.
.
.
<Table>
-------------------------
OMB APPROVAL
-------------------------
OMB Number: 3235-0570
Expires: Nov. 30, 2005
Estimated average burden
hours per response: 5.0
-------------------------
</Table>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-21048
---------------------------------------------
AIM Select Real Estate Income Fund
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
11 Greenway Plaza, Suite 100 Houston, Texas 77046
- --------------------------------------------------------------------------------
(Address of principal
executive offices) (Zip code)
Robert H. Graham 11 Greenway Plaza, Suite 100 Houston, Texas 77046
- --------------------------------------------------------------------------------
(Name and address of agent for service)
Registrant's telephone number, including area code: (713) 626-1919
----------------------------
Date of fiscal year end: 12/31
----------------
Date of reporting period: 06/30/04
---------------
Item 1. Reports to Stockholders.
AIM SELECT REAL ESTATE INCOME FUND
Semiannual report o June 30, 2004
[COVER IMAGE]
AIM SELECT REAL ESTATE INCOME FUND's primary investment
objective is high current income; the fund's secondary
investment objective is capital appreciation.
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
--Registered Trademark-- --Registered Trademark--
<Table>
====================================================================================================================================
o Unless otherwise stated, information presented is as of 6/30/04 and is based on net assets attributable to common shares plus
assets attributable to outstanding preferred shares.
====================================================================================================================================
GENERAL INFORMATION PRINCIPAL RISKS OF INVESTING IN THE FUND o REITs tend to be small to medium-sized
companies. REIT shares, like other
o AIM Select Real Estate Income Fund o The performance of the fund will be smaller company shares, may be more
performance figures are historical, and closely linked to the performance of the volatile than and perform differently
they reflect fund expenses, the real estate markets. Property values may from larger company shares. There may be
reinvestment of distributions (if any) fall due to declining rents or less trading in a smaller company's
and changes in net asset value (NAV). increasing vacancies resulting from shares, which means that buy and sell
economic, legal, cultural, or transactions in those shares could have
technological developments. Real estate a larger impact on the share's prices
investment trust (REIT) prices may drop than is the case with larger company
because of poor management or because shares.
borrowers fail to pay their loans. Many
REITs use leverage (and some may be o The fund is classified as
highly leveraged), which increases "non-diversified" under the Investment
investment risk and could adversely Company Act of 1940. It can invest a
affect a REIT's operation and market greater portion of its assets in
value in periods of rising interest obligations of a single issuer than a
rates in addition to the risks normally "diversified" fund. As a result, the
associated with debt financing. fund will be more susceptible than a
Financial covenants related to REIT more widely diversified fund to any
leveraging may affect the ability of single corporate, economic, political or
REITs to operate effectively. Real regulatory occurrence.
estate risks may also arise if a
portfolio company fails to carry o The prices of foreign securities may
adequate insurance or if a portfolio be affected by factors not present with
company becomes liable for removal or securities traded in the U.S. markets,
other costs related to environmental including currency exchange rates,
contamination. political and economic conditions, less
stringent regulation and higher
o The fund has the ability to use volatility. As a result, many foreign
leverage through the issuance of securities may be less liquid and more
preferred shares, commercial paper or volatile than U.S. securities.
notes, and/or borrowing in an aggregate
amount of up to 30% of the fund's total o If the fund enters into interest rate
assets after such issuance and/or swaps, interest rate caps, or options or
borrowing. It currently issues preferred futures transactions, a decline in
shares which constitute 22.7% of the interest rates may result in a decline
fund's total assets. The use of leverage in the net amount receivable by the fund
by the fund may result in greater under the interest rate hedging
volatility of the NAV and market price transaction (or increase the net amount
of the fund's common shares because payable by the fund under the interest
changes in the value of the fund's rate hedging transaction), which could
portfolio investments, including result in a decline in the NAV of the
investment purchased with the proceeds common shares.
of the issuance of fund preferred shares
or borrowing, are borne entirely by the
common shareholders. Common share income
may fall if the dividend rate on fund
preferred shares or the interest rate on
any borrowings rises and may fluctuate
as the dividend rate on fund preferred
shares or the interest rate on any
borrowings varies.
</Table>
=====================================================
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
=====================================================
AIMinvestments.com
<Table>
o The fund may invest up to 20% of its ABOUT INDEXES USED IN THIS REPORT OTHER INFORMATION
total assets in securities of
below-investment-grade quality, o The unmanaged Standard & Poor's o The Conference Board is a
including non-investment grade Composite Index of 500 Stocks (the S&P not-for-profit organization that
securities commonly referred to as "junk 500--registered trademark-- Index) is an conducts research and publishes
bonds." Securities of index of common stocks frequently used information and analysis to help
below-investment-grade quality are as a general measure of U.S. stock businesses strengthen their performance.
regarded as having predominantly market performance.
speculative characteristics with respect o The returns shown in the Management's
to capacity to pay interest and repay o The Morgan Stanley REIT Index is a Discussion of Fund Performance are based
principal. total-return index composed of the most on net asset values calculated for
actively traded real estate investment shareholder transactions. Generally
o The fund's Declaration of Trust and trusts and is designed to be a measure accepted accounting principles require
Bylaws include provisions that could of real estate equity performance. The adjustments to be made to the net assets
limit the ability of other entities or index was developed with a base value of of the fund at period end for financial
persons to acquire control of the fund 200 as of December 31, 1994. reporting purposes, and as such, the net
or convert the fund to open-end status. asset values for shareholder
These provisions could have the effect o The unmanaged National Association of transactions and the returns based on
of depriving the common shareholders of Real Estate Investment Trusts (the those net asset values may differ from
opportunities to sell their common NAREIT) Equity Index tracks the the net asset values and returns
shares at a premium over the performance of tax-qualified REITs reported in the Financial Highlights.
then-current market prices of the common listed on the New York Stock Exchange,
shares. the American Stock Exchange and the A description of the policies and
Nasdaq National Market System. Equity procedures that the fund uses to
o An investment in the fund is subject REITs have at least 75% of their gross determine how to vote proxies relating
to investment risk, including the invested book assets invested in the to portfolio securities is available
possible loss of the entire principal equity ownership of real estate. without charge, upon request, by calling
amount that you invest. Your common 800-959-4246, or on the AIM Web site,
shares at any point in time may be worth o The fund is not managed to track the AIMinvestments.com.
less than what you invested, even after performance of any particular index,
taking into account the reinvestment of including the indexes defined here, and
fund dividends and distributions. The consequently, the performance of the
value of the fund's portfolio securities fund may deviate significantly from the
may move up or down, sometimes rapidly performance of the indexes.
and unpredictably.
o A direct investment cannot be made in
o The fund invests substantial assets in an index. Unless otherwise indicated,
REITs, which present risks not index results include reinvested
associated with investing in stocks. dividends, and they do not reflect sales
charges. Performance of an index of ========================================
o Investing in a single sector mutual funds reflects fund expenses; NOTICE IS HEREBY GIVEN THAT THE FUND MAY
fund may involve greater risk and performance of a market index does not. IN THE FUTURE PURCHASE ITS COMMON SHARES
potential reward than investing in a OR ITS AUCTION RATE PREFERRED SHARES
more diversified fund. Due to FROM TIME TO TIME, AT SUCH TIME, AND IN
significant market volatility, results SUCH AMOUNTS, AS MAY BE DEEMED
of an investment made today may differ ADVANTAGEOUS TO THE FUND. NOTHING HEREIN
substantially from the historical SHALL BE CONSIDERED A COMMITMENT TO
performance shown. Call your financial PURCHASE SUCH SHARES.
advisor for more current information. ========================================
</Table>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
<Table>
RISING INTEREST RATES HINDERED FUND 0.25%--its first rate increase in four
PERFORMANCE years and a move much anticipated by
markets. The Fed's decision came amid
For the six-month period ended June 30, support for REIT earnings and prices. signs that the economy is strengthening
2004, AIM Select Real Estate Income Fund and inflation, while still relatively
returned 1.98% at net asset value. The Strong money flows into REITs drove tame, has risen in recent months.
fund underperformed its benchmarks, the market conditions during most of the
S&P 500 Index, the Morgan Stanley REIT reporting period, fueling positive Gross domestic product expanded at an
Index and the NAREIT Equity Index, which performance during the first quarter and annualized rate of 4.5% in the first
returned 3.44%, 5.19% and 5.52%, the market recovery after a sell-off in quarter of
respectively. Due to its emphasis on April and May. We believe the sell-off, -----------------------------------------
income-producing equity securities, the which followed a strong job report on While equity REITs
fund underperformed on a market and net April 2, was primarily related to historically have not
asset value basis. When interest rates increased concerns about the speed of been sensitive to inter-
rise, income-producing equity securities Federal Reserve (the Fed) interest rate est rates, April saw the
may fall in value. increases. Over the past several years, REIT market decline on
REIT returns performed better than their news about rising bond
MARKET CONDITIONS underlying real estate fundamentals yields, combined with
would suggest, as investors sought concerns that REITs
While equity REITs historically have not earnings stability and the relatively may be overvalued.
been sensitive to interest rates, April high dividend yields offered by REITs. -----------------------------------------
saw the REIT market decline on news As such, REIT valuations appear to be 2004 and 3.0% during the second quarter.
about rising bond yields, combined with somewhat elevated on a historical basis, What had been a "jobless recovery"
concerns that REITs may be overvalued. which also may have contributed to the produced 1.2 million new jobs from
The sector recovered some of the losses, weak quarter. January through June, according to the
however, as the initial reaction abated. U.S. Department of
REITs are supported by underlying During the period, occupancy levels
properties, and rents historically have increased modestly, but the rate of
increased during periods of economic improvement was not consistent across
expansion. Higher rents combined with all property types. Fundamentals appear
steady or increasing occupancy rates to have stabilized and may improve as
tend to provide the economy grows.
As the reporting period closed, the
Fed raised the federal funds target rate
by
====================================================================================================================================
AVERAGE ANNUAL TOTAL RETURNS PROPERTY TYPES** TOP 10 SECURITY HOLDINGS**
5/31/02-6/30/04*
1. Retail 24.0% 1. Healthcare Realty Trust, Inc. 4.6%
[BAR CHART]
2. Healthcare 22.5 2. Mack-Cali Realty Corp. 3.8
AIM SELECT REAL ESTATE INCOME FUND
COMMON SHARES 19.02% 3. Office Properties 18.4 3. New Plan Excel Realty Trust 3.6
MORGAN STANLEY REIT INDEX 15.52%
NAREIT EQUITY INDEX 15.81% 4. Diversified 12.2 4. Health Care Property Investors,
S&P 500 INDEX 5.09% Inc 3.4
5. Residential 5.2
5. Health Care REIT, Inc. 3.4
6. Lodging-Resorts 4.7
6. Colonial Properties Trust 3.4
7. Industrial/Office Mixed 3.9
7. Nationwide Health Properties,
8. Industrial Properties 3.1 Inc. 3.3
9. Specialty Properties 3.1 8. iStar Financial Inc. 3.2
10. Self-Storage Facilities 2.3 9. Senior Housing Properties Trust 3.0
10. Commercial Net Lease Realty 2.9
Source: Lipper, Inc., NAREIT
** Excludes money market fund holdings.
*Fund return is at NAV The fund's portfolio is subject to
change, and there is no guarantee the
fund will continue to hold any
particular security.
====================================================================================================================================
</Table>
2
<Table>
Labor. An improved job market likely nomic growth led investors to show a mitigate interest rate uncertainty.
contributed to rising consumer preference for growth-oriented During the reporting period, borrowing
confidence, which reached a two-year investments. boosted income but hurt NAV.
high in June according to the Conference
Board. Healthcare Realty Trust was among the IN CLOSING
fund's health care sector holdings that
In its mid-June Beige Book, the Fed detracted from performance. While the We continued to seek investment
said that economic activity in April and company saw an increase in revenue and opportunities that we believe will allow
May continued to expand nationwide, with was engaged in both the sale and us to provide investors with high
manufacturing continuing to increase in purchase of a number of properties current income and the potential for
most districts and retail sales stable during the period, it also reported capital appreciation.
or rising in most areas. Residential higher expenses. We continued to hold
real estate markets remained strong, and Healthcare Realty and other health care See important fund and index
in a few areas, commercial real estate REITs at the end of the reporting disclosures inside front cover.
markets stabilized or even strengthened, because the high yield provided by
the Fed reported. health care REITs and their stable
fundamentals continued to make them
YOUR FUND attractive as long-term holdings.
Office REITs generally fared well during During the reporting period, we made
the reporting period. Reckson Associates no significant changes to the fund. The
is an example of an office REIT that fund's top 10 holdings, top 10 property
made a positive contribution to the types and regional diversification
fund's performance. The company, which weightings remained similar to what they
owns, develops and leases Class A office were at the close of the previous
space primarily in the New York City reporting period. We engaged in some
area, posted positive earnings amid a trading among REITs within property
greater number of leases and increased types but have not changed the general
its stock buyback program. composition of the portfolio. PORTFOLIO MANAGEMENT TEAM
AS OF 6/30/04
Health care REITs, which are The fund borrows money, a strategy MARK D. BLACKBURN, CFA, CPA
typically considered more defensive, that helps the fund's yield and may help JOE V. RODRIGUEZ, JR., LEAD PORTFOLIO
fared poorly for both the fund and the or hurt NAV depending on whether the MANAGER
REIT market in general during the REIT market is going up or down. We JAMES W. TROWBRIDGE
period. Health care REITs suffered as borrow in the floating rate market and
the possibility of increasing interest swap the floating rates for fixed rates ASSISTED BY THE REAL ESTATE TEAM
rates and eco- (on the majority of our leverage) to
====================================================================================================================================
FUND VS. INDEXES At the close of the six-month period, The performance data quoted represent
the fund's common shares NAV stood at past performance and cannot guarantee
Total returns 12/31/03-6/30/04 $17.50, and its share price was $15.25. comparable future results; current
Cumulative returns that have not been Since the fund is a closed-end performance may be lower or higher.
annualized. management investment company, shares of Please see your financial advisor for
the fund may trade at a discount from the most recent month-end performance.
FUND AT NAV 1.98% the net asset value. This characteristic Performance figures reflect fund
is separate and distinct from the risk expenses, reinvested distributions and
FUND AT MARKET -4.49 that NAV could decrease as a result of changes in net asset value. Investment
investment activities and may be a return and principal value will
S&P 500 INDEX 3.44 greater risk to investors expecting to fluctuate so that you may have a gain or
sell their shares after a short time. loss when you sell shares.
MORGAN STANLEY REIT INDEX 5.19 The fund cannot predict whether shares
will trade at, above or below NAV. The Had the advisor not waived fees
NAREIT EQUITY INDEX 5.52 fund should not be viewed as a vehicle and/or reimbursed expenses, returns
for trading purposes. It is designed would have been lower.
Sources: Lipper, Inc., NAREIT primarily for risk-tolerant, long-term
investors.
TOTAL NUMBER OF HOLDINGS** 104
COMMON SHARE MARKET VALUE $15.25
COMMON SHARE NET ASSET VALUE $17.50
MARKET PRICE DISCOUNT (12.86%)
===================================================================================================================================
</Table>
3
FINANCIALS
SCHEDULE OF INVESTMENTS
June 30, 2004
(Unaudited)
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUSTS, COMMON STOCKS
& OTHER EQUITY INTERESTS-96.87%
APARTMENTS-3.62%
Amli Residential Properties Trust 170,900 $ 5,014,206
- ------------------------------------------------------------------------
Gables Residential Trust 288,800 9,813,424
- ------------------------------------------------------------------------
Mid-America Apartment Communities, Inc. 98,600 3,735,954
- ------------------------------------------------------------------------
Town & Country Trust 267,900 6,761,796
========================================================================
25,325,380
========================================================================
DIVERSIFIED-12.52%
AEW Real Estate Income Fund 100,000 1,615,000
- ------------------------------------------------------------------------
Colonial Properties Trust 795,578 30,653,620
- ------------------------------------------------------------------------
Crescent Real Estate Equities Co. 654,000 10,542,480
- ------------------------------------------------------------------------
iStar Financial Inc. 719,400 28,776,000
- ------------------------------------------------------------------------
Lexington Corporate Properties Trust 343,900 6,847,049
- ------------------------------------------------------------------------
Neuberger Berman Realty Income Fund Inc. 189,600 3,033,600
- ------------------------------------------------------------------------
Nuveen Real Estate Income Fund 77,400 1,299,546
- ------------------------------------------------------------------------
Real Estate Income Fund, Inc. 157,000 2,512,000
- ------------------------------------------------------------------------
Scudder RREEF Real Estate Fund, Inc. 120,700 2,200,361
========================================================================
87,479,656
========================================================================
FREESTANDING-5.22%
Commercial Net Lease Realty 1,546,000 26,591,200
- ------------------------------------------------------------------------
Getty Realty Corp. 286,000 7,195,760
- ------------------------------------------------------------------------
U.S. Restaurant Properties, Inc. 178,800 2,715,972
========================================================================
36,502,932
========================================================================
HEALTHCARE-27.19%
Health Care Property Investors, Inc. 1,296,300 31,163,052
- ------------------------------------------------------------------------
Health Care REIT, Inc. 945,800 30,738,500
- ------------------------------------------------------------------------
Healthcare Realty Trust, Inc. 1,104,600 41,400,408
- ------------------------------------------------------------------------
Nationwide Health Properties, Inc. 1,556,300 29,414,070
- ------------------------------------------------------------------------
OMEGA Healthcare Investors, Inc. 685,900 6,886,436
- ------------------------------------------------------------------------
Senior Housing Properties Trust 1,611,900 27,063,801
- ------------------------------------------------------------------------
Universal Health Realty Income Trust 75,000 2,152,500
- ------------------------------------------------------------------------
Ventas, Inc. 908,700 21,218,145
========================================================================
190,036,912
========================================================================
INDUSTRIAL PROPERTIES-2.35%
First Industrial Realty Trust, Inc. 444,500 16,393,160
========================================================================
INDUSTRIAL/OFFICE MIXED-3.85%
Kilroy Realty Corp. 255,900 8,726,190
- ------------------------------------------------------------------------
Liberty Property Trust 428,200 17,217,922
- ------------------------------------------------------------------------
</Table>
<Table>
- ------------------------------------------------------------------------
<Caption>
MARKET
SHARES VALUE
INDUSTRIAL/OFFICE MIXED-(CONTINUED)
Reckson Associates Realty Corp. 35,800 $ 983,068
========================================================================
26,927,180
========================================================================
LODGING-RESORTS-3.57%
Hospitality Properties Trust 590,400 24,973,920
========================================================================
OFFICE PROPERTIES-19.53%
Arden Realty, Inc. 856,600 25,192,606
- ------------------------------------------------------------------------
Brandywine Realty Trust 463,800 12,610,722
- ------------------------------------------------------------------------
CarrAmerica Realty Corp. 327,800 9,909,394
- ------------------------------------------------------------------------
CRT Properties, Inc. 158,300 3,659,896
- ------------------------------------------------------------------------
Equity Office Properties Trust 75,000 2,040,000
- ------------------------------------------------------------------------
Glenborough Realty Trust Inc. 451,700 8,288,695
- ------------------------------------------------------------------------
Highwoods Properties, Inc. 369,400 8,680,900
- ------------------------------------------------------------------------
HRPT Properties Trust 462,300 4,627,623
- ------------------------------------------------------------------------
Mack-Cali Realty Corp. 831,200 34,395,056
- ------------------------------------------------------------------------
Maguire Properties, Inc. 543,400 13,460,018
- ------------------------------------------------------------------------
Prentiss Properties Trust 407,900 13,672,808
========================================================================
136,537,718
========================================================================
REGIONAL MALLS-4.46%
Glimcher Realty Trust 555,400 12,285,448
- ------------------------------------------------------------------------
Macerich Co. (The) 201,909 9,665,384
- ------------------------------------------------------------------------
Mills Corp. (The) 197,400 9,218,580
========================================================================
31,169,412
========================================================================
SELF STORAGE FACILITIES-2.93%
Public Storage, Inc.-Series A Dep. Shares 165,700 4,326,427
- ------------------------------------------------------------------------
Sovran Self Storage, Inc. 422,600 16,134,868
========================================================================
20,461,295
========================================================================
SHOPPING CENTERS-8.77%
Heritage Property Investment Trust 276,400 7,479,384
- ------------------------------------------------------------------------
New Plan Excel Realty Trust(a) 1,396,100 32,612,896
- ------------------------------------------------------------------------
Ramco-Gershenson Properties Trust 379,900 9,204,977
- ------------------------------------------------------------------------
Tanger Factory Outlet Centers, Inc. 306,998 12,003,622
========================================================================
61,300,879
========================================================================
SPECIALTY PROPERTIES-2.86%
American Financial Realty Trust 511,300 7,306,477
- ------------------------------------------------------------------------
Entertainment Properties Trust 354,800 12,680,552
========================================================================
19,987,029
========================================================================
Total Real Estate Investment Trusts,
Common Stocks & Other Equity Interests
(Cost $534,525,712) 677,095,473
========================================================================
</Table>
F-1
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
PREFERRED STOCKS-31.92%
APARTMENTS-2.97%
Apartment Investment & Management Co.
Series D, 8.75% 17,943 $ 450,549
- ------------------------------------------------------------------------
Series T, 8.00% 200,000 4,824,000
- ------------------------------------------------------------------------
BRE Properties, Inc.-Series B, 8.08% 200,000 5,232,000
- ------------------------------------------------------------------------
Equity Residential-Series K, 8.29% 4,200 213,281
- ------------------------------------------------------------------------
Mid-America Apartment Communities, Inc.
Series F, 9.25% 47,000 1,257,250
- ------------------------------------------------------------------------
Series H, 8.30% 195,000 4,904,250
- ------------------------------------------------------------------------
Post Properties, Inc.-Series A, 8.50% 71,700 3,907,650
========================================================================
20,788,980
========================================================================
DIVERSIFIED-3.28%
Colonial Properties Trust-Series D, 8.13% 200,000 5,126,000
- ------------------------------------------------------------------------
Cousins Properties Inc.-Series A, 7.75% 400,000 10,080,000
- ------------------------------------------------------------------------
Crescent Real Estate Equities Co.-Series B,
9.50% 51,400 1,347,708
- ------------------------------------------------------------------------
iStar Financial Inc.-Series E, 7.88% 185,000 4,578,750
- ------------------------------------------------------------------------
Lexington Corporate Properties Trust-Series
B, 8.05% 70,000 1,759,100
========================================================================
22,891,558
========================================================================
FREESTANDING-0.07%
Realty Income Corp.-Class C, 9.50% 20,600 517,472
========================================================================
HEALTHCARE-1.97%
Health Care Property Investors, Inc.-Series
F, 7.10% 360,000 8,726,400
- ------------------------------------------------------------------------
OMEGA Healthcare Investors, Inc.-Series D,
8.38% 200,000 5,020,000
========================================================================
13,746,400
========================================================================
INDUSTRIAL PROPERTIES-1.72%
EastGroup Properties, Inc.-Series D, 7.95% 160,000 4,240,000
- ------------------------------------------------------------------------
Keystone Property Trust
Series D, 9.13% 200,000 5,180,000
- ------------------------------------------------------------------------
Series E, 7.38% 100,000 2,520,000
- ------------------------------------------------------------------------
ProLogis-Series C, 8.54% 950 55,456
========================================================================
11,995,456
========================================================================
INDUSTRIAL/OFFICE MIXED-1.22%
Bedford Property Investors, Inc.
Series A, 8.75% 60,000 2,964,378
- ------------------------------------------------------------------------
Series B, 7.63% 139,200 3,340,800
- ------------------------------------------------------------------------
Duke Realty Corp.-Series B, 7.99% 10,000 531,250
- ------------------------------------------------------------------------
Kilroy Realty Corp.-Series E, 7.80% 51,600 1,269,360
- ------------------------------------------------------------------------
PS Business Parks, Inc.-Series F, 8.75% 16,000 420,800
========================================================================
8,526,588
========================================================================
LODGING-RESORTS-2.48%
FelCor Lodging Trust Inc.-Series B, 9.00% 15,000 375,000
- ------------------------------------------------------------------------
Hilton Hotels Corp., 8.00% 45,000 1,170,000
- ------------------------------------------------------------------------
Hospitality Properties Trust-Series B, 8.88% 450,000 11,857,500
- ------------------------------------------------------------------------
</Table>
<Table>
- ------------------------------------------------------------------------
<Caption>
MARKET
SHARES VALUE
LODGING-RESORTS-(CONTINUED)
Innkeepers USA Trust-Series C, 8.00% 80,000 $ 1,928,000
- ------------------------------------------------------------------------
LaSalle Hotel Properties
Series A, 10.25% 36,300 971,751
- ------------------------------------------------------------------------
Series B, 8.38% 40,000 1,000,000
========================================================================
17,302,251
========================================================================
MANUFACTURED HOMES-0.15%
Affordable Residential Communities-Series A,
8.25% 40,000 1,030,000
========================================================================
OFFICE PROPERTIES-4.31%
Alexandria Real Estate Equities, Inc.-Series
B, 9.10% 5,600 149,632
- ------------------------------------------------------------------------
Corporate Office Properties Trust-Series G,
8.00% 300,000 7,500,000
- ------------------------------------------------------------------------
CRT Properties, Inc.-Series A, 8.50% 120,000 3,084,000
- ------------------------------------------------------------------------
Glenborough Realty Trust Inc.-Series A, $1.94
Conv 46,236 1,109,664
- ------------------------------------------------------------------------
Highwoods Properties, Inc.-Series B, 8.00% 31,500 771,120
- ------------------------------------------------------------------------
HRPT Properties Trust
Series A, 9.88% 42,000 1,127,700
- ------------------------------------------------------------------------
Series B, 8.75% 510,000 13,413,000
- ------------------------------------------------------------------------
SL Green Realty Corp.-Series C, 7.63% 120,000 3,000,000
========================================================================
30,155,116
========================================================================
REGIONAL MALLS-11.10%
CBL & Associates Properties, Inc.
Series B, 8.75% 315,000 16,632,000
- ------------------------------------------------------------------------
Series C, 7.75% 400,000 10,116,000
- ------------------------------------------------------------------------
Glimcher Realty Trust
Series F, 8.75% 80,000 2,024,000
- ------------------------------------------------------------------------
Series G, 8.13% 134,600 3,196,750
- ------------------------------------------------------------------------
Mills Corp. (The)
Series B, 9.00% 650,000 17,316,000
- ------------------------------------------------------------------------
Series C, 9.00% 450,000 11,880,000
- ------------------------------------------------------------------------
Series E, 8.75% 600,000 15,726,000
- ------------------------------------------------------------------------
Taubman Centers, Inc.-Series A, 8.30% 29,000 720,650
========================================================================
77,611,400
========================================================================
SHOPPING CENTERS-1.45%
Developers Diversified Realty Corp.-Class F,
8.60% 229,700 5,937,745
- ------------------------------------------------------------------------
Federal Realty Investment Trust-Series B,
8.50% 70,600 1,867,370
- ------------------------------------------------------------------------
Ramco-Gershenson Properties Trust-Series B,
9.50% 40,000 1,050,000
- ------------------------------------------------------------------------
Saul Centers, Inc.-Series A, 8.00% 50,000 1,275,000
========================================================================
10,130,115
========================================================================
SPECIALTY PROPERTIES-1.20%
Capital Automotive REIT-Series A, 7.50% 200,000 4,770,000
- ------------------------------------------------------------------------
Entertainment Properties Trust-Series A,
9.50% 138,900 3,629,457
========================================================================
8,399,457
========================================================================
Total Preferred Stocks (Cost
$217,276,048) 223,094,793
========================================================================
</Table>
F-2
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
MONEY MARKET FUNDS-0.11%
Liquid Assets Portfolio-Institutional
Class(b) 386,888 $ 386,888
- ------------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(b) 386,888 386,888
========================================================================
Total Money Market Funds (Cost $773,776) 773,776
========================================================================
TOTAL INVESTMENTS-128.90% (Cost $752,575,536) 900,964,042
========================================================================
OTHER ASSETS LESS LIABILITIES-0.43% 2,973,337
========================================================================
AUCTION RATE PREFERRED SHARES, AT LIQUIDATION
VALUE-(29.33%) (205,000,000)
========================================================================
NET ASSETS ATTRIBUTABLE TO COMMON
SHARES-100.00% $ 698,937,379
________________________________________________________________________
========================================================================
</Table>
Investment Abbreviations:
<Table>
Conv. - Convertible
Dep. - Depositary
REIT - Real Estate Investment Trust
</Table>
Notes to Schedule of Investments:
(a) A portion of the market value was pledged as collateral to cover margin
requirements for open interest rate swap transactions. See Note 1 section F
and Note 10.
(b) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
See accompanying notes which are an integral part of the financial statements.
F-3
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2004
(Unaudited)
<Table>
ASSETS:
Investments, at market value (cost
$751,801,760) $900,190,266
- -----------------------------------------------------------
Investments in affiliated money market funds
(cost $773,776) 773,776
===========================================================
Total investments (cost $752,575,536) 900,964,042
===========================================================
Dividends receivable 4,394,562
- -----------------------------------------------------------
Investment for deferred compensation and
retirement plans 25,491
- -----------------------------------------------------------
Other assets 20,549
===========================================================
Total assets 905,404,644
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Unrealized depreciation on interest rate
swap transactions 1,031,516
- -----------------------------------------------------------
Deferred compensation and retirement plans 37,559
- -----------------------------------------------------------
Dividends declared on auction rate
preferred shares 36,496
- -----------------------------------------------------------
Interest payable on interest rate swap
transactions 248,327
- -----------------------------------------------------------
Accrued operating expenses 113,367
===========================================================
Total liabilities 1,467,265
===========================================================
Auction rate preferred shares, at liquidation
value 205,000,000
===========================================================
Net assets attributable to common shares $698,937,379
___________________________________________________________
===========================================================
NET ASSETS ATTRIBUTABLE TO COMMON SHARES
CONSIST OF:
Shares of beneficial interest -- common
shares $547,725,444
- -----------------------------------------------------------
Undistributed net investment income (10,859,038)
- -----------------------------------------------------------
Undistributed net realized gain from
investment securities and interest rate
swap transactions 14,713,983
- -----------------------------------------------------------
Unrealized appreciation of investment
securities and interest rate swap
transactions 147,356,990
===========================================================
$698,937,379
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
COMMON SHARE:
Outstanding 39,935,496
___________________________________________________________
===========================================================
Net asset value per common share $ 17.50
___________________________________________________________
===========================================================
Market value per common share $ 15.25
___________________________________________________________
===========================================================
Market price premium (discount) to net asset
value per common share (12.86)%
___________________________________________________________
===========================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-4
STATEMENT OF OPERATIONS
For the six months ended June 30, 2004
(Unaudited)
<Table>
INVESTMENT INCOME:
Dividends $ 18,215,656
- --------------------------------------------------------------------------
Dividends from affiliated money market funds 32,702
==========================================================================
Total investment income 18,248,358
==========================================================================
EXPENSES:
Advisory fees 4,116,117
- --------------------------------------------------------------------------
Administrative services fees 110,162
- --------------------------------------------------------------------------
Custodian fees 12,235
- --------------------------------------------------------------------------
Auction rate preferred shares auction fees 256,250
- --------------------------------------------------------------------------
Transfer agent fees 11,588
- --------------------------------------------------------------------------
Trustees' fees 11,499
- --------------------------------------------------------------------------
Other 68,447
==========================================================================
Total expenses 4,586,298
==========================================================================
Less: Fees waived and expense offset arrangement (1,376,726)
==========================================================================
Net expenses 3,209,572
==========================================================================
Net investment income 15,038,786
==========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES AND INTEREST RATE SWAP TRANSACTIONS:
Net realized gain (loss) from:
Investment securities 21,320,990
- --------------------------------------------------------------------------
Interest rate swap transactions (2,055,308)
==========================================================================
19,265,682
==========================================================================
Change in net unrealized appreciation (depreciation) of:
Investment securities (24,653,003)
- --------------------------------------------------------------------------
Interest rate swap transactions 3,094,934
==========================================================================
(21,558,069)
==========================================================================
Net gain (loss) from investment securities and interest rate
swap transactions (2,292,387)
==========================================================================
Net increase in net assets resulting from operations 12,746,399
__________________________________________________________________________
==========================================================================
DISTRIBUTIONS TO AUCTION RATE PREFERRED SHAREHOLDERS:
From net investment income (1,198,236)
==========================================================================
Net increase in net assets from operations attributable to
common shares $ 11,548,163
__________________________________________________________________________
==========================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-5
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended June 30, 2004 and the year ended December 31, 2003
(Unaudited)
<Table>
<Caption>
JUNE 30, DECEMBER 31,
2004 2003
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 15,038,786 $ 38,053,734
- ------------------------------------------------------------------------------------------
Net realized gain from investment securities and interest
rate swap transactions 19,265,682 4,919,867
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities and interest rate swap
transactions (21,558,069) 208,218,378
==========================================================================================
Net increase in net assets resulting from operations 12,746,399 251,191,979
==========================================================================================
Distributions to auction rate preferred shareholders from
net investment income (1,198,236) (2,522,703)
==========================================================================================
Net increase in net assets from operations attributable
to common shares 11,548,163 248,669,276
==========================================================================================
Distributions to common shareholders from net investment
income (24,680,137) (31,589,483)
- ------------------------------------------------------------------------------------------
Return of capital to common shareholders -- (17,244,529)
==========================================================================================
Decrease in net assets resulting from distributions to
common shares (24,680,137) (48,834,012)
==========================================================================================
CAPITAL STOCK TRANSACTIONS (NOTE 8)
Net proceeds from reinvestment of common shares dividends -- 301,888
- ------------------------------------------------------------------------------------------
Auction rate preferred shares offering costs -- (7,873)
==========================================================================================
Net increase in net assets attributable to common shares
from capital stock transactions -- 294,015
==========================================================================================
Net increase in net assets attributable to common shares (13,131,974) 200,129,279
==========================================================================================
NET ASSETS ATTRIBUTABLE TO COMMON SHARES:
Beginning of period 712,069,353 511,940,074
==========================================================================================
End of period (including undistributed net investment
income (loss) of $(10,859,038) and $(19,451) for 2004
and 2003, respectively) $698,937,379 $712,069,353
__________________________________________________________________________________________
==========================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-6
NOTES TO FINANCIAL STATEMENTS
June 30, 2004
(Unaudited)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Select Real Estate Income Fund (the "Fund") was organized as a Delaware
statutory trust on March 11, 2002 and is registered under the Investment Company
Act of 1940, as amended (the "1940 Act"), as a non-diversified, closed-end
management investment company. The Fund currently has Common Shares and Auction
Rate Preferred Shares ("Preferred Shares") outstanding. The Common Shares are
traded on the New York Stock Exchange under the symbol "RRE." Preferred Shares
are currently sold in weekly auctions through broker-dealers who have an
agreement with the auction agent. Preferred Shares have seniority over the
Common Shares and the issuance of Preferred Shares leveraged the value of the
Fund's Common Shares. Except as otherwise indicated in the Agreement and
Declaration of Trust, as amended, (the "Declaration of Trust") and except as
otherwise required by applicable law, holders of Preferred Shares will vote
together with Common Shareholders as a single class.
The Fund's primary investment objective is high current income; the Fund's
secondary investment objective is capital appreciation. Each company listed in
the Schedule of Investments is organized in the United States of America unless
otherwise noted.
Under the Trust's organizational documents, the Fund's officers, trustees,
employees and agents are indemnified against certain liabilities that may arise
out of performance of their duties to the Fund. Additionally, in the normal
course of business, the Fund enters into contracts that contain a variety of
indemnification clauses. The Fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the Fund
that have not yet occurred. However, the Fund has not had prior claims or losses
pursuant to these contracts.
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 on the basis of prices 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") as of the close of the customary trading session on the
valuation date or absent a NOCP, 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 specific 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 Fund's
officers in a manner specifically authorized by the Board of Trustees.
Issuer specific events, market trends, bid/ask quotes of brokers and
information providers and other market data may be reviewed in the course
of making a good faith determination of a security's fair value. 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"). Futures contracts
are valued at the final settlement price set by an exchange on which they
are principally traded. Listed options are valued at the mean between the
last bid and the ask prices from the exchange on which they are principally
traded. Options not listed on an exchange are valued by an independent
source at the mean between the last bid and ask prices. Investments in
open-end registered investment companies and closed-end registered
investment companies that do not trade on an exchange are valued at the end
of day at such investment companies' net asset value per share. Investments
in closed-end registered investment companies that trade on an exchange are
valued at the last sales price as of the close of the customary trading
session on the exchange where the security is principally traded.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the
close of the NYSE. 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
ordinarily be reflected in the computation of the Fund's net asset value.
If a development/ event is so significant such 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. Adjustments to closing prices to reflect fair value on affected
foreign securities may be provided by an independent pricing service.
Multiple factors may be considered by the independent pricing service in
determining adjustments to reflect fair value and may include information
relating to sector indices, ADRs, domestic and foreign index futures and
exchange-traded funds.
F-7
Interest rate swap transactions are marked to market daily based upon
quotations from market makers. The market value of interest rate swaps is based
on pricing models that consider the time value of money, volatility, the current
market and contractual prices of the underlying financial instrument.
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.
Brokerage commissions and mark ups are considered transaction costs and are
recorded as an increase to the cost basis of securities purchased and/or a
reduction of proceeds on a sale of securities. Such transaction costs are
included in the determination of realized and unrealized gain (loss) from
investment securities reported in the Statement of Operations and the
Statement of Changes in Net Assets and the realized and unrealized net
gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund recharacterizes distributions received from REIT investments based
on information provided by the REIT into the following categories: ordinary
income, long-term and short-term capital gains, and return of capital. If
information is not available timely from the REIT, the recharacterization
will be based on available information which may include the previous
year's allocation. If new or additional information becomes available from
the REIT at a later date, a recharacterization will be made in the
following year. The Fund records as dividend income the amount
recharacterized as ordinary income and as realized gain the amount
recharacterized as capital gain in the Statement of Operations, and the
amount recharacterized as return of capital in the Statement of Changes in
Net Assets. These recharacterizations are reflected in the accompanying
financial statements.
C. DISTRIBUTIONS -- Dividends from net investment income (prior to any
reclassification as a return of capital) are declared and paid to Common
Shareholders monthly. Distributions from net realized capital gain, if any,
are generally paid annually and recorded on ex-dividend date.
Dividends from net investment income, distributions from capital gains and
return of capital are determined in accordance with federal income tax
regulations which may differ from generally accepted accounting principles.
The Fund offers a Dividend Reinvestment Plan to allow dividends, including
any capital gain dividends, on Common Shares to be automatically reinvested
in additional Common Shares of the Fund. EquiServe, the Transfer Agent for
the Common Shares of the Fund, will make the determination on the
reinvestment of the dividend based on the market price per Common Share in
comparison to the net asset value of the Fund. Generally, if on the fifth
trading day preceding the payment date of the dividend, the market price
per Common Share plus share brokerage commissions applicable to an open
market purchase of Common Shares is below the net asset value per Common
Share, the Transfer Agent will receive the dividend or distribution in
cash. Under these circumstances, the Transfer Agent will purchase Common
Shares in the open market. Otherwise the Fund will issue new Common Shares
to fulfill dividend reinvestment obligations.
Preferred Shares issued by the Fund pay dividends based on a determined
rate, usually the rate set at the preceding auction, normally held every
seven days. In most instances, dividends are payable every seven days, on
the first business day following the last day of a dividend period.
Under the Investment Company Act of 1940, the Fund is required to maintain,
with respect to all outstanding senior equity securities of the Fund,
including Preferred Shares, as of the last business day on any month in
which any Preferred Shares are outstanding, asset coverage of at least
200%. Additionally, the Fund is required to meet more stringent asset
coverage requirements under terms of the Preferred Shares' offering
documents and the Preferred Shares' rating agencies as described in the
offering documents. Should these requirements not be met, or should
dividends accrued on the Preferred Shares not be paid, the Fund may be
restricted in its ability to declare dividends to Common Shareholders or
will be subject to mandatory redemption of the Preferred Shares. At June
30, 2004, no such restrictions have been placed on the Fund.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, 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. EXPENSES -- All expenses incurred by the Fund are included in the
determination of the net assets attributable to Common Shares and do not
impact the liquidation preference of Preferred Shares.
F. INTEREST RATE SWAP TRANSACTIONS -- The Fund may enter into interest rate
swap transactions in order to reduce the risk that the cost of leveraging
by the Fund will exceed the returns realized by the Fund on the leverage
proceeds. The Fund uses interest rate swap transactions in connection with
the sale of Preferred Shares. In an interest rate swap, the Fund agrees to
pay to the other party to the swap (which is known as the "counterparty") a
fixed rate payment, and the counterparty agrees to pay to the Fund a
variable rate payment. The variable rate payment is intended to approximate
all or a portion of the Fund's dividend payment obligation on Preferred
Shares or interest payment obligation on any variable rate borrowings. The
payment obligations are based on the notional amount of the swap. The Fund
has segregated liquid securities in a separate account having a value at
least equal to the Fund's net payment obligations under any swap
transaction. Interest rate swap transactions are marked to market daily.
Entering into these agreements involves, to varying degrees, elements of
credit, market and documentation risk in excess of amounts recognized on
the Statement of Assets and Liabilities. Such risks involve the possibility
that there will be no liquid market for these agreements, that the
counterparty to the agreements may default on its obligation to perform or
disagree as to the meaning of contractual terms in the agreements, and that
there may be unfavorable changes in interest rates.
F-8
Effective December 31, 2003, as a result of a Financial Accounting
Standards Board ("FASB") Emerging Issue Task Force consensus and subsequent
related Securities and Exchange Commission ("SEC") staff guidance, the Fund
reclassified periodic payments made under interest rate swap agreements,
previously included within interest expense, as a component of realized
gain (loss) in the Statement of Operations. Prior year per share amounts
and net investment income and expense ratios in the Financial Highlights
have also been modified accordingly. This reclassification had no effect on
the Fund's net asset value, either in total or per share, or the increase
in net assets from operations.
G. OFFERING COSTS -- All offering costs were borne by the Fund and were
recorded as a reduction to paid-in surplus. All offering costs, including
those associated with the issuance of Preferred Shares, were borne by the
Common Shareholders of the Fund.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Fund 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 sum of
the Fund's average daily net assets attributable to Common Shares, plus assets
attributable to any Preferred Shares that may be outstanding, plus the principal
amount of any Borrowings ("Managed Assets"), payable on a monthly basis. As of
June 30, 2004, Managed Assets were $919,718,470.
AIM has contractually agreed to waive a portion of its advisory fee as a
percentage of average daily Managed Assets for the first seven years of the
Fund's operations as follows:
<Table>
<Caption>
WAIVER PERIOD FEE WAIVER
- ------------------------------------------------------------------------
05/31/02-06/30/07 0.30%
- ------------------------------------------------------------------------
07/01/07-06/30/08 0.20
- ------------------------------------------------------------------------
07/01/08-06/30/09 0.10
________________________________________________________________________
========================================================================
</Table>
Further, 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 on investments by the Fund in such affiliated money market funds.
For the six months ended June 30, 2004, AIM waived fees of $1,376,651.
AIM has entered into a sub-advisory agreement with INVESCO Institutional
(N.A.), Inc. ("INVESCO") whereby AIM pays INVESCO 50% of the advisory fee paid
by the Fund to AIM, net of fee waivers and expense reimbursements.
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 June 30, 2004, AIM was
paid $110,162 for such services.
Certain officers and trustees of the Fund are officers and directors of AIM
and/or A I M Management Group Inc. ("AIM Management"), the parent corporation of
AIM.
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to an exemptive order from the SEC and approved
procedures by the Board of Trustees, to invest daily available cash balances in
affiliated money market funds. The Fund and the money market funds below have
the same investment advisor and therefore, are considered to be affiliated. Each
day the prior day's balance invested in the affiliated money market fund is
redeemed in full and a new purchase amount is submitted to invest the current
day's available cash. The table below shows the transactions in and earnings
from investments in affiliated money market funds for the period ended June 30,
2004.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 12/31/03 AT COST FROM SALES (DEPRECIATION) 06/30/04 INCOME GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $1,199,788 $34,233,992 $(35,046,892) $ -- $386,888 $16,740 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 1,199,788 34,233,992 (35,046,892) -- 386,888 15,962 --
==================================================================================================================================
$2,399,576 $68,467,984 $(70,093,784) $ -- $773,776 $32,702 $ --
__________________________________________________________________________________________________________________________________
==================================================================================================================================
</Table>
NOTE 4--EXPENSE OFFSET ARRANGEMENT
The expense offset arrangement is comprised of custodian credits which result
from periodic overnight cash balances at the custodian. For the six months ended
June 30, 2004, the Fund received credits in custodian fees of $75 under an
expense offset arrangement, which resulted in a reduction of the Fund's total
expenses of $75.
NOTE 5--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each Trustee of the Trust who is
not an "interested person" of AIM. Trustees have the option to defer
compensation payable by the Trust. Those Trustees who defer compensation have
the option to select various AIM Funds and INVESCO Funds in which their deferral
accounts shall be deemed to be invested.
F-9
Current Trustees are eligible to participate in a retirement plan that
provides for benefits to be paid upon retirement to Trustees over a period of
time based on the number of years of service. The Fund may have certain former
Trustees that also participate in a retirement plan and receive benefits under
such plan.
Obligations under the deferred compensation and retirement plans represent
unsecured claims against the general assets of the Fund.
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 carryforward) under income tax regulations. The tax character of
distributions paid during the year and the tax components of net assets will be
reported at the Fund's fiscal year-end.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to use capital loss carryforward may be limited under the Internal
Revenue Code and related regulations.
The Fund has a capital loss carryforward for tax purposes as of December 31,
2003 which expires as follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- ---------------------------------------------------------------------------
December 31, 2010 $2,746,053
___________________________________________________________________________
===========================================================================
</Table>
* Any capital loss carryforward as of the date listed above is reduced for
limitations, if any, to the extent required by the Internal Revenue Code.
NOTE 7--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the six months
ended June 30, 2004 was $80,168,432 and $79,586,734, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $149,951,568
- ------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (3,306,144)
==============================================================================
Net unrealized appreciation of investment securities $146,645,424
______________________________________________________________________________
==============================================================================
Cost of investments for tax purposes is $754,318,618.
</Table>
NOTE 8--SHARE INFORMATION
For the six months ended June 30, 2004, there were no changes in Common Shares
outstanding.
On March 11, 2002, AIM purchased one Common Share. On May 21, 2002, AIM
purchased an additional 7,000 Common Shares. During the period May 31, 2002
(date investment operations commenced) through December 31, 2002, 39,900,000
Common Shares and 2,050 Preferred Shares of each Series M, W, R and F were
issued. In addition, during the same time period, 4,317 Common Shares were
issued to shareholders for the reinvestment of dividends. The Fund issued 24,178
and 0 Common Shares for the reinvestment of dividends for the year ended
December 31, 2003 and the six months ended June 30, 2004, respectively.
NOTE 9--DISTRIBUTIONS DECLARED
For July, 2004, a dividend of $0.103 per share was declared on June 10, 2004,
payable on July 30, 2004, to fund shareholders of record on July 19, 2004.
For August, 2004, a dividend of $0.103 per share was declared on June 10,
2004, payable on August 30, 2004, to fund shareholders of record on August 19,
2004.
NOTE 10--INTEREST RATE SWAP AGREEMENTS
The Fund has entered into interest rate swap agreements. Under the agreements,
the Fund receives a floating rate of interest income and pays a fixed rate of
interest on the notional values of the swaps to the agreement counterparty. At
June 30, 2004, the Fund had open interest rate swap agreements as follows:
<Table>
<Caption>
FLOATING RATE* UNREALIZED
(RATE RESET APPRECIATION
NOTIONAL AMOUNT FIXED RATE MONTHLY) TERMINATION DATE (DEPRECIATION)
- ---------------------------------------------------------------------------------------------------------------------------------
Citibank, N.A. $40,000,000 3.5000% 1.2800% 09/19/07 $ 164,767
- ---------------------------------------------------------------------------------------------------------------------------------
Citibank, N.A. 42,000,000 4.6325% 1.1138% 08/02/09 (874,154)
- ---------------------------------------------------------------------------------------------------------------------------------
Merrill Lynch Capital Services, Inc. 40,000,000 3.3100% 1.1138% 08/02/05 (361,227)
- ---------------------------------------------------------------------------------------------------------------------------------
Merrill Lynch Capital Services, Inc. 30,000,000 3.6000% 1.2113% 09/12/07 39,098
=================================================================================================================================
$(1,031,516)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
* Based on 30 day London Interbank Offered Rate (LIBOR).
F-10
NOTE 11--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
MAY 31, 2002
(DATE INVESTMENT
SIX MONTHS OPERATIONS
ENDED YEAR ENDED COMMENCED) TO
JUNE 30, DECEMBER 31, DECEMBER 31,
2004 2003 2002
- ---------------------------------------------------------------------------------------------------------------
Net asset value per common share, beginning of period $ 17.83 $ 12.83 $ 14.33
- ---------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.38 0.95(a) 0.49(a)
- ---------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (0.06) 5.33 (1.35)
===============================================================================================================
Total from investment operations 0.32 6.28 (0.86)
===============================================================================================================
Less distributions to auction rate preferred shareholders
from net investment income(b) (0.03) (0.06) (0.04)
===============================================================================================================
Total from investment operations attributable to common
shares 0.29 6.22 (0.90)
===============================================================================================================
Less offering costs charged to paid-in capital on common
shares:
Offering costs on common shares -- -- (0.03)
- ---------------------------------------------------------------------------------------------------------------
Offering costs on auction rate preferred shares -- (0.00) (0.07)
- ---------------------------------------------------------------------------------------------------------------
Dilutive effect of common share offering -- (0.00) (0.00)
===============================================================================================================
Total offering costs changed to paid-in capital -- (0.00) (0.10)
===============================================================================================================
Less distributions to common shareholders:
Dividends from net investment income (0.62) (0.79) (0.42)
- ---------------------------------------------------------------------------------------------------------------
Return of capital -- (0.43) (0.08)
===============================================================================================================
Total distributions to common shareholders (0.62) (1.22) (0.50)
===============================================================================================================
Net asset value per common share, end of period $ 17.50 $ 17.83 $ 12.83
===============================================================================================================
Market value per common share, end of period $ 15.25 $ 16.59 $ 12.30
===============================================================================================================
Net asset value total return(c)(d) 1.98% 51.41% (6.90)%
===============================================================================================================
Market value return(c)(d) (4.49)% 46.95% (14.73)%
_______________________________________________________________________________________________________________
===============================================================================================================
Ratios/supplemental data:
Net assets attributable to common shares, end of period
(000s omitted) $698,937 $712,069 $511,940
_______________________________________________________________________________________________________________
===============================================================================================================
Ratio of expenses to average net assets attributable to
common shares:
With fee waivers and/or expense reimbursement(e) 0.90%(f) 1.00%(a) 1.02%(a)(g)
- ---------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursement(e) 1.29%(f) 1.41%(a) 1.43%(a)(g)
===============================================================================================================
Ratio of net investment income to average net assets
attributable to common shares(e) 4.23%(f) 6.46%(a) 6.28%(a)(g)
===============================================================================================================
Ratio of distributions to auction rate preferred
shareholders to average net assets attributable to common
shares 0.34%(f) 0.43% 0.50%(g)
_______________________________________________________________________________________________________________
===============================================================================================================
Portfolio turnover rate(c) 9% 37% 35%
_______________________________________________________________________________________________________________
===============================================================================================================
Auction rate preferred shares:
Liquidation value, end of period (000s omitted) $205,000 $205,000 $205,000
- ---------------------------------------------------------------------------------------------------------------
Total shares outstanding 8,200 8,200 8,200
- ---------------------------------------------------------------------------------------------------------------
Asset coverage per share $110,236 $111,838 $ 87,432
- ---------------------------------------------------------------------------------------------------------------
Liquidation and market value per share $ 25,000 $ 25,000 $ 25,000
_______________________________________________________________________________________________________________
===============================================================================================================
</Table>
(a) As a result of changes in generally accepted accounting principles, the
Fund reclassified periodic payments made under interest rate swap
agreements, previously included within interest expense as a component
of realized gain (loss) in the statement of operations. The effect of
this reclassification was to increase the net investment income ratio by
0.67%, decrease the expense ratio by 0.67% and increase net investment
income per share by $0.10 for the year ended December 31, 2003. For
consistency, similar reclassifications have been made to prior year
amounts, resulting in an increase to the net investment income ratio of
0.38%, a decrease to the expense ratio of 0.38% and an increase to net
investment income per share of $0.03 for the period May 31, 2002 (date
investment operations commenced) through December 31, 2002.
(b) The amount shown is based on average number of common shares
outstanding.
(c) Not annualized for periods less than one year.
(d) Total market value return is computed based upon the New York Stock
Exchange market price of the Fund's common shares and excludes the
effects of brokerage commissions. Dividends and distributions, if any,
are assumed for purposes of this calculation, to be reinvested at prices
obtained under the Fund's dividend reinvestment plan. Total net asset
value return includes adjustments in accordance with accounting
principles generally accepted in the United States of America and
measures the changes in common shares' value over the period indicated,
taking into account dividends as reinvested.
(e) Ratios do not reflect the effect of dividend payments to auction rate
preferred shareholders; income ratios reflect income earned on assets
attributable to auction rate preferred shares.
(f) Ratios are annualized and based on average daily net assets attributable
to common shares of $714,718,470.
(g) Annualized.
F-11
NOTE 12--LEGAL PROCEEDINGS
The mutual fund industry as a whole is currently subject to regulatory inquiries
and litigation related to a wide range of issues. These issues include, among
others, market timing activity, late trading, fair value pricing, excessive or
improper advisory and/or distribution fees, mutual fund sales practices,
including revenue sharing and directed-brokerage arrangements, investments in
securities of other registered investment companies and issues related to
Section 529 college savings plans.
As described more fully below, INVESCO Funds Group, Inc. ("IFG"), the former
investment advisor to the INVESCO Funds, is the subject of three regulatory
actions concerning market timing activity in the INVESCO Funds. In addition, IFG
and A I M Advisors, Inc. ("AIM"), the Fund's investment advisor, are the subject
of a number of regulatory inquiries and civil lawsuits, as described more fully
below. Both IFG and AIM are indirect wholly owned subsidiaries of AMVESCAP PLC
("AMVESCAP"). Additional regulatory actions and/or civil lawsuits related to the
above or other issues may be filed against IFG, AIM and/or related entities and
individuals in the future. Additional regulatory inquiries related to the above
or other issues also may be received by IFG, AIM and/or related entities and
individuals in the future.
As a result of the regulatory actions and inquiries and civil lawsuits
discussed below, investors in the AIM and INVESCO Funds might react by redeeming
their investments. This might require the Funds to sell investments to provide
for sufficient liquidity and could also have an adverse effect on the investment
performance of the Funds.
Regulatory Actions Pending Against IFG
On December 2, 2003 each of the Securities and Exchange Commission ("SEC") and
the Office of the Attorney General of the State of New York ("NYAG") filed civil
proceedings against IFG and Raymond R. Cunningham, in his former capacity as the
chief executive officer of IFG. Mr. Cunningham also formerly held the positions
of Chief Operating Officer and Senior Vice President of A I M Management Group
Inc. ("AIM Management"), the parent of AIM, and the position of Senior Vice
President of AIM. In addition, on December 2, 2003, the State of Colorado filed
civil proceedings against IFG. Neither the Fund nor any of the other AIM or
INVESCO Funds has been named as a defendant in any of these proceedings. There
can be no assurance that the SEC, NYAG or State of Colorado will not file
additional charges against IFG or Mr. Cunningham or civil proceedings against
other current or former officers or employees of IFG.
The SEC complaint alleges that IFG failed to disclose in the INVESCO Funds'
prospectuses and to the INVESCO Funds' independent directors that IFG had
entered into certain arrangements permitting market timing of the INVESCO Funds.
The SEC is seeking injunctions, including permanent injunctions from serving as
an investment advisor, officer or director of an investment company; an
accounting of all market timing as well as certain fees and compensation
received; disgorgement; civil monetary penalties; and other relief.
The NYAG and Colorado complaints make substantially similar allegations. The
NYAG is seeking injunctions, including permanent injunctions from directly or
indirectly selling or distributing shares of mutual funds; disgorgement of all
profits obtained, including fees collected, and payment of all restitution and
damages caused, directly or indirectly from the alleged illegal activities;
civil monetary penalties; and other relief. The State of Colorado is seeking
injunctions; restitution, disgorgement and other equitable relief; civil
monetary penalties; and other relief.
Response of AMVESCAP
AMVESCAP is seeking to resolve both the pending regulatory complaints against
IFG alleging market timing and the ongoing market timing investigations with
respect to IFG and AIM. AMVESCAP found, in its ongoing review of these matters,
that shareholders were not always effectively protected from the potential
adverse impact of market timing and illegal late trading through intermediaries.
These findings were based, in part, on an extensive economic analysis by outside
experts who have been retained by AMVESCAP to examine the impact of these
activities. In light of these findings, AMVESCAP has publicly stated that any
AIM or INVESCO Fund, or any shareholders thereof, harmed by these activities
will receive full restitution. AMVESCAP has informed regulators of these
findings. AMVESCAP has retained outside counsel to represent its subsidiaries in
connection with the market timing regulatory inquiries and certain other
matters. As part of this representation, this outside counsel has been
conducting a review of IFG's and AIM's conduct with respect to market timing and
related matters. In addition, AMVESCAP has retained separate outside counsel to
undertake a comprehensive review of AIM's and IFG's policies, procedures and
practices, with the objective that they rank among the most effective in the
fund industry.
At the direction of the trustees of the AIM and INVESCO Funds, AMVESCAP has
agreed to pay all of the expenses incurred by the AIM and INVESCO Funds related
to the market timing investigations, including expenses incurred in connection
with the pending regulatory complaints against IFG alleging market timing and
the ongoing market timing investigations with respect to IFG and AIM.
There can be no assurance that AMVESCAP will be able to reach a satisfactory
settlement with the regulators, or that any such settlement will not include
terms which would have the effect of barring either or both of IFG and AIM, or
any other investment advisor directly or indirectly owned by AMVESCAP, including
but not limited to A I M Capital Management, Inc. ("AIM Capital"), AIM Funds
Management Inc., INVESCO Institutional (N.A.), Inc. ("IINA"), INVESCO Global
Asset Management (N.A.), Inc. and INVESCO Senior Secured Management, Inc., from
serving as an investment advisor to any investment company registered under the
Investment Company Act of 1940, including the Fund. The Fund has been informed
by AIM that, if AIM is so barred, AIM will seek exemptive relief from the SEC to
permit it to continue to serve as the Fund's investment advisor. There can be no
assurance that such exemptive relief will be granted.
Regulatory Inquiries Concerning IFG
IFG, certain related entities, certain of their current and former officers
and/or certain of the INVESCO Funds have received regulatory inquiries in the
form of subpoenas or other oral or written requests for information and/or
documents related to one or more of the following issues, some of which concern
one or more INVESCO Funds: market timing activity, late trading, fair value
pricing, excessive or improper advisory and/or distribution fees,
F-12
NOTE 12--LEGAL PROCEEDINGS (CONTINUED)
mutual fund sales practices, including revenue sharing and directed-brokerage
arrangements, and investments in securities of other registered investment
companies. These regulators include the Securities and Exchange Commission
("SEC"), the NASD, Inc. ("NASD"), the Florida Department of Financial Services,
the Commissioner of Securities for the State of Georgia, the Attorney General of
the State of West Virginia, the West Virginia Securities Commission, the
Colorado Securities Division and the Bureau of Securities of the State of New
Jersey. IFG and certain of these other parties also have received more limited
inquiries from the United States Department of Labor ("DOL") and the United
States Attorney's Office for the Southern District of New York, some of which
concern one or more INVESCO Funds. IFG is providing full cooperation with
respect to these inquiries.
Regulatory Inquiries Concerning AIM
AIM, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds have received regulatory inquiries in the form
of subpoenas or other oral or written requests for information and/or documents
related to one or more of the following issues, some of which concern one or
more AIM Funds: market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including revenue sharing and directed-brokerage arrangements,
investments in securities of other registered investment companies and issues
related to Section 529 college savings plans. These regulators include the SEC,
the NASD, the Department of Banking for the State of Connecticut, the NYAG, the
Commissioner of Securities for the State of Georgia, the Attorney General of the
State of West Virginia, the West Virginia Securities Commission and the Bureau
of Securities of the State of New Jersey. AIM and certain of these other parties
also have received more limited inquiries from the DOL, the Internal Revenue
Service, the United States Attorney's Office for the Southern District of New
York, the United States Attorney's Office for the Central District of
California, the United States Attorney's Office for the District of
Massachusetts, the Massachusetts Securities Division and the U.S. Postal
Inspection Service, some of which concern one or more AIM Funds. AIM is
providing full cooperation with respect to these inquiries.
Private Civil Actions Alleging Market Timing
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, certain INVESCO Funds, certain AIM Funds, IFG, AIM, AIM
Management, AMVESCAP, certain related entities and/or certain of their current
and former officers) making allegations substantially similar to the allegations
in the three regulatory actions concerning market timing activity in the INVESCO
Funds that have been filed by the SEC, the NYAG and the State of Colorado
against these parties. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
and state securities laws; (ii) violation of various provisions of the Employee
Retirement Income Security Act ("ERISA"); (iii) breach of fiduciary duty; and/or
(iv) breach of contract. These lawsuits were initiated in both Federal and state
courts and seek such remedies as compensatory damages; restitution; rescission;
accounting for wrongfully gotten gains, profits and compensation; injunctive
relief; disgorgement; equitable relief; various corrective measures under ERISA;
rescission of certain Funds' advisory agreements; declaration that the advisory
agreement is unenforceable or void; refund of advisory fees; interest; and
attorneys' and experts' fees.
The Judicial Panel on Multidistrict Litigation (the "Panel") has ruled that
all actions pending in Federal court that allege market timing and/or late
trading be transferred to the United States District Court for the District of
Maryland for coordinated pre-trial proceedings. All such cases against IFG and
the other AMVESCAP defendants filed to date have been conditionally or finally
transferred to the District of Maryland in accordance with the Panel's
directive. In addition, the proceedings initiated in state court have been
removed by IFG to Federal court and transferred to the District of Maryland. The
plaintiff in one such action continues to seek remand to state court.
Private Civil Actions Alleging Improper Use of Fair Value Pricing
Multiple civil class action lawsuits have been filed against various parties
(including, depending on the lawsuit, certain INVESCO Funds, certain AIM Funds,
IFG and/or AIM) alleging that certain AIM and INVESCO Funds inadequately
employed fair value pricing. These lawsuits allege a variety of theories of
recovery, including but not limited to: (i) violations of various provisions of
the Federal securities laws; (ii) common law breach of duty; and (iii) common
law negligence and gross negligence. These lawsuits have been filed in both
Federal and state courts and seek such remedies as compensatory and punitive
damages; interest; and attorneys' fees and costs.
Private Civil Actions Alleging Excessive Advisory and Distribution Fees
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, IINA, A I M Distributors, Inc. ("AIM Distributors")
and/or INVESCO Distributors, Inc. ("INVESCO Distributors")) alleging that the
defendants charged excessive advisory and distribution fees and failed to pass
on to shareholders the perceived savings generated by economies of scale.
Certain of these lawsuits also allege that the defendants adopted unlawful
distribution plans. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; (ii) breach of fiduciary duty; and/or (iii) breach of contract.
These lawsuits have been filed in both Federal and state courts and seek such
remedies as damages; injunctive relief; rescission of certain Funds' advisory
agreements and distribution plans; interest; prospective relief in the form of
reduced fees; and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Distribution Fees Charged to Closed
Funds
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, AIM Distributors and/or certain of the trustees of the
AIM and INVESCO Funds) alleging that the defendants breached their fiduciary
duties by charging distribution fees while funds and/or specific share classes
were closed generally to new investors and/or while other share classes of the
same fund were not charged the same distribution fees. These lawsuits allege a
variety of theories of recovery, including but not limited to: (i) violation of
F-13
NOTE 12--LEGAL PROCEEDINGS (CONTINUED)
various provisions of the Federal securities laws; and (ii) breach of fiduciary
duty. These lawsuits have been filed in both Federal and state courts and seek
such remedies as damages; injunctive relief; and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Mutual Fund Sales Practices and
Directed-Brokerage Arrangements
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, AIM Management, IFG, AIM, AIM Investment Services, Inc. ("AIS")
and/or certain of the trustees of the AIM and INVESCO Funds) alleging that the
defendants improperly used the assets of the AIM and INVESCO Funds to pay
brokers to aggressively push the AIM and INVESCO Funds over other mutual funds
and that the defendants concealed such payments from investors by disguising
them as brokerage commissions. These lawsuits allege a variety of theories of
recovery, including but not limited to: (i) violation of various provisions of
the Federal securities laws; (ii) breach of fiduciary duty; and (iii) aiding and
abetting a breach of fiduciary duty. These lawsuits have been filed in Federal
courts and seek such remedies as compensatory and punitive damages; rescission
of certain Funds' advisory agreements and distribution plans and recovery of all
fees paid; an accounting of all fund-related fees, commissions and soft dollar
payments; restitution of all unlawfully or discriminatorily obtained fees and
charges; and attorneys' and experts' fees.
At the present time, management of AIM and the Fund are unable to estimate the
impact, if any, that the outcome of the matters described above may have on AIM
or the Fund.
F-14
PROXY RESULTS (UNAUDITED)
An annual Meeting of Shareholders of AIM Select Real Estate Income Fund, a
Delaware statutory trust, was held on May 10, 2004. The meeting was held for the
following purposes:
(1) Election of Trustees. Nominees: Bob R. Baker, James T. Bunch, Bruce L.
Crockett, Jack M. Fields, Gerald J. Lewis, Louis S. Sklar and Larry Soll,
Ph.D.
(2) Ratification of the Audit Committee's appointment of PricewaterhouseCoopers
LLP as independent public accountants.
The results of voting on the above matters were as follows:
<Table>
<Caption>
COMMON SHARES
----------------------------------------
VOTES WITHHELD/
TRUSTEES/MATTER VOTES FOR AGAINST ABSTENTIONS
- --------------------------------------------------------------------------------------------
(1) Bob R. Baker................................. 35,831,164 N/A 364,287
James T. Bunch............................... 35,842,575 N/A 352,876
Bruce L. Crockett............................ 35,846,581 N/A 348,870
Jack M. Fields............................... 35,829,736 N/A 365,715
Gerald J. Lewis.............................. 35,815,993 N/A 379,458
Louis S. Sklar............................... 35,827,124 N/A 368,327
Larry Soll, Ph.D. ........................... 35,826,749 N/A 368,702
</Table>
<Table>
<Caption>
PREFERRED SHARES
----------------------------------------
VOTES WITHHELD/
TRUSTEES/MATTER VOTES FOR AGAINST ABSTENTIONS
- --------------------------------------------------------------------------------------------
Bob R. Baker................................. 6,274 N/A 36
James T. Bunch............................... 6,274 N/A 36
Bruce L. Crockett............................ 6,274 N/A 36
Jack M. Fields............................... 6,274 N/A 36
Gerald J. Lewis.............................. 6,274 N/A 36
Ruth H. Quigley.............................. 6,274 N/A 36
Louis S. Sklar............................... 6,274 N/A 36
Larry Soll, Ph.D............................. 6,274 N/A 36
Ratification of the Audit Committee's
selection of independent public
(2) accountants.................................. 35,887,068 159,744 154,949
</Table>
F-15
OTHER INFORMATION
TRUSTEES AND OFFICERS
<Table>
BOARD OF TRUSTEES OFFICERS OFFICE OF THE FUND
Bob R. Baker Robert H. Graham 11 Greenway Plaza
Chairman and President Suite 100
Frank S. Bayley Houston, TX 77046-1173
Mark H. Williamson
James T. Bunch Executive Vice President INVESTMENT ADVISOR
A I M Advisors, Inc.
Bruce L. Crockett Kevin M. Carome 11 Greenway Plaza
Senior Vice President, Secretary Suite 100
Albert R. Dowden and Chief Legal Officer Houston, TX 77046-1173
Edward K. Dunn, Jr. Sidney M. Dilgren SUB-ADVISOR
Vice President and Treasurer INVESCO Institutional (N.A.), Inc.,
Jack M. Fields INVESCO Realty Advisors division
Robert G. Alley Three Galleria Tower
Carl Frischling Vice President Suite 500
13155 Noel Road
Robert H. Graham Stuart W. Coco Dallas, TX 75240-5042
Vice President
Gerald J. Lewis TRANSFER AGENT (PREFERRED SHARES)
Melville B. Cox Deutsche Bank Trust
Prema Mathai-Davis Vice President Company Americas
100 Plaza One
Lewis F. Pennock Karen Dunn Kelley Jersey City, NJ 07311-3901
Vice President
Ruth H. Quigley TRANSFER AGENT (COMMON SHARES)
Edgar M. Lansen EquiServe Trust Company, N.A.
Louis S. Sklar Vice President and EquiServe, Inc.
P.O. Box 43010
Larry Soll, Ph.D. Providence, RI 02940-0310
Mark H. Williamson CUSTODIAN
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110-2801
COUNSEL TO THE FUND
Ballard Spahr
Andrews & Ingersoll, LLP
1735 Market Street
Philadelphia, PA 19103-7599
COUNSEL TO THE TRUSTEES
Kramer, Levin, Naftalis & Frankel LLP
919 Third Avenue
New York, NY 10022-3852
</Table>
AIMinvestments.com SREI-SAR-1
<Table>
YOUR GOALS. OUR SOLUTIONS.--Registered Trademark--
- -------------------------------------------------------------------------------------
Mutual Retirement Annuities College Separately Offshore Alternative Cash [AIM INVESTMENTS LOGO APPEARS HERE]
Funds Products Savings Managed Products Investments Management --Registered Trademark--
Plans Accounts
- -------------------------------------------------------------------------------------
</Table>
ITEM 2. CODE OF ETHICS.
There were no amendments to the Code of Ethics (the "Code")
that applies to the Registrant's Principal Executive Officer
("PEO") and Principal Financial Officer ("PFO") during the
period covered by the report. The Registrant did not grant any
waivers, including implicit waivers, from any provisions of
the Code to the PEO or PFO during the period covered by this
report.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
Investments in securities of unaffiliated issuers is included
as part of the reports to stockholders filed under Item 1 of
this Form.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Registrant adopted Shareholder Communication Procedures
(the "Procedures") on December 10, 2003, which Procedures were
amended effective June 9, 2004. The Procedures set forth the
process by which shareholders of the Registrant may send
communications to the Board. As originally drafted, the
Procedures covered recommendations of nominees sent by
shareholders to the Board or to an individual trustee.
However, the amended Procedures adopted effective June 9, 2004
do not cover such shareholder communications. Therefore, the
adoption of amended Procedures could be viewed as a material
change to the procedures by which shareholders may recommend
nominees to the Registrant's Board of Trustees.
ITEM 10. CONTROLS AND PROCEDURES.
(a) As of June 18, 2004, an evaluation was performed under the
supervision and with the participation of the officers of the
Registrant, including the PEO and PFO, to assess the
effectiveness of the Registrant's disclosure controls and
procedures, as that term is defined in Rule 30a-3(c) under the
Investment Company Act of 1940 (the "Act"), as amended. Based
on that evaluation, the Registrant's officers, including
the PEO and PFO, concluded that, as of June 18, 2004, the
Registrant's disclosure controls and procedures were
reasonably designed to ensure: (1) that information required
to be disclosed by the Registrant on Form N-CSR is recorded,
processed, summarized and reported within the time periods
specified by the rules and forms of the Securities and
Exchange Commission; and (2) that material information
relating to the Registrant is made known to the PEO and PFO as
appropriate to allow timely decisions regarding required
disclosure.
(b) There have been no changes in the Registrant's internal
control over financial reporting (as defined in Rule 30a-3(d)
under the Act) that occurred during the Registrant's last
fiscal half-year (the Registrant's second fiscal half-year in
the case of an annual report) that has materially affected, or
is reasonably likely to materially affect, the Registrant's
internal control over financial reporting.
ITEM 11. EXHIBITS.
11(a)(1) Not applicable.
11(a)(2) Certifications of principal executive officer and principal
financial officer as required by Rule 30a-2(a) under the
Investment Company Act of 1940.
11(a)(3) Not applicable.
11(b) Certifications of principal executive officer and principal
financial officer as required by Rule 30a-2(b) under the
Investment Company Act of 1940.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Registrant: AIM Select Real Estate Income Fund
By: /s/ ROBERT H. GRAHAM
------------------------------------------
Robert H. Graham
Principal Executive Officer
Date: September 1, 2004
Pursuant to the requirements of the Securities and Exchange Act of 1934 and the
Investment Company Act of 1940, this Report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
By: /s/ ROBERT H. GRAHAM
------------------------------------------
Robert H. Graham
Principal Executive Officer
Date: September 1, 2004
By: /s/ SIDNEY M. DILGREN
------------------------------------------
Sidney M. Dilgren
Principal Financial Officer
Date: September 1, 2004
EXHIBIT INDEX
11(a)(1) Not applicable.
11(a)(2) Certifications of principal executive officer and principal
financial officer as required by Rule 30a-2(a) under the
Investment Company Act of 1940.
11(a)(3) Not applicable.
11(b) Certifications of principal executive officer and principal
financial officer as required by Rule 30a-2(b) under the
Investment Company Act of 1940.