required to allocate Fund distributions according to the source of the
income realized by the Fund. Each Fund's gain from the sale of stock and
securities and certain currency fluctuation gain and loss will generally be
treated as derived from U.S. sources. In addition, the limitation on the foreign
tax credit is applied separately to foreign source "passive" income, such as
dividend income, and the portion of foreign source income consisting of
qualified dividend income is reduced by approximately 57% to account for the tax
rate differential. Individuals who have no more than $300 ($600 for married
persons filing jointly) of creditable foreign tax included on Form 1099 and
whose foreign source income is all "qualified passive income" may elect each
year to be exempt from the foreign tax credit limitation and will be able to
claim a foreign tax credit without filing Form 1116 with its corresponding
requirement to report income and tax by country. Moreover, no foreign tax credit
will be allowable to any shareholder who has not held his shares of the Fund for
at least 16 days during the 30-day period beginning 15 days before the day such
shares become ex-dividend with respect to any Fund distribution to which foreign
income taxes are attributed (taking into account certain
59
holding period reduction requirements of the Code). Because of these
limitations, shareholders may be unable to claim a credit for the full amount of
their proportionate shares of the foreign income tax paid by a Fund.
EFFECT OF FUTURE LEGISLATION; LOCAL TAX CONSIDERATIONS. The foregoing
general discussion of U.S. federal income tax consequences is based on the Code
and the regulations issued thereunder as in effect on June 10, 2003. Future
legislative or administrative changes or court decisions may significantly
change the conclusions expressed herein, and any such changes or decisions may
have a retroactive effect with respect to the transactions contemplated herein.
Rules of state and local taxation of ordinary income, qualified
dividend income and capital gain dividends may differ from the rules for U.S.
federal income taxation described above. Distributions may also be subject to
additional state, local and foreign taxes depending on each shareholder's
particular situation. Non-U.S. shareholders may be subject to U.S. tax rules
that differ significantly from those summarized above. Shareholders are urged to
consult their tax advisers as to the consequences of these and other state and
local tax rules affecting investment in the Funds.
DISTRIBUTION OF SECURITIES
DISTRIBUTION PLANS
The Trust has adopted distribution plans pursuant to Rule 12b-1 under
the 1940 Act with respect to each Fund's Class A shares, Class B shares, Class C
shares, Class R shares and Investor Class shares, if applicable (collectively
the "Plans"). Each Fund, pursuant to the Plans, pays AIM Distributors
compensation at the annual rate, shown immediately below, of the Fund's average
daily net assets of the applicable class.
FUND CLASS A CLASS B CLASS C CLASS R INVESTOR CLASS
---- ------- ------- ------- ------- --------------
AIM International Core Equity Fund 0.35% 1.00% 1.00% 0.50% N/A
AIM Real Estate Fund 0.35 1.00 1.00 N/A 0.25%
All of the Plans compensate AIM Distributors for the purpose of
financing any activity which is primarily intended to result in the sale of
shares of the Funds. Such activities include, but are not limited to, the
following: printing of prospectuses and statements of additional information and
reports for other than existing shareholders; overhead; preparation and
distribution of advertising material and sales literature; expenses of
organizing and conducting sales seminars; supplemental payments to dealers and
other institutions such as asset-based sales charges or as payments of service
fees under shareholder service arrangements; and costs of administering each
Plan.
Amounts payable by a Fund under the Plans need not be directly related
to the expenses actually incurred by AIM Distributors on behalf of each Fund.
The Plans do not obligate the Funds to reimburse AIM Distributors for the actual
expenses AIM Distributors may incur in fulfilling its obligations under the
Plans. Thus, even if AIM Distributors' actual expenses exceed the fee payable to
AIM Distributors at any given time, the Funds will not be obligated to pay more
than that fee. If AIM Distributors' expenses are less than the fee it receives,
AIM Distributors will retain the full amount of the fee.
AIM Distributors may from time to time waive or reduce any portion of
its 12b-1 fee for Class A, Class C, Class R and Investor Class shares. Voluntary
fee waivers or reductions may be rescinded at any time without further notice to
investors. During periods of voluntary fee waivers or reductions, AIM
Distributors will retain its ability to be reimbursed for such fee prior to the
end of each fiscal year. Contractual fee waivers or reductions set forth in the
Fee Table in a Prospectus may not be terminated or amended to the Funds'
detriment during the period stated in the agreement between AIM Distributors and
the Fund.
60
The Funds may pay a service fee of 0.25% of the average daily net
assets of the Class A, Class B, Class C, Class R or Investor Class shares,
attributable to the customers of selected dealers and financial institutions to
such dealers and financial institutions, including AIM Distributors, acting as
principal, who furnish continuing personal shareholder services to their
customers who purchase and own the applicable class of shares of the Fund. Under
the terms of a shareholder service agreement, such personal shareholder services
include responding to customer inquiries and providing customers with
information about their investments. Any amounts not paid as a service fee under
each Plan would constitute an asset-based sales charge.
AIM Distributors may pay dealers and institutions who sell Class R
shares an annual fee of 0.50% of average daily net assets. These payments will
consist of an asset-based fee of 0.25% and a service fee of 0.25% and will
commence either on the thirteenth month after the first purchase, on accounts on
which a dealer concession was paid, or immediately, on accounts on which a
dealer concession was not paid. If AIM Distributors pays a dealer concession, it
will retain all payments received by it relating to Class R shares for the first
year after they are purchased. AIM Distributors will make quarterly payments to
dealers and institutions based on the average net asset value of Class R shares
which are attributable to shareholders for whom the dealers and institutions are
designated as dealers of record.
Under a Shareholder Service Agreement, a Fund agrees to pay
periodically fees to selected dealers and other institutions who render the
foregoing services to their customers. The fees payable under a Shareholder
Service Agreement will be calculated at the end of each payment period for each
business day of the Funds during such period at the annual rate specified in
each agreement based on the average daily net asset value of the Funds' shares
purchased or acquired through exchange. Fees shall be paid only to those
selected dealers or other institutions who are dealers or institutions of record
at the close of business on the last business day of the applicable payment
period for the account in which such Fund's shares are held.
Selected dealers and other institutions entitled to receive
compensation for selling Fund shares may receive different compensation for
selling shares of one particular class over another. Under the Plans, certain
financial institutions which have entered into service agreements and which sell
shares of the Funds on an agency basis, may receive payments from the Funds
pursuant to the respective Plans. AIM Distributors does not act as principal,
but rather as agent for the Funds, in making dealer incentive and shareholder
servicing payments to dealers and other financial institutions under the Plans.
These payments are an obligation of the Funds and not of AIM Distributors.
Payments pursuant to the Plans are subject to any applicable
limitations imposed by rules of the National Association of Securities Dealers,
Inc. ("NASD").
See Appendix J for a list of the amounts paid by each class of shares
of each Fund to AIM Distributors pursuant to the Plans for the year, or period,
ended July 31, 2002 and Appendix K for an estimate by category of the allocation
of actual fees paid by each class of shares of each Fund pursuant to its
respective distribution plan for the year or period ended July 31, 2002.
As required by Rule 12b-1, the Plans and related forms of Shareholder
Service Agreements were approved by the Board of Trustees, including a majority
of the trustees who are not "interested persons" (as defined in the 1940 Act) of
the Trust and who have no direct or indirect financial interest in the operation
of the Plans or in any agreements related to the Plans (the "Rule 12b-1
Trustees"). In approving the Plans in accordance with the requirements of Rule
12b-1, the trustees considered various factors and determined that there is a
reasonable likelihood that the Plans would benefit each class of the Funds and
its respective shareholders.
The anticipated benefits that may result from the Plans with respect to
each Fund and/or the classes of each Fund and its shareholders include but are
not limited to the following: (1) rapid account access; (2) relatively
predictable flow of cash; and (3) a well-developed, dependable network of
shareholder service agents to help to curb sharp fluctuations in rates of
redemptions and sales, thereby
61
reducing the chance that an unanticipated increase in net redemptions could
adversely affect the performance of each Fund.
Unless terminated earlier in accordance with their terms, the Plans
continue from year to year as long as such continuance is specifically approved,
in person, at least annually by the Board of Trustees, including a majority of
the Rule 12b-1 Trustees. A Plan may be terminated as to any Fund or class by the
vote of a majority of the Rule 12b-1 Trustees or, with respect to a particular
class, by the vote of a majority of the outstanding voting securities of that
class.
Any change in the Plans that would increase materially the distribution
expenses paid by the applicable class requires shareholder approval; otherwise,
the Plans may be amended by the trustees, including a majority of the Rule 12b-1
Trustees, by votes cast in person at a meeting called for the purpose of voting
upon such amendment. As long as the Plans are in effect, the selection or
nomination of the Independent Trustees is committed to the discretion of the
Independent Trustees.
The Class B Plan obligates Class B shares to continue to make payments
to AIM Distributors following termination of the Class B shares Distribution
Agreement with respect to Class B shares sold by or attributable to the
distribution efforts of AIM Distributors or its predecessors, unless there has
been a complete termination of the Class B Plan (as defined in such Plan) and
the Class B Plan expressly authorizes AIM Distributors to assign, transfer or
pledge its rights to payments pursuant to the Class B Plan.
DISTRIBUTOR
The Trust has entered into master distribution agreements, as amended,
relating to the Funds (the "Distribution Agreements") with AIM Distributors, a
registered broker-dealer and a wholly owned subsidiary of AIM, pursuant to which
AIM Distributors acts as the distributor of shares of the Funds. The address of
AIM Distributors is P.O. Box 4739, Houston, Texas 77210-4739. Certain trustees
and officers of the Trust are affiliated with AIM Distributors. See "Management
of the Trust."
The Distribution Agreements provide AIM Distributors with the exclusive
right to distribute shares of the Funds on a continuous basis directly and
through other broker-dealers with whom AIM Distributors has entered into
selected dealer agreements. AIM Distributors has not undertaken to sell any
specified number of shares of any classes of the Funds.
AIM Distributors expects to pay sales commissions from its own
resources to dealers and institutions who sell Class B and Class C shares of the
Funds at the time of such sales.
Payments with respect to Class B shares will equal 4.00% of the
purchase price of the Class B shares sold by the dealer or institution, and will
consist of a sales commission equal to 3.75% of the purchase price of the Class
B shares sold plus an advance of the first year service fee of 0.25% with
respect to such shares. The portion of the payments to AIM Distributors under
the Class B Plan which constitutes an asset-based sales charge (0.75%) is
intended in part to permit AIM Distributors to recoup a portion of such sales
commissions plus financing costs. In the future, if multiple distributors serve
a Fund, each such distributor (or its assignee or transferee) would receive a
share of the payments under the Class B Plan based on the portion of the Fund's
Class B shares sold by or attributable to the distribution efforts of that
distributor.
AIM Distributors may pay sales commissions to dealers and institutions
who sell Class C shares of the AIM Funds at the time of such sales. Payments
with respect to Class C shares will equal 1.00% of the purchase price of the
Class C shares sold by the dealer or institution, and will consist of a sales
commission of 0.75% of the purchase price of the Class C shares sold plus an
advance of the first year service fee of 0.25% with respect to such shares. AIM
Distributors will retain all payments received by it relating to Class C shares
for the first year after they are purchased. The portion of the payments to AIM
Distributors under the Class A, Class C and Class R Plan attributable to Class C
shares which constitutes an asset-based sales charge (0.75%) is intended in part
to permit AIM Distributors to recoup a
62
portion of the sales commissions to dealers plus financing costs, if any. After
the first full year, AIM Distributors will make quarterly payments to dealers
and institutions based on the average net asset value of Class C shares which
are attributable to shareholders for whom the dealers and institutions are
designated as dealers of record. These payments will consist of an asset-based
sales charge of 0.75% and a service fee of 0.25%.
The Trust (on behalf of any class of any Fund) or AIM Distributors may
terminate the Distribution Agreements on 60 days' written notice without
penalty. The Distribution Agreements will terminate automatically in the event
of their assignment. In the event the Class B shares Distribution Agreement is
terminated, AIM Distributors would continue to receive payments of asset-based
distribution fees in respect of the outstanding Class B shares attributable to
the distribution efforts of AIM Distributors or its predecessors; provided,
however that a complete termination of the Class B Plan (as defined in such
Plan) would terminate all payments to AIM Distributors. Termination of the Class
B Plan or the Distribution Agreement for Class B shares would not affect the
obligation of Class B shareholders to pay contingent deferred sales charges.
Total sales charges (front end and contingent deferred sales charges)
paid in connection with the sale of shares of each class of each Fund, if
applicable, for the last four fiscal periods are found in Appendix L.
CALCULATION OF PERFORMANCE DATA
Although performance data may be useful to prospective investors when
comparing a Fund's performance with other funds and other potential investments,
investors should note that the methods of computing performance of other
potential investments are not necessarily comparable to the methods employed by
a Fund.
Average Annual Total Return Quotation
The standard formula for calculating average annual total return is as
follows:
n
P(1+T) = ERV
Where P = a hypothetical initial payment of $1,000;
T = average annual total return (assuming the
applicable maximum sales load is deducted at the
beginning of the one, five, or ten year periods);
n = number of years; and
ERV = ending redeemable value of a hypothetical $1,000
payment at the end of the one, five, or ten year
periods (or fractional portion of such period).
The average annual total returns for each Fund, with respect to its
Class A, Class B, Class C, Class R and Investor Class shares, if applicable, for
the one, five and ten year periods (or since inception if less than ten years)
ended January 31, 2003 are found in Appendix M.
Total returns quoted in advertising reflect all aspects of a Fund's
return, including the effect of reinvesting dividends and capital gain
distributions, and any change in the Fund's net asset value per share over the
period. Cumulative total return reflects the performance of a Fund over a stated
period of time. Average annual total returns are calculated by determining the
growth or decline in value of a hypothetical investment in a Fund over a stated
period of time, and then calculating the annually compounded percentage rate
that would have produced the same result if the rate of growth or decline in
value had been constant over the period.
Each Fund's total return is calculated in accordance with a
standardized formula for computation of annualized total return. Standardized
total return for: (1) Class A shares reflect
63
the deduction of a Fund's maximum front-end sales charge at the time of
purchase; (2) Class B and Class C shares reflect the deduction of the maximum
applicable CDSC on a redemption of shares held for the period; (3) Class R
shares does not reflect a deduction of any sales charge since that class is
generally sold and redeemed at net asset value; and (4) Investor Class shares
does not reflect a deduction of any sales charge since that class is sold and
redeemed at net asset value.
A Fund's total return shows its overall change in value, including
changes in share price and assuming all the Fund's dividends and capital gain
distributions are reinvested. A cumulative total return reflects the Fund's
performance over a stated period of time. An average annual total return
reflects the hypothetical compounded annual rate of return that would have
produced the same cumulative total return if the Fund's performance had been
constant over the entire period. Because average annual returns tend to even out
variations in the Fund's return, investors should recognize that such returns
are not the same as actual year-by-year results. To illustrate the components of
overall performance, a Fund may separate its cumulative and average annual
returns into income results and capital gains or losses.
Alternative Total Return Quotations
Standard total return quotes may be accompanied by total return figures
calculated by alternative methods. For example, average annual total return may
be calculated without assuming payment of the full sales load according to the
following formula:
n
P(1+U) = ERV
Where P = a hypothetical initial payment of $1,000;
U = average annual total return assuming payment of only
a stated portion of, or none of, the applicable
maximum sales load at the beginning of the stated
period;
n = number of years; and
ERV = ending redeemable value of a hypothetical $1,000
payment at the end of the stated period.
Cumulative total return across a stated period may be calculated as
follows:
P(1+V) = ERV
Where P = a hypothetical initial payment of $1,000;
V = cumulative total return assuming payment of all of, a
stated portion of, or none of, the applicable
maximum sales load at the beginning of the stated
period; and
ERV = ending redeemable value of a hypothetical $1,000
payment at the end of the stated period.
The cumulative total returns for each Fund, with respect to its Class
A, Class B, Class C, Class R and Investor Class shares, if applicable, for the
one, five and ten year periods (or since inception if less than ten years) ended
January 31, 2003 are found in Appendix M.
Calculation of Certain Performance Data
AIM International Core Equity Fund may use a restated or a blended
performance calculation to derive certain performance data shown for its Class R
shares in this Statement of Additional Information and in the Fund's
advertisements and other sales material. If the Fund's Class R shares were not
offered to the public during the performance period covered, the performance
data shown will be the restated historical performance of the Fund's Class A
shares at net asset value, adjusted to reflect the higher Rule 12b-1 fees
applicable to the Class R shares. If the Fund's Class R shares were offered to
the public only during a portion of the performance period covered, the
performance data shown will be the blended returns of the historical performance
of the Fund's Class R shares since their inception and the restated historical
performance of the Fund's Class A shares (for periods prior to inception of the
Class R
64
shares) at net asset value, adjusted to reflect the higher Rule 12b-1 fees
applicable to the Class R shares. If the Fund's Class R shares were offered to
the public during the entire performance period covered, the performance data
shown will be the historical performance of the Fund's Class R shares.
AIM Real Estate Fund may use a restated or a blended performance
calculation to derive certain performance data shown for its Investor Class
shares in this Statement of Additional Information and in the Fund's
advertisements and other sales material. If the Fund's Investor Class shares
were not offered to the public during the performance period covered, the
performance data shown will be the restated historical performance of the Fund's
Class A shares at net asset value and reflecting the Rule 12b-1 fees applicable
to the Class A shares. If the Fund's Investor Class shares were offered to the
public only during a portion of the performance period covered, the performance
data shown will be the blended returns of the historical performance of the
Fund's Investor Class shares since their inception and the restated historical
performance of the Fund's Class A shares (for periods prior to inception of the
Investor Class shares) at net asset value and reflecting the Rule 12b-1 fees
applicable to the Class A shares. If the Fund's Investor Class shares were
offered to the public during the entire performance period covered, the
performance data shown will be the historical performance of the Fund's Investor
Class shares.
A restated or blended performance calculation may be used to derive (i)
each Fund's standardized average annual total returns over a stated period and
(ii) each Fund's non-standardized cumulative total returns over a stated period.
Average Annual Total Return (After Taxes on Distributions) Quotations
A Fund's average annual total return (after taxes on distributions)
shows its overall change in value, including changes in share price and assuming
all the Fund's dividends and capital gain distributions are reinvested. It
reflects the deduction of federal income taxes on distributions, but not on
redemption proceeds. Average annual total returns (after taxes on distributions)
are calculated by determining the after-tax growth or decline in value of a
hypothetical investment in a Fund over a stated period of time, and then
calculating the annually compounded percentage rate that would have produced the
same result if the rate of growth or decline in value had been constant over the
period. Because average annual total returns (after taxes on distributions) tend
to even out variations in the Fund's return, investors should recognize that
such returns are not the same as actual year-by-year results. To illustrate the
components of overall performance, the Fund may separate its average annual
total returns (after taxes on distributions) into income results and capital
gains or losses.
The standard formula for calculating average annual total return (after
taxes on distributions) is:
n
P(1+T) = ATV(D)
where P = a hypothetical initial payment of $1,000 ;
T = average annual total return (after taxes on
distributions);
n = number of years; and
ATV(D) = ending value of a hypothetical $1,000 payment made at
the beginning of the one, five, or ten year periods (or
since inception, if applicable) at the end of the one,
five, or ten year periods (or since inception, if
applicable), after taxes on fund distributions but not
after taxes on redemption.
Standardized average annual total return (after taxes on distributions)
for: (1) Class A shares reflects the deduction of a Fund's maximum front-end
sales charge at the time of purchase; (2) Class B and Class C shares reflects
the deduction of the maximum applicable CDSC on a redemption of shares held for
the period; and (3) Investor Class shares does not reflect a deduction of any
sales charge since that class is sold and redeemed at net asset value.
The after-tax returns assume all distributions by a Fund, less the
taxes due on such distributions, are reinvested at the price calculated as
stated in the prospectus on the reinvestment dates during the period. Taxes on a
Fund's distributions are calculated by applying to each component of the
65
distribution (e.g., ordinary income and long-term capital gain) the highest
corresponding individual marginal federal income tax rates in effect on the
reinvestment date. The taxable amount and tax character of each distribution is
as specified by the Fund on the dividend declaration date, but reflects any
subsequent recharacterizations of distributions. The effect of applicable tax
credits, such as the foreign tax credit, are also taken into account. The
calculations only reflect federal taxes, and thus do not reflect state and local
taxes or the impact of the federal alternative minimum tax.
The average annual total returns (after taxes on distributions) for
each Fund, with respect to its Class A, Class B, Class C and Investor Class
shares, for the one, five, and ten year periods (or since inception if less than
ten years) ended January 31, 2003 are found in Appendix M.
Average Annual Total Return (After Taxes on Distributions and Sale of Fund
Shares) Quotation
A Fund's average annual total return (after taxes on distributions and
sale of Fund shares) shows its overall change in value, including changes in
share price and assuming all the Fund's dividends and capital gain distributions
are reinvested. It reflects the deduction of federal income taxes on both
distributions and proceeds. Average annual total returns (after taxes on
distributions and redemption) are calculated by determining the after-tax growth
or decline in value of a hypothetical investment in a Fund over a stated period
of time, and then calculating the annually compounded percentage rate that would
have produced the same result if the rate of growth or decline in value had been
constant over the period. Because average annual total returns (after taxes on
distributions and redemption) tend to even out variations in the Fund's return,
investors should recognize that such returns are not the same as actual
year-by-year results. To illustrate the components of overall performance, a
Fund may separate its average annual total returns (after taxes on distributions
and redemption) into income results and capital gains or losses.
The standard formula for calculating average annual total return (after
taxes on distributions and redemption) is:
n
P(1+T) = ATV(DR)
where P = a hypothetical initial payment of $1,000;
T = average annual total return (after taxes on
distributions and redemption);
n = number of years; and
ATV(DR) = ending value of a hypothetical $1,000 payment made at
the beginning of the one, five, or ten year periods (or
since inception, if applicable) at the end of the one,
five, or ten year periods (or since inception, if
applicable), after taxes on fund distributions and
redemption.
Standardized average annual total return (after taxes on distributions and
redemption) for: (1) Class A shares reflects the deduction of a Fund's maximum
front-end sales charge at the time of purchase; (2) Class B and Class C shares
reflect the deduction of the maximum applicable CDSC on a redemption of shares
held for the period; and (3) Investor Class shares does not reflect a deduction
of any sales charge since that class is sold and redeemed at net asset value.
The after-tax returns assume all distributions by a Fund, less the
taxes due on such distributions, are reinvested at the price calculated as
stated in the prospectus on the reinvestment dates during the period. Taxes due
on a Fund's distributions are calculated by applying to each component of the
distribution (e.g., ordinary income and long-term capital gain) the highest
corresponding individual marginal federal income tax rates in effect on the
reinvestment date. The taxable amount and tax character of each distribution is
as specified by the Fund on the dividend declaration date, but reflects any
subsequent recharacterizations of distributions. The effect of applicable tax
credits, such as the foreign tax credit, are also taken into account. The
calculations only reflect federal taxes, and thus do not reflect state and local
taxes or the impact of the federal alternative minimum tax.
66
The ending values for each period assume a complete liquidation of all
shares. The ending values for each period are determined by subtracting capital
gains taxes resulting from the sale of Fund shares and adding the tax benefit
from capital losses resulting from the sale of Fund shares. The capital gain or
loss upon sale of Fund shares is calculated by subtracting the tax basis from
the proceeds. Capital gains taxes (or the benefit resulting from tax losses) are
calculated using the highest federal individual capital gains tax rate for gains
of the appropriate character (e.g., ordinary income or long-term) in effect on
the date of the sale of Fund shares and in accordance with federal tax law
applicable on that date. The calculations assume that a shareholder may deduct
all capital losses in full.
The basis of shares acquired through the $1,000 initial investment are
tracked separately from subsequent purchases through reinvested distributions.
The basis for a reinvested distribution is the distribution net of taxes paid on
the distribution. Tax basis is adjusted for any distributions representing
returns of capital and for any other tax basis adjustments that would apply to
an individual taxpayer.
The amount and character (i.e., short-term or long-term) of capital
gain or loss upon sale of Fund shares is determined separately for shares
acquired through the $1,000 initial investment and each subsequent purchase
through reinvested distributions. The tax character is determined by the length
of the measurement period in the case of the initial $1,000 investment and the
length of the period between reinvestment and the end of the measurement period
in the case of reinvested distributions.
The average annual total returns (after taxes on distributions and
redemption) for each fund, with respect to its Class A, Class B, Class C and
Investor Class shares, for the one, five, and ten year periods (or since
inception if less than ten years) ended January 31, 2003 are found in Appendix
M.
Yield Quotation
Yield is a function of the type and quality of a Fund's investments,
the maturity of the securities held in a Fund's portfolio and the operating
expense ratio of the Fund. Yield is computed in accordance with standardized
formulas described below and can be expected to fluctuate from time to time and
is not necessarily indicative of future results. Accordingly, yield information
may not provide a basis for comparison with investments which pay a fixed rate
of interest for a stated period of time.
A Fund may quote its distribution rate, which uses the most recent
dividend paid annualized as a percentage of the Fund's offering price.
Income calculated for purposes of calculating a Fund's yield differs
from income as determined for other accounting purposes. Because of the
different accounting methods used, and because of the compounding assumed in
yield calculations, the yield quoted for a Fund may differ from the rate of
distributions from the Fund paid over the same period or the rate of income
reported in the Fund's financial statements.
The standard formula for calculating yield for each Fund is as follows:
6
YIELD = 2[((a-b)/(c x d)+1) -1]
Where a = dividends and interest earned during a stated 30-day
period. For purposes of this calculation, dividends are
accrued rather than recorded on the ex-dividend date.
Interest earned under this formula must generally be
calculated based on the yield to maturity of each
obligation (or, if more appropriate, based on yield to
call date).
b = expenses accrued during period (net of reimbursements).
c = the average daily number of shares outstanding during
the period that were entitled to receive dividends.
d = the maximum offering price per share on the last day of
the period.
The yields and distribution rates for each class of AIM Real
Estate Fund for the 30 day period ended January 31, 2003 are
found in Appendix M.
67
Performance Information
All advertisements of the Funds will disclose the maximum sales charge
(including deferred sales charges) imposed on purchases of a Fund's shares. If
any advertised performance data does not reflect the maximum sales charge (if
any), such advertisement will disclose that the sales charge has not been
deducted in computing the performance data, and that, if reflected, the maximum
sales charge would reduce the performance quoted. Further information regarding
each Fund's performance is contained in that Fund's annual report to
shareholders, which is available upon request and without charge.
From time to time, AIM or its affiliates may waive all or a portion of
their fees and/or assume certain expenses of any Fund. Fee waivers or reductions
or commitments to reduce expenses will have the effect of increasing that Fund's
yield and total return.
Certain Funds may participate in the initial public offering (IPO)
market in some market cycles. Because of these Funds' small asset bases, any
investment the Funds may make in IPOs may significantly increase these Funds'
total returns. As the Funds' assets grow, the impact of IPO investments will
decline, which may decrease the Funds' total returns.
The performance of each Fund will vary from time to time and past
results are not necessarily indicative of future results.
Total return and yield figures for the Funds are neither fixed nor
guaranteed. The Funds may provide performance information in reports, sales
literature and advertisements. The Funds may also, from time to time, quote
information about the Funds published or aired by publications or other media
entities which contain articles or segments relating to investment results or
other data about one or more of the Funds. The following is a list of such
publications or media entities:
Advertising Age Forbes New York Times
Barron's Fortune Pension World
Best's Review Hartford Courant Pensions & Investments
Broker World Inc. Personal Investor
Business Week Institutional Investor Philadelphia Inquirer
Changing Times Insurance Forum USA Today
Christian Science Monitor Insurance Week U.S. News & World Report
Consumer Reports Investor's Business Daily Wall Street Journal
Economist Journal of the American Washington Post
FACS of the Week Society of CLU & ChFC CNN
Financial Planning Kiplinger Letter CNBC
Financial Product News Money PBS
Financial Services Week Mutual Fund Forecaster
Financial World Nation's Business
Each Fund may also compare its performance to performance data of
similar mutual funds as published by the following services:
Bank Rate Monitor Stanger
Donoghue's Weisenberger
Mutual Fund Values (Morningstar) Lipper, Inc.
68
Each Fund's performance may also be compared in advertising to the
performance of comparative benchmarks such as the following:
Lipper International Fund Index
Lipper Real Estate Fund Index
Morgan Stanley Real Estate Index
MSCI EAFE Index
NAREIT Equity Index
Standard & Poor's 500 Index
Each Fund may also compare its performance to rates on Certificates of
Deposit and other fixed rate investments such as the following:
10 year Treasury Notes
90 day Treasury Bills
Advertising for the Funds may from time to time include discussions of
general economic conditions and interest rates. Advertising for such Funds may
also include references to the use of those Funds as part of an individual's
overall retirement investment program. From time to time, sales literature
and/or advertisements for any of the Funds may disclose: (i) the largest
holdings in the Funds' portfolios; (ii) certain selling group members; (iii)
certain institutional shareholders; (iv) measurements of risk, including
standard deviation, Beta and Sharpe ratios; and/or (v) capitalization and sector
analyses of holdings in the Funds' portfolios.
From time to time, the Funds' sales literature and/or advertisements
may discuss generic topics pertaining to the mutual fund industry. This
includes, but is not limited to, literature addressing general information about
mutual funds, discussions regarding investment styles, such as the growth, value
or GARP (growth at a reasonable price) styles of investing, variable annuities,
dollar-cost averaging, stocks, bonds, money markets, certificates of deposit,
retirement, retirement plans, asset allocation, tax-free investing, college
planning and inflation.
69
APPENDIX A
RATINGS OF DEBT SECURITIES
The following is a description of the factors underlying the debt
ratings of Moody's, S&P and Fitch:
MOODY'S LONG-TERM DEBT RATINGS
Moody's corporate ratings areas follows:
Aaa: Bonds and preferred stock which are rated Aaa are judged to be of
the best quality. They carry the smallest degree of investment risk and are
generally referred to as "gilt-edged." Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position of such
issues.
Aa: Bonds and preferred stock which are rated Aa are judged to be of
high quality by all standards. Together with the Aaa group they comprise what
are generally known as high grade bonds. These are rated lower than the best
bonds because margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may be
other elements present which make the long-term risk in Aa rated bonds appear
somewhat larger than those securities rated Aaa.
A: Bonds and preferred stock which are rated A possess many favorable
investment attributes and are to be considered as upper-medium-grade
obligations. Factors giving security to principal and interest are considered
adequate, but elements may be present which suggest a susceptibility to
impairment sometime in the future.
Baa: Bonds and preferred stock which are rated Baa are considered as
medium-grade obligations, i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate for the
present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well.
Ba: Bonds and preferred stock which are rated Ba are judged to have
speculative elements; their future cannot be considered as well assured. Often
the protection of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B: Bonds and preferred stock which are rated B generally lack
characteristics of the desirable investment. Assurance of interest and principal
payments or of maintenance of other terms of the contract over any long period
of time may be small.
Caa: Bonds and preferred stock which are rated Caa are of poor
standing. Such issues may be in default or there may be present elements of
danger with respect to principal or interest.
Ca: Bonds and preferred stock which are rated Ca represent obligations
which are speculative in a high degree. Such issues are often in default or have
other marked shortcomings.
C: Bonds and preferred stock which are rated C are the lowest rated
class of bonds, and issues so rated can be regarded as having extremely poor
prospects of ever attaining any real investment standing.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each generic
rating classification from Aa through Caa. The modifier 1 indicates that the
obligation ranks in the higher end of its generic rating
A-1
category; the modifier 2 indicates a mid-range ranking; and the modifier 3
indicates a ranking in the lower end of that generic rating category.
MOODY'S SHORT-TERM PRIME RATING SYSTEM
Moody's short-term ratings are opinions of the ability of issuers to
honor senior financial obligations and contracts. Such obligations generally
have an original maturity not exceeding one year, unless explicitly noted.
Moody's employs the following designations, all judged to be investment
grade , to indicate the relative repayment ability of rated issuers.
PRIME-1: Issuers (or supporting institutions) rated Prime-1 have a superior
ability for repayment of senior short-term obligations. Prime-1 repayment
ability will often be evidenced by many of the following characteristics:
leading market positions in well-established industries; high rates of return on
funds employed; conservative capitalization structure with moderate reliance on
debt and ample asset protection; broad margins in earnings coverage of fixed
financial charges and high internal cash generation; and well-established access
to a range of financial markets and assured sources of alternate liquidity.
PRIME-2: Issuers (or supporting institutions) rated Prime-2 have a strong
ability to repay senior short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
PRIME-3: Issuers (or supporting institutions) rated Prime-3 have an acceptable
ability for repayment of senior short-term debt obligations. The effect of
industry characteristics and market compositions may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.
NOT PRIME: Issuers rated Not Prime do not fall within any of the Prime rating
categories.
Note: In addition, in certain countries the prime rating may be
modified by the issuer's or guarantor's senior unsecured long-term debt rating.
Moody's municipal ratings are as follows:
MOODY'S U.S. LONG-TERM MUNICIPAL BOND RATING DEFINITIONS
Municipal Ratings are opinions of the investment quality of issuers and
issues in the US municipal and tax-exempt markets. As such, these ratings
incorporate Moody's assessment of the default probability and loss severity of
these issuers and issues.
Municipal Ratings are based upon the analysis of four primary factors
relating to municipal finance: economy, debt, finances, and
administration/management strategies. Each of the factors is evaluated
individually and for its effect on the other factors in the context of the
municipality's ability to repay its debt.
Aaa: Issuers or issues rated Aaa demonstrate the strongest
creditworthiness relative to other US municipal or tax-exempt issuers or issues.
Aa: Issuers or issues rated Aa demonstrate very strong
creditworthiness relative to other US municipal or tax-exempt issuers or issues.
A-2
A: Issuers or issues rated A present above-average creditworthiness
relative to other US municipal or tax-exempt issuers or issues.
Baa: Issuers or issues rated Baa represent average creditworthiness
relative to other US municipal or tax-exempt issuers or issues.
Ba: Issuers or issues rated Ba demonstrate below-average
creditworthiness relative to other US municipal or tax-exempt issuers or issues.
B: Issuers or issues rated B demonstrate weak creditworthiness
relative to other US municipal or tax-exempt issuers or issues.
Caa: Issuers or issues rated Caa demonstrate very weak creditworthiness
relative to other US municipal or tax-exempt issuers or issues.
Ca: Issuers or issues rated Ca demonstrate extremely weak
creditworthiness relative to other US municipal or tax-exempt issuers or issues.
C: Issuers or issues rated C demonstrate the weakest creditworthiness
relative to other US municipal or tax-exempt issuers or issues.
Note: Also, Moody's applies numerical modifiers 1, 2, and 3 in each
generic rating classification from Aa to Caa. The modifier 1 indicates that the
issue ranks in the higher end of its generic rating category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates that the issue ranks
in the lower end of its generic category.
MOODY'S MIG/VMIG US SHORT-TERM RATINGS
In municipal debt issuance, there are three rating categories for
short-term obligations that are considered investment grade. These ratings are
designated as Moody's Investment Grade (MIG) and are divided into three levels -
MIG 1 through MIG 3.
In addition, those short-term obligations that are of speculative
quality are designated SG, or speculative grade.
In the case of variable rate demand obligations (VRDOs), a
two-component rating is assigned. The first element represents Moody's
evaluation of the degree of risk associated with scheduled principal and
interest payments. The second element represents Moody's evaluation of the
degree of risk associated with the demand feature, using the MIG rating scale.
The short-term rating assigned to the demand feature of VRDOs is
designated as VMIG. When either the long- or short-term aspect of a VRDO is not
rated, that piece is designated NR, e.g., Aaa/NR or NR/VMIG 1.
MIG ratings expire at note maturity. By contrast, VMIG rating
expirations will be a function of each issue's specific structural or credit
features.
Gradations of investment quality are indicated by rating symbols, with
each symbol representing a group in which the quality characteristics are
broadly the same.
MIG 1/VMIG 1: This designation denotes superior credit quality. Excellent
protection is afforded by established cash flows, highly reliable liquidity
support or demonstrated broad-based access to the market for refinancing.
A-3
MIG 2/VMIG 2: This designation denotes strong credit quality. Margins of
protection are ample although not as large as in the preceding group.
MIG 3/VMIG 3: This designation denotes acceptable credit quality. Liquidity and
cash flow protection may be narrow and market access for refinancing is likely
to be less well established.
SG: This designation denotes speculative-grade credit quality. Debt instruments
in this category may lack sufficient margins of protection.
STANDARD & POOR'S LONG-TERM CORPORATE AND MUNICIPAL RATINGS
Issue credit ratings are based in varying degrees, on the following
considerations: likelihood of payment - capacity and willingness of the obligor
to meet its financial commitment on an obligation in accordance with the terms
of the obligation; nature of and provisions of the obligation; and protection
afforded by, and relative position of, the obligation in the event of
bankruptcy, reorganization, or other arrangement under the laws of bankruptcy
and other laws affecting creditors' rights.
The issue ratings definitions are expressed in terms of default risk.
As such, they pertain to senior obligations of an entity. Junior obligations are
typically rated lower than senior obligations, to reflect the lower priority in
bankruptcy, as noted above.
S&P describes its ratings for corporate and municipal bonds as follows:
AAA: Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in a small degree.
A: Debt rated A has a strong capacity to meet its financial commitments
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB: Debt rated BBB exhibits adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to meet its financial commitment on the obligation.
BB-B-CCC-CC-C: Debt rated BB, B, CCC, CC and C is regarded as having significant
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest. While
such debt will likely have some quality and protective characteristics, these
may be outweighed by large uncertainties or major exposures to adverse
conditions.
NR: Not Rated.
S&P DUAL RATINGS
S&P assigns "dual" ratings to all debt issues that have a put option or
demand feature as part of their structure.
The first rating addresses the likelihood of repayment of principal and
interest as due, and the second rating addresses only the demand feature. The
long-term debt rating symbols are used for bonds to denote the long-term
maturity and the commercial paper rating symbols for the put option (for
example, AAA/A-1+). With short-term demand debt, the note rating symbols are
used with the commercial paper rating symbols (for example, SP-1+/A-1+).
A-4
S&P COMMERCIAL PAPER RATINGS
An S&P commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days.
These categories are as follows:
A-1: This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus sign (+) designation.
A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
A-3: Issues carrying this designation have adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.
B: Issues rated 'B' are regarded as having only speculative capacity for
timely payment.
C: This rating is assigned to short-term debt obligations with a doubtful
capacity for payment.
D: Debt rated 'D' is in payment default. The 'D' rating category is used
when interest payments or principal payments are not made on the date due, even
if the applicable grace period has not expired, unless Standard & Poor's
believes such payments will be made during such grace period.
S&P SHORT-TERM MUNICIPAL RATINGS
An S&P note rating reflect the liquidity factors and market-access
risks unique to notes. Notes due in three years or less will likely receive a
note rating. Notes maturing beyond three years will most likely receive a
long-term debt rating. The following criteria will be used in making that
assessment: amortization schedule (the larger the final maturity relative to
other maturities, the more likely it will be treated as a note); and source of
payment (the more dependant the issue is on the market for its refinancing, the
more likely it will be treated as a note).
Note rating symbols are as follows:
SP-1: Strong capacity to pay principal and interest. An issue determined to
possess a very strong capacity to pay debt service is given a plus (+)
designation.
SP-2: Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term of the
notes.
SP-3: Speculative capacity to pay principal and interest.
FITCH LONG-TERM CREDIT RATINGS
Fitch Ratings provides an opinion on the ability of an entity or of a
securities issue to meet financial commitments, such as interest, preferred
dividends, or repayment of principal, on a timely basis. These credit ratings
apply to a variety of entities and issues, including but not limited to
sovereigns, governments, structured financings, and corporations; debt,
preferred/preference stock, bank loans, and counterparties; as well as the
financial strength of insurance companies and financial guarantors.
A-5
Credit ratings are used by investors as indications of the likelihood
of getting their money back in accordance with the terms on which they invested.
Thus, the use of credit ratings defines their function: "investment grade"
ratings (international Long-term 'AAA' - 'BBB' categories; Short-term 'F1' -
'F3') indicate a relatively low probability of default, while those in the
"speculative" or "non-investment grade" categories (international Long-term 'BB'
- - 'D'; Short-term 'B' - 'D') either signal a higher probability of default or
that a default has already occurred. Ratings imply no specific prediction of
default probability. However, for example, it is relevant to note that over the
long term, defaults on 'AAA' rated U.S. corporate bonds have averaged less than
0.10% per annum, while the equivalent rate for 'BBB' rated bonds was 0.35%, and
for 'B' rated bonds, 3.0%.
Fitch ratings do not reflect any credit enhancement that may be
provided by insurance policies or financial guaranties unless otherwise
indicated.
Entities or issues carrying the same rating are of similar but not
necessarily identical credit quality since the rating categories do not fully
reflect small differences in the degrees of credit risk.
Fitch credit and research are not recommendations to buy, sell or hold
any security. Ratings do not comment on the adequacy of market price, the
suitability of any security for a particular investor, or the tax-exempt nature
of taxability of payments of any security.
The ratings are based on information obtained from issuers, other
obligors, underwriters, their experts, and other sources Fitch Ratings believes
to be reliable. Fitch Ratings does not audit or verify the truth or accuracy of
such information. Ratings may be changed or withdrawn as a result of changes in,
or the unavailability of, information or for other reasons.
Our program ratings relate only to standard issues made under the
program concerned; it should not be assumed that these ratings apply to every
issue made under the program. In particular, in the case of non-standard issues,
i.e., those that are linked to the credit of a third party or linked to the
performance of an index, ratings of these issues may deviate from the applicable
program rating.
Credit ratings do not directly address any risk other than credit risk.
In particular, these ratings do not deal with the risk of loss due to changes in
market interest rates and other market considerations.
AAA: Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong capacity for timely payment of financial
commitments, which is unlikely to be affected by foreseeable events.
AA: Bonds considered to be investment grade and of very high credit quality. The
obligor has a very strong capacity for timely payment of financial commitments
which is not significantly vulnerable to foreseeable events.
A: Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB: Bonds considered to be investment grade and of good credit quality. The
obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances are more
likely to impair this capacity.
PLUS (+) MINUS (-): Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus and
minus signs, however, are not used in the "AAA" category.
NR: Indicates that Fitch does not rate the specific issue.
A-6
WITHDRAWN: A rating will be withdrawn when an issue matures or is called or
refinanced and at Fitch's discretion, when Fitch Ratings deems the amount of
information available to be inadequate for ratings purposes.
RATINGWATCH: Ratings are placed on RatingWatch to notify investors that there is
a reasonable possibility of a rating change and the likely direction of such
change. These are designated as "Positive," indicating a potential upgrade,
"Negative," for potential downgrade, or "Evolving," if ratings may be raised,
lowered or maintained. RatingWatch is typically resolved over a relatively short
period.
FITCH SPECULATIVE GRADE BOND RATINGS
BB: Bonds are considered speculative. There is a possibility of credit risk
developing, particularly as the result of adverse economic changes over time.
However, business and financial alternatives may be available to allow financial
commitments to be met.
B: Bonds are considered highly speculative. Significant credit risk is present
but a limited margin of safety remains. While bonds in this class are currently
meeting financial commitments, the capacity for continued payment is contingent
upon a sustained, favorable business and economic environment.
CCC: Default is a real possibility. Capacity for meeting financial commitments
is solely reliant upon sustained, favorable business or economic developments.
CC: Default of some kind appears probable.
C: Bonds are in imminent default in payment of interest or principal.
DDD, DD, AND D: Bonds are in default on interest and/or principal payments. Such
bonds are extremely speculative and are valued on the basis of their prospects
for achieving partial or full recovery value in liquidation or reorganization of
the obligor. "DDD" represents the highest potential for recovery on these bonds,
and "D" represents the lowest potential for recovery.
PLUS (+) MINUS (-): Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus and
minus signs, however, are not used in categories below CCC.
FITCH SHORT-TERM CREDIT RATINGS
The following ratings scale applies to foreign currency and local
currency ratings. A Short-term rating has a time horizon of less than 12 months
for most obligations, or up to three years for U.S. public finance securities,
and thus places greater emphasis on the liquidity necessary to meet financial
commitments in a timely manner.
F-1+: Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1: Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
"F-1+."
F-2: Good Credit Quality. Issues assigned this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is not as great
as in the case of the higher ratings.
F-3: Fair Credit Quality. Issues assigned this rating have characteristics
suggesting that the degree of assurance for timely payment is adequate, however,
near-term adverse changes could result in a reduction to non-investment grade.
A-7
B: Speculative. Minimal capacity for timely payment of financial
commitments, plus vulnerability to near-term adverse changes in financial and
economic conditions.
C: High default risk. Default is a real possibility. Capacity for meeting
financial commitments is solely reliant upon a sustained, favorable business and
economic environment.
D: Default. Issues assigned this rating are in actual or imminent payment
default.
A-8
APPENDIX B
TRUSTEES AND OFFICERS
As of January 1, 2003
The address of each trustee and officer is 11 Greenway Plaza, Suite 100,
Houston, Texas 77046-1173. Each trustee oversees 89 portfolios in the AIM Funds
complex. Column two below includes length of time served with any predecessor
entities, if any.
TRUSTEE
NAME, YEAR OF BIRTH AND AND/OR
POSITION(S) HELD WITH THE OFFICER OTHER DIRECTORSHIP(S)
TRUST SINCE PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS HELD BY TRUSTEE
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- ------------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1997 Director and Chairman, A I M Management Group None
Trustee, Chairman and Inc. (financial services holding company);
President Director and Vice Chairman, AMVESCAP PLC and
Chairman of AMVESCAP PLC - AIM Division (parent
of AIM and a global investment management firm)
Formerly: President and Chief Executive
Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director and Chairman, A I M
Capital Management, Inc. (registered
investment advisor), A I M Distributors,
Inc. (registered broker dealer), A I M Fund
Services, Inc., (registered transfer agent),
and Fund Management Company (registered
broker dealer); and Chief Executive Officer,
AMVESCAP PLC - Managed Products
- ------------------------------------------------------------------------------------------------------------------------------------
Mark H. Williamson(2) -- 1951 2003 Director, President and Chief Executive Officer, Director and Chairman, INVESCO
Trustee and Executive Vice A I M Management Group Inc. (financial services Bond Funds, Inc., INVESCO
President holding company); Director, Chairman and Combination Stock & Bond Funds,
President, A I M Advisors, Inc. (registered Inc., INVESCO Counselor Series
investment advisor); Director, A I M Capital Funds, Inc.; INVESCO International
Management Inc. (registered investment advisor) Funds, Inc., INVESCO Manager
and A I M Distributors, Inc. (registered broker Series Funds, Inc., INVESCO Money
dealer), Director and Chairman, A I M Fund Market Funds, Inc., INVESCO Sector
Services, Inc. (registered transfer agent), and Funds, Inc., INVESCO Stock Funds,
Fund Management Company (registered broker Inc., INVESCO Treasurer's Series
dealer); and Chief Executive Officer, AMVESCAP Funds, Inc. and INVESCO Variable
PLC - AIM Division (parent of AIM and a global Investment Funds, Inc.
investment management firm);
Formerly: Director, Chairman, President and
Chief Executive Officer, INVESCO Funds Group,
Inc.; and INVESCO Distributors, Inc.; Chief
Executive Officer, AMVESCAP PLC - Managed
Products; Chairman and Chief Executive Officer
of NationsBanc Advisors, Inc.;
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------
(1) Mr. Graham is considered an interested person of the Trust because he
is a director of AMVESCAP PLC, parent of the advisor to the Trust.
(2) Mr. Williamson is considered an interested person of the Trust because
he is an officer and a director of the advisor to, and a director of
the principal underwriter of, the Trust. Mr. Williamson became
Executive Vice President of the Trust on March 4, 2003.
B-1
TRUSTEE
NAME, YEAR OF BIRTH AND AND/OR
POSITION(S) HELD WITH THE OFFICER OTHER DIRECTORSHIP(S)
TRUST SINCE PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS HELD BY TRUSTEE
- ------------------------------------------------------------------------------------------------------------------------------------
Chairman Of NationsBanc Investments, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- ------------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Of Counsel, law firm of Baker & McKenzie Badgley Funds, Inc. (registered
Trustee investment company)
- ------------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1997 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- ------------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director, Magellan Insurance Company; Member of Cortland Trust, Inc. (registered
Trustee Advisory Board of Rotary Power International investment company)
(designer, manufacturer, and seller of rotary
power engines); and Director, The Boss Group
(private equity group) and Annuity & Life Re
(Holdings), Ltd. (re-insurance company)
Formerly : Director, President and Chief
Executive Officer, Volvo Group North America,
Inc.; Senior Vice President, AB Volvo; and
director of various affiliated Volvo companies
- ------------------------------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 Formerly: Chairman, Mercantile Mortgage Corp.; None
Trustee President and Chief Operating Officer,
Mercantile-Safe Deposit & Trust Co.; and
President, Mercantile Bankshares Corp.
- ------------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Century Administaff
Trustee Group, Inc. (government affairs company) and
Texana Timber LP
- ------------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1997 Partner, law firm of Kramer Levin Naftalis and Cortland Trust, Inc. (registered
Trustee Frankel LLP investment company)
- ------------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly, : Chief Executive Officer, YWCA of the None
Trustee USA
- ------------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1997 Partner, law firm of Pennock & Cooper None
Trustee
- ------------------------------------------------------------------------------------------------------------------------------------
B-2
TRUSTEE
NAME, YEAR OF BIRTH AND AND/OR
POSITION(S) HELD WITH THE OFFICER OTHER DIRECTORSHIP(S)
TRUST SINCE PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS HELD BY TRUSTEE
- ------------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- ------------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- ------------------------------------------------------------------------------------------------------------------------------------
Louis S. Sklar -- 1939 1997 Executive Vice President, Hines (real estate None
Trustee development company)
- ------------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- ------------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome(3) - 1956 2003 Director, Senior Vice President, Secretary and N/A
Senior Vice President General Counsel, A I M Management Group Inc.
(financial services holding company) and
A I M Advisors, Inc.; Vice President,
A I M Capital Management, Inc.,
A I M Distributors, Inc. and A I M Fund Services
Inc.; and Director, Vice President and General
Counsel, Fund Management Company
Formerly: Senior Vice President and General
Counsel, Liberty Financial Companies, Inc.; and
Senior Vice President and General Counsel,
Liberty Funds Group, LLC
- ------------------------------------------------------------------------------------------------------------------------------------
Gary T. Crum(4) -- 1947 1997 Director, Chairman and Director of Investments, N/A
Senior Vice President A I M Capital Management, Inc.; Director and
Executive Vice President, A I M Management Group
Inc.; Director and Senior Vice President, A I M
Advisors, Inc.; and Director, A I M
Distributors, Inc. and AMVESCAP PLC;
Formerly: Chief Executive Officer and President,
A I M Capital Management, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Robert G. Alley -- 1948 1997 Managing Director and Chief Fixed Income N/A
Vice President Officer, A I M Capital Management, Inc.; and
Vice President, A I M Advisors, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Stuart W. Coco -- 1955 1997 Managing Director and Chief Research Officer - N/A
Vice President Fixed Income,, A I M Capital Management, Inc.;
and Vice President, A I M Advisors, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Melville B. Cox -- 1943 1997 Vice President and Chief Compliance Officer, N/A
Vice President A I M Advisors, Inc. and A I M Capital
Management, Inc.; and Vice President, A I M Fund
Services, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------
(3) Mr. Carome became Senior Vice President of the Trust on May 13, 2003.
(4) Information is current as of January 10, 2003.
B-3
- ------------------------------------------------------------------------------------------------------------------------------------
TRUSTEE
NAME, YEAR OF BIRTH AND AND/OR
POSITION(S) HELD WITH THE OFFICER OTHER DIRECTORSHIP(S)
TRUST SINCE PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS HELD BY TRUSTEE
- ------------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1997 Managing Director and Chief Cash Management N/A
Vice President Officer, A I M Capital Management, Inc.;
Director and President, Fund Management Company;
and Vice President, A I M Advisors, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Edgar M. Larsen4 -- 1940 1999 Vice President, A I M Advisors, Inc.; and N/A
Vice President President, Chief Executive Officer and Chief
Investment Officer, A I M Capital Management,
Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Dana R. Sutton -- 1959 1997 Vice President and Fund Treasurer, A I M N/A
Vice President and Treasurer Advisors, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Nancy L. Martin5 - 1957 2003 Vice President, A I M Advisors, Inc.; and Vice N/A
Secretary President and General Counsel, A I M Capital
Management, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
- -------------------------
(4) Information is current as of January 10, 2003.
(5) Ms. Martin became Secretary of the Trust on April 1, 2003
B-4
TRUSTEE OWNERSHIP OF FUND SHARES AS OF DECEMBER 31, 2002
- ------------------------------------------------------------------------------------------------------------------------------------
AGGREGATE DOLLAR RANGE OF
EQUITY SECURITIES IN ALL
REGISTERED INVESTMENT
DOLLAR RANGE OF EQUITY SECURITIES COMPANIES OVERSEEN BY TRUSTEE
NAME OF TRUSTEE PER FUND IN THE AIM FAMILY OF FUNDS --REGISTERED TRADEMARK--
- ------------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham -0- Over $100,000
- ------------------------------------------------------------------------------------------------------------------------------------
Mark H. Williamson -0- $10,001 - $50,000
- ------------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -0- $10,001 - $50,000
- ------------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -0- $1 - $10,000
- ------------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -0- $50,001 - $100,000
- ------------------------------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -0- Over $100,000(6)
- ------------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -0- Over $100,000(6)
- ------------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -0- Over $100,000(6)
- ------------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -0- Over $100,000(6)
- ------------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -0- $50,001 - $100,000
- ------------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -0- $1 -$10,000
- ------------------------------------------------------------------------------------------------------------------------------------
Louis S. Sklar -0- Over $100,000(6)
- ------------------------------------------------------------------------------------------------------------------------------------
- ----------------------
(6) Includes the total amount of compensation deferred by the trustee at
his or her election pursuant to a deferred compensation plan. Such
deferred compensation is placed in a deferral account and deemed to be
invested in one or more of the AIM Funds.
B-5
APPENDIX C
TRUSTEES COMPENSATION TABLE
Set forth below is information regarding compensation paid or accrued
for each trustee of the Trust who was not affiliated with AIM during the year
ended December 31, 2002.
- -----------------------------------------------------------------------------------------------------------
RETIREMENT
AGGREGATE BENEFITS ESTIMATED TOTAL
COMPENSATION ACCRUED ANNUAL COMPENSATION
FROM THE BY ALL BENEFITS UPON FROM ALL
TRUSTEE TRUST(1) AIM FUNDS(2) RETIREMENT(3) AIM FUNDS(4)
- -----------------------------------------------------------------------------------------------------------
Frank S. Bayley $ 1,491 $ 142,800 $ 90,000 $150,000
- -----------------------------------------------------------------------------------------------------------
Bruce L. Crockett 1,904 50,132 $ 90,000 149,000
- -----------------------------------------------------------------------------------------------------------
Albert R. Dowden 1,904 57,955 $ 90,000 150,000
- -----------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. 1,904 94,149 $ 90,000 149,000
- -----------------------------------------------------------------------------------------------------------
Jack M. Fields 1,897 29,153 $ 90,000 153,000
- -----------------------------------------------------------------------------------------------------------
Carl Frischling(5) 1,897 74,511 $ 90,000 150,000
- -----------------------------------------------------------------------------------------------------------
Prema Mathai-Davis 1,904 33,931 $ 90,000 150,000
- -----------------------------------------------------------------------------------------------------------
Lewis F. Pennock 1,953 54,802 $ 90,000 154,000
- -----------------------------------------------------------------------------------------------------------
Ruth H. Quigley 1,498 142,502 $ 90,000 153,000
- -----------------------------------------------------------------------------------------------------------
Louis S. Sklar 1,953 78,500 $ 90,000 153,000
- -----------------------------------------------------------------------------------------------------------
(1) The total amount of compensation deferred by all trustees of the Trust
during the fiscal year ended July 31, 2002, including earnings, was $10,027.
(2) During the fiscal year ended July 31, 2002, the total amount of expenses
allocated to the Trust in respect of such retirement benefits was $219.
(3) Amounts shown assume each trustee serves until his or her normal retirement
date.
(4) All trustees currently serve as directors or trustees of seventeen
registered investment companies advised by AIM.
(5) During the fiscal year ended July 31, 2002, the Trust paid $6,079 in legal
fees to Kramer Levin Naftalis & Frankel LLP for services rendered by such
firm as counsel to the independent trustees of the Trust. Mr. Frischling is
a partner of such firm.
C-1
APPENDIX D
PROXY VOTING POLICIES
The Proxy Voting Policies applicable to each Fund follow:
GENERAL POLICY
INVESCO Institutional (NA), Inc. and its wholly-owned subsidiaries, and
INVESCO Global Asset Management (N.A.), Inc. ("INVESCO") each has responsibility
for making investment decisions that are in the best interest of its clients. As
part of the investment management services it provides to clients, INVESCO may
be authorized by clients to vote proxies appurtenant to the shares for which the
clients are beneficial owners.
As a fiduciary, INVESCO believes that it has a duty to manage clients'
assets solely in the best interest of the clients and that the ability to vote
proxies is a client asset. Accordingly, INVESCO has a duty to vote proxies in a
manner in which it believes will add value to the client's investment.
INVESCO is regulated by various state and federal laws, such as the
Investment Advisers Act of 1940, the Investment Company Act of 1940, and the
Employee Retirement Income Security Act of 1974 ("ERISA"). Because there may be
different proxy voting standards for ERISA and non-ERISA clients, INVESCO's
policy is to apply the proxy voting policies and procedures described herein to
all of its clients. Any discussion herein which refers to an ERISA or non-ERISA
situation is used for reference only.
INVESCO may amend its proxy policies and procedures from time to time
without prior notice to its clients.
BACKGROUND
ERISA fiduciary standards relating to proxy voting have not been
interpreted until more recent times.
Due to the large number of mergers and acquisitions in the 1980s and
the growing importance of institutional investors in the equity markets, the
Department of Labor ("DOL"), which enforces fiduciary standards for ERISA plan
sponsors and managers, took the position that the right to vote shares of stock
owned by a pension plan is, in itself, an asset of the plan. Thus, the "Wall
Street Rule" of "vote with management (or abstain from voting) or sell the
stock" was under scrutiny.
In 1988, the DOL stated, in the "Avon Letter", that the fiduciary act
of managing plan assets that are shares of corporate stock includes the voting
of proxies appurtenant to those shares of stock. Accordingly, where the
authority to manage plan assets has been delegated to an investment manager
pursuant to ERISA, no person other than the investment manager has authority to
vote proxies appurtenant to such plan assets, except to the extent the named
fiduciary has reserved to itself the right to direct a plan trustee regarding
the voting of proxies.
In 1990, in the "Monks Letter", the DOL stated that an ERISA violation
would occur if the investment manager is explicitly or implicitly assigned the
authority to vote proxies appurtenant to certain plan-owned stock and the named
fiduciary, trustee or any person other than the investment manager makes the
decision on how to vote the same proxies. Thus, according to the DOL, if the
investment management contract expressly provides that the investment manager is
not required to vote proxies, but does not expressly preclude the investment
manager from voting the relevant proxies, the investment manager would have the
exclusive fiduciary responsibility for voting the proxies. In contrast, the DOL
pointed out that if either the plan document or the investment management
contract
D-1
expressly precludes the investment manager from voting proxies, the
responsibility for voting proxies lies exclusively with the trustee.
In 1994, in its Interpretive Bulletin 94-2 ("94-2"), the DOL reiterated
and supplemented the Avon and Monks Letters. In addition, 94-2 extended the
principles put forth in the Avon and Monks Letters to voting of proxies on
shares of foreign corporations. However, the DOL recognized that the cost of
exercising a vote on a particular proxy proposal could exceed any benefit that
the plan could expect to gain in voting on the proposal. Therefore, the plan
fiduciary had to weigh the costs and benefits of voting on proxy proposals
relating to foreign securities and make an informed decision with respect to
whether voting a given proxy proposal is prudent and solely in the interest of
the plan's participants and beneficiaries.
In January 2003, the Securities and Exchange Commission ("SEC") adopted
regulations regarding Proxy Voting by investment advisers (SEC Release No.
IA-2106). These regulations required investment advisers to (1) adopt written
proxy voting policies and procedures which describe how the adviser addresses
material conflicts between its interests and those of its clients with respect
to proxy voting and which also addresses how the adviser resolves those
conflicts in the bet interest of clients; (2) disclose to clients how they can
obtain information from the adviser on how the adviser voted the proxies; and
(3) describe to clients its proxy voting policies and procedure to clients and,
upon request, furnish a copy of them to clients.
PROXY VOTING POLICY
Consistent with the fiduciary standards discussed above, INVESCO will
vote proxies unless either the named fiduciary (e.g., the plan sponsor) retains
in writing the right to direct the plan trustee or a third party to vote proxies
or INVESCO determines that any benefit the client might gain from voting a proxy
would be outweighed by the costs associated therewith (i.e., foreign proxies).
In voting such proxies, INVESCO will act prudently, taking into consideration
those factors that may affect the value of the security and will vote such
proxies in a manner in which, in its opinion, is in the best interests of
clients.
PROXY COMMITTEE
The INVESCO Proxy Committee will establish guidelines and procedures
for voting proxies and will periodically review records on how proxies were
voted.
The Proxy Committee will consist of certain of INVESCO's equity
investment professionals and non-equity investment professionals.
PROXY MANAGER
The Proxy Committee will appoint a Proxy Manager and/or hire a
third-party Proxy Agent to analyze proxies, act as a liaison to the Proxy
Committee and manage the proxy voting process, which process includes the voting
of proxies and the maintenance of appropriate records.
The Proxy Manager will exercise discretion to vote proxies within the
guidelines established by the Proxy Committee. The Proxy Manager will consult
with the Proxy Committee in determining how to vote proxies for issues not
specifically covered by the proxy voting guidelines adopted by the Proxy
Committee or in situations where the Proxy Manager or members of the Committee
determine that consultation is prudent.
D-2
CONFLICTS OF INTEREST
In effecting our policy of voting proxies in the best interests of our
clients, there may be occasions where the voting of such proxies may present an
actual or perceived conflict of interest between INVESCO, as the investment
manager, and clients.
Some of these potential conflicts of interest situations include, but
are not limited to, (1) where INVESCO (or an affiliate) manage assets,
administer employee benefit plans, or provides other financial services or
products to companies whose management is soliciting proxies and failure to vote
proxies in favor of the management of such a company may harm our (or an
affiliate's) relationship with the company; (2) where INVESCO (or an affiliate)
may have a business relationship, not with the company, but with a proponent of
a proxy proposal and where INVESCO (or an affiliate) may manage assets for the
proponent; or (3) where INVESCO (or an affiliate) or any member of the Proxy
Committee may have personal or business relationships with participants in proxy
contests, corporate directors or candidates for corporate directorships, or
where INVESCO (or an affiliate) or any member of the Proxy Committee may have a
personal interest in the outcome of a particular matter before shareholders.
In order to avoid even the appearance of impropriety, in the event that
INVESCO (or an affiliate) manages assets for a company, its pension plan, or
related entity or where any member of the Proxy Committee has a personal
conflict of interest, and where we have invested clients' funds in that
company's shares, the Proxy Committee will not take into consideration this
relationship and will vote proxies in that company solely in the best interest
of all of our clients.
In addition, members of the Proxy Committee must notify INVESCO's Chief
Compliance Officer, with impunity and without fear of retribution or
retaliation, of any direct, indirect or perceived improper influence made by
anyone within INVESCO or by an affiliated company's representatives with regard
to how INVESCO should vote proxies. The Chief Compliance Officer will
investigate the allegations and will report his or her findings the INVESCO
Management Committee. In the event that it is determined that improper influence
was made, the Management Committee will determine the appropriate action to take
which may include, but is not limited to, (1) notifying the affiliated company's
Chief Executive Officer, its Management Committee or Board of Directors, (2)
taking remedial action, if necessary, to correct the result of any improper
influence where the clients have been harmed, or (3) notifying the appropriate
regulatory agencies of the improper influence and to fully cooperate with these
regulatory agencies as required. In all cases, the Proxy Committee shall not
take into consideration the improper influence in determining how to vote
proxies and will vote proxies solely in the best interest of clients.
Furthermore, members of the Proxy Committee must advise INVESCO's Chief
Compliance Officer and fellow Committee members of any actual or potential
conflicts of interest he or she may have with regard to how proxies are to be
voted regarding certain companies (e.g., personal security ownership in a
company, or personal or business relationships with participants in proxy
contests, corporate directors or candidates for corporate directorships). After
reviewing such conflict, upon advice from the Chief Compliance Officer, the
Committee may require such Committee member to recuse himself or herself from
participating in the discussions regarding the proxy vote item and from casting
a vote regarding how INVESCO should vote such proxy.
PROXY VOTING PROCEDURES
The Proxy Manager will:
- Vote proxies;
- Take reasonable steps to reconcile proxies received by INVESCO
and/or a third-party Proxy Agent who administers the vote with
shares held in the accounts;
D-3
- Document the vote and rationale for each proxy voted (routine
matters are considered to be documented if a proxy is voted in
accordance with the Proxy Voting Guidelines established by the
Proxy Committee);
- If requested, provide to clients a report of the proxies voted
on their behalf.
PROXY VOTING GUIDELINES
The Proxy Committee has adopted the following guidelines in voting proxies:
I. CORPORATE GOVERNANCE
INVESCO will evaluate each proposal separately. However, INVESCO
will generally vote FOR a management sponsored proposal unless it
believes that adoption of the proposal may have a negative impact
on the economic interests of shareholders.
INVESCO will generally vote FOR
- Annual election of directors
- Appointment of auditors
- Indemnification of management or directors or both against
negligent or unreasonable action
- Confidentiality of voting
- Equal access to proxy statements
- Cumulative voting
- Declassification of Boards
- Majority of Independent Directors
INVESCO WILL GENERALLY VOTE AGAINST
- Removal of directors from office only for cause or by a
supermajority vote
- "Sweeteners" to attract support for proposals
- Unequal voting rights proposals ("superstock")
- Staggered or classified election of directors
- Limitation of shareholder rights to remove directors, amend
by-laws, call special meetings, nominate directors, or
other actions to limit or abolish shareholder rights to act
independently such as acting by written consent
- Proposals to vote unmarked proxies in favor of management
- Proposals to eliminate existing pre-emptive rights
D-4
II. TAKEOVER DEFENSE AND RELATED ACTIONS
INVESCO will evaluate each proposal separately. Generally, INVESCO
will vote FOR a management sponsored anti-takeover proposal which
(1) enhances management's bargaining position and (2) when
combined with other anti-takeover provisions, including state
takeover laws, does not discourage serious offers. INVESCO
believes that generally four or more anti-takeover measures, which
can only be repealed by a super-majority vote, are considered
sufficient to discourage serious offers and therefore should be
voted AGAINST.
INVESCO will generally vote FOR
- Fair price provisions
- Certain increases in authorized shares and/or creation of
new classes of common or preferred stock
- Proposals to eliminate greenmail provisions
- Proposals to eliminate poison pill provisions
- Proposals to re-evaluate or eliminate in-place "shark
repellents"
INVESCO will generally vote AGAINST
- Proposals authorizing the company's board of directors to
adopt, amend or repeal by-laws without shareholders'
approval
- Proposals authorizing the company's management or board of
directors to buy back shares at premium prices without
shareholders' approval
III. COMPENSATION PLANS
INVESCO will evaluate each proposal separately. INVESCO believes
that in order for companies to recruit, promote and retain
competent personnel, companies must provide appropriate and
competitive compensation plans. INVESCO will generally vote FOR
management sponsored compensation plans, which are reasonable,
industry competitive and not unduly burdensome to the company in
order for the company to recruit, promote and retain competent
personnel.
INVESCO will generally vote FOR
- Stock option plans and/or stock appreciation right plans
- Profit incentive plans provided the option is priced at
100% fair market value
- Extension of stock option grants to non-employee directors
in lieu of their cash compensation provided the option is
priced at or about the then fair market value
- Profit sharing, thrift or similar savings plans
INVESCO will generally vote AGAINST
- Stock option plans that permit issuance of loans to
management or selected employees with authority to sell
stock purchased by the loan without immediate
D-5
repayment, or that are overly generous (below market price
or with appreciation rights paying the difference between
option price and the stock, or permit pyramiding or the
directors to lower the purchase price of outstanding
options without a simultaneous and proportionate reduction
in the number of shares available)
- Incentive plans which become effective in the event of
hostile takeovers or mergers (golden and tin parachutes)
- Proposals creating an unusually favorable compensation
structure in advance of a sale of the company
- Proposals that fail to link executive compensation to
management performance
- Acceleration of stock options/awards if the majority of the
board of directors changes within a two year period
- Grant of stock options to non-employee directors in lieu of
their cash compensation at a price below 100% fair market
value
- Adoption of a stock purchase plan at less than 85% of fair
market value
IV. CAPITAL STRUCTURE, CLASSES OF STOCK AND RECAPITALIZATION
INVESCO will evaluate each proposal separately. INVESCO recognizes
that from time to time companies must reorganize their capital
structure in order to avail themselves of access to the capital
markets and in order to restructure their financial position in
order to raise capital and to be better capitalized. Generally,
INVESCO will vote FOR such management sponsored reorganization
proposals if such proposals will help the company gain better
access to the capital markets and to attain a better financial
position. INVESCO will generally vote AGAINST such proposals that
appear to entrench management and do not provide shareholders with
economic value.
INVESCO will generally vote FOR
- Proposals to reincorporate or reorganize into a holding
company
- Authorization of additional common or preferred shares to
accommodate a stock split or other business purposes not
related to anti-takeover measures as long as the increase
is not excessive and a valid need has been proven
INVESCO will generally vote AGAINST
- Proposals designed to discourage mergers and acquisitions
in advance
- Proposals to change state of incorporation to a state less
favorable to shareholders' interests
- Reincorporating in another state to implement anti-takeover
measures
V. SOCIAL RESPONSIBILITY
INVESCO will evaluate each proposal separately. INVESCO believes
that a corporation, if it is in a solid financial position and can
afford to do so, has an obligation to return certain largesse to
the communities in which it operates. INVESCO believes that the
primary mission of a company is to be profitable.
D-6
However, where a company has proven that it is able to sustain a
level of profitability and the market price of the company's
shares reflect an appropriate economic value for such shares,
INVESCO will generally vote FOR certain social responsibility
initiatives. INVESCO will generally vote AGAINST proposed social
responsibility initiatives if it believes that the company already
has adequate policies and procedures in place and it should focus
its efforts on enhancing shareholder value where the assets and
resources involved could be put to better use in obtaining
profits.
INVESCO will generally vote FOR
- International Labor Organization Principles
- Resolutions seeking Basic Labor Protections and Equal
Employment Opportunity
- Expanding EEO/Social Responsibility Reporting
RECORD KEEPING
The Proxy Manager will take necessary steps to retain proxy voting
records for the period of time as required by regulations.
D-7
APPENDIX E
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
To the best knowledge of the Trust, the names and addresses of the
record and beneficial holders of 5% or more of the outstanding shares of each
class of the Trust's equity securities and the percentage of the outstanding
shares held by such holders are set forth below. Unless otherwise indicated
below, the Trust has no knowledge as to whether all or any portion of the shares
owned of record are also owned beneficially.
A shareholder who owns beneficially 25% or more of the outstanding
securities of a Fund is presumed to "control" that Fund as defined in the 1940
Act. Such control may affect the voting rights of other shareholders.
All information listed below is as of June 24, 2003.
AIM INTERNATIONAL CORE EQUITY FUND
- ----------------------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS R
SHARES SHARES SHARES SHARES*
- ----------------------------------------------------------------------------------------------------------------
PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
NAME AND ADDRESS OF OWNED OF OWNED OF OWNED OF OWNED OF
PRINCIPAL HOLDER RECORD RECORD RECORD RECORD
- ----------------------------------------------------------------------------------------------------------------
Airbrush Images, Inc. 401k
Daniel E. Henrichs TTEE - - - 11.12%
850 N. FM 3083
Conroe, TX 77307-1850
- -------------------------------------------------------------------------------------------------------------
AMVESCAP Natl Trust Co
FBO Equator Technologies, Inc.
401(k) Retirement Plan - - - 12.28%
P.O. Box 105779
Atlanta, GA 30348-5779
- -------------------------------------------------------------------------------------------------------------
Merrill Lynch Pierce Fenner & Smith
FBO The Sole Benefit of Customers 13.67% 10.34% 49.00% -
Attn: Fund Administration
4800 Deer Lake Drive East, 2nd Floor
Jacksonville, FL 32246
- -------------------------------------------------------------------------------------------------------------
Reliance Trust Company Cust
FBO William J. Kamm and Sons Inc 401k Plan - - - 31.68%
P.O. Box 48529
Atlanta, GA 30362-1529
- -------------------------------------------------------------------------------------------------------------
E-1
- ----------------------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS R
SHARES SHARES SHARES SHARES*
- ----------------------------------------------------------------------------------------------------------------
PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
NAME AND ADDRESS OF OWNED OF OWNED OF OWNED OF OWNED OF
PRINCIPAL HOLDER RECORD RECORD RECORD RECORD
- ----------------------------------------------------------------------------------------------------------------
Sheikh Rahman TTEE
FBO SAR Engineering Inc
401k Plan - - - 10.26%
10 Granite Street
Quincy, MA 02169-5021
- -------------------------------------------------------------------------------------------------------------
Walsh & Sons Construction Corp
Forfeiture Acct - - - 5.05%
3209 Vestal Parkway, E
Vestal, NY 13850-2154
- -------------------------------------------------------------------------------------------------------------
* Class R shares of the Fund became available on June 3, 2002.
AIM REAL ESTATE FUND
- -------------------------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C INVESTOR CLASS
SHARES SHARES SHARES SHARES**
- -------------------------------------------------------------------------------------------------------------------
PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
NAME AND ADDRESS OF OWNED OF OWNED OF OWNED OF OWNED OF
PRINCIPAL HOLDER RECORD RECORD RECORD RECORD
- -------------------------------------------------------------------------------------------------------------------
Charles Schwab & Co Inc.
Reinvestment Account 14.59% - - N/A
101 Montgomery Street
San Francisco, CA 94104-4122
- -------------------------------------------------------------------------------------------------------------------
Merrill Lynch Pierce Fenner & Smith
FBO The Sole Benefit of Customers
Attn: Fund Administration - - 10.20% N/A
4800 Deer Lake Drive East, 2nd Floor
Jacksonville, FL 32246
- -------------------------------------------------------------------------------------------------------------------
Citigroup Global Markets House
Acct 00109801250
Attn: Cindy Tempesta, 7th Floor - - 5.26% N/A
333 West 34th Street
New York, NY 10001-2402
- --------------------------------------------------------------------------------------------------------------------
**Investor Class shares of the Fund became available on July 15, 2003.
E-2
MANAGEMENT OWNERSHIP
As of May 30, 2003, the trustees and officers as a group owned less
than 1% of the shares of any Fund.
E-3
APPENDIX F
MANAGEMENT FEES
For the last four fiscal periods (1), the management fees payable by
each Fund were as follows:
- -----------------------------------------------------------------------------------------------------------------
FUND NAME JULY 31, 2002 JULY 31, 2001 JULY 31, 2000 DECEMBER 31, 1999
- -----------------------------------------------------------------------------------------------------------------
MANAGEMENT MANAGEMENT MANAGEMENT MANAGEMENT
FEE PAYABLE FEE PAYABLE FEE PAYABLE FEE PAYABLE
- -----------------------------------------------------------------------------------------------------------------
AIM International $ 947,030 $ 1,124,443 $ 773,221 $1,307,027
Core Equity Fund
- -----------------------------------------------------------------------------------------------------------------
AIM Real Estate Fund 903,720 538,600 249,957 473,704
- -----------------------------------------------------------------------------------------------------------------
(1) During 2000, the Trust's fiscal year end was changed from December 31st to
July 31st.
F-1
APPENDIX G
ADMINISTRATIVE SERVICES FEES
The Funds paid AIM the following amounts for administrative services
for the last four fiscal periods(1):
- ----------------------------------------------------------------------------------------------------------------
JULY 31, JULY 31, JULY 31, JULY 1 TO DECEMBER 31,
FUND NAME 2002 2001 2000 1999
- ----------------------------------------------------------------------------------------------------------------
AIM International Core Equity Fund $50,000 $50,000 $29,098 $25,721
- ----------------------------------------------------------------------------------------------------------------
AIM Real Estate Fund $50,000 $50,000 $29,098 $25,205
- ----------------------------------------------------------------------------------------------------------------
(1) During 2000, the Trust's fiscal year end was changed from December 31st to
July 31st.
G-1
APPENDIX H
BROKERAGE COMMISSIONS
Brokerage commissions (1) paid by each of the Funds listed below during the last
four fiscal periods(2) were as follows:
JULY 31, JULY 31, JULY 31, DECEMBER 31,
FUND 2002 2001 2000 1999
---- ----------- ---------- ----------- ------------
AIM Internationa(l) Core Equity Fund........ $ 70,471 $ 82,830 $ 93,172 $ 82,505
AIM Real Estate Fund(3)..................... 441,056 177,266 84,381 157,871
(1) Disclosure regarding brokerage commissions is limited to commissions paid on
agency trades and designated as such on the trade confirm.
(2) During 2000, the Trust fiscal year end was changed from December 31st to
July 31st.
(3) The increase in brokerage commissions paid by AIM Real Estate Fund for the
fiscal year ended July 31, 2002, as compared to the two prior years, was due
to increased asset levels. The investment of additional cash generated more
commissions.
H-1
APPENDIX I
DIRECTED BROKERAGE (RESEARCH SERVICES) AND PURCHASE OF
SECURITIES OF REGULAR BROKERS OR DEALERS
During the last fiscal year ended July 31, 2002, each Fund allocated
the following amount of transactions to broker-dealers that provided AIM with
certain research statistics and other information:
Related
Fund Transactions Brokerage Commissions
---- ------------ ---------------------
AIM International Core Equity Fund $ 2,037,434 $ 3,307
AIM Real Estate Fund 78,197,205 159,175
During the last fiscal year ended July 31, 2002, neither of the Funds
purchased securities of their "regular" brokers or dealers.
I-1
APPENDIX J
AMOUNTS PAID TO A I M DISTRIBUTORS, INC. PURSUANT TO DISTRIBUTION PLANS
A list of amounts paid by each class of shares to AIM Distributors
pursuant to the Plans for the fiscal year or period ended July 31, 2002 follows:
CLASS A CLASS B CLASS C CLASS R
FUND SHARES SHARES SHARES SHARES
---- ------- ------- ------- -------
AIM International Core Equity Fund(1) $112,486 $108,029 $ 517,597 $ 7
AIM Real Estate Fund 153,147 300,302 266,268 N/A
(1) Information on Class R shares in the table is for the period June 3,
2002 (the date Class R shares commenced operations) to July 31, 2002.
J-1
APPENDIX K
ALLOCATION OF ACTUAL FEES PAID PURSUANT TO DISTRIBUTION PLANS
An estimate by category of the allocation of actual fees paid by Class
A Shares of the Funds during the year ended July 31, 2002, follows:
PRINTING & UNDERWRITERS DEALERS
ADVERTISING MAILING SEMINARS COMPENSATION COMPENSATION
----------- ------- -------- ------------ ------------
AIM International Core Equity Fund $ 6,450 $ 723 $ 2,583 $ -0- $ 102,730
AIM Real Estate Fund 14,154 1,360 5,171 -0- 132,462
An estimate by category of the allocation of actual fees paid by Class
B Shares of the Funds during the year ended July 31, 2002, follows:
PRINTING & UNDERWRITERS DEALERS
ADVERTISING MAILING SEMINARS COMPENSATION COMPENSATION
----------- ------- -------- ------------ ------------
AIM International Core Equity Fund $ -0- $ -0- $ -0- $ 81,022 $ 27,007
AIM Real Estate Fund 8,325 954 2,651 225,226 63,146
An estimate by category of the allocation of actual fees paid by Class
C shares of the Funds during the year ended July 31, 2002, follows:
PRINTING & UNDERWRITERS DEALERS
ADVERTISING MAILING SEMINARS COMPENSATION COMPENSATION
----------- ------- -------- ------------ ------------
AIM International Core Equity Fund $ 2,509 $ 269 $ 855 $ 19,233 $ 494,731
AIM Real Estate Fund 6,319 688 1,911 42,041 215,309
Class R shares of AIM International Core Equity Fund commenced
operations on June 3, 2002. The fees paid by Class R shares of the Fund for the
above noted categories during the fiscal year ended July 31, 2002 were $7.00.
K-1
APPENDIX L
TOTAL SALES CHARGES
The following chart reflects the total sales charges paid in connection
with the sale of Class A shares of each Fund and the amount retained by AIM
Distributors for the last four fiscal periods(1):
- ----------------------------------------------------------------------------------------------------------------------
JULY 31, 2002 JULY 31, 2001 JULY 31, 2000 DECEMBER 31, 1999
- ----------------------------------------------------------------------------------------------------------------------
SALES AMOUNT SALES AMOUNT SALES AMOUNT SALES AMOUNT
CHARGES RETAINED CHARGES RETAINED CHARGES RETAINED CHARGES RETAINED
- ----------------------------------------------------------------------------------------------------------------------
AIM Internationa(l) $ 100,266 $ 15,658 $ 77,964 $ 12,328 $ 7,582,977 $ 1,348,605 $ 4,738,340 $ 823,856
Core Equity Fund
- ----------------------------------------------------------------------------------------------------------------------
AIM Real Estate 574,475 94,833 101,685 17,940 N/A N/A N/A N/A
Fund
- ----------------------------------------------------------------------------------------------------------------------
The following chart reflects the contingent deferred sales charges paid
by Class A, Class B, Class C and Class R shareholders and retained by AIM
Distributors for the last four fiscal periods(1):
JULY 31, JULY 31, JULY 31, DECEMBER 31,
2002 2001 2000 1999
---- ---- ---- ----
AIM International Core Equity Fund(2)................ $ 4,037 $ 18,379 $ 284,148 $ 150,341
AIM Real Estate Fund................................. 4,318 5,332 N/A N/A
1. During 2000, the Trust's fiscal year end was changed from December 31st to
July 31st.
2. Information on Class R shares in the table above is for the period June 3,
2002 (the date Class R shares commenced operations) to July 31, 2002.
L-1
APPENDIX M
PERFORMANCE DATA
AVERAGE ANNUAL TOTAL RETURNS
The average annual total returns (including sales loads) for each Fund,
with respect to its Class A shares, for the one, five and ten year periods (or
since inception if less than ten years) ended January 31, 2003 are as follows:
PERIODS ENDED
-------------
January 31, 2003
----------------
SINCE INCEPTION
CLASS A SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
-------------- ------ ------- -------- --------- ----
AIM International Core Equity Fund -17.82% -4.26% N/A -1.19% 12/31/96
AIM Real Estate Fund 0.78 1.89 N/A 4.45 12/31/96
The average annual total returns (including maximum applicable
contingent deferred sales charge) for each Fund, with respect to its Class B
shares, for the one, five and ten year periods (or since inception if less than
ten years) ended January 31, 2003 are as follows:
PERIODS ENDED
-------------
January 31, 2003
----------------
SINCE INCEPTION
CLASS B SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
-------------- ------ ------- -------- --------- ----
AIM International Core Equity Fund -17.92% N/A N/A -5.59% 03/03/98
AIM Real Estate Fund 0.18 N/A N/A 2.22 03/03/98
The average annual total returns (including maximum applicable
contingent deferred sales charge) for each Fund, with respect to its Class C
shares, for the one, five and ten year periods (or since inception if less than
ten years) ended January 31, 2003 are as follows:
PERIODS ENDED
-------------
January 31, 2003
----------------
SINCE INCEPTION
CLASS C SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
-------------- ------ ------- -------- --------- ----
AIM International Core Equity Fund -14.47% -3.90% N/A 3.08% 05/01/95
AIM Real Estate Fund 4.12 2.17 N/A 9.00 05/01/95
The average annual total returns (not including the 0.75% contingent
deferred sales charge that may be imposed on a total redemption of retirement
plan assets within the first year) for the Fund, with respect to its Class R
shares, for the one, five and ten year periods (or since inception if less than
ten years) ended January 31, 2003 are as follows:
M-1
PERIODS ENDED
-------------
January 31, 2003 *
------------------
SINCE INCEPTION
CLASS R SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE**
-------------- ------ ------- -------- --------- ------
AIM International Core Equity Fund -13.07% -3.29% N/A -0.40% 12/31/96
* The returns shown for these periods are the blended returns of the historical
performance of the Fund's Class R shares since June 3, 2002 and the restated
historical performance of the Fund's Class A shares (for periods prior to June
3, 2002) at the net asset value, adjusted to reflect the higher Rule 12b-1 fees
applicable to Class R shares.
**The inception date shown in the table is that of the Fund's Class A shares.
The inception date of the Fund's Class R shares is June 3, 2002.
The average annual total returns for the Fund, with respect to its
Investor Class shares, for the one, five and ten year periods (or since
inception if less than ten years) ended January 31, 2003 are as follows:
PERIODS ENDED
-------------
January 31, 2003*
-----------------
SINCE INCEPTION
INVESTOR CLASS R SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE**
- ----------------------- -----------------------------------------------------
AIM Real Estate Fund 5.80% 2.89% N/A 5.29% 12/31/96
* The returns shown for these periods are the restated historical performance of
the Fund's Class A shares at the net asset value, and reflect the higher Rule
12b-1 fees applicable to Class A shares.
**The inception date shown in the table is that of the Fund's Class A shares.
CUMULATIVE TOTAL RETURNS
The cumulative total returns (including sales loads) for each Fund,
with respect to its Class A shares, for the one, five and ten year periods (or
since inception if less than ten years) ended January 31, 2003 are as follows:
PERIODS ENDED
-------------
January 31, 2003
----------------
SINCE INCEPTION
CLASS A SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
-------------- ------ ------- -------- --------- ----
AIM International Core Equity Fund -17.82% -19.55% N/A -7.03% 12/31/96
AIM Real Estate Fund 0.78 9.82 N/A 30.32 12/31/96
The cumulative total returns (including maximum applicable contingent
deferred sales charge) for each Fund, with respect to its Class B shares, for
the one, five and ten year periods (or since inception if less than ten years)
ended January 31, 2003 are as follows:
PERIODS ENDED
-------------
January 31, 2003
----------------
SINCE INCEPTION
CLASS B SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
-------------- ------ ------- -------- --------- ----
AIM International Core Equity Fund -17.92% N/A N/A -24.63% 03/03/98
AIM Real Estate Fund 0.18 N/A N/A 11.38 03/03/98
M-2
The cumulative total returns (including maximum applicable contingent
deferred sales charge) for each Fund, with respect to its Class C shares, for
the one, five and ten year periods (or since inception if less than ten years)
ended January 31, 2003 are as follows:
PERIODS ENDED
-------------
January 31, 2003
----------------
SINCE INCEPTION
CLASS C SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
-------------- ------ ------- -------- --------- ----
AIM International Core Equity Fund -14.47% -18.03% N/A -26.52% 05/01/95
AIM Real Estate Fund 4.12 11.32 N/A 95.04 05/01/95
The cumulative total returns (not including the 0.75% contingent
deferred sales charge that may be imposed on a total redemption of retirement
plan assets within the first year) for the Fund, with respect to its Class R
shares, for the one, five and ten year periods (or since inception is less than
ten years) ended January 31, 2003 are as follows:
PERIODS ENDED
-------------
January 31, 2003 *
------------------
SINCE INCEPTION
CLASS R SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE**
-------------- ------ ------- -------- --------- ------
AIM International Core Equity Fund -13.07% -15.39% N/A -2.43% 12/31/96
* The returns shown for these periods are the blended returns of the historical
performance of the Fund's Class R shares since June 3, 2002 and the restated
historical performance of the Fund's Class A shares (for periods prior to June
3, 2002) at net asset value, adjusted to reflect the higher Rule 12b-1 fees
applicable to Class R shares.
** The inception date shown in the table is that of the Fund's Class A shares.
The inception date of the Fund's Class R shares is June 3, 2002.
The cumulative total returns for the Fund, with respect to its Investor
Class shares, for the one, five and ten year periods (or since inception if less
than ten years) ended January 31, 2003 are as follows:
PERIODS ENDED
-------------
January 31, 2003 *
------------------
SINCE INCEPTION
INVESTOR CLASS SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE**
- --------------------------------------------------------------------------------------------
AIM Real Estate Fund 5.80% 15.32% N/A 36.81% 12/31/96
* The returns shown for these periods are the restated historical performance of
the Fund's Class A shares at the net asset value, and reflect the higher Rule
12b-1 fees applicable to Class A shares.
**The inception date shown in the table is that of the Fund's Class A shares.
AVERAGE ANNUAL TOTAL RETURN (AFTER TAXES ON DISTRIBUTIONS)
The average annual total returns (after taxes on distributions and
including sales loads) for each Fund, with respect to its Class A shares, for
the one, five and ten year periods (or since inception if less than ten years)
ended January 31, 2003 are as follows:
M-3
PERIODS ENDED
-------------
January 31, 2003
----------------
SINCE INCEPTION
CLASS A SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
-------------- ------ ------- -------- --------- ----
AIM International Core Equity Fund -17.82% -5.09% N/A -2.00% 12/31/96
AIM Real Estate Fund -0.39 0.21 N/A 2.59 12/31/96
The average annual total returns (after taxes on distributions and
including maximum applicable contingent deferred sales charge) for each Fund,
with respect to its Class B shares, for the one, five and ten year periods (or
since inception if less than ten years) ended January 31, 2003 are as follows:
PERIODS ENDED
-------------
January 31, 2003
----------------
SINCE INCEPTION
CLASS B SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
-------------- ------ ------- -------- --------- ----
AIM International Core Equity Fund -17.92% N/A N/A -6.35% 03/03/98
AIM Real Estate Fund -0.78 N/A N/A 0.77 03/03/98
The average annual total returns (after taxes on distributions and
including maximum applicable contingent deferred sales charge) for each Fund,
with respect to its Class C shares, for the one, five and ten year periods (or
since inception if less than ten years) ended January 31, 2003 are as follows:
PERIODS ENDED
-------------
January 31, 2003
----------------
SINCE INCEPTION
CLASS C SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
-------------- ------ ------- -------- --------- ---------
AIM International Core Equity Fund -14.47% -4.64% N/A 2.49% 05/01/95
AIM Real Estate Fund 3.15 0.77 N/A 7.45 05/01/95
The average annual total returns (after taxes on distribution) for the
Fund, with respect to its Investor Class shares, for the one, five and ten year
periods (or since inception if less than ten years) ended January 31, 2003 are
as follows:
PERIODS ENDED
-------------
January 31, 2003*
-----------------
SINCE INCEPTION
INVESTOR CLASS SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE**
--------------------------------------------------------------------------------------
AIM Real Estate Fund 4.57% 1.19% N/A 3.42% 12/31/96
* The returns shown for these periods are the restated historical performance of
the Fund's Class A shares at the net asset value, and reflect the higher Rule
12b-1 fees applicable to Class A shares.
**The inception date shown in the table is that of the Fund's Class A shares.
AVERAGE ANNUAL TOTAL RETURNS (AFTER TAXES ON DISTRIBUTIONS AND REDEMPTION)
The average annual total returns (after taxes on distributions and
redemption and including sales loads) for each Fund, with respect to its Class A
shares, for the one, five and ten year periods (or since inception if less than
ten years) ended January 31, 2003 are as follows:
M-4
PERIODS ENDED
-------------
January 31, 2003
----------------
SINCE INCEPTION
CLASS A SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
-------------- ------ ------- -------- --------- ----
AIM International Core Equity Fund -10.94% -3.36% N/A -1.00% 12/31/96
AIM Real Estate Fund 0.50 0.61 N/A 2.63 12/31/96
The average annual total returns (after taxes on distributions and
redemption and including maximum applicable contingent deferred sales charge)
for each Fund, with respect to its Class B shares, for the one, five and ten
year periods (or since inception if less than ten years) ended January 31, 2003
are as follows:
PERIODS ENDED
-------------
January 31, 2003
----------------
SINCE INCEPTION
CLASS B SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
-------------- ------ ------- -------- --------- ----
AIM International Core Equity Fund -11.00% N/A N/A -4.33% 03/03/98
AIM Real Estate Fund 0.12 N/A N/A 1.00 03/03/98
The average annual total returns (after taxes on distributions and
redemption and including maximum applicable contingent deferred sales charge)
for each Fund, with respect to its Class C shares, for the one, five and ten
year periods (or since inception if less than ten years) ended January 31, 2003
are as follows:
PERIODS ENDED
-------------
January 31, 2003
----------------
SINCE INCEPTION
CLASS C SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
-------------- ------ ------- -------- --------- ----
AIM International Core Equity Fund -8.88% -3.03% N/A 2.51% 05/01/95
AIM Real Estate Fund 2.54 0.99 N/A 6.68 05/01/95
The average annual total returns (after taxes on distribution and
redemption) for the Fund, with respect to its Investor Class shares, for the
one, five and ten year periods (or since inception if less than ten years) ended
January 31, 2003 are as follows:
PERIODS ENDED
-------------
January 31, 2003*
-----------------
SINCE INCEPTION
INVESTOR CLASS SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE**
-------------------------------------------------------------------------------------
AIM Real Estate Fund 3.58% 1.40% N/A 3.31% 12/31/96
* The returns shown for these periods are the restated historical performance of
the Fund's Class A shares at the net asset value, and reflect the higher Rule
12b-1 fees applicable to Class A shares.
**The inception date shown in the table is that of the Fund's Class A shares.
M-5
YIELDS
The yield and distribution rate at offering price of the named Fund are
as follows:
PERIODS ENDED
-------------
January 31, 2003
----------------
CLASS A CLASS B CLASS C INVESTOR CLASS
------- ------- ------- --------------
AIM Real Estate Fund
30-Day SEC Yield 3.13% 2.63% 2.63% N/A
Distribution Rate* 3.17 2.64 2.64 N/A
* Based on the 90-day period ended January 31, 2003.
Yield information on Investor Class shares is not reflected in the
table above since Investor Class shares have not yet commenced operations.
M-6
FINANCIAL STATEMENTS
Pursuant to Rule 3-03(d) of Regulation S-X unaudited financials for the
period ended January 31, 2003, for Registrant's portfolios have been included in
addition to the portfolios' audited financials for the period ended July 31,
2002. Such financials reflect all adjustments which are of a normal recurring
nature and which are, in the opinion of management, necessary to a fair
statement of the results for the periods presented.
FS
REPORT OF INDEPENDENT AUDITORS
To the Shareholders of AIM International Core Equity Fund
And Board of Trustees of AIM Advisors Funds:
We have audited the accompanying statement of assets and liabilities of AIM
International Core Equity Fund (a portfolio of AIM Advisors Funds), including
the schedule of investments, as of July 31, 2002, and the related statement of
operations for the year then ended, and the statements of changes in net assets
and financial highlights for each of the two years in the period then ended.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits. The financial
highlights for each of the periods presented through July 31, 2000 were audited
by other auditors whose report dated September 1, 2000, expressed an unqualified
opinion on those financial highlights.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of July 31, 2002, by correspondence with the
custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
International Core Equity Fund as of July 31, 2002, the results of its
operations for the year then ended, and the changes in its net assets and
financial highlights for each of the two years in the period then ended in
conformity with accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
Houston, Texas
September 10, 2002
FS-1
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
JULY 31, 2002
<Table>
<Caption>
MARKET
SHARES VALUE
FOREIGN STOCKS & OTHER EQUITY
INTERESTS-96.11%
AUSTRALIA-1.97%
National Australia Bank Ltd.-ADR (Banks) 19,650 $ 1,781,272
=======================================================================
BRAZIL-1.67%
Companhia Vale do Rio Doce-ADR (Diversified
Metals & Mining)(a) 25,400 622,300
- -----------------------------------------------------------------------
Petroleo Brasileiro S.A.-ADR (Integrated
Oil & Gas) 67,000 884,400
=======================================================================
1,506,700
=======================================================================
DENMARK-1.14%
Danske Bank A.S. (Banks) 57,200 1,031,105
=======================================================================
FRANCE-8.40%
Compagnie de Saint-Gobain (Building
Products)(a) 36,000 1,072,536
- -----------------------------------------------------------------------
Compagnie Generale des Etablissements
Michelin-Class B (Tires & Rubber) 50,500 1,996,662
- -----------------------------------------------------------------------
Societe Generale-ADR (Banks) 170,000 1,900,056
- -----------------------------------------------------------------------
TotalFinaElf S.A.-ADR (Integrated Oil & Gas) 36,000 2,611,800
=======================================================================
7,581,054
=======================================================================
GERMANY-4.97%
BASF A.G.-ADR (Diversified Chemicals) 43,000 1,655,500
- -----------------------------------------------------------------------
Bayer A.G.-ADR (Diversified Chemicals) 29,400 740,880
- -----------------------------------------------------------------------
Deutsche Bank A.G. (Banks) 25,000 1,429,750
- -----------------------------------------------------------------------
SAP A.G.-ADR (Application Software) 35,000 654,500
=======================================================================
4,480,630
=======================================================================
ITALY-4.88%
ENI S.p.A.-ADR (Integrated Oil & Gas) 29,000 2,178,770
- -----------------------------------------------------------------------
Sanpaolo IMI S.p.A.-ADR (Banks) 55,000 846,450
- -----------------------------------------------------------------------
Telecom Italia S.p.A.-ADR (Integrated
Telecommunication Services) 17,500 1,378,650
=======================================================================
4,403,870
=======================================================================
JAPAN-20.58%
Canon Inc.-ADR (Office Electronics) 48,000 1,627,200
- -----------------------------------------------------------------------
East Japan Railway Co. (Railroads)(a) 210 981,349
- -----------------------------------------------------------------------
Fuji Photo Film Co., Ltd.-ADR (Photographic
Products) 55,000 1,715,450
- -----------------------------------------------------------------------
Hitachi, Ltd.-ADR (Electronic Equipment &
Instruments) 15,000 859,500
- -----------------------------------------------------------------------
Honda Motor Co., Ltd.-ADR (Automobile
Manufacturers) 52,000 1,092,000
- -----------------------------------------------------------------------
Ito-Yokado Co., Ltd. (General Merchandise
Stores) 25,000 1,149,497
- -----------------------------------------------------------------------
Kao Corp. (Household Products) 38,000 856,177
- -----------------------------------------------------------------------
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
JAPAN-(CONTINUED)
Kyocera Corp.-ADR (Electronic Equipment &
Instruments) 17,400 $ 1,165,800
- -----------------------------------------------------------------------
Nintendo Co. Ltd. (Consumer Electronics) 8,100 1,013,894
- -----------------------------------------------------------------------
Nippon Telegraph & Telephone Corp.
(Integrated Telecommunication Services) 460 1,880,920
- -----------------------------------------------------------------------
Sony Corp-ADR (Consumer Electronics) 37,000 1,677,210
- -----------------------------------------------------------------------
Takeda Chemical Industries, Ltd.
(Pharmaceuticals) 32,000 1,329,829
- -----------------------------------------------------------------------
Takefuji Corp. (Consumer Finance) 14,570 970,239
- -----------------------------------------------------------------------
TDK Corp. (Electronic Equipment &
Instruments) 26,000 1,171,611
- -----------------------------------------------------------------------
Toyota Motor Corp. (Automobile Manufacturers) 45,000 1,075,854
=======================================================================
18,566,530
=======================================================================
MEXICO-1.28%
Telefonos de Mexico S.A. de C.V.-Class L-ADR
(Integrated Telecommunication Services) 40,000 1,156,000
=======================================================================
NETHERLANDS-8.70%
ABN AMRO Holding N.V. (Banks) 105,000 1,488,168
- -----------------------------------------------------------------------
ING Groep N.V.-ADR (Diversified Financial
Services) 81,000 1,716,390
- -----------------------------------------------------------------------
Koninklijke (Royal) Philips Electronics
N.V.-New York Shares (Consumer Electronics) 77,600 1,749,104
- -----------------------------------------------------------------------
Royal Dutch Petroleum Co.-New York Shares
(Integrated Oil & Gas) 38,000 1,736,600
- -----------------------------------------------------------------------
Unilever N.V.-New York Shares (Packaged Foods
& Meats) 20,650 1,163,627
=======================================================================
7,853,889
=======================================================================
NORWAY-1.28%
Statoil A.S.A. (Integrated Oil & Gas) 140,000 1,154,088
=======================================================================
PORTUGAL-1.09%
Portugal Telecom, SGPS, S.A.-ADR (Integrated
Telecommunication Services) 163,000 981,260
=======================================================================
SOUTH KOREA-2.76%
Korea Electric Power Corp.-ADR (Electric
Utilities) 114,000 1,166,220
- -----------------------------------------------------------------------
KT Corp.-ADR (Integrated Telecommunication
Services) 65,000 1,327,300
=======================================================================
2,493,520
=======================================================================
SPAIN-4.73%
Banco Popular Espanol S.A. (Banks) 35,000 1,525,799
- -----------------------------------------------------------------------
Endesa, S.A.-ADR (Electric Utilities) 169,500 1,889,925
- -----------------------------------------------------------------------
Repsol YPF, S.A.-ADR (Integrated Oil & Gas) 70,000 856,100
=======================================================================
4,271,824
=======================================================================
</Table>
FS-2
<Table>
<Caption>
MARKET
SHARES VALUE
SWITZERLAND-9.15%
Nestle S.A.-ADR (Packaged Foods & Meats) 48,200 $ 2,589,902
- -----------------------------------------------------------------------
Novartis A.G.-ADR (Pharmaceuticals) 57,500 2,364,975
- -----------------------------------------------------------------------
Roche Holding A.G. (Pharmaceuticals) 19,200 1,363,765
- -----------------------------------------------------------------------
Syngenta A.G. (Fertilizers & Agricultural
Chemicals) 23,000 1,170,673
- -----------------------------------------------------------------------
Zurich Financial Services A.G. (Multi-Line
Insurance) 7,000 763,482
=======================================================================
8,252,797
=======================================================================
UNITED KINGDOM-23.51%
Abbey National PLC (Banks) 123,300 1,502,185
- -----------------------------------------------------------------------
BP PLC (Integrated Oil & Gas) 236,200 1,835,943
- -----------------------------------------------------------------------
British Aerospace PLC (Aerospace & Defense) 357,400 1,665,688
- -----------------------------------------------------------------------
BT Group PLC-ADR (Integrated
Telecommunication Services) 38,000 1,201,940
- -----------------------------------------------------------------------
Cadbury Schweppes PLC (Packaged Foods &
Meats) 329,700 2,286,838
- -----------------------------------------------------------------------
Diageo PLC (Distillers & Vintners) 159,000 1,929,664
- -----------------------------------------------------------------------
GlaxoSmithKline PLC-ADR (Pharmaceuticals) 55,030 2,173,685
- -----------------------------------------------------------------------
HSBC Holdings PLC-ADR (Banks) 42,000 2,428,440
- -----------------------------------------------------------------------
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
UNITED KINGDOM-(CONTINUED)
Kingfisher PLC (Home Improvement Retail) 350,000 $ 1,059,185
- -----------------------------------------------------------------------
Marks & Spencer Group PLC (Department Stores) 170,000 903,963
- -----------------------------------------------------------------------
Rolls-Royce PLC (Aerospace & Defense) 425,000 972,093
- -----------------------------------------------------------------------
Royal Bank of Scotland Group PLC (Banks) 49,000 1,287,444
- -----------------------------------------------------------------------
Scottish Power PLC (Electric Utilities) 359,200 1,966,198
=======================================================================
21,213,266
=======================================================================
Total Foreign Stocks & Other Equity
Interests (Cost $89,520,699) 86,727,805
=======================================================================
<Caption>
PRINCIPAL
AMOUNT
U.S. GOVERNMENT AGENCY SECURITIES-3.57%
Federal Home Loan Mortgage Corp., Unsec.
Disc. Notes, 1.72%, 08/01/02 (Cost
$3,219,000)(b) $3,219,000 3,219,000
=======================================================================
TOTAL INVESTMENTS-99.68% (Cost $92,739,699) 89,946,805
=======================================================================
OTHER ASSETS LESS LIABILITIES-0.32% 289,079
=======================================================================
NET ASSETS-100.00% $90,235,884
_______________________________________________________________________
=======================================================================
</Table>
Investment Abbreviations:
<Table>
<Caption>
ADR - American Depositary Receipt
Disc. - Discounted
Unsec. - Unsecured
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) The interest rate shown represents the rate of discount paid or received at
the time of purchase by the Fund.
See Notes to Financial Statements.
FS-3
STATEMENT OF ASSETS AND LIABILITIES
- ---------------------------------------------------------------
JULY 31, 2002
<Table>
ASSETS:
Investments, at market value (cost
$92,739,699) $89,946,805
- -----------------------------------------------------------
Receivables for:
Investments sold 488,022
- -----------------------------------------------------------
Fund shares sold 945,144
- -----------------------------------------------------------
Dividends 263,887
- -----------------------------------------------------------
Investment for deferred compensation plan 26,878
- -----------------------------------------------------------
Other assets 40,554
===========================================================
Total assets 91,711,290
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Investments purchased 1,077,730
- -----------------------------------------------------------
Fund shares reacquired 170,361
- -----------------------------------------------------------
Deferred compensation plan 26,878
- -----------------------------------------------------------
Accrued distribution fees 138,938
- -----------------------------------------------------------
Accrued trustees' fees 915
- -----------------------------------------------------------
Accrued transfer agent fees 25,982
- -----------------------------------------------------------
Accrued operating expenses 34,602
===========================================================
Total liabilities 1,475,406
===========================================================
Net assets applicable to shares outstanding $90,235,884
___________________________________________________________
===========================================================
NET ASSETS:
Class A $34,142,557
___________________________________________________________
===========================================================
Class B $13,470,583
___________________________________________________________
===========================================================
Class C $42,610,185
___________________________________________________________
===========================================================
Class R $ 12,559
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE:
Class A 2,834,533
___________________________________________________________
===========================================================
Class B 1,149,229
___________________________________________________________
===========================================================
Class C 3,639,104
___________________________________________________________
===========================================================
Class R 1,043
___________________________________________________________
===========================================================
Class A:
Net asset value per share $ 12.05
- -----------------------------------------------------------
Offering price per share:
(Net asset value of $12.05 divided by
94.50%) $ 12.75
___________________________________________________________
===========================================================
Class B:
Net asset value and offering price per share $ 11.72
___________________________________________________________
===========================================================
Class C:
Net asset value and offering price per share $ 11.71
___________________________________________________________
===========================================================
Class R:
Net asset value and offering price per share $ 12.04
___________________________________________________________
===========================================================
</Table>
STATEMENT OF OPERATIONS
- ---------------------------------------------------------------
FOR THE YEAR ENDED JULY 31, 2002
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of
$298,931) $ 2,325,228
- -----------------------------------------------------------
Interest 61,074
===========================================================
Total investment income 2,386,302
===========================================================
EXPENSES:
Advisory fees 947,030
- -----------------------------------------------------------
Administrative services fees 50,000
- -----------------------------------------------------------
Custodian fees 54,865
- -----------------------------------------------------------
Distribution fees -- Class A 112,486
- -----------------------------------------------------------
Distribution fees -- Class B 108,029
- -----------------------------------------------------------
Distribution fees -- Class C 517,597
- -----------------------------------------------------------
Distribution fees -- Class R 7
- -----------------------------------------------------------
Transfer agent fees 213,971
- -----------------------------------------------------------
Trustees' fees 9,008
- -----------------------------------------------------------
Other 123,464
===========================================================
Total expenses 2,136,457
===========================================================
Less: Expenses paid indirectly (1,110)
===========================================================
Net expenses 2,135,347
===========================================================
Net investment income 250,955
===========================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES AND FOREIGN
CURRENCIES:
Net realized gain (loss) from:
Investment securities (5,297,878)
- -----------------------------------------------------------
Foreign currencies (139,696)
===========================================================
(5,437,574)
===========================================================
Change in net unrealized appreciation
(depreciation) of:
Investment securities (8,152,841)
- -----------------------------------------------------------
Foreign currencies 15,695
===========================================================
(8,137,146)
===========================================================
Net gain (loss) from investment securities
and foreign currencies (13,574,720)
===========================================================
Net increase (decrease) in net assets
resulting from operations $(13,323,765)
___________________________________________________________
===========================================================
</Table>
See Notes to Financial Statements.
FS-4
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED JULY 31, 2002 AND 2001
<Table>
<Caption>
2002 2001
------------ ------------
OPERATIONS:
Net investment income (loss) $ 250,955 $ (99,255)
- ------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities and
foreign currencies (5,437,574) 2,812,833
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities and foreign currencies (8,137,146) (21,198,473)
==========================================================================================
Net increase (decrease) in net assets resulting from
operations (13,323,765) (18,484,895)
==========================================================================================
Distributions to shareholders from net realized gains:
Class A (326,844) (3,675,406)
- ------------------------------------------------------------------------------------------
Class B (112,822) (716,096)
- ------------------------------------------------------------------------------------------
Class C (586,319) (10,259,617)
- ------------------------------------------------------------------------------------------
Share transactions-net:
Class A 10,710,635 6,225,433
- ------------------------------------------------------------------------------------------
Class B 6,669,654 4,552,726
- ------------------------------------------------------------------------------------------
Class C (12,052,459) (3,518,037)
- ------------------------------------------------------------------------------------------
Class R 13,905 --
==========================================================================================
Net increase (decrease) in net assets (9,008,015) (25,875,892)
==========================================================================================
NET ASSETS:
Beginning of year 99,243,899 125,119,791
==========================================================================================
End of year $ 90,235,884 $ 99,243,899
__________________________________________________________________________________________
==========================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 98,629,510 $ 92,831,000
- ------------------------------------------------------------------------------------------
Undistributed net investment income (loss) (316,660) (458,107)
- ------------------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment
securities and foreign currencies (5,299,025) 1,511,801
- ------------------------------------------------------------------------------------------
Unrealized appreciation (depreciation) of investment
securities and foreign currencies (2,777,941) 5,359,205
==========================================================================================
$ 90,235,884 $ 99,243,899
__________________________________________________________________________________________
==========================================================================================
</Table>
See Notes to Financial Statements.
FS-5
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
JULY 31, 2002
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM International Core Equity Fund (the "Fund"), formerly AIM International
Value Fund, is a series portfolio of AIM Advisor Funds (the "Trust"). The Trust
is a Delaware business trust registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as an open-end series management investment
company consisting of two separate portfolios, each having an unlimited number
of shares of beneficial interest. The Fund currently offers four different
classes of shares: Class A shares, Class B shares, Class C shares and Class R
shares. Class A shares are sold with a front-end sales charge. Class B shares
and Class C shares are sold with a contingent deferred sales charge. Class R
shares are sold at net asset value. Matters affecting each portfolio or class
will be voted on exclusively by the shareholders of such portfolio or class. The
assets, liabilities and operations of each portfolio are accounted for
separately. Information presented in these financial statements pertains only to
the Fund. The Fund's investment objective is to achieve high total return.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. 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 as of
the close of the customary trading session on the exchange where the
security is principally traded, or lacking any sales on a particular day,
the security is valued at the closing bid price on that day. Each security
traded in the over-the-counter market (but not securities reported on the
NASDAQ National Market System) is valued at the closing bid price furnished
by independent pricing services or market makers. Each security reported on
the NASDAQ National Market System is valued at the last sales price as of
the close of the customary trading session on the valuation date or absent
a last sales price, at the closing bid price. Debt obligations (including
convertible bonds) are valued on the basis of prices provided by an
independent pricing service. Prices 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 special securities, dividend rate,
yield, quality, type of issue, coupon rate, maturity, individual trading
characteristics and other market data. Securities for which market prices
are not provided by any of the above methods are valued based upon quotes
furnished by independent sources and are valued at the last bid price in
the case of equity securities and in the case of debt obligations, the mean
between the last bid and asked prices. Securities for which market
quotations are not readily available or are questionable are valued at fair
value as determined in good faith by or under the supervision of the
Trust's officers in a manner specifically authorized by the Board of
Trustees. Short-term obligations having 60 days or less to maturity are
valued at amortized cost which approximates market value. For purposes of
determining net asset value per share, futures and option contracts
generally will be valued 15 minutes after the close of the customary
trading session of the New York Stock Exchange ("NYSE").
Foreign securities are converted into U.S. dollar amounts using exchange
rates as of the close of the NYSE. Generally, trading in foreign securities
is substantially completed each day at various times prior to the close of
the NYSE. The values of such securities used in computing the net asset
value of the Fund's shares are determined as of the close of the respective
markets. Occasionally, events affecting the values of such foreign
securities may occur between the times at which the particular foreign
market closes and the close of the customary trading session of the NYSE
which would not be reflected in the computation of the Fund's net asset
value. If a development/event is so significant that there is a reasonably
high degree of certainty as to both the effect and the degree of effect
that the development/event has actually caused that closing price to no
longer reflect actual value, the closing prices, as determined at the close
of the applicable foreign market, may be adjusted to reflect the fair value
of the affected foreign securities as of the close of the NYSE as
determined in good faith by or under the supervision of the Board of
Trustees.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
On July 31, 2002, shares of beneficial interest was increased by
$456,775, undistributed net investment income (loss) was decreased by
$109,508 and undistributed net realized gains decreased by $347,267 as a
result of differing book/tax treatment of the utilization of a portion of
the proceeds from redemptions as distributions for federal income tax
purposes, foreign currency transactions, net operating loss and other
reclassifications. Net assets of the Fund were unaffected by the
reclassification discussed above.
C. DISTRIBUTIONS -- Distributions from income and net realized capital gains,
if any, are generally paid annually and recorded on ex-dividend date. The
Fund may elect to use a portion of the proceeds from redemptions as
distributions for federal income tax purposes.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
the Internal Revenue Code necessary to qualify as a regulated investment
company and, as such, will not
FS-6
be subject to federal income taxes on otherwise taxable income (including
net realized capital gains) which is distributed to shareholders.
Therefore, no provision for federal income taxes is recorded in the
financial statements.
The Fund has a capital loss carryforward of $2,448,915 as of July 31,
2002 which may be carried forward to offset future taxable gains, if any,
which expire, if not previously utilized, in the year 2010. As of July 31,
2002, the Fund has a post-October capital loss deferral of $2,837,513 and
post-October currency loss deferral of $108,366, which will be recognized
in the following tax year.
E. FOREIGN CURRENCY TRANSLATIONS -- 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 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. Such fluctuations are included with the net realized and
unrealized gain or loss from investments.
F. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract 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. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
G. EXPENSES -- Distribution expenses directly attributable to a class of
shares are charged to the respective classes' operations. Transfer agency
fees and expenses and other shareholder recordkeeping fees and expenses are
charged to each class pursuant to a transfer agency and service agreement
adopted by the Fund with respect to such class. All other expenses are
allocated among the classes based on relative net assets.
NOTE 2--ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Company has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM at the annual rate of 1.00% of the Fund's
average daily net assets. AIM has entered into a sub-advisory agreement with
INVESCO Global Asset Management (N.A.), Inc. (IGAM) whereby AIM pays IGAM 40% of
the net fee paid by the Fund to AIM.
The Fund, pursuant to a master administrative services agreement with AIM, has
agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. For the year ended July 31, 2002, AIM was paid
$50,000 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency and
shareholder services to the Fund. During the year ended July 31, 2002, AFS
retained $95,005 for such services.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B, Class C and Class R shares of the Fund. The Trust has adopted
plans pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class
A shares, Class B shares, Class C shares and Class R shares (collectively the
"Plans"). The Fund, pursuant to the Plans, pays AIM Distributors compensation at
the annual rate of 0.35% of the Fund's average daily net assets of Class A
shares, 1.00% of the average daily net assets of Class B and C shares and 0.50%
of the average daily net assets of Class R shares. Of these amounts, the Fund
may pay a service fee of 0.25% of the average daily net assets of the Class A,
Class B, Class C or Class R shares to selected dealers and financial
institutions who furnish continuing personal shareholder services to their
customers who purchase and own the appropriate class of shares of the Fund. Any
amounts not paid as a service fee under the Plans would constitute an
asset-based sales charge. The Plans also impose a cap on the total sales
charges, including asset-based sales charges that may be paid by the respective
classes. For the year ended July 31, 2002, the Class A, Class B, Class C and
Class R shares paid AIM Distributors $112,486, $108,029, $517,597 and $7,
respectively, as compensation under the Plans.
AIM Distributors retained commissions of $15,658 from sales of the Class A
shares of the Fund during the year ended July 31, 2002. Such commissions are not
an expense of the Fund. They are deducted from, and are not included in, the
proceeds from sales of Class A shares. During the year ended July 31, 2002, AIM
Distributors retained $7, $0, $4,030 and $0 in contingent deferred sales charges
imposed on redemptions of Class A, Class B, Class C and Class R shares,
respectively.
Certain officers and trustees of the Trust are officers and directors of AIM,
AFS and AIM Distributors.
During the year ended July 31, 2002, the Fund paid legal fees of $3,478 for
services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Board of Trustees. A member of that firm is a trustee of the Trust.
NOTE 3--INDIRECT EXPENSES
For the year ended July 31, 2002, the Fund received reductions in transfer
agency fees from AFS (an affiliate of AIM) of $1,110 under an expense offset
arrangement which resulted in a reduction of the Fund's total expenses of
$1,110.
NOTE 4--TRUSTEES' FEES
Trustees' fees represent remuneration paid to trustees who are not an
"interested person" of AIM. Trustees have the option to defer compensation
payable by the Trust. The Trustees deferring compensation have the option to
select various AIM Funds in which all or part of their deferral accounts shall
be deemed to be invested.
NOTE 5--BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by Citibank, N.A. The Fund may borrow up to the lesser of
(i) $500,000,000 or (ii) the limits set by its prospectus for borrowings. The
Fund and other funds advised by AIM which are
FS-7
parties to the line of credit may borrow on a first come, first served basis.
During the year ended July 31, 2002, the Fund did not borrow under the line of
credit agreement. The funds which are party to the line of credit are charged a
commitment fee of 0.09% on the unused balance of the committed line. The
commitment fee is allocated among the funds based on their respective average
net assets for the period.
NOTE 6--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF CAPITAL
The tax character of distributions paid during the years ended July 31, 2002 and
2001 were as follows:
<Table>
<Caption>
2002 2001
---------- -----------
Distributions paid from:
Ordinary income $ -- $ 4,965,689
- -------------------------------------------------------------
Long-term capital gain 1,025,985 9,685,430
=============================================================
$1,025,985 $14,651,119
_____________________________________________________________
=============================================================
</Table>
As of July 31, 2002, the components of distributable earnings (accumulated
losses) on a tax basis were as follows:
<Table>
Capital loss carryforward $(2,448,915)
- -----------------------------------------------------------
Unrealized appreciation (depreciation) (5,944,711)
===========================================================
$(8,393,626)
___________________________________________________________
===========================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is attributable primarily to the tax deferral of losses on wash
sales, the deferral of capital losses and currency losses incurred after October
31, the differing treatment of passive foreign investment companies, and timing
differences.
NOTE 7--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund during the year ended July 31, 2002 was
$24,647,564 and $21,390,942, respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
for tax purposes, as of July 31, 2002 is as follows:
<Table>
Aggregate unrealized appreciation of
investment securities $ 12,588,650
- -----------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (15,572,788)
===========================================================
Net unrealized appreciation (depreciation) of
investment securities $ (2,984,138)
___________________________________________________________
===========================================================
Cost of investments for tax purposes is $92,930,943.
</Table>
NOTE 8--SHARE INFORMATION
Changes in shares outstanding during the years ended July 31, 2002 and 2001 were
as follows:
<Table>
<Caption>
2002 2001
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
Sold:
Class A 3,602,188 $ 47,084,959 4,820,707 $ 76,472,942
- ----------------------------------------------------------------------------------------------------------------------
Class B 784,310 10,006,307 381,219 5,709,213
- ----------------------------------------------------------------------------------------------------------------------
Class C 871,261 11,192,071 1,114,774 16,413,689
- ----------------------------------------------------------------------------------------------------------------------
Class R* 1,043 13,905 -- --
======================================================================================================================
Issued as reinvestment of dividends:
Class A 23,834 301,266 229,494 3,508,962
- ----------------------------------------------------------------------------------------------------------------------
Class B 8,627 106,544 44,591 671,547
- ----------------------------------------------------------------------------------------------------------------------
Class C 42,024 518,574 594,141 8,935,880
======================================================================================================================
Reacquired:
Class A (2,788,316) (36,675,590) (4,659,020) (73,756,471)
- ----------------------------------------------------------------------------------------------------------------------
Class B (270,555) (3,443,197) (115,405) (1,828,034)
- ----------------------------------------------------------------------------------------------------------------------
Class C (1,870,536) (23,763,104) (1,907,736) (28,867,606)
======================================================================================================================
403,880 $ 5,341,735 502,765 $ 7,260,122
______________________________________________________________________________________________________________________
======================================================================================================================
</Table>
* Class R shares commenced sales on June 3, 2002.
FS-8
NOTE 9--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
-----------------------------------------------------------------------
YEAR ENDED SEVEN MONTHS
JULY 31, ENDED YEAR ENDED DECEMBER 31,
----------------------- JULY 31, ----------------------------
2002 2001 2000 1999 1998 1997
------- ------- ------------ ------- ------- ------
Net asset value, beginning of period $ 13.96 $ 18.78 $ 19.92 $ 16.57 $ 14.99 $13.42(a)
- --------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.09(b) 0.08(b) 0.08(b) 0.13 0.09 0.17(b)
- --------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (1.86) (2.64) (1.22) 3.57 1.59 1.69
================================================================================================================================
Total from investment operations (1.77) (2.56) (1.14) 3.70 1.68 1.86
================================================================================================================================
Less distributions:
Dividends from net investment income -- -- -- (0.28) (0.10) (0.07)
- --------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.14) (2.26) -- (0.07) -- (0.22)
================================================================================================================================
Total distributions (0.14) (2.26) -- (0.35) (0.10) (0.29)
================================================================================================================================
Net asset value, end of period $ 12.05 $ 13.96 $ 18.78 $ 19.92 $ 16.57 $14.99
________________________________________________________________________________________________________________________________
================================================================================================================================
Total return(c) (12.71)% (14.66)% (5.72)% 22.54% 11.20% 13.84%
________________________________________________________________________________________________________________________________
================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $34,143 $27,870 $30,153 $31,412 $28,281 $8,444
________________________________________________________________________________________________________________________________
================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 1.82%(d) 1.57% 1.54%(e) 1.51% 1.57% 1.71%
- --------------------------------------------------------------------------------------------------------------------------------
Without fee waivers 1.82%(d) 1.67% 1.64%(e) 1.72% 1.81% 1.81%
================================================================================================================================
Ratio of net investment income to average net assets 0.70%(d) 0.49% 0.70%(e) 0.71% 0.84% 0.83%
________________________________________________________________________________________________________________________________
================================================================================================================================
Portfolio turnover rate 23% 23% 18% 24% 9% 9%
________________________________________________________________________________________________________________________________
================================================================================================================================
</Table>
(a) Net assets value has been restated to reflect a 4 for 1 stock split,
effected in the form of a 300% stock dividend, on November 7, 1997.
(b) Calculated using average shares outstanding.
(c) Does not include sales charges and is not annualized for periods less
than one year.
(d) Ratios are based on average daily net assets of $32,138,914.
(e) Annualized.
FS-9
NOTE 9--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B
-----------------------------------------------------------------------
MARCH 3, 1998
YEAR ENDED SEVEN MONTHS (DATE SALES
JULY 31, ENDED YEAR ENDED COMMENCED) TO
------------------ JULY 31, DECEMBER 31, DECEMBER 31,
2002 2001 2000 1999 1998
------- ------- ------------ ------------ -----------------
Net asset value, beginning of period $ 13.67 $ 18.59 $19.81 $ 16.48 $ 16.21
- -------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.01(a) (0.05)(a) (0.01)(a) (0.01) --
- -------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) (1.82) (2.61) (1.21) 3.56 0.27
=========================================================================================================================
Total from investment operations (1.81) (2.66) (1.22) 3.55 0.27
=========================================================================================================================
Less distributions:
Dividends from net investment income -- -- -- (0.15) --
- -------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.14) (2.26) -- (0.07) --
=========================================================================================================================
Total distributions (0.14) (2.26) -- (0.22) --
=========================================================================================================================
Net asset value, end of period $ 11.72 $ 13.67 $18.59 $ 19.81 $16.48
_________________________________________________________________________________________________________________________
=========================================================================================================================
Total return(b) (13.27)% (15.42)% (6.16)% 21.70% 1.67%
_________________________________________________________________________________________________________________________
=========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $13,471 $ 8,572 $5,883 $ 5,642 $4,289
_________________________________________________________________________________________________________________________
=========================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 2.48%(c) 2.36% 2.32%(d) 2.27% 2.32%(d)
- -------------------------------------------------------------------------------------------------------------------------
Without fee waivers 2.48%(c) 2.36% 2.32%(d) 2.38% 2.46%(d)
=========================================================================================================================
Ratio of net investment income (loss) to average
net assets 0.04%(c) (0.30)% (0.08)%(d) (0.05)% 0.09%(d)
_________________________________________________________________________________________________________________________
=========================================================================================================================
Portfolio turnover rate 23% 23% 18% 24% 9%
_________________________________________________________________________________________________________________________
=========================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Does not include contingent deferred sales charges and is not annualized
for periods less than one year.
(c) Ratios are based on average daily net assets of $10,802,915.
(d) Annualized.
FS-10
NOTE 9--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
---------------------------------------------------------------------
YEAR ENDED SEVEN MONTHS
JULY 31, ENDED YEAR ENDED DECEMBER 31,
------------------ JULY 31, -------------------------------
2002 2001 2000 1999 1998 1997
------- ------- ------------ -------- -------- -------
Net asset value, beginning of period $ 13.66 $ 18.58 $ 19.80 $ 16.48 $ 14.93 $ 13.42
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.01(a) (0.05)(a) (0.01)(a) (0.01)(a) -- 0.01(a)
- ---------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized
and unrealized) (1.82) (2.61) (1.21) 3.55 1.55 1.73
===========================================================================================================================
Total from investment operations (1.81) (2.66) (1.22) 3.54 1.55 1.74
===========================================================================================================================
Less distributions:
Dividends from net investment income -- -- -- (0.15) -- (0.01)
- ---------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.14) (2.26) -- (0.07) -- (0.22)
===========================================================================================================================
Total distributions (0.14) (2.26) -- (0.22) -- (0.23)
===========================================================================================================================
Net asset value, end of period $ 11.71 $ 13.66 $ 18.58 $ 19.80 $ 16.48 $ 14.93
___________________________________________________________________________________________________________________________
===========================================================================================================================
Total return(b) (13.29)% (15.42)% (6.16)% 21.64% 10.38% 12.98%
___________________________________________________________________________________________________________________________
===========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $42,610 $62,802 $89,084 $108,821 $105,083 $93,162
___________________________________________________________________________________________________________________________
===========================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 2.48%(c) 2.36% 2.32%(d) 2.27% 2.32% 2.46%
- ---------------------------------------------------------------------------------------------------------------------------
Without fee waivers 2.48%(c) 2.36% 2.32%(d) 2.38% 2.46% 2.46%
===========================================================================================================================
Ratio of net investment income (loss) to average net
assets 0.04%(c) (0.30)% (0.08)%(d) (0.05)% 0.09% 0.08%
___________________________________________________________________________________________________________________________
===========================================================================================================================
Portfolio turnover rate 23% 23% 18% 24% 9% 9%
___________________________________________________________________________________________________________________________
===========================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Does not include contingent deferred sales charges and is not annualized
for periods less than one year.
(c) Ratios are based on average daily net assets of $51,759,679.
(d) Annualized.
<Table>
<Caption>
CLASS R
-------------
JUNE 3, 2002
(DATE SALES
COMMENCED) TO
JULY 31,
2002
-------------
Net asset value, beginning of period $ 13.92
- ---------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.01(a)
- ---------------------------------------------------------------------------
Net losses on securities (both realized and unrealized) (1.89)
===========================================================================
Total from investment operations (1.88)
===========================================================================
Net asset value, end of period $ 12.04
___________________________________________________________________________
===========================================================================
Total return(b) (13.51)%
___________________________________________________________________________
===========================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 13
___________________________________________________________________________
===========================================================================
Ratio of expenses to average net assets:
With fee waivers 1.97%(c)
- ---------------------------------------------------------------------------
Without fee waivers 1.97%(c)
===========================================================================
Ratio of net investment income to average net assets 0.55%(c)
___________________________________________________________________________
===========================================================================
Portfolio turnover rate 23%
___________________________________________________________________________
===========================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of $9,199.
FS-11
REPORT OF INDEPENDENT AUDITORS
To the Shareholders of AIM Real Estate Fund
And Board of Trustees of AIM Advisor Funds:
We have audited the accompanying statement of assets and liabilities of AIM Real
Estate Fund (a portfolio of AIM Advisor Funds), including the schedule of
investments, as of July 31, 2002, and the related statement of operations for
the year then ended, and the statements of changes in net assets and financial
highlights for each of the two years in the period then ended. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits. The financial
highlights for each of the periods presented through July 31, 2000 were audited
by other auditors whose report dated September 1, 2000, expressed an unqualified
opinion on those financial highlights.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of July 31, 2002, by correspondence with the
custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
Real Estate Fund as of July 31, 2002, the results of its operations for the year
then ended, and the changes in its net assets and financial highlights for each
of the two years in the period then ended in conformity with accounting
principles generally accepted in the United States.
/s/ ERNST & YOUNG LLP
Houston, Texas
September 10, 2002
FS-12
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
JULY 31, 2002
<Table>
<Caption>
MARKET
SHARES VALUE
REAL ESTATE INVESTMENT TRUSTS, STOCKS & OTHER
EQUITY INTERESTS-95.81%
APARTMENTS-11.67%
Apartment Investment & Management Co.- Class A 93,400 $ 4,199,264
- --------------------------------------------------------------------------
Archstone-Smith Trust 31,617 803,072
- --------------------------------------------------------------------------
Avalonbay Communities, Inc. 33,200 1,492,340
- --------------------------------------------------------------------------
Camden Property Trust 110,800 4,099,600
- --------------------------------------------------------------------------
Equity Residential 74,300 1,987,525
- --------------------------------------------------------------------------
Gables Residential Trust 42,800 1,245,908
- --------------------------------------------------------------------------
Post Properties, Inc. 60,000 1,767,600
- --------------------------------------------------------------------------
Summit Properties Inc. 14,100 302,445
- --------------------------------------------------------------------------
United Dominion Realty Trust, Inc. 414,000 6,706,800
==========================================================================
22,604,554
==========================================================================
DIVERSIFIED-5.10%
Cominar Real Estate Investment Trust (Canada) 19,300 150,815
- --------------------------------------------------------------------------
H&R Real Estate Investment Trust (Canada) 30,500 263,575
- --------------------------------------------------------------------------
Lexington Corporate Properties Trust 42,800 688,224
- --------------------------------------------------------------------------
Nuveen Real Estate Income Fund 20,900 319,979
- --------------------------------------------------------------------------
Vornado Realty Trust 194,400 8,466,120
==========================================================================
9,888,713
==========================================================================
FREESTANDING-1.58%
Commercial Net Lease Realty 59,800 968,162
- --------------------------------------------------------------------------
Getty Realty Corp. 49,200 939,720
- --------------------------------------------------------------------------
Realty Income Corp. 33,900 1,145,820
==========================================================================
3,053,702
==========================================================================
HEALTHCARE-7.59%
Health Care Property Investors, Inc. 81,800 3,583,658
- --------------------------------------------------------------------------
Health Care REIT, Inc. 160,500 4,734,750
- --------------------------------------------------------------------------
Retirement Residences Real Estate Investment
Trust (Canada) 52,900 431,087
- --------------------------------------------------------------------------
Senior Housing Properties Trust 424,300 5,299,507
- --------------------------------------------------------------------------
Ventas, Inc. 50,100 651,300
==========================================================================
14,700,302
==========================================================================
INDUSTRIAL PROPERTIES-8.49%
CenterPoint Properties Corp. 88,100 5,146,802
- --------------------------------------------------------------------------
First Industrial Realty Trust, Inc. 47,700 1,543,095
- --------------------------------------------------------------------------
Keystone Property Trust 30,300 469,650
- --------------------------------------------------------------------------
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
INDUSTRIAL PROPERTIES-(CONTINUED)
ProLogis 364,100 $ 9,284,550
==========================================================================
16,444,097
==========================================================================
INDUSTRIAL/OFFICE PROPERTIES-5.59%
Liberty Property Trust 166,250 5,344,937
- --------------------------------------------------------------------------
PS Business Parks, Inc. 155,800 5,484,160
==========================================================================
10,829,097
==========================================================================
LODGING-RESORTS-2.95%
Hospitality Properties Trust 142,900 4,804,298
- --------------------------------------------------------------------------
LaSalle Hotel Properties-Pfd., Series A, 10.25% 10,900 286,125
- --------------------------------------------------------------------------
RFS Hotel Investors, Inc. 51,100 629,552
==========================================================================
5,719,975
==========================================================================
MANUFACTURED HOMES-2.12%
Chateau Communities, Inc. 144,900 4,107,915
==========================================================================
OFFICE PROPERTIES-12.72%
Alexandria Real Estate Equities, Inc. 13,600 586,840
- --------------------------------------------------------------------------
Boston Properties, Inc. 86,400 3,222,720
- --------------------------------------------------------------------------
Brandywine Realty Trust 63,400 1,458,200
- --------------------------------------------------------------------------
Equity Office Properties Trust 172,407 4,548,097
- --------------------------------------------------------------------------
Highwoods Properties, Inc. 60,900 1,622,985
- --------------------------------------------------------------------------
Mack-Cali Realty Corp. 127,400 3,986,346
- --------------------------------------------------------------------------
Prentiss Properties Trust 81,100 2,301,618
- --------------------------------------------------------------------------
SL Green Realty Corp. 214,100 6,904,725
==========================================================================
24,631,531
==========================================================================
REGIONAL MALLS-16.54%
CBL & Associates Properties, Inc. 122,300 4,489,633
- --------------------------------------------------------------------------
Crown American Realty Trust 139,900 1,287,080
- --------------------------------------------------------------------------
General Growth Properties, Inc. 171,000 8,290,080
- --------------------------------------------------------------------------
Glimcher Realty Trust 63,400 1,203,332
- --------------------------------------------------------------------------
Macerich Co. (The) 159,600 4,772,040
- --------------------------------------------------------------------------
Rouse Co. (The) 104,700 3,298,050
- --------------------------------------------------------------------------
Simon Property Group, Inc. 241,700 8,698,783
==========================================================================
32,038,998
==========================================================================
SELF STORAGE FACILITIES-5.51%
Public Storage, Inc. 176,800 6,674,200
- --------------------------------------------------------------------------
Shurgard Storage Centers, Inc.-Class A 74,200 2,597,000
- --------------------------------------------------------------------------
Sovran Self Storage, Inc. 42,400 1,392,840
==========================================================================
10,664,040
==========================================================================
</Table>
FS-13
<Table>
<Caption>
MARKET
SHARES VALUE
SHOPPING CENTERS-12.69%
Chelsea Property Group, Inc. 149,200 $ 5,045,944
- --------------------------------------------------------------------------
Developers Diversified Realty Corp. 210,500 4,841,500
- --------------------------------------------------------------------------
Federal Realty Investment Trust 76,800 2,096,640
- --------------------------------------------------------------------------
Heritage Property Investment Trust 182,900 4,448,128
- --------------------------------------------------------------------------
New Plan Excel Realty Trust 73,000 1,428,610
- --------------------------------------------------------------------------
Pan Pacific Retail Properties, Inc. 138,300 4,778,265
- --------------------------------------------------------------------------
Ramco-Gershenson Properties Trust 53,000 1,081,200
- --------------------------------------------------------------------------
RioCan Real Estate Investment Trust (Canada) 110,300 868,186
==========================================================================
24,588,473
==========================================================================
SPECIALTY PROPERTIES-3.26%
Entertainment Properties Trust 38,000 877,800
- --------------------------------------------------------------------------
Plum Creek Timber Co., Inc. 190,500 5,429,250
==========================================================================
6,307,050
==========================================================================
Total Real Estate Investment Trusts, Stocks
& Other Equity Interests (Cost
$170,380,313) 185,578,447
==========================================================================
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
U.S. GOVERNMENT AGENCY SECURITIES-2.69%
FEDERAL HOME LOAN BANK-2.69%
Unsec. Disc. Notes, 1.72%, 08/01/02 (Cost
$5,214,000)(a) $5,214,000 $ 5,214,000
==========================================================================
TOTAL INVESTMENTS-98.50% (Cost $175,594,313) 190,792,447
==========================================================================
OTHER ASSETS LESS LIABILITIES-1.50% 2,908,359
==========================================================================
NET ASSETS-100.00% $193,700,806
__________________________________________________________________________
==========================================================================
</Table>
Investment Abbreviations:
<Table>
<Caption>
Disc. - Discounted
Pfd. - Preferred
Unsec. - Unsecured
</Table>
Notes to Schedule of Investments:
(a) The interest rate shown represents the rate of discount paid or received at
the time of purchase by the Fund.
See Notes to Financial Statements.
FS-14
STATEMENT OF ASSETS AND LIABILITIES
- ---------------------------------------------------------------
JULY 31, 2002
<Table>
ASSETS:
Investments, at market value (cost
$175,594,313) $190,792,447
- -----------------------------------------------------------
Foreign currencies, at value (cost
$345,476) 342,741
- -----------------------------------------------------------
Cash 400
- -----------------------------------------------------------
Receivables for:
Investments sold 427,039
- -----------------------------------------------------------
Fund shares sold 3,258,816
- -----------------------------------------------------------
Dividends 375,592
- -----------------------------------------------------------
Investment for deferred compensation plan 26,156
- -----------------------------------------------------------
Other assets 37,585
===========================================================
Total assets 195,260,776
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Investments purchased 926,279
- -----------------------------------------------------------
Fund shares reacquired 381,269
- -----------------------------------------------------------
Deferred compensation plan 26,156
- -----------------------------------------------------------
Accrued distribution fees 142,269
- -----------------------------------------------------------
Accrued trustees' fees 822
- -----------------------------------------------------------
Accrued transfer agent fees 46,557
- -----------------------------------------------------------
Accrued operating expenses 36,618
===========================================================
Total liabilities 1,559,970
===========================================================
Net assets applicable to shares outstanding $193,700,806
___________________________________________________________
===========================================================
NET ASSETS:
Class A $ 86,410,742
___________________________________________________________
===========================================================
Class B $ 69,557,006
___________________________________________________________
===========================================================
Class C $ 37,733,058
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE:
Class A 5,665,287
___________________________________________________________
===========================================================
Class B 4,548,473
___________________________________________________________
===========================================================
Class C 2,471,870
___________________________________________________________
===========================================================
Class A:
Net asset value per share $ 15.25
- -----------------------------------------------------------
Offering price per share:
(Net asset value of $15.25 divided
by 95.25%) $ 16.01
___________________________________________________________
===========================================================
Class B:
Net asset value and offering price per
share $ 15.29
___________________________________________________________
===========================================================
Class C:
Net asset value and offering price per
share $ 15.26
___________________________________________________________
===========================================================
</Table>
STATEMENT OF OPERATIONS
- ---------------------------------------------------------------
FOR THE YEAR ENDED JULY 31, 2002
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of
$2,056) $ 4,925,899
- -----------------------------------------------------------
Interest 116,082
===========================================================
Total investment income 5,041,981
===========================================================
EXPENSES:
Advisory fees 903,720
- -----------------------------------------------------------
Administrative services fees 50,000
- -----------------------------------------------------------
Custodian fees 37,632
- -----------------------------------------------------------
Distribution fees -- Class A 153,147
- -----------------------------------------------------------
Distribution fees -- Class B 300,302
- -----------------------------------------------------------
Distribution fees -- Class C 266,268
- -----------------------------------------------------------
Transfer agent fees 298,430
- -----------------------------------------------------------
Trustees' fees 8,662
- -----------------------------------------------------------
Other 122,208
===========================================================
Total expenses 2,140,369
===========================================================
Less: Expenses paid indirectly (1,186)
===========================================================
Net expenses 2,139,183
===========================================================
Net investment income 2,902,798
===========================================================
REALIZED AND UNREALIZED GAIN FROM INVESTMENT
SECURITIES AND FOREIGN CURRENCIES:
Net realized gain from:
Investment securities 2,342,208
- -----------------------------------------------------------
Foreign currencies 2,688
===========================================================
2,344,896
===========================================================
Change in net unrealized appreciation of:
Investment securities 7,439,634
- -----------------------------------------------------------
Foreign currencies 1,440
===========================================================
7,441,074
===========================================================
Net gain from investment securities and
foreign currencies 9,785,970
===========================================================
Net increase in net assets resulting from
operations $12,688,768
___________________________________________________________
===========================================================
</Table>
See Notes to Financial Statements.
FS-15
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED JULY 31, 2002 AND 2001
<Table>
<Caption>
2002 2001
------------ ------------
OPERATIONS:
Net investment income $ 2,902,798 $ 2,067,632
- -----------------------------------------------------------------------------------------
Net realized gain from investment securities and foreign
currencies 2,344,896 2,443,459
- -----------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities and foreign currencies 7,441,074 269,711
=========================================================================================
Net increase in net assets resulting from operations 12,688,768 4,780,802
=========================================================================================
Distributions to shareholders from net investment income:
Class A (1,366,733) (990,088)
- -----------------------------------------------------------------------------------------
Class B (741,067) (457,442)
- -----------------------------------------------------------------------------------------
Class C (669,922) (675,541)
- -----------------------------------------------------------------------------------------
Share transactions-net:
Class A 53,809,611 4,106,152
- -----------------------------------------------------------------------------------------
Class B 49,731,417 3,507,802
- -----------------------------------------------------------------------------------------
Class C 12,210,117 1,552,030
=========================================================================================
Net increase in net assets 125,662,191 11,823,715
=========================================================================================
NET ASSETS:
Beginning of year 68,038,615 56,214,900
=========================================================================================
End of year $193,700,806 $ 68,038,615
_________________________________________________________________________________________
=========================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $189,810,078 $ 74,058,968
- -----------------------------------------------------------------------------------------
Undistributed net investment income 241,147 113,383
- -----------------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment
securities and foreign currencies (11,549,994) (13,892,237)
- -----------------------------------------------------------------------------------------
Unrealized appreciation of investment securities and
foreign currencies 15,199,575 7,758,501
=========================================================================================
$193,700,806 $ 68,038,615
_________________________________________________________________________________________
=========================================================================================
</Table>
See Notes to Financial Statements.
FS-16
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
JULY 31, 2002
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Real Estate Fund (the "Fund") is a series portfolio of AIM Advisor Funds
(the "Trust"). The Trust is a Delaware business trust registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of two separate portfolios, each
having an unlimited number of shares of beneficial interest. The Fund currently
offers three different classes of shares: Class A shares, Class B shares and
Class C shares. Class A shares are sold with a front-end sales charge. Class B
shares and Class C shares are sold with a contingent deferred sales charge.
Matters affecting each portfolio or class will be voted on exclusively by the
shareholders of such portfolio or class. The assets, liabilities and operations
of each portfolio are accounted for separately. Information presented in these
financial statements pertains only to the Fund. The Fund's investment objective
is to achieve high total return.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. 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 as of
the close of the customary trading session on the exchange where the
security is principally traded, or lacking any sales on a particular day,
the security is valued at the closing bid price on that day. Each security
traded in the over-the-counter market (but not securities reported on the
NASDAQ National Market System) is valued at the closing bid price furnished
by independent pricing services or market makers. Each security reported on
the NASDAQ National Market System is valued at the last sales price as of
the close of the customary trading session on the valuation date or absent
a last sales price, at the closing bid price. Debt obligations (including
convertible bonds) are valued on the basis of prices provided by an
independent pricing service. Prices 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 special securities, dividend rate,
yield, quality, type of issue, coupon rate, maturity, individual trading
characteristics and other market data. Securities for which market prices
are not provided by any of the above methods are valued based upon quotes
furnished by independent sources and are valued at the last bid price in
the case of equity securities and in the case of debt obligations, the mean
between the last bid and asked prices. Securities for which market
quotations are not readily available or are questionable are valued at fair
value as determined in good faith by or under the supervision of the
Trust's officers in a manner specifically authorized by the Board of
Trustees. Short-term obligations having 60 days or less to maturity are
valued at amortized cost which approximates market value. For purposes of
determining net asset value per share, futures and option contracts
generally will be valued 15 minutes after the close of the customary
trading session of the New York Stock Exchange ("NYSE").
Foreign securities are converted into U.S. dollar amounts using exchange
rates as of the close of the NYSE. Generally, trading in foreign securities
is substantially completed each day at various times prior to the close of
the NYSE. The values of such securities used in computing the net asset
value of the Fund's shares are determined as of the close of the respective
markets. Occasionally, events affecting the values of such foreign
securities may occur between the times at which the particular foreign
market closes and the close of the customary trading session of the NYSE
which would not be reflected in the computation of the Fund's net asset
value. If a development/event is so significant that there is a reasonably
high degree of certainty as to both the effect and the degree of effect
that the development/event has actually caused that closing price to no
longer reflect actual value, the closing prices, as determined at the close
of the applicable foreign market, may be adjusted to reflect the fair value
of the affected foreign securities as of the close of the NYSE as
determined in good faith by or under the supervision of the Board of
Trustees.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
On July 31, 2002, shares of beneficial interest was decreased by $35,
undistributed net investment income was increased by $2,688 and
undistributed net realized gains decreased by $2,653 as a result of
book/tax differences due to foreign currency transactions. Net assets of
the Fund were unaffected by the reclassification discussed above.
C. DISTRIBUTIONS -- Distributions from income are declared and paid quarterly
and are recorded on ex-dividend date. Distributions from net realized
capital gains, if any, are generally paid annually and recorded on
ex-dividend date. The Fund may elect to use a portion of the proceeds from
redemptions as distributions for federal income tax purposes.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
the Internal Revenue Code necessary to qualify as a regulated investment
company and, as such, will not be subject to federal income taxes on
otherwise taxable income (including net realized capital gains) which is
distributed to shareholders. Therefore, no provision for federal income
taxes is recorded in the financial statements.
FS-17
The Fund's capital loss carryforward of $10,883,853 as of July 31, 2002
expires as follows:
<Table>
<Caption>
CAPITAL LOSS
CARRYFORWARD EXPIRATION
------------ ----------
$ 9,608,109 July 31, 2007
---------------------------
1,275,744 July 31, 2008
===========================
$10,883,853
___________________________
===========================
</Table>
E. FOREIGN CURRENCY TRANSLATIONS -- 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 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. Such fluctuations are included
with the net realized and unrealized gain or loss from investments.
F. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract 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. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
G. EXPENSES -- Distribution expenses directly attributable to a class of
shares are charged to the respective classes' operations. Transfer agency
fees and expenses and other shareholder recordkeeping fees and expenses are
charged to each class pursuant to a transfer agency and service agreement
adopted by the Fund with respect to such class. All other expenses are
allocated among the classes based on relative net assets.
NOTE 2--ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Company has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM at the annual rate of 0.90% of the Fund's
average daily net assets. AIM has entered into a sub-advisory agreement with
INVESCO Institutional (N.A.), Inc. ("INVESCO") whereby AIM pays Invesco 40% of
the fee paid by the Fund to AIM.
The Fund, pursuant to a master administrative services agreement with AIM, has
agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. For the year ended July 31, 2002, AIM was paid
$50,000 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency and
shareholder services to the Fund. During the year ended July 31, 2002, AFS
retained $149,896 for such services.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B and Class C shares of the Fund. The Trust has adopted plans
pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A
shares, Class B shares and Class C shares (collectively the "Plans"). The Fund,
pursuant to the Plans, pays AIM Distributors compensation at the annual rate of
0.35% of the Fund's average daily net assets of Class A shares, 1.00% of the
average daily net assets of Class B and Class C shares. Of these amounts, the
Fund may pay a service fee of 0.25% of the average daily net assets of the Class
A, Class B or Class C shares to selected dealers and financial institutions who
furnish continuing personal shareholder services to their customers who purchase
and own the appropriate class of shares of the Fund. Any amounts not paid as a
service fee under the Plans would constitute an asset-based sales charge. The
Plans also impose a cap on the total sales charges, including asset-based sales
charges that may be paid by the respective classes. For the year ended July 31,
2002, the Class A, Class B and Class C shares paid AIM Distributors $153,147,
$300,302 and $266,268, respectively, as compensation under the Plans.
AIM Distributors retained commissions of $94,833 from sales of the Class A
shares of the Fund during the year ended July 31, 2002. Such commissions are not
an expense of the Fund. They are deducted from, and are not included in, the
proceeds from sales of Class A shares. During the year ended July 31, 2002, AIM
Distributors retained $123, $0 and $4,195 in contingent deferred sales charges
imposed on redemptions of Class A, Class B and Class C shares, respectively.
Certain officers and trustees of the Trust are officers and directors of AIM,
AFS and AIM Distributors.
The law firm Kramer, Levin, Naftalis & Frankel LLP of which a trustee is a
member is counsel to the Board of Trustees. During the year ended July 31, 2002,
the Fund paid legal fees of $2,601.
NOTE 3--INDIRECT EXPENSES
For the year ended July 31, 2002, the Fund received reductions in transfer
agency fees from AFS (an affiliate of AIM) of $1,139 and reductions in custodian
fees of $47 under expense offset arrangements which resulted in a reduction of
the Fund's total expenses of $1,186.
NOTE 4--TRUSTEES' FEES
Trustees' fees represent remuneration paid to trustees who are not an
"interested person" of AIM. Trustees have the option to defer compensation
payable by the Trust. The Trustees deferring compensation have the option to
select various AIM Funds in which all or part of their deferral accounts shall
be deemed to be invested.
NOTE 5--BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by Citibank, N.A. The Fund may borrow up to the lesser of
(i) $500,000,000 or (ii) the limits set by its prospectus for borrowings. The
Fund and other funds advised by AIM which are parties to the line of credit may
borrow on a first come, first served basis. During the year ended July 31, 2002,
the Fund did not borrow under the line of credit agreement. The funds which are
party to the line of credit are charged a commitment fee of 0.09% on the unused
balance of the committed line. The commitment fee is allocated among the funds
based on their respective average net assets for the period.
FS-18
NOTE 6--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF CAPITAL
The tax character of distributions paid during the years ended July 31, 2002 and
2001 were as follows:
<Table>
<Caption>
2002 2001
---- ----------
Distributions paid from
ordinary income $2,777,722 $2,123,071
_____________________________________________________________
=============================================================
</Table>
As of July 31, 2002, the components of distributable earnings on a tax basis
were as follows:
<Table>
Undistributed ordinary income $ 271,691
- -----------------------------------------------------------
Capital loss carryforward (10,883,853)
- -----------------------------------------------------------
Unrealized appreciation 14,502,890
===========================================================
$ 3,890,728
___________________________________________________________
===========================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation is
attributable primarily to the tax deferral of losses on wash sales, capital loss
carryforward and timing differences.
NOTE 7--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund during the year ended July 31, 2002 was
$188,341,962 and $74,825,023, respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
for tax purposes, as of July 31, 2002 is as follows:
<Table>
Aggregate unrealized appreciation of
investment securities $16,054,705
- -----------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (1,525,791)
===========================================================
Net unrealized appreciation of investment
securities $14,528,914
___________________________________________________________
===========================================================
Cost of investments for tax purposes is
$176,263,533.
</Table>
NOTE 8--SHARE INFORMATION
Changes in shares outstanding during the years ended July 31, 2002 and 2001 were
as follows:
<Table>
<Caption>
2002 2001
-------------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ --------- -----------
Sold:
Class A 5,154,009 $ 76,791,735 1,024,020 $13,196,877
- --------------------------------------------------------------------------------------------------------------------
Class B 4,236,687 63,066,596 764,984 9,831,883
- --------------------------------------------------------------------------------------------------------------------
Class C 1,526,796 22,598,155 432,910 5,577,023
====================================================================================================================
Issued as reinvestment of dividends:
Class A 86,632 1,253,375 70,224 904,991
- --------------------------------------------------------------------------------------------------------------------
Class B 45,952 669,735 31,575 408,247
- --------------------------------------------------------------------------------------------------------------------
Class C 40,989 588,258 45,459 586,238
====================================================================================================================
Reacquired:
Class A (1,670,317) (24,235,499) (777,728) (9,995,716)
- --------------------------------------------------------------------------------------------------------------------
Class B (979,116) (14,004,914) (525,346) (6,732,328)
- --------------------------------------------------------------------------------------------------------------------
Class C (770,478) (10,976,296) (360,238) (4,611,231)
====================================================================================================================
7,671,154 $115,751,145 705,860 $ 9,165,984
____________________________________________________________________________________________________________________
====================================================================================================================
</Table>
FS-19
NOTE 9--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
-----------------------------------------------------------------------
SEVEN MONTHS
YEAR ENDED JULY 31, ENDED YEAR ENDED DECEMBER 31,
-------------------- JULY 31, -------------------------------
2002 2001 2000 1999 1998 1997
------- ------- ------------ ------- ------- -------
Net asset value, beginning of period $ 13.56 $ 13.04 $ 10.61 $ 11.46 $ 15.74 $ 14.19(a)
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.47(b) 0.50 0.30(b) 0.42 0.58(b) 0.34
- ---------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 1.68 0.54 2.38 (0.75) (4.11) 2.39
===========================================================================================================================
Total from investment operations 2.15 1.04 2.68 (0.33) (3.53) 2.73
===========================================================================================================================
Less distributions:
Dividends from net investment income (0.46) (0.52) (0.25) (0.52) (0.50) (0.44)
- ---------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- -- -- (0.25) (0.74)
===========================================================================================================================
Total distributions (0.46) (0.52) (0.25) (0.52) (0.75) (1.18)
===========================================================================================================================
Net asset value, end of period $ 15.25 $ 13.56 $ 13.04 $ 10.61 $ 11.46 $ 15.74
___________________________________________________________________________________________________________________________
===========================================================================================================================
Total return(c) 16.10% 8.23% 25.61% (2.88)% (22.54)% 19.78%
___________________________________________________________________________________________________________________________
===========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $86,411 $28,400 $23,187 $16,279 $20,087 $16,507
___________________________________________________________________________________________________________________________
===========================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 1.77%(d) 1.63% 1.62%(e) 1.61% 1.55% 1.60%
- ---------------------------------------------------------------------------------------------------------------------------
Without fee waivers 1.77%(d) 1.79% 2.05%(e) 1.73% 1.71% 1.70%
===========================================================================================================================
Ratio of net investment income to average net
assets 3.25%(d) 3.88% 4.49%(e) 3.70% 4.37% 3.26%
___________________________________________________________________________________________________________________________
===========================================================================================================================
Portfolio turnover rate 77% 85% 39% 52% 69% 57%
___________________________________________________________________________________________________________________________
===========================================================================================================================
</Table>
(a) Net asset value has been restated to reflect a 4 for 1 stock split,
effected in the form of a 300% stock dividend, on November 7, 1997.
(b) Calculated using average shares outstanding.
(c) Does not include sales charges and is not annualized for periods less
than one year.
(d) Ratios are based on average daily net assets of $43,756,422.
(e) Annualized.
FS-20
NOTE 9--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B
---------------------------------------------------------------------
MARCH 3, 1998
SEVEN MONTHS (DATE SALES
YEAR ENDED JULY 31, ENDED YEAR ENDED COMMENCED) TO
-------------------- JULY 31, DECEMBER 31, DECEMBER 31,
2002 2001 2000 1999 1998
------- ------- ------------ ------------ -------------
Net asset value, beginning of period $ 13.59 $ 13.07 $ 10.64 $11.48 $ 15.34
- -------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.38(a) 0.41 0.25(a) 0.32 0.37(a)
- -------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 1.68 0.53 2.39 (0.72) (3.58)
=========================================================================================================================
Total from investment operations 2.06 0.94 2.64 (0.40) (3.21)
=========================================================================================================================
Less distributions:
Dividends from net investment income (0.36) (0.42) (0.21) (0.44) (0.40)
- -------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- -- -- (0.25)
=========================================================================================================================
Total distributions (0.36) (0.42) (0.21) (0.44) (0.65)
=========================================================================================================================
Net asset value, end of period $ 15.29 $ 13.59 $ 13.07 $10.64 $ 11.48
_________________________________________________________________________________________________________________________
=========================================================================================================================
Total return(b) 15.40% 7.42% 25.08% (3.53)% (21.02)%
_________________________________________________________________________________________________________________________
=========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $69,557 $16,917 $12,722 $9,839 $ 6,901
_________________________________________________________________________________________________________________________
=========================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 2.41%(c) 2.36% 2.37%(d) 2.35% 2.31%(d)
- -------------------------------------------------------------------------------------------------------------------------
Without fee waivers 2.41%(c) 2.43% 2.70%(d) 2.37% 2.35%(d)
=========================================================================================================================
Ratio of net investment income to average net
assets 2.61%(c) 3.15% 3.73%(d) 2.96% 3.62%(d)
_________________________________________________________________________________________________________________________
=========================================================================================================================
Portfolio turnover rate 77% 85% 39% 52% 69%
_________________________________________________________________________________________________________________________
=========================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Does not include contingent deferred sales charges and is not annualized
for periods less than one year.
(c) Ratios are based on average daily net assets of $30,030,158.
(d) Annualized.
FS-21
NOTE 9--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
------------------------------------------------------------------------
SEVEN MONTHS
YEAR ENDED JULY 31, ENDED, YEAR ENDED DECEMBER 31,
-------------------- JULY 31, ------------------------------
2002 2001 2000 1999 1998 1997(a)
------- ------- ------------ ------- ------- -------
Net asset value, beginning of period $ 13.57 $ 13.05 $ 10.62 $ 11.46 $ 15.74 $ 14.19
- --------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.38(b) 0.41 0.25(b) 0.33(b) 0.50(b) 0.36(b)
- --------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 1.67 0.53 2.39 (0.73) (4.13) 2.26
==========================================================================================================================
Total from investment operations 2.05 0.94 2.64 (0.40) (3.63) 2.62
==========================================================================================================================
Less distributions:
Dividends from net investment income (0.36) (0.42) (0.21) (0.44) (0.40) (0.33)
- --------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- -- -- (0.25) (0.74)
==========================================================================================================================
Total distributions (0.36) (0.42) (0.21) (0.44) (0.65) (1.07)
==========================================================================================================================
Net asset value, end of period $ 15.26 $ 13.57 $ 13.05 $ 10.62 $ 11.46 $ 15.74
__________________________________________________________________________________________________________________________
==========================================================================================================================
Total return(c) 15.35% 7.43% 25.13% (3.54)% (23.16)% 18.88%
__________________________________________________________________________________________________________________________
==========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $37,733 $22,722 $20,306 $19,992 $32,921 $43,934
__________________________________________________________________________________________________________________________
==========================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 2.41%(d) 2.36% 2.37%(e) 2.35% 2.31% 2.35%
- --------------------------------------------------------------------------------------------------------------------------
Without fee waivers 2.41%(d) 2.43% 2.70%(e) 2.37% 2.37% 2.35%
==========================================================================================================================
Ratio of net investment income to average net
assets 2.61%(d) 3.15% 3.73%(e) 2.96% 3.62% 2.54%
__________________________________________________________________________________________________________________________
==========================================================================================================================
Portfolio turnover rate 77% 85% 39% 52% 69% 57%
__________________________________________________________________________________________________________________________
==========================================================================================================================
</Table>
(a) Per share information and shares have been restated to reflect a 4 for 1
stock split, effected in the form of a 300% stock dividend, on November
7, 1997.
(b) Calculated using average shares outstanding.
(c) Does not include contingent deferred sales charges and is not annualized
for periods less than one year.
(d) Ratios are based on average daily net assets of $26,626,802.
(e) Annualized.
FS-22
FINANCIALS
SCHEDULE OF INVESTMENTS
January 31, 2003
(Unaudited)
<Table>
<Caption>
MARKET
SHARES VALUE
- ----------------------------------------------------------------------
FOREIGN STOCKS & OTHER EQUITY
INTERESTS-97.31%
AUSTRALIA-1.52%
National Australia Bank Ltd.-ADR (Banks) 13,500 $ 1,266,300
======================================================================
BRAZIL-0.98%
Companhia Vale do Rio Doce-ADR (Diversified
Metals & Mining) 4,100 113,365
- ----------------------------------------------------------------------
Petroleo Brasileiro S.A.-ADR (Integrated Oil
& Gas) 47,399 702,927
======================================================================
816,292
======================================================================
DENMARK-1.62%
Danske Bank A.S. (Banks) 82,700 1,347,666
======================================================================
FINLAND-0.93%
Stora Enso Oyj-Class R (Paper Products) 82,100 776,270
======================================================================
FRANCE-8.31%
Compagnie de Saint-Gobain (Building
Products)(a) 36,000 1,052,950
- ----------------------------------------------------------------------
Compagnie Generale des Etablissements
Michelin- Class B (Tires & Rubber) 55,500 1,775,108
- ----------------------------------------------------------------------
Societe Generale-ADR (Banks) 170,000 1,985,481
- ----------------------------------------------------------------------
Total Fina Elf S.A.-ADR (Integrated Oil &
Gas) 31,000 2,105,210
======================================================================
6,918,749
======================================================================
GERMANY-3.84%
BASF A.G.-ADR (Diversified Chemicals) 43,000 1,600,030
- ----------------------------------------------------------------------
Bayer A.G.-ADR (Diversified Chemicals) 29,400 522,144
- ----------------------------------------------------------------------
Deutsche Bank A.G. (Banks) 25,000 1,071,750
======================================================================
3,193,924
======================================================================
ITALY-4.25%
Eni S.p.A-ADR (Integrated Oil & Gas) 25,100 1,906,345
- ----------------------------------------------------------------------
Sanpaolo IMI S.p.A-ADR (Banks) 55,000 752,950
- ----------------------------------------------------------------------
Telecom Italia S.p.A.-ADR (Integrated
Telecommunication Services) 11,600 881,600
======================================================================
3,540,895
======================================================================
JAPAN-21.97%
Canon Inc.-ADR (Office Electronics) 53,400 1,890,360
- ----------------------------------------------------------------------
East Japan Railway Co. (Railroads)(a) 210 965,175
- ----------------------------------------------------------------------
Fuji Photo Film Co., Ltd.-ADR (Photographic
Products) 67,000 2,009,263
- ----------------------------------------------------------------------
Hitachi, Ltd.-ADR (Electronic Equipment &
Instruments) 27,400 1,148,060
- ----------------------------------------------------------------------
Honda Motor Co., Ltd.-ADR (Automobile
Manufacturers) 52,000 868,400
- ----------------------------------------------------------------------
Ito-Yokado Co., Ltd. (General Merchandise
Stores) 33,000 883,597
- ----------------------------------------------------------------------
</Table>
<Table>
MARKET
SHARES VALUE
- ----------------------------------------------------------------------
<Caption>
JAPAN-(CONTINUED)
Kao Corp. (Household Products) 51,000 $ 1,040,122
- ----------------------------------------------------------------------
Kyocera Corp.-ADR (Electronic Equipment &
Instruments) 13,900 769,365
- ----------------------------------------------------------------------
Nintendo Co., Ltd. (Consumer Electronics) 15,500 1,220,503
- ----------------------------------------------------------------------
Nippon Telegraph & Telephone Corp.
(Integrated Telecommunication Services) 460 1,542,478
- ----------------------------------------------------------------------
Sony Corp-ADR (Consumer Electronics) 37,000 1,478,150
- ----------------------------------------------------------------------
Takeda Chemical Industries, Ltd.
(Pharmaceuticals) 42,000 1,597,531
- ----------------------------------------------------------------------
Takefuji Corp. (Consumer Finance) 14,570 743,783
- ----------------------------------------------------------------------
TDK Corp. (Electronic Equipment &
Instruments) 26,000 1,069,191
- ----------------------------------------------------------------------
Toyota Motor Corp. (Automobile Manufacturers) 45,000 1,071,652
======================================================================
18,297,630
======================================================================
MEXICO-1.44%
Telefonos de Mexico S.A. de C.V.-Series L-ADR
(Integrated Telecommunication Services) 40,000 1,197,600
======================================================================
NETHERLANDS-8.36%
ABN AMRO Holding N.V. (Banks) 60,500 944,711
- ----------------------------------------------------------------------
ING Groep N.V.-ADR (Diversified Financial
Services) 87,000 1,335,450
- ----------------------------------------------------------------------
Koninklijke (Royal) Philips Electronics
N.V.-New York Shares (Consumer Electronics) 77,600 1,333,944
- ----------------------------------------------------------------------
Royal Dutch Petroleum Co.-New York Shares
(Integrated Oil & Gas) 51,998 2,178,196
- ----------------------------------------------------------------------
Unilever N.V.-New York Shares (Packaged Foods
& Meats) 20,650 1,171,062
======================================================================
6,963,363
======================================================================
NORWAY-1.30%
Statoil A.S.A. (Integrated Oil & Gas) 140,000 1,082,198
======================================================================
PORTUGAL-1.41%
Portugal Telecom, SGPS, S.A.-ADR (Integrated
Telecommunication Services) 163,000 1,173,600
======================================================================
SOUTH KOREA-2.84%
Korea Electric Power Corp.-ADR (Electric
Utilities) 114,000 947,340
- ----------------------------------------------------------------------
KT Corp.-ADR (Integrated Telecommunication
Services) 68,600 1,417,962
======================================================================
2,365,302
======================================================================
SPAIN-4.64%
Banco Popular Espanol S.A. (Banks) 19,500 797,983
- ----------------------------------------------------------------------
Endesa, S.A.-ADR (Electric Utilities) 169,500 2,050,950
- ----------------------------------------------------------------------
Repsol YPF, S.A.-ADR (Integrated Oil & Gas) 70,000 1,013,600
======================================================================
3,862,533
======================================================================
</Table>
FS-23
<Table>
<Caption>
MARKET
SHARES VALUE
- ----------------------------------------------------------------------
SWEDEN-1.14%
Volvo A.B.-Class B (Construction, Farm
Machinery & Heavy Trucks) 56,800 $ 948,727
======================================================================
SWITZERLAND-10.80%
Nestle S.A.-ADR (Packaged Foods & Meats) 48,200 2,502,356
- ----------------------------------------------------------------------
Novartis A.G.-ADR (Pharmaceuticals) 71,100 2,636,388
- ----------------------------------------------------------------------
Roche Holding A.G. (Pharmaceuticals) 19,200 1,321,831
- ----------------------------------------------------------------------
Syngenta A.G. (Fertilizers & Agricultural
Chemicals) 23,000 1,391,945
- ----------------------------------------------------------------------
Zurich Financial Services A.G. (Multi-Line
Insurance) 11,666 1,136,049
======================================================================
8,988,569
======================================================================
UNITED KINGDOM-21.96%
Abbey National PLC (Banks) 174,000 1,152,148
- ----------------------------------------------------------------------
BAE SYSTEMS PLC (Aerospace & Defense) 535,000 1,002,394
- ----------------------------------------------------------------------
BP PLC (Integrated Oil & Gas) 311,800 1,961,881
- ----------------------------------------------------------------------
BT Group PLC-ADR (Integrated
Telecommunication Services) 26,600 777,784
- ----------------------------------------------------------------------
Cadbury Schweppes PLC (Packaged Foods &
Meats) 329,700 1,797,546
- ----------------------------------------------------------------------
Diageo PLC (Distillers & Vintners) 159,000 1,626,379
- ----------------------------------------------------------------------
GlaxoSmithKline PLC-ADR (Pharmaceuticals) 55,030 2,132,963
- ----------------------------------------------------------------------
HSBC Holdings PLC-ADR (Banks) 39,900 2,142,630
- ----------------------------------------------------------------------
Kingfisher PLC (Home Improvement Retail) 350,000 1,109,767
- ----------------------------------------------------------------------
Marks & Spencer Group PLC (Department Stores) 170,000 833,046
- ----------------------------------------------------------------------
Rolls-Royce PLC (Aerospace & Defense) 425,000 684,288
- ----------------------------------------------------------------------
</Table>
<Table>
MARKET
SHARES VALUE
- ----------------------------------------------------------------------
<Caption>
UNITED KINGDOM-(CONTINUED)
Royal Bank of Scotland Group PLC (Banks) 49,000 $ 1,080,712
- ----------------------------------------------------------------------
Scottish Power PLC (Electric Utilities) 359,200 1,986,486
======================================================================
18,288,024
======================================================================
Total Foreign Stocks & Other Equity
Interests (Cost $92,018,000) 81,027,642
======================================================================
MONEY MARKET FUNDS-4.71%
STIC Liquid Assets Portfolio(b) 1,961,662 1,961,662
- ----------------------------------------------------------------------
STIC Prime Portfolio(b) 1,961,662 1,961,662
======================================================================
Total Money Market Funds (Cost
$3,923,324) 3,923,324
======================================================================
TOTAL INVESTMENTS-102.02% (excluding
investments purchased with cash collateral
from securities loaned) (Cost $95,941,324) 84,950,966
======================================================================
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-2.11%
STIC Liquid Assets Portfolio(b)(c) 880,811 880,811
- ----------------------------------------------------------------------
STIC Prime Portfolio(b)(c) 880,810 880,810
======================================================================
Total Money Market Funds (purchased with cash
collateral from securities loaned) (Cost
$1,761,621) 1,761,621
======================================================================
TOTAL INVESTMENTS-104.13% (Cost $97,702,945) 86,712,587
======================================================================
OTHER ASSETS LESS LIABILITIES-(4.13%) (3,442,513)
======================================================================
NET ASSETS-100.00% $83,270,074
______________________________________________________________________
======================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) The money market fund and the Fund are affiliated by having the same
investment advisor.
(c) The security has been segregated to satisfy the forward commitment to return
the cash collateral received in securities lending transactions upon the
borrower's return of the securities loaned.
See Notes to Financial Statements.
FS-24
STATEMENT OF ASSETS AND LIABILITIES
January 31, 2003
(Unaudited)
<Table>
ASSETS:
Investments, at market value (cost
$97,702,945)* $86,712,587
- -----------------------------------------------------------
Receivables for:
Investments sold 692,274
- -----------------------------------------------------------
Fund shares sold 427,768
- -----------------------------------------------------------
Dividends 184,499
- -----------------------------------------------------------
Investment for deferred compensation plan 21,976
- -----------------------------------------------------------
Other assets 27,638
===========================================================
Total assets 88,066,742
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Investments purchased 623,430
- -----------------------------------------------------------
Fund shares reacquired 2,262,849
- -----------------------------------------------------------
Deferred compensation plan 21,976
- -----------------------------------------------------------
Collateral upon return of securities
loaned 1,761,621
- -----------------------------------------------------------
Accrued distribution fees 70,575
- -----------------------------------------------------------
Accrued trustees' fees 766
- -----------------------------------------------------------
Accrued transfer agent fees 24,992
- -----------------------------------------------------------
Accrued operating expenses 30,459
===========================================================
Total liabilities 4,796,668
===========================================================
Net assets applicable to shares outstanding $83,270,074
___________________________________________________________
===========================================================
NET ASSETS:
Class A $31,632,615
___________________________________________________________
===========================================================
Class B $15,213,472
___________________________________________________________
===========================================================
Class C $36,321,323
___________________________________________________________
===========================================================
Class R $ 102,664
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE:
Class A 2,906,683
___________________________________________________________
===========================================================
Class B 1,441,782
___________________________________________________________
===========================================================
Class C 3,446,057
___________________________________________________________
===========================================================
Class R 9,438
___________________________________________________________
===========================================================
Class A:
Net asset value per share $ 10.88
- -----------------------------------------------------------
Offering price per share:
(Net asset value of $10.88 divided by
94.50%) $ 11.51
___________________________________________________________
===========================================================
Class B:
Net asset value and offering price per
share $ 10.55
___________________________________________________________
===========================================================
Class C:
Net asset value and offering price per
share $ 10.54
___________________________________________________________
===========================================================
Class R:
Net asset value and offering price per
share $ 10.88
___________________________________________________________
===========================================================
</Table>
* At January 31, 2003, securities with an aggregate market value of $1,767,420
were on loan to brokers.
STATEMENT OF OPERATIONS
For the six months ended January 31, 2003
(Unaudited)
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of
$93,330) $ 711,404
- -----------------------------------------------------------
Dividends from affiliated money market funds 14,904
- -----------------------------------------------------------
Interest 6,056
===========================================================
Total investment income 732,364
===========================================================
EXPENSES:
Advisory fees 438,170
- -----------------------------------------------------------
Administrative services fees 25,206
- -----------------------------------------------------------
Custodian fees 23,515
- -----------------------------------------------------------
Distribution fees -- Class A 58,849
- -----------------------------------------------------------
Distribution fees -- Class B 72,786
- -----------------------------------------------------------
Distribution fees -- Class C 196,936
- -----------------------------------------------------------
Distribution fees -- Class R 154
- -----------------------------------------------------------
Transfer agent fees 136,441
- -----------------------------------------------------------
Trustees' fees 4,216
- -----------------------------------------------------------
Other 80,163
===========================================================
Total expenses 1,036,436
===========================================================
Less: Fees waived (74)
- -----------------------------------------------------------
Expenses paid indirectly (709)
===========================================================
Net expenses 1,035,653
===========================================================
Net investment income (loss) (303,289)
===========================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES AND FOREIGN
CURRENCIES:
Net realized gain (loss) from:
Investment securities (750,908)
- -----------------------------------------------------------
Foreign currencies (23,692)
===========================================================
(774,600)
===========================================================
Change in net unrealized appreciation
(depreciation) of:
Investment securities (8,197,464)
- -----------------------------------------------------------
Foreign currencies (7,012)
===========================================================
(8,204,476)
===========================================================
Net gain (loss) from investment securities
and foreign currencies (8,979,076)
===========================================================
Net increase (decrease) in net assets
resulting from operations $(9,282,365)
___________________________________________________________
===========================================================
</Table>
See Notes to Financial Statements.
FS-25
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended January 31, 2003 and the year ended July 31, 2002
(Unaudited)
<Table>
<Caption>
JANUARY 31, JULY 31,
2003 2002
- -------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (303,289) $ 250,955
- -------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities and
foreign currencies (774,600) (5,437,574)
- -------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities and foreign currencies (8,204,476) (8,137,146)
===========================================================================================
Net increase (decrease) in net assets resulting from
operations (9,282,365) (13,323,765)
===========================================================================================
Distributions to shareholders from net realized gains:
Class A -- (326,844)
- -------------------------------------------------------------------------------------------
Class B -- (112,822)
- -------------------------------------------------------------------------------------------
Class C -- (586,319)
- -------------------------------------------------------------------------------------------
Share transactions-net:
Class A 1,031,729 10,710,635
- -------------------------------------------------------------------------------------------
Class B 3,257,692 6,669,654
- -------------------------------------------------------------------------------------------
Class C (2,059,908) (12,052,459)
- -------------------------------------------------------------------------------------------
Class R 87,042 13,905
===========================================================================================
Net increase (decrease) in net assets (6,965,810) (9,008,015)
===========================================================================================
NET ASSETS:
Beginning of period 90,235,884 99,243,899
===========================================================================================
End of period $ 83,270,074 $ 90,235,884
___________________________________________________________________________________________
===========================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $100,946,065 $ 98,629,510
- -------------------------------------------------------------------------------------------
Undistributed net investment income (loss) (619,949) (316,660)
- -------------------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment
securities and foreign currencies (6,073,625) (5,299,025)
- -------------------------------------------------------------------------------------------
Unrealized appreciation (depreciation) of investment
securities and foreign currencies (10,982,417) (2,777,941)
===========================================================================================
$ 83,270,074 $ 90,235,884
___________________________________________________________________________________________
===========================================================================================
</Table>
See Notes to Financial Statements.
FS-26
NOTES TO FINANCIAL STATEMENTS
January 31, 2003
(Unaudited)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM International Core Equity Fund (the "Fund"), formerly AIM International
Value Fund, (the "Fund") is a series portfolio of AIM Advisor 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 two separate portfolios, each
having an unlimited number of shares of beneficial interest. The Fund currently
offers multiple classes of shares. Matters affecting each portfolio or class
will be voted on exclusively by the shareholders of such portfolio or class. The
assets, liabilities and operations of each portfolio are accounted for
separately. Information presented in these financial statements pertains only to
the Fund.
The Fund's investment objective is to achieve high total return. Companies
are listed in the Schedule of Investments based on the country in which they are
organized.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. 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 as of
the close of the customary trading session on the exchange where the
security is principally traded, or lacking any sales on a particular day,
the security is valued at the closing bid price on that day. Each security
traded in the over-the-counter market (but not securities reported on the
NASDAQ National Market System) is valued at the closing bid price furnished
by independent pricing services or market makers. Each security reported on
the NASDAQ National Market System is valued at the last sales price as of
the close of the customary trading session on the valuation date or absent
a last sales price, at the closing bid price. Debt obligations (including
convertible bonds) are valued on the basis of prices provided by an
independent pricing service. Prices 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 special securities, dividend rate,
yield, quality, type of issue, coupon rate, maturity, individual trading
characteristics and other market data. Securities for which market prices
are not provided by any of the above methods are valued based upon quotes
furnished by independent sources and are valued at the last bid price in
the case of equity securities and in the case of debt obligations, the mean
between the last bid and asked prices. Securities for which market
quotations are not readily available or are questionable are valued at fair
value as determined in good faith by or under the supervision of the
Trust's officers in a manner specifically authorized by the Board of
Trustees. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value. For purposes of determining net asset value per share, futures and
option contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Foreign securities are converted into U.S. dollar amounts using exchange
rates as of the close of the NYSE. Generally, trading in foreign securities
is substantially completed each day at various times prior to the close of
the NYSE. The values of such securities used in computing the net asset
value of the Fund's shares are determined as of the close of the respective
markets. Events affecting the values of such foreign securities may occur
between the times at which the particular foreign market closes and the
close of the customary trading session of the NYSE which would not be
reflected in the computation of the Fund's net asset value. If a
development/event is so significant that there is a reasonably high degree
of certainty as to both the effect and the degree of effect that the
development/event has actually caused that closing price to no longer
reflect actual value, the closing prices, as determined at the close of the
applicable foreign market, may be adjusted to reflect the fair value of the
affected foreign securities as of the close of the NYSE as determined in
good faith by or under the supervision of the Board of Trustees.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. 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 use a portion of the proceeds from redemptions as
distributions for federal income tax purposes.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
the Internal Revenue Code necessary to qualify as a regulated investment
company and, as such, will not be subject to federal income taxes on
otherwise taxable income (including net realized capital gain) which is
distributed to shareholders. Therefore, no provision for federal income
taxes is recorded in the financial statements.
FS-27
E. FOREIGN CURRENCY TRANSLATIONS -- 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 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 are included with the
net realized and unrealized gain or loss from investments in the Statement
of Operations.
F. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract 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. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
G. EXPENSES -- Distribution expenses directly attributable to a class of
shares are charged to the respective classes' operations. Transfer agency
fees and expenses and other shareholder recordkeeping fees and expenses are
charged to each class pursuant to a transfer agency and service agreement
adopted by the Fund with respect to such class. All other expenses are
allocated among the classes based on relative net assets.
NOTE 2--ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Company has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM at the annual rate of 1.00% of the Fund's
average daily net assets. AIM has entered into a sub-advisory agreement with
INVESCO Global Asset Management (N.A.), Inc. (IGAM) whereby AIM pays IGAM 40% of
the net fee paid by the Fund to AIM. AIM has voluntarily agreed to waive
advisory fees of the Fund in the amount of 25% of the advisory fee AIM receives
from the affiliated money market funds in which the Fund has invested (excluding
investments made in affiliated money market funds with cash collateral from
securities loaned by the fund). For the six months ended January 31, 2003, AIM
waived fees of $74.
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. For the six months ended January 31, 2003, AIM
was paid $25,206 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency and
shareholder services to the Fund. During the six months ended January 31, 2003,
AFS retained $71,505 for such services.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B, Class C and Class R shares of the Fund. The Trust has adopted
plans pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class
A shares, Class B shares, Class C shares and Class R shares (collectively the
"Plans"). The Fund, pursuant to the Plans, pays AIM Distributors compensation at
the annual rate of 0.35% of the Fund's average daily net assets of Class A
shares, 1.00% of the average daily net assets of Class B and Class C shares and
0.50% of the average daily net assets of Class R shares. Of these amounts, the
Fund may pay a service fee of 0.25% of the average daily net assets of the Class
A, Class B, Class C or Class R shares to selected dealers and financial
institutions who furnish continuing personal shareholder services to their
customers who purchase and own the appropriate class of shares of the Fund. Any
amounts not paid as a service fee under the Plans would constitute an
asset-based sales charge. NASD Rules also 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. Pursuant to the Plans, for the six months ended January 31,
2003, the Class A, Class B, Class C and Class R shares paid $58,849, $72,786,
$196,936 and $154, respectively.
Front-end sales commissions and CDSCs 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. CDSCs are
deducted from redemption proceeds prior to remittance to the shareholder. During
the six months ended January 31, 2003, AIM Distributors retained $9,408 in
front-end sales commissions from the sale of Class A shares and $100, $57,
$1,531 and $0 for Class A, Class B, Class C shares and Class R shares,
respectively.
Certain officers and trustees of the Trust are officers and directors of
AIM, AFS and/or AIM Distributors.
During the six months ended January 31, 2003, the Fund paid legal fees of
$1,790 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel
to the Board of Trustees. A member of that firm is a trustee of the Trust.
NOTE 3--INDIRECT EXPENSES
For the six months ended January 31, 2003, the Fund received reductions in
transfer agency fees from AFS (an affiliate of AIM) of $698 and reduction in
custodian fees of $11 under expense offset arrangement which resulted in a
reduction of the Fund's total expenses of $709.
NOTE 4--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each trustee who is not an
"interested person" of AIM. Trustees have the option to defer compensation
payable by the Trust. The Trustees deferring compensation have the option to
select various AIM Funds in which all or part of their deferral accounts shall
be deemed to be invested.
NOTE 5--BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by Citibank, N.A. The Fund may borrow up to the lesser of
(i) $500,000,000 or (ii) the limits set by its prospectus for borrowings. The
Fund and other funds advised by AIM which are parties to the line of credit may
borrow on a first come, first served basis. During the six months ended January
31, 2003, the Fund did not borrow under the line of credit agreement. The funds
which are party to the line of credit are charged a commitment fee of 0.09% on
the unused
FS-28
balance of the committed line. The commitment fee is allocated among the funds
based on their respective average net assets for the period.
AIM has established an interfund lending facility for temporary borrowings
by the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. The Fund did not borrow or lend under the
facility during the six months ended January 31, 2003.
NOTE 6--PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities to the extent of one-third of the Fund's
total assets. Such loans are secured by collateral equal to no less than the
market value, determined daily, of the loaned securities. Such collateral will
be cash or debt securities issued or guaranteed by the U.S. Government or any of
its agencies. Cash collateral pursuant to these loans is invested in short-term
money market instruments or affiliated money market funds. 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. 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. Therefore, the
value of the collateral may be temporarily less than the value of the securities
on loan.
At January 31, 2003, securities with an aggregate value of $1,767,420 were
on loan to brokers. The loans were secured by cash collateral of $1,761,621
received by the Fund and subsequently invested in affiliated money market funds.
NOTE 7--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryforward) under income tax regulations. The tax character of
distributions paid during the year and the tax components of distributable
earnings will be updated at the Fund's fiscal year-end.
The Fund has a capital loss carryforward for tax purposes which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD
- ----------------------------------------------------------
July 31, 2010 $2,448,915
__________________________________________________________
==========================================================
</Table>
NOTE 8--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the six months
ended January 31, 2003 was $9,530,281 and $6,282,072, respectively.
The amount of unrealized appreciation (depreciation) of investment
securities, for tax purposes, as of January 31, 2003 is as follows:
<Table>
Aggregate unrealized appreciation of
investment securities $ 9,699,695
- -----------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (20,702,649)
===========================================================
Net unrealized appreciation (depreciation)
of investment securities $(11,002,954)
___________________________________________________________
===========================================================
Cost of investments for tax purposes is $97,715,541.
</Table>
FS-29
NOTE 9--SHARE INFORMATION
The Fund currently offers four different classes of shares: Class A shares,
Class B shares, Class C shares and Class R shares. Class A shares are sold with
a front-end sales charge. Class B shares and Class C shares are sold with a
contingent deferred sales charge ("CDSC"). Under some circumstances, Class A
shares and Class R shares are subject to CDSC charges. Class R shares are sold
at net asset value. Generally, Class B shares will automatically convert to
Class A shares eight years after the end of the calendar month of purchase.
Changes in shares outstanding during the six months ended January 31, 2003 and
the year ended July 31, 2002 were as follows:
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
JANUARY 31, 2003 JULY 31, 2002
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------------
Sold:
Class A 2,959,116 $ 33,468,583 3,602,188 $ 47,084,959
- ----------------------------------------------------------------------------------------------------------------------
Class B 518,425 5,741,136 784,310 10,006,307
- ----------------------------------------------------------------------------------------------------------------------
Class C 769,375 8,464,281 871,261 11,192,071
- ----------------------------------------------------------------------------------------------------------------------
Class R* 8,397 87,065 1,043 13,905
======================================================================================================================
Issued as reinvestment of dividends:
Class A -- -- 23,834 301,266
- ----------------------------------------------------------------------------------------------------------------------
Class B -- -- 8,627 106,544
- ----------------------------------------------------------------------------------------------------------------------
Class C -- -- 42,024 518,574
======================================================================================================================
Conversion of Class B to Class A shares:**
Class A 11,241 126,438 -- --
- ----------------------------------------------------------------------------------------------------------------------
Class B (11,517) (126,438) -- --
======================================================================================================================
Reacquired:
Class A (2,898,207) (32,563,292) (2,788,316) (36,675,590)
- ----------------------------------------------------------------------------------------------------------------------
Class B (214,355) (2,357,006) (270,555) (3,443,197)
- ----------------------------------------------------------------------------------------------------------------------
Class C (962,422) (10,524,189) (1,870,536) (23,763,104)
- ----------------------------------------------------------------------------------------------------------------------
Class R* (2) (23) -- --
======================================================================================================================
180,051 $ 2,316,555 403,880 $ 5,341,735
______________________________________________________________________________________________________________________
======================================================================================================================
</Table>
* Class R shares commenced sales on June 3, 2002.
** Prior to the year ended July 31, 2002, conversion of Class B shares to Class
A shares were included in Class A shares sold and Class B shares reacquired.
FS-30
NOTE 10--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
--------------------------------------------------------------------------
SIX MONTHS YEAR ENDED SEVEN MONTHS YEAR ENDED
ENDED JULY 31, ENDED DECEMBER 31,
JANUARY 31, ------------------ JULY 31, ------------------
2003 2002 2001 2000 1999 1998
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.05 $ 13.96 $ 18.78 $ 19.92 $ 16.57 $ 14.99
- --------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.02)(a) 0.09(a) 0.08(a) 0.08(a) 0.13 0.09
- --------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized
and unrealized) (1.15) (1.86) (2.64) (1.22) 3.57 1.59
================================================================================================================================
Total from investment operations (1.17) (1.77) (2.56) (1.14) 3.70 1.68
================================================================================================================================
Less distributions:
Dividends from net investment income -- -- -- -- (0.28) (0.10)
- --------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- (0.14) (2.26) -- (0.07) --
================================================================================================================================
Total distributions -- (0.14) (2.26) -- (0.35) (0.10)
================================================================================================================================
Net asset value, end of period $ 10.88 $ 12.05 $ 13.96 $ 18.78 $ 19.92 $ 16.57
________________________________________________________________________________________________________________________________
================================================================================================================================
Total return(b) (9.71)% (12.71)% (14.66)% (5.72)% 22.54% 11.20%
________________________________________________________________________________________________________________________________
================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $31,633 $34,143 $27,870 $30,153 $31,412 $28,281
________________________________________________________________________________________________________________________________
================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 1.97%(c) 1.82% 1.57% 1.54%(d) 1.51% 1.57%
- --------------------------------------------------------------------------------------------------------------------------------
Without fee waivers 1.97%(c) 1.82% 1.67% 1.64%(d) 1.72% 1.81%
================================================================================================================================
Ratio of net investment income (loss) to average net
assets (0.29)%(c) 0.70% 0.49% 0.70%(d) 0.71% 0.84%
________________________________________________________________________________________________________________________________
================================================================================================================================
Portfolio turnover rate(e) 7% 23% 23% 18% 24% 9%
________________________________________________________________________________________________________________________________
================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of
$33,353,843.
(d) Annualized.
(e) Not annualized for periods less than one year.
FS-31
NOTE 10--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B
--------------------------------------------------------------------------------
MARCH 3, 1998
SIX MONTHS YEAR ENDED SEVEN MONTHS (DATE SALES
ENDED JULY 31, ENDED YEAR ENDED COMMENCED) TO
JANUARY 31, ----------------- JULY 31, DECEMBER 31, DECEMBER 31,
2003 2002 2001 2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.72 $ 13.67 $ 18.59 $ 19.81 $ 16.48 $ 16.21
- ------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.05)(a) 0.01(a) (0.05)(a) (0.01)(a) (0.01) 0.00
- ------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) (1.12) (1.82) (2.61) (1.21) 3.56 0.27
==============================================================================================================================
Total from investment operations (1.17) (1.81) (2.66) (1.22) 3.55 0.27
==============================================================================================================================
Less distributions:
Dividends from net investment income -- -- -- -- (0.15) --
- ------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- (0.14) (2.26) -- (0.07) --
==============================================================================================================================
Total distributions -- (0.14) (2.26) -- (0.22) --
==============================================================================================================================
Net asset value, end of period $ 10.55 $ 11.72 $ 13.67 $ 18.59 $ 19.81 $ 16.48
______________________________________________________________________________________________________________________________
==============================================================================================================================
Total return(b) (9.98)% (13.27)% (15.42)% (6.16)% 21.70% 1.67%
______________________________________________________________________________________________________________________________
==============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $15,213 $13,471 $ 8,572 $ 5,883 $ 5,642 $ 4,289
______________________________________________________________________________________________________________________________
==============================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 2.62%(c) 2.48% 2.36% 2.32%(d) 2.27% 2.32%(d)
- ------------------------------------------------------------------------------------------------------------------------------
Without fee waivers 2.62%(c) 2.48% 2.36% 2.32%(d) 2.38% 2.46%(d)
==============================================================================================================================
Ratio of net investment income (loss) to
average net assets (0.94)%(c) 0.04% (0.30)% (0.08)%(d) (0.05)% 0.09%(d)
______________________________________________________________________________________________________________________________
==============================================================================================================================
Portfolio turnover rate(e) 7% 23% 23% 18% 24% 9%
______________________________________________________________________________________________________________________________
==============================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include contingent
deferred sales charges and is not annualized for periods less than one
year.
(c) Ratios are annualized and based on average daily net assets of
$14,438,423.
(d) Annualized.
(e) Not annualized for periods less than one year.
FS-32
NOTE 10--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
-------------------------------------------------------------------------------
SIX MONTHS YEAR ENDED SEVEN MONTHS YEAR ENDED
ENDED JULY 31, ENDED DECEMBER 31,
JANUARY 31, --------------------- JULY 31, --------------------
2003 2002 2001 2000 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.71 $ 13.66 $ 18.58 $ 19.80 $ 16.48 $ 14.93
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.05)(a) 0.01(a) (0.05)(a) (0.01)(a) (0.01)(a) 0.00(a)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) (1.12) (1.82) (2.61) (1.21) 3.55 1.55
=================================================================================================================================
Total from investment operations (1.17) (1.81) (2.66) (1.22) 3.54 1.55
=================================================================================================================================
Less distributions:
Dividends from net investment income -- -- -- -- (0.15) --
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- (0.14) (2.26) -- (0.07) --
=================================================================================================================================
Total distributions -- (0.14) (2.26) -- (0.22) --
=================================================================================================================================
Net asset value, end of period $ 10.54 $ 11.71 $ 13.66 $ 18.58 $ 19.80 $ 16.48
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) (9.99)% (13.29)% (15.42)% (6.16)% 21.64% 10.38%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $36,321 $42,610 $62,802 $89,084 $108,821 $105,083
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 2.62%(c) 2.48% 2.36% 2.32%(d) 2.27% 2.32%
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers 2.62%(c) 2.48% 2.36% 2.32%(d) 2.38% 2.46%
=================================================================================================================================
Ratio of net investment income (loss) to average
net assets (0.94)%(c) 0.04% (0.30)% (0.08)%(d) (0.05)% 0.09%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(e) 7% 23% 23% 18% 24% 9%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include contingent
deferred sales charges and is not annualized for periods less than one
year.
(c) Ratios are annualized and based on average daily net assets of
$39,066,106.
(d) Annualized.
(e) Not annualized for periods less than one year.
FS-33
NOTE 10--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS R
----------------------------------------
SIX MONTHS JUNE 3, 2002
ENDED (DATE SALES COMMENCED)
JANUARY 31, TO JULY 31,
2003 2002
- ------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $12.04 $ 13.92
- ------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (0.02)(a) 0.01(a)
- ------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (1.14) (1.89)
======================================================================================================
Total from investment operations (1.16) (1.88)
======================================================================================================
Net asset value, end of period $10.88 $ 12.04
______________________________________________________________________________________________________
======================================================================================================
Total return(b) (9.64)% (13.51)%
______________________________________________________________________________________________________
======================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 103 $ 13
______________________________________________________________________________________________________
======================================================================================================
Ratio of expenses to average net assets 2.12%(c) 1.97%(d)
======================================================================================================
Ratio of net investment income (loss) to average net assets (0.44)%(c) 0.55%(d)
______________________________________________________________________________________________________
======================================================================================================
Portfolio turnover rate(e) 7% 23%
______________________________________________________________________________________________________
======================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and is not annualized for
periods less than one year.
(c) Ratios are annualized and based on average daily net assets of $61,143.
(d) Annualized.
(e) Not annualized for periods less than one year.
FS-34
FINANCIALS
SCHEDULE OF INVESTMENTS
January 31, 2003
(Unaudited)
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUSTS & COMMON
STOCKS-88.27%
APARTMENTS-13.32%
Apartment Investment & Management Co.-Class A 154,300 $ 5,608,805
- ------------------------------------------------------------------------
Archstone-Smith Trust 265,317 5,890,037
- ------------------------------------------------------------------------
Essex Property Trust, Inc. 170,500 8,606,840
- ------------------------------------------------------------------------
Home Properties of New York, Inc. 57,700 1,886,213
- ------------------------------------------------------------------------
Summit Properties Inc. 111,400 2,010,770
- ------------------------------------------------------------------------
United Dominion Realty Trust, Inc. 547,400 8,752,926
========================================================================
32,755,591
========================================================================
DIVERSIFIED-2.07%
Cominar Real Estate Investment Trust (Canada) 62,800 499,081
- ------------------------------------------------------------------------
H&R Real Estate Investment Trust (Canada) 38,900 354,148
- ------------------------------------------------------------------------
Vornado Realty Trust 122,400 4,222,800
========================================================================
5,076,029
========================================================================
FREESTANDING-1.35%
Commercial Net Lease Realty 222,700 3,320,457
========================================================================
HEALTHCARE-7.53%
Health Care Property Investors, Inc. 94,500 3,481,380
- ------------------------------------------------------------------------
Health Care REIT, Inc. 143,200 3,694,560
- ------------------------------------------------------------------------
Healthcare Realty Trust, Inc. 41,400 1,164,582
- ------------------------------------------------------------------------
Retirement Residences Real Estate Investment
Trust (Canada) 125,900 966,615
- ------------------------------------------------------------------------
Senior Housing Properties Trust 506,900 5,672,211
- ------------------------------------------------------------------------
Ventas, Inc. 312,200 3,543,470
========================================================================
18,522,818
========================================================================
INDUSTRIAL PROPERTIES-12.76%
AMB Property Corp. 257,600 7,122,640
- ------------------------------------------------------------------------
CenterPoint Properties Corp. 145,500 8,038,875
- ------------------------------------------------------------------------
Keystone Property Trust 168,400 2,753,340
- ------------------------------------------------------------------------
ProLogis 541,000 13,443,850
========================================================================
31,358,705
========================================================================
INDUSTRIAL/OFFICE PROPERTIES-1.77%
Liberty Property Trust 145,150 4,353,049
========================================================================
LODGING-RESORTS-3.90%
Fairmont Hotels & Resorts Inc. (Canada) 76,200 1,681,734
- ------------------------------------------------------------------------
Hilton Hotels Corp. 215,100 2,518,821
- ------------------------------------------------------------------------
Host Marriott Corp.(a) 368,000 2,999,200
- ------------------------------------------------------------------------
RFS Hotel Investors, Inc. 102,300 1,071,081
- ------------------------------------------------------------------------
Starwood Hotels & Resorts Worldwide, Inc. 55,600 1,303,820
========================================================================
9,574,656
========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
OFFICE PROPERTIES-12.98%
Alexandria Real Estate Equities, Inc. 108,200 $ 4,474,070
- ------------------------------------------------------------------------
Boston Properties, Inc. 257,600 9,247,840
- ------------------------------------------------------------------------
Mack-Cali Realty Corp. 197,600 5,631,600
- ------------------------------------------------------------------------
Prentiss Properties Trust 143,000 3,808,090
- ------------------------------------------------------------------------
SL Green Realty Corp. 289,800 8,757,756
========================================================================
31,919,356
========================================================================
REGIONAL MALLS-16.08%
CBL & Associates Properties, Inc. 182,300 7,009,435
- ------------------------------------------------------------------------
General Growth Properties, Inc. 243,300 12,043,350
- ------------------------------------------------------------------------
Macerich Co. (The) 208,200 6,183,540
- ------------------------------------------------------------------------
Rouse Co. (The) 86,100 2,731,953
- ------------------------------------------------------------------------
Simon Property Group, Inc. 353,900 11,572,530
========================================================================
39,540,808
========================================================================
SHOPPING CENTERS-15.36%
Chelsea Property Group, Inc. 294,500 10,021,835
- ------------------------------------------------------------------------
Developers Diversified Realty Corp. 299,600 6,717,032
- ------------------------------------------------------------------------
Federal Realty Investment Trust 205,400 5,759,416
- ------------------------------------------------------------------------
New Plan Excel Realty Trust 241,700 4,517,373
- ------------------------------------------------------------------------
Pan Pacific Retail Properties, Inc. 186,400 6,822,240
- ------------------------------------------------------------------------
RioCan Real Estate Investment Trust (Canada) 317,000 2,675,528
- ------------------------------------------------------------------------
Urstadt Biddle Properties-Class A 111,800 1,246,570
========================================================================
37,759,994
========================================================================
SPECIALTY PROPERTIES-1.15%
Entertainment Properties Trust 48,900 1,149,150
- ------------------------------------------------------------------------
Plum Creek Timber Co., Inc. 77,200 1,684,504
========================================================================
2,833,654
========================================================================
Total Real Estate Investment Trusts &
Common Stocks (Cost $208,786,062) 217,015,117
========================================================================
MONEY MARKET FUNDS-9.38%
STIC Liquid Assets Portfolio(b) 11,529,906 11,529,906
- ------------------------------------------------------------------------
STIC Prime Portfolio(b) 11,529,906 11,529,906
========================================================================
Total Money Market Funds (Cost
$23,059,812) 23,059,812
========================================================================
TOTAL INVESTMENTS-97.65% (Cost $231,845,874) 240,074,929
========================================================================
OTHER ASSETS LESS LIABILITIES-2.35% 5,768,715
========================================================================
NET ASSETS-100.00% $245,843,644
________________________________________________________________________
========================================================================
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) The money market fund and the Fund are affiliated by having the same
investment advisor.
See Notes to Financial Statements.
FS-35
STATEMENT OF ASSETS AND LIABILITIES
January 31, 2003
(Unaudited)
<Table>
ASSETS:
Investments, at market value (cost
$231,845,874) $240,074,929
- -----------------------------------------------------------
Foreign currencies, at value (cost $3,012) 3,026
- -----------------------------------------------------------
Receivables for:
Investments sold 1,214,652
- -----------------------------------------------------------
Fund shares sold 8,635,102
- -----------------------------------------------------------
Dividends 598,718
- -----------------------------------------------------------
Investment for deferred compensation plan 21,549
- -----------------------------------------------------------
Other assets 38,432
===========================================================
Total assets 250,586,408
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Investments purchased 3,881,940
- -----------------------------------------------------------
Fund shares reacquired 572,613
- -----------------------------------------------------------
Deferred compensation plan 21,549
- -----------------------------------------------------------
Accrued distribution fees 199,062
- -----------------------------------------------------------
Accrued trustees' fees 741
- -----------------------------------------------------------
Accrued transfer agent fees 33,432
- -----------------------------------------------------------
Accrued operating expenses 33,427
===========================================================
Total liabilities 4,742,764
===========================================================
Net assets applicable to shares outstanding $245,843,644
___________________________________________________________
===========================================================
NET ASSETS:
Class A $113,722,898
___________________________________________________________
===========================================================
Class B $ 86,708,669
___________________________________________________________
===========================================================
Class C $ 45,412,077
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE:
Class A 7,877,047
___________________________________________________________
===========================================================
Class B 5,989,347
___________________________________________________________
===========================================================
Class C 3,142,686
___________________________________________________________
===========================================================
Class A:
Net asset value per share $ 14.44
- -----------------------------------------------------------
Offering price per share:
(Net asset value of $14.44 divided
by 95.25%) $ 15.16
___________________________________________________________
===========================================================
Class B:
Net asset value and offering price per
share $ 14.48
___________________________________________________________
===========================================================
Class C:
Net asset value and offering price per
share $ 14.45
___________________________________________________________
===========================================================
</Table>
STATEMENT OF OPERATIONS
For the six months ended January 31, 2003
(Unaudited)
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax
of $25,786) $ 5,373,696
- -----------------------------------------------------------
Dividends from affiliated money market
funds 91,225
- -----------------------------------------------------------
Interest 11,559
===========================================================
Total investment income 5,476,480
===========================================================
EXPENSES:
Advisory fees 1,011,845
- -----------------------------------------------------------
Administrative services fees 25,206
- -----------------------------------------------------------
Custodian fees 25,153
- -----------------------------------------------------------
Distribution fees -- Class A 177,308
- -----------------------------------------------------------
Distribution fees -- Class B 405,809
- -----------------------------------------------------------
Distribution fees -- Class C 211,869
- -----------------------------------------------------------
Transfer agent fees 331,421
- -----------------------------------------------------------
Trustees' fees 4,631
- -----------------------------------------------------------
Other 85,038
===========================================================
Total expenses 2,278,280
===========================================================
Less: Fees waived (487)
- -----------------------------------------------------------
Expenses paid indirectly (1,837)
===========================================================
Net expenses 2,275,956
===========================================================
Net investment income 3,200,524
===========================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES AND FOREIGN
CURRENCIES:
Net realized gain (loss) from:
Investment securities (5,284,520)
- -----------------------------------------------------------
Foreign currencies (15,662)
===========================================================
(5,300,182)
===========================================================
Change in net unrealized appreciation
(depreciation) of:
Investment securities (6,969,081)
- -----------------------------------------------------------
Foreign currencies (1,303)
===========================================================
(6,970,384)
===========================================================
Net gain (loss) from investment securities
and foreign currencies (12,270,566)
===========================================================
Net increase (decrease) in net assets
resulting from operations $ (9,070,042)
___________________________________________________________
===========================================================
</Table>
See Notes to Financial Statements.
FS-36
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended January 31, 2003 and the year ended July 31, 2002
(Unaudited)
<Table>
<Caption>
JANUARY 31, JULY 31,
2003 2002
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 3,200,524 $ 2,902,798
- ------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities and
foreign currencies (5,300,182) 2,344,896
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities and foreign currencies (6,970,384) 7,441,074
==========================================================================================
Net increase (decrease) in net assets resulting from
operations (9,070,042) 12,688,768
==========================================================================================
Distributions to shareholders from net investment income:
Class A (1,600,789) (1,366,733)
- ------------------------------------------------------------------------------------------
Class B (1,014,391) (741,067)
- ------------------------------------------------------------------------------------------
Class C (530,693) (669,922)
- ------------------------------------------------------------------------------------------
Share transactions-net:
Class A 33,010,743 53,809,611
- ------------------------------------------------------------------------------------------
Class B 21,471,239 49,731,417
- ------------------------------------------------------------------------------------------
Class C 9,876,771 12,210,117
==========================================================================================
Net increase in net assets 52,142,838 125,662,191
==========================================================================================
NET ASSETS:
Beginning of period 193,700,806 68,038,615
==========================================================================================
End of period $245,843,644 $193,700,806
__________________________________________________________________________________________
==========================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $254,168,831 $189,810,078
- ------------------------------------------------------------------------------------------
Undistributed net investment income 295,798 241,147
- ------------------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment
securities and foreign currencies (16,850,176) (11,549,994)
- ------------------------------------------------------------------------------------------
Unrealized appreciation of investment securities and
foreign currencies 8,229,191 15,199,575
==========================================================================================
$245,843,644 $193,700,806
__________________________________________________________________________________________
==========================================================================================
</Table>
See Notes to Financial Statements.
FS-37
NOTES TO FINANCIAL STATEMENTS
January 31, 2003
(Unaudited)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Real Estate Fund (the "Fund") is a series portfolio of AIM Advisor 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 two separate portfolios, each
having an unlimited number of shares of beneficial interest. The Fund currently
offers multiple classes of shares. Matters affecting each portfolio or class
will be voted on exclusively by the shareholders of such portfolio or class. The
assets, liabilities and operations of each portfolio are accounted for
separately. Information presented in these financial statements pertains only to
the Fund.
The Fund's investment objective is to achieve high total return. In the
Schedule of Investments each company is organized in the United States unless
otherwise noted.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. 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 as of
the close of the customary trading session on the exchange where the
security is principally traded, or lacking any sales on a particular day,
the security is valued at the closing bid price on that day. Each security
traded in the over-the-counter market (but not securities reported on the
NASDAQ National Market System) is valued at the closing bid price furnished
by independent pricing services or market makers. Each security reported on
the NASDAQ National Market System is valued at the last sales price as of
the close of the customary trading session on the valuation date or absent
a last sales price, at the closing bid price. Debt obligations (including
convertible bonds) are valued on the basis of prices provided by an
independent pricing service. Prices 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 special securities, dividend rate,
yield, quality, type of issue, coupon rate, maturity, individual trading
characteristics and other market data. Securities for which market prices
are not provided by any of the above methods are valued based upon quotes
furnished by independent sources and are valued at the last bid price in
the case of equity securities and in the case of debt obligations, the mean
between the last bid and asked prices. Securities for which market
quotations are not readily available or are questionable are valued at fair
value as determined in good faith by or under the supervision of the
Trust's officers in a manner specifically authorized by the Board of
Trustees. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value. For purposes of determining net asset value per share, futures and
option contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Foreign securities are converted into U.S. dollar amounts using exchange
rates as of the close of the NYSE. Generally, trading in foreign securities
is substantially completed each day at various times prior to the close of
the NYSE. The values of such securities used in computing the net asset
value of the Fund's shares are determined as of the close of the respective
markets. Events affecting the values of such foreign securities may occur
between the times at which the particular foreign market closes and the
close of the customary trading session of the NYSE which would not be
reflected in the computation of the Fund's net asset value. If a
development/event is so significant that there is a reasonably high degree
of certainty as to both the effect and the degree of effect that the
development/event has actually caused that closing price to no longer
reflect actual value, the closing prices, as determined at the close of the
applicable foreign market, may be adjusted to reflect the fair value of the
affected foreign securities as of the close of the NYSE as determined in
good faith by or under the supervision of the Board of Trustees.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. DISTRIBUTIONS -- Distributions from income are declared and paid quarterly
and are recorded on ex-dividend date. Distributions from net realized
capital gains, if any, are generally paid annually and recorded on
ex-dividend date. The Fund may elect to use a portion of the proceeds from
redemptions as distributions for federal income tax purposes.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
the Internal Revenue Code necessary to qualify as a regulated investment
company and, as such, will not be subject to federal income taxes on
otherwise taxable income (including net realized capital gain) which is
distributed to shareholders. Therefore, no provision for federal income
taxes is recorded in the financial statements.
E. FOREIGN CURRENCY TRANSLATIONS -- 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 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
FS-38
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 are included with the net realized and unrealized
gain or loss from investments in the Statement of Operations.
F. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract 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. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
G. EXPENSES -- Distribution expenses directly attributable to a class of
shares are charged to the respective classes' operations. Transfer agency
fees and expenses and other shareholder recordkeeping fees and expenses are
charged to each class pursuant to a transfer agency and service agreement
adopted by the Fund with respect to such class. All other expenses are
allocated among the classes based on relative net assets.
NOTE 2--ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Company has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM at the annual rate of 0.90% of the Fund's
average daily net assets. AIM has entered into a sub-advisory agreement with
INVESCO Institutional (N.A.), Inc. ("INVESCO") whereby AIM pays INVESCO 40% of
the fee paid by the Fund to AIM. AIM has voluntarily agreed to waive advisory
fees of the Fund in the amount of 25% of the advisory fee AIM receives from the
affiliated money market funds in which the Fund has invested. For the six months
ended January 31, 2003, AIM waived fees of $487.
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. For the six months ended January 31, 2003, AIM
was paid $25,206 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency and
shareholder services to the Fund. During the six months ended January 31, 2003,
AFS retained $208,458 for such services.
The Trust has entered into a master distribution agreement with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B and Class C shares of the Fund. The Trust has adopted plans
pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A
shares, Class B shares and Class C shares (collectively the "Plans"). The Fund,
pursuant to the Plans, pays AIM Distributors compensation at the annual rate of
0.35% of the Fund's average daily net assets of Class A shares and 1.00% of the
average daily net assets of Class B and Class C shares. Of these amounts, the
Fund may pay a service fee of 0.25% of the average daily net assets of the Class
A, Class B or Class C shares to selected dealers and financial institutions who
furnish continuing personal shareholder services to their customers who purchase
and own the appropriate class of shares of the Fund. Any amounts not paid as a
service fee under the Plans would constitute an asset-based sales charge. NASD
Rules also 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. Pursuant to the
Plans, for the six months ended January 31, 2003, the Class A, Class B and Class
C shares paid $177,308, $405,809 and $211,869, respectively.
Front-end sales commissions and CDSCs 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. CDSCs are
deducted from redemption proceeds prior to remittance to the shareholder. During
the six months ended January 31, 2003, AIM Distributors retained $81,843 in
front-end sales commissions from the sale of Class A shares and $9,511, $41 and
$12,184 for Class A, Class B and Class C shares, respectively, for CDSCs imposed
upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of
AIM, AFS and/or AIM Distributors.
The law firm Kramer, Levin, Naftalis & Frankel LLP of which a trustee is a
member is counsel to the Board of Trustees. During the six months ended January
31, 2003, the Fund paid legal fees of $1,976.
NOTE 3--INDIRECT EXPENSES
For the six months ended January 31, 2003, the Fund received reductions in
transfer agency fees from AFS (an affiliate of AIM) of $1,809 and reductions in
custodian fees of $28 under expense offset arrangements which resulted in a
reduction of the Fund's total expenses of $1,837.
NOTE 4--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each trustee who is not an
"interested person" of AIM. Trustees have the option to defer compensation
payable by the Trust. The Trustees deferring compensation have the option to
select various AIM Funds in which all or part of their deferral accounts shall
be deemed to be invested.
NOTE 5--BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by Citibank, N.A. The Fund may borrow up to the lesser of
(i) $500,000,000 or (ii) the limits set by its prospectus for borrowings. The
Fund and other funds advised by AIM which are parties to the line of credit may
borrow on a first come, first served basis. During the six months ended January
31, 2003, the Fund did not borrow under the line of credit agreement. The funds
which are party to the line of credit are charged a commitment fee of 0.09% on
the unused balance of the committed line. The commitment fee is allocated among
the funds based on their respective average net assets for the period.
AIM has established an interfund lending facility for temporary borrowings
by the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. The Fund did not borrow or lend under the
facility during the six months ended January 31, 2003.
FS-39
NOTE 6--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryovers) under income tax regulations. The tax character of
distributions paid during the year and the tax components of distributable
earnings will be updated at the Fund's fiscal year-end.
The Fund has a capital loss carryforward for tax purposes which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD
- ----------------------------------------------------------
July 31, 2007 $ 9,608,109
- ----------------------------------------------------------
July 31, 2008 1,275,744
==========================================================
Total capital loss carryforward $10,883,853
__________________________________________________________
==========================================================
</Table>
NOTE 7--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the six months
ended January 31, 2003 was $153,316,284 and $107,669,376, respectively.
The amount of unrealized appreciation (depreciation) of investment
securities, for tax purposes, as of January 31, 2003 is as follows:
<Table>
Aggregate unrealized appreciation of
investment securities $10,606,243
- -----------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (2,658,697)
===========================================================
Net unrealized appreciation of investment
securities $ 7,947,546
___________________________________________________________
===========================================================
Cost of investments for tax purposes is
$232,127,383.
</Table>
NOTE 8--SHARE INFORMATION
The Fund currently offers three different classes of shares: Class A shares,
Class B shares and Class C shares. Class A shares are sold with a front-end
sales charge. Class B shares and Class C shares are sold with a contingent
deferred sales charge ("CDSC"). Under some circumstances, Class A shares are
subject to CDSC charges. Generally, Class B shares will automatically convert to
Class A shares eight years after the end of the calendar month of purchase.
Changes in shares outstanding during the six months ended January 31, 2003 and
the year ended July 31, 2002 were as follows:
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
JANUARY 31, JULY 31,
2003 2002
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------------
Sold:
Class A 5,029,180 $ 73,432,140 5,154,009 $ 76,791,735
- ----------------------------------------------------------------------------------------------------------------------
Class B 2,781,525 40,851,629 4,236,687 63,066,596
- ----------------------------------------------------------------------------------------------------------------------
Class C 1,080,494 15,796,063 1,526,796 22,598,155
======================================================================================================================
Issued as reinvestment of dividends:
Class A 99,933 1,466,267 86,632 1,253,375
- ----------------------------------------------------------------------------------------------------------------------
Class B 62,035 912,954 45,952 669,735
- ----------------------------------------------------------------------------------------------------------------------
Class C 31,715 465,785 40,989 588,258
======================================================================================================================
Conversion of Class B shares to Class A shares:*
Class A 50,967 743,231 -- --
- ----------------------------------------------------------------------------------------------------------------------
Class B (50,871) (743,231) -- --
======================================================================================================================
Reacquired:
Class A (2,968,320) (42,630,895) (1,670,317) (24,235,499)
- ----------------------------------------------------------------------------------------------------------------------
Class B (1,351,815) (19,550,113) (979,116) (14,004,914)
- ----------------------------------------------------------------------------------------------------------------------
Class C (441,393) (6,385,077) (770,478) (10,976,296)
======================================================================================================================
4,323,450 $ 64,358,753 7,671,154 $115,751,145
______________________________________________________________________________________________________________________
======================================================================================================================
</Table>
* Prior to the six months ended January 31, 2003, conversion of Class B shares
to Class A shares were included in Class A shares sold and Class B shares
reacquired.
FS-40
NOTE 9--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
-----------------------------------------------------------------------
SIX MONTHS YEAR ENDED SEVEN MONTHS YEAR ENDED
ENDED JULY 31, ENDED DECEMBER 31,
JANUARY 31, ------------------ JULY 31, ------------------
2003 2002 2001 2000 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 15.25 $ 13.56 $ 13.04 $ 10.61 $ 11.46 $ 15.74
- -----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.24(a) 0.47(a) 0.50 0.30(a) 0.42 0.58(a)
- -----------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized
and unrealized) (0.82) 1.68 0.54 2.38 (0.75) (4.11)
=============================================================================================================================
Total from investment operations (0.58) 2.15 1.04 2.68 (0.33) (3.53)
=============================================================================================================================
Less distributions:
Dividends from net investment income (0.23) (0.46) (0.52) (0.25) (0.52) (0.50)
- -----------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- -- -- -- (0.25)
=============================================================================================================================
Total distributions (0.23) (0.46) (0.52) (0.25) (0.52) (0.75)
=============================================================================================================================
Net asset value, end of period $ 14.44 $ 15.25 $ 13.56 $ 13.04 $ 10.61 $ 11.46
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Total return(b) (3.81)% 16.10% 8.23% 25.61% (2.88)% (22.54)%
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $113,723 $86,411 $28,400 $23,187 $16,279 $20,087
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 1.67%(c) 1.77% 1.63% 1.62%(d) 1.61% 1.55%
- -----------------------------------------------------------------------------------------------------------------------------
Without fee waivers 1.67%(c) 1.77% 1.79% 2.05%(d) 1.73% 1.71%
=============================================================================================================================
Ratio of net investment income to average net assets 3.20%(c) 3.25% 3.88% 4.49%(d) 3.70% 4.37%
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Portfolio turnover rate(e) 51% 77% 85% 39% 52% 69%
_____________________________________________________________________________________________________________________________
=============================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of
$100,492,776.
(d) Annualized.
(e) Not annualized for periods less than one year.
FS-41
NOTE 9--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B
----------------------------------------------------------------------------------
MARCH 3, 1998
SIX MONTHS YEAR ENDED JULY SEVEN MONTHS (DATE SALES
ENDED 31, ENDED YEAR ENDED COMMENCED) TO
JANUARY 31, ------------------ JULY 31, DECEMBER 31, DECEMBER 31,
2003 2002 2001 2000 1999 1998
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 15.29 $ 13.59 $ 13.07 $ 10.64 $11.48 $ 15.34
- --------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.19(a) 0.38(a) 0.41 0.25(a) 0.32 0.37(a)
- --------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities
(both realized and unrealized) (0.82) 1.68 0.53 2.39 (0.72) (3.58)
==========================================================================================================================
Total from investment operations (0.63) 2.06 0.94 2.64 (0.40) (3.21)
==========================================================================================================================
Less distributions:
Dividends from net investment income (0.18) (0.36) (0.42) (0.21) (0.44) (0.40)
- --------------------------------------------------------------------------------------------------------------------------
Distributions from net realized
gains -- -- -- -- -- (0.25)
==========================================================================================================================
Total distributions (0.18) (0.36) (0.42) (0.21) (0.44) (0.65)
==========================================================================================================================
Net asset value, end of period $ 14.48 $ 15.29 $ 13.59 $ 13.07 $10.64 $ 11.48
__________________________________________________________________________________________________________________________
==========================================================================================================================
Total return(b) (4.11)% 15.40% 7.42% 25.08% (3.53)% (21.02)%
__________________________________________________________________________________________________________________________
==========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $86,709 $69,557 $16,917 $12,722 $9,839 $ 6,901
__________________________________________________________________________________________________________________________
==========================================================================================================================
Ratio of expenses to average net
assets:
With fee waivers 2.32%(c) 2.41% 2.36% 2.37%(d) 2.35% 2.31%(d)
- --------------------------------------------------------------------------------------------------------------------------
Without fee waivers 2.32%(c) 2.41% 2.43% 2.70%(d) 2.37% 2.35%(d)
==========================================================================================================================
Ratio of net investment income to
average net assets 2.55%(c) 2.61% 3.15% 3.73%(d) 2.96% 3.62%(d)
__________________________________________________________________________________________________________________________
==========================================================================================================================
Portfolio turnover rate(e) 51% 77% 85% 39% 52% 69%
__________________________________________________________________________________________________________________________
==========================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include contingent
deferred sales charges and is not annualized for periods less than one
year.
(c) Ratios are annualized and based on average daily net assets of
$80,500,140.
(d) Annualized.
(e) Not annualized for periods less than one year.
FS-42
NOTE 9--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
-----------------------------------------------------------------------
SIX MONTHS YEAR ENDED JULY SEVEN MONTHS YEAR ENDED
ENDED 31, ENDED DECEMBER 31,
JANUARY 31, ------------------ JULY 31, ------------------
2003 2002 2001 2000 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 15.26 $ 13.57 $ 13.05 $ 10.62 $ 11.46 $ 15.74
- -----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.19(a) 0.38(a) 0.41 0.25(a) 0.33(a) 0.50(a)
- -----------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized
and unrealized) (0.82) 1.67 0.53 2.39 (0.73) (4.13)
=============================================================================================================================
Total from investment operations (0.63) 2.05 0.94 2.64 (0.40) (3.63)
=============================================================================================================================
Less distributions:
Dividends from net investment income (0.18) (0.36) (0.42) (0.21) (0.44) (0.40)
- -----------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- -- -- -- (0.25)
=============================================================================================================================
Total distributions (0.18) (0.36) (0.42) (0.21) (0.44) (0.65)
=============================================================================================================================
Net asset value, end of period $ 14.45 $ 15.26 $ 13.57 $ 13.05 $ 10.62 $ 11.46
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Total return(b) (4.12)% 15.35% 7.43% 25.13% (3.54)% (23.16)%
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $45,412 $37,733 $22,722 $20,306 $19,992 $32,921
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 2.32%(c) 2.41% 2.36% 2.37%(d) 2.35% 2.31%
- -----------------------------------------------------------------------------------------------------------------------------
Without fee waivers 2.32%(c) 2.41% 2.43% 2.70%(d) 2.37% 2.37%
=============================================================================================================================
Ratio of net investment income to average net assets 2.55%(c) 2.61% 3.15% 3.73%(d) 2.96% 3.62%
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Portfolio turnover rate(e) 51% 77% 85% 39% 52% 69%
_____________________________________________________________________________________________________________________________
=============================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include contingent
deferred sales charges and is not annualized for periods less than one
year.
(c) Ratios are annualized and based on average daily net assets of
$42,028,440.
(d) Annualized.
(e) Not annualized for periods less than one year.
FS-43
APPENDIX II
MARCH 31, 2003
ANNUAL REPORT
INVESCO SECTOR FUNDS, INC.
ENERGY FUND
FINANCIAL SERVICES FUND
GOLD & PRECIOUS METALS FUND
HEALTH SCIENCES FUND
LEISURE FUND
REAL ESTATE OPPORTUNITY FUND
TECHNOLOGY FUND
TELECOMMUNICATIONS FUND
UTILITIES FUND
"OVERALL, DEMAND FOR HEALTH CARE SERVICES AND PRODUCTS REMAINS HIGH."
SEE PAGE 11
[INVESCO ICON] INVESCO(R)
FELLOW SHAREHOLDER:
[PHOTGRAPH OF RAYMOND R. CUNNINGHAM OMMITTED]
LESSONS LEARNED
After an auspicious start to 2003 during which the Dow Jones Industrials gained
5% in the first three days of trading, the stock market backed down amid war
worries. Once again, what had seemed like the beginning of a sustained rebound
turned out to be a false start. You could almost hear the collective groan from
investors, and, admittedly, I joined in.
But then I stepped back for a view of the big picture. Has the market's behavior
over the past year been frustrating? Undeniably. However, it's also been
instructive, and I believe that those of us who pay attention to the downturn's
lessons will come out ahead in the long run.
The first lesson the bear market has reinforced is the importance of defining
and maintaining an investment plan. This plan should accommodate your risk
tolerance, time horizon, and long-term goals -- and it should be built to last.
That's not to say it doesn't need fine-tuning now and again. The lesson of
diversification always deserves review. As we've seen this past decade, a
variety of investments -- from Treasuries to aggressive growth stocks --
constantly vie for leadership, and there's never just one winner over time. The
last few years have also reinforced the lesson that adequate diversification
requires occasional rebalancing. Many investors made the mistake of letting
portfolios become overly stock-heavy during the late 1990s, and then came to
regret this lapse when bonds surged ahead in the new millennium.
Similarly, history says it would be a mistake to neglect stocks now. Don't
forget that, while the past few years have been tough on equities, they still
deserve a place in every long-term investor's portfolio. After all, stocks have
historically outpaced inflation by a far greater margin than bonds. For example,
in surveying the 50-year period ended December 31, 2002, stock returns exceeded
inflation by 7.16%, compared with 2.37% for bonds.*
Perhaps one of the greatest lessons we can learn from the current downturn is
that it's tough to go it alone. Now more than ever, it helps to have a trusted
financial advisor to turn to for advice and assistance. It's not enough to
recognize history's lessons -- we also need to put them to good use so we're
better prepared to meet tomorrow's challenges.
Sincerely,
/s/Raymond R. Cunningham
- ------------------------
Ray Cunningham
President and CEO, INVESCO Funds Group, Inc.
*PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. SOURCES: STANDARD &
POOR'S(R); FEDERAL RESERVE. STOCKS ARE REPRESENTED BY THE TOTAL RETURNS OF THE
S&P 500 INDEX(R), AN UNMANAGED INDEX OF THE 500 LARGEST COMMON STOCKS (IN TERMS
OF MARKET VALUE), WEIGHTED BY MARKET CAPITALIZATION AND CONSIDERED
REPRESENTATIVE OF THE BROAD STOCK MARKET; BONDS BY LONG-TERM TREASURIES (10+
YEARS); INFLATION BY THE CONSUMER PRICE INDEX. TREASURY BILLS ARE GUARANTEED BY
THE FULL FAITH CREDIT OF THE U.S. GOVERNMENT AS TO THE TIMELY PAYMENT OF
PRINCIPAL AND INTEREST. STOCKS ARE NOT GUARANTEED. INVESTORS CANNOT INVEST
DIRECTLY IN ANY MARKET INDEX. INDEXES ARE UNMANAGED; THEREFORE, THEIR
PERFORMANCE DOES NOT REFLECT MANAGEMENT FEES AND OTHER EXPENSES ASSOCIATED WITH
MUTUAL FUND INVESTING.
INVESCO SECTOR FUNDS, INC. TOTAL RETURN, PERIODS ENDED 3/31/03
Manager's
Cumulative 10 years+ or Report
Fund (Inception) 6 Months 1 year 5 years+ Since Inception o Page #
- ----------------------------------------------------------------------------------------------------------------------------------
ENERGY FUND - CLASS A (4/02) WITH SALES CHARGE 2.93% (17.32%) N/A (17.32%)o^ 3
ENERGY FUND - CLASS B (4/02) WITH CDSC 3.51% (18.24%) N/A (18.24%)o^ 3
ENERGY FUND - CLASS C (2/00) WITH CDSC 7.44% (14.33%) N/A 7.26%o+ 3
ENERGY FUND - CLASS K (12/00) 8.74% (13.52%) N/A (3.16%)o+ 3
ENERGY FUND - INVESTOR CLASS (1/84) 8.80% (12.72%) 5.35% 8.93% 3
FINANCIAL SERVICES FUND - CLASS A (4/02) WITH SALES CHARGE (5.88%) (26.62%) N/A (26.62%)o^ 5
FINANCIAL SERVICES FUND - CLASS B (4/02) WITH CDSC (5.75%) (27.48%) N/A (27.48%)o^ 5
FINANCIAL SERVICES FUND - CLASS C (2/00) WITH CDSC (1.96%) (24.22%) N/A 0.18%o+ 5
FINANCIAL SERVICES FUND - CLASS K (12/00) (0.48%) (22.62%) N/A (9.90%)o+ 5
FINANCIAL SERVICES FUND - INVESTOR CLASS (6/86) (0.45%) (22.39%) (1.20%) 10.38% 5
GOLD & PRECIOUS METALS FUND - CLASS A (4/02) WITH SALES CHARGE (9.13%) (1.24%) N/A (1.24%)o^ 8
GOLD & PRECIOUS METALS FUND - CLASS B (4/02) WITH CDSC (8.63%) (0.63%) N/A (0.63%)o^ 8
GOLD & PRECIOUS METALS FUND - CLASS C (2/00) WITH CDSC (4.82%) 3.13% N/A 13.72%o+ 8
GOLD & PRECIOUS METALS FUND - INVESTOR CLASS (1/84) (3.61%) 4.80% (0.95%) (3.25%) 8
HEALTH SCIENCES FUND - CLASS A (4/02) WITH SALES CHARGE (8.86%) (23.39%) N/A (23.39%)o^ 10
HEALTH SCIENCES FUND - CLASS B (4/02) WITH CDSC (8.84%) (24.39%) N/A (24.39%)o^ 10
HEALTH SCIENCES FUND - CLASS C (2/00) WITH CDSC (5.24%) (21.16%) N/A (10.81%)o+ 10
HEALTH SCIENCES FUND - CLASS K (12/00) (3.94%) (19.50%) N/A (15.39%)o+ 10
HEALTH SCIENCES FUND - INVESTOR CLASS (1/84) (3.58%) (18.99%) 0.15% 11.34% 10
LEISURE FUND - CLASS A (4/02) WITH SALES CHARGE (4.01%) (25.10%) N/A (25.10%)o^ 13
LEISURE FUND - CLASS B (4/02) WITH CDSC (3.78%) (26.33%) N/A (26.33%)o^ 13
LEISURE FUND - CLASS C (2/00) WITH CDSC 0.01% (22.65%) N/A (6.91%)o+ 13
LEISURE FUND - CLASS K (12/01) 1.18% (21.14%) N/A (11.75%)o^ 13
LEISURE FUND - INVESTOR CLASS (1/84) 1.51% (20.87%) 7.87% 12.29% 13
REAL ESTATE OPPORTUNITY FUND - CLASS A (4/02) WITH SALES CHARGE (3.80%) (6.88%) N/A (6.88%)o^ 15
REAL ESTATE OPPORTUNITY FUND - CLASS B (4/02) WITH CDSC (3.45%) (6.94%) N/A (6.94%)o^ 15
REAL ESTATE OPPORTUNITY FUND - CLASS C (2/00) WITH CDSC 0.48% (2.81%) N/A 7.56%o+ 15
REAL ESTATE OPPORTUNITY FUND - INVESTOR CLASS (1/97) 1.83% (1.12%) (1.15%) 2.20%o+ 15
TECHNOLOGY FUND - CLASS A (4/02) WITH SALES CHARGE 6.93% (47.23%) N/A (47.23%)o^ 17
TECHNOLOGY FUND - CLASS B (4/02) WITH CDSC 7.64% (49.62%) N/A (49.62%)o^ 17
TECHNOLOGY FUND - CLASS C (2/00) WITH CDSC 11.65% (45.87%) N/A (42.30%)o+ 17
TECHNOLOGY FUND - CLASS K (12/00) 12.62% (44.47%) N/A (42.11%)o+ 17
TECHNOLOGY FUND - INSTITITUTIONAL CLASS (12/98) 13.33% (43.94%) N/A (12.43%)o+ 17
TECHNOLOGY FUND - INVESTOR CLASS (1/84) 12.82% (44.43%) (9.05%) 5.72% 17
TELECOMMUNICATIONS FUND - CLASS A (4/02) WITH SALES CHARGE 0.64% (39.45%) N/A (39.45%)o^ 20
TELECOMMUNICATIONS FUND - CLASS B (4/02) WITH CDSC 1.62% (41.17%) N/A (41.17%)o^ 20
TELECOMMUNICATIONS FUND - CLASS C (2/00) WITH CDSC 5.63% (37.20%) N/A (47.24%)o+ 20
TELECOMMUNICATIONS FUND - CLASS K (12/00) 7.05% (35.77%) N/A (48.09%)o+ 20
TELECOMMUNICATIONS FUND - INVESTOR CLASS (8/94) 7.13% (35.60%) (15.09%) 1.36%o+ 20
UTILITIES FUND - CLASS A (4/02) WITH SALES CHARGE (1.91%) (25.39%) N/A (25.39%)o^ 23
UTILITIES FUND - CLASS B (4/02) WITH CDSC (1.63%) (26.67%) N/A (26.67%)o^ 23
UTILITIES FUND - CLASS C (2/00) WITH CDSC 1.98% (22.85%) N/A (22.75%)o+ 23
UTILITIES FUND - INVESTOR CLASS (6/86) 3.75% (20.99%) (7.64%) 3.07% 23
*PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. TOTAL RETURN ASSUMES
REINVESTMENT OF DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL VARY SO THAT, WHEN REDEEMED, AN INVESTOR'S SHARES MAY BE
WORTH MORE OR LESS THAN WHEN PURCHASED. THE FUNDS' CLASS A PERFORMANCE REFLECTS
THE MAXIMUM SALES CHARGE OF 5.50%. THE FUNDS' CLASS B AND CLASS C PERFORMANCE
REFLECTS THE DEDUCTION OF THE APPLICABLE CONTINGENT DEFERRED SALES CHARGE (CDSC)
FOR THE PERIODS SHOWN. THE CDSC ON CLASS B SHARES DECLINES FROM 5% BEGINNING AT
THE TIME OF PURCHASE TO 0% AT THE BEGINNING OF THE SEVENTH YEAR. THE CDSC OF
CLASS C SHARES IS 1% FOR THE FIRST 13 MONTHS AFTER PURCHASE. THE PERFORMANCE OF
THE FUND'S INVESTOR CLASS, INSTITUTIONAL CLASS, CLASS A, CLASS B, CLASS C AND
CLASS K SHARES WILL DIFFER DUE TO THE DIFFERENT SALES CHARGE STRUCTURES AND
EXPENSES. INVESTOR CLASS SHARES ARE CLOSED TO NEW INVESTORS AND ARE OFFERED TO
GRANDFATHERED INVESTORS AS OF APRIL 1, 2002.
PERFORMANCE INFORMATION PROVIDED IN THIS REPORT DOES NOT REFLECT THE DEDUCTION
OF TAXES SHAREHOLDERS PAY ON FUND DISTRIBUTIONS OR ON THE REDEMPTION OF FUND
SHARES.
+AVERAGE ANNUALIZED
^NOT ANNUALIZED
oFOR FUNDS OR SHARE CLASSES INTRODUCED MORE RECENTLY
SECTOR FUNDS MAY EXPERIENCE GREATER SHORT-TERM PRICE VOLATILITY THAN MORE
DIVERSIFIED EQUITY FUNDS, AND ARE MOST SUITABLE FOR THE AGGRESSIVE PORTION OF
YOUR PORTFOLIO.
THE INDUSTRIES AND/OR SECTORS USED FOR PORTFOLIO SECURITIES CLASSIFICATION THAT
MAY BE USED THROUGHOUT THIS REPORT ARE THE GLOBAL INDUSTRY CLASSIFICATION
STANDARD WHICH WAS DEVELOPED BY AND IS THE EXCLUSIVE PROPERTY AND SERVICE MARK
OF MORGAN STANLEY CAPITAL INTERNATIONAL INC. AND STANDARD & POOR'S.(R)
TABLE OF CONTENTS
LETTER FROM THE PRESIDENT AND CEO............1
FUND REPORTS.................................3
AN INTERVIEW WITH TOM WALD..................25
MARKET HEADLINES............................27
INVESTMENT HOLDINGS.........................28
FINANCIAL STATEMENTS........................51
NOTES TO FINANCIAL STATEMENTS...............75
FINANCIAL HIGHLIGHTS........................86
OTHER INFORMATION..........................120
YOUR FUND'S REPORT
ENERGY FUND
FUND PERFORMANCE
DEAR SHAREHOLDER:
The annual reporting period ended March 31, 2003, was characterized by a
sluggish economy, concerns over corporate accounting practices, and uncertainty
stemming from the tense geopolitical climate -- factors which weighed on stocks
from all sectors of the market, including energy. Against this backdrop, the
value of Energy Fund-Investor Class shares lost 12.72%. However, this return
significantly outperformed the S&P 500 Index,(R) which declined 24.75% during
that same period. (Of course, past performance is not a guarantee of future
results.)(1),(2) For performance of other share classes, please see page 2.
- --------------------------------------------------------------------------------
ENERGY FUND --
TOP 10 COMMON STOCK HOLDINGS
% of Total Net Assets as of 3/31/03
- --------------------------------------------------------------------------------
Murphy Oil......................................5.27%
BP PLC Sponsored ADR Representing 6 Ord Shrs....4.23%
Nabors Industries Ltd...........................4.12%
Pioneer Natural Resources.......................4.04%
Talisman Energy.................................3.66%
Apache Corp.....................................3.56%
Conoco Phillips.................................3.52%
Enbridge Energy International LLC...............3.48%
Weatherford International Ltd...................3.45%
TotalFinaElf Sponsored ADR
Representing 1/2 Ord Shr........................3.45%
HOLDINGS AND COMPOSITION OF HOLDINGS ARE SUBJECT TO CHANGE.
- --------------------------------------------------------------------------------
FUNDAMENTALS STILL KEY TO LONG-TERM GROWTH
Over the course of the fiscal year, commodity prices soared, increasing by about
50% during the reporting period. This was partially the result of worries
regarding the situation in Iraq, as well as disruptions in oil output due to
strikes in Venezuela, and, later in the period, an outbreak of violence in
Nigeria. Meanwhile, a cold winter made for strong demand for natural gas.
LINE GRAPH: INVESCO ENERGY FUND - INVESTOR CLASS GROWTH OF $10,000(1)
This line graph compares the value of a $10,000 investment in INVESCO Energy
Fund - Investor Class to the value of a $10,000 investment in the S&P 500
Index(R)(2), assuming in each case reinvestment of all dividends and capital
gain distributions, for the ten year period ended 3/31/03.
INVESCO ENERGY FUND - INVESTOR CLASS S&P 500 INDEX(R)(2)
3/93 $10,000 $10,000
3/94 $ 9,506 $10,146
3/95 $ 9,364 $11,723
3/96 $11,524 $15,482
3/97 $14,717 $18,551
3/98 $18,128 $27,448
3/99 $14,642 $32,523
3/00 $22,427 $38,354
3/01 $27,606 $30,043
3/02 $26,948 $30,115
3/03 $23,520 $22,661
Yet even as commodity prices rose, energy stocks declined for the year --
further proof that the two are not necessarily as correlated as some investors
would believe. In fact, we view short-term moves in commodity prices as
relatively inconsequential. Over the past five years, the average
price-per-barrel for crude oil has been in the neighborhood of $23 (versus $17
to $18 throughout the majority of the 1990s), and we expect it to level off
around $25 once the war is over and investors realize that Iraq, which is
capable of producing only 2.8 million barrels per day, is not likely to flood
the market.
More important, we believe, are the compelling underlying fundamentals at work
in the energy sector. Driven by ever-growing demand, oil inventories continued
to move lower this past year, reaching below-normal levels as of March 31.
Indeed, the U.S. economy's reliance on inexpensive and dependable energy sources
for future economic expansion has shown no signs of abating. Just 15 years ago,
the world consumed 58 million barrels of crude oil per day. So far in 2003, we
are using an average of nearly 78 million barrels per day -- more than ever
before. Furthermore, excess capacity (100% of which is in OPEC countries) is
currently at a 4% level versus 25% 15 years ago. Unlike the many sectors facing
overcapacity problems, we are now faced with the challenge of building up
capacity in the energy sector, given the tight supply/demand fundamentals for
oil. This challenge defines a long-term trend that we expect to see for some
time in the oil business.
Fundamentals in the natural gas industry worked to the fund's advantage over the
annual period. Prices increased as a result of production declines that seem to
be deepening due to increasing depletion rates, and we finished the winter
months with some of the lowest natural gas inventories in history. There simply
has not been enough capital spending on drilling to keep up with demand, given
that consumption of natural gas in the U.S. has risen sharply over the past
decade. And because 95% of new electrical plants are fueled by natural gas, we
believe that the demand for it will only increase as the country takes steps to
expand electrical capacity.
STRONG STOCK SELECTION BENEFITS PERFORMANCE
A number of key holdings in the fund outperformed the broad market for the
annual period. For example, the fund's largest position and a longtime holding,
Murphy Oil, enjoyed a solid gain. During the first half of the year, the company
was recognized for a major new oil discovery in Malaysia. This discovery only
enhanced our already high opinion of Murphy, a company that we believe can
succeed in almost any market environment. We think it's telling that Murphy's
production growth is already locked in place for every year of this decade
except one (and that year is expected to be locked in place soon), and are also
pleased to report that, as of March 31, 2003, the firm was providing a dividend
yield of approximately 2%.
GROWTH IN CONSUMPTION
As the strikes in Venezuela and problems in Nigeria proved this past year,
inventories are so tight, any disruption in output is enough to remind investors
of how important it is to build energy capacity. Furthermore, we're seeing
incredible growth of consumption in developing areas -- namely China, a nation
where automobile usage has been trending markedly higher in recent years.
The underlying dynamics driving energy prices and industry earnings worldwide
are as favorable as ever, and in an expanding economy this will become even more
evident. Consequently, we believe that the energy industry is entering a
multiyear cycle of capacity expansion -- one that will provide ample
opportunities for a variety of firms going forward.
LINE GRAPH: INVESCO ENERGY FUND - CLASS A & B GROWTH OF $10,000(1)
This line graph compares the value of a $10,000 investment in INVESCO Energy
Fund - Class A and the value of a $10,000 investment in INVESCO Energy Fund -
Class B to the value of a $10,000 investment in the S&P 500 Index(R)(2),
assuming in each case reinvestment of all dividends and capital gain
distributions, and in the cases of INVESCO Energy Fund - Class A and Class B,
inclusion of front-end sales charge and contingent deferred sales charge,
respectively, for the period since inception (4/02) through 3/31/03.
INVESCO ENERGY FUND - CLASS A INVESCO ENERGY FUND - CLASS B S&P 500 INDEX(R)(2)
4/02 $10,000 $10,000 $10,000
3/03 $ 8,268 $ 8,176 $ 7,525
LINE GRAPH: INVESCO ENERGY FUND - CLASS C GROWTH OF $10,000(1)
This line graph compares the value of a $10,000 investment in INVESCO Energy
Fund - Class C to the value of a $10,000 investment in the S&P 500 Index(R)(2),
assuming in each case reinvestment of all dividends and capital gain
distributions, and in the case of INVESCO Energy Fund - Class C, inclusion of
contingent deferred sales charge, for the period since inception (2/00) through
3/31/03.
INVESCO ENERGY FUND - CLASS C S&P 500 INDEX(2)
2/00 $10,000 $10,000
3/00 $12,112 $10,978
3/01 $14,818 $ 8,599
3/02 $14,364 $ 8,620
3/03 $12,449 $ 6,486
LINE GRAPH: INVESCO ENERGY FUND - CLASS K GROWTH OF $10,000(1)
This line graph compares the value of a $10,000 investment in INVESCO Energy
Fund - Class K to the value of a $10,000 investment in the S&P 500 Index(R)(2),
assuming in each case reinvestment of all dividends and capital gain
distributions, for the period since inception (12/00) through 3/31/03.
INVESCO ENERGY FUND - CLASS K S&P 500 INDEX(R)(2)
12/00 $10,000 $10,000
3/01 $11,706 $ 8,858
3/02 $10,728 $ 8,879
3/03 $ 9,278 $ 6,682
(1)PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. TOTAL RETURN ASSUMES
REINVESTMENT OF DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE SO THAT, WHEN REDEEMED, AN INVESTOR'S SHARES MAY
BE WORTH MORE OR LESS THAN WHEN PURCHASED. THE LINE GRAPHS ILLUSTRATE THE VALUE
OF A $10,000 INVESTMENT, PLUS REINVESTED DIVIDENDS AND CAPITAL GAIN
DISTRIBUTIONS ALONG WITH APPLICABLE FRONT-END SALES CHARGES AND CDSC. THE CHARTS
AND OTHER TOTAL RETURN FIGURES CITED REFLECT THE FUND'S OPERATING EXPENSES, BUT
THE INDEX DOES NOT HAVE EXPENSES, WHICH WOULD HAVE LOWERED ITS PERFORMANCE.
(2)THE S&P 500 INDEX(R) IS AN UNMANAGED INDEX OF THE 500 LARGEST COMMON STOCKS
(IN TERMS OF MARKET VALUE), WEIGHTED BY MARKET CAPITALIZATION AND CONSIDERED
REPRESENTATIVE OF THE BROAD STOCK MARKET. THE INDEX IS NOT MANAGED; THEREFORE,
ITS PERFORMANCE DOES NOT REFLECT MANAGEMENT FEES AND OTHER EXPENSES ASSOCIATED
WITH THE FUND INCLUDING FRONT-END SALES CHARGES AND CDSC. INVESTORS CANNOT
INVEST DIRECTLY IN ANY MARKET INDEX.
PIE CHART: ENERGY FUND
INDUSTRY BREAKDOWN
AS OF 3/31/03
[PIE CHART]
% OF TOTAL NET ASSETS
Oil & Gas Equipment & Services......28.73%
Integrated Oil & Gas................25.06%
Oil & Gas Exploration, Production
& Transportation....................21.65%
Oil & Gas Drilling..................11.09%
Oil & Gas Refining & Marketing.......5.71%
Natural Gas Pipelines................3.48%
Gas Utilities........................0.60%
Net Cash & Cash Equivalents......... 3.68%
FUND MANAGEMENT
[PHOTOGRAPH OF JOHN S. SEGNER OMITTED]
JOHN S. SEGNER
JOHN SEGNER IS A SENIOR VICE PRESIDENT OF INVESCO FUNDS GROUP. HE RECEIVED A BS
FROM THE UNIVERSITY OF ALABAMA AND AN MBA FROM THE UNIVERSITY OF TEXAS AT
AUSTIN. BEFORE JOINING INVESCO IN 1997, JOHN SERVED AS MANAGING DIRECTOR AND
PRINCIPAL FOR THE MITCHELL GROUP. HE ALSO PREVIOUSLY HELD ENGINEERING
RESPONSIBILITIES WITH TEXACO INC., AND FINANCIAL RESPONSIBILITIES WITH AMERADA
HESS CORP. AND FIRST TENNESSEE NATIONAL CORP. JOHN BEGAN HIS INVESTMENT CAREER
IN 1980.
YOUR FUND'S REPORT
FINANCIAL SERVICES FUND
FUND PERFORMANCE
DEAR SHAREHOLDER:
Market conditions for stocks were punishing during the annual period ended March
31, 2003, as evidenced by double-digit losses for the major stock indexes.
Corporate accounting fraud was the dominant theme in the first part of the
period, with news of earnings inflation perpetrated by WorldCom (not a fund
holding) and other high-profile companies deepening investors' distrust of
corporate America. Although these headlines faded somewhat as summer came to an
end, the economy's progress remained slow through fall and winter, as a host of
geopolitical concerns kept investors on edge. Particularly influential was the
uncertainty surrounding the situation with Iraq, which by mid-March culminated
in war.
In this unfavorable climate, all sectors -- including financial services --
retreated. As a result, Financial Services Fund-Investor Class shares lost
22.39% during the one-year period ended March 31, 2003. Although the fund
outperformed the broader S&P 500 Index,(R) which lost 24.75%, it slightly lagged
the S&P 500 Financials Index,(R) which declined by 21.71% during that same
period. (Of course, past performance is not a guarantee of future
results.)(3),(4) For performance of other share classes, please see page 2.
- --------------------------------------------------------------------------------
FINANCIAL SERVICES FUND --
TOP 10 COMMON STOCK HOLDINGS
% of Total Net Assets as of 3/31/03
- --------------------------------------------------------------------------------
Bank of America..............................................6.14%
Wells Fargo & Co.............................................5.45%
Citigroup Inc................................................5.37%
Merrill Lynch & Co...........................................5.08%
American International Group.................................4.80%
Wachovia Corp................................................3.79%
Lehman Brothers Holdings.....................................3.10%
Fifth Third Bancorp..........................................2.81%
American Express.............................................2.71%
Ambac Financial Group........................................2.68%
HOLDINGS AND COMPOSITION OF HOLDINGS ARE SUBJECT TO CHANGE.
- --------------------------------------------------------------------------------
REGIONAL BANKS, INSURERS OUTPERFORM ON RELATIVE BASIS
Although all financial industry groups were down for the year, regional banks,
property/casualty insurers, and reinsurers fared the best on a relative basis.
Some stocks representing these areas managed gains despite the difficult
conditions. For example, Bank of America, the fund's largest holding as of
3/31/03, advanced over the course of the year. The company is a successful
turnaround story, as it has moved from an acquisition-oriented approach to a
strategy centered on internal growth and strong customer service. During the
annual period, the company's core businesses of consumer and commercial banking
(constituting two-thirds of profits) contributed to solid earnings growth in a
challenging environment. Furthermore, we believe that Bank of America's more
market-sensitive businesses, such as asset management, equity investments, and
global corporate investment banking, are positioned to perform well once the
economy finally stabilizes.
On the other hand, despite strong fundamentals, fund holding Fifth Third Bancorp
underperformed its banking industry peers this past year due to regulatory
scrutiny. This past March, Fifth Third announced that it had entered into a
written agreement with the Federal Reserve aimed at strengthening internal
controls and risk management processes. Given that the fundamentals of the
company remain strong, the agreement does not impair Fifth Third's day-to-day
operations, and the agreement does not restrict dividends and buy-backs, we
remain shareholders.
In the property/casualty insurance and reinsurance industries, a combination of
significant price increases and a low level of catastrophes during the fund's
fiscal year helped a number of holdings. An especially strong stock for the fund
was reinsurance company RenaissanceRe Holdings Ltd, which delivered earnings
growth well ahead of expectations. In addition, the company has been
capitalizing on the turmoil in the marketplace to grow new lines of business.
The fund also benefited from our opportunistic purchase of St Paul in the summer
when the company's valuation was attractive due to concerns over asbestos claims
and their capital position.
LINE GRAPH: INVESCO FINANCIAL SERVICES FUND - INVESTOR CLASS, GROWTH OF
$10,000(3)
This line graph compares the value of a $10,000 investment in INVESCO Financial
Services Fund - Investor Class to the value of a $10,000 investment in the S&P
500 Index(R)(4), and to the value of a $10,000 investment in the S&P Financials
Index(R)(4), assuming in each case reinvestment of all dividends and capital
gain distributions, for the ten year period ended 3/31/03.
INVESCO FINANCIAL SERVICES S&P 500 INDEX(R)(4) S&P FINANCIALS INDEX(R)(4)
FUND - INVESTOR CLASS
3/93 $10,000 $10,000 $10,000
3/94 $ 9,766 $10,146 $ 9,636
3/95 $10,467 $11,723 $10,945
3/96 $14,873 $15,482 $16,230
3/97 $18,105 $18,551 $21,144
3/98 $28,526 $27,448 $33,668
3/99 $30,208 $32,523 $35,880
3/00 $29,955 $38,354 $35,593
3/01 $33,326 $30,043 $39,494
3/02 $34,598 $30,115 $41,168
3/03 $26,850 $22,661 $32,230
LINE GRAPH: INVESCO FINANCIAL SERVICES FUND - CLASS A & B, GROWTH OF $10,000(3)
This line graph compares the value of a $10,000 investment in INVESCO Financial
Services Fund - Class A and the value of a $10,000 investment in INVESCO
Financial Services Fund - Class B to the value of a $10,000 investment in the
S&P 500 Index(R)(4), and to the value of a $10,000 investment in the S&P
Financials Index(R)(4) assuming in each case reinvestment of all dividends and
capital gain distributions, and in the cases of INVESCO Financial Services Fund
- - Class A and Class B inclusion of front-end sales charge and contingent
deferred sales charge, respectively, for the period since inception (4/02)
through 3/31/03.
INVESCO FINANCIAL INVESCO FINANCIAL S&P 500 INDEX(R)(4) S&P FINANCIALS INDEX(R)(4)
SERVICES FUND - CLASS A SERVICES FUND - CLASS B
4/02 $10,000 $10,000 $10,000 $10,000
3/03 $ 7,338 $ 7,252 $ 7,525 $ 7,829
LINE GRAPH: INVESCO FINANCIAL SERVICES FUND - CLASS C, GROWTH OF $10,000(3)
This line graph compares the value of a $10,000 investment in INVESCO Financial
Services Fund - Class C to the value of a $10,000 investment in the S&P 500
Index(R)(4), and to the value of a $10,000 investment in the S&P Financials
Index(R)(4), assuming in each case reinvestment of all dividends and capital
gain distributions, and in the case of INVESCO Financial Services Fund - Class
C, inclusion of contingent deferred sales charge, for the period since inception
(2/00) through 3/31/03.
INVESCO FINANCIAL SERVICES S&P 500 INDEX(R)(4) S&P FINANCIALS INDEX(R)(4)
FUND - CLASS C
2/00 $10,000 $10,000 $10,000
3/00 $11,472 $10,978 $11,855
3/01 $12,718 $ 8,599 $13,154
3/02 $13,098 $ 8,620 $13,712
3/03 $10,056 $ 6,471 $10,776
Select holdings within financial services bolstered the fund's performance as
well. One key positive contributor was SLM Corp (Sallie Mae), which posted a
double-digit gain for the year on strong earnings and sound fundamentals in the
non-cyclical student lending industry.
MARKET-SENSITIVE FINANCIALS ENCOUNTER FUNDAMENTAL AND REGULATORY ROADBLOCKS
During the year, heightened regulatory scrutiny and investor skepticism took a
toll on a variety of companies across the sector. The companies most affected
were those involved with the investment banking and brokerage businesses.
However, even better performing groups like insurers encountered increased
pressure from rating agencies, and commercial banking and consumer finance
companies also faced more stringent regulatory standards. Throughout the period,
anemic capital markets also pressured firms with market-sensitive revenues.
Indeed, year-over-year global equity issuance as of March 31, 2003, was down by
40%, mergers and acquisition activity fell off by 25%, and broad equity market
indexes, such as the S&P 500(R) and the Nasdaq Composite Index, were down over
20%.
Meanwhile, political and regulatory problems presented a host of obstacles.
Investigations by the Securities and Exchange Commission (SEC) and New York
Attorney General -- as well as a Congressional inquiry last July related to
investment banks' research practices and their involvement in companies like
Enron and WorldCom (not fund holdings) -- created bad publicity for investment
banks.
PIE CHART: FINANCIAL SERVICES FUND
INDUSTRY BREAKDOWN
AS OF 3/31/03
[PIE CHART]
% OF TOTAL NET ASSETS
Banks.........................................39.50%
Diversified Financial Services................14.19%
Investment Adviser/Broker
Dealer Services...............................13.55%
Multi-Line Insurance...........................6.78%
Property & Casualty Insurance..................5.79%
Consumer Finance...............................5.17%
Reinsurance....................................4.58%
Life & Health Insurance........................2.88%
Insurance Brokers..............................2.23%
Real Estate Investment Trusts..................1.67%
Data Processing Services.......................0.17%
Net Cash & Cash Equivalents....................3.49%
FUND MANAGEMENT
[PHOTOGRAPH OF JOSEPH W. SKORNICKA OMITTED]
JOSEPH W. SKORNICKA, CFA
JOE SKORNICKA IS A VICE PRESIDENT OF INVESCO FUNDS GROUP. PRIOR TO JOINING
INVESCO, JOE WAS A SENIOR EQUITY ANALYST AND FUND MANAGER WITH MUNDER CAPITAL
MANAGEMENT AND AN ASSISTANT VICE PRESIDENT FOR COMERICA INCORPORATED. HE IS A
CHARTERED FINANCIAL ANALYST CHARTERHOLDER, AND HOLDS AN MBA FROM THE UNIVERSITY
OF MICHIGAN AND A BA FROM MICHIGAN STATE UNIVERSITY.
Although some progress has been made in resolving these troubles, holdings like
Merrill Lynch & Co and Citigroup Inc weighed on the fund's performance during
the period. Merrill was subjected to its share of bad press as the New York
Attorney General singled it out in his campaign to reform investment banks. As
for Citigroup, its diversity worked against it. Almost every negative headline
seemed to have some relevance to Citigroup, since the company operates such a
wide array of financial businesses. Nevertheless, we opted to stay invested in
these companies, since we believe that they are strong enough to prosper over
time.
FINANCIALS STILL APPEAR ATTRACTIVE
We still believe the financial services sector remains attractive for three
primary reasons: demographics, consolidation and valuation. On demographics, the
aging of the Baby Boomers is well known. We believe this trend will continue to
benefit many industries within the sector including asset management, investment
banking and brokerage, life insurance, and commercial banking. As for
consolidation, after seeing a slowing in 2001 and 2002 due to economic and
market weakness, as well as corporate scandals, we have seen an increase in
activity over the past six months. This includes Household International selling
to HSBC Holdings PLC, Skandia AB selling its U.S. annuity business to Prudential
Financial Inc, Credit Suisse Group selling its clearing business to the Bank of
New York, and two regional bank acquisitions by BB&T Corp and Mercantile
Bankshares (not fund holdings). As the economy stabilizes, we believe
consolidation will accelerate in the sector, as the benefits of scale are just
too important. Finally, on valuation, despite the fund outperforming the S&P 500
Index(R) for the trailing 1-, 5- and 10-year periods as of 3/31/03, financials
still sold at a significant discount on a forward price-earnings basis to the
S&P 500.(R)
LINE GRAPH: INVESCO FINANCIAL SERVICES FUND - CLASS K, GROWTH OF $10,000(3)
This line graph compares the value of a $10,000 investment in INVESCO Financial
Services Fund - Class K to the value of a $10,000 investment in the S&P 500
Index(R)(4), and to the value of a $10,000 investment in the S&P Financials
Index(R)(4), assuming in each case reinvestment of all dividends and capital
gain distributions, for the period since inception (12/00) through 3/31/03.
INVESCO FINANCIAL SERVICES S&P 500 INDEX(R)(4) S&P FINANCIALS INDEX(R)(4)
FUND - CLASS K
12/00 $10,000 $10,000 $10,000
3/01 $ 9,803 $ 8,858 $ 9,853
3/02 $10,135 $ 8,879 $10,271
3/03 $ 7,842 $ 6,682 $ 8,041
DIVERSIFICATION AND A LONG-TERM FOCUS CRUCIAL IN AN UNCERTAIN MARKET
Although we believe the economy will gradually strengthen once the conflict with
Iraq is resolved, we are exercising caution. Above all else, we remain committed
to maintaining our focus on long-term corporate fundamentals. Industry
diversification is an important part of our strategy as well. While we will
overweight and underweight industries based on our bottom-up individual company
research and top-down industry views, we will also stay diversified across the
major industries within the sector. As we see more sure signs of an economic
recovery, we may choose to position the fund more aggressively into the sector's
more market- and economically-sensitive industries.
(3)PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. TOTAL RETURN ASSUMES
REINVESTMENT OF DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE SO THAT, WHEN REDEEMED, AN INVESTOR'S SHARES MAY
BE WORTH MORE OR LESS THAN WHEN PURCHASED. THE LINE GRAPHS ILLUSTRATE THE VALUE
OF A $10,000 INVESTMENT, PLUS REINVESTED DIVIDENDS AND CAPITAL GAIN
DISTRIBUTIONS ALONG WITH APPLICABLE FRONT-END SALES CHARGES AND CDSC. THE CHARTS
AND OTHER TOTAL RETURN FIGURES CITED REFLECT THE FUND'S OPERATING EXPENSES, BUT
THE INDEXES DO NOT HAVE EXPENSES, WHICH WOULD HAVE LOWERED THEIR PERFORMANCE.
(4)THE S&P 500 INDEX(R) IS AN UNMANAGED INDEX OF THE 500 LARGEST COMMON STOCKS
(IN TERMS OF MARKET VALUE), WEIGHTED BY MARKET CAPITALIZATION AND CONSIDERED
REPRESENTATIVE OF THE BROAD STOCK MARKET. THE S&P 500 FINANCIALS INDEX(R)
REFLECTS THE FINANCIAL SERVICES SECTOR OF THE S&P 500 Index(R). THE INDEXES ARE
NOT MANAGED; THEREFORE, THEIR PERFORMANCE DOES NOT REFLECT MANAGEMENT FEES AND
OTHER EXPENSES ASSOCIATED WITH THE FUND INCLUDING FRONT-END SALES CHARGES AND
CDSC. INVESTORS CANNOT INVEST DIRECTLY IN ANY MARKET INDEX.
YOUR FUND'S REPORT
GOLD & PRECIOUS METALS FUND
FUND PERFORMANCE
DEAR SHAREHOLDER:
Although gold stocks fell prey to profit-taking during the first quarter of
2003, they finished the fund's fiscal year with a solid gain. Consequently, the
value of Gold & Precious Metals Fund-Investor Class shares advanced 4.80% for
the annual period ended March 31, 2003, significantly outpacing the S&P 500
Index,(R) which declined 24.75%. (Of course, past performance is not a guarantee
of future results.)(5),(6) For performance of other share classes, please see
page 2.
GOLD DEEMED A SAFE HAVEN IN A VOLATILE YEAR
A number of factors combined to push gold prices higher during the period.
First, with equity markets weak for the majority of the period, questions
lingering over the health of the economy, and geopolitical concerns
intensifying, investors turned to the gold sector as a relatively safe haven.
Indeed, due to gold's strong performance throughout the equity market downturn,
more and more investors have sought gold as an effective diversification tool.
Second, the weakening U.S. dollar has benefited gold. More than a decade ago,
the U.S. dollar replaced gold as the standard in foreign currency markets.
During the past year, however, the dollar softened. While it remains a strong
currency, the dollar is now sharing with gold the role of back-up for foreign
local currencies.
Another catalyst for gold prices was the behavior of many major producers in the
industry, who reduced their hedging -- or short selling -- and in so doing
curtailed the gold supply. When gold producers hedge against future production,
rather than simply set a contract to buy at a future price (as you see with
other commodities, such as natural gas and crude oil), they complete a forward
sale. This in turn spurs the bullion bank to hedge its position by borrowing
gold from the central bank and selling it to invest the proceeds for a specific
period of time. The forward sale price is then equal to the interest rate
differential over that period. With the low interest rates that prevailed this
year, however, there was little for producers to gain by hedging, since the
current price and the forward price were similar.
FUND BENEFITS FROM LARGE POSITIONS IN GOLD SECTOR LEADERS
Throughout the period, we maintained a weighting in gold bullion. We did so
because bullion tends to be less volatile -- to the upside or the downside --
than the stocks of gold producers. Therefore, we feel that bullion exposure can
help cushion downturns or turbulence in gold prices over time. However, toward
the end of the period when gold prices retreated somewhat, we reduced our gold
bullion weighting to approximately 5%. This decision was based on our opinion
that gold stocks had reached historically attractive valuations at the end of
the first quarter of 2003, and, therefore, currently possess more upside
potential than gold bullion heading into the second quarter of 2003.
- --------------------------------------------------------------------------------
GOLD & PRECIOUS METALS FUND --
TOP 10 COMMON STOCK HOLDINGS
% of Total Net Assets as of 3/31/03
- --------------------------------------------------------------------------------
Glamis Gold Ltd.....................7.90%
Agnico-Eagle Mines Ltd..............5.06%
IAMGOLD Corp........................4.99%
Newmont Mining......................4.87%
Placer Dome.........................4.73%
Barrick Gold........................4.68%
Gold Fields Ltd Sponsored ADR
Representing Ord Shrs...............4.51%
Meridian Gold.......................4.51%
Kinross Gold........................4.11%
Aber Diamond........................4.08%
HOLDINGS AND COMPOSITION OF HOLDINGS ARE SUBJECT TO CHANGE.
- --------------------------------------------------------------------------------
LINE GRAPH: INVESCO GOLD & PRECIOUS METALS FUND - INVESTOR CLASS, GROWTH OF
$10,000(5)
This line graph compares the value of a $10,000 investment in INVESCO Gold &
Precious Metals Fund - Investor Class to the value of a $10,000 investment in
the S&P 500 Index(R)(6), assuming in each case reinvestment of all dividends and
capital gain distributions, for the ten year period ended 3/31/03.
INVESCO GOLD & PRECIOUS METALS S&P 500 INDEX(R)(6)
FUND - INVESTOR CLASS
3/93 $10,000 $10,000
3/94 $14,170 $10,146
3/95 $10,020 $11,723
3/96 $16,646 $15,482
3/97 $13,943 $18,551
3/98 $ 7,537 $27,448
3/99 $ 5,405 $32,523
3/00 $ 4,674 $38,354
3/01 $ 4,283 $30,043
3/02 $ 6,858 $30,115
3/03 $ 7,187 $22,661
Generally, the fund's outperformance of the broad market for the year was due to
our investment in large- to mid-cap companies with the ability to grow their
gold reserves at a relatively low cost. In particular, we emphasized companies
that do not significantly hedge, and these firms benefited as gold prices moved
higher.
For example, Glamis Gold Ltd, the fund's largest holdings, advanced during the
period due to its successful acquisition of Francisco Gold, which helped broaden
Glamis' exploration base. In addition, the company continued to drive down costs
on its existing mines, fueling organic growth. Overall, Glamis exemplifies the
type of gold company we target, given its strong production growth capabilities,
appealing valuation, and prospects for long-term success.
OUTLOOK FOR GOLD APPEARS BRIGHT
Although the first few months of 2003 have been challenging for gold stocks, we
remain optimistic about the outlook for the gold market. On the one hand, if the
U.S. dollar rallies once the U.S./Iraq conflict has been resolved, that could be
a negative for gold (since gold is used as a hedge against a weak dollar, and
therefore typically declines when the dollar gains ground). On the other hand,
we will have to pay for the war, and U.S. deficits are heading higher -- which
could cause the dollar to suffer going forward (and gold to rise). Furthermore,
we could see the economy shift from a deflationary to an inflationary stance --
another potential positive for gold.
PIE CHART: GOLD & PRECIOUS METALS FUND
INDUSTRY BREAKDOWN
AS OF 3/31/03
[PIE CHART]
% OF TOTAL NET ASSETS
Gold..........................59.64%
Diversified Metals & Mining...16.59%
Precious Metals & Minerals....11.26%
Gold Bullion...................4.83%
Net Cash & Cash Equivalents....7.68%
Of course, time will tell whether gold resumes its upward trajectory, and we
will be watching carefully. It's instructive to note that roughly 20% of the
world's gold production costs $270 per ounce to produce, and more than 50% costs
$200 per ounce to produce. Therefore, since gold prices have recently been
around $325 per ounce (as of March 31, 2003), we do not expect the price of gold
to decline much. Furthermore, there are signs that gold's strong performance
this past year is causing investors to acknowledge its attractive long-term
fundamentals and its place in a well-diversified portfolio.
LINE GRAPH: INVESCO GOLD & PRECIOUS METALS FUND - CLASS A & B, GROWTH OF
$10,000(5)
This line graph compares the value of a $10,000 investment in INVESCO Gold &
Precious Metals Fund - Class A and the value of a $10,000 investment in INVESCO
Gold & Precious Metals Fund - Class B to the value of a $10,000 investment in
the S&P 500 Index(R)(6) assuming in each case reinvestment of all dividends and
capital gain distributions, and in the cases of INVESCO Gold & Precious Metals
Fund - Class A and Class B, inclusion of front-end sales charge and contingent
deferred sales charge, respectively, for the period since inception (4/02)
through 3/31/03.
INVESCO GOLD & PRECIOUS INVESCO GOLD & PRECIOUS S&P 500 INDEX(R)(6)
METALS FUND - CLASS A METALS FUND - CLASS B
3/02 $10,000 $10,000 $10,000
3/03 $ 9,876 $ 9,937 $ 7,525
LINE GRAPH: INVESCO GOLD & PRECIOUS METALS FUND - CLASS C, GROWTH OF $10,000(5)
This line graph compares the value of a $10,000 investment in INVESCO Gold &
Precious Metals Fund - Class C to the value of a $10,000 investment in the S&P
500 Index(R)(6), assuming in each case reinvestment of all dividends and capital
gain distributions, and in the case of INVESCO Gold & Precious Metals Fund -
Class C, inclusion of contingent deferred sales charge, for the period since
inception (2/00) through 3/31/03.
INVESCO GOLD & PRECIOUS METALS S&P 500 INDEX(R)(6)
FUND - CLASS C
2/00 $10,000 $10,000
3/00 $ 9,143 $10,978
3/01 $ 8,964 $ 8,599
3/02 $14,179 $ 8,620
3/03 $14,765 $ 6,486
(5)PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. TOTAL RETURN ASSUMES
REINVESTMENT OF DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE SO THAT, WHEN REDEEMED, AN INVESTOR'S SHARES MAY
BE WORTH MORE OR LESS THAN WHEN PURCHASED. THE LINE GRAPHS ILLUSTRATE THE VALUE
OF A $10,000 INVESTMENT, PLUS REINVESTED DIVIDENDS AND CAPITAL GAIN
DISTRIBUTIONS ALONG WITH APPLICABLE FRONT-END SALES CHARGES AND CDSC. THE CHARTS
AND OTHER TOTAL RETURN FIGURES CITED REFLECT THE FUND'S OPERATING EXPENSES, BUT
THE INDEX DOES NOT HAVE EXPENSES, WHICH WOULD HAVE LOWERED ITS PERFORMANCE.
(6)THE S&P 500 INDEX(R) IS AN UNMANAGED INDEX OF THE 500 LARGEST COMMON STOCKS
(IN TERMS OF MARKET VALUE), WEIGHTED BY MARKET CAPITALIZATION AND CONSIDERED
REPRESENTATIVE OF THE BROAD STOCK MARKET. THE INDEXES ARE NOT MANAGED;
THEREFORE, THEIR PERFORMANCE DOES NOT REFLECT MANAGEMENT FEES AND OTHER EXPENSES
ASSOCIATED WITH THE FUND INCLUDING FRONT-END SALES CHARGES AND CDSC. INVESTORS
CANNOT INVEST DIRECTLY IN ANY MARKET INDEX.
FUND MANAGEMENT
[PHOTOGRAPH OF JOHN S. SEGNER OMITTED]
JOHN S. SEGNER
JOHN SEGNER IS A SENIOR VICE PRESIDENT OF INVESCO FUNDS GROUP. HE RECEIVED A BS
FROM THE UNIVERSITY OF ALABAMA AND AN MBA FROM THE UNIVERSITY OF TEXAS AT
AUSTIN. BEFORE JOINING INVESCO IN 1997, JOHN SERVED AS MANAGING DIRECTOR AND
PRINCIPAL FOR THE MITCHELL GROUP. HE ALSO PREVIOUSLY HELD ENGINEERING
RESPONSIBILITIES WITH TEXACO INC., AND FINANCIAL RESPONSIBILITIES WITH AMERADA
HESS CORP. AND FIRST TENNESSEE NATIONAL CORP. JOHN BEGAN HIS INVESTMENT CAREER
IN 1980.
YOUR FUND'S REPORT
HEALTH SCIENCES FUND
FUND PERFORMANCE
DEAR SHAREHOLDER:
The past fiscal year proved challenging for financial markets, as an unrelenting
wave of economic and geopolitical uncertainty made for unfavorable conditions.
However, health care stocks -- which are typically less sensitive to broad
market moves than other groups -- fared well on a relative basis. This was
especially true in the second half of the year, when biotechnology and
pharmaceutical companies rebounded strongly.
For the one-year period ended March 31, 2003, the value of Health Sciences
Fund-Investor Class shares declined 18.99%. In comparison, the S&P 500 Index(R)
fell 24.75% over that same time frame. (Of course, past performance is no
guarantee of future results.)(7),(8) For performance of other share classes,
please see page 2.
SUBSTANTIAL POSITION IN MEDICAL TECHNOLOGY AIDS PERFORMANCE
During the period, a significant weighting in the medical technology sub-sector
of health care benefited the fund -- as did strong individual stock selection
within this area. Because the cost of the technology involved in producing
medical devices is so high, one often sees great barriers to entry once a
certain company has established itself as a leader within a particular
therapeutic market, such as implantable defibrillators or cancer radiation
equipment. In other words, those device firms able to develop a propriety edge
in growth markets can find themselves in a dominant position for a number of
years. As a result, profitable business models, strong cash flow, and favorable
returns on equity may generally follow.
For example, in the approximately $3 billion implantable defibrillator market,
Medtronic Inc and Guidant Corp have emerged as clear leaders. For cancer
radiation equipment, Varian Medical Systems is a leader, and we anticipate
Johnson & Johnson and Boston Scientific will emerge as the dominant competitors
in the pending drug-coated stent market, which we believe eventually could
exceed $5 billion. Finally, Zimmer Holdings, which manufactures hip and knee
implants, is a leader in the orthopedic market -- a strong growth area given the
aging of the baby boomer demographic. Our decision to target these
top-performing companies, therefore, proved advantageous during the year.
SHIFT INTO BIOTECH AND PHARMACEUTICAL STOCKS MAY POSITION FUND FOR GROWTH
Late in 2002, we shifted a significant portion of assets from health services
holdings into the large-cap pharmaceuticals group. Although pharmaceuticals had
been facing serious competition from the generic market earlier in the year, by
the second half of 2002 many companies had already dealt with lapses in patents
and their subsequent impact. As a result, earnings comparisons from previous
quarters were beginning to improve.
- --------------------------------------------------------------------------------
HEALTH SCIENCES FUND --
TOP 10 COMMON STOCK HOLDINGS
% of Total Net Assets as of 3/31/03
- --------------------------------------------------------------------------------
Biotech HOLDRs Trust................4.95%
Johnson & Johnson...................4.90%
Forest Laboratories.................4.79%
Pharmaceutical HOLDRs Trust.........4.44%
Merck & Co..........................4.35%
Wyeth...............................4.29%
Amgen Inc...........................4.27%
Abbott Laboratories.................4.12%
Eli Lilly & Co......................4.05%
Bristol-Myers Squibb................3.89%
HOLDINGS AND COMPOSITION OF HOLDINGS ARE SUBJECT TO CHANGE.
- --------------------------------------------------------------------------------
Furthermore, research we conducted during the period showed that for the first
time in 40 years, dividend yields on drug stocks had surpassed those of
short-term interest rates. Even though income and yield are not primary
objectives of the fund per se, this unusual phenomenon seems to indicate that
the downside risk on many drug stocks have been mitigated as we await new
product cycles and earnings acceleration in 2004.
LINE GRAPH: INVESCO HEALTH SCIENCES FUND - INVESTOR CLASS GROWTH OF $10,000(7)
This line graph compares the value of a $10,000 investment in INVESCO Health
Sciences Fund - Investor Class to the value of a $10,000 investment in the S&P
500 Index(R)(8), assuming in each case reinvestment of all dividends and capital
gain distributions, for the ten year period ended 3/31/03.
INVESCO HEALTH SCIENCES FUND - INVESTOR CLASS S&P 500 INDEX(R)(8)
3/93 $10,000 $10,000
3/94 $11,309 $10,146
3/95 $13,367 $11,723
3/96 $20,148 $15,482
3/97 $20,492 $18,551
3/98 $29,047 $27,448
3/99 $35,877 $32,523
3/00 $36,249 $38,354
3/01 $34,757 $30,043
3/02 $36,128 $30,115
3/03 $29,268 $22,661
Outperformers from the pharmaceutical industry during the year included Teva
Pharmaceuticals Industries Ltd, a leader in the international generic drug
market, and specialty pharmaceutical company Forest Laboratories. As a mid-size
drug company, Forest can realize dramatic earnings growth when a few key
products, such as their depression drugs Celexa and Lexapro, experience success.
We also increased the fund's weighting in biotechnology during this time. It's
important to note, however, that we sought only profitable companies in this
space -- firms with strong earnings, positive cash flows, and proven biological
products that have already been introduced to the market. For example, we
purchased additional shares of Gilead Sciences. Gilead is an example of a
biotech company benefiting from success with a new and highly profitable
product, Viread, which is used to treat HIV. The successful launch of Viread
made for a breakthrough year for Gilead, as the company was able to go from
posting losses to enjoying sharp profits.
HEALTH SERVICES HOLDINGS DETRACT
Through the first three quarters of 2002, the fund's health services stocks
performed well. However, at the end of October, Tenet Healthcare (no longer a
fund holding) fell under scrutiny for its Medicare pricing tactics -- news that
quickly clouded the entire services area. Following this development, the fund's
exposure to Tenet and other services leaders proved detrimental, hampering
performance and negatively affecting our overall return for the annual period.
In response, we significantly trimmed our weighting in health services.
This decision stemmed not only from the regulatory problems dogging hospitals,
but also from our growing concern over issues that we believe could hamper
services stocks going forward. First, we believe that, as the U.S. begins to
adjust to a deficit in its budget rather than a surplus, we could see cuts in
Medicare reimbursement for hospitals. Second, if a drug reimbursement plan is
implemented, it might be financed partly by taking funding from Medicare
hospital reimbursement. Although it remains to be seen whether funding will be
ultimately taken away from hospitals, this potential negative development
remains a risk for these stocks.
On the positive side, the fund had no exposure to HealthSouth Corp, a firm that
has faced accusations of earnings fraud. Our analysis of HealthSouth's cash flow
and balance sheet trends was enough to keep us away from its stock over the past
year.
MONITORING THE POLITICAL LANDSCAPE
Overall, demand for health care services and products remains high. We have long
subscribed to the notion that the aging of the baby boomers and increases in
life expectancy should drive growth in the health care sector for many years to
come. Furthermore, we are cautiously optimistic about the recent developments at
the Food and Drug Administration-- which has been approving more products since
the appointment of its new commissioner, Mark McClellan.
(7)PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. TOTAL RETURN ASSUMES
REINVESTMENT OF DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE SO THAT, WHEN REDEEMED, AN INVESTOR'S SHARES MAY
BE WORTH MORE OR LESS THAN WHEN PURCHASED. THE LINE GRAPHS ILLUSTRATE THE VALUE
OF A $10,000 INVESTMENT, PLUS REINVESTED DIVIDENDS AND CAPITAL GAIN
DISTRIBUTIONS ALONG WITH APPLICABLE FRONT-END SALES CHARGES AND CDSC. THE CHARTS
AND OTHER TOTAL RETURN FIGURES CITED REFLECT THE FUND'S OPERATING EXPENSES, BUT
THE INDEX DOES NOT HAVE EXPENSES, WHICH WOULD HAVE LOWERED ITS PERFORMANCE.
(8)THE S&P 500 INDEX(R) IS AN UNMANAGED INDEX OF THE 500 LARGEST COMMON STOCKS
(IN TERMS OF MARKET VALUE), WEIGHTED BY MARKET CAPITALIZATION AND CONSIDERED
REPRESENTATIVE OF THE BROAD STOCK MARKET. THE INDEX IS NOT MANAGED; THEREFORE,
ITS PERFORMANCE DOES NOT REFLECT MANAGEMENT FEES AND OTHER EXPENSES ASSOCIATED
WITH THE FUND INCLUDING FRONT-END SALES CHARGES AND CDSC. INVESTORS CANNOT
INVEST DIRECTLY IN ANY MARKET INDEX.
Going forward, we will be monitoring the political landscape closely. As we
mentioned, Medicare reimbursement trends directly affect the health services
sector, and cuts in the growth of Medicare funding could be negative for
hospitals. Another interesting development could be the legislative introduction
and potential passage of a prescription drug reimbursement plan. Given that
another election year is approaching, voters may expect to see progress on this
issue.
Other major events to watch for in health care include HMO pricing and
hospital/HMO negotiations regarding a potential tiered hospital system. In terms
of pricing, HMOs have benefited from increases in recent years, but another
contract renegotiation season is on the horizon. We'll be following the news to
see whether HMOs are able to implement higher premiums this year at a marginal
spread to their cost trends. Meanwhile, interaction between hospitals and HMOs
could lead to talks regarding possibly creating a so-called "tiered system,"
meaning that hospitals would be grouped according to higher and lower co-payment
brackets. Such a system could hurt some hospitals, though select HMOs might
benefit.
Finally, we'll be tracking product cycles within the pharmaceutical industry.
Although there has recently been a gap in the introduction of new products, we
believe we are close to seeing an end to this lapse. The worst of the impact
from generic drug competitors appears to be over for many large-cap
pharmaceutical companies. If this is the case, we could see a re-acceleration of
earnings for leading pharmaceutical companies in 2003 and 2004.
LINE GRAPH: INVESCO HEALTH SCIENCES FUND - CLASS A & B, GROWTH OF $10,000(7)
This line graph compares the value of a $10,000 investment in INVESCO Health
Sciences Fund - Class A and the value of a $10,000 investment in INVESCO Health
Sciences Fund - Class B to the value of a $10,000 investment in the S&P 500
Index(R)(8) assuming in each case reinvestment of all dividends and capital gain
distributions, and in the cases of INVESCO Health Sciences Fund - Class A and
Class B, inclusion of front-end sales charge and contingent deferred sales
charge, respectively, for the period since inception (4/02) through 3/31/03.
INVESCO HEALTH SCIENCES INVESCO HEALTH SCIENCES S&P 500 INDEX(R)(8)
FUND - CLASS A FUND - CLASS B
4/02 $10,000 $10,000 $10,000
3/03 $ 7,661 $ 7,561 $ 7,525
LINE GRAPH: INVESCO HEALTH SCIENCES FUND - CLASS C GROWTH OF $10,000(7)
This line graph compares the value of a $10,000 investment in INVESCO Health
Sciences Fund - Class C to the value of a $10,000 investment in the S&P 500
Index(R)(8), assuming in each case reinvestment of all dividends and capital
gain distributions, and in the case of INVESCO Health Sciences Fund - Class C,
inclusion of contingent deferred sales charge, for the period since inception
(2/00) through 3/31/03.
INVESCO HEALTH SCIENCES FUND - CLASS C S&P 500 INDEX(R)(8)
2/00 $10,000 $10,000
3/00 $ 8,944 $10,978
3/01 $ 8,516 $ 8,599
3/02 $ 8,759 $ 8,620
3/03 $ 6,993 $ 6,486
LINE GRAPH: INVESCO HEALTH SCIENCES FUND - CLASS K GROWTH OF $10,000(7)
This line graph compares the value of a $10,000 investment in INVESCO Health
Sciences Fund - Class K to the value of a $10,000 investment in the S&P 500
Index(R)(8), assuming in each case reinvestment of all dividends and capital
gain distributions, for the period since inception (12/00) through 3/31/03.
INVESCO HEALTH SCIENCES FUND - CLASS K S&P 500 INDEX(R)(8)
12/00 $10,000 $10,000
3/01 $ 8,136 $ 8,858
3/02 $ 8,414 $ 8,879
3/03 $ 6,773 $ 6,682
PIE CHART: HEALTH SCIENCES FUND
INDUSTRY BREAKDOWN
AS OF 3/31/03
[PIE CHART]
% OF TOTAL NET ASSETS
Pharmaceuticals...............54.58%
Health Care Equipment.........19.70%
Biotechnology.................17.69%
Health Care Supplies...........2.34%
Health Care Facilities.........1.43%
Managed Health Care............1.39%
Household Products.............1.37%
Health Care Distributors
& Services.....................0.99%
Net Cash & Cash Equivalents....0.51%
FUND MANAGEMENT
[PHOTOGRAPH OF THOMAS R. WALD OMITTED]
THOMAS R. WALD, CFA
TOM WALD IS A VICE PRESIDENT OF INVESCO FUNDS GROUP. PRIOR TO JOINING INVESCO IN
1997, HE WAS THE SENIOR HEALTH CARE ANALYST AT MUNDER CAPITAL MANAGEMENT. HE
BEGAN HIS INVESTMENT CAREER IN 1988. TOM RECEIVED HIS BA FROM TULANE UNIVERSITY,
AND HIS MBA FROM THE UNIVERSITY OF PENNSYLVANIA. HE IS ALSO A CHARTERED
FINANCIAL ANALYST CHARTERHOLDER.
YOUR FUND'S REPORT
LEISURE FUND
FUND PERFORMANCE
DEAR SHAREHOLDER:
The past 12 months provided more challenges for equity investors, as stocks
continued their declines. The summer of 2002 saw several high-profile corporate
accounting scandals keep investors on their heels. By the fall, investors were
growing increasingly concerned about the likelihood of war with Iraq. All the
while, the economic recovery continued to tread water. Perhaps most disturbing
were the period's figures on consumer confidence and spending, which revealed
that the talk of war was taking its toll on consumption. Throughout this
economic downturn, consumer spending had remained remarkably robust, and many
observers suggested that this strength was the only variable staving off
recession. But with the economy continuing to stagnate, the employment outlook
became less encouraging and consumer confidence declined. As a result, companies
that are more cyclically-sensitive or with revenues that are largely derived
from consumer discretionary spending, including many leisure companies, came
under pressure.
- --------------------------------------------------------------------------------
LEISURE FUND --
TOP 10 COMMON STOCK HOLDINGS
% of Total Net Assets as of 3/31/03
- --------------------------------------------------------------------------------
Mattel Inc.....................................................7.37%
International Game Technology..................................7.33%
Omnicom Group..................................................5.82%
Harrah's Entertainment.........................................5.34%
Liberty Media Series A Shrs....................................4.82%
Heineken NV....................................................2.69%
Anheuser-Busch Cos.............................................2.42%
CableVision Systems New York Group.............................2.41%
Carlsberg A/S Class B Shrs.....................................2.28%
Valassis Communications........................................2.18%
HOLDINGS AND COMPOSITION OF HOLDINGS ARE SUBJECT TO CHANGE.
- --------------------------------------------------------------------------------
LINE GRAPH: INVESCO LEISURE FUND - INVESTOR CLASS GROWTH OF $10,000(9)
This line graph compares the value of a $10,000 investment in INVESCO Leisure
Fund - Investor Class to the value of a $10,000 investment in the S&P 500
Index(R)(10), assuming in each case reinvestment of all dividends and capital
gain distributions, for the ten year period ended 3/31/03.
INVESCO LEISURE FUND - INVESTOR CLASS S&P 500 INDEX(R)(10)
3/93 $10,000 $10,000
3/94 $11,753 $10,146
3/95 $12,637 $11,723
3/96 $14,615 $15,482
3/97 $14,748 $18,551
3/98 $21,813 $27,448
3/99 $27,706 $32,523
3/00 $40,191 $38,354
3/01 $37,980 $30,043
3/02 $40,261 $30,115
3/03 $31,860 $22,661
In light of these trends, for the year ended March 31, 2003, the value of
Leisure Fund-Investor Class shares declined 20.87%. However, the fund managed to
outperform its benchmark, the S&P 500 Index,(R) which declined 24.75% during
that same period. (Of course, past performance is not a guarantee of future
results.)(9),(10) For performance of other share classes, please see page 2.
ECONOMIC SOFTNESS THREATENED TO HURT AD SPENDING
In a period as challenging as the past year has been, it's no surprise that the
fund saw several holdings decline. Among the areas that detracted most from
performance were our advertising agencies, notably Omnicom Group. Omnicom faced
several problems throughout the year, including concerns about the means by
which the company accounted for several acquisitions. We investigated Omnicom's
accounting and held onto our position, believing the company has not done
anything improper. Our confidence was validated later in the period, but
Omnicom's troubles weren't over. The stock continued to trend lower as investors
worried about how advertising spending would be hurt by the persistent economic
weakness. Although Omnicom detracted from the fund's results this year, we
continue to believe in the company's business model and remain confident that it
will continue to gain market share over the next three to five years.
Valassis Communications was another underperformer. Shares of the coupon
publisher declined after its primary competitor in the coupon publishing
business announced plans to cut prices. At the time, Valassis was a top-ten
holding in the fund, so it adversely affected relative performance. However, we
continue to believe that the company possesses attractive long-term fundamental
prospects.
THE FUND'S CYCLICAL SHARES DECLINED AS THE RECOVERY STAGNATED
Several of the fund's other more economically sensitive holdings came under
pressure as well, including our cruise lines, diversified media companies, and
our hotel and lodging stocks. The fund's movie studio stocks also generally
underperformed. The exception was Pixar, a studio that specializes in animated
children's movies, which gained nearly 50% during the period.
LINE GRAPH: INVESCO LEISURE FUND - CLASS A & B GROWTH OF $10,000(9)
This line graph compares the value of a $10,000 investment in INVESCO Leisure
Fund - Class A and the value of a $10,000 investment in INVESCO Leisure Fund -
Class B to the value of a $10,000 investment in the S&P 500 Index(R)(10)
assuming in each case reinvestment of all dividends and capital gain
distributions, and in the cases of INVESCO Leisure Fund - Class A and Class B,
inclusion of front-end sales charge and contingent deferred sales charge,
respectively, for the period since inception (4/02) through 3/31/03.
INVESCO LEISURE INVESCO LEISURE S&P 500 INDEX(R)(10)
FUND - CLASS A FUND - CLASS B
4/02 $10,000 $10,000 $10,000
3/03 $ 7,490 $ 7,367 $ 7,525
LINE GRAPH: INVESCO LEISURE FUND - CLASS C GROWTH OF $10,000(9)
This line graph compares the value of a $10,000 investment in INVESCO Leisure
Fund - Class C to the value of a $10,000 investment in the S&P 500 Index(R)(10),
assuming in each case reinvestment of all dividends and capital gain
distributions, and in the case of INVESCO Leisure Fund - Class C, inclusion of
contingent deferred sales charge, for the period since inception (2/00) through
3/31/03.
INVESCO LEISURE FUND - CLASS C S&P 500 INDEX(R)(10)
3/00 $10,000 $10,000
3/01 $ 9,708 $ 8,599
3/02 $10,203 $ 8,620
3/03 $ 7,994 $ 6,846
LINE GRAPH: INVESCO LEISURE FUND - CLASS K GROWTH OF $10,000(9)
This line graph compares the value of a $10,000 investment in INVESCO Leisure
Fund - Class K to the value of a $10,000 investment in the S&P 500 Index(R)(10),
assuming in each case reinvestment of all dividends and capital gain
distributions, for the period since inception (12/01) through 3/31/03.
INVESCO LEISURE FUND - CLASS K S&P 500 INDEX(R)(10)
12/01 $10,000 $10,000
3/02 $10,795 $10,255
3/03 $ 8,513 $ 7,717
The fund saw several other areas defy the market's weakness. For example, our
toy manufacturers, on the back of gains in the shares of Mattel Inc, generally
advanced, as did several of our cable and satellite television service
providers, including Comcast Corp and EchoStar Communications, two industries
that enjoy revenues that are largely independent of economic health.
PUBLISHERS, BREWERS AND RETAIL CONTRIBUTED POSITIVELY TO PERFORMANCE
Several of our holdings outperformed on a relative basis, declining less than
the broader market. Included in this group were the fund's publishing stocks,
such as New York Times and Harte-Hanks Inc. Likewise, many of our beverage
stocks, including Anheuser-Busch Cos, contributed positively to relative
performance. Our retail stocks also performed reasonably, as Foot Locker,
Tuesday Morning, and Target Corp all bettered the S&P 500 Index.(R)
Going forward, it's clear the war has influenced the economy and the market. It
will likely continue to do so until the conflict reaches resolution.
Unfortunately, this knowledge yields few ideas on which we can act or invest.
Consequently, our focus remains on the longer term. We continue to look for
companies capable of enjoying strong fundamental growth over the next three to
five years rather than the next few months. In this longer-term context, our
current portfolio holdings appear attractive.
PIE CHART: LEISURE FUND
INDUSTRY BREAKDOWN
AS OF 3/31/03
[PIE CHART]
% OF TOTAL NET ASSETS
Casinos & Gaming..............14.36%
Movies & Entertainment........11.59%
Cable & Satellite Operators...10.52%
Advertising...................10.18%
Leisure Products...............8.31%
Brewers........................7.95%
Publishing & Printing..........7.53%
Hotels & Resorts...............6.39%
Broadcasting - Radio/TV........5.10%
Investment Companies...........2.58%
Other Industries..............14.39%
Net Cash & Cash Equivalents....1.10%
(9)PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. TOTAL RETURN ASSUMES
REINVESTMENT OF DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE SO THAT, WHEN REDEEMED, AN INVESTOR'S SHARES MAY
BE WORTH MORE OR LESS THAN WHEN PURCHASED. THE LINE GRAPHS ILLUSTRATE THE VALUE
OF A $10,000 INVESTMENT, PLUS REINVESTED DIVIDENDS AND CAPITAL GAIN
DISTRIBUTIONS ALONG WITH APPLICABLE FRONT-END SALES CHARGES AND CDSC. THE CHARTS
AND OTHER TOTAL RETURN FIGURES CITED REFLECT THE FUND'S OPERATING EXPENSES, BUT
THE INDEX DOES NOT HAVE EXPENSES, WHICH WOULD HAVE LOWERED ITS PERFORMANCE.
(10)THE S&P 500 INDEX(R) IS AN UNMANAGED INDEX OF THE 500 LARGEST COMMON STOCKS
(IN TERMS OF MARKET VALUE), WEIGHTED BY MARKET CAPITALIZATION AND CONSIDERED
REPRESENTATIVE OF THE BROAD STOCK MARKET. THE INDEX IS NOT MANAGED; THEREFORE,
ITS PERFORMANCE DOES NOT REFLECT MANAGEMENT FEES AND OTHER EXPENSES ASSOCIATED
WITH THE FUND INCLUDING FRONT-END SALES CHARGES AND CDSC. INVESTORS CANNOT
INVEST DIRECTLY IN ANY MARKET INDEX.
FUND MANAGEMENT
[PHOTOGRAPH OF MARK GREENBERG OMITTED]
MARK GREENBERG, CFA
MARK GREENBERG IS A SENIOR VICE PRESIDENT OF INVESCO FUNDS GROUP. HE BEGAN HIS
INVESTMENT CAREER IN 1980 AND HAS NEARLY 20 YEARS OF EXPERIENCE IN THE LEISURE
SECTOR. MARK RECEIVED A BSBA FROM MARQUETTE UNIVERSITY AND IS A CHARTERED
FINANCIAL ANALYST CHARTERHOLDER.
YOUR FUND'S REPORT
REAL ESTATE OPPORTUNITY FUND
FUND PERFORMANCE
DEAR SHAREHOLDER:
Equity investors were faced with a number of unnerving developments during the
past 12 months. In the summer of 2002, corporate accounting fiascos and tensions
in the Middle East gave investors pause. Fall saw talk of war with Iraq
intensify, and the economy continue to stagnate. By the end of the period, the
war had finally begun and stocks had seen the bear market extend another year.
- --------------------------------------------------------------------------------
REAL ESTATE OPPORTUNITY FUND --
TOP 10 COMMON STOCK HOLDINGS
% of Total Net Assets as of 3/31/03
- --------------------------------------------------------------------------------
Boston Properties.........................4.78%
General Growth Properties.................4.74%
Weingarten Realty Investors...............4.67%
ProLogis SBI..............................4.62%
Alexandria Real Estate Equities...........4.29%
Developers Diversified Realty.............4.25%
iStar Financial...........................4.17%
Vornado Realty Trust SBI..................4.17%
Equity Office Properties Trust............4.04%
CarrAmerica Realty........................3.89%
HOLDINGS AND COMPOSITION OF HOLDINGS ARE SUBJECT TO CHANGE.
- --------------------------------------------------------------------------------
THE MARKET'S RISK AVERSION SUPPORTED REITS
The uncertainty in the broader market provided some support for real estate
investment trusts (REITs). As investors' tolerance for risk declined, they
rotated into opportunities possessing a more defensive risk/reward profile, and
REITs benefited from this trend. Not only has the group's dividend yield
attracted investors, but also its financial health has withstood the economic
downturn more successfully than other business sectors. Most property types
outperformed the broader market during the fund's fiscal period, led by regional
malls, shopping centers and industrial REITs. Meanwhile, the only property type
that underperformed the S&P 500 Index(R) was the lodging group, which is
arguably the most economically sensitive property type.
LINE GRAPH: INVESCO REAL ESTATE OPPORTUNITY FUND - INVESTOR CLASS, GROWTH OF
$10,000(11)
This line graph compares the value of a $10,000 investment in INVESCO Real
Estate Opportunity Fund - Investor Class to the value of a $10,000 investment in
the S&P 500 Index(R)(12), and to the value of a $10,000 investment in the
NAREIT-Equity REIT Index(12), assuming in each case reinvestment of all
dividends and capital gain distributions, for the period (1/97) through 3/31/03.
INVESCO REAL ESTATE OPPORTUNITY NAREIT - EQUITY
FUND - INVESTOR CLASS S&P 500 INDEX(R)(12) REIT INDEX(12)
1/97 $10,000 $10,000 $10,000
3/97 $10,120 $10,269 $10,070
3/98 $12,136 $15,194 $11,970
3/99 $ 8,724 $18,003 $ 9,443
3/00 $ 9,097 $21,231 $ 9,689
3/01 $10,102 $16,231 $12,005
3/02 $11,584 $16,670 $14,748
3/03 $11,455 $12,545 $14,240
For the year ended March 31, 2003, the value of Real Estate Opportunity
Fund-Investor Class shares declined 1.12%. The fund significantly outperformed
the S&P 500 Index,(R) which declined by 24.75% during that same period. (Of
course, past performance is not a guarantee of future results.)(11),(12) For
performance of other share classes, please see page 2.
RETAIL REITS ENJOYED STRONG FUNDAMENTALS
The fund received positive contributions to relative performance from most REIT
property types, particularly its regional mall and shopping center exposure, two
of the stronger property types. In contrast to much of the economy, the retail
REIT group continued to exhibit relatively strong fundamentals throughout the
past year. Standouts in these groups included Simon Property Group, Weingarten
Realty Investors, and Rouse Co.
Other areas of strength included the fund's industrial REITs, notably ProLogis
SBI. And although the office group declined in absolute terms, our office group
holdings made positive contributions to relative performance, led by Alexandria
Real Estate Equities. Finally, another standout during the year was iStar
Financial, the commercial real estate lender, which advanced sharply.
LODGING AND HEALTH CARE REITS AMONG SECTOR'S FEW SOFT SPOTS
Detracting from the fund's performance was our minimal exposure to the lodging
group. In addition, after performing well for most of the year, our health care
REITs, such as Healthcare Realty, came under pressure late in the period, as the
financial health of some key tenants, coupled with the uncertainty relating to
possible changes in Medicare reimbursements, made investors wary.
The fund's non-REIT exposure also hindered performance, including casino
operator Park Place Entertainment, Home Depot, and homebuilder Beazer Homes USA.
FAVORING REITS WITH SOLID BALANCE SHEETS
We made a few changes to the portfolio over the period. For example, we
decreased the fund's health care exposure, as the financial health of some key
tenants, coupled with the uncertainty relating to possible changes in Medicare
reimbursements, prompted us to take some money off the table in that area. We
also decreased the fund's lodging exposure, believing that the group's prospects
remain murky in light of the war and resulting economic softness. On the other
hand, we increased our exposure to shopping centers. Although this group is
trading at a premium to other property types, we believe the sub-sector
possesses visibility into its earnings prospects that's hard to find in other
areas. Finally, we will continue to favor REITs with adequate dividend coverage
and healthy balance sheets. In the office group, we plan to continue to
emphasize firms that possess relatively low lease turnover.
Going forward, we remain cautiously optimistic about the REIT group. Reasons for
optimism include the sector's high dividend yield, which could appeal to
income-oriented investors, and its relative financial stability. Although the
fundamental prospects of REITs have deteriorated somewhat with the economy, the
degree of the softness has been significantly less severe than that endured by
other economic sectors. We also continue to monitor developments in the proposed
changes to the taxation of dividends.
LINE GRAPH: INVESCO REAL ESTATE OPPORTUNITY FUND - CLASS A & B GROWTH OF
$10,000(11)
This line graph compares the value of a $10,000 investment in INVESCO Real
Estate Opportunity Fund - Class A and the value of a $10,000 investment in
INVESCO Real Estate Opportunity Fund - Class B to the value of a $10,000
investment in the S&P 500 Index(R)(12), and to the value of a $10,000 investment
in the NAREIT - Equity Index(12) assuming in each case reinvestment of all
dividends and capital gain distributions, and in the cases of INVESCO Real
Estate Opportunity Fund - Class A and Class B, inclusion of front-end sales
charge and contingent deferred sales charge, respectively, for the period since
inception (4/02) through 3/31/03.
INVESCO REAL ESTATE INVESCO REAL ESTATE S&P 500 INDEX(R)(12) NAREIT - EQUITY
OPPORTUNITY FUND - CLASS A OPPORTUNITY FUND - CLASS B REIT INDEX(12)
4/02 $10,000 $10,000 $10,000 $10,000
3/03 $ 9,312 $ 9,306 $ 7,525 $ 9,655
LINE GRAPH: INVESCO REAL ESTATE OPPORTUNITY FUND - CLASS C GROWTH OF
$10,000(11)
This line graph compares the value of a $10,000 investment in INVESCO Real
Estate Opportunity Fund - Class C to the value of a $10,000 investment in the
S&P 500 Index(R)(12), and to the value of a $10,000 investment in the
NAREIT-Equity REIT Index(12), assuming in each case reinvestment of all
dividends and capital gain distributions, and in the case of INVESCO Real Estate
Opportunity Fund - Class C, inclusion of contingent deferred sales charge, for
the period since inception (2/00) through 3/31/03.
INVESCO REAL ESTATE OPPORTUNITY NAREIT-EQUITY
FUND - CLASS C S&P 500 INDEX(R)(12) REIT INDEX(12)
2/00 $10,000 $10,000 $10,000
3/00 $10,210 $10,978 $10,275
3/01 $11,251 $ 8,599 $12,730
3/02 $12,791 $ 8,620 $15,639
3/03 $12,559 $ 6,471 $15,100
PIE CHART: REAL ESTATE OPPORTUNITY FUND
INDUSTRY BREAKDOWN
AS OF 9/30/02
[PIE CHART]
% OF TOTAL NET ASSETS
Real Estate Investment Trusts..86.86%
Real Estate Management &
Development.....................2.32%
Paper Products..................1.49%
Forest Products.................1.43%
Casinos & Gaming................1.11%
Homebuilding....................1.00%
Hotels & Resorts................1.00%
Net Cash & Cash Equivalents.....4.79%
(11)PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. TOTAL RETURN ASSUMES
REINVESTMENT OF DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE SO THAT, WHEN REDEEMED, AN INVESTOR'S SHARES MAY
BE WORTH MORE OR LESS THAN WHEN PURCHASED. THE LINE GRAPHS ILLUSTRATE THE VALUE
OF A $10,000 INVESTMENT, PLUS REINVESTED DIVIDENDS AND CAPITAL GAIN
DISTRIBUTIONS ALONG WITH APPLICABLE FRONT-END SALES CHARGES AND CDSC. THE CHARTS
AND OTHER TOTAL RETURN FIGURES CITED REFLECT THE FUND'S OPERATING EXPENSES, BUT
THE INDEXES DO NOT HAVE EXPENSES, WHICH WOULD HAVE LOWERED THEIR PERFORMANCE.
(12)THE S&P 500 INDEX(R) IS AN UNMANAGED INDEX OF THE 500 LARGEST COMMON STOCKS
(IN TERMS OF MARKET VALUE), WEIGHTED BY MARKET CAPITALIZATION AND CONSIDERED
REPRESENTATIVE OF THE BROAD STOCK MARKET. THE NAREIT-EQUITY REIT INDEX IS AN
UNMANAGED INDEX REFLECTING PERFORMANCE OF THE U.S. REAL ESTATE INVESTMENT TRUST
MARKET. THE INDEXES ARE NOT MANAGED; THEREFORE, THEIR PERFORMANCE DOES NOT
REFLECT MANAGEMENT FEES AND OTHER EXPENSES ASSOCIATED WITH THE FUND INCLUDING
FRONT-END SALES CHARGES AND CDSC. INVESTORS CANNOT INVEST DIRECTLY IN ANY MARKET
INDEX.
THE REAL ESTATE INDUSTRY IS HIGHLY CYCLICAL, AND THE VALUE OF SECURITIES ISSUED
BY COMPANIES DOING BUSINESS IN THAT SECTOR MAY FLUCTUATE WIDELY.
FUND MANAGEMENT
[PHOTOGRAPH OF SEAN D. KATOF OMITTED]
SEAN D. KATOF, CFA
SEAN KATOF IS A VICE PRESIDENT OF INVESCO FUNDS GROUP. HE RECEIVED A BSBA FROM
THE UNIVERSITY OF COLORADO AT BOULDER AND AN MS IN FINANCE FROM THE UNIVERSITY
OF COLORADO AT DENVER. SEAN BEGAN HIS INVESTMENT CAREER IN 1994 AND IS ALSO A
CHARTERED FINANCIAL ANALYST CHARTERHOLDER.
YOUR FUND'S REPORT
TECHNOLOGY FUND
FUND PERFORMANCE
DEAR SHAREHOLDER:
The past fiscal year was characterized by continued weak performance of
technology stocks in the April through October period as a result of the failure
of the economy to recover which disappointed optimistc expectations held by
investors at the beginning of the year. During this period, investors were
shaken by one unnerving development after another. In the summer, several
high-profile accounting scandals and rising tensions in the Middle East
undermined confidence. With the fall came concerns about war with Iraq and
declining consumer confidence. Underlying all of these headline developments was
persistent economic weakness. The technology sector continued to be acutely
affected by the economic malaise. Demand for technology products, from consumers
or corporations, remained weak.
TECH STOCKS PERFORMED WELL DURING THE SECOND HALF
The second half of the period was a different story, however, as the sector
bounced sharply off the October lows. This strength could be attributed to the
market's anticipation of rising holiday consumer demand and corporate year-end
spending on technology upgrades. Further fueling the optimism was guidance from
several high-profile companies in the sector that indicated business had likely
stopped its cyclical deterioration. Although tech stocks lost some of their
momentum in January following the sharp increase off the October lows, the
sector managed to finish the fiscal year on a positive note. During the first
quarter of 2003, while most market sectors declined in the face of the war,
slipping consumer confidence and rising unemployment claims and energy prices,
the technology sector managed to outperform the broader market.
- --------------------------------------------------------------------------------
TECHNOLOGY FUND --
TOP 10 COMMON STOCK HOLDINGS
% of Total Net Assets as of 3/31/03
- --------------------------------------------------------------------------------
Microsoft Corp............................6.57%
Intel Corp................................3.82%
Cisco Systems.............................3.55%
Symantec Corp.............................2.90%
Dell Computer.............................2.89%
eBay Inc..................................2.76%
Oracle Corp...............................2.50%
International Business Machines...........2.11%
Linear Technology.........................1.90%
BEA Systems...............................1.88%
HOLDINGS AND COMPOSITION OF HOLDINGS ARE SUBJECT TO CHANGE.
- --------------------------------------------------------------------------------
But those late gains could not offset earlier losses. As such, the value of
Technology Fund-Investor Class shares declined 44.43% for the one-year period
ended March 31, 2003. The fund under-performed the S&P 500 Index,(R) which
declined 24.75% during that same period. (Of course, past performance is not a
guarantee of future results.)(13),(14) For performance of other share classes,
please see page 2.
MOST TECH SUB-SECTORS ENDURED SHARP DECLINES
The selling was so intense throughout the tech sector during the period that
there weren't many industries that advanced. Information technology consulting,
software, communications equipment, computers, electronic equipment, and
semiconductors all suffered severe declines. Even more conservative tech stocks,
such as those in the aerospace and defense industry and commercial services
companies, could not resist the market weakness.
The fund's lone bright spot was in the Internet space, where Amazon.com Inc,
Yahoo! Inc, Hotels.com, and eBay Inc all advanced sharply. A handful of
companies also made positive relative contributions to performance by declining
less than the broader market. Included in this group were several technology
"blue chips," such as Microsoft Corp, Oracle Corp, and International Business
Machines. Dell Computer was another standout, as it managed to finish the period
in the black. Wireless telecommunications services stocks, such as Nextel
Communications, also performed well, on the heels of impressive subscriber
growth. Indeed, wireless communications was one of the few areas that saw demand
improve. Security software was another, led by Symantec Corp, as network
security has been one of the few areas in which corporations have demonstrated a
willingness to invest.
WE BELIEVE DEMAND FOR TECH PRODUCTS REMAINS WEAK BUT LIKELY TO IMPROVE
Going forward, we believe the coming quarter could be volatile for technology
stocks, as stocks are up sharply and expectations have risen following better
guidance than expected after first quarter earnings reports. We believe
investors might be more forgiving of companies that report disappointing
profits, as they are coming to focus more on improving prospects than current
weakness in business.
LINE GRAPH: INVESCO TECHNOLOGY FUND - INVESTOR CLASS GROWTH OF $10,000(13)
This line graph compares the value of a $10,000 investment in INVESCO Technology
Fund - Investor Class to the value of a $10,000 investment in the S&P 500
Index(R)(14), assuming in each case reinvestment of all dividends and capital
gain distributions, for the ten year period ended 3/31/03.
INVESCO TECHNOLOGY FUND -
INVESTOR CLASS S&P 500 INDEX(14)
3/93 $ 10,000 $10,000
3/94 $ 11,785 $10,146
3/95 $ 14,192 $11,723
3/96 $ 19,426 $15,482
3/97 $ 21,371 $18,551
3/98 $ 28,039 $27,448
3/99 $ 37,453 $32,523
3/00 $100,781 $38,354
3/01 $ 36,749 $30,043
3/02 $ 31,392 $30,115
3/02 $ 17,446 $22,661
LINE GRAPH: INVESCO TECHNOLOGY FUND - INSTITUTIONAL CLASS, GROWTH OF
$10,000(13)
This line graph compares the value of a $10,000 investment in INVESCO Technology
Fund - Institutional Class to the value of a $10,000 investment in the S&P 500
Index(R)(14), assuming in each case reinvestment of all dividends and capital
gain distributions, for the period since inception (12/98) through 3/31/03.
INVESCO TECHNOLOGY FUND -
INSTITUTIONAL CLASS S&P 500 INDEX(R)(14)
12/98 $10,000 $10,000
3/99 $11,888 $10,498
3/00 $32,129 $12,380
3/01 $11,764 $ 9,697
3/02 $10,112 $ 9,721
3/03 $ 5,669 $ 7,315
LINE GRAPH: INVESCO TECHNOLOGY FUND - CLASS A & B, GROWTH OF $10,000(13)
This line graph compares the value of a $10,000 investment in INVESCO Technology
Fund - Class A and the value of a $10,000 investment in INVESCO Technology Fund
- - Class B to the value of a $10,000 investment in the S&P 500 Index(R)(14),
assuming in each case reinvestment of all dividends and capital gain
distributions, and in the cases of INVESCO Technology Fund - Class A and Class B
inclusion of front-end sales charge and contingent deferred sales charge,
respectively, for the period since inception (4/02) through 3/31/03.
INVESCO TECHNOLOGY INVESCO TECHNOLOGY S&P 500 INDEX(R)(14)
FUND - CLASS A FUND - CLASS B
4/02 $10,000 $10,000 $10,000
3/03 $ 5,277 $ 5,038 $ 7,525
PIE CHART: TECHNOLOGY FUND
INDUSTRY BREAKDOWN
AS OF 3/31/03
[PIE CHART]
% OF TOTAL NET ASSETS
Semiconductors................16.87%
Systems Software..............16.45%
Application Software..........10.47%
Computer Hardware..............7.82%
Computer Storage & Peripherals.5.55%
Electronic Equipment
& Instruments..................5.22%
Telecommunications Equipment...4.92%
Networking Equipment...........4.46%
Semiconductor Equipment........4.21%
Data Processing Services.......3.89%
Other Industries..............13.12%
Net Cash & Cash Equivalents....7.02%
FUND MANAGEMENT
[PHOTOGRAPH OF WILLIAM R. KEITHLER OMITTED]
WILLIAM R. KEITHLER, CFA
BILL KEITHLER IS A SENIOR VICE PRESIDENT AND DIRECTOR OF SECTOR MANAGEMENT OF
INVESCO FUNDS GROUP. A CHARTERED FINANCIAL ANALYST CHARTERHOLDER, BILL RECEIVED
AN MS FROM THE UNIVERSITY OF WISCONSIN-MADISON AND A BA FROM WEBSTER COLLEGE. HE
BEGAN HIS INVESTMENT CAREER IN 1982.
As the period came to a close, we did not see any change in the fundamental
outlook for the group. Current demand remains fairly weak. Our channel surveys
have revealed inventory build-ups in the personal computer and wireless
telecommunications sub-sectors. Demand for enterprise hardware has weakened
modestly, which is likely a function of seasonal trends. And telecom and
networking equipment companies have also seen their revenues stagnate, as their
primary customers continue to rein in capital expenditures.
Nevertheless, we believe there are reasons for optimism. For example, we expect
the second quarter of 2003 will see companies recapture the business that was
lost due to first quarter war considerations, a trend that could result in some
upside surprises. We will need a sustained period of improving business before
enterprises have the confidence to commit to spending on major projects.
However, there are glimmers of hope offered by mostly anecdotal data points
which suggest modestly improving business for technology companies, which we
believe reflects more than seasonal strength. The stocks may move in advance of
confirmation of this in reported numbers.
Prospects for consumer spending are not encouraging. And a recent decision by
the Federal Communications Commission (FCC), which forces regional Bell
operating companies (RBOCs) to continue to lease their networks to competitors
at wholesale rates, could throw cold water on the thesis of a recovery in the
telecom sector this year. However, although the FCC's ruling discourages
investments in legacy voice networks, the ruling encourages the RBOCs to build
out their data networks, which could benefit the data-related networking
equipment companies. In short, we believe opportunities can still be found in
the sector, and identifying the best of them remains our focus.
LINE GRAPH: INVESCO TECHNOLOGY FUND - CLASS C GROWTH OF $10,000(13)
This line graph compares the value of a $10,000 investment in INVESCO Technology
Fund - Class C to the value of a $10,000 investment in the S&P 500 Index(R)(14),
assuming in each case reinvestment of all dividends and capital gain
distributions, and in the case of INVESCO Technology Fund - Class C, inclusion
of contingent deferred sales charge, for the period since inception (2/00)
through 3/31/03.
INVESCO TECHNOLOGY FUND -
CLASS C S&P 500 INDEX(R)(14)
2/00 $10,000 $10,000
3/00 $10,663 $10,978
3/01 $ 3,851 $ 8,599
3/02 $ 3,251 $ 8,620
3/03 $ 1,792 $ 6,486
LINE GRAPH: INVESCO TECHNOLOGY FUND - CLASS K GROWTH OF $10,000(13)
This line graph compares the value of a $10,000 investment in INVESCO Technology
Fund - Class K to the value of a $10,000 investment in the S&P 500 Index(R)(14),
assuming in each case reinvestment of all dividends and capital gain
distributions, for the period since inception (12/00) through 3/31/03.
INVESCO TECHNOLOGY FUND -
CLASS K S&P 500 INDEX(R)(14)
12/00 $10,000 $10,000
3/01 $ 5,846 $ 8,858
3/02 $ 5,036 $ 8,879
3/03 $ 2,796 $ 6,682
(13)PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. TOTAL RETURN ASSUMES
REINVESTMENT OF DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE SO THAT, WHEN REDEEMED, AN INVESTOR'S SHARES MAY
BE WORTH MORE OR LESS THAN WHEN PURCHASED. THE LINE GRAPHS ILLUSTRATE THE VALUE
OF A $10,000 INVESTMENT, PLUS REINVESTED DIVIDENDS AND CAPITAL GAIN
DISTRIBUTIONS ALONG WITH APPLICABLE FRONT-END SALES CHARGES AND CDSC. THE CHARTS
AND OTHER TOTAL RETURN FIGURES CITED REFLECT THE FUND'S OPERATING EXPENSES, BUT
THE INDEX DOES NOT HAVE EXPENSES, WHICH WOULD HAVE LOWERED ITS PERFORMANCE.
(14)THE S&P 500 INDEX(R) IS AN UNMANAGED INDEX OF THE 500 LARGEST COMMON STOCKS
(IN TERMS OF MARKET VALUE), WEIGHTED BY MARKET CAPITALIZATION AND CONSIDERED
REPRESENTATIVE OF THE BROAD STOCK MARKET. THE INDEX IS NOT MANAGED; THEREFORE,
ITS PERFORMANCE DOES NOT REFLECT MANAGEMENT FEES AND OTHER EXPENSES ASSOCIATED
WITH THE FUND INCLUDING FRONT-END SALES CHARGES AND CDSC. INVESTORS CANNOT
INVEST DIRECTLY IN ANY MARKET INDEX.
YOUR FUND'S REPORT
TELECOMMUNICATIONS FUND
FUND PERFORMANCE
DEAR SHAREHOLDER:
The telecommunications sector endured a difficult 12 months. Several
developments that pressured stocks in general, including persistent economic
worries, the threat of another conflict between the U.S. and Iraq, and repeated
uncertainty stemming from corporate malfeasance, also pressured the telecom
sector. The corporate accounting scandals of the spring and summer of 2002
affected the sector acutely. The confession from WorldCom, which is not a fund
holding, that it had overstated earnings by more than $3 billion hurt the entire
sector, as did the Securities and Exchange Commission's investigation into Qwest
Communications International for using networking capacity swaps to artificially
inflate revenues.
A SURPRISE RULING FROM REGULATORS HURT THE RBOCS
After a rally during the fourth quarter of 2002, the New Year brought
intensifying war rhetoric, which pressured the broad stock market. In February,
the Federal Communications Commission (FCC), in its triennial review of the
Telecommunications Act of 1996, decided it would continue to force the regional
Bell operating companies (RBOCs) to lease their networks to competitors at
below-market rates. This ruling surprised most investors and the RBOCs, which
are the splinters of the former Ma Bell monopoly, sold off sharply. In response,
many observers speculated that the RBOCs would discontinue network investments,
which pressured many telecom equipment companies that count the RBOCs among
their primary customers.
Even though the fund had minimal RBOC exposure, it could not resist the weakness
in the sector and, for the year ended March 31, 2003, the value of
Telecommunications Fund-Investor Class shares declined 35.60%. This return
lagged the 24.75% decline of the S&P 500 Index,(R) as well as the 23.30% decline
in the MSCI-EAFE. (Of course, past performance is not a guarantee of future
results.)(15),(16) For performance of other share classes, please see page 2.
TELECOM EQUIPMENT COMPANIES WERE ALSO HURT BY THE FCC RULING
As has been the case for much of the past two years, the telecommunications
sector offered few places to hide, and relative success meant owning the stocks
that declined the least. The fund saw its holdings in most sub-sectors decline,
particularly the RBOCs, such as SBC Communications and BellSouth Corp. Although
the RBOCs received some positive news during the period when several companies
received regulatory approval to offer long-distance service within their
territories, the FCC's decision about leasing networks to competitors was a
major blow for the entire group.
That decision had wide-reaching effects. Because the FCC maintained the status
quo, it deterred the RBOCs from wanting to invest in their legacy voice
networks, which is a bad omen for companies that provide the equipment for such
networks. Fortunately, during the fourth quarter, we chose to emphasize
data-related telecom equipment firms at the expense of voice-related equipment
companies, a decision that prevented additional losses. Other areas of weakness
included the fund's telecom-related semiconductor companies and its alternative
service providers.
- --------------------------------------------------------------------------------
TELECOMMUNICATIONS FUND --
TOP 10 COMMON STOCK HOLDINGS
% of Total Net Assets as of 3/31/03
- --------------------------------------------------------------------------------
Vodafone Group PLC Sponsored ADR
Representing 10 Ord Shrs..................5.08%
AT&T Wireless Services....................4.71%
Comcast Corp Class A Shrs.................4.67%
Nextel Communications Class A Shrs........4.65%
QUALCOMM Inc..............................3.92%
EchoStar Communications Class A Shrs......3.90%
Verizon Communications....................3.61%
Nokia Corp Sponsored ADR
Representing Ord Shrs.....................3.17%
Symantec Corp.............................3.14%
Cox Communications Class A Shrs...........3.09%
HOLDINGS AND COMPOSITION OF HOLDINGS ARE SUBJECT TO CHANGE.
- --------------------------------------------------------------------------------
LINE GRAPH: INVESCO TELECOMMUNICATIONS FUND -INVESTOR CLASS GROWTH OF
$10,000(15)
This line graph compares the value of a $10,000 investment in INVESCO
Telecommunications Fund - Investor Class to the value of a $10,000 investment in
the S&P 500 Index(R)(16), and to the value of a $10,000 investment in the MSCI
EAFE Index(16), assuming in each case reinvestment of all dividends and capital
gain distributions, for the period since inception (8/94) through 3/31/03.
INVESCO TELECOMMUNICATIONS
FUND - INVESTOR CLASS S&P 500 INDEX(R)(16) MSCI EAFE INDEX(16)
8/94 $10,000 $10,000 $10,000
3/95 $10,997 $11,140 $10,015
3/96 $14,168 $14,713 $11,284
3/97 $14,919 $17,629 $11,481
3/98 $25,478 $26,083 $13,655
3/99 $36,872 $30,906 $14,525
3/00 $87,460 $36,448 $18,214
3/01 $33,742 $28,549 $13,538
3/02 $17,457 $28,618 $12,482
3/03 $11,243 $21,535 $ 9,574
WIRELESS COMMUNICATIONS SERVICE PROVIDERS WERE A BRIGHT SPOT
Among the few bright spots within the sector were the wireless service
providers. Unlike the RBOCs, which saw their pricing power and fundamental
growth prospects deteriorate during the past year, several wireless service
companies, such as Nextel Communications and Vodafone Group PLC, enjoyed
positive subscriber, revenue, and cash flow growth during the period. The fund's
cable and satellite television stocks, notably Cox Communications and Echostar
Communications, also resisted the market's downturn to log gains during the
period.
PIE CHART: TELECOMMUNICATIONS FUND
INDUSTRY BREAKDOWN
AS OF 3/31/03
[PIE CHART]
% OF TOTAL NET ASSETS
Integrated Telecommunication
Services......................22.67%
Wireless Telecommunication
Services......................18.31%
Telecommunications
Equipment.....................13.75%
Cable & Satellite Operators...13.11%
Broadcasting - Radio/TV........5.92%
Networking Equipment...........4.73%
Systems Software...............3.13%
Application Software...........2.77%
Semiconductors.................2.15%
Other Industries...............5.15%
Derivatives - Options..........0.11%
Net Cash & Cash Equivalents....8.20%
Going forward, it seems that the economic outlook is murkier than it has been in
a long time. We seem to be mired in a vicious cycle in which concerns about the
economy lead to spending curbs, which lead to additional concerns about the
economy. With the conflict in Iraq winding down, consumer confidence could
rebound, and corporations might loosen their purse strings. Until then, the
economy and the stock market could stagnate.
As for the portfolio, we have maintained its diversity, and believe it's well
positioned to participate in any rallies that might materialize as the economy
gains steam or as investor sentiment improves.
In the coming year, the FCC has another decision to make regarding wireless
number portability, which would allow consumers to keep their current wireless
phone number when they switch service providers. In our opinion, the FCC will
impose wireless number portability on the service providers, and some companies
are better positioned to manage this change than others. We will monitor this
development closely.
(15)PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. TOTAL RETURN ASSUMES
REINVESTMENT OF DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE SO THAT, WHEN REDEEMED, AN INVESTOR'S SHARES MAY
BE WORTH MORE OR LESS THAN WHEN PURCHASED. THE LINE GRAPHS ILLUSTRATE THE VALUE
OF A $10,000 INVESTMENT, PLUS REINVESTED DIVIDENDS AND CAPITAL GAIN
DISTRIBUTIONS ALONG WITH APPLICABLE FRONT-END SALES CHARGES AND CDSC. THE CHARTS
AND OTHER TOTAL RETURN FIGURES CITED REFLECT THE FUND'S OPERATING EXPENSES, BUT
THE INDEXES DO NOT HAVE EXPENSES, WHICH WOULD HAVE LOWERED THEIR PERFORMANCE.
(16)THE S&P 500 INDEX(R) IS AN UNMANAGED INDEX OF THE 500 LARGEST COMMON STOCKS
(IN TERMS OF MARKET VALUE), WEIGHTED BY MARKET CAPITALIZATION AND CONSIDERED
REPRESENTATIVE OF THE BROAD STOCK MARKET. THE MSCI-EAFE INDEX REFLECTS THE
PERFORMANCE OF COMMON STOCKS FOR EUROPE, AUSTRALASIA AND THE FAR EAST. THE
INDEXES ARE NOT MANAGED; THEREFORE, THEIR PERFORMANCE DOES NOT REFLECT
MANAGEMENT FEES AND OTHER EXPENSES ASSOCIATED WITH THE FUND INCLUDING FRONT-END
SALES CHARGES AND CDSC. INVESTORS CANNOT INVEST DIRECTLY IN ANY MARKET INDEX.
FOREIGN INVESTMENTS ENTAIL SPECIAL RISKS, INCLUDING CURRENCY EXCHANGE RATE
FLUCTUATIONS, AS WELL AS DIFFERENCES IN FOREIGN ACCOUNTING AND SECURITIES
REGULATION.
FOREIGN INVESTMENTS ENTAIL SPECIAL RISKS, INCLUDING POLITICAL UNCERTAINTY AND
CURRENCY EXCHANGE RATE FLUCTUATIONS, AS WELL AS DIFFERENCES IN SECURITIES
REGULATION AND ACCOUNTING PRACTICES.
FUND MANAGEMENT
[PHOTOGRAPH OF BRIAN B. HAYWARD OMITTED]
BRIAN B. HAYWARD, CFA
BRIAN HAYWARD IS A SENIOR VICE PRESIDENT OF INVESCO FUNDS GROUP. PRIOR TO
JOINING INVESCO IN 1997, HE WAS A SENIOR EQUITY ANALYST FOR MISSISSIPPI VALLEY
ADVISORS. BRIAN HAS A BA IN MATHEMATICS AND AN MA IN ECONOMICS FROM THE
UNIVERSITY OF MISSOURI. HE IS ALSO A CHARTERED FINANCIAL ANALYST CHARTERHOLDER
AND BEGAN HIS INVESTMENT CAREER IN 1985.
In our opinion, the fund currently emphasizes the telecom sector's best growth
opportunities, such as cable and satellite television service, as well as
wireless communications services providers. In the equipment industry, although
our exposure is small, it is concentrated in companies that primarily sell to
the purveyors of broadband service and data traffic -- two areas that stand to
benefit from the recent FCC ruling. Finally, we plan to maintain a relatively
small exposure to the RBOCs.
LINE GRAPH: INVESCO TELECOMMUNICATIONS FUND - CLASS A & B, GROWTH OF $10,000(15)
This line graph compares the value of a $10,000 investment in INVESCO
Telecommunications Fund - Class A and the value of a $10,000 investment in
INVESCO Telecommunications Fund - Class B to the value of a $10,000 investment
in the S&P 500 Index(R)(16), and to the value of a $10,000 investment in the
MSCI EAFE Index(16), assuming in each case reinvestment of all dividends and
capital gain distributions, and in the cases of INVESCO Telecommunications Fund
- - Class A and Class B, inclusion of front-end sales charge and contingent
deferred sales charge, respectively, for the period since inception (4/02)
through 3/31/03.
INVESCO TELECOMMUNICATIONS INVESCO TELECOMMUNICATIONS S&P 500 MSCI EAFE
FUND - CLASS A FUND - CLASS B INDEX(R)(16) INDEX(16)
4/02 $10,000 $10,000 $10,000 $10,000
3/03 $ 6,055 $ 5,884 $ 7,525 $ 7,670
LINE GRAPH: INVESCO TELECOMMUNICATIONS FUND - CLASS C GROWTH OF $10,000(15)
This line graph compares the value of a $10,000 investment in INVESCO
Telecommunications Fund - Class C to the value of a $10,000 investment in the
S&P 500 Index(R)(16), and to the value of a $10,000 investment in the MSCI EAFE
Index(16), assuming in each case reinvestment of all dividends and capital gain
distributions, and in the case of INVESCO Telecommunications Fund - Class C,
inclusion of contingent deferred sales charge, for the period since inception
(2/00) through 3/31/03.
INVESCO TELECOMMUNICATIONS
FUND - CLASS C S&P 500 INDEX(R)(16) MSCI EAFE INDEX(16)
2/00 $10,000 $10,000 $10,000
3/00 $10,859 $10,978 $10,390
3/01 $ 4,159 $ 8,599 $ 7,723
3/02 $ 2,124 $ 8,620 $ 7,121
3/03 $ 1,355 $ 6,486 $ 5,461
LINE GRAPH: INVESCO TELECOMMUNICATIONS FUND - CLASS K GROWTH OF $10,000(15)
This line graph compares the value of a $10,000 investment in INVESCO
Telecommunications Fund - Class K to the value of a $10,000 investment in the
S&P 500 Index(R)(16), and to the value of a $10,000 investment in the MSCI EAFE
Index(16), assuming in each case reinvestment of all dividends and capital gain
distributions, for the period since inception (12/00) through 3/31/03.
INVESCO TELECOMMUNICATIONS
FUND - CLASS K S&P 500 INDEX(R)(16) MSCI EAFE INDEX(16)
12/00 $10,000 $10,000 $10,000
3/01 $ 6,533 $ 8,858 $ 8,943
3/02 $ 3,376 $ 8,879 $ 8,245
3/03 $ 2,169 $ 6,682 $ 6,324
YOUR FUND'S REPORT
UTILITIES FUND
FUND PERFORMANCE
DEAR SHAREHOLDER:
The bear market in stocks persisted during the fund's fiscal year, as investors
were faced with a number of unnerving developments. The summer saw several
corporate accounting scandals and persistent economic weakness that kept
investors on their heels. The second half of the period was dominated by rising
tensions between the U.S. and Iraq. Together, these developments translated into
another poor year for equities.
- --------------------------------------------------------------------------------
UTILITIES FUND --
TOP 10 COMMON STOCK HOLDINGS
% of Total Net Assets as of 3/31/03
- --------------------------------------------------------------------------------
Entergy Corp..............................4.79%
Dominion Resources........................4.78%
FPL Group.................................4.77%
CenturyTel Inc............................4.76%
PPL Corp..................................4.74%
Cinergy Corp..............................4.71%
Exelon Corp...............................4.61%
Kinder Morgan Management LLC..............4.58%
Verizon Communications....................4.48%
Bell South................................4.34%
HOLDINGS AND COMPOSITION OF HOLDINGS ARE SUBJECT TO CHANGE.
- --------------------------------------------------------------------------------
NEGATIVE HEADLINES PRESSURED UTILITIES
Utilities stocks did not fare much better, as sector-specific developments had
investors rotating away from the group. Without a doubt, the event that cast the
darkest cloud over this sector was the meltdown at Enron Corp (not a fund
holding). During the summer, the Federal Energy Regulatory Commission (FERC)
discovered that the bankrupt energy trader had used a variety of questionable
tactics to manipulate energy prices in California. In response, FERC ordered all
of the companies that supplied power to California to preserve their records,
leading many investors to wonder whether other energy trading companies would
meet the same fate as Enron. Consequently, many gas utilities declined sharply,
as the market grew increasingly leery of any company with trading operations.
LINE GRAPH: INVESCO UTILITIES FUND - INVESTOR CLASS GROWTH OF $10,000(17)
This line graph compares the value of a $10,000 investment in INVESCO Utilities
Fund - Investor Class to the value of a $10,000 investment in the S&P 500
Index(R)(18), and to the value of a $10,000 investment in the S&P Utilities
Index(R)(18), assuming in each case reinvestment of all dividends and capital
gain distributions, for the ten year period ended 3/31/03.
INVESCO UTILITIES
FUND - INVESTOR CLASS S&P 500 INDEX(R)(18) S&P UTILITIES INDEX(R)(18)
3/93 $10,000 $10,000 $10,000
3/94 $10,571 $10,146 $ 9,057
3/95 $10,489 $11,723 $ 9,485
3/96 $13,043 $15,482 $11,702
3/97 $13,820 $18,551 $12,182
3/98 $20,137 $27,448 $16,611
3/99 $22,301 $32,523 $16,345
3/00 $30,300 $38,354 $17,624
3/01 $25,700 $30,043 $23,954
3/02 $17,133 $30,115 $18,536
3/03 $13,537 $22,661 $12,158
Compared to the first half of the period, the past six months were relatively
quiet. Aside from liquidity problems faced by three utilities in February, the
sector largely faded from the headlines, and performance stabilized
dramatically.
AN INHOSPITABLE REGULATORY ENVIRONMENT HURT TELECOM
Accounting irregularities also affected the telecommunications utilities. With
investors already anxious that the prevailing economic softness had dampened the
group's financial prospects, the telecom sector took another blow when
accounting fraud surfaced at WorldCom (not a fund holding) in June.
Unfortunately, that was not the end of the bad news for the telecom service
providers. In February, the Federal Communications Commission (FCC) maintained a
regulation that forces the regional Bell operating companies (RBOCs) to offer
competitors access to their networks at wholesale rates. This decision surprised
many investors, and the RBOCs declined sharply in response.
For the year ended March 31, 2003, the value of Utilities Fund-Investor Class
shares declined 20.99%, which outperformed the 24.75% decline posted by the S&P
500 Index.(R) (Of course, past performance is not a guarantee of future
results.)(17),(18) For performance of other share classes, please see page 2.
The fund's emphasis on electric utilities, such as Southern Co, worked well for
the portfolio, as the electrics have handily outperformed their gas
counterparts. The fact that we have, for the most part, avoided or had minimal
exposure to some of the sector's high-profile blow-ups has also supported
relative performance. The fund's lone water utility, Philadelphia Suburban,
enjoyed strong results as well. Additionally, the fund's small bond holdings
contributed to its relative performance.
The fund had its share of laggards. Although we emphasized more conservative
electric utilities at the expense of gas utilities pipeline companies that have
extensive trading operations, even our minimal exposure to the group hindered
our annual showing. Also undermining performance were the fund's RBOCs, which,
as stated previously, endured a rough period.
Going forward, we remain cautiously optimistic about the utilities sector. The
headline risk that plagued the group throughout 2002 is likely behind us. And we
continue to believe valuations within the group remain reasonable. Furthermore,
the legislative and regulatory environment also appears favorable, as the
proposed changes to the tax treatment of dividends could increase investors'
appetite for dividend-paying stocks.
Fundamentally, there are reasons to be optimistic about the utilities sector in
the near term. For example, the past winter was colder than normal, which
increases demand for power. Furthermore, although natural gas prices have
declined since their recent highs, they remain high by historical standards.
Even then, higher gas prices support higher electricity prices, which could
provide a fundamental cushion for companies that are well hedged.
As for the portfolio, our strategy has not changed. We continue to look for
opportunities to increase the fund's diversification within the sector. Our
focus remains on finding and investing in companies with strong balance sheets,
liquidity, and attractive prospects for delivering a competitive total return.
As such, we do not anticipate making any significant changes. We are currently
searching the sector for cheaper firms that might have faced issues in the past,
but that have now rectified them and could see their stocks revalued higher as a
result
LINE GRAPH: INVESCO UTILITIES FUND - CLASS A & B GROWTH OF $10,000(17)
This line graph compares the value of a $10,000 investment in INVESCO Utilities
Fund - Class A and the value of a $10,000 investment in INVESCO Utilities Fund -
Class B to the value of a $10,000 investment in the S&P 500 Index(R)(18), and to
the value of a $10,000 investment in the S&P 500 Utilities Index(R)(18),
assuming in each case reinvestment of all dividends and capital gain
distributions, and in the cases of INVESCO Utilities Fund - Class A and Class B,
inclusion of front-end sales charge and contingent deferred sales charge,
respectively, for the period since inception (4/02) through 3/31/03.
INVESCO UTILITIES INVESCO UTILITIES S&P 500 S&P 500 UTILITIES
FUND - CLASS A FUND - CLASS B INDEX(R)(18) INDEX(R)(18)
4/02 $10,000 $10,000 $10,000 $10,000
3/03 $ 7,461 $ 7,333 $ 7,525 $ 6,559
LINE GRAPH: INVESCO UTILITIES FUND - CLASS C GROWTH OF $10,000(17)
This line graph compares the value of a $10,000 investment in INVESCO Utilities
Fund - Class C to the value of a $10,000 investment in the S&P 500 Index(R)(18),
and to the value of a $10,000 investment in the S&P Utilities Index(R)(18),
assuming in each case reinvestment of all dividends and capital gain
distributions, and in the case of INVESCO Utilities Fund - Class C, inclusion of
contingent deferred sales charge, for the period since inception (2/00) through
3/31/03.
INVESCO UTILITIES
FUND - CLASS C S&P 500 INDEX(R)(18) S&P UTILITIES INDEX(R)(18)
2/00 $10,000 $10,000 $10,000
3/00 $10,258 $10,978 $10,333
3/01 $ 8,633 $ 8,599 $14,045
3/02 $ 5,709 $ 8,620 $10,868
3/03 $ 4,462 $ 6,486 $ 7,128
(17)PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. TOTAL RETURN ASSUMES
REINVESTMENT OF DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE SO THAT, WHEN REDEEMED, AN INVESTOR'S SHARES MAY
BE WORTH MORE OR LESS THAN WHEN PURCHASED. THE LINE GRAPHS ILLUSTRATE THE VALUE
OF A $10,000 INVESTMENT, PLUS REINVESTED DIVIDENDS AND CAPITAL GAIN
DISTRIBUTIONS ALONG WITH APPLICABLE FUND INCLUDING FRONT-END SALES CHARGES AND
CDSC. THE CHARTS AND OTHER TOTAL RETURN FIGURES CITED REFLECT THE FUND'S
OPERATING EXPENSES, BUT THE INDEXES DO NOT HAVE EXPENSES, WHICH WOULD HAVE
LOWERED THEIR PERFORMANCE.
(18)THE S&P 500 Index(R) IS AN UNMANAGED INDEX OF THE 500 LARGEST COMMON STOCKS
(IN TERMS OF MARKET VALUE), WEIGHTED BY MARKET CAPITALIZATION AND CONSIDERED
REPRESENTATIVE OF THE BROAD STOCK MARKET. THE S&P 500 UTILITIES INDEX IS
CONSIDERED REPRESENTATIVE OF EQUITIES IN THE UTILITY SECTOR. THE INDEXES ARE NOT
MANAGED; THEREFORE, THEIR PERFORMANCE DOES NOT REFLECT MANAGEMENT FEES AND OTHER
EXPENSES ASSOCIATED WITH THE FUND INCLUDING FUND INCLUDING FRONT-END SALES
CHARGES AND CDSC. INVESTORS CANNOT INVEST DIRECTLY IN ANY MARKET INDEX.
PIE CHART: UTILITIES FUND
INDUSTRY BREAKDOWN
AS OF 3/31/03
[PIE CHART]
% OF TOTAL NET ASSETS
Electric Utilities............69.11%
Integrated Telecommunication
Services......................17.53%
Natural Gas Pipelines..........5.78%
Gas Utilities..................2.23%
Water Utilities................2.17%
Net Cash & Cash Equivalents....3.18%
FUND MANAGEMENT
JEFFREY G. MORRIS, CFA
JEFF MORRIS IS A VICE PRESIDENT OF INVESCO FUNDS GROUP. HE RECEIVED A BS FROM
COLORADO STATE UNIVERSITY AND AN MS FROM UNIVERSITY OF COLORADO-DENVER. JEFF IS
A CHARTERED FINANCIAL ANALYST CHARTERHOLDER AND BEGAN HIS INVESTMENT CAREER IN
1991.
QUESTIONS & ANSWERS
AN INTERVIEW WITH HEALTH SCIENCES FUND MANAGER TOM WALD
[PHOTOGRAPH OF TOM WALD OMITTED]
TOM WALD IS A VICE PRESIDENT AND FUND MANAGER OF INVESCO HEALTH SCIENCES FUND
KEEPING PACE WITH THE DYNAMIC HEALTH CARE SECTOR
THE HEALTH CARE SECTOR -- THOUGH RELATIVELY IMMUNE TO THE WAR WORRIES AND
ECONOMIC UNCERTAINTY THAT HAVE HURT OTHER AREAS -- HAS ENDURED ITS SHARE OF
CHANGES THESE PAST SIX MONTHS. WHAT WERE SOME OF THE KEY EVENTS AFFECTING
PERFORMANCE FOR THE SECTOR?
TOM WALD: Probably the most significant event was the market rotation out of
health services stocks, which had been doing well until late last year. At the
end of October 2002, hospital chain Tenet Healthcare came under regulatory fire.
Questions concerning whether the company had been over-billing Medicare suddenly
surfaced, and this controversy soured investors on hospitals and HMOs across the
sector. On top of that, the stock market rebounded in the fourth quarter, and,
generally speaking, defensive stocks that had performed well during the bear
market (including health services stocks) took a hit as investors began taking
profits from these companies and investing elsewhere.
With the Tenet blow-up, we recognized that the market had not properly
discounted the regulatory risk that is typically involved with health services
stocks. This is a risk we first saw about five years ago with HCA Inc (back then
called Columbia), which ran into Medicare fraud problems at that time, scaring
the market and showing that hospitals face systemic issues with Medicare
pricing. That event -- along with reductions in Medicare reimbursements in the
budget around 1997-98 -- hindered the performance of hospital stocks.
Then, through the middle of 2002, we saw these companies rebound and enjoy
outstanding performance -- a lot of it predicated on changing demographics as
more U.S. citizens moved toward senior citizen age, which kept political leaders
funding Medicare in an effort to satisfy their constituencies. A
Democratic-controlled Congress also helped keep funding for Medicare strong.
In retrospect, the market probably got carried away during these years,
downplaying the regulatory risk hospital stocks face. The market also overlooked
the liquidity risk associated with hospitals. After the Tenet debacle, it became
clear that hospital stocks weren't liquid enough to handle the sell-off -- even
those fundamentally strong companies within the space that were simply falling
in sympathy with Tenet.
In light of this shift, we opted to decrease our portfolios' exposure to health
services during the period and focus on other areas. It seemed like a good time
to reposition the fund not only because of the rotation, but also because the
midterm elections yielded a Republican-controlled Congress. At least for the
time being, the issue of how Medicare will fare in the budget remains in
question.
WITH HEALTH SERVICES STOCKS PULLING BACK, WERE THERE ANY AREAS OF THE SECTOR
THAT PROVIDED SOME BALLAST?
TOM WALD: Yes, fortunately, the health care sector is diverse, and some other
industries fared quite well. After trimming our exposure to health services, we
moved a considerable portion of assets into large-cap pharmaceuticals. Six
months ago, these companies were facing a lot of obstacles -- most notably,
expiring patents and competition from generic manufacturers -- but the long-term
picture has since brightened.
What we're seeing now is that the worst of the generic competition appears to
have been played out, and earnings comparisons for many pharmaceuticals have
therefore improved now that they've put some big losses behind them. Moreover,
we expect to see a wave of new products in late 2003 or early 2004, which should
provide a boost to the industry. And, for the first time in 40 years, dividend
yields on drug stocks are above those for short-term Treasuries -- suggesting
that there's probably less downside risk for these stocks than there has been in
some time. Therefore, I think it's less a question of whether you want to own
these stocks, and more a question of WHEN you want to own these stocks.
We're also bullish on the medical devices industry -- especially companies in
the drug-coated stent market. Drug-coated stents are devices used to open
arteries and keep them unclogged. We believe that this is the biggest new
therapeutic market to emerge -- and it could dominate the health care sector for
several years to come.
FOREST LABORATORIES IS ONE HEALTH CARE STOCK THAT SEEMS TO CONSISTENTLY
OUTPERFORM. WHAT HAS FUELED THIS COMPANY'S GROWTH OVER THE PAST YEAR?
TOM WALD: Forest Laboratories has been one of our largest holdings for some time
now, and it continued to perform well this reporting period. The company
continues to grow its earnings and beat Wall Street estimates. The company has
enjoyed tremendous success with its anti-depressant drugs, Lexapro and Celexa.
In addition, Forest has shown a strong pace of development for a new Alzheimer's
drug called Memantine, which we expect to be approved by the Food and Drug
Administration (FDA) within the next year or so. Memantine is likely to be the
best-in-class treatment for that disease, and the clinical research is promising
so far. Forest is an example of a company that has succeeded on many levels:
It's had great financial results, great product results, and boasts a strong
line-up of potential new products. Plus, Forest is a smaller firm, so positive
results have had a major affect on its earnings.
YOU MENTIONED THE FDA. FOR MOST OF 2002, PRODUCT APPROVALS WERE SLOW IN COMING.
WHAT ARE YOUR THOUGHTS ON THE FDA AT THIS JUNCTURE?
TOM WALD: For a while, the FDA was operating without a commissioner, and it took
some time to appoint someone. No one wanted to be held accountable for the next
Fen-Phen (a weight loss drug that wound up having life-threatening side effects
post-FDA approval). In late 2002, Mark McClellan was appointed. It's difficult
to judge what kind of effect his presence will have, but the market responded to
the news of his appointment positively.
We're encouraged that there appears to be strong leadership at the agency, and
the drug approval process has smoothed out a bit since his appointment. We think
that companies with promising propriety product pipelines will continue to be
well positioned for growth going forward.
ARE THERE ANY OTHER FACTORS ON YOUR RADAR SCREEN THAT COULD AFFECT THE HEALTH
CARE SECTOR GOING FORWARD?
TOM WALD: Another pertinent event involved the shift in leadership from a
Democratic to a Republican-controlled Congress during the mid-term elections
last November. While it's tough to gauge what the long-term effects of this
change might be, we'll be watching for any increases or decreases in the
Medicare portion of the federal budget. It will also be interesting to see
whether Medicare drug reimbursement legislation is passed, and, if so, how such
legislation might be structured.
"... FOR THE FIRST TIME IN 40 YEARS, DIVIDEND YIELDS ON DRUG STOCKS ARE ABOVE
THOSE FOR SHORT-TERM TREASURIES - SUGGESTING THAT THERE'S PROBABLY LESS DOWNSIDE
RISK FOR THESE STOCKS THAN THERE HAS BEEN IN SOME TIME."
SECTOR FUNDS MAY EXPERIENCE GREATER PRICE VOLATILITY THAN MORE DIVERSIFIED
EQUITY FUNDS DUE TO HIGHER INDUSTRY CONCENTRATIONS, AND ARE MOST SUITABLE FOR
THE AGGRESSIVE PORTION OF AN INVESTMENT PORTFOLIO.
MARKET HEADLINES
"OVERALL, FEW ECONOMIC ANALYSTS FORESEE A FOURTH YEAR OF BROAD STOCK DECLINES,
BUT IT WILL LIKELY TAKE SOME DECISIVE AND LASTING SIGNS OF IMPROVEMENT BEFORE
INVESTORS REGAIN CONFIDENCE."
MARKET OVERVIEW:
APRIL 2002 THROUGH MARCH 2003
After two years of declines in the stock market, investors had hoped to see an
improvement in 2002 -- or at least in the first quarter of 2003. Instead, the
market continued downward, with the major stock indexes registering sharp losses
for the 12-month period ended March 31, 2003.
There were a number of factors responsible for the year's decline. First, a
series of corporate accounting scandals dominated the news well into summer
2002, tainting investors' perception of the market. Talk of Enron's collapse
lingered -- and new scandals surrounding companies such as WorldCom Inc, Tyco
International Ltd, and HealthSouth Corp followed. Furthermore, geopolitical
uncertainty persisted throughout the year to varying degrees as threats of
terrorist attacks, a nuclear standoff between India and Pakistan, speculation
regarding the U.S.'s intentions toward Iraq, and North Korea's refusal to obey a
1994 arms agreement all clouded the landscape. In addition, oil prices surged,
as inventories were pressured by strikes in Venezuela, violence in Nigeria, and
concerns over a potential war with Iraq.
In addition, a generally weak economy and disappointing corporate earnings were
ongoing stories. Although a few rallies were ignited by hopes that a recovery
might be forthcoming -- most notably, a two-month surge that began on October
10, a week-long rally during the first days of January 2003, and a mini-rebound
in mid-March on the heels of the long-awaited start to the war in Iraq -- they
could not be sustained in such an uncertain environment.
Meanwhile, investors flocked to investments with a defensive reputation during
the year. Fixed-income securities advanced, benefiting from the
flight-to-quality trend as well as the Federal Reserve's decision to leave
interest rates unchanged until November, when a surprisingly steep
50-basis-point cut was implemented. Gold stocks and real estate investment
trusts were other top performers. Conversely, high-growth sectors, including
technology and telecommunications, declined.
As the fund's fiscal period came to a close, investors were still seeking
direction. On the one hand, some uncertainty was put to rest once American-led
coalition forces took up arms in Iraq. However, new questions regarding the
duration of the war and the rebuilding process have recently surfaced. There are
also concerns about the state of the U.S. economy.
Once the cloud of war lifts, investors will be watching to see whether corporate
spending, consumer confidence, and other important measures improve as most
analysts expect. Investors are also hoping that the newly elected
Republican-majority Congress and President Bush's economic plan -- which
includes a proposal for the elimination of individual taxes on dividends -- will
foster business-friendly fiscal policy going forward. Overall, few economic
analysts foresee a fourth year of broad stock declines, but it will likely take
some decisive and lasting signs of improvement before investors regain
confidence.
INVESTMENT HOLDINGS
STATEMENT OF INVESTMENT SECURITIES
INVESCO SECTOR FUNDS, INC.
MARCH 31, 2003
SHARES,
COUNTRY CONTRACTS OR
CODE IF PRINCIPAL
% DESCRIPTION NON US AMOUNT VALUE
- ------------------------------------------------------------------------------------------
ENERGY FUND
96.32 COMMON STOCKS
0.60 GAS UTILITIES
Equitable Resources 40,000 $ 1,500,400
==========================================================================================
25.06 INTEGRATED OIL & GAS
BP PLC Sponsored ADR
Representing 6 Ord Shrs UK 276,000 10,650,840
ChevronTexaco Corp 88,000 5,689,200
ConocoPhillips 165,000 8,844,000
Eni SpA Sponsored ADR
Representing 5 Ord Shrs(a) IT 82,000 5,475,140
Murphy Oil 300,000 13,251,000
Occidental Petroleum 165,000 4,943,400
Royal Dutch Petroleum New York
Registry 1.25 Gldr Shrs NL 135,000 5,501,250
TotalFinaElf SA Sponsored ADR
Representing 1/2 Ord Shr FR 137,000 8,667,990
==========================================================================================
63,022,820
3.48 NATURAL GAS PIPELINES
Enbridge Energy Management LLC 220,000 8,756,000
==========================================================================================
11.09 OIL & GAS DRILLING
Atwood Oceanics(b) 165,300 4,172,172
Grey Wolf(b) 400,000 1,576,000
Nabors Industries Ltd(b) BD 260,000 10,366,200
Noble Corp(b) 198,000 6,221,160
Rowan Cos 282,000 5,544,120
==========================================================================================
27,879,652
28.73 OIL & GAS EQUIPMENT & SERVICES
Baker Hughes 170,000 5,088,100
BJ Services(b) 160,000 5,502,400
Cal Dive International(b) 430,000 7,744,300
Cooper Cameron(b) 111,000 5,495,610
FMC Technologies(b) 289,100 5,550,720
Grant Prideco(b) 708,200 8,540,892
Halliburton Co 265,000 5,493,450
Lone Star Technologies(b) 388,600 8,207,232
Maverick Tube(b) 300,000 5,580,000
National-Oilwell Inc(b) 115,000 2,574,850
Schlumberger Ltd NL 100,000 3,801,000
Weatherford International Ltd(b) BD 230,000 8,687,100
==========================================================================================
72,265,654
21.65 OIL & GAS EXPLORATION,
PRODUCTION & TRANSPORTATION
Apache Corp 145,200 8,964,648
Burlington Resources 111,000 5,295,810
Devon Energy 55,000 2,652,100
SHARES,
COUNTRY CONTRACTS OR
CODE IF PRINCIPAL
% DESCRIPTION NON US AMOUNT VALUE
- ------------------------------------------------------------------------------------------
EnCana Corp CA 160,000 $ 5,177,600
Forest Oil(b) 228,000 5,084,400
Kerr-McGee Corp 132,000 5,360,520
Pioneer Natural Resources(b) 405,000 10,165,500
Remington Oil & Gas(b) 150,000 2,554,500
Talisman Energy CA 232,000 9,201,120
==========================================================================================
54,456,198
5.71 OIL & GAS REFINING & MARKETING
Sunoco Inc 195,000 7,131,150
Valero Energy 175,000 7,241,500
==========================================================================================
14,372,650
TOTAL COMMON STOCKS (COST $220,616,631) 242,253,374
==========================================================================================
9.34 SHORT-TERM INVESTMENTS
7.56 COMMERCIAL PAPER
3.98 CONSUMER RECEIVABLES
New Center Asset Trust, Series 1,
Discount Notes 1.420%, 4/1/2003 $ 10,000,000 10,000,000
==========================================================================================
3.58 DIVERSIFIED FINANCIAL SERVICES
State Street Boston, Discount Notes,
1.390%, 4/1/2003 $ 9,000,000 9,000,000
==========================================================================================
TOTAL COMMERCIAL PAPER (Amortized Cost
$19,000,000) 19,000,000
==========================================================================================
1.64 INVESTMENT COMPANIES
INVESCO Treasurer's Series Money Market
Reserve Fund(c)(f), 1.092% (Cost
$4,139,034) 4,139,034 4,139,034
==========================================================================================
0.14 REPURCHASE AGREEMENTS
Repurchase Agreement with State Street
dated 3/31/2003 due 4/1/2003 at 1.230%,
repurchased at $360,012 (Collateralized
by Federal Home Loan Bank, Discount Notes,
due 4/1/2003, value $370,000) (Cost
$360,000) $ 360,000 360,000
==========================================================================================
TOTAL SHORT-TERM INVESTMENTS
(AMORTIZED COST $23,499,034) 23,499,034
==========================================================================================
105.66 TOTAL INVESTMENTS AT VALUE
(COST $244,115,665) 265,752,408
==========================================================================================
(5.66) OTHER ASSETS LESS LIABILITIES (14,240,725)
==========================================================================================
100.00 NET ASSETS AT VALUE $ 251,511,683
==========================================================================================
FINANCIAL SERVICES FUND
96.51 COMMON STOCKS
39.50 BANKS
Bank of America 690,700 $ 46,166,388
Bank of New York 817,400 16,756,700
Bank One 552,600 19,131,012
Charter One Financial 146,200 4,043,892
City National 43,300 1,902,602
Compass Bancshares 243,100 7,601,737
SHARES,
COUNTRY CONTRACTS OR
CODE IF PRINCIPAL
% DESCRIPTION NON US AMOUNT VALUE
- ------------------------------------------------------------------------------------------
Fifth Third Bancorp 420,950 $ 21,106,433
First Tennessee National 154,700 6,143,137
FleetBoston Financial 436,000 10,411,680
Investors Financial Services 235,000 5,722,250
M&T Bank 178,100 13,995,098
Mellon Financial 485,400 10,319,604
National Commerce Financial 391,200 9,271,440
New York Community Bancorp 147,700 4,401,460
Northern Trust 329,300 10,027,185
Synovus Financial 642,500 11,494,325
TCF Financial 362,700 14,522,508
UBS AG(b) 254,600 10,871,420
Wachovia Corp 836,800 28,509,776
Wells Fargo & Co 910,700 40,972,393
Zions Bancorp 87,300 3,734,694
==========================================================================================
297,105,734
5.17 CONSUMER FINANCE
Fannie Mae 150,900 9,861,315
Freddie Mac 279,400 14,836,140
SLM Corp 127,600 14,153,392
==========================================================================================
38,850,847
0.17 DATA PROCESSING SERVICES
Concord EFS(b) 138,100 1,298,140
==========================================================================================
14.19 DIVERSIFIED FINANCIAL SERVICES
Ambac Financial Group 399,100 20,162,532
American Express 613,300 20,379,959
Citigroup Inc 1,172,000 40,375,400
Franklin Resources 233,300 7,677,903
Goldman Sachs Group 124,000 8,441,920
Moody's Corp 81,800 3,781,614
Prudential Financial 200,800 5,873,400
==========================================================================================
106,692,728
2.23 INSURANCE BROKERS
Marsh & McLennan 393,300 16,766,379
==========================================================================================
13.55 INVESTMENT ADVISER/BROKER DEALER SERVICES
Eaton Vance 165,700 4,429,161
Federated Investors Class B Shrs 336,950 8,575,377
Legg Mason 237,300 11,566,002
Lehman Brothers Holdings 403,100 23,279,025
Merrill Lynch & Co 1,080,000 38,232,000
Morgan Stanley 413,400 15,853,890
==========================================================================================
101,935,455
2.88 LIFE & HEALTH INSURANCE
AFLAC Inc 306,800 9,832,940
Lincoln National 70,700 1,979,600
Nationwide Financial Services Class A Shrs 91,000 2,217,670
Principal Financial Group 280,300 7,607,342
==========================================================================================
21,637,552
SHARES,
COUNTRY CONTRACTS OR
CODE IF PRINCIPAL
% DESCRIPTION NON US AMOUNT VALUE
- ------------------------------------------------------------------------------------------
6.78 MULTI-LINE INSURANCE
American International Group 730,402 $ 36,118,379
Radian Group 446,700 14,910,846
==========================================================================================
51,029,225
5.79 PROPERTY & CASUALTY INSURANCE
Allstate Corp 506,500 16,800,605
PMI Group 74,900 1,913,695
SAFECO Corp 383,100 13,397,007
St Paul 359,500 11,432,100
==========================================================================================
43,543,407
1.67 REAL ESTATE INVESTMENT TRUSTS
iStar Financial 430,900 12,569,353
==========================================================================================
4.58 REINSURANCE
Endurance Specialty Holdings Ltd(b) 166,200 4,020,378
PartnerRe Ltd 226,300 11,371,575
Platinum Underwriters Holdings Ltd 388,500 9,848,475
RenaissanceRe Holdings Ltd 230,200 9,219,510
==========================================================================================
34,459,938
TOTAL COMMON STOCKS (COST $693,290,685) 725,888,758
==========================================================================================
3.40 SHORT-TERM INVESTMENTS
3.33 COMMERCIAL PAPER -- CONSUMER RECEIVABLES
New Center Asset Trust, Series 1, Discount
Notes 1.420%, 4/1/2003 (Amortized Cost
$25,000,000) $ 25,000,000 25,000,000
==========================================================================================
0.07 REPURCHASE AGREEMENTS
Repurchase Agreement with State Street
dated 3/31/2003 due 4/1/2003 at 1.230%,
repurchased at $533,018 (Collateralized
by Federal Home Loan Bank, Discount Notes,
due 4/1/2003, value $545,000) (Cost
$533,000) $ 533,000 533,000
==========================================================================================
TOTAL SHORT-TERM INVESTMENTS
(AMORTIZED COST $25,533,000) 25,533,000
==========================================================================================
99.91 TOTAL INVESTMENTS AT VALUE
(COST $718,823,685) 751,421,758
==========================================================================================
0.09 OTHER ASSETS LESS LIABILITIES 692,085
==========================================================================================
100.00 NET ASSETS AT VALUE $ 752,113,843
==========================================================================================
GOLD & PRECIOUS METALS FUND
85.12 COMMON STOCKS & RIGHTS
14.22 DIVERSIFIED METALS & MINING
Apollo Gold(a)(b) CA 1,300,000 $ 3,084,401
Freeport McMoRan Copper & Gold Class B
Shrs(b) 245,000 4,177,250
Gold Fields Ltd Sponsored ADR Representing
Ord Shrs SF 450,000 4,725,000
North American Palladium Ltd(b) CA 200,000 503,076
Solitario Resources(b) CA 631,000 274,544
SHARES,
COUNTRY CONTRACTS OR
CODE IF PRINCIPAL
% DESCRIPTION NON US AMOUNT VALUE
- ------------------------------------------------------------------------------------------
Teck Cominco Ltd Class B Shrs(a) CA 280,000 $ 2,120,534
==========================================================================================
14,884,805
59.64 GOLD
Agnico-Eagle Mines Ltd(a) CA 404,000 5,296,440
AngloGold Ltd Sponsored ADR
Representing Ord Shrs SF 117,000 3,531,060
Ashanti Goldfields Ltd GDR
Representing Ord Shrs(b) GH 660,000 3,748,800
Barrick Gold CA 315,000 4,901,400
Chesapeake Gold(b) CA 182,700 444,655
Claude Resources(b) CA 305,100 292,458
Glamis Gold Ltd(a)(b) CA 800,000 8,272,000
Glamis Gold Ltd Rights(b)
(to purchase Cmn Shrs) CA 226,700 0
Goldcorp Inc CA 295,000 3,129,950
Harmony Gold Mining Ltd Sponsored ADR
Representing Ord Shrs SF 300,000 3,669,000
IAMGOLD Corp(a) CA 1,200,000 5,221,117
Kinross Gold(b) CA 700,000 4,301,982
Meridian Gold(b) CA 500,000 4,725,000
Newmont Mining 195,000 5,099,250
Pacific Rim Mining(b) CA 1,254,900 409,499
Placer Dome CA 505,000 4,949,000
Rio Narcea Gold Mines Ltd(b) CA 515,900 736,524
Wheaton River Minerals Ltd(a)(b) CA 4,400,000 3,709,168
==========================================================================================
62,437,303
11.26 PRECIOUS METALS & MINERALS
Aber Diamond(b) CA 230,000 4,270,233
Compania de Minas Buenaventura SA Sponsored
ADR Representing Series B Shrs PE 160,000 4,000,000
Impala Platinum Holdings Ltd SF 49,000 2,496,379
SouthernEra Resources Ltd(b) CA 250,000 1,019,749
==========================================================================================
11,786,361
TOTAL COMMON STOCKS & RIGHTS (COST
$75,551,902) 89,108,469
==========================================================================================
2.37 PREFERRED STOCKS -- DIVERSIFIED METALS & MINING
Freeport McMoRan Copper & Gold Depository
Shrs Representing 1/20 Series Gold Pfd Shr
(Cost $1,405,625) 75,000 2,482,500
==========================================================================================
4.83 OTHER SECURITIES -- GOLD BULLION
Gold Bullion(b) (Cost $4,266,114) 14,974(d) 5,051,577
==========================================================================================
18.99 SHORT-TERM INVESTMENTS
10.84 INVESTMENT COMPANIES
INVESCO Treasurer's Series Money Market
Reserve Fund(c)(f), 1.092% (Cost
$11,344,418) 11,344,418 11,344,418
==========================================================================================
SHARES,
COUNTRY CONTRACTS OR
CODE IF PRINCIPAL
% DESCRIPTION NON US AMOUNT VALUE
- ------------------------------------------------------------------------------------------
8.15 REPURCHASE AGREEMENTS
Repurchase Agreement with State Street
dated 3/31/2003 due 4/1/2003 at 1.230%,
repurchased at $8,531,291 (Collateralized
by Federal Home Loan Bank, Discount
Notes, due 4/1/2003, value $8,705,000)
(Cost $8,531,000) $ 8,531,000 $ 8,531,000
==========================================================================================
TOTAL SHORT-TERM INVESTMENTS
(COST $19,875,418) 19,875,418
==========================================================================================
111.31 TOTAL INVESTMENTS AT VALUE
(COST $101,099,059) 116,517,964
==========================================================================================
(11.31) OTHER ASSETS LESS LIABILITIES (11,841,514)
==========================================================================================
100.00 NET ASSETS AT VALUE $ 104,676,450
==========================================================================================
HEALTH SCIENCES FUND
98.72 COMMON STOCKS
17.69 BIOTECHNOLOGY
Amgen Inc(b) 717,200 $ 41,274,860
Biotech HOLDRs Trust(b)(e) 512,900 47,827,925
Chiron Corp(b) 295,300 11,073,750
Genentech Inc(b) 311,100 10,891,611
Genzyme Corp-General Division(b) 358,500 13,067,325
Gilead Sciences(b) 664,460 27,900,675
IDEC Pharmaceuticals(b) 208,500 7,176,362
MedImmune Inc(b) 360,800 11,845,064
==========================================================================================
171,057,572
0.99 HEALTH CARE DISTRIBUTORS & SERVICES
McKesson Corp 385,500 9,610,515
==========================================================================================
18.93 HEALTH CARE EQUIPMENT
Biomet Inc 398,600 12,217,090
Boston Scientific(b) 576,440 23,495,694
C.R. Bard 407,100 25,671,726
Edwards Lifesciences(b) 403,800 11,064,120
Guidant Corp(b) 565,600 20,474,720
Medtronic Inc 589,500 26,598,240
Stryker Corp 168,500 11,567,525
Varian Medical Systems(b) 458,180 24,709,647
Zimmer Holdings(b) 559,262 27,196,911
==========================================================================================
182,995,673
1.43 HEALTH CARE FACILITIES
HCA Inc 131,120 5,423,123
Health Management Associates Class A Shrs 299,300 5,686,700
Triad Hospitals(b) 102,100 2,746,490
==========================================================================================
13,856,313
2.34 HEALTH CARE SUPPLIES
Alcon Inc(b) 462,150 18,957,393
SHARES,
COUNTRY CONTRACTS OR
CODE IF PRINCIPAL
% DESCRIPTION NON US AMOUNT VALUE
- ------------------------------------------------------------------------------------------
Smith & Nephew PLC 605,100 $ 3,701,467
==========================================================================================
22,658,860
1.37 HOUSEHOLD PRODUCTS
Procter & Gamble 149,300 13,295,165
==========================================================================================
1.39 MANAGED HEALTH CARE
First Health Group(b) 257,840 6,559,450
UnitedHealth Group 74,600 6,838,582
==========================================================================================
13,398,032
54.58 PHARMACEUTICALS
Abbott Laboratories 1,058,830 39,822,596
AmerisourceBergen Corp 173,925 9,131,063
Barr Laboratories(b) 269,700 15,372,900
Bristol-Myers Squibb 1,778,100 37,571,253
Eli Lilly & Co 685,700 39,187,755
Forest Laboratories(b) 859,084 46,364,763
GlaxoSmithKline PLC Sponsored ADR
Representing 2 Ord Shrs 658,700 23,179,653
Johnson & Johnson 818,462 47,364,396
Merck & Co 767,100 42,021,738
Novartis AG Sponsored ADR
Representing Ord Shrs 881,700 32,675,802
Pfizer Inc 980,151 30,541,505
Pharmaceutical HOLDRs Trust(a)(e)(f) 578,400 42,888,360
Pharmaceutical Resources(b) 323,500 13,742,280
Pharmacia Corp 808,307 34,999,693
Teva Pharmaceutical Industries Ltd Sponsored
ADR Representing Ord Shrs 753,140 31,368,281
Wyeth 1,096,600 41,473,412
==========================================================================================
527,705,450
TOTAL COMMON STOCKS (COST $821,536,195) 954,577,580
==========================================================================================
0.77 PREFERRED STOCKS
0.00 BIOTECHNOLOGY
Ingenex Inc, Conv Pfd, Series B Shrs(b)(l) 103,055 1
==========================================================================================
0.77 HEALTH CARE EQUIPMENT
Athersys Inc, Conv Pfd, Class F Shrs(b)(l) 416,667 5,416,667
Optimize Inc, Pfd, Series 5 Shrs(b)(l) 1,337,276 628,450
Scimagix Inc, Pfd, Series C Shrs(b)(l) 641,635 1,350,000
UltraGuide Inc, Pfd
Series E Shrs(b)(l) 445,050 84,560
Series F Shrs(b)(l) 50,000 9,500
==========================================================================================
7,489,177
TOTAL PREFERRED STOCKS (Cost $9,078,452) 7,489,178
==========================================================================================
2.96 SHORT-TERM INVESTMENTS
2.50 INVESTMENT COMPANIES
INVESCO Treasurer's Series Money Market
Reserve Fund(c)(f), 1.092% (Cost
$24,193,400) 24,193,400 24,193,400
==========================================================================================
SHARES,
COUNTRY CONTRACTS OR
CODE IF PRINCIPAL
% DESCRIPTION NON US AMOUNT VALUE
- ------------------------------------------------------------------------------------------
0.46 REPURCHASE AGREEMENTS
Repurchase Agreement with State Street
dated 3/31/2003 due 4/1/2003 at 1.230%,
repurchased at $4,424,151 (Collateralized
by Federal Home Loan Bank, Discount Notes,
due 4/1/2003, value $4,515,000) (Cost
$4,424,000) $ 4,424,000 $ 4,424,000
==========================================================================================
TOTAL SHORT-TERM INVESTMENTS
(COST $28,617,400) 28,617,400
==========================================================================================
102.45 TOTAL INVESTMENTS AT VALUE
(COST $859,232,047) 990,684,158
==========================================================================================
(2.45) OTHER ASSETS LESS LIABILITIES (23,730,992)
==========================================================================================
100.00 NET ASSETS AT VALUE $ 966,953,166
==========================================================================================
LEISURE FUND
96.28 COMMON STOCKS
10.18 ADVERTISING
Harte-Hanks Inc 332,450 $ 6,349,795
JC Decaux SA(b) FR 218,400 2,073,367
Omnicom Group 706,000 38,244,020
Valassis Communications(b) 541,900 14,306,160
WPP Group PLC UK 1,090,730 5,879,053
==========================================================================================
66,852,395
2.34 APPAREL, ACCESSORIES & LUXURY GOODS
Jones Apparel Group(b) 256,900 7,046,767
Polo Ralph Lauren Class A Shrs(b) 363,400 8,321,860
==========================================================================================
15,368,627
7.95 BREWERS
Anheuser-Busch Cos 340,400 15,866,044
Carlsberg A/S Class B Shrs(a) DA 443,084 14,974,333
Diageo PLC UK 224,600 2,304,041
Heineken NV NL 477,200 17,699,295
Interbrew BE 66,535 1,347,512
==========================================================================================
52,191,225
5.10 BROADCASTING-- RADIO/TV
Belo Corp Series A Shrs 360,000 7,293,600
Clear Channel Communications(b) 124,049 4,207,742
Fox Kids Europe NV(b) NL 905,629 5,039,934
Granada PLC UK 324,208 292,102
Gray Television 640,100 5,760,900
Sinclair Broadcast Group Class A Shrs(b) 508,500 3,996,810
Spanish Broadcasting System Class A Shrs(b) 271,200 1,665,168
Television Broadcasts Ltd Sponsored ADR
Representing 2 Ord Shrs HK 154,500 946,869
Univision Communications Class A Shrs(b) 174,300 4,272,093
==========================================================================================
33,475,218
10.52 CABLE & SATELLITE OPERATORS
Cablevision Systems New York Group(b) 833,293 15,824,234
SHARES,
COUNTRY CONTRACTS OR
CODE IF PRINCIPAL
% DESCRIPTION NON US AMOUNT VALUE
- ------------------------------------------------------------------------------------------
Comcast Corp Class A Shrs(b) 342,400 $ 9,789,216
EchoStar Communications Class A Shrs(b) 408,585 11,799,935
Liberty Media Series A Shrs(b) 3,253,914 31,660,583
==========================================================================================
69,073,968
1.59 CABLE & SATELLITE PROGRAMMERS
USA Interactive(b) 389,800 10,442,742
==========================================================================================
14.36 CASINOS & GAMING
Harrah's Entertainment(b) 982,000 35,057,400
International Game Technology(b) 588,000 48,157,200
MGM MIRAGE(b) 152,016 4,446,468
Park Place Entertainment(b) 95,200 677,824
Wynn Resorts Ltd(b) 387,700 5,986,088
==========================================================================================
94,324,980
0.37 CONSUMER ELECTRONICS
Sony Corp Sponsored ADR
Representing Ord Shrs JA 70,100 2,462,613
==========================================================================================
1.54 CRUISE LINES
Carnival Corp 268,900 6,483,179
Royal Caribbean Cruises Ltd 170,344 2,560,270
Steiner Leisure Ltd(b) 93,000 1,050,900
==========================================================================================
10,094,349
0.71 DIVERSIFIED FINANCIAL SERVICES
Pargesa Holding AG Class B Shrs SZ 2,708 4,688,831
==========================================================================================
0.66 DIVERSIFIED METALS & MINING
Anglo American PLC ADR
Representing Ord Shrs(a) UK 303,140 4,334,902
==========================================================================================
0.83 FOOTWEAR
Foot Locker 151,000 1,615,700
NIKE Inc Class B Shrs 75,000 3,856,500
==========================================================================================
5,472,200
0.71 GENERAL MERCHANDISE STORES
Target Corp 57,200 1,673,672
Tuesday Morning(b) 152,400 2,999,232
==========================================================================================
4,672,904
6.39 HOTELS & RESORTS
Accor SA FR 106,500 2,942,508
Cendant Corp(b) 563,700 7,158,990
Extended Stay America(b) 191,600 1,935,160
Hilton Hotels 605,150 7,025,791
Marriott International Class A Shrs 279,100 8,878,171
NH Hoteles SA(b) SP 418,600 3,416,687
Starwood Hotels & Resorts Worldwide
Paired Certificates SBI 445,860 10,607,009
==========================================================================================
41,964,316
0.30 INDUSTRIAL CONGLOMERATES
Campagnie Nationale a Portefeuille(a) BE 20,300 1,962,610
==========================================================================================
SHARES,
COUNTRY CONTRACTS OR
CODE IF PRINCIPAL
% DESCRIPTION NON US AMOUNT VALUE
- ------------------------------------------------------------------------------------------
2.58 INVESTMENT COMPANIES
iShares Trust
Russell 3000 Index Fund 185,000 $ 8,750,500
S&P 500 Index Fund 96,300 8,167,203
==========================================================================================
16,917,703
1.39 LEISURE FACILITIES
Cedar Fair LP(a) 97,800 2,437,176
Intrawest Corp CA 396,480 4,139,251
Six Flags(b) 362,500 2,030,000
Vail Resorts (b) 45,100 502,865
==========================================================================================
9,109,292
8.31 LEISURE PRODUCTS
Activision Inc(b) 88,300 1,275,935
Electronic Arts(b) 30,500 1,788,520
Hasbro Inc 138,400 1,922,376
Leapfrog Enterprises(b) 51,100 1,218,224
Mattel Inc 2,151,200 48,402,000
==========================================================================================
54,607,055
9.83 MOVIES & ENTERTAINMENT
AOL Time Warner(b) 1,169,500 12,700,770
Groupe Bruxelles Lambert SA BE 363,900 13,103,894
Metro-Goldwyn-Mayer Inc(b) 1,054,900 11,076,450
Pixar(b) 103,700 5,608,096
Regal Entertainment Group Class A Shrs 129,900 2,331,705
Viacom Inc
Class A Shrs(b) 101,880 3,718,620
Class B Shrs(b) 179,900 6,569,948
Walt Disney 556,199 9,466,507
==========================================================================================
64,575,990
7.53 PUBLISHING & PRINTING
E. W. Scripps Class A Shrs 73,300 5,551,742
Gannett Co 144,000 10,141,920
Knight-Ridder Inc 232,800 13,618,800
McClatchy Co Class A Shrs 131,900 7,068,521
McGraw-Hill Cos 76,700 4,263,753
Media General Class A Shrs 54,600 2,688,504
New York Times Class A Shrs 141,200 6,092,780
==========================================================================================
49,426,020
1.65 RESTAURANTS
CBRL Group 272,600 7,482,870
Yum! Brands(b) 136,900 3,330,777
==========================================================================================
10,813,647
0.35 SOFT DRINKS
Coca-Cola Femsa SA de CV Sponsored ADR
Representing 10 Ord Series L Shrs MX 134,500 2,305,330
==========================================================================================
0.39 SPECIALTY STORES
Hollywood Entertainment(b) 122,300 1,961,692
SHARES,
COUNTRY CONTRACTS OR
CODE IF PRINCIPAL
% DESCRIPTION NON US AMOUNT VALUE
- ------------------------------------------------------------------------------------------
Toys "R" Us(b) 74,900 $ 626,913
==========================================================================================
2,588,605
0.10 TELECOMMUNICATIONS EQUIPMENT
General Motors Class H Shrs(b) 60,600 678,720
==========================================================================================
0.60 TOBACCO
Altria Group 130,900 3,921,764
==========================================================================================
TOTAL COMMON STOCKS (COST $575,154,170) 632,326,006
==========================================================================================
2.62 PREFERRED STOCKS
1.76 MOVIES & ENTERTAINMENT
News Corp Ltd Sponsored ADR
Representing 4 Pfd Ltd Voting Shrs AS 542,178 11,597,187
==========================================================================================
0.86 SOFT DRINKS
Companhia de Bebidas das Americas
Sponsored ADR Representing 100 Pfd Shrs BR 340,000 5,644,000
==========================================================================================
TOTAL PREFERRED STOCKS (COST $19,368,824) 17,241,187
==========================================================================================
2.97 SHORT-TERM INVESTMENTS
0.47 US GOVERNMENT OBLIGATIONS
US Government Securities(c)
(Cost $3,111,943) $ 3,111,943 3,111,943
==========================================================================================
1.61 INVESTMENT COMPANIES
INVESCO Treasurer's Series Money Market
Reserve Fund(c)(f), 1.092% (Cost
$10,594,794) 10,594,794 10,594,794
==========================================================================================
0.89 REPURCHASE AGREEMENTS
Repurchase Agreement with State Street
dated 3/31/2003 due 4/1/2003 at 1.230%,
repurchased at $5,814,199 (Collateralized
by Federal Home Loan Bank, Discount
Notes, due 4/1/2003, value $5,935,000)
(Cost $5,814,000) $ 5,814,000 5,814,000
==========================================================================================
TOTAL SHORT-TERM INVESTMENTS
(COST $19,520,737) 19,520,737
==========================================================================================
101.87 TOTAL INVESTMENTS AT VALUE
(COST $614,043,731) 669,087,930
==========================================================================================
(1.87) OTHER ASSETS LESS LIABILITIES (12,304,201)
==========================================================================================
100.00 NET ASSETS AT VALUE $ 656,783,729
==========================================================================================
REAL ESTATE OPPORTUNITY FUND
95.21 COMMON STOCKS
1.11 CASINOS & GAMING
Park Place Entertainment(b) 36,900 $ 262,728
==========================================================================================
1.43 FOREST PRODUCTS
Weyerhaeuser Co 7,100 339,593
==========================================================================================
1.00 HOMEBUILDING
Ryland Group 5,500 237,545
==========================================================================================
SHARES,
COUNTRY CONTRACTS OR
CODE IF PRINCIPAL
% DESCRIPTION NON US AMOUNT VALUE
- ------------------------------------------------------------------------------------------
1.00 HOTELS & RESORTS
Starwood Hotels & Resorts Worldwide Paired
Certificates SBI 9,900 $ 235,521
==========================================================================================
1.49 PAPER PRODUCTS
Bowater Inc 9,500 352,925
==========================================================================================
86.86 REAL ESTATE INVESTMENT TRUSTS
Alexandria Real Estate Equities 24,200 1,017,610
Apartment Investment & Management Class A Shrs 9,200 335,616
Archstone-Smith Trust 19,210 421,852
Avalonbay Communities 12,100 446,490
Boston Properties 29,900 1,133,210
CarrAmerica Realty 36,400 922,740
Developers Diversified Realty 41,700 1,007,055
EastGroup Properties 17,400 444,744
Equity Office Properties Trust 37,600 956,920
Equity Residential SBI 32,200 775,054
Essex Property Trust 7,000 365,750
General Growth Properties 20,800 1,122,160
Impac Mortgage Holdings 27,900 362,421
iStar Financial 33,900 988,863
Mack-Cali Realty 26,500 820,705
Mid-Atlantic Realty Trust SBI 34,200 623,466
Mills Corp 24,700 770,640
Pan Pacific Retail Properties 6,500 246,025
Parkway Properties 19,800 746,064
Post Properties 16,900 408,135
Prentiss Properties Trust SBI 22,800 617,880
ProLogis SBI 43,270 1,095,596
RFS Hotel Investors 56,400 547,080
Rouse Co 21,900 756,645
Simon Property Group 21,000 752,430
SL Green Realty 22,200 678,432
Universal Health Realty Income Trust SBI 4,700 121,730
Vornado Realty Trust SBI 27,600 988,080
Weingarten Realty Investors 28,300 1,106,813
==========================================================================================
20,580,206
2.32 REAL ESTATE MANAGEMENT & DEVELOPMENT
Catellus Development(b) 12,300 258,300
St Joe 10,700 291,040
==========================================================================================
549,340
TOTAL COMMON STOCKS (COST $21,860,776) 22,557,858
==========================================================================================
6.27 SHORT-TERM INVESTMENTS -- REPURCHASE AGREEMENTS
Repurchase Agreement with State Street
dated 3/31/2003 due 4/1/2003 at 1.230%,
repurchased at $1,485,051 (Collateralized
by Federal Home Loan Bank, Bonds, due
3/26/2004 at 1.350%, value $1,515,587)
(Cost $1,485,000) $ 1,485,000 1,485,000
==========================================================================================
SHARES,
COUNTRY CONTRACTS OR
CODE IF PRINCIPAL
% DESCRIPTION NON US AMOUNT VALUE
- ------------------------------------------------------------------------------------------
101.48 TOTAL INVESTMENTS AT VALUE
(COST $23,345,776) $ 24,042,858
==========================================================================================
(1.48) OTHER ASSETS LESS LIABILITIES (349,747)
==========================================================================================
100.00 NET ASSETS AT VALUE $ 23,693,111
==========================================================================================
TECHNOLOGY FUND
92.58 COMMON STOCKS
0.68 AEROSPACE & DEFENSE
Lockheed Martin 226,300 $ 10,760,565
==========================================================================================
10.47 APPLICATION SOFTWARE
Amdocs Ltd(b) 1,204,720 15,998,682
BEA Systems(b) 2,941,800 29,976,942
Cadence Design Systems(b) 906,800 9,068,000
Check Point Software Technologies Ltd(b) 973,650 14,088,715
Intuit Inc(b) 582,300 21,661,560
Mercury Interactive(b) 808,500 23,996,280
PeopleSoft Inc(b) 1,018,700 15,586,110
SAP AG Sponsored ADR Representing 1/4
Ord Shr 114,900 2,178,504
Siebel Systems(b) 1,343,600 10,762,236
Software HOLDRs Trust(a)(e)(f) 834,700 21,209,727
Wipro Ltd Sponsored ADR Representing Ord Shrs(a) 84,000 2,360,400
==========================================================================================
166,887,156
0.54 CABLE & SATELLITE OPERATORS
Comcast Corp Class A Shrs(b) 300,400 8,588,436
==========================================================================================
7.82 COMPUTER HARDWARE
Apple Computer(b) 1,426,200 20,166,468
Dell Computer(b) 1,685,700 46,036,467
Hewlett-Packard Co 1,318,600 20,504,230
International Business Machines 428,900 33,638,627
Sun Microsystems(b) 1,317,300 4,294,398
==========================================================================================
124,640,190
5.55 COMPUTER STORAGE & PERIPHERALS
EMC Corp(b) 3,713,000 26,844,990
Emulex Corp(b) 830,600 15,905,990
Lexmark International Class A Shrs(b) 225,400 15,090,530
McDATA Corp Class A Shrs(b) 992,300 8,523,857
Network Appliance(b) 1,974,500 22,094,655
==========================================================================================
88,460,022
3.89 DATA PROCESSING SERVICES
First Data 696,100 25,762,661
Fiserv Inc(b) 627,450 19,752,126
Paychex Inc 599,350 16,464,144
==========================================================================================
61,978,931
0.98 DIVERSIFIED COMMERCIAL SERVICES
CheckFree Corp(b) 696,800 15,664,064
==========================================================================================
SHARES,
COUNTRY CONTRACTS OR
CODE IF PRINCIPAL
% DESCRIPTION NON US AMOUNT VALUE
- ------------------------------------------------------------------------------------------
5.22 ELECTRONIC EQUIPMENT & INSTRUMENTS
Celestica Inc(b) 1,326,200 $ 15,158,466
Flextronics International Ltd(b) 2,564,400 22,361,568
Jabil Circuit(b) 1,645,600 28,798,000
MKS Instruments(b) 64,500 806,250
Samsung Electronics Ltd Sponsored GDR
Representing 1/2 Ord Shr(g) 142,300 16,079,900
==========================================================================================
83,204,184
0.36 HOTELS & RESORTS
Hotels.com Class A Shrs(a)(b) 100,000 5,767,500
==========================================================================================
0.36 INTEGRATED TELECOMMUNICATION SERVICES
Verizon Communications 160,500 5,673,675
==========================================================================================
3.49 INTERNET RETAIL
Amazon.com Inc(b) 451,000 11,739,530
eBay Inc(b) 515,100 43,932,879
==========================================================================================
55,672,409
0.83 INTERNET SOFTWARE & SERVICES
Internet Security Systems(b) 227,400 2,258,082
VeriSign Inc(b) 344,700 3,012,678
Yahoo! Inc(b) 329,700 7,919,394
==========================================================================================
13,190,154
1.80 INVESTMENT COMPANIES
Nasdaq-100 Trust Series 1 Shrs(b) 1,138,900 28,757,225
==========================================================================================
1.92 IT CONSULTING & SERVICES
Affiliated Computer Services Class A
Shrs(b) 412,000 18,235,120
BISYS Group(b) 460,000 7,507,200
Cognizant Tech Solutions Class A Shrs(b) 72,900 4,909,815
==========================================================================================
30,652,135
0.50 MOVIES & ENTERTAINMENT
AOL Time Warner(b) 732,600 7,956,036
==========================================================================================
4.38 NETWORKING EQUIPMENT
Cisco Systems(b)(i) 4,359,860 56,590,983
Juniper Networks(b) 650,000 5,310,500
NetScreen Technologies(b) 466,800 7,832,904
==========================================================================================
69,734,387
4.21 SEMICONDUCTOR EQUIPMENT
Applied Materials(b) 1,624,500 20,436,210
ASML Holding NV New York Registered
Shrs(b) 363,300 2,386,881
Cymer Inc(b) 35,400 837,210
KLA-Tencor Corp(b) 416,300 14,962,655
Lam Research(b) 735,100 8,372,054
Novellus Systems(b) 733,800 20,010,726
==========================================================================================
67,005,736
16.87 SEMICONDUCTORS
Altera Corp(b) 1,188,600 16,093,644
Analog Devices(b) 345,000 9,487,500
SHARES,
COUNTRY CONTRACTS OR
CODE IF PRINCIPAL
% DESCRIPTION NON US AMOUNT VALUE
- ------------------------------------------------------------------------------------------
Broadcom Corp Class A Shrs(b) 285,200 $ 3,522,220
Cypress Semiconductor(b) 252,200 1,740,180
Fairchild Semiconductor International
Class A Shrs(b) 603,400 6,311,564
GlobespanVirata Inc(b) 468,200 2,106,900
Intel Corp 3,736,800 60,835,104
Intersil Corp Class A Shrs(b) 282,400 4,394,144
Linear Technology 982,900 30,342,123
Maxim Integrated Products 715,900 25,858,308
Microchip Technology 1,092,800 21,746,720
National Semiconductor(b) 461,400 7,862,256
PMC-Sierra Inc(b) 271,000 1,612,450
QLogic Corp(b) 289,200 10,740,888
RF Micro Devices(b) 1,026,900 6,191,180
Skyworks Solutions(a)(b) 670,000 4,174,100
Taiwan Semiconductor Manufacturing Ltd
Sponsored ADR Representing 5 Ord Shrs 1,952,136 13,352,610
Texas Instruments 943,900 15,451,643
United Microelectronics Sponsored ADR
Representing 5 Ord Shrs 1,693,300 5,096,833
Vitesse Semiconductor(b) 674,100 1,442,574
Xilinx Inc(b)(h) 871,800 20,408,838
==========================================================================================
268,771,779
16.45 SYSTEMS SOFTWARE
Adobe Systems 842,700 25,980,441
BMC Software(b) 1,156,200 17,447,058
Micromuse Inc(b) 607,000 3,156,400
Microsoft Corp 4,327,200 104,761,512
Networks Associates(b) 899,000 12,415,190
Oracle Corp(b) 3,671,500 39,832,103
Symantec Corp(b) 1,177,600 46,138,368
VERITAS Software(b) 701,300 12,328,854
==========================================================================================
262,059,926
4.92 TELECOMMUNICATIONS EQUIPMENT
ADC Telecommunications(b) 2,022,292 4,165,922
Alcatel SA Sponsored ADR Representing
Ord Shrs 981,300 6,761,157
CIENA Corp(b) 591,900 2,586,603
Corning Inc(b) 412,500 2,409,000
Lucent Technologies(b) 2,375,800 3,492,426
Nokia Corp Sponsored ADR Representing Ord
Shrs(a) 1,561,900 21,882,219
Nortel Networks(b) 2,589,900 5,386,992
QUALCOMM Inc 711,950 25,672,917
UTStarcom Inc(b) 303,600 6,068,964
==========================================================================================
78,426,200
1.34 WIRELESS TELECOMMUNICATION SERVICES
Nextel Communications Class A Shrs(b) 530,700 7,106,073
Vodafone Group PLC Sponsored ADR
Representing 10 Ord Shrs 781,200 14,233,464
==========================================================================================
21,339,537
TOTAL COMMON STOCKS (COST $1,730,029,294) 1,475,190,247
==========================================================================================
SHARES,
COUNTRY CONTRACTS OR
CODE IF PRINCIPAL
% DESCRIPTION NON US AMOUNT VALUE
- ------------------------------------------------------------------------------------------
0.07 PREFERRED STOCKS
0.00 BIOTECHNOLOGY
Ingenex Inc, Conv Pfd, Series B Shrs(b)(l) 51,527 $ 1
==========================================================================================
0.07 NETWORKING EQUIPMENT
Calient Networks, Pfd, Series D
Shrs(b)(f)(l) 1,925,754 1,106,133
==========================================================================================
TOTAL PREFERRED STOCKS (COST $14,213,578) 1,106,134
==========================================================================================
0.01 FIXED INCOME SECURITIES -- CORPORATE BONDS
0.01 NETWORKING EQUIPMENT
Kestrel Solutions, Conv Sub Notes(g)(k)(l),
5.500%, 7/15/2005 (Cost $2,500,000) $ 2,500,000 200,000
==========================================================================================
0.32 OTHER SECURITIES -- DIVERSIFIED FINANCIAL SERVICES
BlueStream Ventures LP(b)(j)(l)(Cost
$12,268,055) 5,184,864
==========================================================================================
7.21 SHORT-TERM INVESTMENTS
4.96 COMMERCIAL PAPER
3.14 CONSUMER RECEIVABLES
New Center Asset Trust, Series 1, Discount
Notes 1.420%, 4/1/2003 $ 50,000,000 50,000,000
==========================================================================================
1.82 DIVERSIFIED FINANCIAL SERVICES
State Street Boston, Discount Notes,
1.390%, 4/1/2003 $ 29,000,000 29,000,000
==========================================================================================
TOTAL COMMERCIAL PAPER
(AMORTIZED COST $79,000,000) 79,000,000
==========================================================================================
2.13 INVESTMENT COMPANIES
INVESCO Treasurer's Series Money Market
Reserve Fund(c)(f), 1.092% (Cost
$33,984,450) 33,984,450 33,984,450
==========================================================================================
0.12 REPURCHASE AGREEMENTS
Repurchase Agreement with State Street
dated 3/31/2003 due 4/1/2003 at 1.230%,
repurchased at $1,910,065 (Collateralized
by Federal Home Loan Bank, Discount Notes,
due 4/1/2003, value $1,950,000) (Cost
$1,910,000) $ 1,910,000 1,910,000
==========================================================================================
TOTAL SHORT-TERM INVESTMENTS
(AMORTIZED COST $114,894,450) 114,894,450
==========================================================================================
100.19 TOTAL INVESTMENTS AT VALUE
(COST $1,873,905,377) 1,596,575,695
==========================================================================================
(0.19) OTHER ASSETS LESS LIABILITIES (3,099,757)
==========================================================================================
100.00 NET ASSETS AT VALUE $1,593,475,938
==========================================================================================
TELECOMMUNICATIONS FUND
89.63 COMMON STOCKS & WARRANTS
2.77 APPLICATION SOFTWARE
Amdocs Ltd(b) UK 290,500 $ 3,857,840
BEA Systems(b) 246,100 2,507,759
Software HOLDRs Trust(e) 52,500 1,334,025
==========================================================================================
7,699,624
SHARES,
COUNTRY CONTRACTS OR
CODE IF PRINCIPAL
% DESCRIPTION NON US AMOUNT VALUE
- ------------------------------------------------------------------------------------------
5.92 BROADCASTING -- RADIO/TV
Clear Channel Communications(b) 100,000 $ 3,392,000
Fox Entertainment Group Class A Shrs(b) 304,000 8,107,680
Univision Communications Class A Shrs(b) 202,400 4,960,824
==========================================================================================
16,460,504
13.11 CABLE & SATELLITE OPERATORS
Comcast Corp Class A Shrs(b)(i) 454,552 12,995,642
Cox Communications Class A Shrs(b) 276,700 8,608,137
EchoStar Communications Class A Shrs(b) 375,500 10,844,440
Liberty Media Series A Shrs(b) 412,600 4,014,598
==========================================================================================
36,462,817
2.08 ELECTRONIC EQUIPMENT & INSTRUMENTS
Garmin Ltd(b) CJ 8,100 289,980
Samsung Electronics Ltd GDR
Representing 1/2 Ord Shr(g) KS 48,600 5,491,800
==========================================================================================
5,781,780
22.67 INTEGRATED TELECOMMUNICATION SERVICES
ALLTEL Corp 139,400 6,239,544
AT&T Corp 195,300 3,163,860
BCE Inc(a) CA 286,200 5,253,340
BellSouth Corp(i) 133,300 2,888,611
CenturyTel Inc 212,800 5,873,280
Deutsche Telekom AG GM 551,200 6,080,856
France Telecom SA(a) FR 97,700 1,992,545
France Telecom SA Warrants(b) (Exp 2003) FR 97,700 383,797
KT Corp Sponsored ADR
Representing 1/2 Ord Shr KS 155,600 2,671,652
Portugal Telecom SGPS SA Sponsored ADR
Representing Ord Shrs PO 814,900 5,557,618
Qwest Communications International(b) 972,100 3,392,629
SBC Communications(i) 147,186 2,952,551
Sprint Corp 276,500 3,248,875
Telefonos de Mexico SA de CV Sponsored ADR
Representing 20 Series L ShrsMX 111,100 3,301,892
Verizon Communications(i) 284,200 10,046,470
==========================================================================================
63,047,520
1.24 MOVIES & ENTERTAINMENT
Viacom Inc Class B Shrs(b) 94,500 3,451,140
==========================================================================================
4.50 NETWORKING EQUIPMENT
Cisco Systems(b)(i) 626,900 8,137,162
Extreme Networks(b) 166,800 722,244
Foundry Networks(b) 252,900 2,033,316
Juniper Networks(b) 198,000 1,617,660
==========================================================================================
12,510,382
2.15 SEMICONDUCTORS
Agere Systems Class A Shrs(b) 707,900 1,132,640
RF Micro Devices(b) 91,100 549,242
Semiconductor HOLDRs Trust(e) 116,300 2,685,367
SHARES,
COUNTRY CONTRACTS OR
CODE IF PRINCIPAL
% DESCRIPTION NON US AMOUNT VALUE
- ------------------------------------------------------------------------------------------
Skyworks Solutions(a)(b) 259,200 $ 1,614,816
==========================================================================================
5,982,065
3.13 SYSTEMS SOFTWARE
Symantec Corp(b) 222,600 8,721,468
==========================================================================================
13.75 TELECOMMUNICATIONS EQUIPMENT
ADC Telecommunications(b) 981,800 2,022,508
ADTRAN Inc(b) 24,300 872,613
Advanced Fibre Communications(b) 52,900 800,906
Alcatel SA Sponsored ADR
Representing Ord Shrs FR 569,800 3,925,922
Comverse Technology(b) 99,800 1,128,738
Corning Inc(b) 513,600 2,999,424
Lucent Technologies(b) 599,700 881,559
Motorola Inc 333,500 2,754,710
Nokia Corp Sponsored ADR
Representing Ord Shrs(a)(i) FI 629,700 8,822,097
Nortel Networks(b) CA 1,516,900 3,155,152
QUALCOMM Inc(h) 302,200 10,897,332
==========================================================================================
38,260,961
18.31 WIRELESS TELECOMMUNICATION SERVICES
America Movil SA Sponsored ADR
Representing 20 Series L ShrsMX 108,200 1,446,634
AT&T Wireless Services(b) 1,983,100 13,088,460
Boston Communications Group(b) 43,900 687,474
Nextel Communications Class A Shrs(b) 965,000 12,921,350
Nextel Partners Class A Shrs(b) 134,300 676,872
Orange SA(b) FR 451,200 3,618,768
Sprint Corp-PCS Group Series 1 Shrs(b) 698,800 3,046,768
Telecom Italia Mobile SpA(a) IT 322,000 1,314,110
Vodafone Group PLC Sponsored ADR
Representing 10 Ord Shrs UK 775,571 14,130,904
==========================================================================================
50,931,340
TOTAL COMMON STOCKS & WARRANTS
(COST $255,802,849) 249,309,601
==========================================================================================
0.16 PREFERRED STOCKS
0.16 NETWORKING EQUIPMENT
Calient Networks, Pfd, Series D Shrs(b)(l)
(Cost $5,438,366) 752,715 432,352
==========================================================================================
0.07 FIXED INCOME SECURITIES -- CORPORATE BONDS
0.07 NETWORKING EQUIPMENT
Kestrel Solutions, Conv Sub Notes(g)(k)(l)
5.500%, 7/15/2005 (Cost $2,500,000) $2,500,000 200,000
==========================================================================================
1.84 OTHER SECURITIES -- DIVERSIFIED FINANCIAL SERVICES
BlueStream Ventures LP(b)(j)(l) (Cost
$12,072,288) 5,102,127
==========================================================================================
15.09 SHORT-TERM INVESTMENTS
8.27 COMMERCIAL PAPER
3.60 CONSUMER RECEIVABLES
New Center Asset Trust, Series 1, Discount
Notes 1.420%, 4/1/2003 $ 10,000,000 10,000,000
==========================================================================================
SHARES,
COUNTRY CONTRACTS OR
CODE IF PRINCIPAL
% DESCRIPTION NON US AMOUNT VALUE
- ------------------------------------------------------------------------------------------
4.67 DIVERSIFIED FINANCIAL SERVICES
State Street Boston, Discount Notes,
1.390%, 4/1/2003 $ 13,000,000 $ 13,000,000
==========================================================================================
TOTAL COMMERCIAL PAPER (Amortized
Cost $23,000,000) 23,000,000
==========================================================================================
6.62 INVESTMENT COMPANIES
INVESCO Treasurer's Series Money Market
Reserve Fund(c)(f), 1.092% (Cost
$18,406,718) 18,406,718 18,406,718
==========================================================================================
0.20 REPURCHASE AGREEMENTS
Repurchase Agreement with State Street
dated 3/31/2003 due 4/1/2003 at 1.230%,
repurchased at $571,020 (Collateralized
by Federal Home Loan Bank, Discount
Notes, due 4/1/2003, value $585,000)
(Cost $571,000) $ 571,000 571,000
==========================================================================================
TOTAL SHORT-TERM INVESTMENTS
(AMORTIZED COST $41,977,718) 41,977,718
==========================================================================================
0.11 OPTIONS PURCHASED -- PUTS
0.11 TELECOMMUNICATIONS EQUIPMENT
QUALCOMM Inc, 7/19/2003, $35 (Cost $261,403) 1,511 309,755
==========================================================================================
106.90 TOTAL INVESTMENTS AT VALUE
(COST $318,052,624) 297,331,553
==========================================================================================
(6.90) OTHER ASSETS LESS LIABILITIES (19,188,925)
==========================================================================================
100.00 NET ASSETS AT VALUE $ 278,142,628
==========================================================================================
UTILITIES FUND
96.82 COMMON STOCKS
69.11 ELECTRIC UTILITIES
Ameren Corp 55,700 $ 2,175,085
American Electric Power 35,600 813,460
Cinergy Corp 103,700 3,489,505
Consolidated Edison 78,100 3,004,507
Dominion Resources 63,900 3,538,143
DPL Inc 58,600 730,156
DTE Energy 50,600 1,955,690
Duke Energy 54,300 789,522
Energy East 136,200 2,424,360
Entergy Corp 73,600 3,543,840
Exelon Corp 67,775 3,416,538
FPL Group 60,000 3,535,800
Hawaiian Electric Industries 41,900 1,707,844
NiSource Inc 92,100 1,676,220
Pepco Holdings 46,900 816,060
Pinnacle West Capital 52,400 1,741,776
PNM Resources 17,200 386,828
PPL Corp 98,500 3,507,585
Progress Energy 69,500 2,720,925
Public Service Enterprise Group 60,800 2,230,752
Puget Energy 93,200 1,986,092
SCANA Corp 86,600 2,591,072
SHARES,
COUNTRY CONTRACTS OR
CODE IF PRINCIPAL
% DESCRIPTION NON US AMOUNT VALUE
- ------------------------------------------------------------------------------------------
Southern Co 84,400 $ 2,400,336
==========================================================================================
51,182,096
2.23 GAS UTILITIES
KeySpan Corp 51,200 1,651,200
==========================================================================================
17.53 INTEGRATED TELECOMMUNICATION SERVICES
AT&T Corp 12,700 205,740
BellSouth Corp 148,200 3,211,494
CenturyTel Inc 127,600 3,521,760
SBC Communications 135,712 2,722,383
Verizon Communications 93,796 3,315,689
==========================================================================================
12,977,066
5.78 NATURAL GAS PIPELINES
Enbridge Energy Management LLC 22,387 891,002
Kinder Morgan Management LLC(b) 104,771 3,389,342
==========================================================================================
4,280,344
2.17 WATER UTILITIES
Philadelphia Suburban 73,300 1,608,935
==========================================================================================
96.82 TOTAL INVESTMENTS AT VALUE
(COST $73,529,285) 71,699,641
==========================================================================================
3.18 OTHER ASSETS LESS LIABILITIES 2,358,450
==========================================================================================
100.00 NET ASSETS AT VALUE $ 74,058,091
==========================================================================================
(a) Loaned security, a portion or all of the security is on loan at March 31,
2003.
(b) Security is non-income producing.
(c) The security is purchased with the cash collateral received from securities
on loan (Note 5).
(d) Represents troy ounces.
(e) HOLDRs - Holding Company Depositary Receipts
(f) Security is an affiliated company (Note 4).
(g) Securities aquired pursuant to Rule 144A. The Fund deems such securities to
be "liquid" because an institutional market exists.
(h) Securities are pledged with broker as collateral for written options.
(i) A portion of the security has been designated as collateral for remaining
commitments to purchase additional interests in BlueStream Ventures LP.
(j) The Technology and Telecommunications Funds have remaining commitments of
$10,575,000 and $10,406,250, respectively, to purchase additional interests
in BlueStream Ventures LP, which are subject to the terms of the limited
partership agreement.
(k) Defaulted security. The issuer is in default with respect to interest
payments and the Fund has stopped accruing interest income.
(l) The following are restricted and illiquid securities at March 31, 2003:
SCHEDULE OF RESTRICTED AND ILLIQUID
SECURITIES
% OF
ACQUISITION ACQUISITION NET ASSETS
DESCRIPTION DATE(S) COSTS AT VALUE
- --------------------------------------------------------------------------------
HEALTH SCIENCES FUND
Athersys Inc, Conv Pfd, Class F Shrs 4/17/00 $ 5,000,000 0.56%
Ingenex Inc, Conv Pfd, Series B Shrs 9/27/94 600,000 0.00
Optimize Inc, Pfd, Series 5 Shrs 10/10/02 628,450 0.06
Scimagix Inc, Pfd, Series C Shrs 5/24/01 1,350,000 0.14
UltraGuide Inc, Pfd
Series E Shrs 6/1/01 1,348,502 0.01
Series F Shrs 6/1/01 151,500 0.00
================================================================================
0.77%
================================================================================
TECHNOLOGY FUND
BlueStream Ventures LP 8/3/00-
12/9/02 $ 12,268,055 0.32%
Calient Networks, Pfd, Series D Shrs 12/8/00 13,913,578 0.07
Ingenex Inc, Conv Pfd, Series B Shrs 9/27/94 300,000 0.00
Kestrel Solutions, Conv Sub Notes
5.500%, 7/15/2005 7/20/00 2,500,000 0.01
================================================================================
0.40%
================================================================================
TELECOMMUNICATIONS FUND
BlueStream Ventures LP 8/3/00-
12/9/02 $ 12,072,288 1.84%
Calient Networks, Pfd, Series D Shrs 12/8/00 5,438,366 0.16
Kestrel Solutions, Conv Sub Notes
5.500%, 7/15/2005 7/20/00 2,500,000 0.07
================================================================================
2.07%
================================================================================
OPTION CONTRACTS
NUMBER OF EXPIRATION EXERCISE PREMIUMS
CONTRACTS DATES PRICE RECEIVED VALUE
- -------------------------------------------------------------------------------
TECHNOLOGY FUND
OPTIONS WRITTEN
CALLS
Xilinx Inc (6,539) 4/19/03 $27.50 $928,509 $(114,433)
================================================================================
TELECOMMUNICATIONS FUND
OPTIONS WRITTEN
CALLS
QUALCOMM Inc (1,511) 7/19/03 $42.50 $297,659 $(230,428)
================================================================================
SUMMARY OF INVESTMENTS BY COUNTRY
% OF
COUNTRY NET ASSETS
COUNTRY CODE AT VALUE VALUE
- --------------------------------------------------------------------------------
ENERGY FUND
Bermuda BD 7.57% $ 19,053,300
Canada CA 5.72 14,378,720
France FR 3.45 8,667,990
Italy IT 2.18 5,475,140
Netherlands NL 3.70 9,302,250
United Kingdom UK 4.23 10,650,840
United States 78.81 198,224,168
Other Assets Less Liabilities (5.66) (14,240,725)
================================================================================
100.00% $ 251,511,683
================================================================================
GOLD & PRECIOUS METALS FUND
Canada CA 55.08% $ 57,661,730
Ghana GH 3.58 3,748,800
Peru PE 3.82 4,000,000
South Africa SF 13.78 14,421,439
United States 35.05 36,685,995
Other Assets Less Liabilities (11.31) (11,841,514)
================================================================================
100.00% $ 104,676,450
================================================================================
LEISURE FUND
Australia AS 1.77% $ 11,597,187
Belgium BE 2.50 16,414,016
Brazil BR 0.86 5,644,000
Canada CA 0.63 4,139,251
Denmark DA 2.28 14,974,333
France FR 0.76 5,015,875
Hong Kong HK 0.15 946,869
Japan JA 0.37 2,462,613
Mexico MX 0.35 2,305,330
Netherlands NL 3.46 22,739,229
Spain SP 0.52 3,416,687
Switzerland SZ 0.71 4,688,831
United Kingdom UK 1.95 12,810,098
United States 85.56 561,933,611
Other Assets Less Liabilities (1.87) (12,304,201)
================================================================================
100.00% $ 656,783,729
================================================================================
SUMMARY OF INVESTMENTS BY COUNTRY
(CONTINUED)
% OF
COUNTRY NET ASSETS
COUNTRY CODE AT VALUE VALUE
- --------------------------------------------------------------------------------
TELECOMMUNICATIONS FUND
Canada CA 3.02% $ 8,408,492
Cayman Islands CJ 0.10 289,980
Finland FI 3.17 8,822,097
France FR 3.57 9,921,032
Germany GM 2.19 6,080,856
Italy IT 0.47 1,314,110
South Korea KS 2.93 8,163,452
Mexico MX 1.71 4,748,526
Portugal PO 2.00 5,557,618
United Kingdom UK 6.47 17,988,744
United States 81.27 226,036,646
Other Assets Less Liabilities (6.90) (19,188,925)
================================================================================
100.00% $ 278,142,628
================================================================================
See Notes to Financial Statements
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
INVESCO SECTOR FUNDS, INC.
MARCH 31, 2003
FINANCIAL
ENERGY SERVICES
FUND FUND
- --------------------------------------------------------------------------------
ASSETS
Investment Securities:
At Cost(a)(b) $ 244,115,665 $ 718,823,685
================================================================================
At Value(a)(b) $ 265,752,408 $ 751,421,758
Cash 0 1,593
Receivables:
Investment Securities Sold 368,936 1,180,061
Fund Shares Sold 771,634 276,376
Dividends and Interest 152,418 960,379
Prepaid Expenses and Other Assets 44,387 75,452
================================================================================
TOTAL ASSETS 267,089,783 753,915,619
================================================================================
LIABILITIES
Payables:
Custodian 9,741 0
Distribution to Shareholders 0 123,047
Investment Securities Purchased 9,872,390 0
Fund Shares Repurchased 1,471,960 1,410,677
Securities Loaned 4,139,034 0
Accrued Distribution Expenses
Investor Class 46,874 147,069
Class A 2,770 1,253
Class B 1,144 764
Class C 7,741 8,177
Class K 100 465
Accrued Expenses and Other Payables 26,346 110,324
================================================================================
TOTAL LIABILITIES 15,578,100 1,801,776
================================================================================
NET ASSETS AT VALUE $ 251,511,683 $ 752,113,843
================================================================================
NET ASSETS
Paid-in Capital(c) $ 292,005,495 $ 781,919,715
Accumulated Undistributed Net Investment
Loss (28,917) (27,883)
Accumulated Undistributed Net Realized
Loss on Investment Securities and
Foreign Currency Transactions (62,101,638) (62,379,689)
Net Appreciation of Investment
Securities and Foreign Currency
Transactions 21,636,743 32,601,700
================================================================================
NET ASSETS AT VALUE, Applicable to
Shares Outstanding $ 251,511,683 $ 752,113,843
================================================================================
NET ASSETS AT VALUE:
Investor Class $ 231,023,351 $ 734,439,759
================================================================================
Class A $ 9,130,699 $ 5,310,648
================================================================================
Class B $ 1,501,954 $ 989,629
================================================================================
Class C $ 9,566,346 $ 10,026,026
================================================================================
Class K $ 289,333 $ 1,347,781
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(CONTINUED)
INVESCO SECTOR FUNDS, INC.
MARCH 31, 2003
FINANCIAL
ENERGY SERVICES
FUND FUND
(CONTINUED) (CONTINUED)
- --------------------------------------------------------------------------------
Shares Outstanding
Investor Class 13,745,599 33,736,622
Class A 542,002 244,946
Class B 89,871 45,528
Class C 581,459 469,023
Class K 18,602 63,360
================================================================================
NET ASSET VALUE PER SHARE:
Investor Class, Offering and
Redemption Price per Share $ 16.81 $ 21.77
Class A
Redemption Price per Share $ 16.85 $ 21.68
Offering Price per Share (Maximum
sales charge of 5.50%) $ 17.83 $ 22.94
Class B, Offering and Redemption
Price per Share $ 16.71 $ 21.74
Class C, Offering and Redemption
Price per Share $ 16.45 $ 21.38
Class K, Offering and Redemption
Price per Share $ 15.55 $ 21.27
================================================================================
(a) Investment securities at cost and value at March 31, 2003 include repurchase
agreements of $360,000 and $533,000 for Energy and Financial Services Funds,
respectively.
(b) Investment securities at cost and value at March 31, 2003 include $4,005,265
of securities loaned for Energy Fund (Note 5).
(c) The INVESCO Sector Funds, Inc. have 6.5 billion authorized shares of common
stock, par value of $0.01 per share. Of such shares, 500 million have been
allocated to Energy Fund and 700 million to Financial Services Fund: 100
million to each Class of Energy Fund, 300 million to Financial Services Fund
- Investor Class and 100 million to each additional Class of Financial
Services Fund.
See Notes to Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
(CONTINUED)
INVESCO SECTOR FUNDS, INC.
MARCH 31, 2003
GOLD & HEALTH
PRECIOUS SCIENCES
METALS FUND FUND
- --------------------------------------------------------------------------------
ASSETS
Investment Securities:
At Cost(a)(b)(c) $ 101,099,059 $ 859,232,047
================================================================================
At Value(a)(b)(c) $ 116,517,964 $ 990,684,158
Cash 245,147 19,111
Receivables:
Fund Shares Sold 3,240,837 3,397,774
Dividends and Interest 25,635 1,197,618
Prepaid Expenses and Other Assets 39,495 92,854
================================================================================
TOTAL ASSETS 120,069,078 995,391,515
================================================================================
LIABILITIES
Payables:
Investment Securities Purchased 3,848,188 0
Fund Shares Repurchased 157,417 3,914,950
Securities Loaned 11,344,418 24,193,400
Depreciation on Forward Foreign
Currency Contracts 1,612 0
Accrued Distribution Expenses
Investor Class 19,287 185,484
Class A 422 577
Class B 1,738 467
Class C 2,309 5,182
Class K -- 737
Accrued Expenses and Other Payables 17,237 137,552
================================================================================
TOTAL LIABILITIES 15,392,628 28,438,349
================================================================================
NET ASSETS AT VALUE $ 104,676,450 $ 966,953,166
================================================================================
NET ASSETS
Paid-in Capital(d) $ 281,090,573 $ 1,200,414,039
Accumulated Undistributed Net Investment
Loss (140,069) (158,098)
Accumulated Undistributed Net Realized
Loss on Investment Securities and
Foreign Currency Transactions (191,693,016) (364,758,358)
Net Appreciation of Investment
Securities and Foreign Currency
Transactions 15,418,962 131,455,583
================================================================================
NET ASSETS AT VALUE, Applicable to
Shares Outstanding $ 104,676,450 $ 966,953,166
================================================================================
NET ASSETS AT VALUE:
Investor Class $ 98,387,540 $ 954,764,627
================================================================================
Class A $ 1,514,115 $ 3,731,315
================================================================================
Class B $ 2,315,329 $ 620,876
================================================================================
Class C $ 2,459,466 $ 5,846,096
================================================================================
Class K -- $ 1,990,252
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(CONTINUED)
INVESCO SECTOR FUNDS, INC.
MARCH 31, 2003
GOLD & HEALTH
PRECIOUS SCIENCES
METALS FUND FUND
(CONTINUED) (CONTINUED)
- --------------------------------------------------------------------------------
Shares Outstanding
Investor Class 41,060,996 24,782,519
Class A 633,436 96,766
Class B 968,914 16,194
Class C 976,679 156,852
Class K -- 52,636
================================================================================
NET ASSET VALUE PER SHARE:
Investor Class, Offering and
Redemption Price per Share $ 2.40 $ 38.53
Class A
Redemption Price per Share $ 2.39 $ 38.56
Offering Price per Share (Maximum
sales charge of 5.50%) $ 2.53 $ 40.80
Class B, Offering and Redemption
Price per Share $ 2.39 $ 38.34
Class C, Offering and Redemption
Price per Share $ 2.52 $ 37.27
Class K, Offering and Redemption
Price per Share -- $ 37.81
================================================================================
(a) Investment securities at cost and value at March 31, 2003 include repurchase
agreements of $8,531,000 and $4,424,000 for Gold & Precious Metals and
Health Sciences Funds, respectively.
(b) Investment securities at March 31, 2003 includes gold bullion cost of
$4,266,114 and value of $5,051,577 for Gold & Precious Metals Fund.
(c) Investment securities at cost and value at March 31, 2003 include
$10,736,161 and $23,272,794 of securities loaned for Gold & Precious Metals
and Health Sciences Funds, respectively (Note 5).
(d) The INVESCO Sector Funds, Inc. have 6.5 billion authorized shares of common
stock, par value of $0.01 per share. Of such shares, 800 million have been
allocated to Gold & Precious Metals Fund and 500 million to Health Sciences
Fund: 200 million to each Class of Gold & Precious Metals Fund and 100
million to each Class of Health Sciences Fund.
See Notes to Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
(CONTINUED)
INVESCO SECTOR FUNDS, INC.
MARCH 31, 2003
REAL ESTATE
LEISURE OPPORTUNITY
FUND FUND
- --------------------------------------------------------------------------------
ASSETS
Investment Securities:
At Cost(a)(b) $ 614,043,731 $ 23,345,776
================================================================================
At Value(a)(b) $ 669,087,930 $ 24,042,858
Cash 1,239 1,861
Foreign Currency (Cost $6,207 and $0,
respectively) 6,335 0
Receivables:
Investment Securities Sold 2,468,771 106,648
Fund Shares Sold 707,448 63,369
Dividends and Interest 508,967 127,465
Foreign Tax Reclaims 55,957 0
Prepaid Expenses and Other Assets 62,468 21,265
================================================================================
TOTAL ASSETS 672,899,115 24,363,466
================================================================================
LIABILITIES
Payables:
Distributions to Shareholders 0 6,503
Investment Securities Purchased 672,936 0
Fund Shares Repurchased 1,530,885 653,847
Securities Loaned 13,706,737 0
Accrued Distribution Expenses
Investor Class 105,106 4,158
Class A 7,193 661
Class B 6,290 101
Class C 14,074 556
Class K 23,460 --
Accrued Expenses and Other Payables 48,705 4,529
================================================================================
TOTAL LIABILITIES 16,115,386 670,355
================================================================================
NET ASSETS AT VALUE $ 656,783,729 $ 23,693,111
================================================================================
NET ASSETS
Paid-in Capital(c) $ 677,098,635 $ 31,772,926
Accumulated Undistributed Net
Investment Income (Loss) (48,343) 9,823
Accumulated Undistributed Net Realized
Loss on Investment Securities and
Foreign Currency Transactions (75,317,281) (8,786,720)
Net Appreciation of Investment
Securities and Foreign Currency
Transactions 55,050,718 697,082
================================================================================
NET ASSETS AT VALUE, Applicable to
Shares Outstanding $ 656,783,729 $ 23,693,111
================================================================================
NET ASSETS AT VALUE:
Investor Class $ 536,108,142 $ 20,313,257
================================================================================
Class A $ 27,174,768 $ 2,408,721
================================================================================
Class B $ 8,268,127 $ 133,437
================================================================================
Class C $ 17,767,841 $ 837,696
================================================================================
Class K $ 67,464,851 --
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(CONTINUED)
INVESCO SECTOR FUNDS, INC.
MARCH 31, 2003
REAL ESTATE
LEISURE OPPORTUNITY
FUND FUND
- --------------------------------------------------------------------------------
Shares Outstanding
Investor Class 17,391,376 2,697,435
Class A 880,146 323,961
Class B 269,777 17,990
Class C 592,268 108,422
Class K 2,194,824 --
================================================================================
NET ASSET VALUE PER SHARE:
Investor Class, Offering and
Redemption Price per Share $ 30.83 $ 7.53
Class A
Redemption Price per Share $ 30.88 $ 7.44
Offering Price per Share (Maximum
sales charge of 5.50%) $ 32.68 $ 7.87
Class B, Offering and Redemption
Price per Share $ 30.65 $ 7.42
Class C, Offering and Redemption
Price per Share $ 30.00 $ 7.73
Class K, Offering and Redemption
Price per Share $ 30.74 --
================================================================================
(a) Investment securities at cost and value at March 31, 2003 include repurchase
agreements of $5,814,000 and $1,485,000 for Leisure and Real Estate
Opportunity Funds, respectively.
(b) Investment securities at cost and value at March 31, 2003 include
$13,094,173 of securities loaned for Leisure Fund (Note 5).
(c) The INVESCO Sector Funds, Inc. have 6.5 billion authorized shares of common
stock, par value of $0.01 per share. Of such shares, 500 million have been
allocated to Leisure Fund and 400 million to Real Estate Opportunity Fund:
100 million to each Class.
See Notes to Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
(CONTINUED)
INVESCO SECTOR FUNDS, INC.
MARCH 31, 2003
TECHNOLOGY TELECOMMUNICATIONS
FUND FUND
- --------------------------------------------------------------------------------
ASSETS
Investment Securities:
At Cost(a)(b) $ 1,873,905,377 $ 318,052,624
================================================================================
At Value(a)(b) $ 1,596,575,695 $ 297,331,553
Cash 6,204 6,580
Receivables:
Investment Securities Sold 54,863,674 1,457,710
Fund Shares Sold 5,018,934 137,164
Dividends and Interest 525,375 397,037
Prepaid Expenses and Other Assets 160,176 104,556
================================================================================
TOTAL ASSETS 1,657,150,058 299,434,600
================================================================================
LIABILITIES
Options Written at Value (Premiums
Received $928,509 and $297,659,
respectively) 114,433 230,428
Payables:
Investment Securities Purchased 20,722,456 1,953,643
Fund Shares Repurchased 8,425,828 562,373
Securities Loaned 33,984,450 18,406,718
Accrued Distribution Expenses
Investor Class 174,578 55,275
Class A 1,194 110
Class B 423 12
Class C 4,925 2,258
Class K 8,100 248
Accrued Expenses and Other Payables 237,733 80,907
================================================================================
TOTAL LIABILITIES 63,674,120 21,291,972
================================================================================
NET ASSETS AT VALUE $ 1,593,475,938 $ 278,142,628
================================================================================
NET ASSETS
Paid-in Capital(c) $ 6,042,626,245 $ 1,955,452,313
Accumulated Undistributed Net
Investment Loss (232,309) (66,378)
Accumulated Undistributed Net Realized
Loss on Investment Securities,
Foreign Currency Transactions and
Option Contracts (4,172,402,393) (1,656,590,047)
Net Depreciation of Investment
Securities, Foreign Currency
Transactions and Option Contracts (276,515,605) (20,653,260)
================================================================================
NET ASSETS AT VALUE, Applicable to
Shares Outstanding $ 1,593,475,938 $ 278,142,628
================================================================================
NET ASSETS AT VALUE:
Institutional Class $ 707,040,240 --
================================================================================
Investor Class $ 853,529,554 $ 274,946,793
================================================================================
Class A $ 4,459,686 $ 325,550
================================================================================
Class B $ 531,767 $ 15,865
================================================================================
Class C $ 5,758,958 $ 2,188,211
================================================================================
Class K $ 22,155,733 $ 666,209
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(CONTINUED)
INVESCO SECTOR FUNDS, INC.
MARCH 31, 2003
TECHNOLOGY TELECOMMUNICATIONS
FUND FUND
(CONTINUED) (CONTINUED)
- --------------------------------------------------------------------------------
Shares Outstanding
Institutional Class 40,770,656 --
Investor Class 50,510,923 34,558,571
Class A 262,641 41,098
Class B 31,586 2,011
Class C 351,409 283,394
Class K 1,320,710 84,345
================================================================================
NET ASSET VALUE PER SHARE:
Institutional Class, Offering and
Redemption Price per Share $ 17.34 --
Investor Class, Offering and
Redemption Price per Share $ 16.90 $ 7.96
Class A
Redemption Price per Share $ 16.98 $ 7.92
Offering Price per Share (Maximum
sales charge of 5.50%) $ 17.97 $ 8.38
Class B, Offering and Redemption
Price per Share $ 16.84 $ 7.89
Class C, Offering and Redemption
Price per Share $ 16.39 $ 7.72
Class K, Offering and Redemption
Price per Share $ 16.78 $ 7.90
================================================================================
(a) Investment securities at cost and value at March 31, 2003 include repurchase
agreements of $1,910,000 and $571,000 for the Technology and
Telecommunications Funds, respectively.
(b) Investment securities at cost and value at March 31, 2003 include
$31,829,843 and $17,205,652 of securities loaned for Technology and
Telecommunications Funds, respectively (Note 5).
(c) The INVESCO Sector Funds, Inc. have 6.5 billion authorized shares of common
stock, par value of $0.01 per share. Of such shares, 1 billion have been
allocated to Technology Fund and 1.1 billion to Telecommunications Fund: 300
million to Technology Fund - Institutional Class and Investor Class, 100
million to each additional Class of Technology Fund, 300 million to
Telecommunications Fund - Investor Class and 200 million to each additional
Class of Telecommunications Fund.
See Notes to Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
(CONTINUED)
INVESCO SECTOR FUNDS, INC.
MARCH 31, 2003
UTILITIES
FUND
- --------------------------------------------------------------------------------
ASSETS
Investment Securities:
At Cost $ 73,529,285
================================================================================
At Value $ 71,699,641
Receivables:
Investment Securities Sold 151,526
Fund Shares Sold 22,796
Dividends and Interest 113,246
Loans to Affiliated Fund (Note 6) 2,200,000
Prepaid Expenses and Other Assets 38,582
================================================================================
TOTAL ASSETS 74,225,791
================================================================================
LIABILITIES
Payables:
Custodian 8,843
Distributions to Shareholders 23,888
Fund Shares Repurchased 103,481
Accrued Distribution Expenses
Investor Class 14,474
Class A 121
Class B 157
Class C 546
Accrued Expenses and Other Payables 16,190
================================================================================
TOTAL LIABILITIES 167,700
================================================================================
NET ASSETS AT VALUE $ 74,058,091
================================================================================
NET ASSETS
Paid-in Capital(a) $ 116,412,319
Accumulated Undistributed Net Investment Loss (43,913)
Accumulated Undistributed Net Realized Loss on
Investment Securities (40,480,671)
Net Depreciation of Investment Securities (1,829,644)
================================================================================
NET ASSETS AT VALUE, Applicable to Shares Outstanding $ 74,058,091
================================================================================
NET ASSETS AT VALUE:
Investor Class $ 72,749,091
================================================================================
Class A $ 449,557
================================================================================
Class B $ 192,632
================================================================================
Class C $ 666,811
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(CONTINUED)
INVESCO SECTOR FUNDS, INC.
MARCH 31, 2003
UTILITIES
FUND
(CONTINUED)
- --------------------------------------------------------------------------------
Shares Outstanding
Investor Class 8,881,314
Class A 55,310
Class B 23,629
Class C 81,169
================================================================================
NET ASSET VALUE PER SHARE:
Investor Class, Offering and Redemption Price per Share $ 8.19
Class A
Redemption Price per Share $ 8.13
Offering Price per Share (Maximum sales charge of 5.50%) $ 8.60
Class B, Offering and Redemption Price per Share $ 8.15
Class C, Offering and Redemption Price per Share $ 8.22
================================================================================
(a) The INVESCO Sector Funds, Inc. have 6.5 billion authorized shares of common
stock, par value of $0.01 per share. Of such shares, 400 million have been
allocated to Utilities Fund: 100 million to each Class.
See Notes to Financial Statements
STATEMENT OF OPERATIONS
INVESCO SECTOR FUNDS, INC.
YEAR ENDED MARCH 31, 2003
FINANCIAL
ENERGY SERVICES
FUND FUND
- --------------------------------------------------------------------------------
INVESTMENT INCOME
INCOME
Dividends $ 3,070,714 $ 15,953,262
Dividends from Affiliated Investment
Companies 1,432 13,560
Interest 179,899 683,454
Securities Loaned Income 22,711 0
Foreign Taxes Withheld (64,984) (14,787)
================================================================================
TOTAL INCOME 3,209,772 16,635,489
================================================================================
EXPENSES
Investment Advisory Fees 2,180,691 6,240,794
Distribution Expenses 816,474 2,466,453
Transfer Agent Fees 1,421,179 3,286,277
Administrative Services Fees 141,109 434,701
Custodian Fees and Expenses 63,123 154,671
Directors' Fees and Expenses 28,463 75,053
Interest Expenses 2,770 6,158
Professional Fees and Expenses 40,362 70,249
Registration Fees and Expenses
Investor Class 56,121 68,158
Class A 33 14
Class B 8 6
Class C 716 700
Class K 1,471 1,471
Reports to Shareholders 231,087 505,772
Other Expenses 17,972 51,659
================================================================================
TOTAL EXPENSES 5,001,579 13,362,136
Fees and Expenses Absorbed/Reimbursed
by Investment Adviser (25,187) (9,970)
Fees and Expenses Paid Indirectly (39,730) (120,799)
================================================================================
NET EXPENSES 4,936,662 13,231,367
================================================================================
NET INVESTMENT INCOME (LOSS) (1,726,890) 3,404,122
================================================================================
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENT SECURITIES
Net Realized Gain (Loss) on:
Investment Securities (15,930,670) (63,593,616)
Foreign Currency Transactions 4,369 2,771,359
================================================================================
Total Net Realized Loss (15,926,301) (60,822,257)
================================================================================
Change in Net Appreciation/Depreciation of:
Investment Securities (32,597,193) (200,871,286)
Foreign Currency Transactions 0 578,729
================================================================================
Total Change in Net Appreciation/
Depreciation (32,597,193) (200,292,557)
================================================================================
NET LOSS ON INVESTMENT SECURITIES
AND FOREIGN CURRENCY TRANSACTIONS (48,523,494) (261,114,814)
================================================================================
NET DECREASE IN NET ASSETS FROM
OPERATIONS $ (50,250,384) $ (257,710,692)
================================================================================
See Notes to Financial Statements
STATEMENT OF OPERATIONS (CONTINUED)
INVESCO SECTOR FUNDS, INC.
YEAR ENDED MARCH 31, 2003
GOLD & HEALTH
PRECIOUS SCIENCES
METALS FUND FUND
- --------------------------------------------------------------------------------
INVESTMENT INCOME
INCOME
Dividends $ 1,130,458 $ 7,642,641
Dividends from Affiliated Investment
Companies 193 0
Interest 65,789 1,057,768
Securities Loaned Income 81,867 23,360
Foreign Taxes Withheld (51,397) (211,719)
================================================================================
TOTAL INCOME 1,226,910 8,512,050
================================================================================
EXPENSES
Investment Advisory Fees 872,426 7,301,319
Distribution Expenses 317,235 2,912,258
Transfer Agent Fees 663,698 4,499,468
Administrative Services Fees 62,346 521,471
Custodian Fees and Expenses 74,783 193,304
Directors' Fees and Expenses 15,272 93,700
Interest Expenses 3,928 55,920
Professional Fees and Expenses 30,114 88,461
Registration Fees and Expenses
Investor Class 28,521 81,710
Class A 26 57
Class B 16 9
Class C 709 757
Class K -- 1,490
Reports to Shareholders 127,695 744,825
Other Expenses 12,739 54,025
================================================================================
TOTAL EXPENSES 2,209,508 16,548,774
Fees and Expenses Absorbed/Reimbursed
by Investment Adviser (431) (46,227)
Fees and Expenses Paid Indirectly (35,642) (149,727)
================================================================================
NET EXPENSES 2,173,435 16,352,820
================================================================================
NET INVESTMENT LOSS (946,525) (7,840,770)
================================================================================
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENT SECURITIES
Net Realized Gain (Loss) on:
Investment Securities 13,253,503 (174,505,515)
Foreign Currency Transactions (378,438) 2,888,105
================================================================================
Total Net Realized Gain (Loss) 12,875,065 (171,617,410)
================================================================================
Change in Net Appreciation/Depreciation of:
Investment Securities (13,851,974) (86,875,175)
Foreign Currency Transactions 3,527,175 (302,242)
================================================================================
Total Change in Net Appreciation/
Depreciation (10,324,799) (87,177,417)
================================================================================
NET GAIN (LOSS) ON INVESTMENT SECURITIES
AND FOREIGN CURRENCY TRANSACTIONS 2,550,266 (258,794,827)
================================================================================
NET INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS $ 1,603,741 $ (266,635,597)
================================================================================
See Notes to Financial Statements
STATEMENT OF OPERATIONS (CONTINUED)
INVESCO SECTOR FUNDS, INC.
YEAR ENDED MARCH 31, 2003
REAL ESTATE
LEISURE OPPORTUNITY
FUND FUND
- --------------------------------------------------------------------------------
INVESTMENT INCOME
INCOME
Dividends $ 5,639,202 $ 1,403,338
Dividends from Affiliated Investment
Companies 13,503 0
Interest 377,555 22,419
Securities Loaned Income 126,700 0
Foreign Taxes Withheld (242,648) 0
================================================================================
TOTAL INCOME 5,914,312 1,425,757
================================================================================
EXPENSES
Investment Advisory Fees 5,033,513 192,643
Distribution Expenses 2,130,359 72,018
Transfer Agent Fees 3,196,058 214,102
Administrative Services Fees 337,249 21,559
Custodian Fees and Expenses 219,159 9,627
Directors' Fees and Expenses 53,937 9,823
Interest Expenses 60 122
Professional Fees and Expenses 59,213 29,278
Registration Fees and Expenses
Investor Class 61,914 14,355
Class A 31 40
Class B 13 12
Class C 694 710
Class K 1,175 --
Reports to Shareholders 384,113 58,243
Other Expenses 39,395 4,429
================================================================================
TOTAL EXPENSES 11,516,883 626,961
Fees and Expenses Absorbed/Reimbursed
by Investment Adviser (213,960) (207,889)
Fees and Expenses Paid Indirectly (808) (730)
================================================================================
NET EXPENSES 11,302,115 418,342
================================================================================
NET INVESTMENT INCOME (LOSS) (5,387,803) 1,007,415
================================================================================
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENT SECURITIES
Net Realized Gain (Loss) on:
Investment Securities (64,777,824) 33,309
Foreign Currency Transactions 947,408 0
================================================================================
Total Net Realized Gain (Loss) (63,830,416) 33,309
================================================================================
Change in Net Appreciation/Depreciation of:
Investment Securities (139,569,928) (2,096,036)
Foreign Currency Transactions 20,986,955 0
================================================================================
Total Change in Net Appreciation/
Depreciation (118,582,973) (2,096,036)
================================================================================
NET LOSS ON INVESTMENT SECURITIES
AND FOREIGN CURRENCY TRANSACTIONS (182,413,389) (2,062,727)
================================================================================
NET DECREASE IN NET ASSETS
FROM OPERATIONS $ (187,801,192) $ (1,055,312)
================================================================================
See Notes to Financial Statements
STATEMENT OF OPERATIONS (CONTINUED)
INVESCO SECTOR FUNDS, INC.
YEAR ENDED MARCH 31, 2003
TECHNOLOGY TELECOMMUNICATIONS
FUND FUND
- --------------------------------------------------------------------------------
INVESTMENT INCOME
INCOME
Dividends $ 3,714,705 $ 3,913,369
Dividends from Affiliated Investment
Companies 0 40,672
Interest 2,433,548 714,980
Securities Loaned Income 188,766 205,579
Foreign Taxes Withheld (212,626) (241,485)
================================================================================
TOTAL INCOME 6,124,393 4,633,115
================================================================================
EXPENSES
Investment Advisory Fees 11,673,473 2,309,149
Distribution Expenses 2,900,084 915,538
Transfer Agent Fees 10,338,284 5,386,698
Administrative Services Fees 892,715 170,044
Custodian Fees and Expenses 294,267 123,339
Directors' Fees and Expenses 133,696 31,221
Interest Expenses 8,418 2,969
Professional Fees and Expenses 134,083 55,220
Registration Fees and Expenses
Institutional 22,779 --
Investor Class 185,595 114,342
Class A 7 15
Class B 4 5
Class C 677 716
Class K 1,452 1,472
Reports to Shareholders 1,017,230 779,158
Other Expenses 92,971 26,364
================================================================================
TOTAL EXPENSES 27,695,735 9,916,250
Fees and Expenses Absorbed/Reimbursed
by Investment Adviser (233,001) (3,453,759)
Fees and Expenses Paid Indirectly (2,015) (74,314)
================================================================================
NET EXPENSES 27,460,719 6,388,177
================================================================================
NET INVESTMENT LOSS (21,336,326) (1,755,062)
================================================================================
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENT SECURITIES
Net Realized Gain (Loss) on:
Investment Securities (1,341,077,063) (397,915,271)
Foreign Currency Transactions (1,037) (120,611)
Option Contracts 20,689,078 314,778
================================================================================
Total Net Realized Loss (1,320,389,022) (397,721,104)
================================================================================
Change in Net Appreciation/Depreciation of:
Investment Securities (32,763,181) 204,480,051
Foreign Currency Transactions 0 5,240,216
Option Contracts (4,996,760) (114,268)
================================================================================
Total Change in Net Appreciation/
Depreciation (37,759,941) 209,605,999
================================================================================
NET LOSS ON INVESTMENT SECURITIES,
FOREIGN CURRENCY TRANSACTIONS AND
OPTION CONTRACTS (1,358,148,963) (188,115,105)
================================================================================
NET DECREASE IN NET ASSETS
FROM OPERATIONS $(1,379,485,289) $ (189,870,167)
================================================================================
See Notes to Financial Statements
STATEMENT OF OPERATIONS (CONTINUED)
INVESCO SECTOR FUNDS, INC.
YEAR ENDED MARCH 31, 2003
UTILITIES
FUND
- --------------------------------------------------------------------------------
INVESTMENT INCOME
INCOME
Dividends $ 3,192,572
Interest 295,851
Securities Loaned Income 1,380
Foreign Taxes Withheld (4,252)
================================================================================
TOTAL INCOME 3,485,551
================================================================================
EXPENSES
Investment Advisory Fees 666,839
Distribution Expenses 230,974
Transfer Agent Fees 560,954
Administrative Services Fees 50,010
Custodian Fees and Expenses 16,960
Directors' Fees and Expenses 14,978
Interest Expenses 266
Professional Fees and Expenses 28,014
Registration Fees and Expenses
Investor Class 21,891
Class A 12
Class B 9
Class C 703
Reports to Shareholders 104,971
Other Expenses 7,734
================================================================================
TOTAL EXPENSES 1,704,315
Fees and Expenses Absorbed/Reimbursed by Investment Adviser (543,805)
Fees and Expenses Paid Indirectly (316)
================================================================================
NET EXPENSES 1,160,194
================================================================================
NET INVESTMENT INCOME 2,325,357
================================================================================
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENT SECURITIES
Net Realized Loss on Investment Securities (13,056,963)
Change in Net Appreciation/Depreciation of Investment
Securities (13,674,867)
================================================================================
NET LOSS ON INVESTMENT SECURITIES (26,731,830)
================================================================================
NET DECREASE IN NET ASSETS FROM OPERATIONS $ (24,406,473)
================================================================================
See Notes to Financial Statements
STATEMENT OF CHANGES IN NET ASSETS
ENERGY FUND
YEAR ENDED MARCH 31
- --------------------------------------------------------------------------------
2003 2002
OPERATIONS
Net Investment Loss $ (1,726,890) $ (1,466,773)
Net Realized Loss (15,926,301) (44,619,544)
Change in Net Appreciation/Depreciation (32,597,193) 5,832,460
================================================================================
NET DECREASE IN NET
ASSETS FROM OPERATIONS (50,250,384) (40,253,857)
================================================================================
FUND SHARE TRANSACTIONS
Proceeds from Sales of Shares
Investor Class 218,874,059 644,971,752
Class A 19,736,581 --
Class B 1,571,590 --
Class C 16,754,905 20,669,161
Class K 343,185 35,899
================================================================================
257,280,320 665,676,812
Amounts Paid for Repurchases of Shares
Investor Class (298,479,641) (692,833,382)
Class A (9,898,155) --
Class B (50,708) --
Class C (17,803,340) (16,337,642)
Class K (85,824) (2,743)
================================================================================
(326,317,668) (709,173,767)
NET DECREASE IN NET ASSETS
FROM FUND SHARE TRANSACTIONS (69,037,348) (43,496,955)
================================================================================
TOTAL DECREASE IN NET ASSETS (119,287,732) (83,750,812)
NET ASSETS
Beginning of Period 370,799,415 454,550,227
================================================================================
End of Period (Including Accumulated
Undistributed Net Investment Loss of
($28,917) and ($23,683), respectively) $ 251,511,683 $ 370,799,415
================================================================================
See Notes to Financial Statements
STATEMENT OF CHANGES IN NET ASSETS
(CONTINUED)
FINANCIAL SERVICES FUND
YEAR ENDED MARCH 31
- --------------------------------------------------------------------------------
2003 2002
OPERATIONS
Net Investment Income $ 3,404,122 $ 3,116,228
Net Realized Gain (Loss) (60,822,257) 17,633,179
Change in Net Appreciation/Depreciation (200,292,557) 15,800,834
================================================================================
NET INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS (257,710,692) 36,550,241
================================================================================
DISTRIBUTIONS TO SHAREHOLDERS
Investor Class (4,532,916) (74,131,190)
Class A (54,866) --
Class B (6,424) --
Class C (18,276) (769,067)
Class K (9,840) (74,131)
================================================================================
TOTAL DISTRIBUTIONS (4,622,322) (74,974,388)
================================================================================
FUND SHARE TRANSACTIONS
Proceeds from Sales of Shares
Investor Class 2,282,256,437 1,480,559,448
Class A 8,745,135 --
Class B 1,184,600 --
Class C 19,297,579 27,338,396
Class K 964,477 1,778,835
Reinvestment of Distributions
Investor Class 4,373,500 70,771,361
Class A 46,662 --
Class B 5,986 --
Class C 15,533 715,041
Class K 9,812 74,046
================================================================================
2,316,899,721 1,581,237,127
Amounts Paid for Repurchases of Shares
Investor Class (2,529,161,658) (1,647,802,644)
Class A (2,632,329) --
Class B (49,759) --
Class C (22,397,274) (22,844,846)
Class K (355,893) (825,978)
================================================================================
(2,554,596,913) (1,671,473,468)
NET DECREASE IN NET ASSETS
FROM FUND SHARE TRANSACTIONS (237,697,192) (90,236,341)
================================================================================
TOTAL DECREASE IN NET ASSETS (500,030,206) (128,660,488)
NET ASSETS
Beginning of Period 1,252,144,049 1,380,804,537
================================================================================
End of Period (Including Accumulated
Undistributed Net Investment Loss
of ($27,883) and ($108,164),
respectively) $ 752,113,843 $ 1,252,144,049
================================================================================
See Notes to Financial Statements
STATEMENT OF CHANGES IN NET ASSETS
(CONTINUED)
GOLD & PRECIOUS METALS FUND
YEAR ENDED MARCH 31
- --------------------------------------------------------------------------------
2003 2002
OPERATIONS
Net Investment Loss $ (946,525) $ (618,754)
Net Realized Gain (Loss) 12,875,065 (561,100)
Change in Net Appreciation/Depreciation (10,324,799) 38,665,964
================================================================================
NET INCREASE IN NET
ASSETS FROM OPERATIONS 1,603,741 37,486,110
================================================================================
FUND SHARE TRANSACTIONS
Proceeds from Sales of Shares
Investor Class 288,729,638 250,552,619
Class A 8,742,700 --
Class B 2,670,343 --
Class C 20,351,688 3,043,172
================================================================================
320,494,369 253,595,791
Amounts Paid for Repurchases of Shares
Investor Class (297,679,646) (247,531,594)
Class A (6,894,638) --
Class B (228,708) --
Class C (17,964,744) (2,690,754)
================================================================================
(322,767,736) (250,222,348)
NET INCREASE (DECREASE) IN NET ASSETS
FROM FUND SHARE TRANSACTIONS (2,273,367) 3,373,443
================================================================================
TOTAL INCREASE (DECREASE) IN NET ASSETS (669,626) 40,859,553
NET ASSETS
Beginning of Period 105,346,076 64,486,523
================================================================================
End of Period (Including Accumulated
Undistributed Net Investment Loss
of ($140,069) and ($789,954),
respectively) $ 104,676,450 $ 105,346,076
================================================================================
See Notes to Financial Statements
STATEMENT OF CHANGES IN NET ASSETS
(CONTINUED)
HEALTH SCIENCES FUND
YEAR ENDED MARCH 31
- --------------------------------------------------------------------------------
2003 2002
OPERATIONS
Net Investment Loss $ (7,840,770) $ (12,583,295)
Net Realized Loss (171,617,410) (148,326,289)
Change in Net Appreciation/Depreciation (87,177,417) 226,759,441
================================================================================
NET INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS (266,635,597) 65,849,857
================================================================================
DISTRIBUTIONS TO SHAREHOLDERS
Investor Class 0 (583,793)
Class C 0 (8,161)
Class K 0 (1,034)
================================================================================
TOTAL DISTRIBUTIONS 0 (592,988)
================================================================================
FUND SHARE TRANSACTIONS
Proceeds from Sales of Shares
Investor Class 3,275,394,183 2,819,831,341
Class A 11,568,902 --
Class B 709,368 --
Class C 86,806,161 444,052,177
Class K 1,290,276 3,560,641
Reinvestment of Distributions
Investor Class 0 569,872
Class C 0 7,780
Class K 0 1,034
================================================================================
3,375,768,890 3,268,022,845
Amounts Paid for Repurchases of Shares
Investor Class (3,532,369,079) (2,989,733,603)
Class A (7,580,049) --
Class B (38,094) --
Class C (94,578,217) (440,088,546)
Class K (1,224,074) (994,361)
================================================================================
(3,635,789,513) (3,430,816,510)
NET DECREASE IN NET ASSETS
FROM FUND SHARE TRANSACTIONS (260,020,623) (162,793,665)
================================================================================
TOTAL DECREASE IN NET ASSETS (526,656,220) (97,536,796)
NET ASSETS
Beginning of Period 1,493,609,386 1,591,146,182
================================================================================
End of Period (Including Accumulated
Undistributed Net Investment Loss
of ($158,098) and ($124,891),
respectively) $ 966,953,166 $ 1,493,609,386
================================================================================
See Notes to Financial Statements
STATEMENT OF CHANGES IN NET ASSETS
(CONTINUED)
LEISURE FUND
YEAR ENDED MARCH 31
- --------------------------------------------------------------------------------
2003 2002
(Note 1)
OPERATIONS
Net Investment Loss $ (5,387,803) $ (4,636,576)
Net Realized Loss (63,830,416) (11,436,792)
Change in Net Appreciation/Depreciation (118,582,973) 43,733,217
================================================================================
NET INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS (187,801,192) 27,659,849
================================================================================
DISTRIBUTIONS TO SHAREHOLDERS
Investor Class 0 (6,606,439)
Class C 0 (83,069)
================================================================================
TOTAL DISTRIBUTIONS 0 (6,689,508)
================================================================================
FUND SHARE TRANSACTIONS
Proceeds from Sales of Shares
Investor Class 207,349,184 729,179,032
Class A 37,428,048 --
Class B 9,606,745 --
Class C 42,717,603 54,801,929
Class K 37,654,639 59,960,773
Reinvestment of Distributions
Investor Class 0 6,410,599
Class C 0 79,560
================================================================================
334,756,219 850,431,893
Amounts Paid for Repurchases of Shares
Investor Class (306,714,154) (561,176,279)
Class A (7,012,073) --
Class B (467,634) --
Class C (36,749,162) (43,833,698)
Class K (17,226,143) (1,210,408)
================================================================================
(368,169,166) (606,220,385)
NET INCREASE (DECREASE) IN NET ASSETS
FROM FUND SHARE TRANSACTIONS (33,412,947) 244,211,508
================================================================================
TOTAL INCREASE (DECREASE) IN NET ASSETS (221,214,139) 265,181,849
NET ASSETS
Beginning of Period 877,997,868 612,816,019
================================================================================
End of Period (Including Accumulated
Undistributed Net Investment Loss
of ($48,343) and ($445,820),
respectively) $ 656,783,729 $ 877,997,868
================================================================================
See Notes to Financial Statements
STATEMENT OF CHANGES IN NET ASSETS
(CONTINUED)
REAL ESTATE OPPORTUNITY FUND
YEAR ENDED MARCH 31
- --------------------------------------------------------------------------------
2003 2002
OPERATIONS
Net Investment Income $ 1,007,415 $ 959,897
Net Realized Gain (Loss) 33,309 (1,776,058)
Change in Net Appreciation/Depreciation (2,096,036) 3,077,128
================================================================================
NET INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS (1,055,312) 2,260,967
================================================================================
DISTRIBUTIONS TO SHAREHOLDERS
Investor Class (869,479) (883,840)
Class A (66,360) --
Class B (4,005) --
Class C (17,981) (19,583)
================================================================================
TOTAL DISTRIBUTIONS (957,825) (903,423)
================================================================================
FUND SHARE TRANSACTIONS
Proceeds from Sales of Shares
Investor Class 40,930,071 65,554,193
Class A 4,016,740 --
Class B 164,213 --
Class C 3,324,794 6,576,932
Reinvestment of Distributions
Investor Class 812,836 847,345
Class A 61,410 --
Class B 3,335 --
Class C 15,925 17,365
================================================================================
49,329,324 72,995,835
Amounts Paid for Repurchases of Shares
Investor Class (39,958,634) (75,885,547)
Class A (1,612,336) --
Class B (28,724) --
Class C (2,852,451) (7,520,965)
================================================================================
(44,452,145) (83,406,512)
NET INCREASE (DECREASE) IN NET ASSETS
FROM FUND SHARE TRANSACTIONS 4,877,179 (10,410,677)
================================================================================
TOTAL INCREASE (DECREASE) IN NET ASSETS 2,864,042 (9,053,133)
NET ASSETS
Beginning of Period 20,829,069 29,882,202
================================================================================
End of Period (Including Accumulated
Undistributed Net Investment Income
of $9,823 and $4,923, respectively) $ 23,693,111 $ 20,829,069
================================================================================
See Notes to Financial Statements
STATEMENT OF CHANGES IN NET ASSETS
(CONTINUED)
TECHNOLOGY FUND
YEAR ENDED MARCH 31
- --------------------------------------------------------------------------------
2003 2002
OPERATIONS
Net Investment Loss $ (21,336,326) $ (29,818,014)
Net Realized Loss (1,320,389,022) (1,701,319,209)
Change in Net Appreciation/Depreciation (37,759,941) 1,093,675,772
================================================================================
NET DECREASE IN NET ASSETS
FROM OPERATIONS (1,379,485,289) (637,461,451)
================================================================================
FUND SHARE TRANSACTIONS
Proceeds from Sales of Shares
Institutional Class 400,830,100 1,144,541,447
Investor Class 4,495,198,217 4,626,109,679
Class A 39,607,123 --
Class B 784,386 --
Class C 16,773,376 98,155,680
Class K 18,036,725 31,102,806
================================================================================
4,971,229,927 5,899,909,612
Amounts Paid for Repurchases of Shares
Institutional Class (460,489,454) (884,671,106)
Investor Class (4,742,030,065) (4,604,480,513)
Class A (34,425,710) --
Class B (225,672) --
Class C (23,667,790) (91,350,472)
Class K (9,475,180) (4,487,304)
================================================================================
(5,270,313,871) (5,584,989,395)
NET INCREASE (DECREASE) IN NET ASSETS
FROM FUND SHARE TRANSACTIONS (299,083,944) 314,920,217
================================================================================
TOTAL DECREASE IN NET ASSETS (1,678,569,233) (322,541,234)
NET ASSETS
Beginning of Period 3,272,045,171 3,594,586,405
================================================================================
End of Period (Including Accumulated
Undistributed Net Investment Loss
of ($232,309) and ($771,569),
respectively) $ 1,593,475,938 $ 3,272,045,171
================================================================================
See Notes to Financial Statements
STATEMENT OF CHANGES IN NET ASSETS
(CONTINUED)
TELECOMMUNICATIONS FUND
YEAR ENDED MARCH 31
- --------------------------------------------------------------------------------
2003 2002
OPERATIONS
Net Investment Loss $ (1,755,062) $ (6,130,769)
Net Realized Loss (397,721,104) (861,726,352)
Change in Net Appreciation/Depreciation 209,605,999 246,742,633
================================================================================
NET DECREASE IN NET ASSETS
FROM OPERATIONS (189,870,167) (621,114,488)
================================================================================
FUND SHARE TRANSACTIONS
Proceeds from Sales of Shares
Investor Class 921,394,710 2,027,191,892
Class A 9,330,840 --
Class B 24,155 --
Class C 47,707,611 327,970,659
Class K 632,772 1,234,228
================================================================================
979,090,088 2,356,396,779
Amounts Paid for Repurchases of Shares
Investor Class (1,033,252,143) (2,325,417,357)
Class A (8,626,147) --
Class B (3,783) --
Class C (53,919,269) (323,176,133)
Class K (500,459) (104,957)
================================================================================
(1,096,301,801) (2,648,698,447)
NET DECREASE IN NET ASSETS
FROM FUND SHARE TRANSACTIONS (117,211,713) (292,301,668)
================================================================================
TOTAL DECREASE IN NET ASSETS (307,081,880) (913,416,156)
NET ASSETS
Beginning of Period 585,224,508 1,498,640,664
================================================================================
End of Period (Including Accumulated
Undistributed Net Investment Loss
of ($66,378) and ($65,928),
respectively) $ 278,142,628 $ 585,224,508
================================================================================
See Notes to Financial Statements
STATEMENT OF CHANGES IN NET ASSETS
(CONTINUED)
UTILITIES FUND
YEAR ENDED MARCH 31
- --------------------------------------------------------------------------------
2003 2002
OPERATIONS
Net Investment Income $ 2,325,357 $ 1,845,871
Net Realized Loss (13,056,963) (22,801,292)
Change in Net Appreciation/Depreciation (13,674,867) (53,674,952)
================================================================================
NET DECREASE IN NET ASSETS
FROM OPERATIONS (24,406,473) (74,630,373)
================================================================================
DISTRIBUTIONS TO SHAREHOLDERS
Investor Class (2,288,373) (1,869,306)
Class A (16,410) --
Class B (4,725) --
Class C (9,547) (728)
================================================================================
TOTAL DISTRIBUTIONS (2,319,055) (1,870,034)
================================================================================
FUND SHARE TRANSACTIONS
Proceeds from Sales of Shares
Investor Class 110,818,499 138,696,599
Class A 2,519,233 --
Class B 263,926 --
Class C 11,010,192 8,575,353
Reinvestment of Distributions
Investor Class 2,165,716 1,774,320
Class A 12,275 --
Class B 1,446 --
Class C 9,205 718
================================================================================
126,800,492 149,046,990
Amounts Paid for Repurchases of Shares
Investor Class (138,522,409) (173,267,204)
Class A (1,960,442) --
Class B (34,745) --
Class C (11,876,032) (9,358,343)
================================================================================
(152,393,628) (182,625,547)
NET DECREASE IN NET ASSETS
FROM FUND SHARE TRANSACTIONS (25,593,136) (33,578,557)
================================================================================
TOTAL DECREASE IN NET ASSETS (52,318,664) (110,078,964)
NET ASSETS
Beginning of Period 126,376,755 236,455,719
================================================================================
End of Period (Including Accumulated
Undistributed Net Investment Loss
of ($43,913) and ($5,069),
respectively) $ 74,058,091 $ 126,376,755
================================================================================
See Notes to Financial Statements
NOTES TO FINANCIAL STATEMENTS
INVESCO SECTOR FUNDS, INC.
NOTE 1 -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES. INVESCO Sector
Funds, Inc. is incorporated in Maryland and presently consists of nine separate
Funds: Energy Fund, Financial Services Fund, Gold & Precious Metals Fund
(formerly Gold Fund), Health Sciences Fund, Leisure Fund, Real Estate
Opportunity Fund, Technology Fund, Telecommunications Fund and Utilities Fund
(individually the "Fund" and collectively, the "Funds"). Effective July 31,
2002, Gold Fund's name changed to Gold & Precious Metals Fund. The investment
objectives of the Funds are: to seek capital growth through investments in
specific business sectors for Energy, Financial Services, Gold & Precious
Metals, Health Sciences, Leisure and Technology Funds; to achieve capital growth
and current income for Real Estate Opportunity, Telecommunications and Utilities
Funds. INVESCO Sector Funds, Inc. is registered under the Investment Company Act
of 1940 (the "Act") as a diversified, open-end management investment company.
Effective April 1, 2002, the Funds began offering two additional classes of
shares, referred to as Class A and Class B shares. Effective December 17, 2001,
Leisure Fund began offering an additional class of shares, referred to as Class
K shares. Income, expenses (other than those attributable to a specific class)
and realized and unrealized gains and losses are allocated daily to each class
of shares based on the relative proportion of net assets represented by such
class. Operating expenses directly attributable to a specific class are charged
against operations of that class. Class A shares are sold with a front-end sales
charge ranging from 5.50% to 2.00% of the offering price on purchases of less
than $1,000,000. Class B shares and Class C shares are subject to a contingent
deferred sales charge paid by the redeeming shareholder. Class B shares convert
to Class A shares after eight years along with a pro rata portion of its
reinvested dividends and distributions.
Effective April 1, 2002, the Investor Class shares are offered only to
grandfathered investors who have established and maintained an account in any of
the funds managed and distributed by INVESCO Funds Group, Inc. ("IFG") in
Investor Class shares prior to April 1, 2002.
The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of their financial statements. The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the reporting
period. Actual results could differ from those estimates.
A. SECURITY VALUATION -- Domestic (U.S.) equity securities traded on national
securities exchanges or in the over-the-counter market are valued at the last
sales price at the close of the regular trading day on the exchange (generally
4:00 p.m. Eastern time) where such securities are primarily traded. If last
sales prices are not available, securities are valued at the closing bid price
for the regular trading day as obtained from one or more dealers making a market
for such securities or by a pricing service approved by the Fund's board of
directors.
Foreign equity securities are valued at the closing price. The closing price is
designated by the principal stock exchange in the country in which the
securities are traded. In the event that closing prices are not available for
foreign securities, a snapshot of prices will be obtained from the principal
stock exchange at or prior to the close of the New York Stock Exchange. Foreign
currency exchange rates are determined daily prior to the close of the New York
Stock Exchange.
Gold bullion is valued at the close of the New York Stock Exchange and its
valuation is obtained by a pricing service approved by the Fund's board of
directors.
Option contracts are valued at the average of the closing bid and ask prices
from the exchange with the highest trading volume on that particular day.
Debt securities are valued at evaluated bid prices as determined by a pricing
service approved by the Fund's board of directors. If evaluated bid prices are
not available, debt securities are valued by averaging the bid prices obtained
from one or more dealers making a market for such securities.
Investments in shares of investment companies are valued at the net asset value
of the respective fund as calculated each day.
If market quotations or pricing service valuations are not readily available, or
events or circumstances that may affect the value of portfolio securities are
identified between the closing of their principal markets and the time that the
net asset value per share is determined, securities are valued at fair value as
determined in good faith under procedures established by the Fund's board of
directors. Restricted and illiquid securities are valued in accordance with
procedures established by the Fund's board of directors.
Short-term securities are stated at amortized cost (which approximates market
value) if maturity is 60 days or less at the time of purchase, or market value
if maturity is greater than 60 days.
Assets and liabilities initially expressed in terms of foreign currencies are
translated into U.S. dollars at the prevailing market rates as quoted by one or
more banks or dealers on the date of valuation.
B. REPURCHASE AGREEMENTS -- Repurchase agreements held by the Fund are fully
collateralized by securities issued by the U.S. Government, its agencies or
instrumentalities and such collateral is in the possession of the Fund's
custodian. The collateral is evaluated daily to ensure its market value exceeds
the current market value of the repurchase agreements including accrued
interest. In the event of default on the obligation to repurchase, the Fund has
the right to liquidate the collateral and apply the proceeds in satisfaction of
the obligation.
C. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME -- Security transactions
are accounted for on the trade date and dividend income is recorded on the
ex-dividend date. Interest income, which may be comprised of stated coupon rate,
market discount, original issue discount or amortized premium, is recorded on
the accrual basis. Discounts or premiums on debt securities purchased are
amortized over the life of the respective security as adjustments to interest
income. Cost is determined on the specific identification basis. Certain
dividends from foreign securities will be recorded as soon as the Fund is
informed of the dividend if such information is obtained subsequent to the
ex-dividend date. Investment income received from foreign sources may be subject
to foreign withholding taxes. Dividend and interest income is shown gross of
foreign withholding taxes in the accompanying financial statements. Income and
expenses on foreign securities are translated into U.S. dollars at rates of
exchange prevailing when accrued. The cost of foreign securities is translated
into U.S. dollars at the rates of exchange prevailing when such securities are
acquired. During the year ended March 31, 2003, Energy Fund was reimbursed for
certain trading losses in the amount of $35,462.
Each Fund may invest in securities issued by other INVESCO investment companies
that invest in short-term debt securities and seek to maintain a net asset value
of one dollar per share. During the year ended March 31, 2003, Energy, Financial
Services, Gold & Precious Metals, Leisure and Telecommunications Funds invested
in INVESCO Treasurer's Series Money Market Reserve Fund. During that same period
there were no such investments by Health Sciences, Real Estate Opportunity,
Technology and Utilities Funds. The income from this investment is recorded in
the Statement of Operations.
The Fund may have elements of risk due to investments in specific industries or
foreign issuers located in a specific country. Such investments may subject the
Fund to additional risks resulting from future political or economic conditions
and/or possible impositions of adverse foreign governmental laws or currency
exchange restrictions. Net realized and unrealized gain or loss from investment
securities includes fluctuations from currency exchange rates and fluctuations
in market value.
The Fund's use of short-term forward foreign currency contracts may subject it
to certain risks as a result of unanticipated movements in foreign exchange
rates. The Fund does not hold short-term forward foreign currency contracts for
trading purposes. The Fund may hold foreign currency in anticipation of settling
foreign security transactions and not for investment purposes.
The Gold & Precious Metals Fund may invest in gold bullion which may have
significant price movements over short periods of time and may be affected by
unpredictable international monetary and political policies. Further, gold
bullion may have storage and transaction costs associated with its ownership
which may be higher than that of other types of securities.
Restricted securities held by a Fund may not be sold except in exempt
transactions or in a public offering registered under the Securities Act of
1933. The risk of investing in such securities is generally greater than the
risk of investing in the securities of widely held, publicly traded companies.
Lack of a secondary market and resale restrictions may result in the inability
of a Fund to sell a security at a fair price and may substantially delay the
sale of the security which each Fund seeks to sell. In addition, these
securities may exhibit greater price volatility than securities for which
secondary markets exist.
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- Dividends and distributions to
shareholders are recorded by the Fund on the ex-dividend/distribution date. The
Fund distributes net realized capital gains, if any, to its shareholders at
least annually, if not offset by capital loss carryovers.
E. TAX INFORMATION -- The Fund has complied, and continues to comply, with the
provisions of the Internal Revenue Code applicable to regulated investment
companies and, accordingly, has made or intends to make sufficient distributions
of net investment income and net realized capital gains, if any, to relieve it
from all federal and state income taxes and federal excise taxes.
Dividends paid by the Fund from net investment income and distributions of net
realized short-term capital gains are, for federal income tax purposes, taxable
as ordinary income to shareholders. The tax composition of distributions from
ordinary income, long-term capital gains and of the ordinary income
distributions declared for the year ended March 31, 2003, and amounts qualifying
for the dividends received deduction available to the Fund's corporate
shareholders were as follows:
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
MARCH 31, 2003 MARCH 31, 2003 MARCH 31, 2003 MARCH 31, 2002 MARCH 31, 2002
ORDINARY INCOME LONG-TERM CAPITAL QUALIFYING ORDINARY INCOME LONG-TERM CAPITAL
FUND DISTRIBUTIONS GAIN DISTRIBUTIONS PERCENTAGE DISTRIBUTIONS GAIN DISTRIBUTIONS
- -----------------------------------------------------------------------------------------------------------------------------
Financial Services Fund $ 3,324,494 $ 1,297,828 100.00% $ 6,877,940 $ 68,096,448
Health Sciences Fund 0 0 0.00% 548,602 44,386
Leisure Fund 0 0 0.00% 1,613,479 5,076,029
Real Estate Opportunity Fund 957,825 0 1.61% 903,423 0
Utilities Fund 2,319,055 0 1.00% 1,870,034 0
Income and capital gain distributions are determined in accordance with income
tax regulations which may differ from accounting principles generally accepted
in the United States.
The tax components of the Fund at March 31, 2003 include:
NET TAX
COST OF GROSS TAX GROSS TAX APPRECIATION
INVESTMENTS FOR UNREALIZED UNREALIZED (DEPRECIATION)
FUND TAX PURPOSES APPRECIATION DEPRECIATION ON INVESTMENTS
- --------------------------------------------------------------------------------------------------------
Energy Fund $ 247,769,524 $ 28,433,184 $ 10,450,300 $ 17,982,884
Financial Services Fund 719,839,008 77,427,623 45,844,873 31,582,750
Gold & Precious Metals Fund 104,610,389 21,144,944 9,237,369 11,907,575
Health Sciences Fund 895,666,927 140,758,771 45,741,540 95,017,231
Leisure Fund 613,757,329 122,008,477 66,677,876 55,330,601
Real Estate Opportunity Fund 23,648,035 997,063 602,240 394,823
Technology Fund 1,975,193,766 86,437,493 465,055,564 (378,618,071)
Telecommunications Fund 324,308,326 13,728,939 40,705,712 (26,976,773)
Utilities Fund 73,840,716 3,212,948 5,354,023 (2,141,075)
ACCUMULATED CUMULATIVE EFFECT
UNDISTRIBUTED CAPITAL LOSS OF OTHER
FUND ORDINARY INCOME CARRYOVERS TIMING DIFFERENCES
- --------------------------------------------------------------------------------------------------------
Energy Fund $ 0 $ (58,447,779) $ (28,917)
Financial Services Fund 93,812 (52,702,581) (8,783,479)
Gold & Precious Metals Fund 1,354,029 (189,650,608) (25,176)
Health Sciences Fund 0 (297,476,816) (31,004,760)
Leisure Fund 0 (63,392,926) (12,252,581)
Real Estate Opportunity Fund 12,213 (8,274,056) (212,795)
Technology Fund 0 (3,791,182,138) (279,350,098)
Telecommunications Fund 0 (1,622,403,229) (27,997,494)
Utilities Fund 0 (37,516,958) (2,696,195)
The primary difference between book and tax appreciation/depreciation is wash
sale loss deferrals. Telecommunications Fund has a partnership tax deferral in
the amount of $2,267,247. The net tax appreciation/depreciation on investments
excludes the effect of foreign currency transactions and written options
activity.
Capital loss carryovers expire in the years 2005, 2006, 2007, 2008, 2009, 2010
and 2011. To the extent future capital gains and income are offset by capital
loss carryovers and deferred post-October 31 losses, such gains and income will
not be distributed to shareholders. Deferred post-October 31 capital and
currency losses are: Financial Services Fund $8,661,785, Gold & Precious Metals
Fund $2,834, Health Sciences Fund $30,846,662, Leisure Fund $12,210,757, Real
Estate Opportunity Fund $210,405, Technology Fund $279,932,903,
Telecommunications Fund $27,931,116 and Utilities Fund $2,652,282.
Due to inherent differences in the recognition of income, expenses and realized
gains/losses under accounting principles generally accepted in the United States
and Federal income tax purposes, permanent and temporary differences between
book and tax basis reporting have been identified and appropriately reclassified
on the Statement of Assets and Liabilities. Energy, Health Sciences, Leisure,
Technology and Telecommunications Funds reclassified $1,820,004, $7,795,809,
$5,933,695, $22,459,448, $2,314,505, respectively, of net investment losses to
paid-in capital. Gold & Precious Metals Fund reclassified $1,596,421 of net
investment losses to accumulated undistributed net realized losses.
F. FORWARD FOREIGN CURRENCY CONTRACTS -- The Fund enters into short-term forward
foreign currency contracts in connection with planned purchases or sales of
securities as a hedge against fluctuations in foreign exchange rates pending the
settlement of transactions in foreign securities. A forward foreign currency
contract is an agreement between contracting parties to exchange an amount of
currency at some future time at an agreed upon rate. These contracts are
marked-to-market daily and the related appreciation or depreciation of the
contracts is presented in the Statement of Assets and Liabilities. Any realized
gain or loss incurred by the Fund upon the sale of securities is included in the
Statement of Operations.
G. OPTIONS -- The Funds may buy or write put and call options, including
securities index options, on portfolio securities for hedging purposes or as a
substitute for an investment. The Funds generally invest in options to hedge
against adverse movements in the value of portfolio holdings.
When an option is written, the Fund receives a premium and becomes obligated to
sell or purchase the underlying security at a fixed price, upon exercise of the
option. In writing an option, the Fund bears the market risk of an unfavorable
change in the price of the security underlying the written option. Exercise of
an option written by the Fund could result in the Fund buying or selling a
security at a price different from the current market value.
When an option is exercised, the proceeds on sales for a written call option,
the purchase cost for a written put option, or the cost of the security for a
purchased put or call option is adjusted by the amount of premium received or
paid.
Securities designated to cover outstanding written options are noted in the
Statement of Investment Securities where applicable. Options written are
reported as a liability in the Statement of Assets and Liabilities. Gains and
losses are reported in the Statement of Operations.
The risk in writing a call option is that the Fund gives up the opportunity to
profit if the market price of the security increases and the option is
exercised. The risk in writing a put option is that the Fund may incur a loss if
the market price of the security decreases and the option is exercised. The risk
in buying an option is that the Fund pays a premium whether or not the option is
exercised. The use of such instruments may involve certain additional risks as a
result of unanticipated movements in the market. A lack of correlation between
the value of an instrument underlying an option and the asset being hedged, or
unexpected adverse price movements, could render the Fund's hedging strategy
unsuccessful. In addition, there can be no assurance that a liquid secondary
market will exist for any option purchased or sold.
Written option activity for the year ended March 31, 2003, was as follows:
CALL OPTIONS PUT OPTIONS
- ----------------------------------------------------------------------------------------------------
NUMBER AMOUNT NUMBER AMOUNT
OF OPTIONS OF PREMIUMS OF OPTIONS OF PREMIUMS
- ----------------------------------------------------------------------------------------------------
TECHNOLOGY FUND
Options outstanding at March 31, 2002 (43,575) $ 17,656,466 0 $ 0
Options written (132,549) 33,132,524 (12,597) 1,519,455
Options closed or expired 169,585 (49,860,481) 12,597 (1,519,455)
Options outstanding at March 31, 2003 (6,539) $928,509 0 0
TELECOMMUNICATIONS FUND
Options outstanding at March 31, 2002 (1,600) $ 261,852
Options written (7,009) 1,017,875
Options closed or expired 7,098 (982,068)
Options outstanding at March 31, 2003 (1,511) $ 297,659
H. EXPENSES -- Each Fund or Class bears expenses incurred specifically on its
behalf and, in addition, each Fund or Class bears a portion of general expenses,
based on the relative net assets of each Fund or Class.
Under an agreement between each Fund and the Fund's Custodian, certain Custodian
Fees and Expenses are reduced by credits granted by the Custodian from any
temporarily uninvested cash. Similarly, Custodian Fees and Expenses for Energy,
Financial Services, Gold & Precious Metals, Health Sciences and
Telecommunications Funds are reduced by credits earned from security brokerage
transactions under certain broker/service arrangements with third parties. Such
credits are included in Fees and Expenses Paid Indirectly in the Statement of
Operations.
NOTE 2 -- INVESTMENT ADVISORY AND OTHER AGREEMENTS. IFG serves as the Funds'
investment adviser. As compensation for its services to the Funds, IFG receives
an investment advisory fee which is accrued daily at the applicable rate and
paid monthly. The fee is based on the annual rate of each Fund's average net
assets as follows:
AVERAGE NET ASSETS
- -----------------------------------------------------------------------------------------------------
$700 $2 $4 $6
$0 TO $350 TO MILLION BILLION BILLION BILLION OVER
$350 $700 TO $2 TO $4 TO $6 TO $8 $8
FUND MILLION MILLION BILLION BILLION BILLION BILLION BILLION
- -----------------------------------------------------------------------------------------------------
Energy Fund 0.75% 0.65% 0.55% 0.45% 0.40% 0.375% 0.35%
Financial Services Fund 0.75% 0.65% 0.55% 0.45% 0.40% 0.375% 0.35%
Gold & Precious Metals Fund 0.75% 0.65% 0.55% 0.45% 0.40% 0.375% 0.35%
Health Sciences Fund 0.75% 0.65% 0.55% 0.45% 0.40% 0.375% 0.35%
Leisure Fund 0.75% 0.65% 0.55% 0.45% 0.40% 0.375% 0.35%
Technology Fund 0.75% 0.65% 0.55% 0.45% 0.40% 0.375% 0.35%
Utilities Fund 0.75% 0.65% 0.55% 0.45% 0.40% 0.375% 0.35%
AVERAGE NET ASSETS
- -----------------------------------------------------------------------------------------------------
$500 $1 $2 $4 $6
$0 TO MILLION BILLION BILLION BILLION BILLION OVER
$500 TO $1 TO $2 TO $4 TO $6 TO $8 $8
FUND MILLION BILLION BILLION BILLION BILLION BILLION BILLION
- -----------------------------------------------------------------------------------------------------
Real Estate Opportunity Fund 0.75% 0.65% 0.55% 0.45% 0.40% 0.375% 0.35%
Telecommunications Fund 0.65% 0.55% 0.45% 0.45% 0.40% 0.375% 0.35%
A plan of distribution pursuant to Rule 12b-1 of the Act provides for
compensation of marketing and advertising expenditures to INVESCO Distributors,
Inc. ("IDI" or the "Distributor"), a wholly owned subsidiary of IFG, of 0.25% of
annual average net assets of Investor Class shares. A master distribution plan
and agreement for Class A, Class B and Class C shares pursuant to Rule 12b-1 of
the Act provides for compensation of certain promotional and other sales related
costs to IDI. Class A shares of the Fund pay compensation to IDI at a rate of
0.35% of annual average net assets. During any period that Class A shares of the
Fund are closed to new investors, the Fund will reduce this payment for Class A
shares from 0.35% to 0.25% per annum. Class B and Class C shares of the Fund pay
compensation to IDI at a rate of 1.00% of annual average net assets. Of these
amounts, IDI may pay a service fee of 0.25% of the average net assets of the
Class A, Class B or Class C shares to selected dealers and financial
institutions who furnish continuing personal shareholder services to their
customers who purchase and own the applicable class of shares of the Fund. Any
amounts not paid as a service fee under the Plans would constitute an
asset-based sales charge. The Plans also impose caps on the total sales charges,
including asset-based sales charges, that may be paid by the respective class. A
plan of distribution pursuant to Rule 12b-1 of the Act provides for financing
the distribution and continuing personal shareholder servicing of Class K shares
of 0.45% of annual average net assets. Any unreimbursed expenses IDI incurs with
respect to Investor Class, Class A, Class C and Class K shares in any fiscal
year can not be recovered in subsequent years. For the year ended March 31,
2003, amounts paid to the Distributor were as follows:
INVESTOR CLASS CLASS CLASS CLASS
FUND CLASS A B C K
- --------------------------------------------------------------------------------------------------
Energy Fund $ 710,505 $ 19,438 $ 6,195 $ 102,870 $ 526
Financial Services Fund 2,428,349 9,547 5,826 134,199 5,109
Gold & Precious Metals Fund 279,306 4,965 6,902 22,606 --
Health Sciences Fund 2,942,165 4,556 3,194 89,870 9,856
Leisure Fund 1,625,603 52,465 44,957 176,639 277,058
Real Estate Opportunity Fund 59,074 3,327 580 8,070 --
Technology Fund 2,923,222 6,303 1,332 88,805 98,700
Telecommunications Fund 948,389 2,727 99 37,403 3,117
Utilities Fund 230,252 1,046 1,559 10,094 --
If the Class B Plan is terminated, the Board of Directors may allow the Class B
shares to continue payments of the asset-based sales charge to the Distributor
for allowable unreimbursed expenses incurred for distributing shares before the
Class B Plan was terminated. The Class B Plan allows for the carry-forward of
distribution expenses, to be recovered from asset-based sales charges in
subsequent fiscal periods. Distribution fees related to the Distributor for the
year ended March 31, 2003, for Class B were as follows:
DISTRIBUTOR'S DISTRIBUTOR'S
AGGREGATE UNREIMBURSED
UNREIMBURSED EXPENSES AS %
AMOUNT RETAINED EXPENSES OF NET ASSETS
FUND BY DISTRIBUTOR UNDER PLAN OF CLASS
- --------------------------------------------------------------------------------------------------
Energy Fund - Class B Plan $ 7,253 $ 50,817 3.38%
Financial Services Fund - Class B Plan 6,587 38,040 3.84%
Gold & Precious Metals Fund - Class B Plan 8,631 89,799 3.88%
Health Sciences Fund - Class B Plan 3,649 22,662 3.65%
Leisure Fund - Class B Plan 50,672 300,396 3.63%
Real Estate Opportunity Fund - Class B Plan 672 5,126 3.84%
Technology Fund - Class B Plan 1,736 20,563 3.87%
Telecommunications Fund - Class B Plan 112 556 3.50%
Utilities Fund - Class B Plan 1,712 7,112 3.69%
Distribution Expenses for each class as presented in the Statement of Operations
for the year ended March 31, 2003 were as follows:
INVESTOR CLASS CLASS CLASS CLASS
FUND CLASS A B C K
- --------------------------------------------------------------------------------------------------
Energy Fund $ 685,019 $ 22,209 $ 7,338 $ 101,292 $ 616
Financial Services Fund 2,314,987 10,800 6,591 128,891 5,184
Gold & Precious Metals Fund 278,665 5,387 8,640 24,543 --
Health Sciences Fund 2,810,808 5,134 3,661 82,986 9,669
Leisure Fund 1,563,784 59,657 51,248 177,740 277,930
Real Estate Opportunity Fund 59,144 3,989 681 8,204 --
Technology Fund 2,714,413 7,497 1,755 79,762 96,657
Telecommunications Fund 877,339 2,837 112 32,223 3,027
Utilities Fund 218,659 1,167 1,716 9,432 --
IFG receives a transfer agent fee from each Class at an annual rate of $22.50
per shareholder account, or, where applicable, per participant in an omnibus
account, per year. IFG may pay such fee for participants in omnibus accounts to
affiliates or third parties. The fee is paid monthly at one-twelfth of the
annual fee and is based upon the actual number of accounts in existence during
each month. Transfer agent fees for each class as presented in the Statement of
Operations for the year ended March 31, 2003 were as follows:
INSTITUTIONAL INVESTOR CLASS CLASS CLASS CLASS
FUND CLASS CLASS A B C K
- --------------------------------------------------------------------------------------------------
Energy Fund -- $ 1,351,371 $ 13,598 $ 2,355 $ 51,772 $ 2,083
Financial Services Fund -- 3,201,855 10,460 2,419 66,317 5,226
Gold & Precious Metals Fund -- 640,022 10,637 898 12,141 --
Health Sciences Fund -- 4,374,452 9,750 1,618 98,464 15,184
Leisure Fund -- 2,455,246 39,891 15,848 85,622 599,451
Real Estate Opportunity Fund -- 202,193 2,124 285 9,500 --
Technology Fund $ 1,921,921 7,981,678 7,798 857 136,791 289,239
Telecommunications Fund -- 5,273,178 3,544 131 99,233 10,612
Utilities Fund -- 547,156 1,045 294 12,459 --
In accordance with an Administrative Services Agreement, each Fund pays IFG an
annual fee of $10,000, plus an additional amount computed at an annual rate of
0.045% of average net assets to provide administrative, accounting and clerical
services. The fee is accrued daily and paid monthly.
IFG has voluntarily agreed to absorb and assume certain fees and expenses
incurred by the Funds. IFG is entitled to reimbursement from a Fund share class
that has fees and expenses voluntarily absorbed pursuant to this arrangement if
such reimbursements do not cause a share class to exceed voluntary expense
limitations and the reimbursement is made within three years after IFG incurred
the expense. For the year ended March 31, 2003, total fees and expenses
voluntarily absorbed were as follows:
INSTITUTIONAL INVESTOR CLASS CLASS CLASS CLASS
FUND CLASS CLASS A B C K
- --------------------------------------------------------------------------------------------------
Energy Fund -- $ 0 $ 0 $ 582 $ 20,103 $ 4,502
Financial Services Fund -- 0 3,917 2,056 0 3,997
Gold & Precious Metals Fund -- 0 431 0 0 --
Health Sciences Fund -- 0 6,829 1,648 37,750 0
Leisure Fund -- 0 0 4,408 0 209,552
Real Estate Opportunity Fund -- 195,593 0 936 11,360 --
Technology Fund $ 0 0 818 1,027 100,306 130,850
Telecommunications Fund -- 3,343,479 0 1,069 100,846 8,365
Utilities Fund -- 526,139 1,095 943 15,628 --
At March 31, 2003, the reimbursement that may potentially be made by the Funds
to IFG that will expire during the calendar years ended 2005 and 2006, are as
follows:
INSTITUTIONAL INVESTOR CLASS CLASS CLASS CLASS
FUND CLASS CLASS A B C K
- --------------------------------------------------------------------------------------------------
Energy Fund -- $ 0 $ 0 $ 582 $ 20,103 $ 4,502
Financial Services Fund -- 0 3,917 2,056 0 3,997
Gold & Precious Metals Fund -- 0 431 0 0 --
Health Sciences Fund -- 0 6,829 1,648 37,750 0
Leisure Fund -- 0 0 4,408 0 209,552
Real Estate Opportunity Fund -- 171,596 0 936 10,559 --
Technology Fund $ 0 0 818 1,027 100,306 130,850
Telecommunications Fund -- 3,015,954 0 1,069 90,199 8,022
Utilities Fund -- 442,999 1,095 943 13,761 --
During the year ended March 31, 2003, the reimbursement that was made by the
Funds to IFG were as follows:
INSTITUTIONAL INVESTOR CLASS CLASS CLASS CLASS
FUND CLASS CLASS A B C K
- --------------------------------------------------------------------------------------------------
Energy Fund -- $ 0 $ 0 $ 23 $ 0 $ 0
Financial Services Fund -- 0 0 0 0 0
Gold & Precious Metals Fund -- 0 0 0 495 --
Health Sciences Fund -- 0 62 0 0 1,052
Leisure Fund -- 0 345 0 0 81,554
Real Estate Opportunity Fund -- 0 431 0 0 --
Technology Fund $ 146,221 0 717 0 0 72,949
Telecommunications Fund -- 0 0 0 0 0
Utilities Fund -- 0 0 32 0 --
NOTE 3 -- PURCHASES AND SALES OF INVESTMENT SECURITIES. For the year ended March
31, 2003, the aggregate cost of purchases and proceeds from sales of investment
securities (excluding all U.S. Government securities and short-term securities)
were as follows:
FUND PURCHASES SALES
- --------------------------------------------------------------------------------------------------
Energy Fund $ 408,740,450 $ 482,197,618
Financial Services Fund 548,905,269 772,106,486
Gold & Precious Metals Fund 86,860,593 84,190,776
Health Sciences Fund 1,960,059,993 2,220,999,802
Leisure Fund 143,284,512 161,229,805
Real Estate Opportunity Fund 64,102,072 59,811,861
Technology Fund 1,954,796,496 2,111,792,047
Telecommunications Fund 451,481,007 547,641,041
Utilities Fund 53,521,881 67,293,763
There were no purchases or sales of U.S. Government Securities.
NOTE 4 -- TRANSACTIONS WITH AFFILIATES AND AFFILIATED COMPANIES. Certain of the
Funds' officers and directors are also officers and directors of IFG or IDI.
Each Fund has adopted a retirement plan covering all independent directors of
the Fund who will have served as an independent director for at least five years
at the time of retirement. Benefits under this plan are based on an annual rate
as defined in the plan agreement, as amended March 1, 2001. Effective November
8, 2002, the plan provides that a director, prior to retirement, may elect to
convert amounts accrued under this plan into a new deferred retirement plan.
Pension expenses for the year ended March 31, 2003, included in Directors' Fees
and Expenses in the Statement of Operations and pension liability included in
Accrued Expenses in the Statement of Assets and Liabilities were as follows:
PENSION PENSION
FUND EXPENSES LIABILITY
- --------------------------------------------------------------------------------------------------
Energy Fund $ 8,483 $ 17,442
Financial Services Fund 28,573 74,609
Gold & Precious Metals Fund 2,306 13,523
Health Sciences Fund 38,593 95,696
Leisure Fund 16,795 29,900
Real Estate Opportunity Fund 531 1,469
Technology Fund 47,637 141,768
Telecommunications Fund 8,540 40,554
Utilities Fund 3,050 12,237
The independent directors have contributed to a deferred fee agreement plan,
pursuant to which they have deferred receipt of a portion of the compensation
which they would otherwise have been paid as directors of the INVESCO Funds. The
deferred amounts may be invested in the shares of any of the INVESCO Funds,
excluding the INVESCO Variable Investment Funds.
An affiliated company represents ownership by a Fund of at least 5% of the
voting securities of the issuer or may be affiliated with other INVESCO
investment companies during the period, as defined in the Act. A summary of the
transactions during the year ended March 31, 2003, in which the issuer was an
affiliate of the Fund, is as follows:
REALIZED
PURCHASES SALES GAIN (LOSS) ON
------------------------------------------------ INVESTMENT VALUE AT
AFFILIATE SHARES COST SHARES PROCEEDS SECURITIES 3/31/2003
- --------------------------------------------------------------------------------------------------------------
ENERGY FUND
INVESCO Treasurer's
Series Money
Market Reserve
Fund 93,897,299 $93,897,299 95,042,365 $95,042,365 $ 0 $ 4,139,034
FINANCIAL SERVICES FUND
INVESCO Treasurer's
Series Money
Market Reserve
Fund 46,028,775 46,028,775 46,028,775 46,028,775 0 --
GOLD & PRECIOUS METALS FUND
INVESCO Treasurer's
Series Money
Market Reserve
Fund 233,983,415 233,983,415 237,869,295 237,869,295 0 11,344,418
HEALTH SCIENCES FUND
INVESCO Treasurer's
Series Money
Market Reserve
Fund 361,349,392 361,349,392 343,090,592 343,090,592 0 24,193,400
Pharmaceutical HOLDRs
Trust 2,205,300 174,015,044 1,760,000 140,744,454 (3,355,550) 42,888,360
LEISURE FUND
INVESCO Treasurer's
Series Money
Market Reserve
Fund 288,556,802 288,556,802 314,042,259 314,042,259 0 10,594,794
REALIZED
PURCHASES SALES GAIN (LOSS) ON
------------------------------------------------ INVESTMENT VALUE AT
AFFILIATE SHARES COST SHARES PROCEEDS SECURITIES 3/31/2003
- --------------------------------------------------------------------------------------------------------------
TECHNOLOGY FUND
Calient Networks, Pfd
Series D Shrs -- -- -- -- -- $ 1,106,133
INVESCO Treasurer's
Series Money
Market Reserve
Fund 622,363,052 $622,363,052 670,243,884 $670,243,884 $ 0 33,984,450
Software HOLDRs Trust 954,400 22,443,535 119,700 3,200,177 221,898 21,209,727
TELECOMMUNICATIONS FUND
Broadband HOLDRs Trust 1,057,500 9,494,055 1,057,500 8,652,026 (842,029) --
INVESCO Treasurer's
Series Money
Market Reserve
Fund 453,774,284 453,774,284 472,945,556 472,945,556 0 18,406,718
UTILITIES FUND
INVESCO Treasurer's
Series Money
Market Reserve
Fund 2,633,600 2,633,600 4,842,800 4,842,800 0 --
Dividend income from INVESCO Treasurer's Series Money Market Reserve Fund is
disclosed in the Statement of Operations. The following Funds received dividend
income from affiliated investments: Health Sciences Fund received $352,761 from
Pharmaceutical HOLDRs Trust and Technology Fund received $523,966 from Software
HOLDRs Trust. No dividend income was received from any other affiliate.
NOTE 5 -- SECURITIES LOANED. The Funds have entered into a securities lending
agreement with the custodian. Under the terms of the agreement, the Funds
receive income, recorded monthly, after deduction of other amounts payable to
the custodian or to the borrower from lending transactions. In exchange for such
fees, the custodian is authorized to loan securities on behalf of the Funds,
against receipt of collateral at least equal in value to the value of securities
loaned. Cash collateral is invested by the custodian in the INVESCO Treasurer's
Series Money Market Reserve Fund or securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. As of March 31, 2003, Energy,
Gold & Precious Metals, Health Sciences, Leisure, Technology and
Telecommunications Funds have on loan securities valued at $4,005,265,
$10,736,161, $23,272,794, $13,094,173, $31,829,843 and $17,205,652,
respectively, and cash collateral of $4,139,034, $11,344,418, $24,193,400,
$13,706,737, $33,984,450 and $18,406,718, repectively, has been invested in the
INVESCO Treasurer's Series Money Market Reserve Fund or U.S. Government
obligations and is disclosed in the Statement of Investment Securities. The Fund
bears the risk of any deficiency in the amount of collateral available for
return to a borrower due to a loss in an approved investment. The securities
loaned income is recorded in the Statement of Operations. Of the securities
lending income received for Energy, Gold & Precious Metals, Health Sciences,
Leisure, Technology, Telecommunications and Utilities Funds $22,711, $81,867,
$23,360, $123,994, $187,904, $205,579 and $1,380, respectively, were received
from investments in INVESCO Treasurer's Series Money Market Reserve Fund. During
the year ended March 31, 2003, there were no such securities lending
arrangements for Financial Services and Real Estate Opportunity Funds.
NOTE 6 -- INTERFUND BORROWING AND LENDING. Each Fund is party to an interfund
lending agreement between each Fund and other INVESCO sponsored mutual funds,
which permit it to borrow or lend cash, at rates beneficial to both the
borrowing and lending funds. Loans totaling 10% or more of a borrowing Fund's
total assets are collateralized at 102% of the value of the loan; loans of less
than 10% are unsecured. The Funds may borrow up to 10% of its total net assets
for temporary or emergency purposes. During the year ended March 31, 2003,
Energy, Financial Services, Gold & Precious Metals, Health Sciences, Leisure,
Real Estate Opportunity, Technology, Telecommunications and Utilities Funds
borrowed cash at a weighted average rate ranging from 1.50% to 2.00% and
interest expenses amounted to $2,770, $2,346, $4,423, $54,615, $60, $122,
$7,840, $3,044 and $266 respectively. During that same period, Energy, Health
Sciences, Technology and Utilities Funds lent cash at a weighted average rate
ranging from 1.58% to 2.06% and interest income amounted $609, $7,082, $24,118
and $95, respectively. At March 31, 2003, INVESCO Combination Stock & Bond
Funds, Inc. - Total Return Fund had borrowed from Utilities Fund at an interest
rate of 1.58%. The amount of the lending and the related accrued interest are
presented in the Statement of Assets and Liabilities. On April 1, 2003, INVESCO
Combination Stock & Bond Funds, Inc. - Total Return Fund paid the borrowing back
to Utilities Fund in full including interest.
NOTE 7 -- LINE OF CREDIT. Each Fund has available a Redemption Line of Credit
Facility ("LOC"), from a consortium of national banks, to be used for temporary
or emergency purposes to fund redemptions of investor shares. The LOC permits
borrowings to a maximum of 10% of the net assets at value of each respective
Fund. Each Fund agrees to pay annual fees and interest on the unpaid principal
balance based on prevailing market rates as defined in the agreement. During the
year ended March 31, 2003, Financial Services and Technology Funds borrowed cash
at a weighted average rate of 2.31%, and interest expenses amounted to $450 and
$578, respectively. During that same period, there were no such borrowings for
Energy, Gold & Precious Metals, Health Sciences, Leisure, Real Estate
Opportunity, Telecommunications and Utilities Funds.
NOTE 8 -- CONTINGENT DEFERRED SALES CHARGE ("CDSC"). Class A shares may charge a
1.00% CDSC if a shareholder purchased $1,000,000 or more and redeemed these
shares within 18 months from the date of purchase. Effective November 15, 2002,
qualified plans investing in Class A shares may pay a 1.00% CDSC and Class K
shares may pay a 0.70% CDSC if a shareholder redeemed these shares within 12
months from the date of purchase. A CDSC is charged by Class B shares on
redemptions or exchanges of shares at a maximum of 5.00% beginning at the time
of purchase to 0.00% at the beginning of the seventh year. A 1.00% CDSC is
charged by Class C shares on redemptions or exchanges held thirteen months or
less. Shares acquired through reinvestment of dividends or other distributions
are not charged a CDSC. The CDSC may be reduced or certain sales charge
exceptions may apply. The CDSC is paid by the redeeming shareholder and
therefore it is not an expense of the Fund. For the year ended March 31, 2003,
the Distributor received the following CDSC from Class A, Class B, Class C and
Class K shareholders:
FUND CLASS A CLASS B CLASS C CLASS K
- ------------------------------------------------------------------------------------------------
Energy Fund $ 0 $ 1,393 $ 7,690 $ 0
Financial Services Fund 0 1,307 13,978 0
Gold & Precious Metals Fund 0 1 2,197 --
Health Sciences Fund 0 747 11,340 0
Leisure Fund 0 12,171 16,172 0
Real Estate Opportunity Fund 0 243 770 --
Technology Fund 0 276 7,494 0
Telecommunications Fund 0 181 18,384 0
Utilities Fund 0 1,250 578 --
NOTE 9 -- SHARE INFORMATION. Changes in fund share transactions during the years
ended March 31, 2003 and 2002 were as follows:
ENERGY FUND FINANCIAL SERVICES FUND GOLD & PRECIOUS METALS FUND
YEAR ENDED MARCH 31 YEAR ENDED MARCH 31 YEAR ENDED MARCH 31
- ------------------------------------------------------------------------------------------------------------------
2003 2002 2003 2002 2003 2002
Shares Sold
Investor Class 12,665,097 33,986,047 92,466,548 52,167,572 113,839,180 141,069,920
Class A 1,144,145 -- 357,198 -- 3,326,766 --
Class B 93,080 -- 47,478 -- 1,053,937 --
Class C 984,511 1,099,872 774,225 981,786 7,482,496 1,500,683
Class K 22,288 2,143 41,708 64,647 -- --
Shares Issued from
Reinvestment of Distributions
Investor Class 0 0 196,653 2,638,995 0 0
Class A 0 -- 2,132 -- 0 --
Class B 0 -- 267 -- 0 --
Class C 0 0 673 27,003 0 0
Class K 0 0 454 2,787 -- --
==================================================================================================================
14,909,121 35,088,062 93,887,336 55,882,790 125,702,379 142,570,603
Shares Repurchased
Investor Class (17,525,270) (37,979,338) (102,655,456) (58,464,938) (118,596,254) (140,424,339)
Class A (602,143) -- (114,384) -- (2,693,330) --
Class B (3,209) -- (2,217) -- (85,023) --
Class C (1,052,371) (895,102) (911,176) (829,034) (6,718,167) (1,325,678)
Class K (5,719) (170) (16,126) (30,145) -- --
==================================================================================================================
(19,188,712) (38,874,610) (103,699,359) (59,324,117) (128,092,774) (141,750,017)
NET INCREASE
(DECREASE) IN
FUND SHARES (4,279,591) (3,786,548) (9,812,023) (3,441,327) (2,390,395) 820,586
==================================================================================================================
NOTE 9 -- SHARE INFORMATION (CONTINUED)
HEALTH SCIENCES FUND LEISURE FUND REAL ESTATE OPPORTUNITY FUND
YEAR ENDED MARCH 31 YEAR ENDED MARCH 31 YEAR ENDED MARCH 31
- ------------------------------------------------------------------------------------------------------------------
2003 2002 2003 2002 2003 2002
(Note 1)
Shares Sold
Investor Class 79,949,743 57,443,476 6,136,558 19,352,726 5,248,092 8,923,885
Class A 287,786 -- 1,104,358 -- 527,534 --
Class B 17,220 -- 284,942 -- 21,438 --
Class C 2,159,153 9,130,105 1,250,725 1,453,013 417,652 908,498
Class K 32,296 71,569 1,128,435 1,628,033 -- --
Shares Issued from
Reinvestment of Distributions
Investor Class 0 10,932 0 178,618 105,846 116,421
Class A 0 -- 0 -- 8,241 --
Class B 0 -- 0 -- 444 --
Class C 0 152 0 2,249 1,932 2,433
Class K 0 20 0 0 -- --
=================================================================================================================
82,446,198 66,656,254 9,905,018 22,614,639 6,331,179 9,951,237
Shares Repurchased
Investor Class (86,187,098) (60,958,816) (9,267,982) (15,369,925) (5,234,590) (10,471,115)
Class A (191,020) -- (224,212) -- (211,814) --
Class B (1,026) -- (15,165) -- (3,892) --
Class C (2,342,780) (9,026,936) (1,084,357) (1,175,755) (372,001) (1,038,382)
Class K (30,847) (20,420) (529,876) (31,768) -- --
=================================================================================================================
(88,752,771) (70,006,172) (11,121,592) (16,577,448) (5,822,297) (11,509,497)
NET INCREASE
(DECREASE) IN
FUND SHARES (6,306,573) (3,349,918) (1,216,574) (6,037,191) 508,882 (1,558,260)
=================================================================================================================
TECHNOLOGY FUND TELECOMMUNICATIONS FUND UTILITIES FUND
YEAR ENDED MARCH 31 YEAR ENDED MARCH 31 YEAR ENDED MARCH 31
- -----------------------------------------------------------------------------------------------------------------
2003 2002 2003 2002 2003 2002
Shares Sold
Institutional Class 19,889,258 31,869,203 -- -- -- --
Investor Class 224,764,422 139,817,995 104,306,735 113,031,996 12,818,438 10,812,169
Class A 2,174,042 -- 1,088,209 -- 282,591 --
Class B 44,687 -- 2,489 -- 27,752 --
Class C 788,820 3,082,019 5,665,489 19,484,375 1,261,896 679,313
Class K 920,699 1,038,923 70,829 77,229 -- --
Shares Issued from
Reinvestment of Distributions
Investor Class 0 0 0 0 254,574 154,281
Class A 0 -- 0 -- 1,448 --
Class B 0 -- 0 -- 172 --
Class C 0 0 0 0 1,058 50
=================================================================================================================
248,581,928 175,808,140 111,133,751 132,593,600 14,647,929 11,645,813
Shares Repurchased
Institutional Class (23,113,782) (26,698,958) -- -- -- --
Investor Class (235,589,807) (139,766,344) (116,174,811) (128,834,470) (15,880,668) (13,656,118)
Class A (1,911,401) -- (1,047,111) -- (228,729) --
Class B (13,101) -- (478) -- (4,295) --
Class C 1,073,531) (2,897,877) (6,240,763) (19,131,108) (1,350,991) (732,739)
Class K (498,359) (140,570) (56,707) (7,033) -- --
=================================================================================================================
(262,199,981) (169,503,749) (123,519,870) (147,972,611) (17,464,683) (14,388,857)
NET INCREASE
(DECREASE) IN
FUND SHARES (13,618,053) 6,304,391 (12,386,119) (15,379,011) (2,816,754) (2,743,044)
=================================================================================================================
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
INVESCO Sector Funds, Inc.
In our opinion, the accompanying statements of assets and liabilities, including
the statement of investment securities, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of INVESCO Energy Fund, INVESCO
Financial Services Fund, INVESCO Gold & Precious Metals Fund, INVESCO Health
Sciences Fund, INVESCO Leisure Fund, INVESCO Real Estate Opportunity Fund,
INVESCO Technology Fund, INVESCO Telecommunications Fund and INVESCO Utilities
Fund (constituting INVESCO Sector Funds, Inc., hereafter referred to as the
"Fund") at March 31, 2003, the results of each of their operations for the year
then ended, the changes in each of their net assets for each of the two years in
the period then ended and the financial highlights for each of the periods
indicated, in conformity with accounting principles generally accepted in the
United States of America. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with auditing standards generally accepted in
the United States of America, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at March 31, 2003 by
correspondence with the custodian, transfer agent and brokers, and the
application of alternative auditing procedures where securities purchased had
not been received, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Denver, Colorado
April 30, 2003
FINANCIAL HIGHLIGHTS
ENERGY FUND -- INVESTOR CLASS
- ------------------------------------------------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
PERIOD
ENDED
YEAR ENDED MARCH 31 MARCH 31 YEAR ENDED OCTOBER 31
- ------------------------------------------------------------------------------------------------------------------------------------
2003 2002 2001 2000(a) 1999 1998
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 19.26 $ 19.73 $ 17.40 $ 13.68 $ 11.30 $ 19.38
====================================================================================================================================
INCOME FROM INVESTMENT OPERATIONS(b)
Net Investment Income (Loss)(c) (0.10) (0.07) (0.08) (0.00) (0.00) 0.00
Net Gains or (Losses) on Securities
(Both Realized and Unrealized) (2.35) (0.40) 3.84 3.72 2.39 (5.04)
====================================================================================================================================
TOTAL FROM INVESTMENT OPERATIONS (2.45) (0.47) 3.76 3.72 2.39 (5.04)
====================================================================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 0.00 0.00 1.43 0.00 0.01 3.04
====================================================================================================================================
Net Asset Value -- End of Period $ 16.81 $ 19.26 $ 19.73 $ 17.40 $ 13.68 $ 11.30
====================================================================================================================================
TOTAL RETURN (12.72%) (2.38%) 23.09% 27.19%(d) 21.19% (28.51%)
RATIOS
Net Assets -- End of Period
($000 Omitted) $ 231,023 $ 358,439 $ 445,845 $ 221,432 $ 196,136 $ 137,455
Ratio of Expenses to Average Net Assets(e) 1.69% 1.53% 1.41% 1.60%(f) 1.68% 1.58%
Ratio of Net Investment Income (Loss) to
Average Net Assets (0.57%) (0.34%) (0.35%) (0.26%)(f) (0.05%) 0.01%
Portfolio Turnover Rate 144% 144% 166% 109%(d) 279% 192%
(a) From November 1, 1999 to March 31, 2000.
(b) The per share information was computed based on average shares for the years ended March 31, 2003, 2002 and 2001.
(c) Net Investment Income (Loss) aggregated less than $0.01 on a per share basis for the period ended March 31, 2000 and the years
ended October 31, 1999 and 1998.
(d) Based on operations for the period shown and, accordingly, is not representative of a full year.
(e) Ratio is based on Total Expenses of the Class, which is before any expense offset arrangements (which may include custodian,
distribution and transfer agent fees).
(f) Annualized
FINANCIAL HIGHLIGHTS
ENERGY FUND -- CLASS A & CLASS B
- --------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
CLASS A CLASS B
YEAR YEAR
ENDED ENDED
MARCH 31 MARCH 31
- --------------------------------------------------------------------------------
2003(a) 2003(a)
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 19.26 $ 19.26
================================================================================
INCOME FROM INVESTMENT OPERATIONS(b)
Net Investment Loss (0.05) (0.17)
Net Losses on Securities (Both Realized
and Unrealized) (2.36) (2.38)
================================================================================
TOTAL FROM INVESTMENT OPERATIONS (2.41) (2.55)
================================================================================
Net Asset Value -- End of Period $ 16.85 $ 16.71
================================================================================
TOTAL RETURN(c) (12.51%) (13.24%)
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 9,131 $ 1,502
Ratio of Expenses to Average Net Assets(d)(e) 1.46% 2.33%
Ratio of Net Investment Loss to Average Net Assets(e) (0.33%) (1.16%)
Portfolio Turnover Rate 144% 144%
(a) Class commenced operations on April 1, 2002.
(b) The per share information was computed based on average shares.
(c) The applicable sales charges for Class A or CDSC for Class B is not included
in the Total Return calculation.
(d) Ratio is based on Total Expenses of the Class, less Expenses absorbed by
Investment Adviser, if applicable, which is before any expense offset
arrangements (which may include custodian fees).
(e) Various expenses of Class B were voluntarily absorbed by IFG for the year
ended March 31, 2003. If such expenses had not been voluntarily absorbed for
Class B, ratio of expenses to average net assets would have been 2.41% and
ratio of net investment loss to average net assets would have been (1.24%).
FINANCIAL HIGHLIGHTS
ENERGY FUND -- CLASS C
- ---------------------------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
PERIOD
ENDED
YEAR ENDED MARCH 31 MARCH 31
- --------------------------------------------------------------------------------------------------------------
2003 2002 2001 2000(a)
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 18.98 $ 19.58 $ 17.39 $ 14.35
==============================================================================================================
INCOME FROM INVESTMENT OPERATIONS(b)
Net Investment Loss (0.11) (0.07) (0.05) (0.01)
Net Gains or (Losses) on Securities (Both
Realized and Unrealized) (2.42) (0.53) 3.67 3.05
==============================================================================================================
TOTAL FROM INVESTMENT OPERATIONS (2.53) (0.60) 3.62 3.04
==============================================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 0.00 0.00 1.43 0.00
==============================================================================================================
NET ASSET VALUE -- END OF PERIOD $ 16.45 $ 18.98 $ 19.58 $ 17.39
==============================================================================================================
TOTAL RETURN(c) (13.33%) (3.06%) 22.35% 21.11%(d)
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 9,566 $ 12,324 $ 8,704 $ 16
Ratio of Expenses to Average Net Assets(e)(f) 2.33% 2.27% 2.05% 2.05%(g)
Ratio of Net Investment Loss to Average Net Assets(f) (1.22%) (1.08%) (1.10%) (1.11%)(g)
Portfolio Turnover Rate 144% 144% 166% 109%(h)
(a) From February 15, 2000, since inception of Class, to March 31, 2000.
(b) The per share information was computed based on average shares for the period ended March 31, 2000.
(c) The applicable CDSC is not included in the Total Return calculation.
(d) Based on operations for the period shown and, accordingly, is not representative of a full year.
(e) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by Investment Adviser, if applicable,
which is before any expense offset arrangements (which may include custodian fees).
(f) Various expenses of the Class were voluntarily absorbed by IFG for the year ended March 31, 2003. If such
expenses had not been voluntarily absorbed, ratio of expenses to average net assets would have been 2.53%
and ratio of net investment loss to average net assets would have been (1.42%).
(g) Annualized
(h) Portfolio Turnover is calculated at the Fund level. Represents the period from November 1, 1999 to March
31, 2000.
FINANCIAL HIGHLIGHTS
ENERGY FUND -- CLASS K
- -----------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
PERIOD
ENDED
YEAR ENDED MARCH 31 MARCH 31
- -----------------------------------------------------------------------------------------
2003 2002 2001(a)
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 17.98 $ 19.62 $ 16.76
=========================================================================================
INCOME FROM INVESTMENT OPERATIONS(b)
Net Investment Loss (0.14) (0.05) (0.15)
Net Gains or (Losses) on Securities (Both Realized
and Unrealized) (2.29) (1.59) 3.01
=========================================================================================
TOTAL FROM INVESTMENT OPERATIONS (2.43) (1.64) 2.86
=========================================================================================
Net Asset Value -- End of Period $ 15.55 $ 17.98 $ 19.62
=========================================================================================
TOTAL RETURN (13.52%) (8.36%) 17.06%(c)
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 289 $ 37 $ 1
Ratio of Expenses to Average Net Assets(d)(e) 2.07% 11.62% 3.11%(f)
Ratio of Net Investment Loss to Average Net Assets(e) (0.90%) (10.45%) (2.34%)(f)
Portfolio Turnover Rate 144% 144% 166%(g)
(a) From December 1, 2000, since inception of Class, to March 31, 2001.
(b) The per share information was computed based on average shares for the year ended
March 31, 2003.
(c) Based on operations for the period shown and, accordingly, is not representative of a
full year.
(d) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by Investment
Adviser, if applicable, which is before any expense offset arrangements (which may
include custodian fees).
(e) Various expenses of the Class were voluntarily absorbed by IFG for the year ended
March 31, 2003. If such expenses had not been voluntarily absorbed, ratio of expenses
to average net assets would have been 5.36% and ratio of net investment loss to
average net assets would have been (4.19%).
(f) Annualized
(g) Portfolio turnover is calculated at the Fund level. Represents the year ended March
31, 2001.
FINANCIAL HIGHLIGHTS
FINANCIAL SERVICES FUND -- INVESTOR CLASS
- ------------------------------------------------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
PERIOD
ENDED
YEAR ENDED MARCH 31 MARCH 31 YEAR ENDED OCTOBER 31
- ------------------------------------------------------------------------------------------------------------------------------------
2003 2002 2001 2000(a) 1999 1998
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 28.22 $ 28.88 $ 27.13 $ 29.73 $ 28.45 $ 29.14
====================================================================================================================================
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.10 0.07 0.10 0.03 0.08 0.25
Net Gains or (Losses) on Securities
(Both Realized and Unrealized) (6.42) 0.94 2.97 0.05 3.52 3.01
====================================================================================================================================
TOTAL FROM INVESTMENT OPERATIONS (6.32) 1.01 3.07 0.08 3.60 3.26
====================================================================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 0.13 1.67 1.32 2.68 2.32 3.95
====================================================================================================================================
Net Asset Value -- End of Period $ 21.77 $ 28.22 $ 28.88 $ 27.13 $ 29.73 $ 28.45
====================================================================================================================================
TOTAL RETURN (22.39%) 3.82% 11.25% 0.60%(b) 13.52 11.76%
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 734,440 $ 1,234,230 $ 1,368,583 $ 1,133,350 $ 1,242,555 $ 1,417,655
Ratio of Expenses to Average Net Assets(c) 1.40% 1.27% 1.25% 1.29%(d) 1.26% 1.05%
Ratio of Net Investment Income to Average
Net Assets 0.38% 0.24% 0.36% 0.25%(d) 0.25% 0.85%
Portfolio Turnover Rate 60% 81% 99% 38%(b) 83% 52%
(a) From November 1, 1999 to March 31, 2000.
(b) Based on operations for the period shown and, accordingly, is not representative of a full year.
(c) Ratio is based on Total Expenses of the Class, which is before any expense offset arrangements (which may include custodian,
distribution and transfer agent fees).
(d) Annualized
FINANCIAL HIGHLIGHTS
FINANCIAL SERVICES FUND -- CLASS A & CLASS B
- -----------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
CLASS A CLASS B
YEAR YEAR
ENDED ENDED
MARCH 31 MARCH 31
- -----------------------------------------------------------------------------------------
2003(a) 2003(a)
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 28.22 $ 28.22
=========================================================================================
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) 0.06 (0.03)
Net Losses on Securities (Both Realized
and Unrealized) (6.37) (6.30)
=========================================================================================
TOTAL FROM INVESTMENT OPERATIONS (6.31) (6.33)
=========================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 0.23 0.15
=========================================================================================
Net Asset Value -- End of Period $ 21.68 $ 21.74
=========================================================================================
TOTAL RETURN(b) (22.36%) (22.48%)
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 5,311 $ 990
Ratio of Expenses to Average Net Assets(c)(d) 1.38% 2.09%
Ratio of Net Investment Income (Loss) to Average Net Assets(d) 0.49% (0.20%)
Portfolio Turnover Rate 60% 60%
(a) Class commenced operations on April 1, 2002.
(b) The applicable sales charges for Class A or CDSC for Class B is not included in the
Total Return calculation.
(c) Ratio is based on Total Expenses of the Class, less Expenses absorbed by Investment
Adviser, which is before any expense offset arrangements (which may include custodian
fees).
(d) Various expenses of each Class were absorbed by IFG for the year ended March 31,
2003. If such expenses had not been voluntarily absorbed, ratio of expenses to
average net assets would have been 1.51% for Class A and 2.40% for Class B and ratio
of net investment income (loss) to average net assets would have been 0.36% for Class
A and (0.51%) for Class B.
FINANCIAL HIGHLIGHTS
FINANCIAL SERVICES FUND -- CLASS C
- -------------------------------------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
PERIOD
ENDED
YEAR ENDED MARCH 31 MARCH 31
- -------------------------------------------------------------------------------------------------------------------------
2003 2002 2001 2000(a)
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 27.89 $ 28.72 $ 27.06 $ 23.66
=========================================================================================================================
INCOME FROM INVESTMENT OPERATIONS(b)
Net Investment Income (Loss)(c) (0.25) (0.10) (0.09) 0.00
Net Gains or (Losses) on Securities (Both Realized
and Unrealized) (6.22) 0.87 3.05 3.48
=========================================================================================================================
TOTAL FROM INVESTMENT OPERATIONS (6.47) 0.77 2.96 3.48
=========================================================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 0.04 1.60 1.30 0.08
=========================================================================================================================
Net Asset Value -- End of Period $ 21.38 $ 27.89 $ 28.72 $ 27.06
=========================================================================================================================
TOTAL RETURN(d) (23.22%) 2.98% 10.87% 14.72%(e)
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 10,026 $ 16,880 $ 12,221 $ 138
Ratio of Expenses to Average Net Assets(f) 2.45% 2.07% 1.85% 1.63%(g)
Ratio of Net Investment Income (Loss) to Average Net Assets (0.68%) (0.57%) (0.31%) 0.39%(g)
Portfolio Turnover Rate 60% 81% 99% 38%(h)
(a) From February 15, 2000, since inception of Class, to March 31, 2000.
(b) The per share information was computed based on average shares for the year ended March 31, 2001.
(c) Net Investment Income aggregated less than $0.01 on a per share basis for the period ended March 31, 2000.
(d) The applicable CDSC is not included in the Total Return calculation.
(e) Based on operations for the period shown and, accordingly, is not representative of a full year.
(f) Ratio is based on Total Expenses of the Class, which is before any expense offset arrangements (which may include
custodian fees).
(g) Annualized
(h) Portfolio Turnover is calculated at the Fund level. Represents the period from November 1, 1999 to March 31, 2000.
FINANCIAL HIGHLIGHTS
FINANCIAL SERVICES FUND -- CLASS K
- ---------------------------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
PERIOD
ENDED
YEAR ENDED MARCH 31 MARCH 31
- ---------------------------------------------------------------------------------------------------------------
2003 2002 2001(a)
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 27.69 $ 28.67 $ 29.35
===============================================================================================================
INCOME FROM INVESTMENT OPERATIONS(b)
Net Investment Income (Loss) 0.15 (0.03) (0.17)
Net Gains or (Losses) on Securities (Both Realized and Unrealized) (6.41) 0.90 (0.38)
===============================================================================================================
TOTAL FROM INVESTMENT OPERATIONS (6.26) 0.87 (0.55)
===============================================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 0.16 1.85 0.13
===============================================================================================================
Net Asset Value -- End of Period $ 21.27 $ 27.69 $ 28.67
===============================================================================================================
TOTAL RETURN (22.62%) 3.38% (1.97%)(c)
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 1,348 $ 1,033 $ 1
Ratio of Expenses to Average Net Assets(d)(e) 1.78% 1.63% 3.35%(f)
Ratio of Net Investment Income (Loss) to Average Net Assets(e) 0.18% (0.12%) (1.80%)(f)
Portfolio Turnover Rate 60% 81% 99%(g)
(a) From December 1, 2000, since inception of Class, to March 31, 2001.
(b) The per share information was computed based on average shares for the year ended March 31, 2002.
(c) Based on operations for the period shown and, accordingly, is not representative of a full year.
(d) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by Investment Adviser, if applicable,
which is before any expense offset arrangements (which may include custodian fees).
(e) Various expenses of the Class were voluntarily absorbed by IFG for the year ended March 31, 2003. If such
expenses had not been voluntarily absorbed, ratio of expenses to average net assets would have been 2.13%
and ratio of net investment loss to average net assets would have been (0.17%).
(f) Annualized
(g) Portfolio Turnover is calculated at the Fund level. Represents the year ended March 31, 2001.
FINANCIAL HIGHLIGHTS
GOLD & PRECIOUS METALS FUND -- INVESTOR CLASS
- ------------------------------------------------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
PERIOD
ENDED
YEAR ENDED MARCH 31 MARCH 31 YEAR ENDED OCTOBER 31
- ------------------------------------------------------------------------------------------------------------------------------------
2003 2002 2001 2000(a) 1999 1998
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 2.29 $ 1.43 $ 1.60 $ 1.83 $ 1.90 $ 3.21
====================================================================================================================================
INCOME FROM INVESTMENT OPERATIONS(b)
Net Investment Income (Loss) (0.02) (0.01) (0.01) (0.01) (0.03) 0.01
Net Gains or (Losses) on Securities
(Both Realized and Unrealized) 0.13 0.87 (0.12) (0.22) (0.04) (1.29)
====================================================================================================================================
TOTAL FROM INVESTMENT OPERATIONS 0.11 0.86 (0.13) (0.23) (0.07) (1.28)
====================================================================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 0.00 0.00 0.04 0.00 0.00 0.03
====================================================================================================================================
Net Asset Value -- End of Period $ 2.40 $ 2.29 $ 1.43 $ 1.60 $ 1.83 $ 1.90
====================================================================================================================================
TOTAL RETURN 4.80% 60.14% (8.38%) (12.58%)(c) (3.68%) (39.98%)
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 98,388 $ 104,831 $ 64,429 $ 81,470 $ 99,753 $ 107,249
Ratio of Expenses to Average Net Assets(d) 1.88% 2.10% 2.34% 2.08%(e) 2.20% 1.90%
Ratio of Net Investment Loss to Average
Net Assets (0.79%) (0.80%) (0.99%) (0.76%)(e) (1.60%) (0.93%)
Portfolio Turnover Rate 84% 46% 90% 37%(c) 141% 133%
(a) From November 1, 1999 to March 31, 2000.
(b) The per share information was computed based on average shares for the years ended March 31, 2003, 2001 and October 31, 1999.
(c) Based on operations for the period shown and, accordingly, is not representative of a full year.
(d) Ratio is based on Total Expenses of the Class, which is before any expense offset arrangements (which may include custodian,
distribution and transfer agent fees).
(e) Annualized
FINANCIAL HIGHLIGHTS
GOLD & PRECIOUS METALS FUND -- CLASS A & CLASS B
- --------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
CLASS A CLASS B
YEAR YEAR
ENDED ENDED
MARCH 31 MARCH 31
- --------------------------------------------------------------------------------
2003(a) 2003(a)
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 2.29 $ 2.29
================================================================================
INCOME FROM INVESTMENT OPERATIONS(b)
Net Investment Loss (0.02) (0.02)
Net Gains on Securities (Both Realized and Unrealized) 0.12 0.12
================================================================================
TOTAL FROM INVESTMENT OPERATIONS 0.10 0.10
================================================================================
Net Asset Value -- End of Period $ 2.39 $ 2.39
================================================================================
TOTAL RETURN(c) 4.37% 4.37%
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 1,514 $ 2,315
Ratio of Expenses to Average Net Assets(d)(e) 2.09% 2.18%
Ratio of Net Investment Loss to Average Net Assets(e) (1.09%) (1.12%)
Portfolio Turnover Rate 84% 84%
(a) Class commenced operations on April 1, 2002.
(b) The per share information was computed based on average shares.
(c) The applicable sales charges for Class A or CDSC for Class B is not included
in the Total Return calculation.
(d) Ratio is based on Total Expenses of the Class, less Expenses absorbed by
Investment Adviser, if applicable, which is before any expense offset
arrangements (which may include custodian fees).
(e) Various expenses of Class A were voluntarily absorbed by IFG for the year
ended March 31, 2003. If such expenses had not been voluntarily absorbed for
Class A, ratio of expenses to average net assets would have been 2.11% and
ratio of net investment loss to average net assets would have been (1.11%).
GOLD & PRECIOUS METALS FUND -- CLASS C
- ------------------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
PERIOD
ENDED
YEAR ENDED MARCH 31 MARCH 31
- ------------------------------------------------------------------------------------------------------
2003 2002 2001 2000(a)
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 2.42 $ 1.53 $ 1.60 $ 1.75
======================================================================================================
INCOME FROM INVESTMENT OPERATIONS(b)
Net Investment Loss(c) (0.00) (0.07) (0.01) (0.00)
Net Gains or (Losses) on Securities (Both Realized
and Unrealized) 0.10 0.96 (0.02) (0.15)
======================================================================================================
TOTAL FROM INVESTMENT OPERATIONS 0.10 0.89 (0.03) (0.15)
======================================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 0.00 0.00 0.04 0.00
======================================================================================================
Net Asset Value -- End of Period $ 2.52 $ 2.42 $ 1.53 $ 1.60
======================================================================================================
TOTAL RETURN(d) 4.13% 58.17% (1.95%) (8.57%)(e)
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 2,459 $ 515 $ 57 $ 1
Ratio of Expenses to Average Net Assets(f) 2.65% 3.33% 3.38% 3.54%(g)
Ratio of Net Investment Loss to Average Net Assets (1.60%) (1.67%) (1.41%) (0.82%)(g)
Portfolio Turnover Rate 84% 46% 90% 37%(h)
(a) From February 15, 2000, since inception of Class, to March 31, 2000.
(b) The per share information was computed based on average shares for the year ended March 31, 2001.
(c) Net Investment Loss aggregated less than $0.01 on a per share basis for the year ended March 31,
2003 and the period ended March 31, 2000.
(d) The applicable CDSC is not included in the Total Return calculation.
(e) Based on operations for the period shown and, accordingly, is not representative of a full year.
(f) Ratio is based on Total Expenses of the Class, which is before any expense offset arrangements
(which may include custodian fees).
(g) Annualized
(h) Portfolio Turnover is calculated at the Fund level. Represents the period from November 1, 1999 to
March 31, 2000.
FINANCIAL HIGHLIGHTS
HEALTH SCIENCES FUND -- INVESTOR CLASS
- ------------------------------------------------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
PERIOD
ENDED
YEAR ENDED MARCH 31 MARCH 31 YEAR ENDED OCTOBER 31
- ------------------------------------------------------------------------------------------------------------------------------------
2003 2002 2001 2000(a) 1999 1998
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 47.56 $ 45.78 $ 55.52 $ 58.39 $ 62.12 $ 57.50
====================================================================================================================================
INCOME FROM INVESTMENT OPERATIONS(b)
Net Investment Income (Loss) (0.28) (0.38) (0.12) (0.06) 0.14 0.13
Net Gains or (Losses) on Securities
(Both Realized and Unrealized) (8.75) 2.18 (0.51) 3.53 5.02 13.55
====================================================================================================================================
TOTAL FROM INVESTMENT OPERATIONS (9.03) 1.80 (0.63) 3.47 5.16 13.68
====================================================================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 0.00 0.02(c) 9.11 6.34 8.89 9.06
====================================================================================================================================
Net Asset Value -- End of Period $ 38.53 $ 47.56 $ 45.78 $ 55.52 $ 58.39 $ 62.12
====================================================================================================================================
TOTAL RETURN (18.99%) 3.95% (4.12%) 6.30%(d) 8.44% 28.58%
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 954,765 $ 1,475,313 $ 1,580,378 $ 1,622,624 $ 1,574,020 $ 1,328,196
Ratio of Expenses to Average Net Assets(e) 1.44% 1.31% 1.23% 1.18%(f) 1.22% 1.12%
Ratio of Net Investment Income (Loss)
to Average Net Assets (0.68%) (0.75%) (0.20%) (0.22%)(f) 0.07% 0.25%
Portfolio Turnover Rate 179% 160% 177% 107%(d) 127% 92%
(a) From November 1, 1999 to March 31, 2000.
(b) The per share information was computed based on average shares for the years ended March 31, 2003, 2002 and 2001 and the period
ended March 31, 2000.
(c) Distribution was a tax return of capital.
(d) Based on operations for the period shown and, accordingly, is not representative of a full year.
(e) Ratio is based on Total Expenses of the Class, which is before any expense offset arrangements (which may include custodian,
distribution and transfer agent fees).
(f) Annualized
FINANCIAL HIGHLIGHTS
HEALTH SCIENCES FUND -- CLASS A & CLASS B
- --------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
CLASS A CLASS B
YEAR YEAR
ENDED ENDED
MARCH 31 MARCH 31
- --------------------------------------------------------------------------------
2003(a) 2003(a)
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 47.56 $ 47.56
================================================================================
INCOME FROM INVESTMENT OPERATIONS(b)
Net Investment Loss (0.22) (0.44)
Net Losses on Securities (Both Realized and Unrealized) (8.78) (8.78)
================================================================================
TOTAL FROM INVESTMENT OPERATIONS (9.00) (9.22)
================================================================================
Net Asset Value -- End of Period $ 38.56 $ 38.34
================================================================================
TOTAL RETURN(c) (18.92%) (19.39%)
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 3,731 $ 621
Ratio of Expenses to Average Net Assets(d)(e) 1.41% 2.06%
Ratio of Net Investment Loss to Average Net Assets(e) (0.69%) (1.22%)
Portfolio Turnover Rate 179% 179%
(a) Class commenced operations on April 1, 2002.
(b) The per share information was computed based on average shares.
(c) The applicable sales charges for Class A or CDSC for Class B is not included
in the Total Return calculation.
(d) Ratio is based on Total Expenses of the Class, less Expenses absorbed by
Investment Adviser, which is before any expense offset arrangements (which
may include custodian fees).
(e) Various expenses of each Class were voluntarily absorbed by IFG for the year
ended March 31, 2003. If such expenses had not been voluntarily absorbed,
ratio of expenses to average net assets would have been 1.88% for Class A
and 2.51% for Class B and ratio of net investment loss to average net assets
would have been (1.16%) for Class A and (1.67%) for Class B.
FINANCIAL HIGHLIGHTS
HEALTH SCIENCES FUND -- CLASS C
- -----------------------------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
PERIOD
ENDED
YEAR ENDED MARCH 31 MARCH 31
- -----------------------------------------------------------------------------------------------------------------
2003 2002 2001 2000(a)
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 46.68 $ 45.40 $ 55.50 $ 62.05
=================================================================================================================
INCOME FROM INVESTMENT OPERATIONS(b)
Net Investment Loss (1.20) (0.35) (0.05) (0.03)
Net Gains or (Losses) on Securities (Both Realized
and Unrealized) (8.21) 1.65 (0.94) (6.52)
=================================================================================================================
TOTAL FROM INVESTMENT OPERATIONS (9.41) 1.30 (0.99) (6.55)
=================================================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 0.00 0.02(c) 9.11 0.00
=================================================================================================================
Net Asset Value -- End of Period $ 37.27 $ 46.68 $ 45.40 $ 55.50
=================================================================================================================
TOTAL RETURN(d) (20.16%) 2.85% (4.79%) (10.56%)(e)
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 5,846 $ 15,892 $ 10,767 $ 470
Ratio of Expenses to Average Net Assets(f)(g) 2.81% 2.26% 2.03% 1.65%(h)
Ratio of Net Investment Loss to Average Net Assets(g) (2.04%) (1.70%) (1.08%) (0.54%)(h)
Portfolio Turnover Rate 179% 160% 177% 107%(i)
(a) From February 15, 2000, since inception of Class, to March 31, 2000.
(b) The per share information was computed based on average shares for the period ended March 31, 2000.
(c) Distribution was a tax return of capital.
(d) The applicable CDSC is not included in the Total Return calculation.
(e) Based on operations for the period shown and, accordingly, is not representative of a full year.
(f) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by Investment Adviser, if applicable,
which is before any expense offset arrangements (which may include custodian fees).
(g) Various expenses of the Class were voluntarily absorbed by IFG for the year ended March 31, 2003. If such
expenses had not been voluntarily absorbed, ratio of expenses to average net assets would have been 3.27% and
ratio of net investment loss to average net assets would have been (2.50%).
(h) Annualized
(i) Portfolio Turnover is calculated at the Fund level. Represents the period from November 1, 1999 to March 31,
2000.
FINANCIAL HIGHLIGHTS
HEALTH SCIENCES FUND -- CLASS K
- --------------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
PERIOD
ENDED
YEAR ENDED MARCH 31 MARCH 31
- --------------------------------------------------------------------------------------------
2003 2002 2001(a)
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 46.98 $ 45.43 $ 55.84
==================================================================================================
INCOME FROM INVESTMENT OPERATIONS(b)
Net Investment Loss (0.23) (0.48) (0.22)
Net Gains or (Losses) on Securities (Both Realized
and Unrealized) (8.94) 2.05 (10.19)
==================================================================================================
TOTAL FROM INVESTMENT OPERATIONS (9.17) 1.57 (10.41)
==================================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 0.00 0.02(c) 0.00
==================================================================================================
Net Asset Value -- End of Period $ 37.81 $ 46.98 $ 45.43
==================================================================================================
TOTAL RETURN (19.50%) 3.42% (18.64%)(d)
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 1,990 $ 2,405 $ 1
Ratio of Expenses to Average Net Assets(e) 2.07% 1.71% 3.62%(f)
Ratio of Net Investment Loss to Average Net Assets (1.29%) (1.09%) (2.75%)(f)
Portfolio Turnover Rate 179% 160% 177%(g)
(a) From December 1, 2000, since inception of Class, to March 31, 2001.
(b) The per share information was computed based on average shares for the year ended March 31,
2002.
(c) Distribution was a tax return of capital.
(d) Based on operations for the period shown and, accordingly, is not representative of a full
year.
(e) Ratio is based on Total Expenses of the Class, which is before any expense offset arrangements
(which may include custodian fees).
(f) Annualized
(g) Portfolio turnover is calculated at the Fund level. Represents the year ended March 31, 2001.
FINANCIAL HIGHLIGHTS
LEISURE FUND -- INVESTOR CLASS
- ------------------------------------------------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
PERIOD
ENDED
YEAR ENDED MARCH 31 MARCH 31 YEAR ENDED OCTOBER 31
- ------------------------------------------------------------------------------------------------------------------------------------
2003 2002 2001 2000(a) 1999 1998
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 38.95 $ 37.13 $ 47.12 $ 43.21 $ 27.92 $ 27.21
====================================================================================================================================
INCOME FROM INVESTMENT OPERATIONS(b)
Net Investment Loss(c) (0.23) (0.03) (0.00) (0.13) (0.00) (0.00)
Net Gains or (Losses) on Securities
(Both Realized and Unrealized) (7.89) 2.21 (3.05) 7.27 17.20 3.69
====================================================================================================================================
TOTAL FROM INVESTMENT OPERATIONS (8.12) 2.18 (3.05) 7.14 17.20 3.69
====================================================================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 0.00 0.36 6.94 3.23 1.91 2.98
====================================================================================================================================
Net Asset Value -- End of Period $ 30.83 $ 38.95 $ 37.13 $ 47.12 $ 43.21 $ 27.92
====================================================================================================================================
TOTAL RETURN (20.87%) 6.01% (5.50%) 17.34%(d) 65.13% 15.16%
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 536,108 $ 799,465 $ 607,428 $ 549,523 $ 443,348 $ 228,681
Ratio of Expenses to Average Net Assets(e) 1.50% 1.40% 1.36% 1.28%(f) 1.44% 1.41%
Ratio of Net Investment Loss to Average
Net Assets (0.69%) (0.64%) (0.51%) (0.65%)(f) (0.68%) (0.09%)
Portfolio Turnover Rate 20% 27% 28% 23%(d) 35% 31%
(a) From November 1, 1999 to March 31, 2000.
(b) The per share information was computed based on average shares for the year ended March 31, 2003 and the period ended March 31,
2000.
(c) Net Investment Loss aggregated less than $0.01 on a per share basis for the year ended March 31, 2001 and the years ended
October 31, 1999 and 1998.
(d) Based on operations for the period shown and, accordingly, is not representative of a full year.
(e) Ratio is based on Total Expenses of the Class, which is before any expense offset arrangements (which may include custodian,
distribution and transfer agent fees).
(f) Annualized
FINANCIAL HIGHLIGHTS
LEISURE FUND -- CLASS A & CLASS B
- --------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
CLASS A CLASS B
YEAR YEAR
ENDED ENDED
MARCH 31 MARCH 31
- --------------------------------------------------------------------------------
2003(a) 2003(a)
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 38.96 $ 38.96
================================================================================
INCOME FROM INVESTMENT OPERATIONS(b)
Net Investment Loss (0.17) (0.38)
Net Losses on Securities (Both Realized
and Unrealized) (7.91) (7.93)
================================================================================
TOTAL FROM INVESTMENT OPERATIONS (8.08) (8.31)
================================================================================
Net Asset Value -- End of Period $ 30.88 $ 30.65
================================================================================
TOTAL RETURN(c) (20.74%) (21.33%)
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 27,175 $ 8,268
Ratio of Expenses to Average Net Assets(d)(e) 1.42% 2.14%
Ratio of Net Investment Loss to Average Net Assets(e) (0.56%) (1.29%)
Portfolio Turnover Rate 20% 20%
(a) Class commenced operations on April 1, 2002.
(b) The per share information was computed based on average shares.
(c) The applicable sales charges for Class A or CDSC for Class B is not included
in the Total Return calculation.
(d) Ratio is based on Total Expenses of the Class, less Expenses absorbed by
Investment Adviser, if applicable, which is before any expense offset
arrangements (which may include custodian fees).
(e) Various expenses of Class B were voluntarily absorbed by IFG for the year
ended March 31, 2003. If such expenses had not been voluntarily absorbed for
Class B, ratio of expenses to average net assets would have been 2.23% and
ratio of net investment loss to average net assets would have been (1.38%).
FINANCIAL HIGHLIGHTS
LEISURE FUND -- CLASS C
- ----------------------------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
PERIOD
ENDED
YEAR ENDED MARCH 31 MARCH 31
- ----------------------------------------------------------------------------------------------------------------
2003 2002 2001 2000(a)
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 38.29 $ 36.80 $ 47.09 $ 45.51
================================================================================================================
INCOME FROM INVESTMENT OPERATIONS(b)
Net Investment Loss (0.18) (0.17) (0.13) (0.02)
Net Gains or (Losses) on Securities (Both Realized
and Unrealized) (8.11) 2.02 (3.22) 1.60
================================================================================================================
TOTAL FROM INVESTMENT OPERATIONS (8.29) 1.85 (3.35) 1.58
================================================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 0.00 0.36 6.94 0.00
================================================================================================================
Net Asset Value -- End of Period $ 30.00 $ 38.29 $ 36.80 $ 47.09
================================================================================================================
TOTAL RETURN(c) (21.65%) 5.10% (6.18%) 3.47%(d)
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 17,768 $ 16,307 $ 5,388 $ 84
Ratio of Expenses to Average Net Assets(e) 2.44% 2.26% 2.08% 1.71%(f)
Ratio of Net Investment Loss to Average Net Assets (1.62%) (1.48%) (1.08%) (0.42%)(f)
Portfolio Turnover Rate 20% 27% 28% 23%(g)
(a) From February 15, 2000, since inception of Class, to March 31, 2000.
(b) The per share information was computed based on average shares for the period ended March 31, 2000.
(c) The applicable CDSC is not included in the Total Return calculation.
(d) Based on operations for the period shown and, accordingly, is not representative of a full year.
(e) Ratio is based on Total Expenses of the Class, which is before any expense offset arrangements (which may
include custodian fees).
(f) Annualized
(g) Portfolio Turnover is calculated at the Fund level. Represents the period from November 1, 1999 to March 31,
2000.
FINANCIAL HIGHLIGHTS
LEISURE FUND -- CLASS K
- --------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
YEAR PERIOD
ENDED ENDED
MARCH 31 MARCH 31
- --------------------------------------------------------------------------------
2003 2002(a)
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 38.98 $ 36.11
================================================================================
INCOME FROM INVESTMENT OPERATIONS(b)
Net Investment Loss (0.06) (0.09)
Net Gains or (Losses) on Securities (Both Realized
and Unrealized) (8.18) 2.96
================================================================================
TOTAL FROM INVESTMENT OPERATIONS (8.24) 2.87
================================================================================
Net Asset Value -- End of Period $ 30.74 $ 38.98
================================================================================
TOTAL RETURN (21.14%) 7.95%(c)
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 67,465 $ 62,226
Ratio of Expenses to Average Net Assets(d)(e) 1.87% 1.23%(f)
Ratio of Net Investment Loss to Average Net Assets(e) (1.05%) (0.48%)(f)
Portfolio Turnover Rate 20% 27%(g)
(a) From December 17, 2001, since inception of Class, to March 31, 2002.
(b) The per share information was computed based on average shares for the
period ended March 31, 2002.
(c) Based on operations for the period shown and, accordingly, is not
representative of a full year.
(d) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by
Investment Adviser, if applicable, which is before any expense offset
arrangements (which may include custodian fees).
(e) Various expenses of the Class were voluntarily absorbed by IFG for the year
ended March 31, 2003. If such expenses had not been voluntarily absorbed,
ratio of expenses to average net assets would have been 2.21% and ratio of
net investment loss to average net assets would have been (1.39%).
(f) Annualized
(g) Portfolio turnover is calculated at the Fund level. Represents the year
ended March 31, 2002.
FINANCIAL HIGHLIGHTS
REAL ESTATE OPPORTUNITY FUND -- INVESTOR CLASS
- ------------------------------------------------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
PERIOD
ENDED
YEAR ENDED MARCH 31 MARCH 31 YEAR ENDED JULY 31
- ------------------------------------------------------------------------------------------------------------------------------------
2003 2002 2001 2000(a) 1999 1998
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 7.89 $ 7.12 $ 6.63 $ 6.90 $ 9.15 $ 10.99
====================================================================================================================================
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.28 0.24 0.26 0.27 0.33 0.38
Net Gains or (Losses) on Securities
(Both Realized and Unrealized) (0.37) 0.78 0.48 (0.28) (1.56) (0.96)
====================================================================================================================================
TOTAL FROM INVESTMENT OPERATIONS (0.09) 1.02 0.74 (0.01) (1.23) (0.58)
====================================================================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 0.27 0.25 0.25 0.26 1.02 1.26
====================================================================================================================================
Net Asset Value -- End of Period $ 7.53 $ 7.89 $ 7.12 $ 6.63 $ 6.90 $ 9.15
====================================================================================================================================
TOTAL RETURN (1.12%) 14.67% 11.05% (0.03%)(b) (13.29%) (6.49%)
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 20,313 $ 20,345 $ 28,546 $ 20,046 $ 17,406 $ 23,548
Ratio of Expenses to Average Net Assets(c)(d) 1.60% 1.61% 1.60% 1.34%(e) 1.34% 1.22%
Ratio of Net Investment Income to Average Net Assets(d) 3.92% 3.58% 3.52% 5.54%(e) 4.23% 3.53%
Portfolio Turnover Rate 248% 196% 338%(f) 272%(b)(f) 697%(f) 258%
(a) From August 1, 1999 to March 31, 2000.
(b) Based on operations for the period shown and, accordingly, is not representative of a full year.
(c) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by Investment Adviser, which is before any expense offset
arrangements (which may include custodian fees).
(d) Various expenses of the Class were voluntarily absorbed by IFG for the years ended March 31, 2003, 2002 and 2001, the period
ended March 31, 2000 and the years ended July 31, 1999 and 1998. If such expenses had not been voluntarily absorbed, ratio of
expenses to average net assets would have been 2.43%, 2.25%, 2.03%, 2.73% (annualized), 2.76% and 1.97%, respectively, and ratio
of net investment income to average net assets would have been 3.09%, 2.94%, 3.09%, 4.15% (annualized), 2.81% and 2.78%,
respectively.
(e) Annualized
(f) Portfolio Turnover was greater than expected during the year due to active trading undertaken in response to market conditions.
FINANCIAL HIGHLIGHTS
REAL ESTATE OPPORTUNITY FUND -- CLASS A & CLASS B
- --------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
CLASS A CLASS B
YEAR YEAR
ENDED ENDED
MARCH 31 MARCH 31
- --------------------------------------------------------------------------------
2003(a) 2003(a)
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 7.89 $ 7.89
================================================================================
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.28 0.21
Net Losses on Securities (Both Realized
and Unrealized) (0.39) (0.36)
================================================================================
TOTAL FROM INVESTMENT OPERATIONS (0.11) (0.15)
================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 0.34 0.32
================================================================================
Net Asset Value -- End of Period $ 7.44 $ 7.42
================================================================================
TOTAL RETURN(b) (1.45%) (1.94%)
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 2,409 $ 133
Ratio of Expenses to Average Net Assets(c)(d) 1.66% 2.36%
Ratio of Net Investment Income to Average Net Assets(d) 4.57% 3.49%
Portfolio Turnover Rate 248% 248%
(a) Class commenced operations on April 1, 2002.
(b) The applicable sales charges for Class A or CDSC for Class B is not included
in the Total Return calculation.
(c) Ratio is based on Total Expenses of the Class, less Expenses absorbed by
Investment Adviser, if applicable, which is before any expense offset
arrangements (which may include custodian fees).
(d) Various expenses of Class B were voluntarily absorbed by IFG for the year
ended March 31, 2003. If such expenses had not been voluntarily absorbed for
Class B, ratio of expenses to average net assets would have been 3.73% and
ratio of net investment income to average net assets would have been 2.12%.
FINANCIAL HIGHLIGHTS
REAL ESTATE OPPORTUNITY FUND -- CLASS C
- ----------------------------------------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
PERIOD
ENDED
YEAR ENDED MARCH 31 MARCH 31
- ----------------------------------------------------------------------------------------------------------------------------
2003 2002 2001 2000(a)
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 7.95 $ 7.10 $ 6.62 $ 6.58
============================================================================================================================
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.14 0.14 0.20 0.08
Net Gains or (Losses) on Securities (Both Realized and Unrealized) (0.28) 0.82 0.48 0.06
============================================================================================================================
TOTAL FROM INVESTMENT OPERATIONS (0.14) 0.96 0.68 0.14
============================================================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 0.08 0.11 0.20 0.10
============================================================================================================================
Net Asset Value -- End of Period $ 7.73 $ 7.95 $ 7.10 $ 6.62
============================================================================================================================
TOTAL RETURN(b) (1.81%) 13.69% 10.20% 2.10%(c)
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 838 $ 484 $ 1,336 $ 143
Ratio of Expenses to Average Net Assets(d)(e) 2.35% 2.37% 2.26% 1.77%(f)
Ratio of Net Investment Income to Average Net Assets(e) 3.25% 2.72% 2.90% 19.13%(f)
Portfolio Turnover Rate 248% 196% 338%(g) 272%(g)(h)
(a) From February 15, 2000, since inception of Class, to March 31, 2000.
(b) The applicable CDSC is not included in the Total Return calculation.
(c) Based on operations for the period shown and, accordingly, is not representative of a full year.
(d) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by Investment Adviser, which is before any expense
offset arrangements (which may include custodian fees).
(e) Various expenses of the Class were voluntarily absorbed by IFG for the years ended March 31, 2003, 2002 and 2001 and the
period ended March 31, 2000. If such expenses had not been voluntarily absorbed, ratio of expenses to average net assets
would have been 3.74%, 2.72%, 2.26% and 2.04% (annualized), respectively, and ratio of net investment income to average
net assets would have been 1.86%, 2.37%, 2.90% and 18.86% (annualized), respectively.
(f) Annualized
(g) Portfolio Turnover was greater than expected during the year due to active trading undertaken in response to market
conditions.
(h) Portfolio Turnover is calculated at the Fund level. Represents the period from August 1, 1999 to March 31, 2000.
FINANCIAL HIGHLIGHTS
TECHNOLOGY FUND -- INSTITUTIONAL CLASS
- ------------------------------------------------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
PERIOD PERIOD
ENDED ENDED
YEAR ENDED MARCH 31 MARCH 31 OCTOBER 31
- ------------------------------------------------------------------------------------------------------------------------------------
2003 2002 2001 2000(a) 1999(b)
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 30.93 $ 35.98 $ 102.55 $ 58.43 $ 33.85
====================================================================================================================================
INCOME FROM INVESTMENT OPERATIONS(c)
Net Investment Loss (0.12) (0.16) (0.06) (0.04) (0.16)
Net Gains or (Losses) on Securities
(Both Realized and Unrealized) (13.47) (4.89) (63.87) 48.07 24.74
====================================================================================================================================
TOTAL FROM INVESTMENT OPERATIONS (13.59) (5.05) (63.93) 48.03 24.58
====================================================================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 0.00 0.00 2.64 3.91 0.00
====================================================================================================================================
Net Asset Value -- End of Period $ 17.34 $ 30.93 $ 35.98 $ 102.55 $ 58.43
====================================================================================================================================
TOTAL RETURN (43.94%) (14.04%) (63.39%) 86.14%(d) 72.61%(d)
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 707,040 $ 1,360,738 $ 1,396,788 $ 4,453,520 $ 951,925
Ratio of Expenses to Average Net Assets(e) 0.90% 0.74% 0.58% 0.56%(f) 0.74%(f)
Ratio of Net Investment Loss to Average Net Assets (0.59%) (0.46%) (0.08%) (0.15%)(f) (0.36%)(f)
Portfolio Turnover Rate 107% 79% 85% 28%(d) 143%(g)
(a) From November 1, 1999 to March 31, 2000.
(b) From December 22, 1998, since inception of Class, to October 31, 1999.
(c) The per share information was computed based on average shares for the years ended March 31, 2003 and 2002 and the period ended
October 31, 1999.
(d) Based on operations for the period shown and, accordingly, is not representative of a full year.
(e) Ratio is based on Total Expenses of the Class, which is before any expense offset arrangements (which may include custodian
fees).
(f) Annualized
(g) Portfolio Turnover is calculated at the Fund level. Represents the year ended October 31, 1999.
FINANCIAL HIGHLIGHTS
TECHNOLOGY FUND -- INVESTOR CLASS
- ------------------------------------------------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
PERIOD
ENDED
YEAR ENDED MARCH 31 MARCH 31 YEAR ENDED OCTOBER 31
- ------------------------------------------------------------------------------------------------------------------------------------
2003 2002 2001 2000(a) 1999 1998
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 30.41 $ 35.60 $ 101.92 $ 58.17 $ 28.07 $ 35.97
====================================================================================================================================
INCOME FROM INVESTMENT OPERATIONS
Net Investment Loss(b) (0.14) (0.08) (0.10) (0.03) (0.07) (0.00)
Net Gains or (Losses) on Securities
(Both Realized and Unrealized) (13.37) (5.11) (63.58) 47.69 30.17 (1.45)
====================================================================================================================================
TOTAL FROM INVESTMENT OPERATIONS (13.51) (5.19) (63.68) 47.66 30.10 (1.45)
====================================================================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 0.00 0.00 2.64 3.91 0.00 6.45
====================================================================================================================================
Net Asset Value -- End of Period $ 16.90 $ 30.41 $ 35.60 $ 101.92 $ 58.17 $ 28.07
====================================================================================================================================
TOTAL RETURN (44.43%) (14.58%) (63.54%) 85.87%(c) 107.23% (2.47%)
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 853,530 $ 1,865,251 $ 2,181,879 $ 5,034,087 $ 2,081,613 $ 1,008,771
Ratio of Expenses to Average Net Assets(d) 1.77% 1.37% 0.98% 0.88%(e) 1.20% 1.17%
Ratio of Net Investment Loss
to Average Net Assets (1.46%) (1.08%) (0.47%) (0.48%)(e) (0.79%) (0.49%)
Portfolio Turnover Rate 107% 79% 85% 28%(c) 143% 178%
(a) From November 1, 1999 to March 31, 2000.
(b) Net Investment Loss aggregated less than $0.01 on a per share basis for the year ended October 31, 1998.
(c) Based on operations for the period shown and, accordingly, is not representative of a full year.
(d) Ratio is based on Total Expenses of the Class, which is before any expense offset arrangements (which may include custodian,
distribution and transfer agent fees).
(e) Annualized
FINANCIAL HIGHLIGHTS
TECHNOLOGY FUND -- CLASS A & CLASS B
- --------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
CLASS A CLASS B
YEAR YEAR
ENDED ENDED
MARCH 31 MARCH 31
- --------------------------------------------------------------------------------
2003(a) 2003(a)
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 30.41 $ 30.41
================================================================================
INCOME FROM INVESTMENT OPERATIONS(b)
Net Investment Loss (0.20) (0.27)
Net Losses on Securities
(Both Realized and Unrealized) (13.23) (13.30)
================================================================================
TOTAL FROM INVESTMENT OPERATIONS (13.43) (13.57)
================================================================================
Net Asset Value -- End of Period $ 16.98 $ 16.84
================================================================================
TOTAL RETURN(c) (44.16%) (44.62%)
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 4,460 $ 532
Ratio of Expenses to Average Net Assets(d)(e) 1.47% 2.15%
Ratio of Net Investment Loss to Average Net Assets(e) (1.12%) (1.71%)
Portfolio Turnover Rate 107% 107%
(a) Class commenced operations on April 1, 2002.
(b) The per share information was computed based on average shares.
(c) The applicable sales charges for Class A or CDSC for Class B is not included
in the Total Return calculation.
(d) Ratio is based on Total Expenses of each Class, less Expenses absorbed by
Investment Adviser, which is before any expense offset arrangements (which
may include custodian fees).
(e) Various expenses of each Class were voluntarily absorbed by IFG for the year
ended March 31, 2003. If such expenses had not been voluntarily absorbed,
ratio of expenses to average net assets would have been 1.51% for Class A
and 2.74% for Class B and ratio of net investment loss to average net assets
would have been (1.16%) for Class A and (2.30%) for Class B.
FINANCIAL HIGHLIGHTS
TECHNOLOGY FUND -- CLASS C
- -------------------------------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
PERIOD
ENDED
YEAR ENDED MARCH 31 MARCH 31
- -------------------------------------------------------------------------------------------------------------------
2003 2002 2001 2000(a)
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 29.73 $ 35.22 $ 101.85 $ 95.51
===================================================================================================================
INCOME FROM INVESTMENT OPERATIONS(b)
Net Investment Loss (0.62) (0.22) (0.18) (0.15)
Net Gains or (Losses) on Securities (Both Realized
and Unrealized) (12.72) (5.27) (63.81) 6.49
===================================================================================================================
TOTAL FROM INVESTMENT OPERATIONS (13.34) (5.49) (63.99) 6.34
===================================================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 0.00 0.00 2.64 0.00
===================================================================================================================
Net Asset Value -- End of Period $ 16.39 $ 29.73 $ 35.22 $ 101.85
===================================================================================================================
TOTAL RETURN(c) (44.87%) (15.59%) (63.89%) 6.63%(d)
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 5,759 $ 18,910 $ 15,919 $ 2,970
Ratio of Expenses to Average Net Assets(e)(f) 2.69% 2.54% 1.86% 1.45%(g)
Ratio of Net Investment Loss to Average Net Assets(f) (2.39%) (2.26%) (1.30%) (1.03%)(g)
Portfolio Turnover Rate 107% 79% 85% 28%(h)
(a) From February 15, 2000, since inception of Class, to March 31, 2000.
(b) The per share information was computed based on average shares for the period ended March 31, 2000.
(c) The applicable CDSC is not included in the Total Return calculation.
(d) Based on operations for the period shown and, accordingly, is not representative of a full year.
(e) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by Investment Adviser, if applicable,
which is before any expense offset arrangements (which may include custodian fees).
(f) Various expenses of the Class were voluntarily absorbed by IFG for the year ended March 31, 2003. If such
expenses had not been voluntarily absorbed, ratio of expenses to average net assets would have been 3.95%, and
ratio of net investment loss to average net assets would have been (3.65%).
(g) Annualized
(h) Portfolio Turnover is calculated at the Fund level. Represents the period from November 1, 1999 to March 31,
2000.
FINANCIAL HIGHLIGHTS
TECHNOLOGY FUND -- CLASS K
- -------------------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
PERIOD
ENDED
YEAR ENDED MARCH 31 MARCH 31
- -------------------------------------------------------------------------------------------------------
2003 2002 2001(a)
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 30.22 $ 35.09 $ 60.01
=======================================================================================================
INCOME FROM INVESTMENT OPERATIONS(b)
Net Investment Loss (0.07) (0.27) (0.82)
Net Losses on Securities (Both Realized and Unrealized) (13.37) (4.60) (24.10)
=======================================================================================================
TOTAL FROM INVESTMENT OPERATIONS (13.44) (4.87) (24.92)
=======================================================================================================
Net Asset Value -- End of Period $ 16.78 $ 30.22 $ 35.09
=======================================================================================================
TOTAL RETURN (44.47%) (13.85%) (41.54%)(c)
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 22,156 $ 27,147 $ 1
Ratio of Expenses to Average Net Assets(d)(e) 1.88% 1.28% 5.18%(f)
Ratio of Net Investment Loss to Average Net Assets(e) (1.55%) (1.15%) (4.67%)(f)
Portfolio Turnover Rate 107% 79% 85%(g)
(a) From December 1, 2000, since inception of Class, to March 31, 2001.
(b) The per share information was computed based on average shares for the year ended March 31, 2002.
(c) Based on operations for the period shown and, accordingly, is not representative of a full year.
(d) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by Investment Adviser, if
applicable, which is before any expense offset arrangements (which may include custodian fees).
(e) Various expenses of the Class were voluntarily absorbed by IFG for the year ended March 31, 2003.
If such expenses had not been voluntarily absorbed, ratio of expenses to average net assets would
have been 2.49%, and ratio of net investment loss to average net assets would have been (2.16%).
(f) Annualized
(g) Portfolio Turnover is calculated at the Fund level. Represents the year ended March 31, 2001.
FINANCIAL HIGHLIGHTS
TELECOMMUNICATIONS FUND -- INVESTOR CLASS
- ------------------------------------------------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
PERIOD
ENDED
YEAR ENDED MARCH 31 MARCH 31 YEAR ENDED JULY 31
- ------------------------------------------------------------------------------------------------------------------------------------
2003 2002 2001 2000(a) 1999 1998
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 12.36 $ 23.89 $ 64.42 $ 31.80 $ 19.60 $ 15.31
====================================================================================================================================
INCOME FROM INVESTMENT OPERATIONS(b)
Net Investment Income (Loss)(c) (0.04) (0.11) (0.16) (0.10) (0.00) 0.01
Net Gains or (Losses) on Securities
(Both Realized and Unrealized) (4.36) (11.42) (38.91) 32.87 12.57 5.32
====================================================================================================================================
TOTAL FROM INVESTMENT OPERATIONS (4.40) (11.53) (39.07) 32.77 12.57 5.33
====================================================================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 0.00 0.00 1.46 0.15 0.37 1.04
====================================================================================================================================
Net Asset Value -- End of Period $ 7.96 $ 12.36 $ 23.89 $ 64.42 $ 31.80 $ 19.60
====================================================================================================================================
TOTAL RETURN (35.60%) (48.26%) (61.42%) 103.25%(d) 65.52% 36.79%
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 274,947 $ 573,969 $ 1,486,660 $ 4,125,890 $ 1,029,256 $ 276,577
Ratio of Expenses to Average Net Assets(e)(f) 1.81% 1.70% 1.10% 0.99%(g) 1.24% 1.32%
Ratio of Net Investment Loss
to Average Net Assets(f) (0.49%) (0.57%) (0.32%) (0.32%)(g) (0.49%) (0.16%)
Portfolio Turnover Rate 137% 91% 61% 24%(d) 62% 55%
(a) From August 1, 1999 to March 31, 2000.
(b) The per share information was computed based on average shares for the years ended March 31, 2003, 2002 and 2001 and the period
ended March 31, 2000.
(c) Net Investment Loss aggregated less than $0.01 on a per share basis for the year ended July 31, 1999.
(d) Based on operations for the period shown and, accordingly, is not representative of a full year.
(e) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by Investment Adviser, if applicable, which is before any
expense offset arrangements (which may include custodian, distribution and transfer agent fees).
(f) Various expenses of the Class were voluntarily absorbed by IFG for the year ended March 31, 2003. If such expenses had not been
voluntarily absorbed, ratio of expenses to average net assets would have been 2.76% and ratio of net investment loss to average
net assets would have been (1.44%).
(g) Annualized
FINANCIAL HIGHLIGHTS
TELECOMMUNICATIONS FUND-- CLASS A & CLASS B
- --------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
CLASS A CLASS B
YEAR YEAR
ENDED ENDED
MARCH 31 MARCH 31
- --------------------------------------------------------------------------------
2003(a) 2003(a)
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 12.36 $ 12.36
================================================================================
INCOME FROM INVESTMENT OPERATIONS
Net Investment Loss (0.08) (0.03)
Net Losses on Securities (Both Realized and Unrealized) (4.36) (4.44)
================================================================================
TOTAL FROM INVESTMENT OPERATIONS (4.44) (4.47)
================================================================================
Net Asset Value -- End of Period $ 7.92 $ 7.89
================================================================================
TOTAL RETURN(b) (35.92%) (36.17%)
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 326 $ 16
Ratio of Expenses to Average Net Assets(c)(d) 1.66% 2.57%
Ratio of Net Investment Loss to Average Net Assets(d) (0.65%) (1.44%)
Portfolio Turnover Rate 137% 137%
(a) Class commenced operations on April 1, 2002.
(b) The applicable sales charges for Class A or CDSC for Class B is not included
in the Total Return calculation.
(c) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by the
Investment Adviser, if applicable, which is before any expense offset
arrangements (which may include custodian fees).
(d) Various expenses of Class B were voluntarily absorbed by IFG for the year
ended March 31, 2003. If such expenses had not been voluntarily absorbed for
Class B, ratio of expenses to average net assets would have been 12.15% and
ratio of net investment loss to average net assets would have been (11.02%).
FINANCIAL HIGHLIGHTS
TELECOMMUNICATIONS FUND -- CLASS C
- -------------------------------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
PERIOD
ENDED
YEAR ENDED MARCH 31 MARCH 31
- -------------------------------------------------------------------------------------------------------------------
2003 2002 2001 2000(a)
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 12.10 $ 23.70 $ 64.37 $ 59.28
===================================================================================================================
INCOME FROM INVESTMENT OPERATIONS(b)
Net Investment Loss (0.34) (0.04) (0.13) (0.06)
Net Gains or (Losses) on Securities (Both Realized
and Unrealized) (4.04) (11.56) (39.08) 5.15
===================================================================================================================
TOTAL FROM INVESTMENT OPERATIONS (4.38) (11.60) (39.21) 5.09
===================================================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 0.00 0.00 1.46 0.00
===================================================================================================================
Net Asset Value -- End of Period $ 7.72 $ 12.10 $ 23.70 $ 64.37
===================================================================================================================
TOTAL RETURN(c) (36.20%) (48.95%) (61.69%) 8.59%(d)
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 2,188 $ 10,392 $ 11,980 $ 2,530
Ratio of Expenses to Average Net Assets(e)(f) 2.63% 2.60% 1.99% 1.49%(g)
Ratio of Net Investment Loss to Average Net Assets(f) (1.18%) (1.52%) (1.18%) (0.86%)(g)
Portfolio Turnover Rate 137% 91% 61% 24%(h)
(a) From February 15, 2000, since inception of Class, to March 31, 2000.
(b) The per share information was computed based on average shares for the period ended March 31, 2000.
(c) The applicable CDSC is not included in the Total Return calculation.
(d) Based on operations for the period shown and, accordingly, is not representative of a full year.
(e) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by Investment Adviser, if applicable,
which is before any expense offset arrangements (which may include custodian fees).
(f) Various expenses the Class were voluntarily absorbed by IFG for the year ended March 31, 2003. If such expenses
had not been voluntarily absorbed, ratio of expenses to average net assets would have been 5.76% and ratio of
net investment loss to average net assets would have been (4.31%).
(g) Annualized
(h) Portfolio Turnover is calculated at the Fund level. Represents the period from August 1, 1999 to March 31,
2000.
FINANCIAL HIGHLIGHTS
TELECOMMUNICATIONS FUND -- CLASS K
- --------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
PERIOD
ENDED
YEAR ENDED MARCH 31 MARCH 31
- --------------------------------------------------------------------------------------------
2003 2002 2001(a)
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 12.30 $ 23.80 $ 36.43
============================================================================================
INCOME FROM INVESTMENT OPERATIONS
Net Investment Loss(b) (0.02) (0.15) (0.19)
Net Losses on Securities (Both Realized
and Unrealized) (4.38) (11.35) (12.44)
============================================================================================
TOTAL FROM INVESTMENT OPERATIONS (4.40) (11.50) (12.63)
============================================================================================
Net Asset Value -- End of Period $ 7.90 $ 12.30 $ 23.80
============================================================================================
TOTAL RETURN (35.77%) (48.32%) (34.67%)(c)
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 666 $ 864 $ 1
Ratio of Expenses to Average Net Assets(d)(e) 2.06% 2.21% 2.30%(f)
Ratio of Net Investment Loss to Average Net Assets(e) (0.77%) (1.32%) (1.52%)(f)
Portfolio Turnover Rate 137% 91% 61%(g)
(a) From December 1, 2000, since inception of Class, to March 31, 2001.
(b) The per share information was computed based on average shares for the year ended March
31, 2002.
(c) Based on operations for the period shown and, accordingly, is not representative of a
full year.
(d) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by Investment
Adviser, which is before any expense offset arrangements (which may include custodian
fees).
(e) Various expenses of the Class were voluntarily absorbed by IFG for the years ended March
31, 2003 and 2002 and the period ended March 31, 2001. If such expenses had not been
voluntarily absorbed, ratio of expenses to average net assets would have been 3.30%,
2.42% and 3.38% (annualized), respectively, and ratio of net investment loss to average
net assets would have been (2.01%), (1.53%) and (2.60%) (annualized), respectively.
(f) Annualized
(g) Portfolio Turnover is calculated at the Fund level. Represents the year ended March 31,
2001.
FINANCIAL HIGHLIGHTS
UTILITIES FUND -- INVESTOR CLASS
- ------------------------------------------------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
PERIOD
ENDED
YEAR ENDED MARCH 31 MARCH 31 YEAR ENDED OCTOBER 31
- ------------------------------------------------------------------------------------------------------------------------------------
2003 2002 2001 2000(a) 1999 1998
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 10.66 $ 16.20 $ 20.42 $ 17.68 $ 14.73 $ 12.42
====================================================================================================================================
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.23 0.15 0.13 0.04 0.17 0.30
Net Gains or (Losses) on Securities
(Both Realized and Unrealized) (2.46) (5.54) (3.22) 3.95 3.20 2.56
====================================================================================================================================
TOTAL FROM INVESTMENT OPERATIONS (2.23) (5.39) (3.09) 3.99 3.37 2.86
====================================================================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 0.24(b) 0.15 1.13 1.25 0.42 0.55
====================================================================================================================================
Net Asset Value -- End of Period $ 8.19 $ 10.66 $ 16.20 $ 20.42 $ 17.68 $ 14.73
====================================================================================================================================
TOTAL RETURN (20.99%) (33.34%) (15.18%) 23.99%(c) 23.22% 23.44%
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 72,749 $ 124,578 $ 232,877 $ 260,554 $ 223,334 $ 177,309
Ratio of Expenses to Average Net Assets(d)(e) 1.30% 1.30% 1.30% 1.24%(f) 1.26% 1.29%
Ratio of Net Investment Income
to Average Net Assets(e) 2.63% 1.09% 0.74% 0.50%(f) 1.02% 1.82%
Portfolio Turnover Rate 64% 56% 49% 18%(c) 32% 47%
(a) From November 1, 1999 to March 31, 2000.
(b) Dividends and Distributions included a tax return of capital which aggregated less than $0.01 on a per share basis.
(c) Based on operations for the period shown and, accordingly, is not representative of a full year.
(d) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by Investment Adviser, which is before any expense offset
arrangements (which may include custodian and transfer agent fees).
(e) Various expenses of the Class were voluntarily absorbed by IFG for the years ended March 31, 2003, 2002 and 2001, the period
ended March 31, 2000 and the years ended October 31, 1999 and 1998. If such expenses had not been voluntarily absorbed, ratio of
expenses to average net assets would have been 1.90%, 1.57%, 1.40%, 1.33% (annualized), 1.43% and 1.36%, respectively, and ratio
of net investment income to average net assets would have been 2.03%, 0.82%, 0.64%, 0.41% (annualized), 0.85% and 1.75%,
respectively.
(f) Annualized
FINANCIAL HIGHLIGHTS
UTILITIES FUND -- CLASS A & CLASS B
- --------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
CLASS A CLASS B
YEAR YEAR
ENDED ENDED
MARCH 31 MARCH 31
- --------------------------------------------------------------------------------
2003(a) 2003(a)
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 10.66 $ 10.66
================================================================================
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.16 0.13
Net Losses on Securities (Both Realized
and Unrealized) (2.40) (2.43)
================================================================================
TOTAL FROM INVESTMENT OPERATIONS (2.24) (2.30)
================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 0.29(b) 0.21(b)
================================================================================
Net Asset Value -- End of Period $ 8.13 $ 8.15
================================================================================
TOTAL RETURN(c) (21.05%) (21.67%)
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 450 $ 193
Ratio of Expenses to Average Net Assets(d)(e) 1.41% 2.14%
Ratio of Net Investment Income to Average Net Assets(e) 2.79% 1.84%
Portfolio Turnover Rate 64% 64%
(a) Class commenced operations on April 1, 2002.
(b) Dividends and Distributions included a tax return of capital which
aggregated less than $0.01 on a per share basis.
(c) The applicable sales charges for Class A or CDSC for Class B is not included
in the Total Return calculation.
(d) Ratio is based on Total Expenses of the Class, less Expensed Absorbed by
Investment Adviser, which is before any expense offset arrangements (which
may include custodian fees).
(e) Various expenses of each Class were voluntarily absorbed by IFG for the year
ended March 31, 2003. If such expenses had not been voluntarily absorbed,
ratio of expenses to average net assets would have been 1.74% for Class A
and 2.69% for Class B and ratio of net investment income to average net
assets would have been 2.46% for Class A and 1.29% for Class B.
FINANCIAL HIGHLIGHTS
UTILITIES FUND -- CLASS C
- -----------------------------------------------------------------------------------------------------------------------
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
PERIOD
ENDED
YEAR ENDED MARCH 31 MARCH 31
- -----------------------------------------------------------------------------------------------------------------------
2003 2002 2001 2000(a)
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 10.63 $ 16.08 $ 20.40 $ 19.91
=======================================================================================================================
INCOME FROM INVESTMENT OPERATIONS(b)
Net Investment Income (Loss)(c) 0.15 0.03 (0.00) (0.01)
Net Gains or (Losses) on Securities
(Both Realized and Unrealized) (2.47) (5.48) (3.22) 0.52
=======================================================================================================================
TOTAL FROM INVESTMENT OPERATIONS (2.32) (5.45) (3.22) 0.51
=======================================================================================================================
LESS DIVIDENDS AND DISTRIBUTIONS 0.09 0.00 1.10 0.02
=======================================================================================================================
Net Asset Value -- End of Period $ 8.22 $ 10.63 $ 16.08 $ 20.40
=======================================================================================================================
TOTAL RETURN(d) (21.85%) (33.87%) (15.83%) 2.58%(e)
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 667 $ 1,799 $ 3,579 $ 248
Ratio of Expenses to Average Net Assets(f)(g) 2.05% 2.04% 2.07% 1.83%(h)
Ratio of Net Investment Income (Loss) to Average Net Assets(g) 1.75% 0.32% (0.02%) (0.32%)(h)
Portfolio Turnover Rate 64% 56% 49% 18%(i)
(a) From February 15, 2000, since inception of Class, to March 31, 2000.
(b) The per share information was computed based on average shares for the year ended March 31, 2001.
(c) Net Investment Loss aggregated less than $0.01 on a per share basis for the year ended March 31, 2001.
(d) The applicable CDSC is not included in the Total Return calculation.
(e) Based on operations for the period shown and, accordingly, is not representative of a full year.
(f) Ratio is based on Total Expenses of the Class, less Expenses Absorbed by Investment Adviser, which is before any
expense offset arrangements (which may include custodian fees).
(g) Various expenses of the Class were voluntarily absorbed by IFG for the years ended March 31, 2003, 2002 and 2001
and the period ended March 31, 2000. If such expenses had not been voluntarily absorbed, ratio of expenses to
average net assets would have been 3.70%, 2.45%, 2.11% and 1.83% (annualized), respectively, and ratio of net
investment income (loss) to average net assets would have been 0.10%, (0.09%), (0.06%) and (0.32%) (annualized),
respectively.
(h) Annualized
(i) Portfolio Turnover is calculated at the Fund level. Represents the period from November 1, 1999 to March 31, 2000.
OTHER INFORMATION
UNAUDITED
The table below provides information about each of the Independent and
Interested Directors. Their affiliations represent their principal occupations.
NUMBER OF
FUNDS IN
POSITION(S) HELD WITH FUND
COMPANY, TERM OF COMPLEX OTHER
OFFICE AND LENGTH PRINCIPAL OCCUPATION(S) OVERSEEN BY DIRECTORSHIPS
NAME, ADDRESS AND AGE OF TIME SERVED* DURING PAST FIVE YEARS* DIRECTOR HELD BY DIRECTOR
- ------------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT DIRECTORS
Bob A. Baker Vice Chairman of Consultant (2000-present). 47
37 Castle Pines Dr. N. the Board Formerly, President and
Castle Rock, Colorado Chief Executive Officer
(1988-2000) of AMC Cancer
Age: 66 Research Center, Denver,
Colorado. Until Mid-December
1988, Vice Chairman of the
Board of First Columbia
Financial Corporation,
Englewood, Colorado;
formerly, Chairman of the
Board and Chief Executive
Officer of First Columbia
Financial Corporation.
Sueann Ambron, Ph.D. Director Dean of the Business School, 47
University of Colorado (Since 2003) College of Business,
at Denver University of Colorado of
1250 14th Street Denver (2000-present).
Denver, Colorado Formerly, President and
Chief Executive Officer of
Age: 58 Avulet, Inc., Sunnyvale,
California (1998-1999), Vice
President and General
Manager, Multimedia Services
Division, Motorola, Inc.,
Schoumburg, Illinois
(1996-1998).
Victor L. Andrews, Ph.D. Director Professor Emeritus, Chairman 47 Director of The
34 Seawatch Drive Emeritus and Chairman and Sheffield Funds, Inc.
Savannah, Georgia CFO of the Roundtable of the
Department of Finance of
Age: 72 Georgia State University;
and President, Andrews
Financial Associates, Inc.
(consulting firm). Formerly,
member of the faculties of
the Harvard Business School;
and the Sloan School of
Management of MIT.
Lawrence H. Budner Director Trust Consultant. Formerly, 47
7608 Glen Albens Circle Senior Vice President and
Dallas, Texas Senior Trust Officer of
InterFirst Bank, Dallas,
Age: 72 Texas.
OTHER INFORMATION
UNAUDITED
NUMBER OF
FUNDS IN
POSITION(S) HELD WITH FUND
COMPANY, TERM OF COMPLEX OTHER
OFFICE AND LENGTH PRINCIPAL OCCUPATION(S) OVERSEEN BY DIRECTORSHIPS
NAME, ADDRESS AND AGE OF TIME SERVED* DURING PAST FIVE YEARS* DIRECTOR HELD BY DIRECTOR
- ------------------------------------------------------------------------------------------------------------------------------------
James T. Bunch Director Co-President and Founder of 47
Green, Manning & Bunch,
3600 Republic Plaza (since 2000) Ltd., Denver, Colorado
370 Seventeenth Street (1988-present); Director and
Denver, Colorado Vice President of Western
Golf Association and Evans
Age: 60 Scholars Foundation; and
Excutive Committee, United
States Golf Association.
Formerly, General Counsel
and Director of Boettcher &
Company, Denver, Colorado;
and formerly, Chairman and
Managing Partner of Davis,
Graham & Stubbs, Denver,
Colorado.
Gerald J. Lewis Director Chairman of Lawsuit 47 Director of General Chemical
701 "B" Street (since 2000) Resolution Services, San Group, Inc., Hampdon, New
Suite 2100 Diego, California Hampshire (1996-present).
San Diego, California (1987-present). Formerly, Director of Wheelabrator
Associate Justice of the Technologies, Inc., Fisher
California Court of Appeals; Scientific, Inc., Henley
Age: 69 and of Counsel, Latham & Manufacturing, Inc., and
Watkins, San Diego, California CoastalProperties,
California (1987-1997). Inc.
John W. McIntyre Director Retired. Trustee of Gables 47
7 Piedmont Center Residential Trust. Trustee
Suite 100 and Chairman of the J.M. Tull
Atlanta, Georgia Charitable Foundation;
Director of Kaiser Foundation
Age: 72 Health Plans of Georgia, Inc.
Formerly, Vice Chairman of
the Board of Directors of The
Citizens and Southern
Corporation and Chairman of
the Board and Chief Executive
Officer of The Citizens and
Southern Georgia Corporation
and The Citizens and Southern
National Bank. Formerly,
Trustee of INVESCO Global
Health Sciences Fund and
Trustee of Employee's
Retirement System of Georgia,
Emory University.
Larry Soll, Ph. D. Director Retired. Formerly, Chairman 47 Director of Synergen since
2358 Sunshine Canyon Dr. (since 1997) of the Board (1987-1994), incorporation in 1982;
Boulder, Colorado Chief Executive Officer Director of Isis
(1982-1989 and 1993-1994) and Pharmaceuticals, Inc.
Age: 60 President (1982-1989) of
Synergen Inc.; and formerly,
Trustee of INVESCO Global
Health Sciences Fund.
OTHER INFORMATION
UNAUDITED
NUMBER OF
FUNDS IN
POSITION(S) HELD WITH FUND
COMPANY, TERM OF COMPLEX OTHER
OFFICE AND LENGTH PRINCIPAL OCCUPATION(S) OVERSEEN BY DIRECTORSHIPS
NAME, ADDRESS AND AGE OF TIME SERVED* DURING PAST FIVE YEARS* DIRECTOR HELD BY DIRECTOR
- ------------------------------------------------------------------------------------------------------------------------------------
INTERESTED DIRECTORS AND OFFICERS
These directors are "interested persons" of IFG as defined in the Act, and they
are interested persons by virtue of the fact that he/she is an officer or
director of IFG, IDI or an affiliate of IFG.
Mark H. Williamson Chairman of the Board President and Chief Executive 47
4350 South Monaco Street (since 1999). Formerly, Officer AIM Investment
Denver, Colorado President (1998-2002); Management and Chief
and Chief Executive Executive Officer of the AIM
Age: 51 Officer (1998-2002). Division of AMVESCAP PLC
(2003-present). Formerly,
Chief Executive Officer,
Managed Products Division,
AMVESCAP PLC (2001-present).
Formerly, Chairman of the
Board (1998-2002), President
(1998-2002), and Chief
Executive Officer (1998-2002)
of INVESCO Funds Group, Inc.
and of INVESCO Distributors,
Inc. Formerly, Chief
Operating Officer and
Chairman of the Board of
INVESCO Global Health
Sciences Fund; formerly,
Chairman and Chief Executive
Officer of NationsBanc
Advisors, Inc.; and formerly,
Chairman of NationsBanc
Investments, Inc.
Raymond R. Cunningham President (2003-present), President (2003-present) and 47 Director of INVESCO Funds
4350 South Monaco Street Chief Executive Officer Chief Executive Officer Group, Inc. and Chairman of
Denver, Colorado (2003-present) and (2003-present) of INVESCO the Board of INVESCO
Director (2001-present). Funds Group, Inc.; Distributors, Inc.
Age: 51 Formerly, Vice President Chairman of the Board (2003-
(2001-2002). present), President
(2003-present), and Chief
Executive Officer
(2003-present) of INVESCO
Distributors, Inc. Formerly,
Chief Operating Officer
(2002-2003) and Senior Vice
President (1999-2002) of
INVESCO Funds Group, Inc. and
INVESCO Distributors, Inc.;
and Formerly, Senior Vice
President of GT Global -
North America (1992-1998).
Richard W. Healey Director Senior Vice President of 39 Director of INVESCO Funds
4350 South Monaco Street (since 2000) INVESCO Funds Group, Inc.; Group, Inc. and INVESCO
Denver, Colorado Senior Vice President of Distributors, Inc.
INVESCO Distributors, Inc.
Age: 48 Formerly, Senior Vice
President of GT Global -
North America (1996-1998) and
The Boston Company
(1993-1996).
OTHER INFORMATION
UNAUDITED
NUMBER OF
FUNDS IN
POSITION(S) HELD WITH FUND
COMPANY, TERM OF COMPLEX OTHER
OFFICE AND LENGTH PRINCIPAL OCCUPATION(S) OVERSEEN BY DIRECTORSHIPS
NAME, ADDRESS AND AGE OF TIME SERVED* DURING PAST FIVE YEARS* DIRECTOR HELD BY DIRECTOR
- ------------------------------------------------------------------------------------------------------------------------------------
Glen A. Payne Secretary Senior Vice President,
4350 South Monaco Street General Counsel and Secretary
Denver, Colorado of INVESCO Funds Group, Inc.;
Senior Vice President,
Age: 55 Secretary and General Counsel
of INVESCO Distributors, Inc.
Formerly, Secretary of
INVESCO Global Health
Sciences Fund; General
Counsel of INVESCO Trust
Company (1989-1998); and
employee of a U.S. regulatory
agency, Washington, D.C.
(1973-1989).
Ronald L. Grooms Chief Accounting Senior Vice President and Director of INVESCO Funds
4350 South Monaco Street Officer, Chief Treasurer of INVESCO Funds Group, Inc. and INVESCO
Denver, Colorado Financial Officer Group, Inc.; and Senior Vice Distributors, Inc.
and Treasurer President and Treasurer of
Age: 56 INVESCO Distributors, Inc.
Formerly, Treasurer and
Principal Financial and
Accounting Officer of INVESCO
Global Health Sciences Fund;
and Senior Vice President and
Treasurer of INVESCO Trust
Company (1988-1998).
William J. Galvin, Jr. Assistant Secretary Senior Vice President and Director of INVESCO Funds
4350 South Monaco Street Assistant Secretary of Group, Inc. and INVESCO
Denver, Colorado INVESCO Funds Group, Inc.; Distributors, Inc.
and Senior Vice President and
Age: 46 Assistant Secretary of
INVESCO Distributors, Inc.
Formerly, Trust Officer of
INVESCO Trust Company
(1995-1998).
Pamela J. Piro Assistant Treasurer Vice President and Assistant
4350 South Monaco Street Treasurer of INVESCO Funds
Denver, Colorado Group, Inc.; and Assistant
Treasurer of INVESCO
Age: 42 Distributors, Inc. Formerly,
Assistant Vice President
(1996-1997).
Tane T. Tyler Assistant Secretary Vice President and Assistant
4350 South Monaco Street (since 2002) General Counsel of INVESCO
Denver, Colorado Funds Group, Inc.
Age: 37
* Except as otherwise indicated, each individual has held the position(s) shown for at least the last five years.
The Statement of Additional Information ("SAI") includes additional information about Fund directors and is available, without
charge, upon request. To obtain a free copy of the current SAI, call 1-800-525-8085.
[INVESCO ICON] INVESCO(R)
1-800-525-8085
Personal Account Line: 1-800-424-8085
Advisor Services: 1-800-6-INVESCO
invescofunds.com
INVESCO Distributors, Inc.,(SM) Distributor
Post Office Box 173706
Denver, Colorado 80217-3706
This information must be preceded or accompanied
by a current prospectus.
ASEC 900466 4/03
PART C OTHER INFORMATION
Item 15. Indemnification
The Registrant's Amended and Restated Agreement and Declaration of
Trust, dated May 15, 2002, as amended, provides, among other things (i)
that trustees and officers of the Registrant, when acting as such,
shall not be personally liable for any act, omission or obligation of
the Registrant or any trustee or officer (except for liabilities to the
Registrant or its shareholders by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of duty); (ii) for the
indemnification by the Registrant of the trustees, officers, employees
and agents of the Registrant to the fullest extent permitted by the
Delaware Statutory Trust Act and Bylaws and other applicable law; (iii)
that shareholders of the Registrant shall not be personally liable for
the debts, liabilities, obligations or expenses of the Registrant or
any portfolio or class; and (iv) for the indemnification by the
Registrant, out of the assets belonging to the applicable portfolio, of
shareholders and former shareholders of the Registrant in case they are
held personally liable solely by reason of being or having been
shareholders of the Registrant or any portfolio or class and not
because of their acts or omissions or for some other reason.
A I M Advisors, Inc. ("AIM"), the Registrant and other investment
companies managed by AIM, their respective officers, trustees,
directors and employees (the "Insured Parties") are insured under a
joint Mutual Fund and Investment Advisory Professional and Directors
and Officers Liability Policy, issued by ICI Mutual Insurance Company,
with a $35,000,000 limit of liability.
Section 16 of the Master Investment Advisory Agreement between the
Registrant and AIM provides that in the absence of willful misfeasance,
bad faith, gross negligence or reckless disregard of obligations or
duties hereunder on the part of AIM or any of its officers, directors
or employees, that AIM shall not be subject to liability to the
Registrant or to any series of the Registrant, or to any shareholder of
any series of the Registrant for any act or omission in the course of,
or connected with, rendering services hereunder or for any losses that
may be sustained in the purchase, holding or sale of any security. Any
liability of AIM to any series of the Registrant shall not
automatically impart liability on the part of AIM to any other series
of the Registrant. No series of the Registrant shall be liable for the
obligations of any other series of the Registrant.
Section 7 of the Master Intergroup Sub-Advisory Contract For Mutual
Funds between AIM and INVESCO Institutional (N.A.), Inc. and Section 7
of the Master Intergroup Sub-Advisory Contract For Mutual Funds between
AIM and INVESCO Global Asset Management (N.A.), Inc. (collectively, the
"Sub-Advisory Contracts") provide that the Sub-advisors shall not be
liable for any costs or liabilities arising from any error of judgment
or mistake of law or any loss suffered by any series of the Registrant
or the Registrant in connection with the matters to which the
Sub-Advisory contracts relate except a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of the
Sub-advisors in the performance by the Sub-advisors of their duties or
from reckless disregard by the Sub-advisors of their obligations and
duties under the Sub-Advisory Contracts.
C-1
Insofar as indemnification for liability arising under the Securities
Act of 1933 (the "Act") may be permitted to trustees, officers and
controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that, in the
opinion of the Securities and Exchange Commission, such indemnification
is against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a trustee, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding)
is asserted by such trustee, officer or controlling person in
connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final
adjudication of such issue.
Item 16. Exhibits
1 (a) - (1) Amended and Restated Agreement and Declaration of Trust of
Registrant, dated May 15, 2002 was filed electronically as an
exhibit to Post-Effective Amendment No. 41, filed on May 22, 2002
and is hereby incorporated by reference.
- (2) Amendment No. 1, dated May 15, 2002, to the Amended and
Restated Agreement and Declaration of Trust, dated May 15, 2002
was filed electronically as an exhibit to Post-Effective
Amendment No. 41, filed on May 22, 2002, and is hereby
incorporated by reference.
- (3) Amendment No. 2, dated May 14, 2003, to the Amended and
Restated Agreement and Declaration of Trust of Registrant, dated
May 15, 2002 was filed electronically as an exhibit to
Post-Effective Amendment No. 43, filed on July 7, 2003, and is
hereby incorporated by reference.
2 - Amended and Restated Bylaws of Registrant, adopted effective May
15, 2002 was filed electronically as an exhibit to Post-Effective
Amendment No. 41, filed on May 22, 2002, and is hereby
incorporated by reference.
3 - Voting Trust Agreements - None
4 - Form of Agreement and Plan of Reorganization between the
Registrant on behalf of AIM Real Estate Fund, INVESCO Sector
Funds, Inc. on behalf of INVESCO Real Estate Opportunity Fund,
A I M Advisors, Inc. and INVESCO Funds Group, Inc. is attached as
Appendix I to the combined Proxy Statement and Prospectus
contained in this Registration Statement.
5 - Articles II, VI, VII, VIII and IX of the Amended and Restated
Agreement and Declaration of Trust, as amended, and Articles IV,
V and VI of the Amended and Restated Bylaws, attached as Exhibit
1 and 2, respectively, to this Registration Statement, define the
rights of holders of shares.
6 (a) - (1) Master Investment Advisory Agreement, dated September 11,
2000, between Registrant and A I M Advisors, Inc. was filed
electronically as an exhibit to Post-Effective Amendment No. 40,
filed on November 28, 2001, and is hereby incorporated by
reference.
C-2
- (2) Amendment No. 1, dated September 10, 2001, to the Master
Investment Advisory Agreement between Registrant and A I M
Advisors, Inc. was filed electronically as an exhibit to
Post-Effective Amendment No. 41, filed on May 22, 2002, and is
hereby incorporated by reference.
- (3) Amendment No. 2, dated July 1, 2002, to the Master Investment
Advisory Agreement between Registrant and A I M Advisors, Inc.
was filed electronically as an exhibit to Post-Effective
Amendment No. 42, filed on November 20, 2002, and is hereby
incorporated by reference.
(b) - (1) Master Intergroup Sub-Advisory Contract for Mutual Funds,
dated September 11, 2000, between A I M Advisors, Inc. and
INVESCO Institutional (N.A.), Inc. (formerly INVESCO, Inc.) on
behalf of AIM Real Estate Fund was filed electronically as an
exhibit to Post-Effective Amendment No. 40, filed on November 28,
2001, and is hereby incorporated by reference.
- (2) Amendment No. 1, dated July 1 2001, to the Master Intergroup
Sub-Advisory Contract for Mutual Funds, dated September 11, 2000,
between A I M Advisors, Inc. and INVESCO Institutional (N.A.),
Inc. (formerly INVESCO, Inc.) on behalf of AIM Real Estate Fund
was filed electronically as an exhibit to Post-Effective
Amendment No. 42, filed on November 20, 2002, and is hereby
incorporated by reference.
(c) - (1) Master Intergroup Sub-Advisory Contract for Mutual Funds,
dated September 11, 2000, between A I M Advisors, Inc. and
INVESCO Global Asset Management (N.A.), Inc. on behalf of AIM
International Value Fund was filed electronically as an exhibit
to Post-Effective Amendment No. 40, filed on November 28, 2001,
and is hereby incorporated by reference.
- (2) Amendment No. 1, dated September 10, 2001, to Master
Intergroup Sub-Advisory Contract for Mutual Funds, dated
September 11, 2000, between A I M Advisors, Inc. and INVESCO
Global Asset Management (N.A.), Inc. on behalf of AIM
International Value Fund was filed electronically as an exhibit
to Post-Effective Amendment No. 42, filed on November 20, 2002,
and is hereby incorporated by reference.
- (3) Amendment No. 2, dated July 1, 2002, to Master Intergroup
Sub-Advisory Contract for Mutual Funds, dated September 11, 2000,
between A I M Advisors, Inc. and INVESCO Global Asset Management
(N.A.), Inc. on behalf of AIM International Value Fund was filed
electronically as an exhibit to Post-Effective Amendment No. 42,
filed on November 20, 2002, and is hereby incorporated by
reference.
7 (a) - (1) Master Distribution Agreement, dated September 11, 2000,
between Registrant and A I M Distributors, Inc. (relating to
Class A and Class C shares) was filed electronically as an
exhibit to Post-Effective Amendment No. 40, filed on November 28,
2001, and is hereby incorporated by reference.
- (2) Amendment No. 1, dated September 10, 2001, to the Master
Distribution Agreement between Registrant and A I M Distributors,
Inc. (relating to Class A and Class C shares) was filed
electronically as an exhibit to Post-Effective Amendment No. 41,
filed on May 22, 2002, and is hereby incorporated by reference.
- (3) Amendment No. 2, dated June 3, 2002, to the Master
Distribution Agreement between Registrant and A I M Distributors,
Inc. (relating to Class A and Class C shares) was filed
electronically as an exhibit to Post-Effective Amendment No. 42,
filed on November 20, 2002, and is hereby incorporated by
reference.
C-3
- (4) Amendment No. 3, dated July 1, 2002, to the Master
Distribution Agreement between Registrant and A I M Distributors,
Inc. (relating to Class A and Class C shares) was filed
electronically as an exhibit to Post-Effective Amendment No. 42,
filed on November 20, 2002, and is hereby incorporated by
reference.
- (5) Form of Amendment No. 4, dated __________, 2003, to the
Master Distribution Agreement between Registrant and A I M
Distributors, Inc. (relating to Class A, Class C and Class R
shares) was filed electronically as an exhibit to Post-Effective
Amendment No. 43, filed on July 7, 2003, and is hereby
incorporated by reference.
(b) - (1) First Amended and Restated Master Distribution Agreement,
dated December 31, 2000, between Registrant and A I M
Distributors, Inc. (relating to Class B shares) was filed
electronically as an exhibit to Post-Effective Amendment No. 40,
filed on November 28, 2001, and is hereby incorporated by
reference.
- (2) Amendment No. 1, dated September 10, 2001, to the First
Amended and Restated Master Distribution Agreement between
Registrant and A I M Distributors, Inc. (relating to Class B
shares) was filed electronically as an exhibit to Post-Effective
Amendment No. 41, filed on May 22, 2002, and is hereby
incorporated by reference.
- (3) Amendment No. 2, dated July 1, 2002, to the First Amended and
Restated Master Distribution Agreement between Registrant and
A I M Distributors, Inc. (relating to Class B shares) was filed
electronically as an exhibit to Post-Effective Amendment No. 42,
filed on November 20, 2002, and is hereby incorporated by
reference.
(c) - Form of Selected Dealer Agreement between A I M Distributors,
Inc. and selected dealers was filed electronically as an exhibit
to Post-Effective Amendment No. 40, filed on November 28, 2001,
and is hereby incorporated by reference.
(d) - Form of Bank Selling Group Agreement between A I M Distributors,
Inc. and banks was filed electronically as an exhibit to
Post-Effective Amendment No. 35, filed on February 16, 1999, and
is hereby incorporated by reference.
8 (a) - AIM Funds Retirement Plan for Eligible Directors/Trustees, as
restated October 1, 2001 was filed electronically as an exhibit
to Post-Effective Amendment No. 40, filed on November 28, 2001,
and is hereby incorporated by reference.
(b) - Form of AIM Funds Director Deferred Compensation Agreement, as
amended March 7, 2000, September 28, 2001 and September 26, 2002
was filed electronically as an exhibit to Post-Effective
Amendment No. 43, filed on July 7, 2003, and is hereby
incorporated by reference.
9 (a) - (1) Master Custodian Contract, dated May 1, 2000, between
Registrant and State Street Bank and Trust Company was filed
electronically as an exhibit to Post-Effective Amendment No. 38,
filed on July 12, 2000, and is hereby incorporated by reference.
- (2) Amendment, dated May 1, 2000, to the Master Custodian
Contract was filed electronically as an exhibit to Post-Effective
Amendment No. 38, filed on July 12, 2000, and is hereby
incorporated by reference.
- (3) Amendment, dated June 29, 2001, to the Master Custodian
Contract was filed electronically as an exhibit to Post-Effective
Amendment No. 40, filed on November 28, 2001, and is hereby
incorporated by reference.
C-4
- (4) Amendment, dated April 2, 2002, to the Master Custodian
Contract was filed electronically as an exhibit to Post-Effective
Amendment No. 41, filed on May 22, 2002, and is hereby
incorporated by reference.
(b) - (1) Subcustodian Agreement, dated September 9, 1994, among the
Registrant, Texas Commerce Bank National Association, State
Street Bank and Trust Company and A I M Fund Services, Inc. was
filed electronically as an exhibit to Post-Effective Amendment
No. 40, filed on November 28, 2001, and is hereby incorporated by
reference.
- (2) Amendment No.1, dated October 2, 1998, to the Subcustodian
Agreement was filed electronically as an exhibit to
Post-Effective Amendment No. 40, filed on November 28, 2001, and
is hereby incorporated by reference.
- (3) Amendment No. 2, dated March 15, 2002, to the Subcustodian
Agreement was filed electronically as an exhibit to
Post-Effective Amendment No. 42, filed on November 20, 2002, and
is hereby incorporated by reference.
(c) - Subcustodian Agreement, dated January 20, 1993, between State
Street Bank and Trust Company and The Bank of New York was filed
electronically as an exhibit to Post-Effective Amendment No. 40,
filed on November 28, 2001, and is hereby incorporated by
reference.
(d) - Foreign Assets Delegation Agreement, dated May 31, 2002, between
Registrant and A I M Advisors, Inc. was filed electronically as
an exhibit to Post-Effective Amendment No. 40, filed on November
28, 2001, and is hereby incorporated by reference.
10 (a) - Form of Second Amended and Restated Master Distribution Plan,
dated ___________, 2003, of the Registrant (on behalf of its
Class A shares, Class C shares, Class R shares and Investor Class
shares) was filed electronically as an exhibit to Post-Effective
Amendment No. 43, filed on July 7, 2003, and is hereby
incorporated by reference.
(b) - (1) First Amended and Restated Master Distribution Plan, dated
December 31, 2000, of the Registrant (on behalf of its Class B
shares) was filed electronically as an exhibit to Post-Effective
Amendment No. 40, filed on November 28, 2001, and is hereby
incorporated by reference.
- (2) Amendment No. 1, dated September 10, 2001, to the First
Amended and Restated Master Distribution Plan, dated December 31,
2000, of the Registrant (on behalf of its Class B shares) was
filed electronically as an exhibit to Post-Effective Amendment
No. 42, filed on November 20, 2002, and is hereby incorporated by
reference.
- (3) Amendment No. 2, dated July 1, 2002, to the First Amended and
Restated Master Distribution Plan, dated December 31, 2000, of
the Registrant (on behalf of its Class B shares) was filed
electronically as an exhibit to Post-Effective Amendment No. 42,
filed on November 20, 2002, and is hereby incorporated by
reference.
(c) - Form of Shareholder Service Agreement for Sale of Shares of the
AIM Mutual Funds to be used in connection with Registrant's
Master Distribution Plan was filed electronically as an exhibit
to Post-Effective Amendment No. 35, filed on February 16, 1999,
and is hereby incorporated by reference.
C-5
(d) - Form of Bank Shareholder Service Agreement to be used in
connection with Registrant's Master Distribution Plan was filed
electronically as an exhibit to Post-Effective Amendment No. 35,
filed on February 16, 1999, and is hereby incorporated by
reference.
(e) - Form of Variable Group Annuity Contractholder Service Agreement
to be used in connection with Registrant's Master Distribution
Plan was filed electronically as an exhibit to Post-Effective
Amendment No. 35, filed on February 16, 1999, and is hereby
incorporated by reference.
(f) - Form of Agency Pricing Agreement to be used in connection with
Registrant's Master Distribution Plan was filed electronically as
an exhibit to Post-Effective Amendment No. 42, filed on November
20, 2002, and is hereby incorporated by reference.
(g) - Form of Shareholder Service Agreement of Bank Trust Departments
and for Brokers for Bank Trust Departments to be used in
connection with Registrant's Master Distribution Plan was filed
electronically as an exhibit to Post-Effective Amendment No. 35,
filed on February 16, 1999, and is hereby incorporated by
reference.
(h) - Form of Shareholder Service Agreement for Shares of the AIM
Mutual Funds to be used in connection with Registrant's Master
Distribution Plan was filed electronically as an exhibit to
Post-Effective Amendment No. 38, filed on July 12, 2000, and is
hereby incorporated by reference.
(i) - Third Amended and Restated Multiple Class Plan of The AIM Family
of Funds--Registered Trademark-- effective December 12, 2001 as
amended and restated March 4, 2002 and further amended and
restated October 31, 2002 and as further amended and restated
July 21, 2003 was filed electronically as an exhibit to
Post-Effective Amendment No. 43, filed on July 7, 2003, and is
hereby incorporated by reference.
11 - Opinion of Counsel and Consent of Ballard Spahr Andrews &
Ingersoll, LLP as to the legality of the securities being
registered, is filed herewith electronically.
12 - Opinion of Ballard Spahr Andrews & Ingersoll, LLP, supporting the
tax matters and consequences to shareholders will be filed as
part of a Post-effective Amendment to this Registration
Statement.
13 (a) - (1) Transfer Agency and Service Agreement, dated September 11,
2000, between Registrant and A I M Fund Services, Inc. was filed
electronically as an exhibit to Post-Effective Amendment No. 40,
filed on November 28, 2001, and is hereby incorporated by
reference.
- (2) Amendment No. 1, dated March 4, 2002, to the Transfer Agency
and Service Agreement between Registrant and A I M Fund Services,
Inc. was filed electronically as an exhibit to Post-Effective
Amendment No. 41, filed on May 22, 2002, and is hereby
incorporated by reference.
- (3) Amendment No. 2, dated May 14, 2003, to the Transfer Agency
and Service Agreement between Registrant and A I M Fund Services,
Inc. was filed electronically as an exhibit to Post-Effective
Amendment No. 43, filed on July 7, 2003, and is hereby
incorporated by reference.
C-6
- (4) Amendment No. 3, dated June 11, 2003, to the Transfer Agency
and Service Agreement between Registrant and A I M Fund Services,
Inc. was filed electronically as an exhibit to Post-Effective
Amendment No. 43, filed on July 7, 2003, and is hereby
incorporated by reference.
(b) - Shareholder Sub-Accounting Services Agreement, dated October 1,
1993, between the Registrant and First Data Investor Services
Group, Inc., Financial Data Services, Inc. and Merrill, Lynch,
Pierce, Fenner & Smith Incorporated was filed electronically as
an exhibit to Post-Effective Amendment No. 40, filed on November
28, 2001, and is hereby incorporated by reference.
(c) - (1) Master Administrative Services Agreement, dated September
11, 2000, between Registrant and A I M Advisors, Inc. was filed
electronically as an exhibit to Post-Effective Amendment No. 40,
filed on November 28, 2001, and is hereby incorporated by
reference.
- (2) Amendment No. 1, dated September 10, 2001, to the Master
Administrative Services Agreement between Registrant and A I M
Advisors, Inc. was filed electronically as an exhibit to
Post-Effective Amendment No. 41, filed on May 22, 2002, and is
hereby incorporated by reference.
- (3) Amendment No. 2, dated July 1, 2002, to the Master
Administrative Services Agreement between Registrant and A I M
Advisors, Inc. was filed electronically as an exhibit to
Post-Effective Amendment No. 42, filed on November 20, 2002, and
is hereby incorporated by reference.
(d) - Memorandum of Agreement, dated September 11, 2000, between
Registrant (on behalf of all Funds) and A I M Advisors, Inc.,
regarding securities lending was filed electronically as an
exhibit to Post-Effective Amendment No. 40, filed on November 28,
2001, and is hereby incorporated by reference.
(e) - Interfund Loan Agreement, dated September 18, 2001, between
Registrant and A I M Advisors, Inc. was filed electronically as
an exhibit to Post-Effective Amendment No. 40, filed on November
28, 2001, and is hereby incorporated by reference.
14 - (a) Consent of Ernst & Young, LLP, is filed herewith
electronically.
- (b) Consent of PricewaterhouseCoopers LLP is filed herewith
electronically.
15 - Omitted Financial Statements - None.
16 - Manually signed copies of any power of attorney pursuant to which
the name of any person has been signed to the registration
statement - None.
17 - Form of Proxy related to the Special Meeting of Shareholders of
INVESCO Real Estate Opportunity Fund, is filed herewith
electronically.
C-7
Item 17. Undertakings.
(1) The undersigned Registrant agrees that prior to any public
reoffering of the securities registered through the use of a prospectus
which is a part of this registration statement by any person or party
who is deemed to be an underwriter within the meaning of Rule 145(c) of
the Securities Act [17 CRF 203.145c], the reoffering prospectus will
contain the information called for by the applicable registration form
for reofferings by persons who may be deemed underwriters, in addition
to the information called for by the other items of the applicable
form.
(2) The undersigned Registrant agrees that every prospectus that is
filed under paragraph (1) above will be filed as a part of an amendment
to the registration statement and will not be used until the amendment
is effective, and that, in determining any liability under the 1933
Act, each post-effective amendment shall be deemed to be a new
registration statement for the securities offered therein, and the
offering of the securities at that time shall be deemed to be the
initial bona fide offering of them.
(3) The undersigned Registrant undertakes to file an opinion of counsel
supporting the tax matters and consequences to shareholders discussed
in the prospectus in a post-effective amendment to this registration
statement.
C-8
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant has duly caused this Registration Statement on Form N-14 to be
signed on its behalf by the undersigned, thereto duly authorized, in the City
of Houston, State of Texas, on the 13th day of August, 2003.
Registrant: AIM ADVISOR FUNDS
By: /s/ ROBERT H. GRAHAM
---------------------------
Robert H. Graham, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form N-14 has been signed below by the following
persons in the capacities and on the dates indicated.
SIGNATURES TITLE DATE
----------------------- ----------------------------- ---------------
/s/ ROBERT H. GRAHAM Chairman, Trustee & President August 13, 2003
----------------------- (Principal Executive Officer)
(Robert H. Graham)
/s/ FRANK S. BAYLEY Trustee August 13, 2003
-----------------------
(Frank S. Bayley)
/s/ BRUCE L. CROCKETT Trustee August 13, 2003
-----------------------
(Bruce L. Crockett)
/s/ ALBERT R. DOWDEN Trustee August 13, 2003
-----------------------
(Albert R. Dowden)
/s/ EDWARD K. DUNN, JR. Trustee August 13, 2003
-----------------------
(Edward K. Dunn, Jr.)
/s/ JACK M. FIELDS Trustee August 13, 2003
-----------------------
(Jack M. Fields)
/s/ CARL FRISCHLING Trustee August 13, 2003
-----------------------
(Carl Frischling)
/s/ PREMA MATHAI-DAVIS Trustee August 13, 2003
-----------------------
(Prema Mathai-Davis)
/s/ LEWIS F. PENNOCK Trustee August 13, 2003
-----------------------
(Lewis F. Pennock)
/s/ RUTH H. QUIGLEY Trustee August 13, 2003
-----------------------
(Ruth H. Quigley)
/s/ LOUIS S. SKLAR Trustee August 13, 2003
-----------------------
(Louis S. Sklar)
/s/ Mark H. Williamson Trustee & August 13, 2003
----------------------- Executive Vice President
(Mark H. Williamson)
/s/ DANA R. SUTTON Vice President & Treasurer August 13, 2003
----------------------- (Principal Financial and
(Dana R. Sutton) Accounting Officer)
EXHIBIT INDEX
<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
11 Opinion of Counsel and Consent of Ballard Spahr Andrews & Ingersoll,
LLP as to the legality of the securities being registered
14(a) Consent of Ernst & Young, LLP
14(b) Consent of PricewaterhouseCoopers LLP
17 Form of Proxy related to the Special Meeting of Shareholders of INVESCO
Real Estate Opportunity Fund
</Table>
C-9