As filed with the Securities and Exchange Commission on November 13, 2006
Securities Act Registration No. __________
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-effective Amendment No. ____ Post-effective Amendment No. ____
(Check appropriate box or boxes)
AIM COUNSELOR SERIES TRUST
(Exact Name of Registrant as Specified in Charter)
11 Greenway Plaza
Suite 100
Houston, TX 77046
(Address of Principal Executive Offices)
Registrant's Telephone Number: (713) 626-1919
Name and Address of Agent for Service: Copy to:
PETER A. DAVIDSON, ESQUIRE MARTHA J. HAYS, ESQUIRE
A I M Advisors, Inc. Ballard Spahr Andrews & Ingersoll, LLP
11 Greenway Plaza 1735 Market Street
Suite 100 51st Floor
Houston, TX 77046 Philadelphia, PA 19103
Approximate Date of Proposed Public Offering: As soon as practicable after
the Registration Statement becomes effective under the Securities Act of 1933.
It is proposed that this filing will become effective on December 13, 2006,
pursuant to Rule 488.
The title of the securities being registered are Class A, Class B, Class C
and Institutional Class shares of AIM Select Real Estate Income Fund. No filing
fee is due in reliance on Section 24(f) of the Investment Company Act of 1940.
(A I M LOGO)
AIM SELECT REAL ESTATE INCOME FUND,
A PORTFOLIO OF AIM SELECT REAL ESTATE INCOME FUND
11 GREENWAY PLAZA, SUITE 100
HOUSTON, TEXAS 77046-1173
December __, 2006
Dear Shareholder:
We are seeking your approval of the reorganization of your Fund, AIM Select
Real Estate Income Fund, from a closed-end, exchange-traded fund to an open-end,
multiple class fund (the "Reorganization"). The Reorganization will be
accomplished by transferring the assets and liabilities of your Fund to a newly
created fund (the "Buying Fund") pursuant to an Agreement and Plan of
Reorganization (the "Agreement"). The Buying Fund will operate as an open-end
fund with the same investment objectives and similar investment policies and
restrictions as currently exist for your Fund. In addition, the Buying Fund will
continue to invest primarily in the equity and debt securities of companies
principally engaged in the real estate industry after the Reorganization occurs.
If shareholders approve the Reorganization, you will receive shares of the
Buying Fund in connection with the Reorganization equal to the number of Common
Shares of your Fund that you own immediately prior to the Reorganization.
Your Fund's Common Shares have traded on the New York Stock Exchange at a
substantial discount from their net asset value. On August 1, 2006, the Board of
Trustees of your Fund (the "Board") determined that it is in the best interests
of the holders of your Fund's Common Shares to reorganize your Fund as an
open-end fund, and a press release was issued that same day announcing the
Board's determination. Your Fund's trading discount narrowed from 13.45% on
August 1, 2006 to 4.82% at the close of business the next trading day, August 2,
2006. On September 19, 2006, the Board approved the Agreement and the proposed
Reorganization, and a press release was issued that same day announcing the
Board's approval. Your Fund's trading discount was 5.06% at the close of
business the next trading day, September 20, 2006. At the close of business on
October 11, 2006, your Fund's trading discount was 4.71%.
A I M Advisors, Inc. ("AIM"), the investment advisor to your Fund, believes
that reorganizing your Fund as an open-end fund will immediately eliminate its
trading discount at the time the Reorganization occurs. Furthermore, AIM
believes that the public announcements on August 1, 2006 and September 19, 2006
already have provided holders of your Fund's Common Shares with a return benefit
as the price of the Common Shares has increased towards their net asset value.
Finally, AIM believes that the opportunity to open-end your Fund on the terms
and schedule that AIM has established and that the Board has approved, and at
AIM's own initiative, is in the best interests of your Fund and the holders of
its Common Shares. The attached Proxy Statement and Prospectus seeks your
approval of the Reorganization.
The enclosed Proxy Statement and Prospectus describes the proposed
Reorganization and compares, among other things, the investment objectives and
strategies and operating expenses of your Fund and the Buying Fund. You should
review the enclosed materials carefully.
As stated above, after careful consideration the Board approved the
Agreement and the proposed Reorganization. They recommend that you vote FOR the
proposal.
Your vote is important. Please take a moment after reviewing the enclosed
materials to sign and return your proxy card in the enclosed postage paid return
envelope. If you attend the meeting, you may vote in person. If you expect to
attend the meeting in person, or have questions, please notify us by calling
(800) 952-3502. You may also vote by telephone or through a website established
for that purpose by following the instructions that appear on the enclosed proxy
card. If we do not hear from you after a reasonable amount of time, you may
receive a telephone call from our proxy solicitor, Computershare Fund Services,
reminding you to vote.
Sincerely,
/s/ Philip A. Taylor
- ------------------------------------
Philip A. Taylor
President
AIM SELECT REAL ESTATE INCOME FUND,
A PORTFOLIO OF AIM SELECT REAL ESTATE INCOME FUND
11 GREENWAY PLAZA, SUITE 100
HOUSTON, TEXAS 77046-1173
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON FEBRUARY 26, 2007
We cordially invite you to attend our Special Meeting of Shareholders to:
1. Approve an Agreement and Plan of Reorganization (the "Agreement") which
provides for the reorganization of AIM Select Real Estate Income Fund (the
"Fund"), which is structured as a closed-end, exchange-traded fund into an
open-end, multiple class fund that permits redemptions of its shares at net
asset value on a daily basis. Pursuant to the Agreement, all of the assets of
the Fund, an investment portfolio of AIM Select Real Estate Income Fund (the
"Trust"), will be transferred to AIM Select Real Estate Income Fund (the "Buying
Fund"), an investment portfolio of AIM Counselor Series Trust (the "Buyer") (the
"Reorganization"). The Buying Fund will assume the liabilities of the Fund and
the Buyer will issue shares of the Buying Fund to the Fund who shall distribute
Class A shares of the Buying Fund to shareholders of Common Shares of the Fund
as of the effective time of the Reorganization.
2. Transact any other business, not currently contemplated, that may
properly come before the Special Meeting, in the discretion of the proxies or
their substitutes.
We are holding the Special Meeting at 11 Greenway Plaza, Suite 100,
Houston, Texas 77046-1173 on February 26, 2007 at 3:00 p.m., Central Time.
Shareholders of record of Common Shares of the Fund as of the close of
business on December 1, 2006 are entitled to notice of, and to vote at, the
Special Meeting or any adjournment of the Special Meeting.
We request that you execute and return promptly in the enclosed envelope
the accompanying proxy card, which is being solicited by the Board of Trustees
for your Fund. You may also vote by telephone or through a website established
for that purpose by following the instructions on the enclosed proxy materials.
Your vote is important for the purpose of ensuring a quorum at the Special
Meeting. You may revoke your proxy at any time before it is exercised by
executing and submitting a revised proxy card, by giving written notice of
revocation to the Secretary of Trust or by voting in person at the Special
Meeting.
/s/ John M. Zerr
- ------------------------------------
John M. Zerr
Secretary
December __, 2006
AIM SELECT REAL ESTATE INCOME FUND, AIM SELECT REAL ESTATE INCOME FUND,
A PORTFOLIO OF A PORTFOLIO OF
AIM SELECT REAL ESTATE INCOME FUND AIM COUNSELOR SERIES TRUST
11 GREENWAY PLAZA, SUITE 100 11 GREENWAY PLAZA, SUITE 100
HOUSTON, TEXAS 77046-1173 HOUSTON, TEXAS 77046-1173
(800) 347-4246 (800) 347-4246
(YOUR FUND) (BUYING FUND)
COMBINED PROXY STATEMENT AND PROSPECTUS
DECEMBER __, 2006
This document is a combined Proxy Statement and Prospectus ("Proxy
Statement/Prospectus"). We are sending you this Proxy Statement/Prospectus in
connection with the Special Meeting of Shareholders (the "Special Meeting") of
your Fund, AIM Select Real Estate Income Fund. The Special Meeting will be held
on February 26, 2007 at 3:00 p.m., Central Time. We intend to mail this Proxy
Statement/Prospectus, the enclosed Notice of Special Meeting of Shareholders and
the enclosed proxy card on or about December __, 2006 to all shareholders
entitled to vote at the Special Meeting.
At the Special Meeting, we are asking shareholders of Common Shares of your
Fund to consider and approve an Agreement and Plan of Reorganization (the
"Agreement") that provides for the reorganization of your Fund, an investment
portfolio of AIM Select Real Estate Income Fund (the "Trust"), into AIM Select
Real Estate Income Fund (the "Buying Fund"), an investment portfolio of AIM
Counselor Series Trust (the "Buyer") (the "Reorganization"). The principal
purpose of the Reorganization is to reorganize your Fund, which is structured as
a closed-end, exchange-traded fund, into the Buying Fund, which is structured as
an open-end, multiple class fund that permits redemptions of shares on a daily
basis at their net asset value ("NAV").
Under the Agreement, all of the assets of your Fund will be transferred to
the Buying Fund, the Buying Fund will assume the liabilities of your Fund and
the Buyer will issue Class A shares of the Buying Fund to your Fund who shall
distribute such Class A shares to the holders of the Common Shares of your Fund.
If shareholders approve the Reorganization, you will receive Class A shares
of the Buying Fund in connection with the Reorganization equal to the number of
Common Shares of your Fund that you own immediately prior to the Reorganization.
The Class A shares of the Buying Fund issued to you in the Reorganization will
have an aggregate net asset value equal to the aggregate net asset value of the
Common Shares of your Fund that you own at the effective time of the
Reorganization. As a result, the value of your account with Buying Fund
immediately after the Reorganization will be the same as the net asset value of
your account with your Fund immediately prior to the Reorganization. The
Reorganization has been structured as a tax-free transaction. No sales charges
will be imposed in connection with the Reorganization. The Buying Fund will be
subject to a temporary 2.00% redemption fee applicable to any of its Class A
shares received in connection with the Reorganization that are redeemed,
including redemptions by exchange, during the 12 month period following the
closing date of the Reorganization.
The Board of Trustees of the Trust (the "Board") has approved the Agreement
and the Reorganization as being advisable and in the best interests of your
Fund.
A I M Advisors, Inc. ("AIM") serves as the investment advisor to both your
Fund and the Buying Fund. INVESCO Institutional (N.A.), Inc. (the "Sub-Advisor")
serves as sub-adviser to both your Fund and the Buying Fund. AIM and the
Sub-Advisor are both indirect wholly-owned subsidiaries of AMVESCAP PLC
("AMVESCAP"), an independent global investment management company.
Your Fund and Buying Fund have the same investment objectives. Both seek to
provide high current income and, secondarily, capital appreciation. The Buying
Fund will operate with similar investment strategies, policies and restrictions
as currently exist for your Fund. In addition, the Buying Fund will continue to
invest primarily in the equity and debt securities of companies principally
engaged in the real estate industry after the Reorganization occurs. See "How Do
the Investment Objectives and Principal Strategies of Your Fund Compare to the
Buying Fund."
i
This Proxy Statement/Prospectus sets forth the information that you should
know before voting on the Agreement. It is both the Proxy Statement of your Fund
and the Prospectus of the Buying Fund. You should read and retain this Proxy
Statement/Prospectus for future reference.
The Prospectus of Buying Fund dated December 6, 2006, (the "Buying Fund
Prospectus"), and the related Statement of Additional Information dated December
6, 2006, and the Statement of Additional Information relating to the
Reorganization dated December __, 2006, are on file with the Securities and
Exchange Commission (the "SEC"). The Buying Fund Prospectus is incorporated by
reference into this Proxy Statement/Prospectus and a copy of the Buying Fund
Prospectus is attached as Appendix IV to this Proxy Statement/Prospectus. The
Statement of Additional Information relating to the Reorganization dated
December __, 2006, also is incorporated by reference into this Proxy
Statement/Prospectus. The SEC maintains a website at www.sec.gov that contains
the Buying Fund Prospectus and the Statements of Additional Information
described above, material incorporated by reference, and other information about
the Trust and the Buyer.
Copies of the Buying Fund's Statement of Additional Information are
available without charge by writing to A I M Distributors, Inc., 11 Greenway
Plaza, Suite 100, Houston, Texas 77046-1173, or by calling (800) 959-4246.
Additional information about your Fund may be obtained at
www.aiminvestments.com.
The Trust has previously sent to shareholders the most recent annual report
for your Fund, including financial statements, and the most recent semi-annual
report succeeding the annual report. If you have not received such reports or
would like to receive an additional copy, please contact A I M Distributors,
Inc., 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173, or by calling
(800) 959-4246. Such reports will be furnished free of charge.
Your Fund's Common Shares are traded on the New York Stock Exchange.
Reports, proxy materials and other information concerning your Fund can be
inspected at the offices of the New York Stock Exchange.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
ii
TABLE OF CONTENTS
PAGE
----
SUMMARY.................................................................. 1
What are the Reasons for the Reorganization........................... 1
What Will Happen if the Reorganization Occurs......................... 1
How Do the Investment Objectives and Principal Strategies of Your Fund
Compare to the Buying Fund......................................... 2
How Does Your Fund's Performance Compare to the Buying Fund's
Performance........................................................ 5
How Do Your Fund's Fees and Expenses Compare to the Buying Fund's Fees
and Expenses....................................................... 6
What is the Buying Fund's Class Structure and Which Class of Buying
Fund Shares Will I Receive in the Reorganization................... 10
What Are the Distribution, Purchase, Redemption and Exchange
Procedures......................................................... 10
What Are The Differences Between Open-End Funds and Closed-End,
Exchange-Traded Funds.............................................. 10
The Board's Recommendation............................................ 13
RISK FACTORS............................................................. 13
What Are the Risks Associated with the Buying Fund.................... 13
What Are the Risks Associated with Your Fund.......................... 16
ADDITIONAL INFORMATION ABOUT THE AGREEMENT............................... 17
What are the Terms of the Reorganization.............................. 17
How and When Will the Reorganization Occur............................ 17
What the Board Considered in Approving the Reorganization............. 17
What Are the Other Terms of the Agreement............................. 21
What Are the Federal Income Tax Consequences of the Reorganization.... 21
What is the Accounting Treatment of the Reorganization................ 22
RIGHTS OF SHAREHOLDERS................................................... 22
Issuance of Senior Securities......................................... 23
Redemptions........................................................... 23
Classified Board...................................................... 23
Anti-Takeover Provisions.............................................. 24
CAPITALIZATION........................................................... 24
LEGAL MATTERS............................................................ 24
PENDING LITIGATION....................................................... 24
ADDITIONAL INFORMATION ABOUT THE BUYING FUND............................. 25
Description of Shares................................................. 25
Other Information..................................................... 25
ADDITIONAL INFORMATION ABOUT YOUR FUND................................... 25
General Information................................................... 25
Description of Common Shares.......................................... 25
Trading History of Common Shares...................................... 26
Management............................................................ 26
Service Providers..................................................... 26
Portfolio Managers.................................................... 27
Your Fund's Dividend Reinvestment Plan................................ 28
Expenses.............................................................. 29
Tax Matters........................................................... 29
INFORMATION FILED WITH THE SECURITIES AND EXCHANGE COMMISSION............ 30
INFORMATION ABOUT THE SPECIAL MEETING AND VOTING......................... 30
Why Did We Send You this Proxy Statement/Prospectus................... 30
When and Where Will the Special Meeting be Held....................... 31
How Do I Vote in Person............................................... 31
How Do I Vote by Proxy................................................ 31
How Do I Vote by Telephone or the Internet............................ 31
What is the Quorum Requirement........................................ 31
Can My Broker Vote Shares for Me...................................... 31
iii
Could There be an Adjournment of the Special Meeting.................. 32
What is the Vote Necessary to Approve the Agreement................... 32
How Will Proxies Be Solicited and Who Will Pay........................ 32
Will Any Other Matters Be Voted on at the Special Meeting............. 32
Who Owns More than 5% of the Shares of Your Fund and the Buying Fund.. 32
Do Executive Officers and Trustees Own Shares of Your Fund and the
Buying Fund........................................................ 32
iv
EXHIBIT A...... Your Fund's Fundamental Policies and Non-Fundamental
Restrictions
EXHIBIT B...... Other Investments of Your Fund and Related Policies
EXHIBIT C...... Common Shares Outstanding of Your Fund on Record Date
EXHIBIT D...... Ownership of Common Shares of Your Fund
APPENDIX I..... Agreement and Plan of Reorganization
APPENDIX II.... Financial Highlights of Your Fund
APPENDIX III... Discussion of Performance of Your Fund
APPENDIX IV.... Prospectus of the Buying Fund
THE AIM FAMILY OF FUNDS, AIM AND DESIGN, AIM, AIM FUNDS, AIM FUNDS AND
DESIGN, AIM INVESTMENTS, AIM INVESTOR, AIM LIFETIME AMERICA, AIM LINK, AIM
INSTITUTIONAL FUNDS, AIMFUNDS.COM, LA FAMILIA AIM DE FONDOS, LA FAMILIA AIM DE
FONDOS AND DESIGN, INVIERTA CON DISCIPLINA, INVEST WITH DISCIPLINE, THE AIM
COLLEGE SAVINGS PLAN, AIM SOLO 401(K), AIM INVESTMENTS AND DESIGN AND YOUR
GOALS. OUR SOLUTIONS. ARE REGISTERED SERVICE MARKS AND AIM BANK CONNECTION, AIM
INTERNET CONNECT, AIM PRIVATE ASSET MANAGEMENT, AIM PRIVATE ASSET MANAGEMENT AND
DESIGN, AIM STYLIZED AND/OR DESIGN, AIM ALTERNATIVE ASSETS AND DESIGN, AND
MYAIM.COM ARE SERVICE MARKS OF A I M MANAGEMENT GROUP INC. AIM TRIMARK IS A
REGISTERED SERVICE MARK OF A I M MANAGEMENT GROUP INC. AND AIM FUNDS MANAGEMENT
INC.
No dealer, salesperson or any other person has been authorized to give any
information or to make any representation other than those contained in this
Proxy Statement/Prospectus, and you should not rely on such other information or
representations.
v
SUMMARY
WHAT ARE THE REASONS FOR THE REORGANIZATION
Your Fund's Common Shares have traded on the New York Stock Exchange (the
"NYSE") at a substantial discount from their net asset value. On August 1, 2006,
the Board determined that it is in the best interests of the holders of your
Fund's Common Shares to reorganize your Fund as an open-end fund, and a press
release was issued that same day announcing the Board's determination. Your
Fund's trading discount narrowed from 13.45% on August 1, 2006 to 4.82% at the
close of business the next trading day, August 2, 2006. On September 19, 2006,
the Board approved the Agreement and the proposed Reorganization, and a press
release was issued that same day announcing the Board's approval. Your fund's
trading discount was 5.06% at the close of business the next trading day,
September 20, 2006. At the close of business on October 11, 2006, your fund's
trading discount was 4.71%.
AIM believes that reorganizing your Fund as an open-end fund (the Buying
Fund) will immediately eliminate your Fund's trading discount at the time the
Reorganization occurs. Furthermore, AIM believes that your Fund's public
announcements on August 1, 2006 and September 19, 2006 already have provided
holders of your Fund's Common Shares with a return benefit as the price of the
Common Shares has increased towards their net asset value. Finally, AIM believes
that the opportunity to open-end your Fund on the terms and schedule that AIM
has established and that the Board has approved, and at AIM's own initiative, is
in the best interests of your Fund and the holders of its Common Shares.
In addition, AIM believes that there is investor demand for an open-end
fund with the Buying Fund's investment objectives and strategies and is
proposing that your Fund be reorganized as an open-end fund to meet that
investor demand. AIM believes that the Buying Fund could be successfully
marketed as an open-end fund over the long term, although no assurance can be
given in this regard.
As stated above, the Board has approved the Agreement and the
Reorganization as being advisable and in the best interests of your Fund. For
information concerning the factors the Board considered in approving the
Agreement, see "Additional Information About the Agreement -- What did the Board
Consider in Approving the Reorganization."
The Reorganization will result in the reorganization of your Fund into the
Buying Fund. Your Fund is a series of the Trust, a Delaware statutory trust, and
is structured as a closed-end, exchange-traded fund. The Buying Fund is a series
of the Buyer, also a Delaware statutory trust, and is structured as an open-end,
multiple class fund that permits redemptions of shares on a daily basis at their
net asset value. Your Fund and the Buying Fund have the same investment
objectives, utilize similar investment strategies and invest in similar
securities. The Buying Fund will continue to invest primarily in the equity and
debt securities of companies principally engaged in the real estate industry
after the Reorganization occurs.
The following summary discusses some of the key features of the
Reorganization and highlights certain differences between your Fund and Buying
Fund. This summary is not complete and does not contain all of the information
that you should consider before voting on whether to approve the Agreement. For
more complete information, please read this entire Proxy Statement/Prospectus.
WHAT WILL HAPPEN IF THE REORGANIZATION OCCURS
If shareholders of your Fund approve the Reorganization and other closing
conditions are satisfied, all of the assets of your Fund will be transferred to
the Buying Fund, the Buying Fund will assume all of the liabilities of your
Fund, and the Buyer will issue Class A shares of the Buying Fund to your Fund
who will distribute such Class A shares to holders of the Common Shares of your
Fund. For a description of certain of the closing conditions that must be
satisfied, see "Additional Information About the Agreement -- What Are the Other
Terms of the Agreement."
If shareholders approve the Reorganization, you will receive Class A shares
of the Buying Fund in connection with the Reorganization equal to the number of
Common Shares of your Fund you own immediately prior to the Reorganization. The
Class A shares of the Buying Fund issued in the Reorganization will have an
aggregate net asset value equal to the value of the net assets of your Fund
transferred to the Buying Fund. The value
1
of your account with the Buying Fund immediately after the Reorganization will
be the same as the net asset value of your account with your Fund immediately
prior to the Reorganization. A copy of the Agreement is attached as Appendix I
to this Proxy Statement/Prospectus. See "Additional Information About the
Agreement."
The Trust and the Buyer will receive an opinion of Ballard Spahr Andrews &
Ingersoll, LLP to the effect that the Reorganization will constitute a tax-free
reorganization for Federal income tax purposes. Thus, shareholders will not have
to pay additional Federal income tax as a result of the Reorganization. See
"Additional Information About the Agreement -- What Are the Federal Income Tax
Consequences of the Reorganization."
No sales charges will be imposed in connection with the Reorganization. The
Buying Fund will be subject to a temporary 2.00% redemption fee applicable to
any of its Class A shares received in connection with the Reorganization that
are redeemed, including redemptions by exchange, during the 12 month period
following the closing date of the Reorganization.
HOW DO THE INVESTMENT OBJECTIVES AND PRINCIPAL STRATEGIES OF YOUR FUND COMPARE
TO THE BUYING FUND
Your Fund and the Buying Fund have the same investment objectives. Both
funds seek to provide high current income and, secondarily, capital
appreciation. The investment objectives of your Fund are classified as
fundamental, which means that they may not be changed by the Board without
shareholder approval. In contrast, the Buying Fund's investment objectives are
classified as non-fundamental, which means that they may be changed by the Board
of Trustees of the Buyer without shareholder approval. The investment strategies
of your Fund and the Buying Fund are similar.
A description of the fundamental and non-fundamental restrictions and
policies applicable to your Fund can be found in Exhibit A. A description of the
fundamental and non-fundamental restrictions and policies applicable to the
Buying Fund can be found in the Buying Fund's Statement of Additional
Information. While your Fund and the Buying Fund have slightly different
approaches to disclosing and characterizing these restrictions and policies,
your Fund and the Buying Fund generally operate under substantially similar
general restrictions and are subject to substantially similar general policies.
There are, however, certain differences between the restrictions applicable to
your Fund and those applicable to the Buying Fund. The Buying Fund, as an
open-end fund, has a fundamental restriction against issuing any senior
securities. Your Fund, as a closed-end fund, has a fundamental restriction that
permits it to issue only certain types and amounts of senior securities. Your
Fund also has a non-fundamental restriction against purchasing securities of
companies for the purposes of exercising control and a non-fundamental
restriction against selling securities short, unless it owns or has the right to
acquire securities equivalent in kind and amount to the securities sold short at
no added cost. The Buying Fund has no such restrictions.
As compared to your Fund, AIM and the Sub-Advisor intend to augment the
Buying Fund's portfolio strategy in an effort to generate an attractive yield,
including increased exposure to preferred stocks and investments in corporate
debt and commercial and residential mortgage-backed securities.
The chart below provides a summary for comparison purposes of the
investment objectives and principal investment strategies of your Fund and the
Buying Fund. You can find more detailed information about the investment
strategies and other investment policies of the Buying Fund in the Buying Fund
Prospectus. You can find more information about other types of investments made
by your Fund and related policies in Exhibit B.
2
YOUR FUND BUYING FUND
--------- -----------
INVESTMENT OBJECTIVES
- - High current income and, secondarily - Same objective.
capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES
CURRENT FUND NEW FUND
------------ --------
- - Invests, normally, at least 90% of - Invests, normally, at least 80% of
its total assets in income-producing its assets in equity and debt
common stocks, preferred shares, securities of companies principally
convertible preferred shares and debt engaged in the real estate industry,
securities issued by real estate including REITs, and other real
companies, including real estate estate-related investments such as
investment trusts ("REITs"). commercial and residential mortgage
backed securities, and commercial
property whole loans.
- - Invests, normally, at least 80% of
its total assets in income-producing
equity securities issued by REITs.
- - Invests between 60% and 70% of its - Invests between 30% and 70% of its
total assets in common stocks issued total assets in common stocks of
by real estate companies. companies principally engaged in the
real estate industry.
- - Invests between 30% and 40% of its - No corresponding strategy.
total assets in preferred shares
issued by real estate companies.
- - Invests up to 5% of its total assets - No corresponding strategy.
in convertible preferred shares of
issued by real estate companies
- - May use leverage in an effort to - No corresponding strategy.
maximize its returns through issuance
of preferred shares, commercial paper
and/or borrowing.
- - May invest up to 20% of its total - May invest up to 30% of its total
assets in non-investment grade assets in non-investment grade
securities including non-investment securities including non-investment
grade preferred stocks and grade preferred stocks and
convertible preferred stocks and convertible preferred stocks and
non-investment grade debt securities non-investment grade debt securities
(commonly known as "junk bonds"). (commonly known as "junk bonds").
- - Only invests in non-investment grade - Same strategy
securities that are rated CCC or
higher by Standard & Poor's or Fitch,
Inc., or rated Caa or higher by
Moody's Investor Service, Inc., or
unrated securities to be deemed to be
of comparable quality.
3
PRINCIPAL INVESTMENT STRATEGIES
CURRENT FUND NEW FUND
------------ --------
- - No corresponding strategy. - May sell securities short, which
means selling a security it does not
yet own in anticipation of purchasing
the same security at a later date at
a lower price.
- The fund will not sell a security
short, if as a result of such short
sale, the aggregate market value of
all securities sold short exceeds 15%
of the fund's net assets.
- - May invest up to 10% of its total - May invest up to 25% of its assets in
assets in foreign securities. foreign securities.
- - May invest up to 10% of its total - May invest up to 15% of its net
assets in illiquid securities. assets in illiquid securities.
- - May not invest more than 10% of its - Same strategy.
total assets in the securities of any
one issuer other than the U.S.
Government.
- - Is non-diversified, meaning that it - Same strategy.
can invest a greater percentage of
its assets in any one issuer than a
diversified fund can.
- - May enter into interest rate swap or - No corresponding strategy.
interest rate cap transactions in
connection with the fund's use of
leverage.
- - May purchase or sell futures - Same strategy.
contracts or options
- - Portfolio managers evaluate - Same strategy.
securities based primarily on the
relative attractiveness of income
with a secondary consideration for
the potential for capital
appreciation.
- - Portfolio managers focus on equity - No corresponding strategy.
REITs.
- - Portfolio managers use an investment - Same strategy.
process that considers real property
market cycle analysis, real property
evaluation and management/issuer
review.
- - Portfolio managers combine - Same strategy.
fundamental research and pricing
factors to identify attractively
priced securities with relatively
favorable long-term prospects.
4
HOW DOES YOUR FUND'S PERFORMANCE COMPARE TO THE BUYING FUND'S PERFORMANCE
The Buying Fund has been formed solely to effect the Reorganization and
currently has no assets. A discussion of the Buying Fund's performance therefore
is not available at this time. The Buying Fund will commence operations upon the
closing of the Reorganization and, at that time, the Buying Fund's Class A
shares will inherit the performance history of your Fund's Common Shares, as
adjusted to reflect the higher internal expenses of the Buying Fund.
The bar charts and performance table below provide an indication of the
risks of investing in your Fund. Your Fund's past performance cannot guarantee
comparable future results.
BAR CHARTS
The following bar chart shows changes in the performance of your Fund's
Common shares from year to year, based on net asset value.
CALENDAR
YEARS %
- -------- -----
2003 51.41%
2004 24.43%
2005 4.44%
During the periods shown in the bar chart, the highest quarterly return
based on the net asset value of your Fund's Common Shares was 19.24% (quarter
ended June 30, 2003) and the lowest quarterly return based on the net asset
value of your Fund's Common Shares was -9.66% (quarter ended June 30, 2004).
The following bar chart shows changes in the performance of your Fund's
Common shares from year to year, based on market price.
CALENDAR
YEARS %
- -------- -----
2003 46.95%
2004 16.89%
2005 2.33%
During the periods shown in the bar chart, the highest quarterly return
based on the market value of your Fund's Common Shares was 13.57% (quarter ended
December 31, 2003) and the lowest quarterly return based on the market value of
your Fund's Common Shares was -11.52% (quarter ended June 30, 2004).
PERFORMANCE TABLE
The following performance table compares the performance of your Fund's
Common Shares, at net asset value and at market price, to those of an unmanaged
broad-based securities market index, a style specific index and a peer group
index. The indices may not reflect payment of fees, expenses or taxes. Your Fund
is not managed to track the performance of any particular index, including the
indices shown below, and consequently, the performance of your Fund may deviate
significantly from the performance of the indices shown below. A fund's
performance is not necessarily an indication of its future performance.
5
AVERAGE ANNUAL TOTAL RETURNS
SINCE
(FOR THE PERIODS ENDED DECEMBER 31, 2005 1-YEAR 5-YEARS INCEPTION INCEPTION DATE
------- ------- --------- --------------
Common Shares at net asset value 4.44% -- 18.37% 05/31/02
Common Shares at market price 2.33% -- 11.94% 05/31/02
S&P 500 Index(1) 4.91% -- 6.35% 05/31/02
FTSE NAREIT US Composite Index(2) 12.16% -- 19.60% 05/31/02
Lipper Closed-End Real Estate Fund Index(3) 7.24% -- -- 12/31/03
- ----------
(1) The S&P 500 Index is a market capitalization weighted index covering all
major areas of the U.S. Economy. It is not the 500 largest companies, but
rather the most widely held 500 companies chosen with respect to market
size, liquidity, and their industry. The index accounts for approximately
70% of the U.S. market. The performance of the S&P 500 is considered one of
the best overall indicators of market performance.
(2) The FTSE NAREIT US Composite Index tracks the performance of equity REITs
listed on the New York Stock Exchange, NASDQ National Market System, and
the American Stock Exchange, as well as all mortgage and hybrid REITs. It
is reweighted and reconstituted monthly.
(3) The Lipper Closed-End Real Estate Fund Index represents an average of the
10 largest funds in Lipper's Closed-End Real Estate Category.
For information about your Fund's financial performance since it commenced
operations, see the financial highlights for your Fund in Appendix II attached
to this Proxy Statement/Prospectus. A discussion of the performance of your Fund
taken from its semi-annual report to shareholders for the semi-annual period
ended June 30, 2006 is set forth as Appendix III to this Proxy
Statement/Prospectus.
HOW DO YOUR FUND'S FEES AND EXPENSES COMPARE TO THE BUYING FUND'S FEES AND
EXPENSES
FEE TABLE
The following fee table shows the shareholder fees and annual operating
expenses, as of December 31, 2005, expressed as a percentage of net assets
("Expense Ratio") of the Common Shares of your Fund and the Pro Forma Combined
Expense Ratio of the Class A shares of the Buying Fund (which has not yet
commenced operations), based on historical data of your Fund and related
projected data for the Class A shares of the Buying Fund after giving effect to
the Reorganization. There is no guarantee that actual expenses will be the same
as those shown in this table.
6
AIM SELECT REAL
AIM SELECT REAL ESTATE INCOME FUND
ESTATE INCOME FUND (BUYING FUND)
(YOUR FUND) PRO FORMA COMBINED
(12/31/05) CLASS A
COMMON SHARES SHARES
------------------ ------------------
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge (Load) Imposed on Purchase (as a
percentage of offering price) 4.50%(1) 5.50%(2)
Maximum Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable) None None(3)
Redemption/Exchange Fee (as a percentage of amount
redeemed/exchanged) None 2.00%(4)
Dividend Reinvestment and Cash Purchase Plan Fees None (5) None
ANNUAL FUND OPERATING EXPENSES(6)
(expenses that are deducted from fund assets)
Management Fees 0.90%(7) 0.74%(8)
Distribution and/or Service (12b-1) Fees None 0.25%
Other Expenses 0.12%(7) 0.29%(9)
Total Annual Fund Operating Expenses 1.02%(7) 1.28%
Fee Waiver 0.20%(7)(10) --
Net Annual Fund Operating Expense 0.82%(7)(11) 1.28%
- ----------
(1) This 4.50% sales charge was imposed only on Common Shares that were
purchased in your Fund's initial public offering. Purchasers of your Fund's
Common Shares on the secondary market do not pay a sales charge.
(2) This 5.50% sales charge is not imposed on Class A shares of the Buying Fund
that are received by holders of your Fund's Common Shares in connection
with the Reorganization.
(3) If you buy $1,000,000 or more of Class A shares and redeem these shares
within 18 months from the date of purchase, you may pay a 1.00% contingent
deferred sales charge (CDSC) at the time of redemption. In addition, if you
are a retirement plan participant and your retirement plan bought
$1,000,000 or more of Class A shares, you may pay 1.00% CDSC if a total
redemption of the retirement plan assets occurs within 12 months from the
date of the retirement plan's initial purchase.
(4) You will be charged a 2.00% redemption fee if you redeem or exchange Class
A shares that you received in connection with the Reorganization during the
12 month period following the closing date of the Reorganization. See
"Summary-How Do Your Fund's Fees and Expenses Compare to the Buying Fund's
Fees and Expenses-Temporary Redemption Fee."
(5) You will be charged a $15.00 service charge and pay brokerage charges if
you direct the Plan Agent to sell your Common Shares held in a dividend
reinvestment account. See "Additional Information About Your - Your Fund's
Dividend Reinvestment Plan."
(6) There is no guarantee that actual expenses will be the same as those shown
in the table.
(7) Fees and expenses of your Fund have been restated to reflect the redemption
by your Fund of all of the outstanding
7
Auction Rate Preferred Shares ("ARPS"). The redemption of all of the
outstanding ARPS was required in order to reorganize your Fund as an
open-end fund, as Section 18(f) of the Investment Company Act of 1940 does
not permit an open-end fund to have a class of shares senior to its common
shares.
(8) Effective upon the close of the Reorganization, the Buying Fund's
contractual advisory fee schedule will be 0.75% of the first $250 million,
plus 0.74% of the next $250 million, plus 0.73% of the next $500 million,
plus 0.72% of the next $1.5 billion, plus 0.71% of the next $2.5 billion,
plus 0.70% of the next $2.5 billion, plus 0.69% of the next $2.5 billion,
plus 0.68% of the Buying Fund's average daily net assets in excess of $10
billion.
(9) Other Expenses of the Buying Fund are based on estimated amounts for the
current period.
(10) AIM has contractually agreed to waive advisory fees for your Fund from
0.90% to 0.60% through June 30, 2007, 0.70% through June 30, 2008 and 0.80%
through June 30, 2009 of your Fund's "managed assets" (which equals average
daily net assets attributable to your Fund's Common Shares, plus assets
attributable to any outstanding ARPS issued by your Fund, plus the
principal amount of your Fund's outstanding borrowings). The Fee Waivers
reflect this agreement.
(11) Your Fund will incur additional one time expenses estimated at $622,000 in
connection with the Reorganization. Since these expenses are a one time
cost and not an ongoing expense, these expenses have not been included in
your Fund's expenses in the table above.
EXPENSE EXAMPLE
The following Example is intended to help you compare the costs of
investing in Common Shares of your Fund and Pro Forma combined costs of Class A
shares of the Buying Fund, after giving effect to the Reorganization, with the
cost of investing in other mutual funds. All costs are based upon the
information set forth in the Fee Table above.
The Example assumes that you invest $10,000 for the time periods indicated
and shows the expenses that you would pay if you redeem all of your shares at
the end of those periods. The Example also assumes that your investment has a 5%
return each year and that the operating expenses remain the same. The Example
reflects fee waivers and/or expense reimbursements that are contractual, if any,
but does not reflect voluntary fee waivers and/or expense reimbursements. To the
extent fees are waived and/or expenses are reimbursed on a voluntary basis, your
expenses will be lower.
The Example also reflects, for your Fund, a 4.50% sales charge that was
imposed only on Common Shares of your Fund that were purchased in your Fund's
initial public offering. Purchasers of your Fund's Common Shares on the
secondary market do not pay a sales charge. For the Buying Fund, the Example
reflects a 5.50% sales charge. This sales charge is not imposed on Class A
shares of the Buying Fund that are received by holders of your Fund's Common
Shares in connection with the Reorganization.
Although your actual returns and costs may be higher or lower, based on
these assumptions your costs would be:
One Three Five Ten
Year Years Years Years
---- ----- ------ ------
AIM SELECT REAL ESTATE INCOME FUND (YOUR FUND)
Common Shares.......................................... $530 $731 $ 960 $1,615
AIM SELECT REAL ESTATE INCOME FUND - PRO FORMA
COMBINED(1)
Class A(2)............................................. $673 $934 $1,214 $2,010
THE EXAMPLE IS NOT A REPRESENTATION OF PAST OR FUTURE EXPENSES. YOUR FUND'S
AND THE BUYING FUND'S ACTUAL EXPENSES, AND AN INVESTOR'S DIRECT AND INDIRECT
EXPENSES, MAY BE MORE OR LESS THAN THOSE SHOWN. THE
8
(1) Shares received in the reorganization are not subject to the 5.50% up front
sales charge, however, they are subject to a 2.00% redemption fee to the
extent that they are redeemed or exchanged within the first 12 months. The
expenses assuming you received your shares in the reorganization and you redeem
your shares at the end of 1 year, 3 years, 5 years or 10 years are $330, $406,
$702, and $1,545, respectively.
(2) The Example does not reflect the 2.00% redemption fee that is imposed on
Class A shares of the Buying Fund received in connection with the
Reorganization if such shares are redeemed during the 12 month period following
the Reorganization.
TABLE AND THE ASSUMPTION IN THE EXAMPLE OF A 5% ANNUAL RETURN ARE REQUIRED BY
REGULATIONS OF THE SEC APPLICABLE TO ALL MUTUAL FUNDS. THE 5% ANNUAL RETURN IS
NOT A PREDICTION OF AND DOES NOT REPRESENT YOUR FUND'S OR THE BUYING FUND'S
PROJECTED OR ACTUAL PERFORMANCE.
THE ACTUAL EXPENSES ATTRIBUTABLE TO EACH CLASS OF A FUND'S SHARES WILL
DEPEND UPON, AMONG OTHER THINGS, THE LEVEL OF AVERAGE NET ASSETS AND THE EXTENT
TO WHICH A FUND INCURS VARIABLE EXPENSES, SUCH AS TRANSFER AGENCY COSTS.
ADVISORY FEES
Pursuant to the investment advisory fee schedule applicable to the Buying
Fund, AIM will receive a monthly fee calculated at the following annual rates,
based on the average daily net assets of the Buying Fund:
Annual Rate Net Assets
- ----------- ------------------
0.75% First $250 million
0.74% Next $250 million
0.73% Next $500 million
0.72% Next $1.5 billion
0.71% Next $2.5 billion
0.70% Next $2.5 billion
0.69% Next $2.5 billion
0.68% Over $10 billion
The contractual advisory fee schedule for the Buying Fund set forth above
is lower than the current contractual advisory fee rate for your Fund, which is
0.90% of "managed assets" (which equals average daily net assets attributable to
your Fund's Common Shares plus assets attributable to any outstanding Auction
Rate Preferred Shares issued by your Fund, plus the principal amount of your
Fund's outstanding borrowings). As a result, after giving effect to the
Reorganization, the contractual advisory fees will be reduced. However, as a
result of certain contractual advisory fee waivers that are in effect for your
Fund, which are discussed below, and which will not be continued on the Buying
Fund, the net effective advisory fee rate paid by the Buying Fund immediately
after the consummation of the Reorganization will be higher than the net
effective advisory rate paid by your Fund immediately prior to the
Reorganization.
AIM has contractually agreed to waive advisory fees for your Fund from
0.90% to 0.60% through June 30, 2007, 0.70% through June 30, 2008 and 0.80%
through June 30, 2009 as a percentage of managed assets. These waivers will not
be continued on Buying Fund after the Reorganization. Based on the amount of net
assets attributable to your Fund's Common Shares, the effective advisory fee
rate for the Buying Fund immediately after the consummation of the
Reorganization is estimated to be 0.74%.
AIM has voluntarily agreed to waive advisory fees of your Fund in the
amount of 25% of the advisory fee AIM receives from the affiliated money market
funds on investments by your Fund in such affiliated money market funds. AIM is
also voluntarily waiving a portion of the advisory fee payable by your Fund
equal to the difference between the income earned from investing in the
affiliated money market fund and the hypothetical income earned from investing
in an appropriate comparative benchmark. Voluntary fee waivers or reimbursements
may be modified or discontinued at any time upon consultation with the Board
without further notice to investors. The voluntary waiver will be continued for
the Buying Fund.
SUB-ADVISORY FEES
AIM (and not the Buying Fund) will pay the Sub-Advisor a fee computed daily
and paid monthly, at a rate of 40% of AIM's compensation on the sub-advised
assets. AIM (and not your Fund) currently pays the Sub-Adviser a fee, computed
daily and paid monthly, at a rate of 50% of AIM's compensation on the
sub-advised assets.
DISTRIBUTION AND SERVICE FEES
Because your Fund is a closed-end fund traded on the NYSE, you do not pay
distribution or service fees.
9
The distribution plan for Class A shares of the Buying Fund permits total
payments of monthly distribution and service fees (12b-1 fees) to the Buying
Fund's distributor, A I M Distributors, Inc. (the "Distributor"), of up to 0.25%
per annum, of the average daily net assets attributable to Class A shares of the
Buying Fund as set forth below:
Asset Based Maximum
Sales Charge Service Fee Aggregate Fee
------------ ----------- -------------
Class A shares 0.00% 0.25% 0.25%
The fees are calculated annually based on the average daily net assets
attributable to Class A shares of the Buying Fund.
TEMPORARY REDEMPTION FEE
The Buying Fund will be subject to a temporary 2.00% redemption fee
applicable to any of its Class A shares received in connection with the
Reorganization that are redeemed, including redemptions by exchange, during the
12 month period following the closing date of the Reorganization. The redemption
fee, which would be paid to the Buying Fund, would apply only to holders of your
Fund's Common Shares who received Class A shares of the Buying Fund in the
Reorganization. The redemption fee would not apply to Class A shares of the
Buying Fund that were purchased after the closing date of the Reorganization.
The redemption fee is to be retained by the Buying Fund to offset transaction
costs and other expenses associated with redemptions or exchanges.
The temporary redemption fee is designed, in part, to stabilize outflows
from the Buying Fund after the Reorganization and to deter arbitrage trades by
investors seeking to profit from the difference between the cost of purchasing
Common Shares of your Fund at a discount to NAV, and the proceeds of redeeming
Class A shares of the Buying Fund at NAV following the Reorganization. To the
extent that arbitrage and other short-term trading still occurs, the temporary
redemption fee would protect the Buying Fund and its long-term shareholders by
recouping for the Buying Fund some of the costs of the arbitrage-related
redemptions and exchanges. The temporary redemption fee may also offset to some
extent some of the direct and indirect costs associated with the Reorganization.
SALES CHARGES
Purchasers in the initial offering of your Fund's Common Shares paid a
4.50% sales charge. Purchasers of your Fund's Common Shares on the NYSE do not
pay a sales charge. Although, they may pay a brokerage commission in connection
with such purchase.
Class A shares of the Buying Fund are subject to a maximum 5.50% initial
sales charge, which may be waived for certain categories of investors. If an
investor purchased Class A shares without paying the initial sales charge, a
contingent deferred sales charge (CDSC) may apply in some cases upon redemption.
The CDSC on redemptions of shares of the Buying Fund are computed based on
the lower of their original purchase price or current net asset value, net of
reinvested dividends and capital gains distributions.
The fee table above includes information about maximum initial sales
charges on purchases of Class A shares of the Buying Fund. For more detailed
information on initial sales charges, including volume purchase breakpoints and
waivers, see the Buying Fund Prospectus and the related Statement of Additional
Information.
WHAT IS THE BUYING FUND'S CLASS STRUCTURE AND WHICH CLASS OF BUYING FUND SHARES
WILL I RECEIVE IN THE REORGANIZATION
The Buying Fund will offer Class A, Class B, Class C and Institutional
Class shares. Your Fund has only one class of shares (Common Shares)
outstanding. Class A shares of the Buying Fund will have rights that are
identical to the Class A shares of the other retail investment companies that
have AIM as an investment advisor (the "AIM Funds"). AIM believes that
introducing these additional share classes of the Buying Fund will facilitate
new purchases after the Reorganization.
10
Holders of your Fund's Common Shares will receive Class A shares of the
Buying Fund upon the Reorganization. As a result, the only class of shares of
the Buying Fund described in this Proxy Statement/Prospectus are Class A shares.
WHAT ARE THE DISTRIBUTION, PURCHASE, REDEMPTION AND EXCHANGE PROCEDURES
DISTRIBUTION
Because your Fund is a closed-end fund traded on the NYSE, it does not
currently have an underwriting or distribution agreement with a distributor to
distribute its Common Shares. Shares of the Buying Fund are distributed by the
Distributor, a registered broker-dealer and wholly owned subsidiary of AIM.
As discussed above, the Buying Fund has adopted a distribution plan that
allows for the payment of distribution and service fees (12b-1 fees) to the
Distributor for the sale and distribution of its Class A shares. The fee table
above includes information about the 12b-1 fees payable by Class A shares of the
Buying Fund.
PURCHASES
Unlike open-end funds, closed-end funds such as your Fund do not
continuously offer their shares. Rather, an investor may purchase Common Shares
of your Fund by trading on the NYSE through a broker or otherwise.
Class A shares of the Buying Fund are continuously offered and may be
purchased each business day via the following methods: (a) through a financial
advisor; (b) by mail; (c) by wire; (d) by telephone (other than an initial
purchase); or (e) via the Internet (other than an initial purchase). For
additional information regarding purchasing shares of the Buying Fund, see the
Buying Fund Prospectus.
REDEMPTIONS AND REPURCHASES
Unlike shareholders of open-end funds, shareholders of closed-end funds
such as your Fund do not have the right to cause your Fund to redeem or
repurchase their shares on a daily basis or otherwise. Rather, an investor may
sell Common Shares of your Fund by trading on the NYSE through a broker or
otherwise.
Class A shares of the Buying Fund are redeemable on a daily basis and may
be redeemed each business day via the following methods: (a) through a financial
advisor; (b) by mail; (c) by wire; (d) by telephone; or (e) via the Internet.
For additional information regarding redeeming shares of the Buying Fund, see
the Buying Fund Prospectus.
EXCHANGES
There are no exchange privileges associated with your Fund's Common Shares.
Class A shares of the Buying Fund may generally be exchanged for Class A
shares of other AIM Funds. For additional information regarding the exchange
privileges applicable to Class A shares of the Buying Fund, see the Buying Fund
Prospectus.
WHAT ARE THE DIFFERENCES BETWEEN OPEN-END FUNDS AND CLOSED-END, EXCHANGE-TRADED
FUNDS
GENERAL
Open-end investment companies, commonly referred to as mutual funds, issue
redeemable securities. The holders of redeemable securities have the right to
surrender those securities to the mutual fund and obtain in return an amount
based on their proportionate share of the value of the mutual fund's net assets.
Most mutual funds also continuously issue new shares to investors at a price
based on the fund's NAV at the time of issuance. Such a fund's NAV per share is
determined by deducting the amount of its liabilities from the value of its
assets and dividing the difference by the number of shares outstanding.
In contrast, closed-end investment companies that are traded on an
exchange, such as your Fund, generally do not engage in continuous sales of
securities and do not permit daily redemptions or repurchases of their
11
outstanding shares. Thus they operate with a relatively fixed capitalization.
Closed-end, exchange-traded funds may offer shareholders limited liquidity
because shares are purchased and sold based on secondary market quotations and
shares may trade at a discount to their net asset value.
Some of the legal and practical differences between operations of your Fund
as a closed-end, exchange-traded fund versus an open-end, multiple class mutual
fund (the Buying Fund) are as follows:
ACQUISITION AND DISPOSITION OF SHARES
If your Fund is reorganized as an open-end investment company, you would be
able to redeem all or a portion of your shares daily. Shareholders desiring to
realize the value of their shares would be able to do so by exercising their
right to have such shares redeemed by the Buying Fund at the next determined
current NAV, less sales charges or redemption fees (as described above). Like
your Fund, the Buying Fund's NAV per share is calculated by dividing (i) the
value of its portfolio securities plus all cash and other assets (including
interest and dividends accrued but not collected) less all liabilities
(including accrued expenses) by (ii) the number of outstanding shares of the
Buying Fund. Open-end investment companies generally value their assets on each
business day in order to determine the current NAV on the basis of which their
shares may be redeemed by stockholders or purchased by investors. It is
anticipated that the NAV of the Buying Fund will be published daily by leading
financial publications and available on the Internet.
PORTFOLIO MANAGEMENT
Because your Fund does not repurchase its shares, it may generally keep all
of its assets fully invested and make investment decisions without having to
adjust for cash outflows from repurchases of its shares. In contrast, open-end
investment companies may be subject to pressure to sell portfolio securities at
disadvantageous times or prices in order to satisfy redemption requests. So that
the Buying Fund does not have to liquidate portfolio securities at
disadvantageous times, it has arranged a credit facility with a bank which
permits it to borrow money to handle redemption requests. To the extent that the
Buying Fund borrows, it will incur interest costs. To the extent that the Buying
Fund holds larger reserves of cash or cash equivalents to have funds available
to handle redemption requests, the Buying Fund's investment flexibility and the
scope of its investment opportunities could be reduced. The Buying Fund may have
to sell portfolio securities in order to accommodate the need for larger
reserves of cash or cash equivalents. This may increase transaction costs and
portfolio turnover. In addition, the sale of securities may generate taxable
gains or losses which must be distributed to shareholders.
EXPENSES: COSTS OF OPERATING AN OPEN-END FUND
While it is not possible to predict, your Fund's expenses are expected to
increase as a result of open-ending. This is due mainly to the transfer agency,
custodial, and brokerage expenses, associated with the daily issuance and
redemption of fund shares. It is anticipated that transfer agency expenses will
be higher because they reflect the internalization of the handling of
shareholder transactions. It is anticipated that custodial expenses will also be
higher as the Buying Fund will have more active trading to meet daily cash flow
needs resulting in additional custodial-related settlement expenses.
Furthermore, shareholder transaction expenses for your Fund are paid in the form
of a brokerage commission which is not reflected in your Fund's expenses.
Lastly, the Buying Fund will be engaged in a continuous offering of its shares
unlike your Fund, and will bear the distribution, legal and share registration
expenses associated with maintaining an effective registration statement and the
conducting of a continuous public offering.
Also, open-ending could result in immediate, substantial redemptions and
hence a marked reduction in the size of the Buying Fund. Such reduction in the
size of the Buying Fund could result in an increase in each shareholder's pro
rata share of the costs and expenses of the Buying Fund. To the extent that the
Buying Fund borrows from a bank to meet redemption requests, it will incur
interest costs, which will increase the expenses of the Buying Fund.
Accordingly, the Buying Fund's expense ratio could increase.
As an open-end fund, it is not possible to know whether the Buying Fund
will experience net redemptions or net purchases, or over what time period
either would occur. An asset base of decreased size could produce less income
than is currently being produced. Significant net redemptions could also render
the Buying Fund an uneconomical venture by virtue of diminished size. In the
event the Buying Fund were to become too small to be
12
considered economically viable, the Board of Trustees of the Buyer might
consider alternatives to continuing the Buying Fund's operations, ranging from
the merger of the Buying Fund with another investment company to liquidation of
the Buying Fund. The Buying Fund has no plans to pursue such alternatives at
this time, and any such merger or liquidation would require shareholder
approval.
SENIOR SECURITIES AND BORROWING
The Investment Company Act of 1940, as amended (the "1940 Act"), prohibits
open-end investment companies such as the Buying Fund from issuing "senior
securities" representing indebtedness i.e., bonds, debentures, notes and other
similar securities. Closed-end investment companies such as your Fund, on the
other hand, are permitted to issue senior securities representing indebtedness
to any lender if the 300% asset coverage is met. In addition, closed-end
investment companies may issue preferred stock (subject to various limitations),
whereas open-end investment companies generally may not issue preferred stock.
This ability to issue senior securities may give closed-end investment companies
more flexibility than open-end investment companies in "leveraging" their
assets. Neither the Board nor AIM believes that the more restrictive policies
which would govern the Buying Fund as an open-end investment company will
materially affect the ability of the Buying Fund to carry out its investment
program.
QUALIFICATION AS A REGULATED INVESTMENT COMPANY
Your Fund intends to continue to qualify for treatment as a regulated
investment company under the Internal Revenue Code of 1986, as amended (the
"Code") and to distribute substantially all of the Buying Fund's taxable
earnings to shareholders after its reorganization to open-end status, so that it
will continue to be relieved of Federal income tax on that part of its
investment company taxable income and net capital gain that is distributed to
its shareholders.
EXCESSIVE SHORT-TERM TRADING ACTIVITY
Unlike closed-end investment companies, open-end investment companies may
be subject to adverse effects from excessive short-term trading activities.
Excessive short-term trading activity is a purchase of fund shares followed
shortly thereafter by a redemption of fund shares, or vice versa. Due to the
disruptive nature of this activity, it can adversely impact the ability of the
Buying Fund's investment adviser to invest assets, in an orderly, long-term
manner, which in turn, may adversely impact the performance of the Buying Fund.
The Buying Fund has adopted polices and procedures designed to discourage
excessive or short-term trading of the Buying Fund's shares. See "Shareholder
Information-Excessive Short-Term Trading Activity Disclosures" in the Buying
Fund Prospectus attached as Appendix IV.
ANNUAL SHAREHOLDER MEETINGS
Your Fund is required to hold annual shareholder meetings as a condition
for its Common Shares to remain listed on the NYSE. As an open-end fund that is
not traded on the NYSE or any other exchange, the Buying Fund does not intend to
hold annual shareholder meetings.
THE BOARD'S RECOMMENDATION
The Board, including the independent trustees of your Fund, unanimously
recommends that you vote "FOR" this Proposal. For information concerning the
factors the Board considered in approving the Agreement, see "Additional
Information About the Agreement - What the Board Considered in Approving the
Reorganization," beginning on page 17 of this Proxy Statement/Prospectus.
RISK FACTORS
WHAT ARE THE RISKS ASSOCIATED WITH THE BUYING FUND
The Buying Fund is subject to the principal risks set forth below.
13
There is a risk that you could lose all or a portion of your investment in
the Buying Fund and that the income you may receive from your investment may
vary. The value of your investment in the Buying Fund will go up and down with
the prices of the securities in which the Buying Fund invests.
Market Risk - The prices of and the income generated by securities held by
the fund may decline in response to certain events, including those directly
involving the companies whose securities are owned by the fund; general economic
and market conditions; regional or global economic instability, and currency and
interest rate fluctuations. Certain securities selected for the fund's portfolio
may decline in value more than the overall stock market. In general, the
securities of small companies are more volatile than those of mid-size companies
or large companies.
Equity Securities Risk - The prices of equity securities change in response
to many factors including the historical and prospective earnings of the issuer,
the value of its assets, general economic conditions, interest rates, investor
perceptions and market liquidity.
Real Estate Risk - Because the fund concentrates its assets in the real
estate industry, an investment in the fund will be closely linked to the
performance of the real estate markets. Property values may fall due to
increasing vacancies or declining rents resulting from economic, legal, cultural
or technological developments.
Real estate company share prices may drop because of the failure of
borrowers to pay their loans and poor management. Many real estate companies,
including REITs, utilize leverage (and some may be highly leveraged), which
increases investment risk and could adversely affect a real estate company's
operations and market value in periods of rising interest rates. Financial
covenants related to real estate company leveraging may affect the company's
ability to operate effectively. Real estate risks may also arise where real
estate companies fail to carry adequate insurance, or where a real estate
company may become liable for removal or other costs related to environmental
contamination.
Real estate companies tend to be small to medium-sized companies. Real
estate company shares, like other smaller company shares, can be more volatile
than, and perform differently from, larger company shares. There may be less
trading in a smaller company's shares, which means that buy and sell
transactions in those shares could have a larger impact on the share's price
than is the case with larger company shares.
The fund could conceivably hold real estate directly if a company defaults
on debt securities the fund owns. In that event, an investment in the fund may
have additional risks relating to direct ownership in real estate, including
environmental liabilities, difficulties in valuing and selling real estate,
declines in the value of the properties, risks relating to general and local
economic conditions, changes in the climate for real estate, increases in taxes,
expenses and costs, changes in laws, casualty and condemnation losses, rent
control limitations and increases in interest rates.
The value of a fund's investment in REITs is affected by the factors listed
above, as well as the management skill of the persons managing the REIT. Because
REITs have expenses of their own, the fund will bear a proportionate share of
those expenses.
Foreign Securities Risk - Foreign securities have additional risks,
including fluctuations in the value of the U.S. dollar relative to the values of
other currencies, relatively low market liquidity, decreased publicly available
information about issuers, inconsistent and potentially less stringent
accounting, auditing and financial reporting requirements and standards of
practice comparable to those applicable to domestic issuers, expropriation,
nationalization or other adverse political or economic developments and the
difficulty of enforcing obligations in other countries. Investments in foreign
securities may also be subject to dividend withholding or confiscatory taxes,
currency blockage and/or transfer restrictions.
Mortgage-Backed Securities Risk - These securities are subject to
prepayment or call risk, which is the risk that payments from the borrower may
be received earlier or later than expected due to changes in the rate at which
the underlying loans are prepaid. Faster prepayments often happen when market
interest rates are falling. As a result, the fund may need to reinvest these
early payments at lower interest rates, thereby reducing its income. Conversely,
when interest rates rise, prepayments may happen more slowly, causing the
underlying loans to be
14
outstanding for a longer time, which can cause the market value of the security
to fall because the market may view its interest rate as too low for a
longer-term investment.
Interest Rate Risk - Interest rate risk is the risk that fixed-income
investments such as preferred stocks and debt securities, and to a lesser extent
dividend-paying common stocks such as REIT common shares, will decline in value
because of changes in interest rates. When market interest rates rise, the
market value of such securities generally will fall. The fund's investment in
such securities means that the net asset value of its shares will tend to
decline if market interest rates rise. Falling interest rates may also prompt
some issuers to refinance existing debt possibly causing the fund to reinvest in
debt securities with lower interest rates causing your investment in the fund to
lose value.
Credit Risk - Credit risk is the risk of loss on an investment due to the
deterioration of an issuer's financial health. Such a deterioration of financial
health may result in a reduction of the credit rating of the issuer's securities
and may lead to the issuer's inability to honor its contractual obligations
including making timely payment of interest and principal. Credit ratings are a
measure of credit quality. Although a downgrade or upgrade of a bond's credit
ratings may or may not affect its price, a decline in credit quality may make
bonds less attractive, thereby driving up the yield on the bond and driving down
the price. Declines in credit quality can result in bankruptcy for the issuer
and permanent loss of investment.
Lower Rated Security Risk - Securities that are below investment grade are
regarded as having predominately speculative characteristics with respect to the
capacity to pay interest and repay principal. Lower rated securities may be more
susceptible to real or perceived adverse economic and competitive industry
conditions than higher grade securities. The prices of lower-rated securities
have been found to be less sensitive to interest rate changes than more highly
rated investments, but more sensitive to adverse economic downturns or
individual corporate developments. Yields on lower-rated securities will
fluctuate. If the issuer of lower-rated securities defaults, the fund may incur
additional expenses to seek recovery.
The secondary markets in which lower-rated securities are traded may be
less liquid then the market for higher grade securities. Less liquidity in the
secondary trading markets could adversely affect the price at which the fund
could sell a particular lower-rated security when necessary to meet liquidity
needs or in response to a specific economic event, such as a deterioration in
the creditworthiness of the issuer, and could adversely affect and cause large
fluctuations in the net asset value of the fund's shares. Adverse publicity and
investor perceptions may decrease the values and liquidity of high yield
securities.
Concentration Risk - Because the fund concentrates its investments in REITs
and other companies related to the real estate industry, the value of your
shares may rise and fall more than the value of shares of a fund that invests in
a broader range of companies.
Short Sales Risk - If the fund sells a security short, and the security
increases in value, the fund will have to pay the higher price to purchase the
security. Since there is no limit on how much the price of the security can
increase, the fund's exposure is unlimited. The more the fund pays to purchase
the security, the more it will lose on the transaction and the more the price of
your shares will be affected. The fund will also incur transaction costs to
engage in this practice.
Non-Diversification Risk - Because it is non-diversified, the fund may
invest in fewer issuers than if it were diversified. Thus, the value of the
fund's shares may vary more widely, and the fund may be subject to greater
market and credit risk, than if the fund invested more broadly.
Liquidity Risk - A security is considered to be illiquid if the fund is
unable to sell such security at a fair price within a reasonable amount of time.
A security may be deemed illiquid due to a lack of trading volume in the
security or if the security is privately placed and not traded in any public
market or is otherwise restricted from trading. The fund may be unable to sell
its illiquid securities at the time or price it desires and could lose its
entire investment in such securities.
Management Risk - There is no guarantee that the investment techniques and
risk analyses used by the fund's portfolio managers will produce the desired
results.
15
WHAT ARE THE RISKS ASSOCIATED WITH YOUR FUND
Your Fund is subject to all of the principal risks of the Buying Fund that
are set forth above, with the exception of the risks related to engaging in
short sales under the heading "Short Sales Risk." In addition, your Fund is
subject to the principal risks set forth below.
Leverage Risk - Utilization of leverage is a speculative investment
technique and involves certain risks to the holders of Common Shares. These
include the possibility of higher volatility of the net asset value of the
Common Shares and potentially more volatility in the market value of the Common
Shares. So long as the fund is able to realize a higher net return on its
investment portfolio than the then-current cost of any leverage together with
other related expenses, the effect of the leverage will be to cause holders of
Common Shares to realize higher current net investment income than if the fund
were not so leveraged. On the other hand, to the extent that the then-current
cost of any leverage, together with other related expenses, approaches the net
return on the fund's investment portfolio, the benefit of leverage to holders of
Common Shares will be reduced, and if the then-current cost of any leverage were
to exceed the net return on the fund's portfolio, the fund's leveraged capital
structure would result in a lower rate of return to holders of Common Shares
than if the fund were not so leveraged. There can be no assurance that the
fund's leverage strategy will be successful.
Any decline in the net asset value of the fund's investments will be borne
entirely by holders of Common Shares. Therefore, if the market value of the
fund's portfolio declines, the leverage will result in a greater decrease in net
asset value to holders of Common Shares than if the fund were not leveraged.
Such greater net asset value decrease will also tend to cause a greater decline
in the market price for the Common Shares.
Certain types of borrowings may result in the fund being subject to
covenants in credit agreements relating to asset coverages or portfolio
composition or otherwise. In addition, the fund may be subject to certain
restrictions imposed by guidelines of one or more rating agencies which may
issue ratings for commercial paper or notes issued by the fund. Such
restrictions may be more stringent than those imposed by the 1940 Act.
To the extent that the fund is required or elects to redeem any preferred
shares or prepay any borrowings, the fund may need to liquidate investments to
fund such redemptions or prepayments. Liquidation at times of adverse economic
conditions may result in capital loss and reduce returns to holders of Common
Shares. In addition, such redemption or prepayment would likely result in the
fund seeking to terminate early all or a portion of any interest rate swap or
cap.
Interest Rate Transactions Risk - The fund may enter into a swap or cap
transaction to attempt to protect itself from increasing dividend or interest
expenses resulting from increasing short-term interest rates. A decline in
interest rates may result in a decline in net amounts receivable by the fund
from the counterparty under the swap or cap (or an increase in the net amounts
payable by the fund to the counterparty under the swap), which may result in a
decline in the net asset value of the fund.
Risks of Futures and Options on Futures - The use by the fund of futures
contracts and options on futures contracts to hedge interest rate risks involves
special considerations and risks, as described below.
- Successful use of hedging transactions depends upon AIM's or the
Sub-Advisor's ability to correctly predict the direction of changes in
interest rates. While AIM and the Sub-Advisor are experienced in the
use of these instruments, there can be no assurance that any
particular hedging strategy will succeed.
- There might be imperfect correlation, or even no correlation, between
the price movements of a futures or option contract and the movements
of the interest rates being hedged. Such a lack of correlation might
occur due to factors unrelated to the interest rates being hedged,
such as market liquidity and speculative or other pressures on the
markets in which the hedging instrument is traded.
- Hedging strategies, if successful, can reduce risk of loss by wholly
or partially offsetting the negative effect of unfavorable movements
in the interest rates being hedged. However, hedging
16
strategies can also reduce opportunity for gain by offsetting the
positive effect of favorable movements in the hedged interest rates.
- There is no assurance that a liquid secondary market will exist for
any particular futures contract or option thereon at any particular
time. If the fund were unable to liquidate a futures contract or an
option on a futures contract position due to the absence of a liquid
secondary market or the imposition of price limits, it could incur
substantial losses. The fund would continue to be subject to market
risk with respect to the position.
- There is no assurance that the fund will use hedging transactions. For
example, if the fund determines that the cost of hedging will exceed
the potential benefit to the fund, the fund will not enter into such
transaction.
Market Price Discount from Net Asset Value - Shares of closed-end
investment companies frequently trade at a discount from their net asset value.
This characteristic is a risk separate and distinct from the risk that the
fund's net asset value could decrease as a result of its investment activities
and may be greater for investors expecting to sell their shares in a relatively
short period following completion of this offering. Whether investors realize
gains or losses upon the sale of the Common Shares depends not upon the fund's
net asset value but upon whether the market price of the Common Shares at the
time of sale is above or below the investor's purchase price for the Common
Shares. Because the market price of the Common Shares is determined by factors
such as relative supply of and demand for the Common Shares in the market,
general market and economic conditions, and other factors beyond the control of
the fund, the fund cannot predict whether the Common Shares will trade at, below
or above net asset value.
ADDITIONAL INFORMATION ABOUT THE AGREEMENT
WHAT ARE THE TERMS OF THE REORGANIZATION
The terms and conditions under which the Reorganization may be consummated
are set forth in the Agreement. Significant provisions of the Agreement are
summarized below; however, this summary is qualified in its entirety by
reference to the Agreement, a copy of which is attached as Appendix I to this
Proxy Statement/Prospectus.
HOW AND WHEN WILL THE REORGANIZATION OCCUR
Consummation of the Reorganization (the "Closing") is expected to occur on
March 12, 2007 (the "Effective Time"). At the Effective Time, all of the assets
of your Fund will be delivered to the Buyer's custodian for the account of the
Buying Fund in exchange for the assumption by the Buying Fund of the liabilities
of your Fund and delivery by the Buyer to your Fund (for distribution to
shareholders) of a number of Class A shares of the Buying Fund equal to the
number of Common Shares of your Fund, (including, if applicable, fractional
shares rounded to the nearest thousandth), determined and adjusted as provided
in the Agreement. Upon delivery of such assets, the Buying Fund will receive
good and marketable title to such assets free and clear of all liens.
The Buying Fund will proceed with the Reorganization if the shareholders of
your Fund approve the Agreement.
Following receipt of the requisite shareholder vote and as soon as
reasonably practicable after the Closing, the status of your Fund as a
designated series of the Trust will be terminated in accordance with the Trust's
Second Amended and Restated Agreement and Declaration of Trust and Amended and
Restated Bylaws and the Delaware Statutory Trust Act.
WHAT THE BOARD CONSIDERED IN APPROVING THE REORGANIZATION
At a telephonic Board meeting on August 1, 2006, the Board determined that
it is in the best interests of the holders of your Fund's Common Shares to
reorganize your Fund as an open-end fund, and a press release was issued that
same day announcing the Board's determination. The Board considered the
Reorganization in detail at an in-person Board meeting held on September 18-20,
2006 (the "September Board Meeting"). After careful
17
consideration and after weighing the pros and cons of the Reorganization, the
Board determined that the Reorganization is advisable and in the best interests
of your Fund and will not dilute the interests of shareholders. Accordingly, the
Board unanimously approved the Agreement and the Reorganization on September 19,
2006.
At the September Board Meeting, the Board received from AIM written
materials that contained information concerning your Fund and the Buying Fund,
including management of your Fund and the Buying Fund, comparative fee and
expense information, a comparison of investment objectives and strategies of
your Fund and the Buying Fund and pro forma expense ratios for your Fund giving
effect to the Reorganization. AIM also provided the Board with written materials
concerning the structure of the proposed Reorganization and the Federal tax
consequences of the Reorganization. In addition, AIM committed to provide the
Board with a follow-up report approximately one year after the consummation of
the Reorganization that shows the actual costs and expenses of the
Reorganization versus the projected costs and expenses.
In evaluating the Reorganization, the Board considered a number of factors,
including:
- The structure of your Fund as a closed-end, exchange-traded fund and
the structure of the Buying Fund as an open-end, multiple class fund.
- The marketability of your Fund as compared to the marketability of the
Buying Fund.
- The investment objectives and principal investment strategies of your
Fund and the Buying Fund.
- The expenses of your Fund and the pro forma expenses of the Buying
Fund after giving effect to the Reorganization.
- The consequences of the Reorganization for Federal income tax
purposes.
- Any fees and expenses that will be borne directly or indirectly by
your Fund or the Buying Fund in connection with the Reorganization.
- The projected financial impact to AIM and its affiliates of the
Reorganization.
- Possible alternatives to the Reorganization.
Each of these factors is discussed more fully below.
STRUCTURE AND MARKETABILITY OF YOUR FUND AND THE BUYING FUND
The Board noted that AIM had proposed the Reorganization in order to
eliminate the discount to NAV at which Common Shares of your Fund have been
trading, allowing holders of Common Shares to redeem their Common Shares at NAV
upon the Reorganization. The Board also noted AIM's belief that the opportunity
to open-end your Fund on the terms and schedule that AIM has established and
that the Board has approved is preferable to being forced to open-end by a
dissident shareholder, and that open-ending at AIM's initiative is in the best
interests of your Fund and the holders of its Common Shares. Finally, the Board
noted AIM's belief that there is investor demand for an open-end fund with the
Buying Fund's investment objectives and strategies and that the Buying Fund
could be successfully marketed as an open-end fund over the long term, although
no assurance can be given in this regard.
In reaching its determination to reorganize your Fund as an open-end fund,
the Board considered the proposed class structure and distribution of the Buying
Fund. The Board noted that the Buying Fund would offer four share classes -
Class A, Class B, Class C and Institutional Class, and that the sales charge and
distribution structure for the Class A, Class B, Class C and Institutional Class
would be similar to the sales charge and distribution structure in effect for
the other AIM Funds.
The Board considered the structure of the Reorganization, and the fact that
holders of your Fund's Common Shares will receive Class A shares of the Buying
Fund in the Reorganization. The Board also considered
18
that the Buying Fund will be subject to a temporary 2.00% redemption fee
applicable to any of its Class A shares received in connection with the
Reorganization that are redeemed, including redemptions by exchange, during the
12 month period following the closing date of the Reorganization.
The Board noted that no sales charge would be charged on Class A shares of
the Buying Fund issued in the Reorganization, but that they would become subject
to applicable 12b-1 distribution fees. In addition, the Board noted that new
purchases of Class A, Class B, Class C and Institutional Class shares would be
subject to the applicable sales charges, fees and expenses described in the
Buying Fund Prospectus. Finally, the Board noted that existing shareholders of
your Fund who receive Class A shares of the Buying Fund in the Reorganization
would be able to exchange their shares for Class A shares of other AIM Funds
without the imposition of a sales charge.
The Board considered the Distributor's expectation that there may be
significant redemptions by the Class A shareholders of the Buying Fund following
the Reorganization. The Board considered that redemptions of the Buying Fund's
Class A shares may be partially offset by new sales of all classes of shares of
the Buying Fund after the Reorganization, although it is not possible to predict
the extent of such new sales. Finally, the Board considered that, to the extent
the Buying Fund experiences net redemptions in the short term following the
Reorganization, it is not possible to predict the extent of such net redemptions
or whether such redemptions would require the Buying Fund to sell significant
amounts of portfolio securities to fund such redemptions.
ACCOUNTING AND PERFORMANCE SURVIVOR
The Board noted that, under Generally Accepted Accounting Principles, the
accounting survivor (the books and records) will be those of your Fund because
the Buying Fund will have had no assets and no operations prior to the
Reorganization. The Board further noted that the Class A shares of the Buying
Fund will be the accounting survivor because Class A shares will be issued in
exchange for Common Shares of your Fund. Finally, the Board noted that, because
the performance survivor analysis follows the accounting survivor analysis, the
Buying Fund will inherit the performance history of your Fund and the Buying
Fund's Class A shares will inherit the performance history of your Fund's Common
Shares, as adjusted to reflect the higher internal expenses of the Buying Fund.
MANAGEMENT OF YOUR FUND AND THE BUYING FUND
The Board noted that your Fund is managed by Joe V. Rodriguez, Jr., James
W. Trowbridge and Mark D. Blackburn. The Board was advised that AIM anticipated
that at the effective time of the Reorganization, these individuals would remain
as portfolio managers of the Buying Fund, with Joe V. Rodriguez, Jr. as the lead
portfolio manager. The Board also noted that Paul S. Curbo will be added as a
portfolio manager of the Buying Fund, and that Mr. Curbo brings to the portfolio
management team an extensive background in fundamental and direct real estate
research.
The Board considered that upon the Reorganization, the Buying Fund will be
governed by a Board of Trustees which is the same as the Board of Trustees which
currently governs your Fund.
The Board noted that your Fund and the Buying Fund have the same investment
objectives, although the investment objectives of your Fund are classified as
fundamental and the Buying Fund's investment objectives are classified as
non-fundamental. The Board considered the fact that the investment strategies of
your Fund and the Buying Fund are similar. The Board also noted that, as
compared to your Fund, AIM and the Sub-Advisor intend to augment the Buying
Fund's portfolio strategy in an effort to generate an attractive yield,
including increased exposure to preferred stocks and investments in corporate
debt and commercial and residential mortgage-backed securities. Finally, the
Board noted that your Fund and the Buying Fund generally operate under
substantially similar general restrictions and are subject to substantially
similar general policies, although there are certain differences between the
restrictions applicable to your Fund and those applicable to the Buying Fund.
ADVISORY FEES AND OTHER EXPENSES
The Board considered the fact that the contractual advisory fee schedule
for the Buying Fund is lower than the current contractual advisory fee rate for
your Fund but that, as a result of certain contractual advisory fee waivers that
are in effect for your Fund, the effective advisory fee rate paid by the Buying
Fund immediately after the consummation of the Reorganization may be higher than
the effective advisory rate paid by your Fund immediately
19
prior to the Reorganization. The Board noted that based on the amount of net
assets attributable to your Fund's Common Shares, the effective advisory fee
rate for the Buying Fund immediately after the consummation of the
Reorganization is estimated to be 0.74%. The Board also noted that the Buying
Fund's contractual advisory fee rate was at the median rate of the funds advised
by other advisors with investment strategies comparable to those of the Buying
Fund that the Board reviewed. Based on this review, the Board concluded that the
contractual advisory fee rate for the Buying Fund was fair and reasonable.
The Board considered the fact that Class A shares of the Buying Fund will
be subject to a 0.25% distribution fee, whereas the your Fund, as a closed-end,
exchange-traded fund, does not pay a distribution fee.
The Board also considered the operating expenses of your Fund, and the pro
forma operating expenses of the Buying Fund. As a percentage of the average
daily net assets, after taking into account the contractual advisory fee waivers
in effect for your Fund, the Board noted that the pro forma operating expenses
of the Class A shares of the Buying Fund after giving effect to the
Reorganization are higher than the total annual operating expenses of the Common
Shares of your Fund. This increase is due in part to the increase in net
advisory fees and 0.25% distribution fee applicable to Class A shares of the
Buying Fund. In addition, other expenses, such as transfer agency, custodial and
share registrations expenses will be higher for the Buying Fund as described in
"Expenses: Costs of Operating an Open-End Fund," above.
The Board noted that open-end funds generally are more expensive to operate
and administer than closed-end funds. The Board also noted that the Buying
Fund's pro forma expense ratio was comparable to the median expense ratio of the
funds advised by other advisors with investment strategies comparable to those
of the Buying Fund that the Board reviewed.
TAX CONSEQUENCES
The Board also considered the fact that your Fund would obtain an opinion
of fund counsel, Ballard Spahr Andrews & Ingersoll, LLP, that the Reorganization
will qualify as a tax-free reorganization for Federal income tax purposes and
accordingly will not result in any gain or loss for Federal income tax purposes
to your Fund, the Buying Fund, shareholders of your Fund or shareholders of the
Buying Fund.
REORGANIZATION EXPENSES
The Board noted that the total expenses to be incurred in connection with
the Reorganization are estimated to be approximately $622,000, which will be
paid by your Fund. These costs include the costs of redeeming all of your Fund's
outstanding Auction Rate Preferred Shares (which has already occurred), the
costs of the transfer agency conversion necessary to accomplish the
Reorganization, the costs of creating the Buying Fund and preparing, printing
and mailing this Proxy Statement/Prospectus, solicitation costs and the costs
attendant to calling and conducting a shareholder meeting. The Board concluded
that it is appropriate for your Fund to pay for these costs due to the
substantial benefit to shareholders, as of the August 1, 2006 initial press
release date, of the elimination of your Fund's then 13.45% discount to NAV.
The Board also noted that no sales charges would be imposed on any of the
shares of the Buying Fund issued to the shareholders of your Fund in connection
with the Reorganization.
FINANCIAL IMPACT TO AIM AND ITS AFFILIATES
In addition to the Reorganization costs to be incurred by your Fund, AIM
will, at least initially, have a loss of revenue, indirectly resulting from the
Reorganization. This loss of revenue will be attributed to, among other things,
a loss of annual advisory fee revenue due in part to the Distributor's
expectation that there may be significant redemptions by the shareholders of the
Buying Fund who were holders of your Fund's Common Shares and received Class A
shares of the Buying Fund, following the Reorganization.
ALTERNATIVES TO THE REORGANIZATION
The Board noted that converting your Fund directly to an open end fund
would involve added complexity, additional shareholder votes, higher expenses,
and a longer time frame to effect. The Board also noted that creating a
20
new open-end fund with similar strategies and objectives to your Fund and
running the two funds side-by-side would not address the fact that your Fund may
trade and has traded at a discount to NAV.
After considering several other means of reducing your Fund's trading
discount to NAV, including converting your Fund to an interval fund structure
and conducting a tender offer for your Fund's Common Shares, the Board noted
that these options would involve additional complexity, additional shareholder
votes, higher expenses, and a longer time frame to effect. In addition, AIM
informed the Board that it believes that industry experience has shown neither
of these options to be effective in reducing closed-end funds' trading discounts
to any meaningful degree over the long term and that, in AIM's experience, a
closed-end interval fund structure is not a good long-term solution because it
does not provide shareholders with sufficient liquidity.
The Board also considered two means that have been explored by AIM to
reduce your Fund's trading discount to NAV: (i) the repurchase of its Common
Shares; and (ii) the filing of an SEC exemptive request to permit it to use a
managed dividend policy that would permit it to distribute long-term capital
gains more frequently than twice per year. The Board noted that experience with
your Fund's Common Share repurchase program has shown it to be ineffective in
reducing the trading discount to any meaningful degree. The Board also noted
that the SEC has indicated that pending exemptive requests for managed dividend
policies, including your Fund's, will not be approved in their current form. The
Board approved the withdrawal by your Fund of its SEC exemptive request as a
result of the Board's determination to reorganize your Fund as an open-end fund.
BOARD RECOMMENDATION
Based on the foregoing and the information presented at the September Board
Meeting, the Board unanimously determined that the Reorganization is advisable
and in the best interests of your Fund and will not dilute the interests of
shareholders. Therefore, the Board recommended the approval of the Agreement by
the shareholders of your Fund at the Special Meeting.
WHAT ARE THE OTHER TERMS OF THE AGREEMENT
If any amendment is made to the Agreement following the mailing of this
Proxy Statement/Prospectus and prior to the Closing which would have a material
adverse effect on shareholders, such change will be submitted to the affected
shareholders for their approval. However, if an amendment is made which would
not have a material adverse effect on shareholders, the Agreement may be amended
without shareholder approval by mutual agreement of the parties.
The Trust and the Buyer have made representations and warranties in the
Agreement that are customary in matters such as the Reorganization. The
obligations of the Trust and the Buyer pursuant to the Agreement are subject to
various conditions, including the following mutual conditions:
- the Buyer's Registration Statement on Form N-14 under the Securities
Act of 1933 (the "1933 Act") shall have been filed with the SEC and
such Registration Statement shall have become effective, and no
stop-order suspending the effectiveness of the Registration Statement
shall have been issued, and no proceeding for that purpose shall have
been initiated or threatened by the SEC (and not withdrawn or
terminated);
- the shareholders of your Fund shall have approved the Agreement; and
- the Trust and the Buyer shall have received an opinion from Ballard
Spahr Andrews & Ingersoll, LLP that the consummation of the
transactions contemplated by the Agreement will not result in the
recognition of gain or loss for Federal income tax purposes for your
Fund, Buying Fund or their shareholders.
The Agreement may be terminated and the Reorganization may be abandoned at
any time by mutual agreement of the parties, or by either party if the
shareholders of your Fund do not approve the Agreement or if the Closing does
not occur on or before June 30, 2007.
21
WHAT ARE THE FEDERAL INCOME TAX CONSEQUENCES OF THE REORGANIZATION
The following is a general summary of the material Federal income tax
consequences of the Reorganization and is based upon the current provisions of
the Code, the existing U.S. Treasury regulations thereunder, current
administrative rulings of the Internal Revenue Service ("IRS") and published
judicial decisions, all of which are subject to change. The principal Federal
income tax consequences that are expected to result from the Reorganization,
under currently applicable law, are as follows:
- the Reorganization will qualify as a "reorganization" within the
meaning of Section 368(a) of the Code;
- no gain or loss will be recognized by your Fund upon the transfer of
its assets to the Buying Fund solely in exchange for shares of the
Buying Fund and the Buying Fund's assumption of the liabilities of
your Fund or on the distribution of those shares to your Fund's
shareholders;
- no gain or loss will be recognized by the Buying Fund on its receipt
of assets of your Fund in exchange for shares of the Buying Fund;
- no gain or loss will be recognized by any shareholder of your Fund
upon the exchange of shares of your Fund for shares of the Buying
Fund;
- the tax basis of the shares of the Buying Fund to be received by a
shareholder of your Fund will be the same as the shareholder's tax
basis of the shares of your Fund surrendered in exchange therefor; and
- the holding period of the shares of the Buying Fund to be received by
a shareholder of your Fund will include the period for which such
shareholder held the shares of your Fund exchanged therefor, provided
that such shares of your Fund are capital assets in the hands of such
shareholder as of the Closing;
Neither the Trust nor the Buyer has requested or will request an advance
ruling from the IRS as to the Federal income tax consequences of the
Reorganization. As a condition to Closing, Ballard Spahr Andrews & Ingersoll,
LLP will render a favorable opinion to the Trust and the Buyer as to the
foregoing Federal income tax consequences of the Reorganization, which opinion
will be conditioned upon, among other things, the accuracy, as of the Effective
Time, of certain representations of the Trust and the Buyer upon which Ballard
Spahr Andrews & Ingersoll, LLP will rely in rendering its opinion. The
conclusions reached in that opinion could be jeopardized if the representations
of the Trust or the Buyer are incorrect in any material respect. A copy of the
opinion will be filed with the Securities and Exchange Commission. and will be
available for public inspection. See "Information Filed with the Securities and
Exchange Commission."
THE FOREGOING DESCRIPTION OF THE FEDERAL INCOME TAX CONSEQUENCES OF THE
REORGANIZATION IS MADE WITHOUT REGARD TO THE PARTICULAR FACTS AND CIRCUMSTANCES
OF ANY SHAREHOLDER OF YOUR FUND. YOUR FUND'S SHAREHOLDERS ARE URGED TO CONSULT
THEIR OWN TAX ADVISORS AS TO THE SPECIFIC CONSEQUENCES TO THEM OF THE
REORGANIZATION, INCLUDING THE APPLICABILITY AND EFFECT OF STATE, LOCAL, FOREIGN
AND OTHER TAX LAWS.
WHAT IS THE ACCOUNTING TREATMENT OF THE REORGANIZATION
The Reorganization will each be accounted for on a tax-free combined basis.
Accordingly, the book cost basis to the Buying Fund of the assets of your Fund
will be the same as the book cost basis of such assets to your Fund.
RIGHTS OF SHAREHOLDERS
The Trust and the Buyer are Delaware statutory trusts. Other than as
discussed below, there are no material differences between the rights of holders
of Common Shares under the Trust's Amended and Restated Agreement
22
and Declaration of Trust and the rights of shareholders under the Buyer's Second
Amended and Restated Agreement and Declaration of Trust.
ISSUANCE OF SENIOR SECURITIES
As a closed-end fund, your Fund may issue senior securities having priority
over the Common Shares, including preferred shares and bonds, debentures, notes
or similar obligations constituting a security and evidencing indebtedness. Your
Fund had issued a class of senior securities, Auction Rate Preferred Shares,
although your Fund has redeemed all of its outstanding Auction Rate Preferred
Shares in accordance with their terms.
As an open-end fund, the Buying Fund may not issue senior securities.
REDEMPTIONS
Shareholders of the Buying Fund, an open-end fund, have the right to cause
the Buying Fund to redeem their shares on a daily basis. Holders of Common
Shares of your Fund, a closed-end fund, do not have this right. Rather, they may
sell Common Shares of your Fund by trading on the NYSE through a broker or
otherwise.
The Buyer may redeem de minimis accounts of shareholders of the Buying Fund
in certain circumstances. The Trust does not have this right with respect to the
holders of your Fund's Common Shares.
CLASSIFIED BOARD
The Board of Trustees of the Trust is classified, with respect to their
term of office, into three classes. Trustees of the Trust hold office for a term
of three years and until the election and qualification of their successors. At
each shareholder meeting to elect trustees of the Trust, shareholders have the
right to vote only on the successors to the class of trustees whose terms expire
at that meeting.
The Board of Trustees of the Buyer is not classified. Trustees of the Buyer
hold office until the election and qualification of their successors. At each
shareholder meeting to elect trustees of the Buyer, shareholders have the right
to vote on all trustees.
ANTI-TAKEOVER PROVISIONS
The Trust's Amended and Restated Agreement and Declaration of Trust (the
"Declaration") includes provisions that could limit the ability of other
entities or persons to acquire control of your Fund or to convert your Fund to
an open-end fund. Specifically, the Declaration requires a vote by holders of at
least 66 2/3% of the Common Shares and any outstanding preferred shares, voting
together as a single class, to authorize: (1) a conversion of your Fund from a
closed-end to an open-end investment company; (2) in certain cases, a merger or
consolidation of your Fund with another entity; (3) the issuance by your Fund in
one or more transactions of securities of 5% or more of the total value of all
outstanding shares of your Fund to any principal shareholder for cash; (4) in
certain cases, a sale, lease or transfer of all or substantially all of your
Fund's assets; (5) in certain cases, the termination of your Fund; (6) any
amendment to the Declaration that makes its shares "redeemable securities" as
defined by the 1940 Act; (7) amendments to certain key provisions of the
Declaration; or (8) the removal of trustees by shareholders, and then only for
cause.
This 66 2/3% voting requirement does not apply with respect to (1) through
(6) above if the transaction has already been authorized by the affirmative vote
of two-thirds of the trustees. In that case, the affirmative vote of a majority
of the outstanding voting securities, as defined in the 1940 Act, is required:
the lesser of (i) 67% or more of the voting securities present at the meeting,
if the holders of more than 50% of the outstanding voting securities are present
or represented by proxy; or (ii) more than 50% of the outstanding voting
securities of your Fund. In addition, shareholders do not have the right to vote
in connection with a transaction described in (2) or (4) above if the primary
purpose of the transaction is to change your Fund's domicile or form of
organization. Moreover, shareholders do not have the right to vote on a merger
or consolidation if, after giving effect to the transaction, shareholders of
your Fund will have a majority of the outstanding shares of the surviving
entity.
23
None of the foregoing provisions may be amended except by the vote of the
holders of at least 66 2/3% of the Common Shares.
The provisions of the Declaration described above could have the effect of
depriving the Common Shareholders of opportunities to sell their Common Shares
at a premium over the then-current market price of the Common Shares by
discouraging a third party from seeking to obtain control of your Fund in a
tender offer or similar transaction. The overall effect of these provisions is
to render more difficult the accomplishment of a merger or the assumption of
control by a third party. They provide, however, the advantage of potentially
requiring persons seeking control of your Fund to negotiate with its management
regarding the price to be paid and facilitating the continuity of your Fund's
investment objectives and policies.
The Buyer's Second Amended and Restated Agreement and Declaration of Trust
does not contain such anti-takeover provisions and does not require a 66 2/3%
vote to authorize (1) in certain cases, a merger or consolidation of the Buying
Fund with another entity; (2) in certain cases, a sale of all or substantially
all of the Buying Fund's assets; and (3) in certain cases, the termination of
the Buying Fund.
CAPITALIZATION
The following table sets forth, as of September 30, 2006, (i) the
capitalization of Common Shares of your Fund; (ii) the capitalization of Class A
shares of the Buying Fund, and (iii) the pro forma capitalization of Class A
shares of the Buying Fund as adjusted to give effect to the Reorganization.
PROFORMA
YOUR FUND BUYING FUND PROFORMA BUYING FUND
COMMON SHARES CLASS A SHARES(1) ADJUSTMENTS CLASS A SHARES
------------- ----------------- ------------- --------------
Net Assets .................. $766,037,931 $ 0 $(622,000)(2) $765,415,931
Shares Outstanding .......... 39,108,196 0 -- 39,108,196
Net Asset Value Per Share ... $ 19.59 N/A -- $ 19.57
(1) Holders of your Fund's Common Shares will receive Class A shares of the
Buying Fund upon closing of the Reorganization.
(2) Net assets have been adjusted for your Fund's expenses estimated to be
incurred in connection with the Reorganization of approximately $622,000.
These costs include the costs of redeeming all of your Fund's outstanding
Auction Rate Preferred Shares (which has already occurred), the costs of
the transfer agency conversion necessary to accomplish the Reorganization,
the costs of creating the Buying Fund and preparing, printing and mailing
this Proxy Statement/Prospectus, solicitation costs and the costs attendant
to calling and conducting a shareholder meeting.
LEGAL MATTERS
Certain legal matters concerning the tax consequences of the Reorganization
will be passed upon by Ballard Spahr Andrews & Ingersoll, LLP, 1735 Market
Street, Philadelphia, PA 19103-7599.
PENDING LITIGATION
Civil lawsuits, including a regulatory proceeding and purported class
action and shareholder derivative suits, have been filed against certain of the
AIM Funds, INVESCO Funds Group, Inc. ("IFG") (the former investment advisor to
certain AIM Funds), AIM, the Distributor and/or related entities and
individuals, depending on the lawsuit, alleging among other things: (i) that the
defendants permitted improper market timing and related activity in the funds;
(ii) that certain funds inadequately employed fair value pricing; (iii) that the
defendants charged excessive advisory and/or distribution fees and failed to
pass on to shareholders the perceived savings generated by economies of scale
and that the defendants adopted unlawful distribution plans; and (iv) that the
defendants improperly used the assets of the funds to pay brokers to
aggressively promote the sale of the funds over
24
other mutual funds and that the defendants concealed such payments from
investors by disguising them as brokerage commissions.
Additional civil lawsuits related to the above or other matters may be
filed by regulators or private litigants against the AIM Funds, IFG, AIM, the
Distributor and/or related entities and individuals in the future. You can find
more detailed information concerning all of the above matters, including the
parties to the civil lawsuits and summaries of the various allegations and
remedies sought in such lawsuits, in the Buying Fund's Statement of Additional
Information.
As a result of the matters discussed above, investors in the AIM Funds
might react by redeeming their investments. This might require the AIM Funds to
sell investments to provide for sufficient liquidity and could also have an
adverse effect on the investment performance of the AIM Funds.
ADDITIONAL INFORMATION ABOUT THE BUYING FUND
DESCRIPTION OF SHARES
Shares of the Buying Fund are redeemable at their net asset value (subject,
in certain circumstances, to a contingent deferred sales charge) at the option
of the shareholder or at the option of the Buyer in certain circumstances. Each
share of the Buying Fund represents an equal proportionate interest in the
Buying Fund with each other share and is entitled to such dividends and
distributions out of the income belonging to the Buying Fund as are declared by
the Board of Trustees of the Buyer. Each share of the Buying Fund generally has
the same voting, dividend, liquidation and other rights; however, each class of
shares of the Buying Fund is subject to different sales loads, conversion
features, exchange privileges and class-specific expenses. When issued, shares
of the Buying Fund are fully paid and nonassessable, have no preemptive or
subscription rights, and are freely transferable.
OTHER INFORMATION
For more information with respect to the Buying Fund concerning the
following topics, please refer to the following sections of the Buying Fund
Prospectus, which has been made a part of this Proxy Statement/ Prospectus by
reference and which is attached to this Proxy Statement/Prospectus as Appendix
IV: (i) see "Risk/Return Summary" and "Investment Objectives, Strategies and
Risks" for further information about the investment objectives, strategies and
risks of investing in the Buying Fund; (ii) see "Fund Management" for more
information about the management of Buying Fund; (iii) see "Other Information"
for more information about the Buying Fund's policy with respect to dividends
and distributions; and (iv) see "Other Information" and "Shareholder
Information" for more information about the pricing, purchase, redemption and
repurchase of shares of the Buying Fund, tax consequences to shareholders of
various transactions in shares of the Buying Fund, distribution arrangements and
the multiple class structure of the Buying Fund.
ADDITIONAL INFORMATION ABOUT YOUR FUND
GENERAL INFORMATION
Your Fund is a non-diversified, closed-end management investment company
registered under the 1940 Act. Your Fund was organized as a Delaware statutory
trust on March 11, 2002 pursuant to an Agreement and Declaration of Trust
governed by the laws of the State of Delaware. Your Fund's principal office is
located at 11 Greenway Plaza, Houston, Texas 77046, and its telephone number is
(800) 347-1919.
DESCRIPTION OF COMMON SHARES
The Trust's Amended and Restated Declaration of Trust authorizes the
issuance of an unlimited number of Common Shares, par value $0.001 per share.
All Common Shares have equal voting rights, rights to the payment of dividends
and the distribution of assets upon liquidation. Common Shares have no
pre-emptive or conversion rights or rights to cumulative voting.
25
The outstanding Common Shares of your Fund as of December 1, 2006 are as
follows:
Amount Outstanding
Amount Held by Your Exclusive of Amount
Title of Class Amount Authorized Fund or for its Account Shown Under (3)
(1) (2) (3) (4)
- -------------- ----------------- ----------------------- -------------------
Common Shares $_______ $_______ $_______
TRADING HISTORY OF COMMON SHARES
The following table shows the quarterly history of public trading of your
Fund's Common Shares for the last two fiscal years, as well as the first three
quarters of the current fiscal year.
Net Percentage
Market Price Asset Value Discount
------------- ------------- ---------------
Quarter Ended High Low High Low High Low
- ------------- ----- ----- ----- ----- ------ ------
March 31, 2004 17.59 16.18 19.77 17.77 -6.42% -13.52%
June 30, 2004 17.79 13.65 19.96 15.59 -7.80% -14.85%
September 30, 2004 16.51 15.14 19.01 17.29 -10.16% -14.94%
December 31, 2004 17.74 16.31 20.53 18.91 -11.93% -15.84%
March 31, 2005 17.50 15.05 20.02 17.87 -11.19% -16.69%
June 30, 2005 17.08 15.36 20.25 18.03 -13.73% -15.99%
September 30, 2005 17.71 16.00 21.20 18.97 -15.23% -17.25%
December 31, 2005 16.54 14.45 19.58 17.49 -14.34% -17.65%
March 31, 2006 16.61 14.98 19.57 17.49 -13.47% -15.73%
June 30, 2006 16.25 14.60 19.22 17.23 -13.27% -15.98%
September 30, 2006 18.68 15.25 19.67 17.87 -4.50% -15.19%
At the close of business on October 31, 2006, the net asset value per share
of your Fund's Common Shares was $20.31 per share and the market price of your
Fund's Common Shares was $19.36 per share, representing a trading discount of
(4.68%). From October 31, 2006 through November __, 2006, your Fund's Common
Shares have traded at a discount to net asset value.
Your Fund's Common Shares have generally traded at a discount to net asset
value since shortly after your Fund commenced operations in May 2002. Your Fund
has taken two steps in an effort to reduce this trading discount. First, your
Fund filed an exemptive application with the SEC in July 9, 2002 that would
enable it to implement a managed dividend policy in order to distribute
long-term capital gains to shareholders more frequently than twice per year. A
number of your Fund's competitors have obtained SEC orders permitting such
managed dividend policies, and AIM believes that one result of implementing such
a managed dividend policy for your Fund would be to reduce the trading discount
to net asset value of your Fund's Common Shares. The SEC has not granted your
Fund's exemptive request and has indicated that pending exemptive requests for
managed dividend policies, including your Fund's, will not be approved in their
current form. Your Fund has withdrawn its SEC exemptive request as a result of
the Board's determination to reorganize your Fund as an open-end fund. Second,
the Board approved and your Fund implemented a program to repurchase its Common
Shares, which lasted from October 27, 2005 through July 12, 2006. During this
time period, your Fund repurchased approximately $13,000,000 of its Common
Shares. AIM believes that your Fund's Common Share repurchase program has been
ineffective in reducing the trading discount to any meaningful degree.
MANAGEMENT
The trustees of the Trust have the authority to take all actions necessary
in connection with the business affairs of the Trust. The trustees, among other
things, approve the investment objectives, policies and procedures for
26
your Fund. The Trust enters into agreements with various entities to manage the
day-to-day operations of your Fund, including your Fund's investment advisor,
sub-advisor, administrator, transfer agent and custodian. The trustees are
responsible for selecting these service providers, and approving the terms of
their contracts with your Fund. On an ongoing basis, the trustees exercise
general oversight of these service providers.
Certain trustees and officers of the Trust are affiliated with AIM and A I
M Management Group Inc., the parent corporation of AIM. All of the Trust's
executive officers hold similar offices with some or all of the other AIM Funds.
SERVICE PROVIDERS
AIM serves as your Fund's investment advisor and manages the investment
operations of your Fund and has agreed to perform or arrange for the performance
of your Fund's day-to-day management. AIM is located at 11 Greenway Plaza, Suite
100, Houston, Texas 77046-1173. AIM has acted as an investment advisor since its
organization in 1976. Today, AIM, along with its subsidiaries, manages or
advises over 200 investment portfolios, including your Fund, encompassing a
broad range of investment objectives.
The Sub-Advisor is located at One Midtown Plaza, 1360 Peachtree Street,
N.E., Atlanta, Georgia 30309. The Sub-Advisor is responsible for your Fund's
day-to-day management, including your Fund's investment decisions and the
execution of securities transactions with respect to your Fund. The Sub-Advisor
has acted as an investment advisor since 1979.
AIM and the Sub-Advisor are each indirect, wholly owned subsidiaries of
AMVESCAP PLC. AMVESCAP PLC and its subsidiaries are an independent global
investment management group.
Pursuant to the advisory agreement between AIM and your Fund, your Fund has
agreed to pay AIM an annual management fee for the services and facilities
provided by AIM of 0.90% of average daily managed assets of your Fund payable on
a monthly basis.
Pursuant to the sub-advisory agreement between AIM and the Sub-Advisor, the
Sub-Advisor receives from AIM 50% of the management fee paid to AIM (net of any
fee or expense reimbursements or waivers).
A discussion regarding the basis for the Board's continuance of your Fund's
advisory agreement and sub-advisory agreement is available in your Fund's
semi-annual report to shareholders for the six month period ended June 30, 2006.
AIM and the Trust have entered into an administrative services agreement,
pursuant to which AIM may perform or arrange for the provision of certain
accounting and other administrative services to your Fund. Under the
administrative services agreement, the Trust shall reimburse AIM for expenses
incurred pursuant to the Agreement in accordance with the methodologies
established from time to time by the Board. Currently, AIM is reimbursed for the
services of the Trust's principal financial officer and her staff, and any
expenses related to fund accounting services.
Computershare Trust Company, N.A., P.O. Box 43011, Providence, Rhode Island
02940-0311, is the Trust's transfer agent and dividend paying agent.
State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, is the custodian of all securities and cash of the Trust.
PORTFOLIO MANAGERS
The following individuals are jointly and primarily responsible for the
day-to-day management of your Fund's portfolio:
- Joe V. Rodriguez, Jr., Portfolio Manager, who has been associated with
the Sub-Advisor and/or its affiliates since 1990.
27
- Mark D. Blackburn, Portfolio Manager, who has been associated with the
Sub-Advisor and/or its affiliates since 1998.
- Jim W. Trowbridge, Portfolio Manager, who has been associated with the
Sub-Advisor and/or its affiliates since 1989.
The Statement of Additional Information relating to the Reorganization
contains additional information about the portfolio managers' investments in
your Fund, a description of their compensation, and information about other
accounts they manage.
YOUR FUND'S DIVIDEND REINVESTMENT PLAN
You may elect to have all dividends, including any capital gain dividends,
on your Common Shares automatically reinvested by Computershare Trust Company,
N.A., plan administrator (the "Plan Administrator") for the Common Shareholders,
in additional Common Shares under the Dividend Reinvestment Plan (the "Plan").
You may elect to participate in the Plan by contacting the Plan Administrator at
(800) 730-6001. If you do not participate, you will receive all distributions in
cash paid by check mailed directly to you by the Plan Administrator as dividend
paying agent.
If you decide to participate in the Plan, the number of Common Shares you
will receive will be determined as follows:
- If, on the payment date of the dividend, the closing market price per
Common Share plus per share brokerage commissions applicable to an
open market purchase of Common Shares is below the net asset value per
Common Share at the time of valuation, the Plan Administrator will
receive the dividend or distribution in cash and will purchase Common
Shares in the open market, on the NYSE or elsewhere, for the
participants' accounts. It is possible that the market price for the
Common Shares may increase before the Plan Administrator has completed
its purchases. Therefore, the average purchase price per share paid by
the Plan Administrator may exceed the closing market price at the time
of valuation, resulting in the purchase of fewer shares than if the
dividend or distribution had been paid in Common Shares issued by your
Fund. The Plan Administrator will use all dividends and distributions
received in cash to purchase Common Shares in the open market prior to
the next ex-dividend date. In the event it appears that the Plan
Administrator will not be able to complete the open market purchases
prior to the next ex-dividend date, your Fund will determine whether
to issue the remaining shares at net asset value. Interest will not be
paid on any uninvested cash payments.
- If, on the payment date of the dividend, the closing market price per
Common Share plus per share brokerage commissions applicable to an
open market purchase of Common Shares is at or above the net asset
value per Common Share, your Fund will issue new shares at a price
equal to the greater of (i) net asset value per Common Share on that
trading date or (ii) 95% of the closing market price on that trading
date.
The Plan Administrator maintains all shareholders' accounts in the Plan and
gives written confirmation of all transactions in the accounts, including
information you may need for tax records. Common Shares in your account will be
held by the Plan Administrator in book-entry (non-certificated) form. Any proxy
you receive will include all Common Shares you have received under the Plan.
You may withdraw from the Plan at any time by giving written notice to the
Plan Administrator. If you withdraw or the Plan is terminated, the Plan
Administrator will transfer the shares in your account to you (which may include
a cash payment for any fraction of a share in your account). If you wish, the
Plan Administrator will sell your shares and send you the proceeds, minus
applicable brokerage commissions and a $15.00 service fee.
There is no brokerage charge for reinvestment of your dividends or
distributions in Common Shares. However, all participants will pay a pro rata
share of brokerage commissions incurred by the Plan Administrator when it makes
open market purchases.
28
Automatically reinvesting dividends and distributions does not mean that
you do not have to pay income taxes due upon receiving dividends and
distributions.
A shareholder who holds Common Shares in a brokerage account and
participates in the Plan may not be able to transfer the Common Shares to
another broker and continue to participate in the Plan.
Your Fund reserves the right to amend or terminate the Plan if in the
judgment of the Board the change is warranted. It is anticipated that upon the
closing of the Reorganization, the dividend reinvestment plan will be terminated
There is no direct service charge to participants in the Plan; however, your
Fund reserves the right to amend the Plan to include a service charge payable by
the participants. Additional information about the Plan may be obtained from the
Plan Administrator. All correspondence concerning the Plan should be directed to
the Plan Administrator at P.O. Box 43011, Providence, RI 02940-3011.
EXPENSES
In addition to the advisory and administrative services fees paid to AIM,
your Fund pays all other costs and expenses of its operations, including, but
not limited to, compensation of its trustees (other than those affiliated with
AIM), custodian, transfer agency and dividend disbursing expenses, rating agency
fees, legal fees, expenses of independent auditors, expenses of registering and
qualifying shares for sale, expenses of repurchasing shares, expenses of issuing
any preferred shares, expenses in connection with any borrowings, expenses of
being listed on a stock exchange, expenses of preparing, printing and
distributing shareholder reports, notices, proxy statements and reports to
governmental agencies, amendments to your Fund's registration statement,
membership in investment company organizations, and taxes, if any.
TAX MATTERS
Your Fund intends to qualify annually and to elect to be treated as a
regulated investment company ("RIC") under Subchapter M of the Code.
To qualify for the favorable U.S. federal income tax treatment generally
accorded to RICs, your Fund must, among other things: (a) derive in each taxable
year at least 90% of its gross income from dividends, interest, payments with
respect to securities loans and gains from the sale or other disposition of
stock, securities or foreign currencies, other income derived with respect to
its business of investing in such stock, securities or currencies and net income
derived from certain publicly traded partnerships; (b) diversify its holding so
that, at the end of each quarter of the taxable year, (i) at least 50% of the
market value of your Fund's assets is represented by cash and cash items
(including receivables), U.S. Government securities, the securities of other
RICs and other securities, with such other securities of any one issuer limited
for the purposes of this calculation to an amount not greater than 5% of the
value of your Fund's total assets and not greater than 10% of the outstanding
voting securities of such issuer, and (ii) not more than 25% of the value of its
total assets is invested in the securities (other than U.S. Government
securities or the securities of other RICs) of a single issuer, of two or more
issuers that your Fund controls and that are engaged in the same, similar or
related trades or businesses, or, collectively, in securities of certain
publicly treaded partnerships; and (c) distribute at least 90% of its investment
company taxable income (which includes, among other items, dividends, interest
and net short-term capital gains in excess of net long-term capital losses) each
taxable year. For purposes of the first of these requirements, income derived by
your Fund from real estate companies that are classified as partnerships or
trusts for federal income tax purposes (and not as publicly traded partnerships,
corporations or REITs) is treated as qualifying income only to the extent such
income is attributable to items of income of the partnership or trust that would
be qualifying income if realized directly by the RIC in the same manner as
realized by the partnership or trust. The Internal Revenue Service has issued
numerous private letter rulings similarly holding that a RIC investing in a
partnership (other than a publicly traded partnership) or trust should be
treated as owning a proportionate share of the assets of the partnership or
trust for purposes of the diversification requirement. Accordingly, your Fund
may have to restrict its investment in real estate companies that are classified
as partnerships (other than as publicly traded partnerships) or trusts for
federal income tax purposes in order to maintain its qualification as a RIC
under the Code.
As a RIC, your Fund generally will not be subject to U.S. federal income
tax on its investment company taxable income (as that term is defined in the
Code, but without regard to the deduction for dividends paid) and net capital
gain (the excess of net long-term capital gain over net short-term capital
loss), if any, that it distributes to
29
shareholders. Your Fund intends to distribute to its shareholders, at least
annually, substantially all of its investment company taxable income and net
capital gain. Amounts not distributed on a timely basis in accordance with a
calendar year distribution requirement are subject to a nondeductible 4% excise
tax. To prevent imposition of the excise tax, your Fund must distribute during
each calendar year an amount equal to the sum of (1) at least 98% of its
ordinary income (not taking into account any capital gains or losses) for the
calendar year, (2) at least 98% of its capital gains in excess of its capital
losses (adjusted for certain ordinary losses) for the one-year period ending
October 31 of the calendar year, and (3) any ordinary income and capital gains
for previous years that were not distributed during those years. To prevent
application of the excise tax, your Fund intends to make its distributions in
accordance with the foregoing distribution requirement. A distribution will be
treated as paid on December 31 of the current calendar year if it is declared by
your Fund in October, November or December with a record date in such a month
and paid by your Fund during January of the following calendar year. Such
distributions will be taxable to shareholders in the calendar year in which the
distributions are declared, rather than in the calendar year in which the
distributions are received.
If your Fund failed to qualify as a RIC or failed to satisfy the 90%
distribution requirement in any taxable year, your Fund would be taxed as an
ordinary corporation on its taxable income (even if such income were distributed
to its shareholders) and all distributions out of earnings and profits would be
taxed to shareholders as ordinary income.
INFORMATION FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION
This Proxy Statement/Prospectus and the related Statement of Additional
Information do not contain all the information set forth in the registration
statements and the exhibits relating thereto and annual and semiannual reports
which the Trust and the Buyer have filed with the SEC pursuant to the
requirements of the 1933 Act and the 1940 Act. The SEC file number of the
Trust's registration statement containing your Fund Prospectus and related
Statement of Additional Information is Registration No. 811-21048. The SEC file
number for the Buyer's registration statement containing the Buying Fund
Prospectus and related Statement of Additional Information is Registration No.
811-09913. Such Buying Fund Prospectus is incorporated herein by reference.
The Trust and the Buyer are subject to the informational requirements of
the Securities Exchange Act of 1934 and the 1940 Act and in accordance therewith
file reports and other information with the SEC. Reports, proxy material,
registration statements and other information filed by the Trust and the Buyer
(including the Registration Statement of the Buyer relating to the Buying Fund
on Form N-14 of which this Proxy Statement/Prospectus is a part) may be
inspected without charge and copied at the public reference facilities
maintained by the SEC at Room 1024, 450 Fifth Street N.W., Washington, DC 20549,
and at the following regional office of the SEC: 1801 California Street, Suite
4800, Denver, CO 80202. Copies of such material may also be obtained from the
Public Reference Section of the SEC at Room 1024, 450 Fifth Street N.W.,
Washington, DC 20549, at the prescribed rates. The SEC maintains a website at
www.sec.gov that contains information regarding Trust and Buyer and other
registrants that file electronically with the SEC.
INFORMATION ABOUT THE SPECIAL MEETING AND VOTING
WHY DID WE SEND YOU THIS PROXY STATEMENT/PROSPECTUS
We are sending you this Proxy Statement/Prospectus and the enclosed proxy
card because the Board is soliciting your proxy to vote at the Special Meeting
and at any adjournments of the Special Meeting. This Proxy Statement/Prospectus
gives you information about the business to be conducted at the Special Meeting.
However, you do not need to attend the Special Meeting to vote your shares.
Instead, you may simply complete, sign and return the enclosed proxy card or
vote by telephone or through a website established for that purpose.
The Trust intends to mail this Proxy Statement/Prospectus, the enclosed
Notice of Special Meeting of Shareholders and the enclosed proxy card on or
about December __, 2006 to all shareholders entitled to vote. Shareholders of
record of your Fund as of the close of business on December 1, 2006 (the "Record
Date") are entitled to vote at the Special Meeting. The number of your Fund's
Common Shares outstanding on the Record
30
Date can be found at Exhibit C. Each Common Share is entitled to one vote for
each full share held, and a fractional vote for a fractional share held.
WHEN AND WHERE WILL THE SPECIAL MEETING BE HELD
We are holding the Special Meeting at 11 Greenway Plaza, Suite 100,
Houston, Texas 77046-1173 on February 26, 2007, at 3:00 p.m., Central Time.
HOW DO I VOTE IN PERSON
If you do attend the Special Meeting and wish to vote in person, we will
provide you with a ballot prior to the vote. However, if your shares are held in
the name of your broker, bank or other nominee, you must bring a letter from the
nominee indicating that you are the beneficial owner of the shares on the Record
Date and authorizing you to vote. Please call the Trust at (800) 952-3502 if you
plan to attend the Special Meeting.
HOW DO I VOTE BY PROXY
Whether you plan to attend the Special Meeting or not, we urge you to
complete, sign and date the enclosed proxy card and to return it promptly in the
envelope provided. Returning the proxy card will not affect your right to attend
the Special Meeting and vote.
If you properly fill in and sign your proxy card and send it to us in time
to vote at the Special Meeting, your "proxy" (the individual named on your proxy
card) will vote your shares as you have directed. To be timely, your proxy card
must be returned to us by ______________, 2007. If you sign your proxy card but
do not make specific choices, your proxy will vote your shares FOR the proposal
to approve the Agreement, as recommended by the Board, and in accordance with
management's recommendation on other matters.
Your proxy will have the authority to vote and act on your behalf at any
adjournment of the Special Meeting.
If you authorize a proxy, you may revoke it at any time before it is
exercised by sending in another proxy card with a later date or by notifying the
Secretary of the Trust in writing to the address of the Trust set forth on the
cover page of this Proxy Statement/Prospectus before the Special Meeting that
you have revoked your proxy. In addition, although merely attending the Special
Meeting will not revoke your proxy, if you are present at the Special Meeting
you may withdraw your proxy and vote in person. Shareholders may also transact
any other business not currently contemplated that may properly come before the
Special Meeting in the discretion of the proxies or their substitutes.
HOW DO I VOTE BY TELEPHONE OR THE INTERNET
You may vote your shares by telephone or through a website established for
that purpose by following the instructions that appear on the proxy card
accompanying this Proxy Statement/Prospectus.
WHAT IS THE QUORUM REQUIREMENT
A quorum of shareholders is necessary to hold a valid meeting. A quorum
will exist if shareholders entitled to vote one-third of the issued and
outstanding shares of your Fund on the Record Date are present at the Special
Meeting in person or by proxy.
Abstentions and broker non-votes will count as shares present at the
Special Meeting for purposes of establishing a quorum.
CAN MY BROKER VOTE SHARES FOR ME
Under the rules applicable to broker-dealers, if your broker holds your
shares in its name, the broker will not be entitled to vote your shares if it
has not received instructions from you. A "broker non-vote" occurs when a
31
broker has not received voting instructions from a shareholder and is barred
from voting the shares without shareholder instructions because the proposal is
non-routine. The Proposal is considered non-routine.
COULD THERE BE AN ADJOURNMENT OF THE SPECIAL MEETING
If a quorum is not present at the Special Meeting or a quorum is present
but sufficient votes to approve the Agreement are not received, the persons
named as proxies may propose one or more adjournments of the Special Meeting to
permit further solicitation of proxies. If a quorum is not present at the
Special Meeting, any proposed adjournment will require the affirmative vote of a
majority of the shareholders in person or by proxy. If a quorum is present at
the Special Meeting, any proposed adjournment will require the affirmative vote
of a majority of the votes cast at the Special Meeting in person or by proxy.
The persons named as proxies will vote those proxies that they are entitled to
vote FOR the Agreement in favor of such an adjournment and will vote those
proxies required to be voted AGAINST the Agreement against such adjournment. A
shareholder vote may be taken on the Agreement prior to any adjourned meeting if
sufficient votes have been received and it is otherwise appropriate.
WHAT IS THE VOTE NECESSARY TO APPROVE THE AGREEMENT
If a quorum is present, approval of the Agreement will require the
affirmative vote of the lesser of (i) 67% of the shares represented at the
Special Meeting at which more than 50% of the outstanding shares of your Fund
are present in person or by proxy, or (ii) more than 50% of the outstanding
shares of your Fund. Abstentions and broker non-votes are counted as present but
are not considered votes cast. As a result, they have the same effect as a vote
against this proposal.
HOW WILL PROXIES BE SOLICITED AND WHO WILL PAY
The Trust has engaged the services of Computershare Fund Services (the
"Solicitor") to assist in the solicitation of proxies for the Special Meeting.
The Solicitor's costs are expected to be approximately $56,400. The Trust
expects to solicit proxies principally by mail, but the Trust or the Solicitor
may also solicit proxies by telephone, facsimile or personal interview. The
Trust's officers will not receive any additional or special compensation for any
such solicitation performed by them.
WILL ANY OTHER MATTERS BE VOTED ON AT THE SPECIAL MEETING
Management does not know of any matters to be presented at the Special
Meeting other than those discussed in this Proxy Statement/Prospectus. If any
other matters properly come before the Special Meeting, the shares represented
by proxies will be voted with respect thereto in accordance with management's
recommendation.
WHO OWNS MORE THAN 5% OF THE SHARES OF YOUR FUND AND THE BUYING FUND
A list of the name, address and percent ownership of each person who, as of
December 1, 2006, to the knowledge of the Trust owned 5% or more of your Fund's
outstanding Common Shares can be found at Exhibit D. As of December _, 2006, no
person controlled your Fund as a result of owning 25% or more of your Fund's
outstanding Common Shares.
As of the date of the Statement of Additional Information, the Buying Fund
had not yet commenced operations. As a result, no persons owned shares of the
Buying Fund (including officers or trustees).
DO EXECUTIVE OFFICERS AND TRUSTEES OWN SHARES OF YOUR FUND AND THE BUYING FUND
To the best knowledge of the Trust, the ownership of shares of your Fund by
executive officers and trustees of the Trust as a group constituted less than 1%
of the outstanding shares of each class of your Fund as of January 31, 2006. No
officers or trustees of the Buyer owned shares in the Buying Fund as of December
_, 2006.
32
EXHIBIT A
YOUR FUND'S FUNDAMENTAL POLICIES AND NON-FUNDAMENTAL RESTRICTIONS
FUNDAMENTAL POLICIES. The Fund is subject to the following fundamental
investment policies, which may be changed only by a vote of a majority of the
outstanding Common Shares, and if issued, a majority of the outstanding Fund
Preferred Shares voting together as a single class. A "majority of the
outstanding shares" means the lesser of (i) 67% or more of the shares present at
a meeting if the holders of more than 50% of the outstanding shares are present
in person or represented by proxy, or (ii) more than 50% of the outstanding
shares. Any fundamental investment policy that involves a maximum or minimum
percentage of securities or assets (other than with respect to borrowing) shall
not be considered to be violated unless an excess over or a deficiency under the
percentage occurs immediately after, and is caused by, an acquisition or
disposition of securities or utilization of assets by the Fund.
(1) The Fund may not issue senior securities, as defined in the 1940 Act,
other than (i) preferred shares which immediately after issuance will have asset
coverage of at least 200%, (ii) indebtedness which immediately after issuance
will have asset coverage of at least 300%, or (iii) the borrowings permitted by
fundamental investment policy (2) set forth below.
(2) The Fund may not borrow money, except as permitted by the 1940 Act, and
the rules and regulations promulgated thereunder, as such statute, rules and
regulations are amended from time to time or are interpreted from time to time
by the SEC staff (collectively, the "1940 Act Laws and Interpretations") or
except to the extent that the Fund may be permitted to do so by exemptive order
or similar relief {collectively, with the 1940 Act Laws and Interpretations, the
"1940 Act Laws, Interpretations and Exemptions").
(3) The Fund may not underwrite the securities of other issuers. This
restriction does not prevent the Fund from engaging in transactions involving
the acquisition, disposition or resale of its portfolio securities, regardless
of whether the Fund may be considered to be an underwriter under the 1933 Act.
(4) The Fund may not purchase real estate or sell real estate unless
acquired as a result of ownership of securities or other instruments. This
fundamental policy does not prevent the Fund from investing in issuers that
invest, deal, or otherwise engage in transactions in real estate or interests
therein, or investing in securities that are secured by real estate or interests
therein.
(5) The Fund may not purchase or sell physical commodities unless acquired
as a result of ownership of securities or other instruments. This fundamental
policy does not prevent the Fund from engaging in transactions involving futures
contracts and options thereon or investing in securities that are secured by
physical commodities.
(6) The Fund may not make personal loans or loans of its assets to persons
who control or are under common control with the Fund, except to the extent
permitted by 1940 Act Laws, interpretations and Exemptions. This fundamental
policy does not prevent the Fund from, among other things, purchasing debt
obligations, entering into repurchase agreements, loaning its assets to
broker-dealers or institutional investors, or investing in loans, including
assignments and participation interests.
(7) The Fund will make investments that will result in the concentration
(as that term may be defined or interpreted by the 1940 Act Laws,
Interpretations and Exemptions) of its investments in the securities of issuers
primarily engaged in the real estate industry and not in any other industry.
This fundamental policy does not limit the Fund's investments in (i) obligations
issued or guaranteed by the U.S. Government, its agencies or instrumentalities,
or (ii) tax-exempt obligations issued by governments or political subdivisions
of governments. In complying with this fundamental policy, the Fund will not
consider a bank-issued guaranty or financial guaranty insurance as a separate
security.
NON-FUNDAMENTAL RESTRICTIONS. The following non-fundamental investment
restrictions may be changed with the approval of the Board of Trustees and
without approval of the Fund's voting securities.
The Fund may not:
A-1
(1) Sell securities short, unless the Fund owns or has the right to obtain
securities equivalent in kind and amount to securities sold at no added cost.
This restriction does not prevent the Fund from engaging in transactions
options, futures contracts, options on futures contracts, or derivative
instruments, which are not deemed to constitute selling short;
(2) Purchase securities of open-end or closed-end companies except in
compliance with the 1940 Act or any exemptive relief obtained thereunder; and
(3) Purchase securities of companies for the purpose of exercising control.
The restrictions and other limitations set forth above will apply only at
the time of purchase of securities and will not be considered violated unless an
excess or deficiency occurs or exists immediately after and as a result of an
acquisition of securities.
A-2
EXHIBIT B
OTHER INVESTMENTS OF YOUR FUND AND RELATED POLICIES
U.S. GOVERNMENT OBLIGATIONS. Obligations issued or guaranteed by the U.S.
Government, its agencies and instrumentalities include bills, notes and bonds
issued by the U.S. Treasury, as well as "stripped" or "zero coupon" U.S.
Treasury obligations representing future interest or print Treasury notes or
bonds. Stripped securities are "face value," and may exhibit greater price
volatility than interest-bearing securities because investors receive no payment
until maturity. Obligations of certain agencies and instrumentalities of the
U.S. Government, such as the Government National Mortgage Association ("GNMA"),
are supported by the full faith and credit of the U.S. Treasury; others, such as
those of the Federal National Mortgage Association ("FNMA"), are supported by
the right of the issuer to borrow from the U.S. Treasury; others, such as those
of the former Student Loan Marketing Association ("SLMA"), are supported by the
discretionary authority of the U.S. Government to purchase the agency's
obligations; still others, although issued by an instrumentality chartered by
the U.S. Government, like the Federal Farm Credit Bureau ("FFCB"), are supported
only by the credit of the instrumentality. The U.S. Government may choose not to
provide financial support to U.S. Government-sponsored agencies or
instrumentalities if it is not legally obligated to do so, in which case, if the
issuer were to default, and the Fund held securities of such issuer, it might
not be able to recover its investment from the U.S. Government.
LIQUID ASSETS. For cash management purposes, the Fund may hold a portion of
its assets in cash or cash equivalents, including shares of affiliated money
market funds. In anticipation of or in response to adverse market or other
conditions, or atypical circumstances such as unusually large cash inflows or
redemptions, the Fund may temporarily hold all or a portion of its assets in
cash, cash equivalents (including shares of affiliated money market funds) or
high-quality debt instruments. As a result, the Fund may not achieve its
investment objective.
Cash equivalents include money market instruments (such as certificates of
deposit, time deposits, bankers' acceptances from U.S. or foreign banks, and
repurchase agreements), shares of affiliated money market funds or high-quality
debt obligations (such as U.S. Government obligations, commercial paper, master
notes and other short-term corporate instruments and municipal obligations).
OTHER INVESTMENT COMPANIES. The Fund may purchase shares of other
investment companies. The Fund is prohibited under the 1940 Act from purchasing
shares of other investment companies that have AIM as an investment advisor (the
"AIM Funds"), absent an exemptive order from the SEC. The Fund has obtained such
an exemptive order allowing it to invest in money market funds that have AIM or
an affiliate of AIM as an investment advisor (the "Affiliated Money Market
Funds"), provided that investments in Affiliated Money Market Funds do not
exceed 25% of the total assets of the Fund.
The following restrictions apply to investments in other investment
companies: (i) the Fund may not purchase more than 3% of the total outstanding
voting stock of another investment company; (ii) the Fund may not invest more
than 5% of its total assets in securities issued by another investment company;
and (iii) the Fund may not invest more than 10% of its total assets in
securities issued by other investment companies. These restrictions do not apply
to the Fund's investments in Affiliated Money Market Funds, although such
investments are subject to the 25% restriction discussed above.
With respect to the Fund's purchase of shares of another investment
company, including an Affiliated Money Market Fund, the Fund will indirectly
bear its proportionate share of the advisory fees and other operating expenses
of such investment company.
EQUITY-LINKED DERIVATIVES. Equity- Linked Derivatives are interests in a
securities portfolio designed to replicate the composition and performance of a
particular index. Equity-Linked Derivatives are exchange traded. The performance
results of Equity-Linked Derivatives will not replicate exactly the performance
of the pertinent index due to transaction and other expenses, including fees to
service providers, borne by the Equity-Linked Derivatives. Examples of such
products include S&P Depositary Receipts ("SPDRs"), World Equity Benchmark
Series ("WEBs"), NASDAQ 100 tracking shares ("QQQs"), Dow Jones Industrial
Average Instruments ("DIAMONDS") and Optimised Portfolios As Listed Securities
("OPALS"). Investments in Equity-Linked Derivatives involve the same risks
associated with a direct investment in the types of securities included in the
indices such products are designed to track. There can be no assurance that the
trading price of the Equity-Linked
B-1
Derivatives will equal the underlying value of the basket of securities
purchased to replicate a particular index or that such basket will replicate the
index, investments in Equity-Linked Derivatives may constitute investments in
other investment companies and, therefore, the Fund may be subject to the same
investment restrictions with Equity-Linked Derivatives as with other investment
companies. See "Other Investment Companies."
INVESTMENTS IN ENTITIES WITH RELATIONSHIPS WITH THE FUND/ADVISOR. The Fund
may invest in securities issued, sponsored or guaranteed by the following types
of entities or their affiliates: (i) entities that sell shares of the AIM Funds;
(ii) entities that rate or rank the AIM Funds; (iii) exchanges on which the AIM
Funds buy or sell securities; and (iv) entities that provide services to the AIM
Funds (e.g., custodian banks). The Fund will decide whether to invest in or sell
securities issued by these entities based on the merits of the specific
investment opportunity.
B-2
EXHIBIT C
COMMON SHARES OUTSTANDING OF YOUR FUND ON RECORD DATE
As of December 1, 2006, there were ______ outstanding Common Shares of your
Fund.
C-1
EXHIBIT D
OWNERSHIP OF COMMON SHARES OF YOUR FUND
SIGNIFICANT HOLDERS
Listed below is the name, address and percent ownership of each person who,
as of December 1, 2006, to the best knowledge of Trust owned 5% or more of
Common Shares outstanding of your Fund. A shareholder who owns beneficially 25%
or more of the outstanding securities of your Fund is presumed to "control" the
fund as defined in the 1940 Act. Such control may affect the voting rights of
other shareholders.
NUMBER OF SHARES PERCENT OWNED OF
NAME AND ADDRESS OWNED RECORD*
- ---------------- ---------------- ----------------
* Trust has no knowledge of whether all or any portion of the shares owned of
record are also owned beneficially.
D-1
Appendix I
AIM SELECT REAL ESTATE INCOME FUND
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement"), dated as of
September 19, 2006, by and between AIM Select Real Estate Income Fund, a
Delaware statutory trust ("ASREIF"), acting on its own behalf and on behalf of
its series portfolio AIM Select Real Estate Income Fund, and AIM Counselor
Series Trust, a Delaware statutory trust (the "Trust"), acting on its own behalf
and on behalf of its series portfolio AIM Select Real Estate Income Fund.
BACKGROUND
ASREIF is organized as a series management investment company and is
registered with the Securities and Exchange Commission under the Investment
Company Act of 1940, as amended. ASREIF currently publicly offers shares of
beneficial interest representing interests in its single series portfolio which
has been designated as AIM Select Real Estate Income Fund and is referred to in
this Agreement as the "Current Fund."
The Board of Trustees of ASREIF has designated multiple classes of shares
of beneficial interest that represent interests in the Current Fund. Each of
these classes that is currently outstanding is listed on Schedule A to this
Agreement and is referred to in this Agreement as a "Current Fund Class."
The Board of Trustees of ASREIF has determined that it would be in the best
interests of the holders of the Current Fund's Common Shares (the
"Shareholders") for the Current Fund to reorganize as an investment portfolio of
the Trust for the sole purpose of converting the Current Fund from a closed-end
investment company to an open-end investment company. In anticipation of such
reorganization, the Board of Trustees of the Trust has established an additional
series portfolio corresponding to the Current Fund and designated such series
portfolio as AIM Select Real Estate Income Fund (the "New Fund"), and has
designated multiple classes of shares of beneficial interest in the New Fund
(each a "New Fund Class"). Schedule A lists the New Fund Classes.
The Current Fund desires to provide for its reorganization (the
"Reorganization") through the transfer of all of its assets to the New Fund in
exchange for the assumption by the New Fund of the liabilities of the Current
Fund and the issuance by the Trust to the Current Fund of shares of beneficial
interest in the New Fund ("New Fund Shares"). New Fund Shares received by the
Current Fund will have an aggregate net asset value equal to the aggregate net
asset value of the shares of the Current Fund immediately prior to the
Reorganization (the "Current Fund Shares"). The Current Fund will then
distribute the New Fund Shares it has received to the Shareholders.
The Reorganization is subject to, and shall be effected in accordance with,
the terms of this Agreement. This Agreement is intended to be and is adopted by
ASREIF, on its own behalf and on behalf of the Current Fund, and by the Trust,
on its own behalf and on behalf of the New Fund, as a Plan of Reorganization
within the meaning of the regulations under Section 368(a) of the Internal
Revenue Code of 1986, as amended.
NOW THEREFORE, the parties hereto, intending to be legally bound, hereby
agree as follows:
1. DEFINITIONS.
Any capitalized terms used herein and not otherwise defined shall have the
meanings set forth in the preamble or background to this Agreement. In addition,
the following terms shall have the following meanings:
1.1 "Assets" shall mean all assets including, without limitation, all cash,
cash equivalents, securities, receivables (including interest and dividends
receivable), claims and rights of action, rights to register shares under
applicable securities laws, books and records, deferred and prepaid expenses
shown as assets on the Current Fund's books, and other property owned by the
Current Fund at the Effective Time.
1.2 "Closing" shall mean the consummation of the transfer of Assets,
assumption of Liabilities and issuance of shares described in Sections 2.1 and
2.2 of this Agreement, together with the related acts necessary to consummate
the Reorganization, to occur on the date set forth in Section 3.1.
1.3 "Code" shall mean the Internal Revenue Code of 1986, as amended.
1.4 "Current Fund" shall mean the single series portfolio of ASREIF
established as AIM Select Real Estate Income Fund.
1.5 "Current Fund Class" shall mean each class of shares of beneficial
interest in the Current Fund as shown on Schedule A.
1.6 "Current Fund Shares" shall mean the shares of the Current Fund
outstanding immediately prior to the Reorganization.
1.7 "Effective Time" shall have the meaning set forth in Section 3.1.
1.8 "Liabilities" shall mean all liabilities of the Current Fund including,
without limitation, all debts, obligations, and duties of whatever kind or
nature, whether absolute, accrued, contingent, or otherwise, whether or not
determinable at the Effective Time, and whether or not specifically referred to
herein.
1.9 "New Fund" shall mean the series portfolio of the Trust established as
AIM Select Real Estate Income Fund.
1.10 "New Fund Class" shall mean each class of shares of beneficial
interest in the New Fund as set forth on Schedule A, certain of which shall
correspond to the existing Current Fund Classes as shown on Schedule B.
1.11 "New Fund Shares" shall mean those shares of beneficial interest in
the New Fund issued to the Current Fund hereunder.
2
1.12 "RIC" shall mean a "regulated investment company" (as defined under
Subchapter M of the Code).
1.13 "SEC" shall mean the Securities and Exchange Commission.
1.14 "Securities Act" shall mean the Securities Act of 1933, as amended.
1.15 "Shareholder(s)" shall mean the Current Fund's shareholder(s) of
record, determined as of the Effective Time.
1.16 "Shareholders Meeting" shall have the meaning set forth in Section
5.1.
1.17 "Transfer Agent" shall have the meaning set forth in Section 2.2.
1.18 "1940 Act" shall mean the Investment Company Act of 1940, as amended.
2. PLAN OF REORGANIZATION.
2.1 ASREIF agrees, on behalf of the Current Fund, to assign, sell, convey,
transfer and deliver all of the Assets of the Current Fund to the New Fund. The
Trust, on behalf of the New Fund, agrees in exchange therefor:
(a) to issue and deliver to the Current Fund the number of full and
fractional (rounded to the third decimal place) New Fund Shares of each New
Fund Class designated on Schedule B equal to the number of full and
fractional Current Fund Shares of each Current Fund Class designated on
Schedule B; and
(b) to assume all of the Current Fund's Liabilities.
Such transactions shall take place at the Closing.
2.2 At the Effective Time (or as soon thereafter as is reasonably
practicable), (a) the New Fund Shares issued pursuant to Section 5.2 shall be
redeemed by the New Fund at the New Fund's then-current net asset value and (b)
the Current Fund shall distribute the New Fund Shares received by it pursuant to
Section 2.1 to the Shareholders in exchange for such Shareholders' Current Fund
Shares. Such distribution shall be accomplished through opening accounts, by the
transfer agent for the Trust (the "Transfer Agent"), on the New Fund's share
transfer books in the Shareholders' names and transferring New Fund Shares to
such accounts. Each Shareholder's account shall be credited with the respective
pro rata number of full and fractional (rounded to the third decimal place) New
Fund Shares of each New Fund Class due that Shareholder. All outstanding Current
Fund Shares, including those represented by certificates, shall simultaneously
be canceled on the Current Fund's share transfer books. The Trust shall not
issue certificates representing the New Fund Shares in connection with the
Reorganization. However, certificates representing Current Fund Shares shall
represent New Fund Shares after the Reorganization.
3
2.3 Following receipt of the required shareholder vote and as soon as
reasonably practicable after the Closing, the status of the Current Fund as a
designated series of ASREIF shall be terminated.
2.4 Following receipt of the required shareholder vote and as soon as
reasonably practicable after distribution of the New Fund Shares pursuant to
Section 2.2, ASREIF shall cause a Form N-8F to be filed with the SEC to
deregister ASREIF as a registered investment company and, following the filing
of Form N-8F and the issuance by the SEC of an order declaring that ASREIF has
ceased to be an investment company, ASREIF shall file Certificate of
Cancellation with the Secretary of State of the State of Delaware to dissolve
ASREIF as a Delaware statutory trust; provided, however, that the filing of Form
N-8F and Certificate of Cancellation as aforesaid shall not be required if the
Reorganization shall not have been consummated.
2.5 Any transfer taxes payable on issuance of New Fund Shares in a name
other than that of the registered holder of the Current Fund Shares exchanged
therefor shall be paid by the person to whom such New Fund Shares are to be
issued, as a condition of such transfer.
2.6 Any reporting responsibility of ASREIF or the Current Fund to a public
authority is and shall remain its responsibility up to and including the date on
which it is terminated.
3. CLOSING.
3.1 The Closing shall occur at the principal office of ASREIF on March 12,
2007, or on such other date and at such other place upon which the parties may
agree. All acts taking place at the Closing shall be deemed to take place
simultaneously as of ASREIF's and the Trust's close of business on the date of
the Closing or at such other time as the parties may agree (the "Effective
Time").
3.2 ASREIF or its fund accounting agent shall deliver to the Trust at the
Closing, a certificate of an authorized officer verifying that the information
(including adjusted basis and holding period, by lot) concerning the Assets,
including all portfolio securities, transferred by the Current Fund to the New
Fund, as reflected on the New Fund's books immediately following the Closing,
does or will conform to such information on the Current Fund's books immediately
before the Closing. ASREIF shall cause the custodian for the Current Fund to
deliver at the Closing a certificate of an authorized officer of the custodian
stating that (a) the Assets held by the custodian will be transferred to the New
Fund at the Effective Time, and (b) all necessary taxes in conjunction with the
delivery of the Assets, including all applicable federal and state stock
transfer stamps, if any, have been paid or provision for payment has been made.
3.3 ASREIF shall deliver to the Trust at the Closing a list of the names
and addresses of each registered Shareholder of the Current Fund and the number
of outstanding Current Fund Shares of each Current Fund Class owned by each
registered Shareholder, all as of the Effective Time, certified by ASREIF's
Secretary or Assistant Secretary. The Trust shall cause the Transfer Agent to
deliver at the Closing a certificate as to the opening on the New Fund's share
transfer books of accounts in the registered Shareholders' names. The Trust
shall issue and deliver a confirmation to ASREIF evidencing the New Fund Shares
to be credited to the Current
4
Fund at the Effective Time or provide evidence satisfactory to ASREIF that such
shares have been credited to the Current Fund's account on such books. At the
Closing, each party shall deliver to the other such bills of sale, checks,
assignments, stock certificates, receipts, or other documents as the other party
or its counsel may reasonably request.
3.4 ASREIF and the Trust shall deliver to the other at the Closing a
certificate executed in its name by its President or a Vice President in form
and substance satisfactory to the recipient and dated the Effective Time, to the
effect that the representations and warranties it made in this Agreement are
true and correct at the Effective Time except as they may be affected by the
transactions contemplated by this Agreement.
4. REPRESENTATIONS AND WARRANTIES.
4.1 ASREIF represents and warrants on its own behalf and on behalf of the
Current Fund as follows:
(a) ASREIF is a statutory trust duly organized, validly existing, and
in good standing under the laws of the State of Delaware, and its
Certificate of Trust has been duly filed in the Office of the Secretary of
State of Delaware;
(b) ASREIF is duly registered as a closed-end series management
investment company under the 1940 Act, and such registration is in full
force and effect;
(c) The Current Fund is a duly established and designated series of
ASREIF;
(d) The prospectus and statement of additional information for Current
Fund as of the date on which they were issued did not contain any untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading.
(e) At the Closing, the Current Fund will have good and marketable
title to its Assets and full right, power, and authority to sell, assign,
transfer, and deliver its Assets free of any liens or other encumbrances;
and upon delivery and payment for the Assets, the New Fund will acquire
good and marketable title to the Assets;
(f) The New Fund Shares are not being acquired for the purpose of
making any distribution thereof, other than in accordance with the terms
hereof;
(g) The Current Fund is a "regulated investment company" as defined in
Section 851(a) of the Code; the Current Fund qualified for treatment as a
RIC for each taxable year since it commenced operations that has ended (or
will end) before the Closing and will continue to meet all the requirements
for such qualification for its current taxable year (and the Assets will be
invested at all times through the Effective Time in a manner that ensures
compliance with the foregoing); the Current Fund has no earnings and
profits accumulated in any taxable year in which the provisions of
Subchapter M did not apply to it; and the Current Fund has made all
distributions for each calendar year that has ended (or will end) before
the Closing that are necessary to
5
avoid the imposition of federal income or excise tax or has paid or
provided for the payment of any excise tax imposed for any such calendar
year;
(h) During the five-year period ending on the date of the
Reorganization, neither ASREIF nor any person related to ASREIF (as defined
in Section 1.368-1(e)(3) of the Federal income tax regulations adopted
pursuant to the Code without regard to Section 1.368-1(e)(3)(i)(A)) will
have directly or through any transaction, agreement, or arrangement with
any other person, acquired shares of the Current Fund for consideration
other than shares of the Current Fund, except for the repurchases by the
Current Fund of its Common Shares on or before July 18, 2006 in the
ordinary course of the Current Fund's business as a closed-end investment
company (which business shall be deemed to include the Current Fund's
repurchases of its Common Shares from time to time in accordance with Rule
10b-18 of the Securities Act of 1934, as amended) and the redemptions of
series of Auction Rate Preferred Shares of the Current Fund in accordance
with the terms of such series on or before November 10, 2006. There is no
plan or intention of the Shareholders who individually own 5% or more of
any Current Fund Shares and, to the best of ASREIF's knowledge, there is no
plan or intention of the remaining Shareholders to redeem or otherwise
dispose of any New Fund Shares to be received by them in the Reorganization
other than pursuant to individual investment decisions to redeem New Fund
Shares made by such Shareholders as shareholders of an open-end investment
company operating in accordance with the requirements of Section 22(e) of
the 1940 Act. Consequently, ASREIF is not aware of any plan that would
cause the percentage of Shareholder interests, if any, that will be
disposed of as a result of or at the time of the Reorganization to be one
percent (1%) or more of the shares of the Current Fund outstanding as of
the Effective Time, insofar as such individual investment decisions by
Shareholders would not be construed to be part of a plan;
(i) ASREIF is not under the jurisdiction of a court in a proceeding
under Title 11 of the United States Code or similar case within the meaning
of Section 368(a)(3)(A) of the Code;
(j) As of the Effective Time, the Current Fund will not have
outstanding any warrants, options, convertible securities, or any other
type of rights pursuant to which any person could acquire shares of Current
Fund;
(k) At the Effective Time, the performance of this Agreement with
respect to the Current Fund shall have been duly authorized by all
necessary action by the Shareholders;
(l) The fair market value of the Assets of the Current Fund
transferred to the New Fund will equal or exceed the sum of the Liabilities
assumed by the New Fund plus the amount of Liabilities, if any, to which
the transferred Assets are subject; and
(m) The Liabilities to be assumed by the New Fund and the liabilities,
if any, to which the Assets are subject, were incurred by the Current Fund
in the ordinary course of its business and are associated with the
transferred Assets.
6
4.2 The Trust represents and warrants on its own behalf and on behalf of
the New Fund as follows:
(a) The Trust is a statutory trust duly organized, validly existing,
and in good standing under the laws of the State of Delaware, and its
Certificate of Trust has been duly filed in the office of the Secretary of
State of Delaware;
(b) The Trust is duly registered as an open-end management investment
company under the 1940 Act. At the Effective Time, the New Fund Shares to
be issued pursuant to Section 2.1 of this Agreement shall be duly
registered under the Securities Act by a Registration Statement on Form
N-14 filed with the SEC;
(c) At the Effective Time, the New Fund will be a duly established and
designated series of the Trust;
(d) The New Fund has not commenced operations nor will it commence
operations until after the Closing;
(e) Prior to the Effective Time, there will be no issued and
outstanding shares in the New Fund or any other securities issued by the
Trust on behalf of the New Fund, except as provided in Section 5.2;
(f) No consideration other than New Fund Shares (and the New Fund's
assumption of the Liabilities) will be issued in exchange for the Assets in
the Reorganization;
(g) The New Fund Shares to be issued and delivered to the Current Fund
hereunder will, at the Effective Time, have been duly authorized and, when
issued and delivered as provided herein, will be duly and validly issued
and outstanding shares of the New Fund, fully paid and nonassessable and
will conform to the description thereof contained in the Trust's
Registration Statement on Form N-14 then in effect;
(h) The combined proxy statement/prospectus (the "Combined Proxy
Statement/Prospectus"), which forms a part of the Trust's Registration
Statement on Form N-14, shall be furnished to the Shareholders entitled to
vote at the Shareholders Meeting in accordance with normal market practice
for such transactions. The Combined Proxy Statement/Prospectus and related
Statement of Additional Information of the New Fund, when they become
effective, shall conform in all material respects to the applicable
requirements of the Securities Act and the 1940 Act and shall not include
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not materially
misleading.
(i) The New Fund will be a "fund" as defined in Section 851(g)(2) of
the Code and will meet all the requirements to qualify for treatment as a
RIC for its taxable year in which the Reorganization occurs;
7
(j) The Trust, on behalf of the New Fund, has no plan or intention to
issue additional New Fund Shares following the Reorganization except for
shares issued in the ordinary course of its business as an open-end
investment company; nor does the Trust, on behalf of the New Fund, have any
plan or intention to redeem or otherwise reacquire any New Fund Shares
issued pursuant to the Reorganization, other than in the ordinary course of
such business or to the extent necessary to comply with its legal
obligation under Section 22(e) of the 1940 Act;
(k) The New Fund does not have any plan or intention to sell or
otherwise dispose of any of the Assets, except for dispositions made in the
ordinary course of its business or dispositions necessary to maintain its
qualification as a RIC, although in the ordinary course of its business the
New Fund will continuously review its investment portfolio (as the Current
Fund did before the Reorganization) to determine whether to retain or
dispose of particular stocks or securities, including those included in the
Assets; and
(l) There is no plan or intention for the New Fund to be dissolved or
merged into another corporation or statutory trust or "fund" thereof
(within the meaning of Section 851(g)(2) of the Code) following the
Reorganization.
4.3 Each of ASREIF and the Trust, on its own behalf and on behalf of the
Current Fund or the New Fund, as appropriate, represents and warrants as
follows:
(a) The fair market value of the New Fund Shares of the New Fund
received by each Shareholder will be equal to the fair market value of the
Current Fund Shares of the Current Fund surrendered in exchange therefor;
(b) Immediately following consummation of the Reorganization, the
Shareholders will own all the New Fund Shares of the New Fund and will own
such shares solely by reason of their ownership of the Current Fund Shares
of the Current Fund immediately before the Reorganization;
(c) Each of the Current Fund and the New Fund shall bear all of its
costs and expenses in connection with the Reorganization without any
reimbursement therefore by the investment advisor of the Current Fund and
the New Fund or by any other person; provided, however, that the investment
advisor of the Current Fund and the New Fund or any other person may agree
to pay the costs and expenses of the Current Fund and the New Fund if such
expenses are solely and directly related to the Reorganization. Neither the
Current Fund nor the New Fund (nor any person related to the Current Fund
or the New Fund) will pay or assume any expenses of the Shareholders;
(d) There is no intercompany indebtedness between the Current Fund and
the New Fund that was issued or acquired, or will be settled, at a
discount; and
(e) Immediately following consummation of the Reorganization, the New
Fund will hold the same assets, except for assets distributed to
shareholders in the ordinary course of its business as a series of an
open-end investment company and assets used to pay expenses incurred in
connection with the Reorganization, and be subject to
8
the same liabilities that the Current Fund held or was subject to
immediately prior to the Reorganization. Assets used to pay (i) expenses,
(ii) all redemptions (other than the redemptions of series of Auction Rate
Preferred Shares of the Current Fund in accordance with the terms of such
series on or before November 10, 2006), and (iii) all distributions (other
than regular, normal distributions), made by the Current Fund after the
date of this Agreement will, in the aggregate, constitute less than one
percent (1%) of its net assets.
5. COVENANTS.
5.1 As soon as practicable after the date of this Agreement, ASREIF shall
call a meeting of the Shareholders (the "Shareholders Meeting") to consider and
act on this Agreement and, in connection therewith, the sale of the Current
Fund's assets and the termination of the Current Fund as a designated series of
ASREIF. The Board of Trustees of ASREIF shall recommend that the Shareholders
approve this Agreement and, in connection therewith, the sale of the Current
Fund's assets and the termination of the Current Fund as a designated series of
ASREIF. Approval of this Agreement by the Shareholders will authorize ASREIF,
and ASREIF hereby agrees, to vote on the matters referred to in Sections 5.2 and
5.3 for the New Fund.
5.2 Prior to the Closing, ASREIF shall acquire one New Fund Share in each
New Fund Class of the New Fund for the purpose of enabling ASREIF to ratify the
selection of the Trust's independent accountants, and to vote on the matters
referred to in Section 5.3.
5.3 Prior to the Closing, the Trust (on its own behalf and with respect to
the New Fund or each New Fund Class, as appropriate) shall enter into a Master
Investment Advisory Agreement, a Master Sub-Advisory Agreement, a Master
Administrative Services Agreement, Master Distribution Agreement, a Custodian
Agreement, and a Transfer Agency and Servicing Agreement; shall adopt plans of
distribution pursuant to Rule 12b-l of the 1940 Act, a multiple class plan
pursuant to Rule 18f-3 of the 1940 Act; and shall enter into or adopt, as
appropriate, such other agreements and plans as are necessary for the New Fund's
operation as a series of an open-end investment company. Each such agreement and
plan shall have been approved by the Trust's trustees and, to the extent
required by law, by such of those trustees who are not "interested persons" of
the Trust (as defined in the 1940 Act) and by ASREIF as the sole shareholder of
the New Fund.
5.4 The Trust shall file with the SEC one or more post-effective amendments
to the Trust's Registration Statement on Form N-lA under the Securities Act, and
the 1940 Act, which will contain such amendments to such Registration Statement
on Form N-1A as are determined by the Trust to be necessary and appropriate to
effect the Reorganization, and shall use its best efforts to have such
post-effective amendment or amendments to the Registration Statement become
effective prior to the Closing.
5.5 The Trust shall file with the SEC a Registration Statement on Form N-14
under the Securities Act, and the 1940 Act, (i) which will contain such
amendments to such Registration Statement on Form N-14 as are determined by the
Trust to be necessary and appropriate to effect the Reorganization, and (ii)
will register the New Fund Shares to be issued pursuant to Section 2.1 of this
Agreement, and shall use its best efforts to have such post-
9
effective amendment or amendments to the Registration Statement become effective
prior to the Closing.
6. CONDITIONS PRECEDENT.
The obligations of ASREIF, on its own behalf and on behalf of the Current
Fund, and the Trust, on its own behalf and on behalf of the New Fund, will be
subject to (a) performance by the other party of all its obligations to be
performed hereunder at or before the Effective Time, (b) all representations and
warranties of the other party contained herein being true and correct in all
material respects as of the date hereof and, except as they may be affected by
the transactions contemplated hereby, as of the Effective Time, with the same
force and effect as if made on and as of the Effective Time, and (c) the further
conditions that, at or before the Effective Time:
6.1 The Shareholders have approved this Agreement and the transactions
contemplated by this Agreement in accordance with applicable law.
6.2 All necessary filings shall have been made with the SEC and state
securities authorities, and no order or directive shall have been received that
any other or further action is required to permit the parties to carry out the
transactions contemplated hereby. All consents, orders, and permits of federal,
state, and local regulatory authorities (including the SEC and state securities
authorities) deemed necessary by either ASREIF or the Trust to permit
consummation, in all material respects, of the transactions contemplated hereby
shall have been obtained, except where failure to obtain such consults, orders,
and permits would not involve a risk of a material adverse effect on the assets
or properties of either the Current Fund or the New Fund, provided that either
ASREIF or the Trust may for itself waive any of such conditions.
6.3 The Registration Statement on Form N-14 filed by the Trust with respect
to New Fund Shares to be issued to the Shareholders in connection with the
Reorganization shall have become effective under the Securities Act and shall
include an undertaking therein to file the opinion referenced in Section 6.4 in
a post-effective amendment to such Registration Statement after the Closing
Date, and no stop order suspending the effectiveness thereof shall have been
issued and, to the best knowledge of the parties hereto, no investigation or
proceeding for that purpose shall have been instituted or be pending, threatened
or contemplated under the Securities Act.
6.4 Each of ASREIF and the Trust shall have received an opinion from
Ballard Spahr Andrews & Ingersoll, LLP as to the federal income tax consequences
mentioned below. In rendering such opinion, such counsel may rely as to factual
matters, exclusively and without independent verification, on the
representations made in this Agreement (or in separate letters of representation
that ASREIF and the Trust shall use their best efforts to deliver to such
counsel) and the certificates delivered pursuant to Section 3.4. Such opinion
shall be substantially to the effect that, based on the facts and assumptions
stated therein and conditioned on consummation of the Reorganization in
accordance with this Agreement, for federal income tax purposes:
(a) The Reorganization will constitute a "reorganization" within the
meaning of section 368(a) of the Code, and the Current Fund and the New
Fund will each be "a party to a reorganization" within the meaning of
section 368(b) of the Code;
10
(b) No gain or loss will be recognized to the Current Fund on the
transfer of its Assets to the New Fund in exchange solely for the New Fund
Shares and the New Fund's assumption of the Liabilities or on the
subsequent distribution of the New Fund Shares to the Shareholders, in
constructive exchange for the Current Fund Shares, in liquidation of the
Current Fund;
(c) No gain or loss will be recognized by the New Fund on its receipt
of the Assets in exchange for New Fund Shares and its assumption of the
Liabilities;
(d) The New Fund's basis for the Assets will be the same as the basis
thereof in the Current Fund's hands immediately before the Reorganization,
and the New Fund's holding period for those Assets will include the Current
Fund's holding period therefor;
(e) A Shareholder will recognize no gain or loss on the constructive
exchange of Current Fund Shares solely for New Fund Shares pursuant to the
Reorganization; and
(f) A Shareholder's basis for the New Fund Shares to be received in
the Reorganization will be the same as the basis for the Current Fund
Shares to be constructively surrendered in exchange therefor, and a
Shareholder's holding period for such New Fund Shares will include its
holding period for such Current Fund Shares, provided that such Current
Fund Shares are held as capital assets by the Shareholder at the Effective
Time.
6.5 No stop-order suspending the effectiveness of the Registration
Statement on Form N-1A shall have been issued, and no proceeding for that
purpose shall have been initiated or threatened by the SEC (and not withdrawn or
terminated).
At any time prior to the Closing, any of the foregoing conditions (except
those set forth in Sections 6.1, 6.3 and 6.4) may be waived by the trustees of
either ASREIF or the Trust if, in their judgment, such waiver will not have a
material adverse effect on the interests of the Shareholders.
7. EXPENSES.
Except as otherwise provided in Section 4.3(c), all expenses incurred in
connection with the transactions contemplated by this Agreement (regardless of
whether they are consummated) will be borne by the parties as they mutually
agree.
8. ENTIRE AGREEMENT.
Neither party has made any representation, warranty, or covenant not set
forth herein, and this Agreement constitutes the entire agreement between the
parties.
9. AMENDMENT.
This Agreement may be amended, modified, or supplemented at any time,
notwithstanding its approval with respect to the Current Fund by the
Shareholders, in such
11
manner as may be mutually agreed upon in writing by the parties; provided that
following such approval no such amendment shall have a material adverse effect
on the Shareholders' interests.
10. TERMINATION.
This Agreement may be terminated with respect to the Current Fund at any
time at or prior to the Effective Time, whether before or after approval by the
Shareholders:
10.1 By either ASREIF or the Trust (a) in the event of the other party's
material breach of any representation, warranty, or covenant contained herein to
be performed at or prior to the Effective Time, (b) if a condition to its
obligations has not been met and it reasonably appears that such condition will
not or cannot be met, or (c) if the Closing has not occurred on or before June
30, 2007; or
10.2 By the parties' mutual agreement.
Except as otherwise provided in Section 7, in the event of termination
under Sections 10.1(c) or 10.2, there shall be no liability for damages on the
part of either ASREIF or the Trust or the Current Fund or the New Fund, to the
other.
11. MISCELLANEOUS.
11.1 This Agreement shall be governed by and construed in accordance with
the internal laws of the State of Delaware; provided that, in the case of any
conflict between such laws and the federal securities laws, the latter shall
govern.
11.2 Nothing expressed or implied herein is intended or shall be construed
to confer upon or give any person, firm, trust, or corporation other than the
parties and their respective successors and assigns any rights or remedies under
or by reason of this Agreement.
11.3 The execution and delivery of this Agreement have been authorized by
the Trust's trustees, and this Agreement has been executed and delivered by a
duly authorized officer of the Trust in his or her capacity as an officer of the
Trust intending to bind the Trust as provided herein, and no officer, trustee or
shareholder of the Trust shall be personally liable for the liabilities or
obligations of the Trust incurred hereunder. The liabilities and obligations of
the Trust pursuant to this Agreement shall be enforceable against the assets of
the New Fund only and not against the assets of the Trust generally.
11.4 The execution and delivery of this Agreement have been authorized by
the ASREIF's trustees, and this Agreement has been executed and delivered by a
duly authorized officer of ASREIF in his or her capacity as an officer of ASREIF
intending to bind ASREIF as provided herein, and no officer, trustee or
shareholder of ASREIF shall be personally liable for the liabilities or
obligations of ASREIF incurred hereunder. The liabilities and obligations of
ASREIF pursuant to this Agreement shall be enforceable against the assets of the
Current Fund only and not against the assets of ASREIF generally.
IN WITNESS WHEREOF, each party has caused this Agreement to be executed and
delivered by its duly authorized officers as of the day and year first written
above.
12
Attest: AIM SELECT REAL ESTATE INCOME FUND, on
behalf of its single series portfolio
AIM Select Real Estate Income Fund
/s/ Stephen R. Rimes
- ------------------------------------
By: /s/ Philip A. Taylor
------------------------------------
Title: President
Attest: AIM COUNSELOR SERIES TRUST, on behalf
of its series portfolio AIM Select Real
Estate Income Fund
/s/ Stephen R. Rimes
- -------------------------------------
By: /s/ Philip A. Taylor
------------------------------------
Title: President
13
SCHEDULE A
Classes of Shares of the Current Fund
Common Shares
Auction Rate Preferred Shares, Series M (to be redeemed on or before
October 24, 2006)
Auction Rate Preferred Shares, Series W (to be redeemed on or before
November 2, 2006)
Auction Rate Preferred Shares, Series R (to be redeemed on or before
November 10, 2006)
Auction Rate Preferred Shares, Series F (to be redeemed on or before
October 30, 2006)
Classes of Shares of the New Fund
Class A Shares
Class B Shares
Class C Shares
Institutional Class Shares
14
SCHEDULE B
CLASSES OF THE CURRENT FUND CORRESPONDING CLASSES OF THE NEW FUND
- --------------------------- -------------------------------------
Common Shares Class A Shares
15
Appendix II
AIM SELECT REAL ESTATE INCOME FUND
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
MAY 31, 2002
SIX MONTHS (DATE INVESTMENT
ENDED YEAR ENDED DECEMBER 31, OPERATIONS COMMENCED)
JUNE 30, -------------------------------- TO DECEMBER 31,
2006 2005 2004 2003 2002
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value per common share, beginning of
period $ 17.49 $ 20.02 $ 17.83 $ 12.83 $ 14.33
- --------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.43 0.90 0.85 0.95(a) 0.49(a)
- --------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized
and unrealized) 1.05 (0.36) 3.16 5.33 (1.35)
================================================================================================================================
Total from investment operations 1.48 0.54 4.01 6.28 (0.86)
================================================================================================================================
Less distributions to auction rate preferred
shareholders from net investment income(b) (0.12) (0.17) (0.08) (0.06) (0.04)
================================================================================================================================
Total from investment operations attributable to
common shares 1.36 0.37 3.93 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 charged to paid-in capital -- -- -- (0.00) (0.10)
================================================================================================================================
Less distributions to common shareholders:
Dividends from net investment income (0.62) (1.24) (1.24) (0.79) (0.42)
- --------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- (1.66) (0.50) -- --
- --------------------------------------------------------------------------------------------------------------------------------
Return of capital -- -- -- (0.43) (0.08)
================================================================================================================================
Total distributions to common shareholders (0.62) (2.90) (1.74) (1.22) (0.50)
================================================================================================================================
Increase from common shares repurchased 0.05 -- -- -- --
================================================================================================================================
Net asset value per common share, end of period $ 18.28 $ 17.49 $ 20.02 $ 17.83 $ 12.83
================================================================================================================================
Market value per common share, end of period $ 15.55 $ 14.98 $ 17.50 $ 16.59 $ 12.30
================================================================================================================================
Net asset value total return(c)(d) 8.69% 4.44% 24.43% 51.41% (6.90)%
================================================================================================================================
Market value return(c)(d) 7.95% 2.33% 16.89% 46.95% (14.73)%
________________________________________________________________________________________________________________________________
================================================================================================================================
Ratios/supplemental data:
Net assets attributable to common shares, end of
period (000s omitted) $714,945 $698,380 $799,358 $712,069 $511,940
================================================================================================================================
Ratio of expenses to average net assets attributable
to common shares:
With fee waivers and/or expense reimbursements(e) 0.95%(f) 0.95% 0.93% 1.00%(a) 1.02%(a)(g)
- --------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense
reimbursements(e) 1.33%(f) 1.33% 1.32% 1.41%(a) 1.43%(a)(g)
================================================================================================================================
Ratio of net investment income to average net assets
attributable to common shares(e) 4.81%(f) 4.70% 4.64% 6.46%(a) 6.28%(a)(g)
================================================================================================================================
Ratio of distributions to auction rate preferred
shareholders to average net assets attributable to
common shares 1.27%(f) 0.86% 0.42% 0.43% 0.50%(g)
________________________________________________________________________________________________________________________________
================================================================================================================================
Portfolio turnover rate(h) 18% 17% 19% 37% 35%
________________________________________________________________________________________________________________________________
================================================================================================================================
Auction rate preferred shares:
Liquidation value, end of period (000s omitted) $205,000 $205,000 $205,000 $205,000 $205,000
================================================================================================================================
Total shares outstanding 8,200 8,200 8,200 8,200 8,200
================================================================================================================================
Asset coverage per share $112,188 $110,168 $122,483 $111,838 $ 87,432
================================================================================================================================
Liquidation and market value per share $ 25,000 $ 25,000 $ 25,000 $ 25,000 $ 25,000
________________________________________________________________________________________________________________________________
================================================================================================================================
</Table>
(a) As a result of changes in accounting principles generally accepted in
the United States of America, 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) Based on average number of common shares outstanding.
(c) Not annualized for periods less than one year.
(d) 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. 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.
(e) Ratios do not reflect the effect of dividend payments to auction rate
preferred shareholders; income ratios reflect income earned on
investments made with assets attributable to auction rate preferred
shares.
(f) Ratios are annualized and based on average daily net assets of
$725,977,641.
(g) Annualized.
(h) Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
F-13
Appendix III
AIM SELECT REAL ESTATE INCOME FUND
<Table>
MANAGEMENT'S DISCUSSION The Fund may seek to increase portfolio
OF FUND PERFORMANCE yield through borrowing to provide
leverage to the Fund, with the intent of
======================================================================================= generating a higher return on the assets
PERFORMANCE SUMMARY than the Fund pays to borrow those assets.
========================================== We also use strategies designed to reduce
During the six-month reporting period FUND VS. INDEXES the risk of short-term interest rate
ended June 30, 2006, AIM Select Real movement, which can affect the preferred
Estate Income Fund once again provided CUMULATIVE TOTAL RETURNS, 12/31/05-6/30/06 share borrowing rate.
shareholders with positive returns. The
Fund's primary objective is high current Fund at NAV 8.69% We attempt to control risk by
income with approximately 27.6% of the diversification of property types and
Fund's assets invested in preferred Fund at Market 7.95 geographic location as well as limiting
stocks. During the reporting period, REIT holding concentrations of any one
preferred stocks generally had lower S&P 500 Index security.
returns than REIT common stocks. As the (Broad Market Index) 2.71
proportion of preferred stocks is higher We will consider selling a holding
in the Fund than in the FTSE NAREIT U.S. FTSE NAREIT U.S. when:
Real Estate Equity Index, the Fund lagged Real Estate Equity Index
this index. (Style-Specific Index) 12.90 o Relative yield falls below desired
levels.
Since the Fund is a closed-end Lipper Closed-End
management investment company, shares may Real Estate Fund Index o Risk/return relationships change
trade at a discount or premium to NAV. As (Peer Group)(1) 12.32 significantly.
of June 30, 2006, the close of the
reporting period, the Fund's Common Shares Lipper Sector o Company fundamentals change (property
traded at a 14.9% discount to NAV, Equity Fund Category type, geography or management changes).
compared with 14.4% at the close of Average (Closed-End Funds) 7.28
2005. As of June 30, 2006, the close (Former Peer Group) o A more attractive yield on investment
opportunity is identified.
SOURCE: LIPPER INC.
MARKET CONDITIONS AND YOUR FUND
(1) Lipper recently reclassified AIM
Select Real Estate Income Fund from During the first four months of 2006,
the Lipper Sector Equity Fund Category equity markets generally posted positive
to the Lipper Closed-End Real Estate returns. However, over the last two months
Fund Category. of the reporting period, equity markets
========================================== retreated as investors became concerned
about persistently high energy prices and
of the fiscal year, the average discount rising interest rates and the potential
rate to NAV of closed-end real estate impact of both on economic growth and
funds available from Lipper was 11.5%, inflation. During the reporting period,
compared with 11.9% at the end of 2005. the U.S. Federal Reserve Board (the Fed)
continued its tightening policy, raising
======================================================================================= the key federal funds target rate to
5.25%.
HOW WE INVEST and management and structure review to
identify securities with: The REIT market easily outpaced the
Your Fund holds primarily real broad market as measured by the S&P 500
estate-oriented securities. We focus on o Potential to pay attractive dividends Index. REIT performance was positive
public companies whose value is driven by relative to similar properties. during the first
tangible assets. Our goal is to create a
portfolio that will provide high current o Quality underlying properties. (continued)
income. We use a fundamentals-driven
investment process, including property o Solid management teams.
market cycle analysis, property
evaluation, o Reasonable valuations relative to
similar companies.
========================================== ========================================== ==========================================
PORTFOLIO COMPOSITION TOP 10 SECURITY HOLDINGS* COMMON SHARE MARKET VALUE $15.55
By property type 1. Colonial Properties Trust 4.5% COMMON SHARE NET ASSET VALUE $18.28
Healthcare 19.6% 2. Brandywine Realty Trust 4.1 MARKET PRICE DISCOUNT (14.93%)
Diversified 15.6 3. Nationwide Health TOTAL NUMBER OF HOLDINGS* 123
Properties, Inc. 4.1
Office Properties 15.3 AT THE CLOSE OF THE REPORTING PERIOD, THE
4. Hospitality Properties Trust 3.6 FUND'S COMMON SHARES NAV STOOD AT $18.28,
Lodging-Resorts 9.7 AND ITS MARKET SHARE PRICE WAS $15.55.
5. National Retail Properties, Inc. 3.6 SINCE THE FUND IS A CLOSED-END MANAGEMENT
Shopping Centers 7.2 INVESTMENT COMPANY, SHARES OF THE FUND
6. Healthcare Realty Trust, Inc. 3.4 MAY TRADE AT A DISCOUNT FROM THE NAV.
Regional Malls 6.2 THIS CHARACTERISTIC IS SEPARATE AND
7. Senior Housing Properties Trust 3.4 DISTINCT FROM THE RISK THAT NAV COULD
Freestanding 5.9 DECREASE AS A RESULT OF INVESTMENT
8. iStar Financial Inc. 3.2 ACTIVITIES AND MAY BE A GREATER RISK TO
Apartments 4.6 INVESTORS EXPECTING TO SELL THEIR SHARES
9. Health Care Property AFTER A SHORT TIME. THE FUND CANNOT
Industrial/Office Mixed 4.5 Investors, Inc. 3.1 PREDICT WHETHER SHARES WILL TRADE AT,
ABOVE OR BELOW NAV.
Industrial Properties 3.6 10. Inland Real Estate Corp. 2.6 (continued)
Self Storage Facilities 2.4
Specialty Properties 1.9 The Fund's holdings are subject to change,
and there is no assurance that the Fund
Manufactured Homes 0.3 will continue to hold any particular
security.
Money Market Funds Plus
Other Assets Less Liabilities 3.2
*Excluding money market holdings.
========================================== ========================================== ==========================================
6
AIM SELECT REAL ESTATE INCOME FUND
<Table>
quarter of 2006 but retreated in April and institutions, was a detractor during the JOE V. RODRIGUEZ, JR.,
May. The sector rebounded in June to end period. Shares of the stock declined amid Director of Securities
the period with solid performance. The concern over the company's business [RODRIGUEZ Management, INVESCO
group's favorable relative performance was strategy. We continued to maintain our PHOTO] Real Estate, is lead
driven by a number of recurring themes, position because of its attractive manager of AIM Select
including ongoing REIT privatization relative valuation and believe it could Real Estate Income
activity; improving real estate operating make progress in addressing investor Fund. He oversees all
fundamentals; inclusion of two large-cap concerns. phases of the unit
REIT names into the S&P 500 Index and including
growing demand for stable, As the Fund's primary objective is securities research and administration.
income-producing assets and real estate in income, the Fund has exposure to REIT Mr. Rodriguez began his investment career
general. preferred stocks. Due to their in 1983 and joined INVESCO Real Estate,
fixed-income characteristics, REIT the Dallas-based investment management
Select holdings within the office preferred shares may behave more like affiliate of INVESCO Institutional (N.A.),
sector contributed the most to our bonds. During the year, REIT preferred Inc., in 1990. He has served on the
positive performance. CARRAMERICA REALTY stocks provided income but did not editorial boards of the National
CORP., which owns and operates office participate as fully in the share price Association of Real Estate Investment
properties, was a strong contributor. appreciation as REIT common stocks did. Trusts (NAREIT) as well as the
CarrAmerica Realty benefited after a Institutional Real Estate Securities
private equity firm, Blackstone Group, As part of our investment strategy, the Newsletter. He is a member of the National
announced in early March that it would pay Fund also leverages through the issuance Association of Business Economists,
$5.6 billion to acquire it. of preferred shares, which increases the American Real Estate Society and the
Fund's yield and may help or hurt NAV Institute of Certified Financial Planners.
Given the Fund's primary goal of depending on whether the REIT market is He also served as adjunct professor of
income, we continued to have meaningful going up or down. We leverage through the economics at the University of Texas at
exposure to the healthcare sector, as issuance of auction rate preferred shares Dallas. In addition, Mr. Rodriguez was a
healthcare REITs have historically and then swap a portion of the floating contributing author to Real Estate
produced a relatively high and steady rates paid on the preferred shares for Investment Trusts: Structure Analysis and
stream of income. Our positions within the fixed rates in an effort to mitigate Strategy, published by McGraw Hill. Mr.
health care and diversified sectors also interest rate uncertainty. Given the REIT Rodriguez earned his B.B.A. in economics
contributed positively to performance. environment during the reporting period, and finance as well as his M.B.A. in
Diversified REIT holding COLONIAL leverage helped the Fund by boosting finance from Baylor University.
PROPERTIES TRUST was our top contributor income and NAV.
to performance over the reporting period. MARK D. BLACKBURN,
The company owns a portfolio of IN CLOSING Chartered Financial
multifamily, office and retail properties [BLACKBURN Analyst, Director of
in the United States and reported positive We were encouraged by the resiliency of PHOTO] Investments, INVESCO
earnings. In addition, the company also the REIT market during the period. We Real Estate, is
made some recent acquisitions in the believe REIT prices largely reflected fair manager of AIM Select
Atlanta market that could potentially levels relative to the value of their Real Estate Income
allow them to grow and develop their underlying holdings. Although REIT prices Fund. Prior to joining
portfolio in the area. increased, we believe occupancy and rental INVESCO in 1998, he worked as an associate
rates have supported that growth and that director of research, focusing on equity
On the other hand, AMERICAN FINANCIAL REIT fundamentals continued to improve. securities research and recommendations
REALTY TRUST, which acquires, manages and Also important will be investor sentiment with a regional brokerage firm. He has
operates properties leased to regulated toward the interaction of economic growth approximately 19 years of experience in
financial against the backdrop of the Fed interest institutional investing and risk
rate policy. We appreciate your continued management, along with a background in
========================================== participation in AIM Select Real Estate evaluating the high-yield and convertible
Income Fund. securities markets. Mr. Blackburn earned a
THE FUND SHOULD NOT BE VIEWED AS A VEHICLE B.S. in accounting from Louisiana State
FOR TRADING PURPOSES. IT IS DESIGNED THE VIEWS AND OPINIONS EXPRESSED IN University and an M.B.A. from Southern
PRIMARILY FOR RISK-TOLERANT LONG-TERM MANAGEMENT'S DISCUSSION OF FUND Methodist University. He is a Certified
INVESTORS. PERFORMANCE ARE THOSE OF A I M ADVISORS, Public Accountant and a member of the
INC. THESE VIEWS AND OPINIONS ARE SUBJECT National Association of Real Estate
THE PERFORMANCE DATA QUOTED REPRESENT TO CHANGE AT ANY TIME BASED ON FACTORS Investment Trusts.
PAST PERFORMANCE AND CANNOT GUARANTEE SUCH AS MARKET AND ECONOMIC CONDITIONS.
COMPARABLE FUTURE RESULTS; CURRENT THESE VIEWS AND OPINIONS MAY NOT BE RELIED JAMES W. TROWBRIDGE,
PERFORMANCE MAY BE LOWER OF HIGHER. PLEASE UPON AS INVESTMENT ADVICE OR portfolio manager,
SEE YOUR FINANCIAL ADVISOR FOR THE MOST RECOMMENDATIONS, OR AS AN OFFER FOR A [TROWBRIDGE INVESCO Real Estate,
RECENT MONTH-END PERFORMANCE. FUND PARTICULAR SECURITY. THE INFORMATION IS PHOTO] is manager of AIM
PERFORMANCE FIGURES ARE HISTORICAL, AND NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF Select Real Estate
THEY REFLECT FUND EXPENSES, THE ANY MARKET, COUNTRY, INDUSTRY, SECURITY OR Income Fund. In 1989,
REINVESTMENT OF DISTRIBUTIONS (IF ANY) AND THE FUND. STATEMENTS OF FACT ARE FROM Mr. Trowbridge joined
CHANGES IN NAV FOR PERFORMANCE BASED ON SOURCES CONSIDERED RELIABLE, BUT A I M INVESCO Real Estate.
NAV AND CHANGES IN MARKET PRICE FOR ADVISORS, INC. MAKES NO REPRESENTATION OR With 31 years of real estate investment
PERFORMANCE BASED ON MARKET PRICE. THE WARRANTY AS TO THEIR COMPLETENESS OR experience for major institutional
VALUE OF YOUR FUND'S SHARES WILL FLUCTUATE ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE investors, Mr. Trowbridge is responsible
SO THAT YOU MAY HAVE A GAIN OR LOSS WHEN IS NO GUARANTEE OF FUTURE RESULTS, THESE for integrating his knowledge into
YOU SELL SHARES. INSIGHTS MAY HELP YOU UNDERSTAND OUR INVESCO's publicly traded REIT
INVESTMENT MANAGEMENT PHILOSOPHY. investments. Mr. Trowbridge earned his
HAD THE ADVISOR NOT WAIVED FEES AND/OR B.S. in finance from Indiana University.
REIMBURSED EXPENSES, RETURNS WOULD HAVE See important Fund and index He has completed numerous appraisal and
BEEN LOWER. disclosures inside front cover. income property courses sponsored by the
American Appraisal Institute and the
Mortgage Bankers Association, of which he
has been active on several income property
subcommittees. He is a member of the
National Association of Real Estate
Investment Trusts.
Assisted by the Real Estate Team
7
Appendix IV
AIM SELECT REAL ESTATE INCOME FUND
PROSPECTUS
DECEMBER 6, 2006
AIM Select Real Estate Income Fund's investment objective is to achieve high
current income. The fund's secondary investment objective is capital
appreciation.
- --------------------------------------------------------------------------------
This prospectus contains important information about the Class A, B and C shares
of the fund. Please read it before investing and keep it for future reference.
As with all other mutual fund securities, the Securities and Exchange Commission
has not approved or disapproved these securities or determined whether the
information in this prospectus is adequate or accurate. Anyone who tells you
otherwise is committing a crime.
An investment in the fund:
- - is not FDIC insured;
- - may lose value; and
- - is not guaranteed by a bank.
No public offering is currently being made to investors pursuant to this
prospectus, other than in connection with a proposed reorganization of AIM
Select Real Estate Income Fund from a closed-end fund to an open-end fund. The
reorganization is subject to approval by shareholders of the current closed-end
fund (Closed-End Fund). A public offering of shares of the open-end fund (fund)
is expected to commence upon the closing of the reorganization.
------------------------------
AIM SELECT REAL ESTATE INCOME FUND
------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<Table>
RISK/RETURN SUMMARY 1
- ------------------------------------------------------
PERFORMANCE INFORMATION 2
- ------------------------------------------------------
Annual Total Returns 2
Performance Table 2
FEE TABLE AND EXPENSE EXAMPLE 3
- ------------------------------------------------------
Fee Table 3
Expense Example 3
HYPOTHETICAL INVESTMENT AND EXPENSE
INFORMATION 4
- ------------------------------------------------------
INVESTMENT OBJECTIVES, STRATEGIES AND
RISKS 5
- ------------------------------------------------------
Objectives and Strategies 5
Risks 5
DISCLOSURE OF PORTFOLIO HOLDINGS 8
- ------------------------------------------------------
FUND MANAGEMENT 8
- ------------------------------------------------------
The Advisors 8
Advisor Compensation 8
Portfolio Manager(s) 9
OTHER INFORMATION 9
- ------------------------------------------------------
Sales Charges 9
Dividends and Distributions 9
FINANCIAL HIGHLIGHTS 10
- ------------------------------------------------------
SHAREHOLDER INFORMATION A-1
- ------------------------------------------------------
Choosing a Share Class A-1
Excessive Short-Term Trading Activity
Disclosures A-5
Purchasing Shares A-8
Redeeming Shares A-10
Exchanging Shares A-13
Pricing of Shares A-15
Taxes A-17
OBTAINING ADDITIONAL INFORMATION Back Cover
- ------------------------------------------------------
</Table>
The AIM Family of Funds, AIM and Design, AIM, AIM Funds, AIM Funds and Design,
AIM Investments, AIM Investor, AIM Lifetime America, AIM LINK, AIM Institutional
Funds, aimfunds.com, La Familia AIM de Fondos, La Familia AIM de Fondos and
Design, Invierta con DISCIPLINA, Invest with DISCIPLINE, The AIM College Savings
Plan, AIM Solo 401(k), AIM Investments and Design and Your goals. Our solutions.
are registered service marks and AIM Bank Connection, AIM Internet Connect, AIM
Private Asset Management, AIM Private Asset Management and Design, AIM Stylized
and/or Design, AIM Alternative Assets and Design and myaim.com are service marks
of A I M Management Group Inc. AIM Trimark is a registered service mark of A I M
Management Group Inc. and AIM Funds Management Inc.
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
prospectus, and you should not rely on such other information or
representations.
------------------------------
AIM SELECT REAL ESTATE INCOME FUND
------------------------------
RISK/RETURN SUMMARY
- --------------------------------------------------------------------------------
Investment Objectives................. The fund's primary investment objective
is to achieve high current income. The
fund's secondary investment objective is
capital appreciation.
Primary Investment Strategies......... The fund will invest, normally, at least
80% of its assets in equity and debt
securities of companies principally
engaged in the real estate industry and
other real estate-related investments.
The fund may invest up to 30% of its
total assets in non-investment grade
securities including non-investment grade
preferred stocks and convertible
preferred stocks and non-investment grade
debt securities (commonly known as "junk
bonds").
The fund may invest up to 25% of its
total assets in foreign securities.
The fund may engage in short sale
transactions.
The portfolio managers evaluate
securities based primarily on the
relative attractiveness of income, with a
secondary consideration for the potential
for capital appreciation. When
constructing the portfolio, the portfolio
managers use a process that considers
real property market cycle analysis, real
property evaluation, and
management/issuer review.
Please see "Investment Objectives,
Strategies and Risks" for additional
information regarding the fund's
investment strategies.
Principal Risks....................... Among the principal risks of investing in
the fund, which could adversely affect
its net asset value, yield and total
return are:
<Table>
Market Risk Equity Securities Risk
Real Estate Risk Foreign Securities Risk
Mortgage-Backed Securities Risk Interest Rate Risk
Credit Risk Lower Rated Securities Risk
Concentration Risk Short Sales Risk
Non-Diversification Risk Liquidity Risk
Management Risk
</Table>
Please see "Investment Objectives,
Strategies and Risks" for a description
of these risks and other risks of
investing in the fund.
There is a risk that you could lose all
or a portion of your investment in the
fund and that the income you may receive
from your investment may vary. The value
of your investment in the fund will rise
and fall with the prices of the
securities in which the fund invests. An
investment in the fund is not a deposit
in a bank and is not insured or
guaranteed by the Federal Deposit
Insurance Corporation or any other
governmental agency.
1
------------------------------
AIM SELECT REAL ESTATE INCOME FUND
------------------------------
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
As of the effective time of the reorganization, a bar chart and table will be
set forth below and will provide an indication of the risks of investing in the
fund. The bar chart and table will include the past performance (before and
after taxes) of the fund's predecessor (Closed-End Fund) through December 31,
2006, and will not necessarily be an indication of the fund's future
performance. The Closed-End Fund has the same investment objectives and similar
investment policies as the fund.
ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
As of the effective time of the reorganization, a bar chart will be set forth
below and will reflect changes in the performance of the Closed-End Fund's
Common shares from year to year through December 31, 2006.
PERFORMANCE TABLE
As of the effective time of the reorganization, a performance table will be set
forth below and will compare the fund's performance to that of a broad-based
securities market index, a style specific index and a peer group index for
periods ended December 31, 2006. The performance will be based upon the
performance of the fund's predecessor (Closed-End Fund). The indices may not
reflect payment of fees, expenses or taxes. The fund is not managed to track the
performance of any particular index, including the indices shown below, and
consequently, the performance of the fund may deviate significantly from the
performance of the indices shown below.
2
------------------------------
AIM SELECT REAL ESTATE INCOME FUND
------------------------------
FEE TABLE AND EXPENSE EXAMPLE
- --------------------------------------------------------------------------------
FEE TABLE
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
<Table>
<Caption>
SHAREHOLDER FEES
- -------------------------------------------------------------------------------
(fees paid directly from
your investment) CLASS A CLASS B CLASS C
- -------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Purchases
(as a percentage of
offering price) 5.50% None None
Maximum Deferred
Sales Charge (Load)
(as a percentage of
original purchase price
or redemption proceeds,
whichever is less) None(1) 5.00% 1.00%
Redemption/Exchange Fee
(as a percentage of amount redeemed/exchanged) 2.00%(2) None None
- -------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
ANNUAL FUND OPERATING EXPENSES(3)
- --------------------------------------------------------------------------------
(expenses that are deducted
from fund assets) CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
Management Fees 0.74% 0.74% 0.74%
Distribution and/or
Service (12b-1) Fees 0.25 1.00 1.00
Other Expenses(4) 0.29 0.29 0.29
Total Annual Fund Operating Expenses 1.28 2.03 2.03
- --------------------------------------------------------------------------------
</Table>
(1) A contingent deferred sales charge may apply in some cases. See "Shareholder
Information--Choosing a Share Class--Sales Charges."
(2) The fund will deduct a redemption fee of 2.00% from the redemption amount if
you sell, or exchange, your Class A shares received in connection with the
reorganization of the Closed-End Fund after holding them less than 12 months
after March 12, 2007. See "Shareholder Information--Redeeming
Shares--Redemption Fee for Class A Shares of AIM Select Real Estate Income
Fund" for more information.
(3) There is no guarantee that actual expenses will be the same as those shown
in the table.
(4) Other Expenses are based on estimated amounts for the current fiscal year.
If a financial institution is managing your account you may also be charged
a transaction or other fee by such financial institution.
As a result of 12b-1 fees, long-term shareholders in the fund may pay more
than the maximum permitted initial sales charge.
EXPENSE EXAMPLE
This example is intended to help you compare the costs of investing in different
classes of the fund with the cost of investing in other mutual funds.
The expense example assumes you:
(i) invest $10,000 in the fund for the time periods indicated;
(ii) redeem all of your shares at the end of the periods indicated;
(iii) earn a 5% return on your investment before operating expenses each
year;
(iv) incur the same amount in operating expenses each year; and,
(v) incur the applicable initial sales charges (see "Shareholder
Information--Choosing a Share Class" section of this prospectus for
applicability of initial sales charge).
The example includes the effect of any contractual fee waivers and/or
expense reimbursements. To the extent fees are waived and/or expenses are
reimbursed voluntarily, your expenses will be lower. Although your actual
returns and costs may be higher or lower, based on these assumptions your costs
would be:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
Class A $673 $934 $1,214 $2,010
Class B $706 $937 $1,293 $2,166
Class C $306 $637 $1,093 $2,358
- --------------------------------------------------------------------------------
</Table>
You would pay the following expenses if you did not redeem your shares:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
Class A $673 $934 $1,214 $2,010
Class B $206 $637 $1,093 $2,166
Class C $206 $637 $1,093 $2,358
- --------------------------------------------------------------------------------
</Table>
3
------------------------------
AIM SELECT REAL ESTATE INCOME FUND
------------------------------
HYPOTHETICAL INVESTMENT AND EXPENSE INFORMATION
- --------------------------------------------------------------------------------
The settlement agreement between A I M Advisors, Inc. and certain of its
affiliates and the New York Attorney General requires A I M Advisors, Inc. and
certain of its affiliates to provide certain hypothetical information regarding
investment and expense information. The chart below is intended to reflect the
annual and cumulative impact of the fund's expenses, including investment
advisory fees and other fund costs, on the fund's return over a 10-year period.
The example reflects the following:
- You invest $10,000 in the fund and hold it for the entire 10 year period;
- Your investment has a 5% return before expenses each year;
- Hypotheticals both with and without any applicable initial sales charge
applied (see "Shareholder Information--Choosing a Share Class" section of
this prospectus for applicability of initial sales charge); and
- There is no sales charge on reinvested dividends.
There is no assurance that the annual expense ratio will be the expense ratio
for the fund classes for any of the years shown. To the extent that A I M
Advisors, Inc. and certain of its affiliates make any fee waivers and/or expense
reimbursements pursuant to a voluntary arrangement, your actual expenses may be
less. This is only a hypothetical presentation made to illustrate what expenses
and returns would be under the above scenarios, your actual returns and expenses
are likely to differ (higher or lower) from those shown below.
<Table>
<Caption>
CLASS A INCLUDES MAXIMUM
FRONT END SALES CHARGE(2) YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5
- ---------------------------------------------------------------------------------------------
Annual Expense Ratio(1) 1.28% 1.28% 1.28% 1.28% 1.28%
Cumulative Return Before
Expenses 5.00% 10.25% 15.76% 21.55% 27.63%
Cumulative Return After
Expenses (1.98)% 1.66% 5.44% 9.37% 13.43%
End of Year Balance $ 9,801.54 $10,166.16 $10,544.34 $10,936.59 $11,343.43
Estimated Annual Expenses $ 673.21 $ 127.79 $ 132.55 $ 137.48 $ 142.59
- ---------------------------------------------------------------------------------------------
<Caption>
CLASS A INCLUDES MAXIMUM
FRONT END SALES CHARGE(2) YEAR 6 YEAR 7 YEAR 8 YEAR 9 YEAR 10
Annual Expense Ratio(1) 1.28% 1.28% 1.28% 1.28% 1.28%
Cumulative Return Before
Expenses 34.01% 40.71% 47.75% 55.13% 62.89%
Cumulative Return After
Expenses 17.65% 22.03% 26.57% 31.28% 36.16%
End of Year Balance $11,765.40 $12,203.08 $12,657.03 $13,127.87 $13,616.23
Estimated Annual Expenses $ 147.90 $ 153.40 $ 159.10 $ 165.02 $ 171.16
- ---------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
CLASS A WITHOUT FRONT END
SALES CHARGE(2) YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5
- ---------------------------------------------------------------------------------------------
Annual Expense Ratio(1) 1.28% 1.28% 1.28% 1.28% 1.28%
Cumulative Return Before
Expenses 5.00% 10.25% 15.76% 21.55% 27.63%
Cumulative Return After
Expenses 3.72% 7.58% 11.58% 15.73% 20.04%
End of Year Balance $10,372.00 $10,757.84 $11,158.03 $11,573.11 $12,003.63
Estimated Annual Expenses $ 130.38 $ 135.23 $ 140.26 $ 145.48 $ 150.89
- ---------------------------------------------------------------------------------------------
<Caption>
CLASS A WITHOUT FRONT END
SALES CHARGE(2) YEAR 6 YEAR 7 YEAR 8 YEAR 9 YEAR 10
- ---------------------------------------------------------------------------------------------
Annual Expense Ratio(1) 1.28% 1.28% 1.28% 1.28% 1.28%
Cumulative Return Before
Expenses 34.01% 40.71% 47.75% 55.13% 62.89%
Cumulative Return After
Expenses 24.50% 29.13% 33.94% 38.92% 44.09%
End of Year Balance $12,450.16 $12,913.31 $13,393.68 $13,891.93 $14,408.71
Estimated Annual Expenses $ 156.50 $ 162.33 $ 168.36 $ 174.63 $ 181.12
- ---------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
CLASS B(2) YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5
- ---------------------------------------------------------------------------------------------
Annual Expense Ratio(1) 2.03% 2.03% 2.03% 2.03% 2.03%
Cumulative Return Before
Expenses 5.00% 10.25% 15.76% 21.55% 27.63%
Cumulative Return After
Expenses 2.97% 6.03% 9.18% 12.42% 15.76%
End of Year Balance $10,297.00 $10,602.82 $10,917.72 $11,241.98 $11,575.87
Estimated Annual Expenses $ 206.01 $ 212.13 $ 218.43 $ 224.92 $ 231.60
- ---------------------------------------------------------------------------------------------
<Caption>
CLASS B(2) YEAR 6 YEAR 7 YEAR 8 YEAR 9 YEAR 10
- ---------------------------------------------------------------------------------------------
Annual Expense Ratio(1) 2.03% 2.03% 2.03% 1.28% 1.28%
Cumulative Return Before
Expenses 34.01% 40.71% 47.75% 55.13% 62.89%
Cumulative Return After
Expenses 19.20% 22.74% 26.38% 31.08% 35.96%
End of Year Balance $11,919.67 $12,273.69 $12,638.21 $13,108.36 $13,595.99
Estimated Annual Expenses $ 238.48 $ 245.56 $ 252.86 $ 164.78 $ 170.91
- ---------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
CLASS C(2) YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5
- ---------------------------------------------------------------------------------------------
Annual Expense Ratio(1) 2.03% 2.03% 2.03% 2.03% 2.03%
Cumulative Return Before
Expenses 5.00% 10.25% 15.76% 21.55% 27.63%
Cumulative Return After
Expenses 2.97% 6.03% 9.18% 12.42% 15.76%
End of Year Balance $10,297.00 $10,602.82 $10,917.72 $11,241.98 $11,575.87
Estimated Annual Expenses $ 206.01 $ 212.13 $ 218.43 $ 224.92 $ 231.60
- ---------------------------------------------------------------------------------------------
<Caption>
CLASS C(2) YEAR 6 YEAR 7 YEAR 8 YEAR 9 YEAR 10
- ---------------------------------------------------------------------------------------------
Annual Expense Ratio(1) 2.03% 2.03% 2.03% 2.03% 2.03%
Cumulative Return Before
Expenses 34.01% 40.71% 47.75% 55.13% 62.89%
Cumulative Return After
Expenses 19.20% 22.74% 26.38% 30.14% 34.00%
End of Year Balance $11,919.67 $12,273.69 $12,638.21 $13,013.57 $13,400.07
Estimated Annual Expenses $ 238.48 $ 245.56 $ 252.86 $ 260.37 $ 268.10
- ---------------------------------------------------------------------------------------------
</Table>
(1) Your actual expenses may be higher or lower than those shown.
(2) The hypothetical assumes you hold your investment for a full 10 years.
Therefore, any applicable deferred sales charge that might apply in years
one through six for Class B and year one for Class C, have not been
deducted. In addition, any redemption fee that might apply in year one for
Class A shares, has not been deducted.
4
------------------------------
AIM SELECT REAL ESTATE INCOME FUND
------------------------------
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
- --------------------------------------------------------------------------------
OBJECTIVES AND STRATEGIES
The fund's primary investment objective is to achieve high current income. The
fund's secondary investment objective is capital appreciation. The fund's
investment objectives may be changed by the Board of Trustees without
shareholder approval.
The fund will invest, normally, at least 80% of its assets in equity and
debt securities of companies principally engaged in the real estate industry and
other real estate-related investments.
The fund considers a company to be principally engaged in the real estate
industry if at least 50% of its assets, gross income or net profits are
attributable to ownership, construction, financing, management or sale of
residential, commercial or industrial real estate. Companies in the real estate
industry may include, but are not limited to, real estate investment trusts
(REITs) that either own properties or make construction or mortgage loans, real
estate developers, companies with substantial real estate holdings, and other
companies whose products and services are related to the real estate industry.
Other real estate related investments may include, but are not limited to,
commercial or residential mortgage backed securities (MBS), commercial property
whole loans, and other types of equity and debt securities related to the real
estate industry.
It is the fund's intention to invest between 30% and 70% of its total assets
in common stocks of companies principally engaged in the real estate industry.
The actual percentage of common stocks in the fund's portfolio may vary over
time based upon the portfolio managers' assessment of market conditions.
The fund may invest up to 30% of its total assets in non-investment grade
securities including non-investment grade preferred stocks and convertible
preferred stocks and non-investment grade debt securities (commonly known as
"junk bonds"). The fund will only invest in non-investment grade securities that
are rated CCC or higher by Standard & Poor's or Fitch, Inc., or rated Caa or
higher by Moody's Investor Service, Inc., or unrated securities to be deemed to
be of comparable quality.
The fund may sell securities short, which means selling a security it does
not yet own in anticipation of purchasing the same security at a later date at a
lower price. The fund will not sell a security short, if as a result of such
short sale, the aggregate market value of all securities sold short exceeds 15%
of the fund's net assets.
The fund may invest up to 25% of its assets in foreign securities.
The fund may invest up to 15% of its net assets in illiquid securities.
The fund is non-diversified, which means that it can invest a greater
percentage of its assets in any one issuer than a diversified fund can. With
respect to 50% of its assets, a non-diversified fund is permitted to invest more
than 5% of its assets in the securities of any one issuer. The fund will not
invest more than 10% of its total assets in the securities of any one issuer
other than the U.S. Government.
The fund's investments in the types of securities described in this
prospectus vary, from time to time, and at any time, the fund may not be
invested in all types of securities described in this prospectus. Any percentage
limitations with respect to assets of the fund are applied at the time of
purchase or, in the case of short sales, at the time the security is sold short.
The portfolio managers evaluate securities based primarily on the relative
attractiveness of income with a secondary consideration for the potential for
capital appreciation. When constructing the portfolio, the portfolio managers
use a process that considers real property market cycle analysis, real property
evaluation and management/issuer review. Specific factors that are evaluated in
the investment process include (i) forecasted occupancy and rental rates, (ii)
property locations, (iii) underlying asset quality, (iv) management and issuer
depth and skill, (v) alignment of interests, (e.g. share ownership by
management), (vi) overall debt levels, (vii) fixed charge coverage and debt
service capacity, (viii) dividend growth potential, and (ix) relative value and
risk versus alternative investments.
The fundamental research and pricing factors are combined to identify
attractively priced securities with relatively favorable long-term prospects.
The portfolio managers also consider the relative liquidity of each security in
the construction of the fund.
The portfolio managers will consider selling a security if: (1) its relative
valuation falls below desired levels, (2) its risk/return profile changes, (3)
its fundamentals change, or (4) a more attractive investment opportunity is
identified.
The fund typically maintains a portion of its assets in cash, which is
generally invested in money market funds advised by the fund's advisor. The fund
holds cash to handle its daily cash needs, which include payment of fund
expenses, redemption requests and securities transactions. The amount of cash
held by the fund may increase if the fund takes a temporary defensive position.
The fund may take a temporary defensive position when it receives an unusually
large redemption request, or it there are inadequate investment opportunities
due to adverse market, economic, political or other conditions. A larger amount
of cash could negatively affect the fund's investment results in a period of
rising market prices; conversely it could reduce the magnitude of the fund's
loss in the event of falling market prices and provide liquidity to make
additional investments or to meet redemptions.
RISKS
The principal risks of investing in the fund are:
Market Risk--The prices of and the income generated by securities held by
the fund may decline in response to certain events, including those directly
involving the companies whose securities are owned by the fund; general economic
and market conditions; regional or global economic instability; and currency and
interest rate fluctuations. Certain securities selected for the fund's portfolio
may decline in value more than the overall stock market. In general, the
securities of small companies are more volatile than those of mid-size companies
or large companies.
5
------------------------------
AIM SELECT REAL ESTATE INCOME FUND
------------------------------
Equity Securities Risk--The prices of equity securities change in response
to many factors including the historical and prospective earnings of the issuer,
the value of its assets, general economic conditions, interest rates, investor
perceptions and market liquidity.
Real Estate Risk--Because the fund concentrates its assets in the real
estate industry, an investment in the fund will be closely linked to the
performance of the real estate markets. Property values may fall due to
increasing vacancies or declining rents resulting from economic, legal, cultural
or technological developments.
Real estate company share prices may drop because of the failure of
borrowers to pay their loans and poor management. Many real estate companies,
including REITs, utilize leverage (and some may be highly leveraged), which
increases investment risk and could adversely affect a real estate company's
operations and market value in periods of rising interest rates. Financial
covenants related to real estate company leveraging may affect the company's
ability to operate effectively. Real estate risks may also arise where real
estate companies fail to carry adequate insurance, or where a real estate
company may become liable for removal or other costs related to environmental
contamination.
Real estate companies tend to be small to medium-sized companies. Real
estate company shares, like other smaller company shares, can be more volatile
than, and perform differently from, larger company shares. There may be less
trading in a smaller company's shares, which means that buy and sell
transactions in those shares could have a larger impact on the share's price
than is the case with larger company shares.
The fund could conceivably hold real estate directly if a company defaults
on debt securities the fund owns. In that event, an investment in the fund may
have additional risks relating to direct ownership in real estate, including
environmental liabilities, difficulties in valuing and selling real estate,
declines in the value of the properties, risks relating to general and local
economic conditions, changes in the climate for real estate, increases in taxes,
expenses and costs, changes in laws, casualty and condemnation losses, rent
control limitations and increases in interest rates.
The value of a fund's investment in REITs is affected by the factors listed
above, as well as the management skill of the persons managing the REIT. Because
REITs have expenses of their own, the fund will bear a proportionate share of
those expenses.
Foreign Securities Risk--Foreign securities have additional risks, including
fluctuations in the value of the U.S. dollar relative to the values of other
currencies, relatively low market liquidity, decreased publicly available
information about issuers, inconsistent and potentially less stringent
accounting, auditing and financial reporting requirements and standards of
practice comparable to those applicable to domestic issuers, expropriation,
nationalization or other adverse political or economic developments and the
difficulty of enforcing obligations in other countries. Investments in foreign
securities may also be subject to dividend withholding or confiscatory taxes,
currency blockage and/or transfer restrictions.
Mortgage-Backed Securities Risk--These securities are subject to prepayment
or call risk, which is the risk that payments from the borrower may be received
earlier or later than expected due to changes in the rate at which the
underlying loans are prepaid. Faster prepayments often happen when market
interest rates are falling. As a result, the fund may need to reinvest these
early payments at lower interest rates, thereby reducing its income. Conversely,
when interest rates rise, prepayments may happen more slowly, causing the
underlying loans to be outstanding for a longer time, which can cause the market
value of the security to fall because the market may view its interest rate as
too low for a longer-term investment.
Interest Rate Risk--Interest rate risk is the risk that fixed-income
investments such as preferred stocks and debt securities, and to a lesser extent
dividend-paying common stocks such as REIT common shares, will decline in value
because of changes in interest rates. When market interest rates rise, the
market value of such securities generally will fall. The fund's investment in
such securities means that the net asset value of its shares will tend to
decline if market interest rates rise. Falling interest rates may also prompt
some issuers to refinance existing debt possibly causing the fund to reinvest in
debt securities with lower interest rates causing your investment in the fund to
lose value.
Credit Risk--Credit risk is the risk of loss on an investment due to the
deterioration of an issuer's financial health. Such a deterioration of financial
health may result in a reduction of the credit rating of the issuer's securities
and may lead to the issuer's inability to honor its contractual obligations
including making timely payment of interest and principal. Credit ratings are a
measure of credit quality. Although a downgrade or upgrade of a bond's credit
ratings may or may not affect its price, a decline in credit quality may make
bonds less attractive, thereby driving up the yield on the bond and driving down
the price. Declines in credit quality can result in bankruptcy for the issuer
and permanent loss of investment.
Lower Rated Security Risk--Securities that are below investment grade are
regarded as having predominately speculative characteristics with respect to the
capacity to pay interest and repay principal. Lower rated securities may be more
susceptible to real or perceived adverse economic and competitive industry
conditions than higher grade securities. The prices of lower-rated securities
have been found to be less sensitive to interest rate changes than more highly
rated investments, but more sensitive to adverse economic downturns or
individual corporate developments. Yields on lower-rated securities will
fluctuate. If the issuer of lower-rated securities defaults, the fund may incur
additional expenses to seek recovery.
The secondary markets in which lower-rated securities are traded may be less
liquid then the market for higher grade securities. Less liquidity in the
secondary trading markets could adversely affect the price at which the fund
could sell a particular lower-rated security when necessary to meet liquidity
needs or in response to a specific economic event, such as a deterioration in
the creditworthiness of the issuer, and could adversely affect and cause large
fluctuations in the net asset value of the fund's shares. Adverse publicity and
investor perceptions may decrease the values and liquidity of high yield
securities.
6
------------------------------
AIM SELECT REAL ESTATE INCOME FUND
------------------------------
Concentration Risk--Because the fund concentrates its investments in REITs
and other companies related to the real estate industry, the value of your
shares may rise and fall more than the value of shares of a fund that invests in
a broader range of companies.
Short Sales Risk--If the fund sells a security short, and the security
increases in value, the fund will have to pay the higher price to purchase the
security. Since there is no limit on how much the price of the security can
increase, the fund's exposure is unlimited. The more the fund pays to purchase
the security, the more it will lose on the transaction and the more the price of
your shares will be affected. The fund will also incur transaction costs to
engage in this practice.
Non-Diversification Risk--Because it is non-diversified, the fund may invest
in fewer issuers than if it were diversified. Thus, the value of the fund's
shares may vary more widely, and the fund may be subject to greater market and
credit risk, than if the fund invested more broadly.
Liquidity Risk--A security is considered to be illiquid if the fund is
unable to sell such security at a fair price within a reasonable amount of time.
A security may be deemed illiquid due to a lack of trading volume in the
security or if the security is privately placed and not traded in any public
market or is otherwise restricted from trading. The fund may be unable to sell
its illiquid securities at the time or price it desires and could lose its
entire investment in such securities.
Management Risk--There is no guarantee that the investment techniques and
risk analyses used by the fund's portfolio managers will produce the desired
results.
7
------------------------------
AIM SELECT REAL ESTATE INCOME FUND
------------------------------
DISCLOSURE OF PORTFOLIO HOLDINGS
- --------------------------------------------------------------------------------
The fund's portfolio holdings will be disclosed on a regular basis in its
semi-annual and annual reports to shareholders, and on Form N-Q, which is filed
with the Securities and Exchange Commission (SEC) within 60 days of the fund's
first and third fiscal quarter-ends. In addition, portfolio holdings information
for the fund will be available at http://www.aiminvestments.com. To reach this
information, access the fund's overview page on the website. Links to the
following fund information will be located in the upper right side of this
website page:
<Table>
<Caption>
- ---------------------------------------------------------------------------------------------------------------------------------
APPROXIMATE DATE OF INFORMATION REMAINS
INFORMATION WEBSITE POSTING POSTED ON WEBSITE
- ---------------------------------------------------------------------------------------------------------------------------------
Top ten holdings as of month-end 15 days after month-end Until posting of the following month's top
ten holdings
- ---------------------------------------------------------------------------------------------------------------------------------
Complete portfolio holdings as of 30 days after calendar quarter-end For one year
calendar quarter-end
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
A description of the fund's policies and procedures with respect to the
disclosure of the fund's portfolio holdings is available in the fund's Statement
of Additional Information, which will be available at
http://www.aiminvestments.com.
FUND MANAGEMENT
- --------------------------------------------------------------------------------
THE ADVISORS
A I M Advisors, Inc. (the advisor or AIM) serves as the fund's investment
advisor and manages the investment operations of the fund and has agreed to
perform or arrange for the performance of the fund's day-to-day management. The
advisor is located at 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173.
INVESCO Institutional (N.A.), Inc. (the subadvisor or INVESCO Institutional) is
located at One Midtown Plaza, 1360 Peachtree Street, N.E., Atlanta, Georgia,
30309. The subadvisor is responsible for the fund's day-to-day management,
including the fund's investment decisions and the execution of securities
transactions with respect to the fund.
The advisor has acted as an investment advisor since its organization in
1976 and the subadvisor has acted as an investment advisor since 1979. Today,
the advisor, together with its subsidiaries, advises or manages over 200
investment portfolios, including the fund, encompassing a broad range of
investment objectives.
On October 8, 2004, INVESCO Funds Group, Inc. (IFG) (the former investment
advisor to certain AIM funds), AIM and A I M Distributors, Inc. (ADI) (the
distributor of the retail AIM funds) reached final settlements with certain
regulators, including the SEC, the New York Attorney General and the Colorado
Attorney General, to resolve civil enforcement actions and/or investigations
related to market timing and related activity in the AIM funds, including those
formerly advised by IFG. As part of the settlements, a $325 million fair fund
($110 million of which is civil penalties) has been created to compensate
shareholders harmed by market timing and related activity in funds formerly
advised by IFG. Additionally, AIM and ADI created a $50 million fair fund ($30
million of which is civil penalties) to compensate shareholders harmed by market
timing and related activity in funds advised by AIM, which was done pursuant to
the terms of the settlement. These two fair funds may increase as a result of
contributions from third parties who reach final settlements with the SEC or
other regulators to resolve allegations of market timing and/or late trading
that also may have harmed applicable AIM funds. These two fair funds will be
distributed in accordance with a methodology to be determined by AIM's
independent distribution consultant, in consultation with AIM and the
independent trustees of the AIM funds and acceptable to the staff of the SEC.
Civil lawsuits, including a regulatory proceeding and purported class action
and shareholder derivative suits, have been filed against certain of the AIM
funds, IFG, AIM, ADI and/or related entities and individuals, depending on the
lawsuit, alleging among other things: (i) that the defendants permitted improper
market timing and related activity in the funds; (ii) that certain funds
inadequately employed fair value pricing; (iii) that the defendants charged
excessive advisory and/or distribution fees and failed to pass on to
shareholders the perceived savings generated by economies of scale and that the
defendants adopted unlawful distribution plans; and (iv) that the defendants
improperly used the assets of the funds to pay brokers to aggressively promote
the sale of the funds over other mutual funds and that the defendants concealed
such payments from investors by disguising them as brokerage commissions.
Additional civil lawsuits related to the above or other matters may be filed
by regulators or private litigants against the AIM funds, IFG, AIM, ADI and/or
related entities and individuals in the future. You can find more detailed
information concerning all of the above matters, including the parties to the
civil lawsuits and summaries of the various allegations and remedies sought in
such lawsuits, in the fund's Statement of Additional Information.
As a result of the matters discussed above, investors in the AIM 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.
ADVISOR COMPENSATION
The advisor is to receive a fee from the fund calculated at the annual rate of
0.75% of the first $250 million, 0.74% of the next $250 million, 0.73% of the
next $500 million, 0.72% of the next $1.5 billion, 0.71% of the next $2.5
billion, 0.70% of the next $2.5 billion, 0.69% of the next $2.5 billion and
0.68% of the amount over $10 billion of average daily net assets.
8
------------------------------
AIM SELECT REAL ESTATE INCOME FUND
------------------------------
A discussion regarding the basis for the Board of Trustees approving the
investment advisory agreement and the sub-advisory agreement of the fund is
available in the fund's Statement of Additional Information and will be
available in its reports to shareholders once it has commenced operations.
PORTFOLIO MANAGER(S)
The following individuals are jointly and primarily responsible for the
day-to-day management of the fund's portfolio:
- - Joe V. Rodriguez, Jr. (lead manager), Portfolio Manager, who has been
responsible for the fund since 2007 and has been associated with the
subadvisor and/or its affiliates since 1990. As the lead manager, Mr.
Rodriguez generally has final authority over all aspects of the fund's
investment portfolio, including but not limited to, purchases and sales of
individual securities, portfolio construction techniques, portfolio risk
assessment, and the management of daily cash flows in accordance with
portfolio holdings. The degree to which Mr. Rodriguez may perform these
functions, and the nature of these functions, may change from time to time.
- - Mark D. Blackburn, Portfolio Manager, who has been responsible for the fund
since 2007 and has been associated with the subadvisor and/or its affiliates
since 1998.
- - Paul S. Curbo, Portfolio Manager, who has been responsible for the fund since
2007 and has been associated with the subadvisor and/or its affiliates since
1998.
- - Jim W. Trowbridge, Portfolio Manager, who has been responsible for the fund
since 2007 and has been associated with the subadvisor and/or its affiliates
since 1989.
They are assisted by the subadvisor's Real Estate Team, which is comprised
of portfolio managers and research analysts. Team members provide research
support and make securities recommendations with respect to the fund's
portfolio, but do not have day-to-day management responsibilities with respect
to the fund's portfolio. Members of the team may change from time to time. More
information on the portfolio managers and the team, including biographies of
other members of the team, may be found on the advisor's website at
http://www.aiminvestments.com. The website is not a part of this prospectus.
The fund's Statement of Additional Information provides additional
information about the portfolio managers' investments in the fund, a description
of their compensation structure, and information regarding other accounts they
manage.
OTHER INFORMATION
- --------------------------------------------------------------------------------
SALES CHARGES
Purchases of Class A shares of AIM Select Real Estate Income Fund are subject to
the maximum 5.50% initial sales charge as listed under the heading "CATEGORY I
Initial Sales Charges" in the "Shareholder Information--Choosing a Share Class"
section of this prospectus. Certain purchases of Class A shares at net asset
value may be subject to the contingent deferred sales charge listed in that
section. Purchases of Class B and Class C shares are subject to the contingent
deferred sales charges listed in that section. A redemption fee of 2.00% will be
deducted from the redemption amount if you sell or exchange Class A shares
received in connection with the reorganization of the Closed-End Fund after
holding them less than 12 months after March 12, 2007.
DIVIDENDS AND DISTRIBUTIONS
The fund expects that its distributions, if any, will consist primarily of
income.
DIVIDENDS
The fund generally declares dividends on each business day and pays dividends,
if any, monthly.
CAPITAL GAINS DISTRIBUTIONS
The fund generally distributes long-term and short-term capital gains, if any,
annually.
9
------------------------------
AIM SELECT REAL ESTATE INCOME FUND
------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
As of the effect time of the reorganization, a financial highlights table will
show the Closed-End Fund's (the fund's predecessor) financial history for the
past five fiscal years ended December 31, 2006. The financial highlights table
is intended to help you understand the Closed-End Fund's financial performance.
The Closed-End Fund has the same investment objectives and similar investment
policies as the fund. Certain information reflects financial results for a
single Closed-End Fund share.
The total returns in the table will represent the rate that an investor
would have earned (or lost) on an investment in the Closed-End Fund (assuming
reinvestment of all dividends and distributions).
The information has been audited by , whose report,
along with the Closed-End Fund's financial statements, is included in the
Closed-End Fund's annual report, which is available upon request.
Financial highlights for Class A, Class B and Class C shares of the fund
will be included in the fund's semi-annual and annual reports to shareholders
when the fund has completed its first semi-annual and annual periods.
Financial highlights of the Closed-End Fund will be included in this
prospectus at the effective time of the reorganization.
10
-------------
THE AIM FUNDS
-------------
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
In addition to the fund, AIM serves as investment advisor to many other mutual
funds (the funds). The following information is about all the funds.
CHOOSING A SHARE CLASS
All of the funds have multiple classes of shares, each class representing an
interest in the same portfolio of investments. Certain classes have higher
expenses than other classes which may lower the return on your investment
relative to a less expensive class. In deciding which class of shares to
purchase, you should consider, among other things, (i) the length of time you
expect to hold your shares, (ii) the provisions of the distribution plan, if
any, applicable to the class (iii) the eligibility requirements that apply to
purchases of a particular class, and (iv) any services you may receive in making
your investment determination. In addition, you should consider the other
factors described below. Please contact your financial advisor to assist you in
making your decision.
<Table>
<Caption>
CLASS A(1) CLASS A3 CLASS B(4) CLASS C CLASS R INVESTOR CLASS
- ---------------------------------------------------------------------------------------------------------------
- - Initial sales - No initial - No initial sales - No initial - No initial - No initial
charge sales charge charge sales charge sales charge sales charge
- - Reduced or waived - No contingent - Contingent - Contingent - Generally, no - No contingent
initial sales deferred sales deferred sales deferred sales contingent deferred sales
charge for charge charge on charge on deferred sales charge
certain redemptions redemptions charge(2)
purchases(2) within six years within one
year(7)
- - Lower - 12b-1 fee of - 12b-1 fee of - 12b-1 fee of - 12b-1 fee of - 12b-1 fee of
distribution and 0.25% 1.00% 1.00%(8) 0.50% 0.25%(3)
service (12b-1)
fee than Class B,
Class C or Class
R shares (See
"Fee Table and
Expense
Example")(3)
- Does not - Converts to - Does not - Does not - Does not
convert to Class A shares convert to convert to convert to
Class A shares on or about the Class A shares Class A shares Class A shares
end of the month
which is at
least eight
years after the
date on which
shares were
purchased along
with a pro rata
portion of its
reinvested
dividends and
distributions(5)
- - Generally more - Available only - Purchase orders - Generally more - Generally, - Closed to new
appropriate for for a limited limited to appropriate only available investors,
long-term number of amount less than for short-term to employee except as
investors funds $100,000(6) investors benefit described in
- Purchase plans(10) the
orders limited "Purchasing
to amount less Shares -- Grandfathered
than Investors"
$1,000,000(9) section of
your
prospectus
- ---------------------------------------------------------------------------------------------------------------
</Table>
Certain funds also offer Institutional Class shares to certain eligible
institutional investors; consult the fund's Statement of Additional Information
for the Institutional Class shares for details.
(1) As of the close of business on October 30, 2002, Class A shares of AIM
Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund were
closed to new investors.
(2) A contingent deferred sales charge may apply in some cases.
(3) Class A shares of AIM Tax-Free Intermediate Fund and Investor Class shares
of AIM Money Market Fund, AIM Tax-Exempt Cash Fund, Premier Portfolio,
Premier Tax-Exempt Portfolio and Premier U.S. Government Money Portfolio do
not have a 12b-1 fee.
(4) Class B shares are not available as an investment for retirement plans
maintained pursuant to Section 401 of the Internal Revenue Code. These
plans include 401(k) plans (including AIM Solo 401(k) plans), money
purchase pension plans and profit sharing plans. Plans that have existing
accounts invested in Class B shares will continue to be allowed to make
additional purchases.
(5) AIM Money Market Fund: Class B shares convert to AIM Cash Reserve Shares.
(6) Any purchase order for Class B shares in an amount equal to or in excess of
$100,000 will be rejected. Although our ability to monitor or enforce this
limitation for underlying shareholders of omnibus accounts is severely
limited, we have advised the administrators of omnibus accounts maintained
by brokers, retirement plans and approved fee-based programs of this
limitation.
(7) A contingent deferred sales charge (CDSC) does not apply to redemption of
Class C shares of AIM Enhanced Short Bond Fund or AIM Short Term Bond Fund
unless you exchange Class C shares of another fund that are subject to a
CDSC into AIM Enhanced Short Bond Fund or AIM Short Term Bond Fund.
(8) Class C shares of AIM Floating Rate Fund have a Rule 12b-1 fee of 0.75%.
MCF--12/06
A-1
-------------
THE AIM FUNDS
-------------
(9) Any purchase order for Class C shares in an amount equal to or in excess of
$1,000,000 will be rejected. Although our ability to monitor or enforce
this limitation for underlying shareholders of omnibus accounts is severely
limited, we have advised the administrators of omnibus accounts maintained
by brokers, retirement plans and approved fee-based programs of this
limitation.
(10) Generally, Class R shares are only available to employee benefit plans.
These may include, for example, retirement and deferred compensation plans
maintained pursuant to Sections 401, 403, 457 of the Internal Revenue Code;
nonqualified deferred compensation plans; health savings accounts
maintained pursuant to Section 223 of the Internal Revenue Code,
respectively; and voluntary employees' beneficiary arrangements maintained
pursuant to Section 501(c)(9) of the Internal Revenue Code. Retirement
plans maintained pursuant to Section 401 generally include 401(k) plans,
profit sharing plans, money purchase pension plans, and defined benefit
plans. Retirement plans maintained pursuant to Section 403 must be
established and maintained by non-profit organizations operating pursuant
to Section 501(c)(3) of the Internal Revenue Code in order to purchase
Class R shares. Class R shares are generally not available for individual
retirement accounts such as traditional, Roth, SEP, SAR-SEP and SIMPLE
IRAs.
- --------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE (12b-1) FEES
Each fund (except AIM Tax-Free Intermediate Fund with respect to its Class A
shares and AIM Money Market Fund, AIM Tax-Exempt Cash Fund, Premier Portfolio,
Premier Tax-Exempt Portfolio and Premier U.S. Government Money Portfolio with
respect to their Investor Class shares) has adopted 12b-1 plans that allow the
fund to pay distribution fees to A I M Distributors, Inc. (ADI) for the sale and
distribution of its shares and fees for services provided to shareholders, all
or a substantial portion of which are paid to the dealer of record. Because the
fund pays these fees out of its assets on an ongoing basis, over time these fees
will increase the cost of your investment and may cost you more than paying
other types of sales charges.
SALES CHARGES
Sales charges on the funds and classes of those funds are detailed below. In
addition, information on sales charges is also available, free of charge, on the
fund's website, www.aiminvestments.com under the tab "My Account", Service
Center, as well as in the fund's Statement of Additional Information, which is
also available free of charge. As used below, the term "offering price" with
respect to all categories of Class A shares includes the initial sales charge.
INITIAL SALES CHARGES
The funds are grouped into four categories with respect to initial sales
charges. The "Other Information" section of your prospectus will tell you in
what category your particular fund is classified.
CATEGORY I INITIAL SALES CHARGES
- ------------------------------------------------------------------------------
<Table>
<Caption>
INVESTOR'S
SALES CHARGE
---------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
- ------------------------------------------------------------------------------
Less than $ 25,000 5.50% 5.82%
$ 25,000 but less than $ 50,000 5.25 5.54
$ 50,000 but less than $ 100,000 4.75 4.99
$100,000 but less than $ 250,000 3.75 3.90
$250,000 but less than $ 500,000 3.00 3.09
$500,000 but less than $1,000,000 2.00 2.04
- ------------------------------------------------------------------------------
</Table>
CATEGORY II INITIAL SALES CHARGES
- ------------------------------------------------------------------------------
<Table>
<Caption>
INVESTOR'S
SALES CHARGE
---------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
- ------------------------------------------------------------------------------
Less than $ 50,000 4.75% 4.99%
$ 50,000 but less than $ 100,000 4.00 4.17
$100,000 but less than $ 250,000 3.75 3.90
$250,000 but less than $ 500,000 2.50 2.56
$500,000 but less than $1,000,000 2.00 2.04
- ------------------------------------------------------------------------------
</Table>
CATEGORY III INITIAL SALES CHARGES
- ------------------------------------------------------------------------------
<Table>
<Caption>
INVESTOR'S
SALES CHARGE
---------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
- ------------------------------------------------------------------------------
Less than $ 100,000 1.00% 1.01%
$100,000 but less than $ 250,000 0.75 0.76
$250,000 but less than $1,000,000 0.50 0.50
- ------------------------------------------------------------------------------
</Table>
CATEGORY IV INITIAL SALES CHARGES
- ------------------------------------------------------------------------------
<Table>
<Caption>
INVESTOR'S
SALES CHARGE
---------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
- ------------------------------------------------------------------------------
Less than $ 100,000 2.50% 2.56%
$100,000 but less than $ 250,000 2.00 2.04
$250,000 but less than $ 500,000 1.50 1.52
$500,000 but less than $1,000,000 1.25 1.27
- ------------------------------------------------------------------------------
</Table>
SHARES SOLD WITHOUT A SALES CHARGE
You will not pay:
- - an initial sales charge on purchases of Class A shares of AIM Tax-Exempt Cash
Fund or AIM Cash Reserve Shares of AIM Money Market Fund;
- - an initial sales charge or a contingent deferred sales charge (CDSC) on Class
A3 shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate
Fund; or
- - an initial sales charge or a CDSC on Investor Class shares of any fund.
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PURCHASE OF CLASS A SHARES AT NET ASSET VALUE
Certain categories of persons are permitted to purchase Class A shares of the
funds without paying an initial sales charge because their transactions involve
little expense, such as persons who have a relationship with the funds or with
AIM and certain programs for purchase.
Accordingly, the following purchasers will not pay initial sales charges on
purchases of Class A shares:
- - A I M Management Group Inc., and its affiliates, or their clients;
- - Any current or retired officer, director, trustee or employee (and members of
their Immediate Family) of A I M Management Group Inc., its affiliates or The
AIM Family of Funds, and any foundation, trust, employee benefit plan or
deferred compensation plan established exclusively for the benefit of, or by,
such persons;
- - Sales representatives and employees (and members of their Immediate Family) of
selling group members of financial institutions that have arrangements with
such selling group members;
- - Purchases through approved fee-based programs;
- - Employer-sponsored retirement plans that are Qualified Purchasers, provided
that:
a. a plan's assets are at least $1 million;
b. there are at least 100 employees eligible to participate in the plan; or
c. all plan transactions are executed through a single omnibus account per AIM
fund and the financial institution or service organization has entered into
the appropriate agreement with the distributor; further provided that
retirement plans maintained pursuant to Section 403(b) of the Internal
Revenue Code of 1986, as amended, (the Code) are not eligible to purchase
shares at net asset value based on the aggregate investment made by the plan
or the number of eligible employees unless the employer or plan sponsor is a
tax-exempt organization operated pursuant to Section 501(c)(3) of the Code;
- - Shareholders of Investor Class shares of an AIM fund;
- - Qualified Tuition Programs created and maintained in accordance with Section
529 of the Code;
- - Insurance company separate accounts;
- - Transfers to IRAs that are attributable to AIM fund investments held in
403(b)(7)s, SIMPLEs, SEPs, SARSEPs, Traditional or Roth IRAs; and
- - Rollovers from AIM-held 403(b)(7)s, 401(K)s, SEPs, SIMPLEs, SARSEPs, Money
Purchase Plans, and Profit Sharing Plans if the assets are transferred to an
AIM IRA.
For more detailed information regarding eligibility to purchase or redeem shares
at reduced or without sales charges, or a description of any defined term used
above, please consult the fund's website at www.aiminvestments.com and click on
the links "My Account", Service Center, or consult the fund's Statement of
Additional Information, which is available on that same website or upon request
free of charge.
CONTINGENT DEFERRED SALES CHARGES FOR CLASS A SHARES AND AIM CASH RESERVE SHARES
OF AIM MONEY MARKET FUND
You can purchase $1,000,000 or more (a Large Purchase) of Class A shares of
Category I, II and IV funds at net asset value. However, if you redeem these
shares prior to 18 months after the date of purchase, they will be subject to a
CDSC of 1%.
If you currently own Class A shares of a Category I, II or IV fund and make
additional purchases at net asset value that result in account balances of
$1,000,000 or more, the additional shares purchased will be subject to an
18-month, 1% CDSC.
Some retirement plans can purchase Class A shares at their net asset value
per share. If ADI paid a concession to the dealer of record in connection with a
Large Purchase of Class A shares by a retirement plan, the Class A shares may be
subject to a 1% CDSC at the time of redemption if all retirement plan assets are
redeemed within one year from the date of the plan's initial purchase.
You may be charged a CDSC when you redeem AIM Cash Reserve Shares of AIM
Money Market Fund or Class A shares of AIM Tax-Exempt Cash Fund if you acquired
those shares through an exchange, and the shares originally purchased were
subject to a CDSC.
ADI may pay a dealer concession and/or a service fee for Large Purchases and
purchases by certain retirement plans.
CONTINGENT DEFERRED SALES CHARGES FOR CLASS B AND CLASS C SHARES OF FUNDS OTHER
THAN AIM ENHANCED SHORT BOND FUND AND AIM SHORT-TERM BOND FUND
You can purchase Class B and Class C shares at their net asset value per share.
However, when you redeem them, they are subject to a CDSC in the following
percentages:
<Table>
<Caption>
YEAR SINCE
PURCHASE MADE CLASS B CLASS C
- --------------------------------------------------------------------------------
First 5% 1%
Second 4 None
Third 3 None
Fourth 3 None
Fifth 2 None
Sixth 1 None
Seventh and following None None
- --------------------------------------------------------------------------------
</Table>
CONTINGENT DEFERRED SALES CHARGES FOR CLASS C SHARES OF AIM ENHANCED SHORT BOND
FUND AND AIM SHORT-TERM BOND FUND
You can purchase Class C shares of AIM Enhanced Short Bond Fund and AIM Short
Term Bond Fund at their net asset value and not subject to a CDSC. However, you
may be charged a CDSC when you redeem Class C shares of AIM Enhanced Short Bond
Fund and AIM Short Term Bond Fund if you acquired those shares through an
exchange, and the shares originally purchased were subject to a CDSC.
CONTINGENT DEFERRED SALES CHARGES FOR CLASS R SHARES
You can purchase Class R shares at their net asset value per share. If ADI pays
a concession to the dealer of record, however, the Class R
MCF--12/06
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shares are subject to a 0.75% CDSC at the time of redemption if all retirement
plan assets are redeemed within 12 months from the date of the retirement plan's
initial purchase.
COMPUTING A CDSC
The CDSC on redemptions of shares is computed based on the lower of their
original purchase price or current market value, net of reinvested dividends and
capital gains distributions. In determining whether to charge a CDSC, we will
assume that you are redeeming shares on which there is no CDSC first and, then,
shares in the order of purchase.
REDUCED SALES CHARGES AND SALES CHARGE EXCEPTIONS
You may qualify for reduced sales charges or sales charge exceptions. To qualify
for these reductions or exceptions, you or your financial advisor must notify
the transfer agent at the time of purchase that your purchase qualifies for such
treatment. Certain individuals and employer-sponsored retirement plans may link
accounts for the purpose of qualifying for lower initial sales charges. You or
your financial consultant must provide other account numbers to be considered
for Rights of Accumulation, or mark the Letter of Intent section on the account
application, or provide other relevant documentation, so that the transfer agent
can verify your eligibility for the reduction or exception. For more detailed
information regarding eligibility to purchase or redeem shares at reduced or
without sales charges, please consult the fund's website at
www.aiminvestments.com and click on the links "My Account", Service Center, or
consult the fund's Statement of Additional Information, which is available on
that same website or upon request free of charge.
REDUCED SALES CHARGES
You may be eligible to buy Class A shares at reduced initial sales charge rates
under Rights of Accumulation or Letters of Intent under certain circumstances.
Purchases of Class A shares of AIM Tax-Exempt Cash Fund, Class A3 shares of
AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund, AIM Cash
Reserve Shares of AIM Money Market Fund and Investor Class shares of any fund
will not be taken into account in determining whether a purchase qualifies for a
reduction in initial sales charges pursuant to Rights of Accumulation or Letters
of Intent.
RIGHTS OF ACCUMULATION
You may combine your new purchases of Class A shares of a fund with fund shares
currently owned (Class A, B, C or R) and investments in the AIM College Savings
Plan(SM) for the purpose of qualifying for the lower initial sales charge rates
that apply to larger purchases. The applicable initial sales charge for the new
purchase is based on the total of your current purchase and the public offering
price of all other shares you own. The transfer agent may automatically link
certain accounts registered in the same name, with the same taxpayer
identification number, for the purpose of qualifying you for lower initial sales
charge rates.
LETTERS OF INTENT
Under a Letter of Intent (LOI), you commit to purchase a specified dollar amount
of Class A shares of the funds during a 13-month period. The amount you agree to
purchase determines the initial sales charge you pay. If the full face amount of
the LOI is not invested by the end of the 13-month period, your account will be
adjusted to the higher initial sales charge level for the amount actually
invested.
INITIAL SALES CHARGE EXCEPTIONS
You will not pay initial sales charges
- - on shares purchased by reinvesting dividends and distributions;
- - when exchanging shares among certain funds; or
- - when a merger, consolidation, or acquisition of assets of a fund occurs.
CONTINGENT DEFERRED SALES CHARGE (CDSC) EXCEPTIONS
You will not pay a CDSC
- - if you redeem Class B shares you held for more than six years;
- - if you redeem Class C shares you held for more than one year;
- - if you redeem Class C shares of a fund other than AIM Enhanced Short Bond Fund
or AIM Short Term Bond Fund and you received such Class C shares by exchanging
Class C shares of AIM Enhanced Short Bond Fund or AIM Short Term Bond Fund;
- - if you redeem Class C shares of AIM Enhanced Short Bond Fund or AIM Short Term
Bond Fund unless you received such Class C shares by exchanging Class C shares
of another fund and the original purchase was subject to a CDSC;
- - if you are a participant in a retirement plan and your plan redeems, at any
time, less than all of the Class A, C or Class R shares held through such plan
that would otherwise be subject to a CDSC;
- - if you are a participant in a retirement plan and your plan redeems, after
having held them for more than one year from the date of the plan's initial
purchase, all of the Class A, C or Class R shares held through such plan that
would otherwise be subject to a CDSC;
- - if you are a participant in a qualified retirement plan and redeem Class A,
Class C or Class R shares in order to fund a distribution;
- - if you participate in the Systematic Redemption Plan and withdraw up to 12% of
the value of your shares that are subject to a CDSC in any twelve-month
period;
- - if you redeem shares to pay account fees;
- - for redemptions following the death or post-purchase disability of a
shareholder or beneficial owner;
- - if you redeem shares acquired through reinvestment of dividends and
distributions; and
- - on increases in the net asset value of your shares.
There may be other situations when you may be able to purchase or redeem shares
at reduced or without sales charges. For more detailed information regarding
eligibility to purchase or redeem shares at reduced or without sales charges,
please consult the fund's
MCF--12/06
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website at www.aiminvestments.com and click on the links "My Account", Service
Center, or consult the fund's Statement of Additional Information, which is
available on that same website or upon request free of charge.
ADDITIONAL PAYMENTS TO FINANCIAL ADVISORS
The financial advisor through which you purchase your shares may receive all or
a portion of the sales charges and Rule 12b-1 distribution fees discussed above.
In addition to those payments, ADI or one or more of its corporate affiliates
(collectively, ADI Affiliates) may make additional cash payments to financial
advisors in connection with the promotion and sale of shares of the funds. These
additional cash payments may include cash revenue sharing payments and other
payments for certain administrative services, transaction processing services
and certain other marketing support services. ADI Affiliates make these payments
from their own resources, from ADI's retention of underwriting concessions and
from payments to ADI under Rule 12b-1 plans. In this context, "financial
advisors" include any broker, dealer, bank (including bank trust departments),
registered investment advisor, financial planner, retirement plan administrator
and any other financial intermediary having a selling, administration or similar
agreement with ADI Affiliates.
ADI Affiliates make revenue sharing payments as incentives to certain
financial advisors to promote and sell shares of the funds. The benefits ADI
Affiliates receive when they make these payments include, among other things,
placing the funds on the financial advisor's funds sales system, placing the
funds on the financial advisor's preferred or recommended fund list, and access
(in some cases on a preferential basis over other competitors) to individual
members of the financial advisor's sales force or to the financial advisor's
management. Revenue sharing payments are sometimes referred to as "shelf space"
payments because the payments compensate the financial advisor for including the
funds in its fund sales system (on its "sales shelf"). ADI Affiliates compensate
financial advisors differently depending typically on the level and/or type of
considerations provided by the financial advisor. The revenue sharing payments
ADI Affiliates make may be calculated on sales of shares of the funds
(Sales-Based Payments), in which case the total amount of such payments shall
not exceed 0.25% of the public offering price of all shares sold by the
financial advisor during the particular period. Such payments also may be
calculated on the average daily net assets of the applicable AIM funds
attributable to that particular financial advisor (Asset-Based Payments), in
which case the total amount of such cash payments shall not exceed 0.25% per
annum of those assets during a defined period. Sales-Based Payments primarily
create incentives to make new sales of shares of the funds and Asset-Based
Payments primarily create incentives to retain previously sold shares of the
funds in investor accounts. ADI Affiliates may pay a financial advisor either or
both Sales-Based Payments and Asset-Based Payments.
ADI Affiliates also may make other payments to certain financial advisors
for processing certain transactions or account maintenance activities (such as
processing purchases, redemptions or exchanges or producing customer account
statements) or for providing certain other marketing support services (such as
financial assistance for conferences, seminars or sales or training programs at
which ADI Affiliates personnel may make presentations on the funds to the
financial advisor's sales force). Financial advisors may earn profits on these
payments for these services, since the amount of the payment may exceed the cost
of providing the service. Certain of these payments are subject to limitations
under applicable law.
ADI Affiliates are motivated to make the payments described above since they
promote the sale of fund shares and the retention of those investments by
clients of financial advisors. To the extent financial advisors sell more shares
of the funds or retain shares of the funds in their clients' accounts, ADI
Affiliates benefit from the incremental management and other fees paid to ADI
Affiliates by the funds with respect to those assets.
You can find further details in the fund's Statement of Additional
Information about these payments and the services provided by financial
advisors. In certain cases these payments could be significant to the financial
advisor. Your financial advisor may charge you additional fees or commissions
other than those disclosed in this prospectus. You can ask your financial
advisor about any payments it receives from ADI Affiliates or the funds, as well
as about fees and/or commissions it charges.
EXCESSIVE SHORT-TERM TRADING ACTIVITY DISCLOSURES
While the funds provide their shareholders with daily liquidity, their
investment programs are designed to serve long-term investors and are not
designed to accommodate excessive short-term trading activity in violation of
our policies described below. Excessive short-term trading activity in the
funds' shares (i.e., a purchase of fund shares followed shortly thereafter by a
redemption of such shares, or vice versa) may hurt the long-term performance of
certain funds by requiring them to maintain an excessive amount of cash or to
liquidate portfolio holdings at a disadvantageous time, thus interfering with
the efficient management of such funds by causing them to incur increased
brokerage and administrative costs. Where excessive short-term trading activity
seeks to take advantage of arbitrage opportunities from stale prices for
portfolio securities, the value of fund shares held by long-term investors may
be diluted. The Boards of Trustees have adopted policies and procedures designed
to discourage excessive or short-term trading of fund shares for all funds
except the money market funds. However, there is the risk that these funds'
policies and procedures will prove ineffective in whole or in part to detect or
prevent excessive or short-term trading. These funds may alter their policies at
any time without prior notice to shareholders if the advisor believes the change
would be in the best interests of long-term shareholders.
AIM and its affiliates (collectively, AIM Affiliates) currently use the
following tools designed to discourage excessive short-term trading in the
retail funds:
(1) trade activity monitoring;
(2) trading guidelines;
MCF--12/06
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THE AIM FUNDS
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(3) redemption fee on trades in certain funds; and
(4) use of fair value pricing consistent with procedures approved by the Boards
of Trustees of the funds.
Each of these tools is described in more detail below. Although these tools are
designed to discourage excessive short-term trading, you should understand that
none of these tools alone nor all of them taken together eliminate the
possibility that excessive short-term trading activity in the funds will occur.
Moreover, each of these tools involves judgments that are inherently subjective.
The AIM Affiliates seek to make these judgments to the best of their abilities
in a manner that they believe is consistent with long-term shareholder
interests.
Money Market Funds. The Boards of Trustees of AIM Money Market Fund, AIM
Tax-Exempt Cash Fund, Premier Portfolio, Premier Tax-Exempt Portfolio and
Premier U.S. Government Money Portfolio (the money market funds) have not
adopted any policies and procedures that would limit frequent purchases and
redemptions of such funds' shares. The Boards considered the risks of not having
a specific policy that limits frequent purchases and redemptions, and it
determined that those risks are minimal, especially in light of the reasons for
not having such a policy as described below. Nonetheless, to the extent that the
fund must maintain additional cash and/or securities with short-term durations
than may otherwise be required, the fund's yield could be negatively impacted.
The Boards do not believe that it is appropriate to adopt any such policies
and procedures for the money market funds for the following reasons:
- - The money market funds are offered to investors as cash management vehicles.
Investors must perceive an investment in such funds as an alternative to cash,
and must be able to purchase and redeem shares regularly and frequently.
- - One of the advantages of a money market fund as compared to other investment
options is liquidity. Any policy that diminishes the liquidity of the money
market funds will be detrimental to the continuing operations of such funds.
- - The money market funds' portfolio securities are valued on the basis of
amortized cost, and such funds seeks to maintain a constant net asset value.
As a result, there are no price arbitrage opportunities.
- - Because the money market funds seek to maintain a constant net asset value,
investors expect to receive upon redemption the amount they originally
invested in such funds. Imposition of redemption fees would run contrary to
investor expectations.
TRADE ACTIVITY MONITORING
The AIM Affiliates monitor selected trades on a daily basis in an effort to
detect excessive short-term trading activities. If, as a result of this
monitoring, the AIM Affiliates believe that a shareholder has engaged in
excessive short-term trading, they will seek to act in a manner that they
believe is consistent with the best interests of long-term investors, which may
include taking steps such as (i) asking the shareholder to take action to stop
such activities or (ii) refusing to process future purchases or exchanges
related to such activities in the shareholder's accounts other than exchanges
into a money market fund. AIM Affiliates will use reasonable efforts to apply
the fund's policies uniformly given the practical limitations described above.
The ability of the AIM Affiliates to monitor trades that are placed by the
underlying shareholders of omnibus accounts maintained by brokers, retirement
plan accounts and approved fee-based program accounts is severely limited or
non-existent in those instances in which the broker, retirement plan
administrator or fee-based program sponsor maintains the underlying shareholder
accounts. This is one reason why this tool cannot eliminate the possibility of
excessive short-term trading.
TRADING GUIDELINES
If you exceed four exchanges out of a fund (other than AIM Money Market Fund,
AIM Tax-Exempt Cash Fund, AIM Limited Maturity Treasury Fund, Premier Portfolio,
Premier Tax-Exempt Portfolio and Premier U.S. Government Money Portfolio) per
calendar year, or a fund or an AIM Affiliate determines, in its sole discretion,
that your short-term trading activity is excessive (regardless of whether or not
you exceed such guidelines), it may, in its discretion, reject any additional
purchase and exchange orders. Each fund and the AIM Affiliates reserve the
discretion to accept exchanges in excess of these guidelines on a case-by-case
basis if they believe that granting such exceptions would be consistent with the
best interests of shareholders. An exchange is the purchase of shares in one
fund which is paid for with the proceeds from a redemption of shares of another
fund effectuated on the same day. The movement out of one fund (redemption) and
into one or more other funds (purchase) on the same day shall be counted as one
exchange. Exchanges effected as part of programs that have been determined by an
AIM Affiliate to be non-discretionary, such as dollar cost averaging, portfolio
rebalancing, or other automatic non-discretionary programs that involve
exchanges, generally will not be counted toward the trading guidelines
limitation of four exchanges out of a fund per calendar year.
The ability of the AIM Affiliates to monitor exchanges made by the
underlying shareholders of omnibus accounts maintained by brokers, retirement
plan accounts and approved fee-based program accounts is severely limited or
non-existent in those instances in which the broker, retirement plan
administrator or fee-based program sponsor maintains the underlying shareholder
accounts and is unwilling or unable to implement these trading guidelines and
may be further limited by systems limitations applicable to those types of
accounts.
Some investments in the funds are made indirectly through vehicles such as
qualified tuition plans, variable annuity and insurance contracts, and funds of
funds which use the funds as underlying investments (each a conduit investment
vehicle). If shares of the funds are held in the name of a conduit investment
vehicle and not in the names of the individual investors who have invested in
the funds through the conduit investment vehicle, the conduit investment vehicle
may be considered an individual shareholder of the funds. To the extent that a
conduit investment vehicle is considered an individual
MCF--12/06
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THE AIM FUNDS
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shareholder of the funds, the funds are likely to be limited in their ability to
impose exchange limitations on individual transactions initiated by investors
who have invested in the funds through the conduit investment vehicle.
REDEMPTION FEE
You may be charged a 2% redemption fee if you redeem, including redeeming by
exchange, shares of certain funds within 30 days of purchase. See "Redeeming
Shares -- Redemption Fee" for more information.
The ability of a fund to assess a redemption fee on the underlying
shareholders of omnibus accounts maintained by brokers, retirement plan accounts
and approved fee-based program accounts is severely limited or non-existent in
those instances in which the broker, retirement plan administrator or fee-based
program sponsor maintains the underlying shareholder accounts and is unwilling
or unable to assess such fees and may be further limited by systems limitations
applicable to these types of accounts.
For additional discussion of the applicability of redemption fees on shares
of the fund held through omnibus accounts, retirement plan accounts, approved
fee-based program accounts and conduit investment vehicles, see "Redeeming
Shares -- Redemption Fee".
FAIR VALUE PRICING
Securities owned by a fund are to be valued at current market value if market
quotations are readily available. All other securities and assets of a fund for
which market quotations are not readily available are to be valued at fair value
determined in good faith using procedures approved by the Board of Trustees of
the fund. Fair value pricing may reduce the ability of frequent traders to take
advantage of arbitrage opportunities resulting from potentially "stale" prices
of portfolio holdings. However, it cannot eliminate the possibility of frequent
trading.
See "Pricing of Shares -- Determination of Net Asset Value" for more
information.
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PURCHASING SHARES
If you hold your shares through a broker/dealer or other financial institution,
your eligibility to purchase those shares, the conditions for purchase and sale,
and the minimum and maximum amounts allowed may differ depending on that
institution's policies.
MINIMUM INVESTMENTS PER FUND ACCOUNT
There are no minimum investments with respect to Class R shares for fund
accounts. The minimum investments with respect to Class A, A3, B and C shares
and Investor Class shares for fund accounts are as follows:
<Table>
<Caption>
INITIAL ADDITIONAL
TYPE OF ACCOUNT INVESTMENTS INVESTMENTS
- -------------------------------------------------------------------------------------------------------------------------
Employer-Sponsored Retirement Plans (includes section 401, $ 0 ($25 per fund investment for $25
403 and 457 plans, and SEP, SARSEP and SIMPLE IRA plans) salary deferrals from
Employer-Sponsored Retirement
Plans)
Systematic Purchase Plan 50 50
IRA, Roth IRA or Coverdell ESA 250 25
All other accounts 1,000 50
ADI has the discretion to accept orders for lesser amounts.
- -------------------------------------------------------------------------------------------------------------------------
</Table>
HOW TO PURCHASE SHARES
You may purchase shares using one of the options below. Purchase orders will not
be processed unless the account application and purchase payment are received in
good order. In accordance with the USA PATRIOT Act, if you fail to provide all
the required information requested in the current account application, your
purchase order will not be processed. Additionally, Federal law requires that
the fund verify and record your identifying information.
PURCHASE OPTIONS
- --------------------------------------------------------------------------------
<Table>
<Caption>
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
- ------------------------------------------------------------------------------------------------------------------------
Through a Financial Advisor Contact your financial advisor. Same
By Mail Mail completed account application and check Mail your check and the remittance slip
to the transfer agent, AIM Investment from your confirmation statement to the
Services, Inc., P.O. Box 4739, Houston, TX transfer agent.
77210-4739.
By Wire Mail completed account application to the Call the transfer agent to receive a
transfer agent. Call the transfer agent at reference number. Then, use the wire
(800) 959-4246 to receive a reference number. instructions at left.
Then, use the following wire instructions:
Beneficiary Bank ABA/Routing #: 021000021
Beneficiary Account Number: 00100366807
Beneficiary Account Name: AIM Investment
Services, Inc.
RFB: Fund Name, Reference #
OBI: Your Name, Account #
By Telephone Open your account using one of the methods Select the AIM Bank
described above. Connection--Servicemark-- option on
your completed account application or
complete an AIM Bank Connection form.
Mail the application or form to the
transfer agent. Once the transfer agent
has received the form, call the
transfer agent to place your purchase
order.
Call the AIM 24-hour Automated Investor
Line at 1-800-246-5463. You may place
your order after you have provided the
bank instructions that will be
requested.
By Internet Open your account using one of the methods Access your account at
described above. www.aiminvestments.com. The proper bank
instructions must have been provided on
your account. You may not purchase
shares in retirement accounts on the
internet.
- ------------------------------------------------------------------------------------------------------------------------
</Table>
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GRANDFATHERED INVESTORS
Investor Class shares of a fund may be purchased only by: (1) persons or
entities who had established an account, prior to April 1, 2002, in Investor
Class shares of any of the funds currently distributed by ADI (the Grandfathered
Funds) and have continuously maintained such account in Investor Class shares
since April 1, 2002; (2) any person or entity listed in the account registration
for any Grandfathered Funds, which account was established prior to April 1,
2002 and continuously maintained since April 1, 2002, such as joint owners,
trustees, custodians and designated beneficiaries; (3) customers of certain
financial institutions, wrap accounts or other fee-based advisory programs, or
insurance company separate accounts, which have had relationships with ADI
and/or any of the Grandfathered Funds prior to April 1, 2002 and continuously
maintained such relationships since April 1, 2002; (4) defined benefit, defined
contribution and deferred compensation plans; and (5) fund trustees, employees
of AMVESCAP PLC and its subsidiaries, AMVESCAP directors, and their immediate
families.
SPECIAL PLANS
SYSTEMATIC PURCHASE PLAN
You can arrange for periodic investments in any of the funds by authorizing the
transfer agent to withdraw the amount of your investment from your bank account
on a day or dates you specify and in an amount of at least $50. You may stop the
Systematic Purchase Plan at any time by giving the transfer agent notice ten
days prior to your next scheduled withdrawal.
DOLLAR COST AVERAGING
Dollar Cost Averaging allows you to make automatic monthly or quarterly
exchanges, if permitted, from one fund account to one or more other fund
accounts with the identical registration. The account from which exchanges are
to be made must have a minimum balance of $5,000 before you can use this option.
Exchanges will occur on (or about) the day of the month you specify, in the
amount you specify. Dollar Cost Averaging cannot be set up for the 29th through
the 31st of the month. The minimum amount you can exchange to another fund is
$50. You may participate in a dollar cost averaging program hosted by your
dealer of record, your financial advisor or another financial intermediary. If
such program is the same or similar to AIM's Dollar Cost Averaging program and
is non-discretionary, both as determined by an AIM Affiliate, exchanges made
pursuant to such program generally will not be counted toward the trading
guideline limitation of four exchanges out of a fund per calendar year.
AUTOMATIC DIVIDEND INVESTMENT
All of your dividends and distributions may be paid in cash or invested in any
fund at net asset value. Unless you specify otherwise, your dividends and
distributions will automatically be reinvested in the same fund. You may invest
your dividends and distributions per the rules listed in the "Permitted
Exchanges" section.
You must comply with the following requirements to be eligible to invest
your dividends and distributions in shares of another fund:
(1) Your account balance (a) in the fund paying the dividend must be at least
$5,000; and (b) in the fund receiving the dividend must be at least $500;
and
(2) Both accounts must have identical registration information.
PORTFOLIO REBALANCING PROGRAM
If you have at least $5,000 in your account, you may participate in the
Portfolio Rebalancing Program. Under this Program, you can designate how the
total value of your fund holdings should be rebalanced, on a percentage basis,
between two and ten of your funds on a quarterly, semiannual or annual basis.
Your portfolio will be rebalanced through the exchange of shares in one or more
of your funds for shares of the same class of one or more other funds in your
portfolio. Rebalancing will NOT occur if your portfolio is within 2% of your
stated allocation. If you wish to participate in the Program, make changes or
cancel the Program, the transfer agent must receive your request to participate,
changes, or cancellation in good order at least five business days prior to the
next rebalancing date, which is normally the 28th day of the last month of the
period you choose. You may realize taxable gains from these exchanges. We may
modify, suspend or terminate the Program at any time on 60 days prior written
notice. You may participate in a portfolio rebalancing program hosted by your
dealer of record, your financial advisor or another financial intermediary. If
such program is the same or similar to AIM's Portfolio Rebalancing Program and
is non-discretionary, both as determined by an AIM Affiliate, exchanges made
pursuant to such program generally will not be counted toward the trading
guideline limitation of four exchanges out of a fund per calendar year.
RETIREMENT PLANS
Shares of most of the funds can be purchased through tax-sheltered retirement
plans made available to corporations, individuals and employees of non-profit
organizations and public schools. A plan document must be adopted to establish a
retirement plan. You may use ADI sponsored retirement plans, which include IRAs,
Roth IRAs, SIMPLE IRA plans, SEP/SARSEP plans, 403(b) plans, Solo 401(k) plans
and Money Purchase/Profit Sharing plans, or another sponsor's retirement plan.
AIM Investment Services, Inc. assesses certain fees associated with the
maintenance of certain types of retirement plan accounts and the provision of
specialized recordkeeping services for those plan accounts. ADI also assesses
certain fees associated with the maintenance of retirement plan documents for
which it acts as the prototype sponsor. Contact your financial advisor for
details.
MCF--12/06
A-9
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THE AIM FUNDS
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REDEEMING SHARES
REDEMPTION FEE
You may be charged a 2% redemption fee (on redemption proceeds) if you redeem,
including redeeming by exchange, shares of the following funds within 30 days of
their purchase:
<Table>
AIM Advantage Health AIM Global Value Fund
Sciences Fund* AIM Gold & Precious Metals Fund*
AIM Asia Pacific Growth Fund AIM High Yield Fund
AIM China Fund AIM International Allocation Fund
AIM Developing Markets Fund AIM International Bond Fund
AIM European Growth Fund AIM International Core Equity Fund
AIM European Small Company AIM International Growth Fund
Fund AIM International Small Company Fund
AIM Floating Rate Fund AIM Japan Fund
AIM Global Aggressive Growth AIM S&P 500 Index Fund
Fund AIM Trimark Fund
AIM Global Equity Fund
AIM Global Growth Fund
AIM Global Health Care Fund*
AIM Global Real Estate Fund
</Table>
- ---------------
* Effective December 29, 2006
The redemption fee will be retained by the fund from which you are redeeming
shares (including redemptions by exchange), and is intended to offset the
trading costs, market impact and other costs associated with short-term money
movements in and out of the fund. The redemption fee is imposed to the extent
that the number of fund shares you redeem exceeds the number of fund shares that
you have held for more than 30 days. In determining whether the minimum 30 day
holding period has been met, only the period during which you have held shares
of the fund from which you are redeeming is counted. For this purpose, shares
held longest will be treated as being redeemed first and shares held shortest as
being redeemed last.
The 2% redemption fee generally will not be charged on transactions
involving the following:
(1) total or partial redemptions of shares by omnibus accounts maintained by
brokers that do not have the systematic capability to process the redemption
fee;
(2) total or partial redemptions of shares by approved fee-based programs that
do not have the systematic capability to process the redemption fee;
(3) total or partial redemptions of shares held through retirement plans
maintained pursuant to Sections 401, 403, 408, 408A and 457 of the Internal
Revenue Code (the Code) where the systematic capability to process the
redemption fee does not exist;
(4) total or partial redemptions effectuated by funds of funds, qualified
tuition plans maintained pursuant to Section 529 of the Code, and insurance
company separate accounts which use the funds as underlying investments;
(5) total or partial redemptions effectuated pursuant to an automatic
non-discretionary rebalancing program or a systematic withdrawal plan
established with the funds or a financial intermediary;
(6) total or partial redemptions requested within 30 days following the death or
post-purchase disability of (i) any registered shareholder on an account or
(ii) the settlor of a living trust which is the registered shareholder of an
account, of shares held in the account at the time of death or initial
determination of post-purchase disability;
(7) total or partial redemption of shares acquired through investment of
dividends and other distributions; or
(8) redemptions initiated by a fund.
The AIM Affiliates' goals are to apply the redemption fee on all classes of
shares of the above funds regardless of the type of account in which such shares
are held. This goal is not immediately achievable because of systems limitations
and marketplace resistance. Brokers that maintain omnibus accounts, sponsors of
fee-based program accounts and retirement plan administrators for accounts that
are exempt from the redemption fee pursuant to (1) through (8) above may impose
a redemption fee that has different characteristics, which may be more or less
restrictive, than those set forth above.
Some investments in the funds are made indirectly through conduit investment
vehicles. If shares of the funds are held in the name of a conduit investment
vehicle and not in the names of the individual investors who have invested in
the funds through the conduit investment vehicle, the conduit investment vehicle
may be considered an individual shareholder of the funds. To the extent that a
conduit investment vehicle is considered an individual shareholder of the funds,
the funds are likely to be limited in their ability to assess redemption fees on
individual transactions initiated by investors who have invested in the funds
through the conduit investment vehicle. In these cases, the applicability of
redemption fees will be determined based on the aggregate holdings and
redemptions of the conduit investment vehicle in a fund.
The funds have the discretion to waive the 2% redemption fee if a fund is in
jeopardy of losing its registered investment company qualification for tax
purposes.
Your broker or financial advisor may charge service fees for handling
redemption transactions. Your shares also may be subject to a contingent
deferred sales charge (CDSC) in addition to the redemption fee.
REDEMPTION FEE FOR CLASS A SHARES OF AIM SELECT REAL ESTATE INCOME FUND
On March 12, 2007, AIM Select Real Estate Income Fund, a closed-end fund, was
reorganized as an open-end fund. Shareholders of the Common shares of the
closed-end AIM Select Real Estate Income Fund received Class A shares of the
open-end AIM Select Real Estate Income Fund in the reorganization. If you redeem
those shares received in connection with the reorganization, including redeeming
by exchange, within 12 months following the date of the reorganization, you will
be charged a 2.00% redemption fee.
MCF--12/06
A-10
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THE AIM FUNDS
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REDEMPTION OF CLASS A SHARES AND AIM CASH RESERVE SHARES ACQUIRED BY EXCHANGE
If you purchase $1,000,000 or more of Class A shares of any fund, or if you make
additional purchases of Class A shares at net asset value, your shares may be
subject to a CDSC upon redemption as described below.
<Table>
<Caption>
SHARES
INITIALLY SHARES HELD CDSC APPLICABLE UPON
PURCHASED AFTER AN EXCHANGE REDEMPTION OF SHARES
--------- ----------------- --------------------
- - Class A shares of Category - Class A shares of Category I, - 1% if shares are redeemed
I, II or IV Fund II or IV Fund within 18 months of initial
- Class A shares of Category III purchase of Category I, II or
Fund(2) IV Fund shares
- AIM Cash Reserve Shares of AIM
Money Market Fund
- - Class A shares of Category - Class A shares of Category I, - 1% if shares are redeemed
III Fund(1) II or IV Fund within 18 months of initial
purchase of Category III Fund
shares
- - Class A shares of Category - Class A shares of Category III - No CDSC
III Fund(1) Fund(2)
- Class A shares of AIM Tax-
Exempt Cash Fund
- AIM Cash Reserve Shares of AIM
Money Market
</Table>
(1) As of the close of business on October 30, 2002, only existing shareholders
of Class A shares of a Category III Fund may purchase such shares.
(2) Class A shares of a Category I, II, III or IV Fund may not be exchanged for
Class A shares of a Category III Fund.
MCF--12/06
A-11
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THE AIM FUNDS
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HOW TO REDEEM SHARES
- --------------------------------------------------------------------------------
<Table>
Through a Financial Advisor Contact your financial advisor, including
your retirement plan or program sponsor.
By Mail Send a written request to the transfer
agent. Requests must include (1) original
signatures of all registered
owners/trustees; (2) the name of the fund
and your account number; (3) if the transfer
agent does not hold your shares, endorsed
share certificates or share certificates
accompanied by an executed stock power; and
(4) signature guarantees, if necessary (see
below). The transfer agent may require that
you provide additional information, such as
corporate resolutions or powers of attorney,
if applicable. If you are redeeming from an
IRA account, you must include a statement of
whether or not you are at least 59 1/2 years
old and whether you wish to have federal
income tax withheld from your proceeds. The
transfer agent may require certain other
information before you can redeem from an
employer-sponsored retirement plan. Contact
your employer for details.
By Telephone Call the transfer agent at 1-800-959-4246 or
our AIM 24-hour Automated Investor Line at
1-800-246-5463. You will be allowed to
redeem by telephone if (1) the proceeds are
to be mailed to the address on record (if
there has been no change communicated to us
within the last 30 days) or transferred
electronically to a pre-authorized checking
account; (2) you do not hold physical share
certificates; (3) you can provide proper
identification information; (4) the proceeds
of the redemption do not exceed $250,000;
and (5) you have not previously declined the
telephone redemption privilege. Certain
retirement accounts and 403(b) plans, may
not be redeemed by telephone. For funds
other than Premier Portfolio, Premier
Tax-Exempt Portfolio and Premier U.S.
Government Money Portfolio, the transfer
agent must receive your call during the
hours of the customary trading session of
the New York Stock Exchange (NYSE) in order
to effect the redemption at that day's
closing price. For Premier Portfolio,
Premier Tax-Exempt Portfolio and Premier
U.S. Government Money Portfolio, the
transfer agent must receive your call before
the last net asset value determination on a
business day in order to effect the
redemption at that day's closing price. You
may, with limited exceptions, redeem from an
IRA account by telephone. Redemptions from
other types of retirement accounts may be
requested in writing.
By Internet Place your redemption request at
www.aiminvestments.com. You will be allowed
to redeem by internet if (1) you do not hold
physical share certificates; (2) you can
provide proper identification information;
(3) the proceeds of the redemption do not
exceed $250,000; and (4) you have already
provided proper bank information. AIM
prototype retirement accounts may not be
redeemed on the internet. For funds other
than Premier Portfolio, Premier Tax-Exempt
Portfolio and Premier U.S. Government Money
Portfolio, the transfer agent must confirm
your transaction during the hours of the
customary trading session of the NYSE in
order to effect the redemption at that day's
closing price. For Premier Portfolio,
Premier Tax-Exempt Portfolio and Premier
U.S. Government Money Portfolio, the
transfer agent must confirm your transaction
before the last net asset value
determination on a business day in order to
effect the redemption at that day's closing
price.
</Table>
- --------------------------------------------------------------------------------
TIMING AND METHOD OF PAYMENT
We normally will send out checks within one business day, and in any event no
more than seven days, after we accept your request to redeem. If you redeem
shares recently purchased by check, you will be required to wait up to ten
business days before we will send your redemption proceeds. This delay is
necessary to ensure that the purchase check has cleared. Payment may be
postponed in cases where the SEC declares an emergency or normal trading is
halted.
REDEMPTION BY MAIL
If you mail us a request in good order to redeem your shares, we will mail you a
check in the amount of the redemption proceeds to the address on record with us.
If your request is not in good order, you may have to provide us with additional
documentation in order to redeem your shares.
REDEMPTION BY TELEPHONE
If you redeem by telephone, we will mail you a check in the amount of the
redemption proceeds to your address of record (if there has been no change
communicated to the transfer agent within the previous 30 days) or transmit them
electronically to your pre-authorized bank account. We use reasonable procedures
to confirm that instructions communicated by telephone are genuine, but we are
not liable for telephone instructions that are reasonably believed to be
genuine.
REDEMPTION BY INTERNET
If you redeem by internet, we will transmit your redemption proceeds
electronically to your pre-authorized bank account. We use reasonable procedures
to confirm that instructions communicated by internet are genuine, but we are
not liable for internet instructions that are reasonably believed to be genuine.
PAYMENT FOR SYSTEMATIC REDEMPTIONS
You may arrange for regular monthly or quarterly withdrawals from your account
of at least $50. You also may make annual withdrawals if you own Class A shares.
We will redeem enough shares from your account to cover the amount withdrawn.
You must have an account balance of at least $5,000 to establish a Systematic
Redemption Plan. You can stop this plan at any time by giving ten days prior
notice to the transfer agent.
EXPEDITED REDEMPTIONS
(AIM CASH RESERVE SHARES OF AIM MONEY MARKET FUND ONLY)
If we receive your redemption order before 11:30 a.m. Eastern Time, we will try
to transmit payment of redemption proceeds on that same day. If we receive your
redemption order after 11:30 a.m. Eastern Time and before the close of the
customary trading session of the NYSE, we generally will transmit payment on the
next business day.
MCF--12/06
A-12
-------------
THE AIM FUNDS
-------------
REDEMPTIONS BY CHECK
(CLASS A SHARES OF AIM TAX-EXEMPT CASH FUND, AIM CASH RESERVE SHARES OF AIM
MONEY MARKET FUND AND INVESTOR CLASS SHARES OF AIM MONEY MARKET FUND, AIM
TAX-EXEMPT CASH FUND, PREMIER PORTFOLIO, PREMIER TAX-EXEMPT PORTFOLIO AND
PREMIER U.S. GOVERNMENT MONEY PORTFOLIO ONLY)
You may redeem shares of these funds by writing checks in amounts of $250 or
more if you have completed an authorization form. Redemption by check is not
available for retirement accounts.
SIGNATURE GUARANTEES
We require a signature guarantee when you redeem by mail and
(1) the amount is greater than $250,000;
(2) you request that payment be made to someone other than the name registered
on the account;
(3) you request that payment be sent somewhere other than the bank of record on
the account; or
(4) you request that payment be sent to a new address or an address that changed
in the last 30 days.
The transfer agent will accept a guarantee of your signature by a number of
financial institutions. Call the transfer agent for additional information. Some
institutions have transaction amount maximums for these guarantees. Please check
with the guarantor institution.
REDEMPTIONS IN KIND
Although the funds generally intend to pay redemption proceeds solely in cash,
the funds reserve the right to determine, in their sole discretion, whether to
satisfy redemption requests by making payment in securities or other property
(known as a redemption in kind).
REDEMPTIONS BY THE FUNDS
If your account (Class A, Class A3, Class B, Class C and Investor Class shares
only) has been open at least one year, you have not made an additional purchase
in the account during the past six calendar months, and the value of your
account falls below $500 ($250 for Investor Class shares) for three consecutive
months due to redemptions or exchanges (excluding retirement accounts), the
funds have the right to redeem the account after giving you 60 days' prior
written notice. You may avoid having your account redeemed during the notice
period by bringing the account value up to $500 ($250 for Investor Class shares)
or by utilizing the Automatic Investment Plan.
If the fund determines that you have not provided a correct Social Security
or other tax ID number on your account application, or the fund is not able to
verify your identity as required by law, the fund may, at its discretion, redeem
the account and distribute the proceeds to you.
EXCHANGING SHARES
You may, under certain circumstances, exchange shares in one fund for those of
another fund. An exchange is the purchase of shares in one fund which is paid
for with the proceeds from a redemption of shares of another fund effectuated on
the same day. Before requesting an exchange, review the prospectus of the fund
you wish to acquire. Exchange privileges also apply to holders of the
Connecticut General Guaranteed Account, established for tax-qualified group
annuities, for contracts purchased on or before June 30, 1992.
You may be charged a redemption fee on certain redemptions, including
exchanges. See "Redeeming Shares -- Redemption Fee."
PERMITTED EXCHANGES
Except as otherwise stated under "Exchanges Not Permitted," you generally may
exchange your shares for shares of the same class of another fund.
<Table>
<Caption>
- ------------------------------------------------------------------------------------------------------------------------------------
EXCHANGE FROM EXCHANGE TO ALLOWED PROHIBITED
- ------------------------------------------------------------------------------------------------------------------------------------
Class A Class A, A3, Investor Class, or AIM Cash Reserve
Shares. Exceptions are:
- Class A Shares of AIM Limited Maturity Treasury Fund
and AIM Tax-Free Intermediate Fund are currently
closed to new investors.
- Class A Shares of AIM Limited Maturity Treasury Fund, X
AIM Tax-Exempt Cash Fund and AIM Tax-Free
Intermediate Fund cannot be exchanged for Class A3
Shares of those funds.
- Investor Class Shares of all funds are currently
offered to new investors only on a limited basis.
- ------------------------------------------------------------------------------------------------------------------------------------
Class A Class B, C, P, R or Institutional Class Shares. X
- ------------------------------------------------------------------------------------------------------------------------------------
Class A3 Class A, A3, Investor Class, or AIM Cash Reserve
Shares. Exceptions are:
- Class A3 Shares of AIM Limited Maturity Treasury Fund
and AIM Tax-Free Intermediate Fund cannot be X
exchanged for Class A Shares of those funds.
- Investor Class Shares of all funds are currently
offered to new investors only on a limited basis.
- ------------------------------------------------------------------------------------------------------------------------------------
Class A3 Class B, C, P, R or Institutional Class Shares. X
- ------------------------------------------------------------------------------------------------------------------------------------
Class B Class B. X
- ------------------------------------------------------------------------------------------------------------------------------------
Class B Class A, A3, C, P, R, AIM Cash Reserve Shares,
Institutional or Investor Class Shares. X
- ------------------------------------------------------------------------------------------------------------------------------------
Class C Class C. X
- ------------------------------------------------------------------------------------------------------------------------------------
Class C Class A, A3, B, P, R, AIM Cash Reserve Shares,
Institutional or Investor Class shares. X
- ------------------------------------------------------------------------------------------------------------------------------------
Class R Class R X
- ------------------------------------------------------------------------------------------------------------------------------------
Class R Class A, A3, B, C, P, AIM Cash Reserve Shares,
Institutional or Investor Class shares. X
- ------------------------------------------------------------------------------------------------------------------------------------
</Table>
MCF--12/06
A-13
-------------
THE AIM FUNDS
-------------
<Table>
<Caption>
- ------------------------------------------------------------------------------------------------------------------------------------
EXCHANGE FROM EXCHANGE TO ALLOWED PROHIBITED
- ------------------------------------------------------------------------------------------------------------------------------------
AIM Cash Reserve Shares Class A, A3, B, C, R, or Investor Class shares.
Exceptions are:
- Class A shares of AIM Limited Maturity Treasury Fund
and AIM Tax-Free Intermediate Fund are currently
closed to new investors.
- Shares to be exchanged for Class B, C or R shares X
must not have been acquired by exchange from Class A
shares of any fund.
- Investor Class Shares of all funds are currently
offered to new investors only on a limited basis.
- ------------------------------------------------------------------------------------------------------------------------------------
AIM Cash Reserve Shares Class P or Institutional Class shares. X
- ------------------------------------------------------------------------------------------------------------------------------------
Institutional Class Institutional Class X
- ------------------------------------------------------------------------------------------------------------------------------------
Institutional Class Class A, A3, B, C, P, R, AIM Cash Reserve Shares or
Investor Class shares. X
- ------------------------------------------------------------------------------------------------------------------------------------
Investor Class A, A3, or Investor Class. Exceptions are:
- Investor Class shares cannot be exchanged for Class A
shares of any fund which offers Investor Class
shares. X
- Class A shares of AIM Limited Maturity Treasury Fund
and AIM Tax-Free Intermediate Fund are currently
closed to new investors.
- ------------------------------------------------------------------------------------------------------------------------------------
Investor Class Class B, C, P, R, AIM Cash Reserve Shares or
Institutional Class shares. X
- ------------------------------------------------------------------------------------------------------------------------------------
Class P Class A, A3, or AIM Cash Reserve Shares. Exceptions
are:
- Class A shares of AIM Limited Maturity Treasury Fund X
and AIM Tax-Free Intermediate Fund are currently
closed to new investors.
- ------------------------------------------------------------------------------------------------------------------------------------
Class P Class B, C, R, Institutional or Investor Class shares. X
- ------------------------------------------------------------------------------------------------------------------------------------
</Table>
You may be required to pay an initial sales charge when exchanging from a
fund with a lower initial sales charge than the one into which you are
exchanging. If you exchange into shares that are subject to a CDSC, we will
begin the holding period for purposes of calculating the CDSC on the date you
made your initial purchase.
EXCHANGES NOT SUBJECT TO A SALES CHARGE
You will not pay an initial sales charge when exchanging:
(1) Class A shares with an initial sales charge (excluding Class A shares of AIM
Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund) for
(a) Class A shares of another fund;
(b) AIM Cash Reserve Shares of AIM Money Market Fund; or
(c) Class A3 shares of AIM Limited Maturity Treasury Fund or AIM Tax-Free
Intermediate Fund.
(2) Class A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free
Intermediate Fund with an initial sales charge for
(a) AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of
AIM Tax-Exempt Cash Fund; or
(b) Class A shares of another Fund, but only if
(i) you acquired the original shares before May 1, 1994; or
(ii) you acquired the original shares on or after May 1, 1994 by way of
an exchange from shares with higher initial sales charges; or
(3) AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of AIM
Tax-Exempt Cash Fund for
(a) Class A shares of a fund subject to an initial sales charge (excluding
Class A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free
Intermediate Fund), but only if you acquired the original shares
(i) prior to May 1, 1994 by exchange from Class A shares subject to an
initial sales charge;
(ii) on or after May 1, 1994 by exchange from Class A shares subject to
an initial sales charge (excluding Class A shares of AIM Limited
Maturity Treasury Fund and AIM Tax-Free Intermediate Fund); or
(4) Class A3 shares of AIM Limited Maturity Treasury Fund or AIM Tax-Free
Intermediate Fund for
(a) AIM Cash Reserve Shares of AIM Money Market Fund; or
(b) Class A shares of AIM Tax-Exempt Cash Fund; or
(5) Investor Class shares for Class A or Class A3 shares of any fund which does
not offer Investor Class shares.
You will not pay a CDSC or other sales charge when exchanging:
(1) Class A shares for other Class A shares;
(2) Class B shares for other Class B shares;
(3) Class C shares for other Class C shares;
(4) Class R shares for other Class R shares.
EXCHANGES NOT PERMITTED
For shares purchased prior to November 15, 2001, you may not exchange:
(1) Class A shares of Category I or II funds (i) subject to an initial sales
charge or (ii) purchased at net asset value and subject to a contingent
deferred sales charge (CDSC) for Class A shares of AIM Tax-Exempt Cash Fund;
(2) Class A shares of Category III funds purchased at net asset value for Class
A shares of a Category I, II or IV fund;
(3) on or after January 15, 2002, AIM Cash Reserve Shares of AIM Money Market
Fund or Class A shares of AIM Tax-Exempt Cash Fund for Class A shares of
Category III AIM Funds that are subject to a CDSC.
For shares purchased on or after November 15, 2001, you may not exchange:
(1) Class A shares of Category I, II or IV fund (i) subject to an initial sales
charge or (ii) purchased at net asset value and subject to a CDSC for Class
A shares of AIM Tax-Exempt Cash Fund;
(2) Class A shares of AIM Tax-Exempt Cash Fund for Class A shares of any other
fund (i) subject to an initial sales charge or
MCF--12/06
A-14
-------------
THE AIM FUNDS
-------------
(ii) purchased at net asset value and subject to a CDSC or for AIM Cash
Reserve Shares of AIM Money Market Fund; or
(3) AIM Cash Reserve Shares of AIM Money Market Fund for Class B or Class C
shares of any fund or for Class A shares of any fund that are subject to a
CDSC, however, if you originally purchased Class A shares of a Category I,
II or IV fund and exchanged those shares for AIM Cash Reserve Shares of AIM
Money Market Fund, you may further exchange the AIM Cash Reserve Shares for
Class A shares of a Category I, II or IV fund.
EXCHANGE CONDITIONS
The following conditions apply to all exchanges:
- - Shares of the fund you wish to acquire must be available for sale in your
state of residence;
- - Exchanges must be made between accounts with identical registration
information;
- - The account you wish to exchange from must have a certified tax identification
number (or the Fund has received an appropriate Form W-8 or W-9);
- - Shares must have been held for at least one day prior to the exchange with the
exception of dividends that are reinvested; and
- - If you have physical share certificates, you must return them to the transfer
agent prior to the exchange.
TERMS OF EXCHANGE
Under unusual market conditions, a fund may delay the purchase of shares being
acquired in an exchange for up to five business days if it determines that it
would be materially disadvantaged by the immediate transfer of exchange
proceeds. The exchange privilege is not an option or right to purchase shares.
Any of the participating funds or the distributor may modify or terminate this
privilege at any time. The fund or the distributor will provide you with notice
of such modification or termination whenever it is required to do so by
applicable law, but may impose changes at any time for emergency purposes.
BY MAIL
If you wish to make an exchange by mail, you must include original signatures of
each registered owner exactly as the shares are registered, the account
registration and account number, the dollar amount or number of shares to be
exchanged and the names of the funds from which and into which the exchange is
to be made.
BY TELEPHONE
Conditions that apply to exchanges by telephone are the same as redemptions by
telephone, including that the transfer agent must receive exchange requests
during the hours of the customary trading session of the NYSE; however, you
still will be allowed to exchange by telephone even if you have changed your
address of record within the preceding 30 days.
BY INTERNET
You will be allowed to exchange by internet if you do not hold physical share
certificates and you provide the proper identification information.
EXCHANGING CLASS B, CLASS C AND CLASS R SHARES
If you make an exchange involving Class B, Class C shares or Class R shares
subject to a CDSC, the amount of time you held the original shares will be
credited to the holding period of the Class B, Class C or Class R shares,
respectively, into which you exchanged for the purpose of calculating contingent
deferred sales charges (CDSC) if you later redeem the exchanged shares.
If you redeem Class C shares acquired by exchange via a repurchase offer by
the closed-end AIM Floating Rate Fund, prior to April 13, 2006, you will be
credited with the time period you held the Class C shares of the closed-end AIM
Floating Rate Fund for the purpose of computing the CDSC applicable to those
exchanged shares.
If you redeem Class C shares of AIM Floating Rate Fund that were acquired on
April 13, 2006 when AIM Floating Rate Fund was reorganized as an open-end fund,
you will be credited with the time period you held Class C shares of the
closed-end AIM Floating Rate Fund, for the purpose of computing the CDSC if you
later redeem such shares.
- --------------------------------------------------------------------------------
EACH FUND AND ITS AGENTS RESERVE THE RIGHT AT ANY TIME TO:
- REJECT OR CANCEL ALL OR ANY PART OF ANY PURCHASE OR EXCHANGE ORDER;
- MODIFY ANY TERMS OR CONDITIONS OF PURCHASE OF SHARES OF ANY FUND;
- REJECT OR CANCEL ANY REQUEST TO ESTABLISH THE SYSTEMATIC PURCHASE PLAN AND
SYSTEMATIC REDEMPTION PLAN OPTIONS ON THE SAME ACCOUNT; OR
- SUSPEND, CHANGE OR WITHDRAW ALL OR ANY PART OF THE OFFERING MADE BY THIS
PROSPECTUS.
- --------------------------------------------------------------------------------
PRICING OF SHARES
DETERMINATION OF NET ASSET VALUE
The price of each fund's shares is the fund's net asset value per share. The
funds value portfolio securities for which market quotations are readily
available at market value. The funds value all other securities and assets for
which market quotations are unavailable or unreliable at their fair value in
good faith using procedures approved by the Boards of Trustees of the funds.
Securities and other assets quoted in foreign currencies are valued in U.S.
dollars based on the prevailing exchange rates on that day.
Even when market quotations are available, they may be stale or unreliable
because the security is not traded frequently, trading on the security ceased
before the close of the trading market or issuer specific events occurred after
the security ceased trading or because of the passage of time between the close
of the market on which the security trades and the close of the NYSE and when
the fund calculates its net asset value. Issuer specific events may cause the
last market
MCF--12/06
A-15
-------------
THE AIM FUNDS
-------------
quotation to be unreliable. Such events may include a merger or insolvency,
events which affect a geographical area or an industry segment, such as
political events or natural disasters, or market events, such as a significant
movement in the U.S. market. Where market quotations are not readily available,
including where AIM determines that the closing price of the security is
unreliable, AIM will value the security at fair value in good faith using
procedures approved by the Boards of Trustees. Fair value pricing may reduce the
ability of frequent traders to take advantage of arbitrage opportunities
resulting from potentially "stale" prices of portfolio holdings. However, it
cannot eliminate the possibility of frequent trading.
Fair value is that amount that the owner might reasonably expect to receive
for the security upon its current sale. Fair value requires consideration of all
appropriate factors, including indications of fair value available from pricing
services. A fair value price is an estimated price and may vary from the prices
used by other mutual funds to calculate their net asset values.
AIM may use indications of fair value from pricing services approved by the
Boards of Trustees. In other circumstances, the AIM valuation committee may fair
value securities in good faith using procedures approved by the Boards of
Trustees. As a means of evaluating its fair value process, AIM routinely
compares closing market prices, the next day's opening prices for the security
in its primary market if available, and indications of fair value from other
sources. Fair value pricing methods and pricing services can change from time to
time as approved by the Boards of Trustees.
Specific types of securities are valued as follows:
Senior Secured Floating Rate Loans and Senior Secured Floating Rate Debt
Securities: Senior secured floating rate loans and senior secured floating rate
debt securities are fair valued using an evaluated quote provided by an
independent pricing service. Evaluated quotes provided by the pricing service
may reflect appropriate factors such as ratings, tranche type, industry, company
performance, spread, individual trading characteristics, institution-size
trading in similar groups of securities and other market data.
Domestic Exchange Traded Equity Securities: Market quotations are generally
available and reliable for domestic exchange traded equity securities. If market
quotations are not available or are unreliable, AIM will value the security at
fair value in good faith using procedures approved by the Boards of Trustees.
Foreign Securities: If market quotations are available and reliable for
foreign exchange traded equity securities, the securities will be valued at the
market quotations. Because trading hours for certain foreign securities end
before the close of the NYSE, closing market quotations may become unreliable.
If between the time trading ends on a particular security and the close of the
customary trading session on the NYSE events occur that are significant and may
make the closing price unreliable, the fund may fair value the security. If an
issuer specific event has occurred that AIM determines, in its judgment, is
likely to have affected the closing price of a foreign security, it will price
the security at fair value. AIM also relies on a screening process from a
pricing vendor to indicate the degree of certainty, based on historical data,
that the closing price in the principal market where a foreign security trades
is not the current market value as of the close of the NYSE. For foreign
securities where AIM believes, at the approved degree of certainty, that the
price is not reflective of current market value, AIM will use the indication of
fair value from the pricing service to determine the fair value of the security.
The pricing vendor, pricing methodology or degree of certainty may change from
time to time.
Fund securities primarily traded on foreign markets may trade on days that
are not business days of the fund. Because the net asset value of fund shares is
determined only on business days of the fund, the value of the portfolio
securities of a fund that invests in foreign securities may change on days when
you will not be able to purchase or redeem shares of the fund.
Fixed Income Securities: Government, corporate, asset-backed and municipal
bonds, convertible securities, including high yield or junk bonds, and loans,
normally are valued on the basis of prices provided by independent pricing
services. Prices provided by the pricing services may be determined without
exclusive reliance on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, developments related
to special securities, dividend rate, maturity and other market data. Prices
received from pricing services are fair value prices. In addition, if the price
provided by the pricing service and independent quoted prices are unreliable,
the AIM valuation committee will fair value the security using procedures
approved by the Boards of Trustees.
Short-term Securities: The funds' short-term investments are valued at
amortized cost when the security has 60 days or less to maturity. AIM Money
Market Fund, AIM Tax-Exempt Cash Fund, Premier Portfolio, Premier Tax-Exempt
Portfolio and Premier U.S. Government Money Portfolio value all their securities
at amortized cost. AIM High Income Municipal Fund, AIM Municipal Bond Fund and
AIM Tax-Free Intermediate Fund value variable rate securities that have an
unconditional demand or put feature exercisable within seven days or less at
par, which reflects the market value of such securities.
Futures and Options: Futures and options are valued on the basis of market
quotations, if available.
Open-end Funds: To the extent a fund invests in other open-end funds, the
investing fund will calculate its net asset value using the net asset value of
the underlying fund in which it invests.
Each fund determines the net asset value of its shares on each day the NYSE
is open for business (a business day), as of the close of the customary trading
session, or earlier NYSE closing time that day. AIM Money Market Fund also
determines its net asset value as of 12:00 noon Eastern Time on each business
day. Premier Portfolio, Premier Tax-Exempt Portfolio and Premier U.S. Government
Money Portfolio determine the net asset value of their shares every fifteen
minutes on each business day, beginning at 8:00 a.m. Eastern Time. The last net
asset value determination on any business day for Premier Portfolio and Premier
U.S. Government Money Portfolio will generally occur at 5:30 p.m. Eastern Time,
and the last net asset value determination on any business day for Premier
Tax-Exempt Portfolio will generally occur at 4:30 p.m. Eastern Time. Premier
MCF--12/06
A-16
-------------
THE AIM FUNDS
-------------
Portfolio, Premier Tax-Exempt Portfolio and Premier U.S. Government Money
Portfolio are authorized not to open for trading on a day that is otherwise a
business day if the Bond Market Association recommends that government
securities dealers not open for trading and any such day will not be considered
a business day. Premier Portfolio, Premier Tax-Exempt Portfolio and Premier U.S.
Government Money Portfolio also may close early on a business day if the Bond
Market Association recommends that government securities dealers close early. If
Premier Portfolio, Premier Tax-Exempt Portfolio or Premier U.S. Government Money
Portfolio uses its discretion to close early on a business day, the last net
asset value calculation will occur as of the time of such closing.
TIMING OF ORDERS
For funds other than Premier Portfolio, Premier Tax-Exempt Portfolio and Premier
U.S. Government Money Portfolio, you can purchase or redeem shares on each
business day prior to the close of the customary trading session or any earlier
NYSE closing time that day. For funds other than Premier Portfolio, Premier
Tax-Exempt Portfolio and Premier U.S. Government Money Portfolio, purchase
orders that are received and accepted before the close of the customary trading
session or any earlier NYSE closing time on a business day generally are
processed that day and settled on the next business day.
For Premier Portfolio, Premier Tax-Exempt Portfolio and Premier U.S.
Government Money Portfolio, you can purchase or redeem shares on each business
day, prior to the last net asset value determination on such business day;
however, if your order is received and accepted after the close of the customary
trading session or any earlier NYSE closing time that day, your order generally
will be processed on the next business day and settled on the second business
day following the receipt and acceptance of your order.
For all funds, you can exchange shares on each business day, prior to the
close of the customary trading session or any earlier NYSE closing time that
day. Shareholders of Premier Portfolio, Premier Tax-Exempt Portfolio and Premier
U.S. Government Money Portfolio therefore cannot exchange their shares after the
close of the customary trading session or any earlier NYSE closing time on a
particular day, even though these funds remain open after such closing time.
The funds price purchase, exchange and redemption orders at the net asset
value calculated after the transfer agent receives an order in good order. Any
applicable sales charges are applied at the time an order is processed. A fund
may postpone the right of redemption only under unusual circumstances, as
allowed by the Securities and Exchange Commission, such as when the NYSE
restricts or suspends trading.
TAXES
In general, dividends and distributions you receive are taxable as ordinary
income or long-term capital gains for federal income tax purposes, whether you
reinvest them in additional shares or take them in cash. Distributions are
generally taxable to you at different rates depending on the length of time the
fund holds its assets and the type of income that the fund earns. Different tax
rates apply to ordinary income, qualified dividend income, and long-term capital
gain distributions. Every year, you will be sent information showing the amount
of dividends and distributions you received from each fund during the prior
year.
Any long-term or short-term capital gains realized from redemptions of fund
shares will be subject to federal income tax. Exchanges of shares for shares of
another fund are treated as a sale, and any gain realized on the transaction
will generally be subject to federal income tax.
INVESTORS IN TAX-EXEMPT FUNDS SHOULD READ THE INFORMATION UNDER THE HEADING
"OTHER INFORMATION -- SPECIAL TAX INFORMATION REGARDING THE FUND" IN THEIR
PROSPECTUS.
The foreign, state and local tax consequences of investing in fund shares
may differ materially from the federal income tax consequences described above.
In addition, the preceding discussion concerning the taxability of fund
dividends and distributions and of redemptions and exchanges of fund shares is
inapplicable to investors that are generally exempt from federal income tax,
such as retirement plans that are qualified under Section 401, 403, 408, 408A
and 457 of the Internal Revenue Code, individual retirement accounts (IRAs) and
Roth IRAs. You should consult your tax advisor before investing.
MCF--12/06
A-17
OBTAINING ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
More information may be obtained free of charge upon request. The Statement of
Additional Information (SAI), a current version of which is on file with the
Securities and Exchange Commission (SEC), contains more details about the fund
and is incorporated by reference into the prospectus (is legally a part of this
prospectus). When issued, annual and semiannual reports to shareholders will
contain additional information about the fund's investments. The fund's annual
report will discuss the market conditions and investment strategies that
significantly affected the fund's performance during its last fiscal year. The
fund will also file its complete schedule of portfolio holdings with the SEC for
the 1st and 3rd quarters of each fiscal year on Form N-Q.
If you have questions about this fund, another fund in The AIM Family of
Funds(R) or your account, or wish to obtain free copies of the fund's current
SAI or annual or semiannual reports, please contact us by mail at AIM Investment
Services, Inc., P.O. Box 4739, Houston, TX 77210-4739 or
<Table>
BY TELEPHONE: (800) 959-4246
ON THE INTERNET: You can send us a request by
e-mail or download
prospectuses, SAIs, annual or
semiannual reports via our
website:
http://www.aiminvestments.com
THE FUND'S MOST RECENT PORTFOLIO HOLDINGS, AS FILED ON FORM N-Q,
ARE ALSO AVAILABLE AT HTTP://WWW.AIMINVESTMENTS.COM.
</Table>
You also can review and obtain copies of the fund's SAI, financial reports, the
fund's Forms N-Q and other information at the SEC's Public Reference Room in
Washington, DC; on the EDGAR database on the SEC's Internet website
(http://www.sec.gov); or, after paying a duplicating fee, by sending a letter to
the SEC's Public Reference Section, Washington, DC 20549-0102 or by sending an
electronic mail request to publicinfo@sec.gov. Please call the SEC at
1-202-942-8090 for information about the Public Reference Room.
- ----------------------------------------
AIM Select Real Estate Income Fund
SEC 1940 Act file number: 811-09913
- ----------------------------------------
AIMinvestments.com SREIF-PRO-1
YOUR GOALS. OUR SOLUTIONS.(R) (AIM INVESTMENTS LOGO)
AIM SELECT REAL ESTATE INCOME FUND,
A PORTFOLIO OF AIM COUNSELOR SERIES TRUST
11 Greenway Plaza, Suite 100
Houston, Texas 77046-1173
Toll Free: (800) 959-4246
AIM SELECT REAL ESTATE INCOME FUND,
A PORTFOLIO OF AIM SELECT REAL ESTATE INCOME FUND
11 Greenway Plaza, Suite 100
Houston, Texas 77046-1173
Toll Free: (800) 959-4246
STATEMENT OF ADDITIONAL INFORMATION
February 26, 2006 Special Meeting of Shareholders of AIM Select Real
Estate Income Fund
This Statement of Additional Information is not a prospectus but should be
read in conjunction with the Combined Proxy Statement and Prospectus dated
December __, 2006 of AIM Select Real Estate Income Fund (the "Buying Fund"), a
series portfolio of AIM Counselor Series Trust (the "Trust"), for use in
connection with the Special Meeting of Shareholders of AIM Select Real Estate
Income Fund (your "Fund"), the sole series portfolio of AIM Select Real Estate
Income Fund ("ASREIF"), to be held on February 26, 2006. Copies of the Combined
Proxy Statement and Prospectus may be obtained at no charge by writing A I M
Distributors, Inc., 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173 or
by calling 1 800-959-4246. Unless otherwise indicated, capitalized terms used
herein and not otherwise defined have the same meanings as are given to them in
the Combined Proxy Statement and Prospectus.
A Statement of Additional Information for the Trust and the Buying Fund
dated December 6, 2006 has been filed with the Securities and Exchange
Commission and is attached hereto as Appendix I which is incorporated herein by
this reference.
The date of this Statement of Additional Information is December _, 2006.
TABLE OF CONTENTS
THE TRUST................................................................. S-3
DESCRIPTION OF PERMITTED INVESTMENTS...................................... S-3
TRUSTEES AND OFFICERS OF THE TRUST........................................ S-3
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES....................... S-3
ADVISORY AND MANAGEMENT RELATED SERVICES AGREEMENTS AND PLANS OF
DISTRIBUTION........................................................... S-3
PORTFOLIO TRANSACTIONS.................................................... S-6
DESCRIPTION OF SHARES..................................................... S-6
DETERMINATION OF NET ASSET VALUE.......................................... S-6
TAXES..................................................................... S-6
FINANCIAL INFORMATION..................................................... S-6
Appendix I - Statement of Additional Information of the Trust
Appendix II - Audited Financial Statements of AIM Select Real Estate Income
Fund (your Fund) (12/31/05)
Appendix III - Unaudited Financial Statements of AIM Select Real Estate Income
Fund (your Fund) (06/30/06)
S-2
THE TRUST
This Statement of Additional Information relates to AIM Counselor Series Trust
(the "Trust") and its investment portfolio, AIM Select Real Estate Income Fund
(the "Buying Fund"). The Trust is registered as an open-end management
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"). The Buying Fund is a separate series of shares of beneficial
interest of the Trust. For additional information about the Trust, see heading
"General Information About the Trust" in the Trust's Statement of Additional
Information attached hereto as Appendix I.
DESCRIPTION OF PERMITTED INVESTMENTS
For a discussion of the fundamental and nonfundamental investment policies of
the Buying Fund adopted by the Trust's Board of Trustees, see heading
"Description of the Fund and its Investments and Risks" in the Trust's Statement
of Additional Information attached hereto as Appendix I.
TRUSTEES AND OFFICERS OF THE TRUST
For a disclosure of the names and a brief occupational biography of the Trust's
trustees and executive officers identifying those who are interested persons of
the Trust as well as stating their aggregate remuneration, see heading
"Management of the Trust" in the Trust's Statement of Additional Information
attached hereto as Appendix I.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of the date of this Statement of Additional Information, the Buying Fund had
not yet commenced operations. As a result, no persons owned shares of the Buying
Fund (including officers or trustees).
ADVISORY AND MANAGEMENT RELATED SERVICES AGREEMENTS AND PLANS OF DISTRIBUTION
For a discussion of the Trust's advisory and management-related services
agreements and plans of distribution, see headings "Investment Advisory and
Other Services" and "Distribution of Securities" in the Trust's Statement of
Additional Information attached hereto as Appendix I.
Additional Information Regarding Portfolio Managers of Your Fund
The following chart reflects the portfolio managers' investments in the funds
that they manage. The chart also reflects information regarding accounts other
than your Fund for which each portfolio manager has day-to-day management
responsibilities. Accounts are grouped into three categories: (i) mutual funds,
(ii) other pooled investment vehicles, and (iii) other accounts. To the extent
that any of these accounts pay advisory fees that are based on account
performance ("performance-based fees"), information on those accounts is
specifically broken out. In addition, any assets denominated in foreign
currencies have been converted into U.S. Dollars using the exchange rates as of
the applicable date.
S-3
The following table reflects information as of October 31, 2006:
Other Registered Other Pooled
Dollar Mutual Funds Investment Vehicles Other Accounts
Range of (Assets in Millions) (Assets in Millions) (Assets in Millions)
Investments -------------------- -------------------- --------------------
In Number of Number of Number of
Portfolio Manager your Fund(1) Accounts Assets Accounts Assets Accounts Assets
----------------- ------------ --------- -------- --------- ------ --------- ------
Mark D. Blackburn None 4 $2,580.1 None None 1 $86.9
Joe V. Rodriguez, Jr. None 4 $2,580.1 None None 1 $86.9
Jim W. Trowbridge None 4 $2,580.1 None None 1 $86.9
(1) This column reflects investments in a Fund's shares owned directly by a
portfolio manager or beneficially owned by a portfolio manager (as
determined in accordance with Rule 16a-l(a) (2) under the Securities
Exchange Act of 1934, as amended). A portfolio manager is presumed to be a
beneficial owner of securities that are held by his or her immediate family
members sharing the same household.
POTENTIAL CONFLICTS OF INTEREST
Actual or apparent conflicts of interest may arise when a portfolio manager has
day-to-day management responsibilities with respect to more than one fund or
other account. More specifically, portfolio managers who manage multiple funds
and/or other accounts may be presented with one or more of the following
conflicts:
- - The management of multiple funds and/or other accounts may result in a
portfolio manager devoting unequal time and attention to the management of
each Fund and/or other account. AIM Advisors, Inc. ("AIM"), the advisor to
your Fund, seeks to manage such competing interests for the time and
attention of portfolio managers by having portfolio managers focus on a
particular investment discipline. Most other accounts managed by a
portfolio manager are managed using the same investment models that are
used in connection with the management of the funds.
- - If a portfolio manager identifies a limited investment opportunity which
may be suitable for more than one fund or other account, a fFund may not be
able to take full advantage of that opportunity due to an allocation of
filled purchase or sale orders across all eligible funds and other
accounts. To deal with these situations, AIM and your Fund have adopted
procedures for allowing portfolio transactions across multiple accounts.
- - With respect to securities transactions for the funds, AIM determines which
broker to use to execute each order, consistent with its duty to seek best
execution of the transaction. However, with respect to certain other
accounts (such as mutual funds for which AIM or an affiliate acts as
sub-advisor, other pooled investment vehicles that are not registered
mutual funds, and other accounts managed for organizations and
individuals), AIM may be limited by the client with respect to the
selection of brokers or may be instructed to direct trades through a
particular broker. In these cases, trades for a fund in a particular
security may be placed separately from, rather than aggregated with, such
other accounts.
S-4
Having separate transactions with respect to a security may temporarily
affect the market price of the security or the execution of the
transaction, or both, to the possible detriment of the fund or other
account(s) involved.
- - Finally, the appearance of a conflict of interest may arise where AIM has
an incentive, such as a performance-based management fee, which relates to
the management of one fund or account but not all funds and accounts with
respect to which a portfolio manager has day-to-day management
responsibilities.
AIM and your Fund have adopted certain compliance procedures which are
designed to address these types of conflicts. However, there is no guarantee
that such procedures will detect each and every situation in which a conflict
arises.
DESCRIPTION OF COMPENSATION STRUCTURE
INVESCO Institutional (N.A.), Inc. seeks to maintain a compensation program
that is competitively positioned to attract and retain high-caliber investment
professionals. Portfolio managers receive, as more fully described below, a base
salary, an incentive bonus opportunity, an equity compensation opportunity, a
benefits package, and a relocation package if such benefit is applicable.
Portfolio manager compensation is reviewed and may be modified each year as
appropriate to reflect changes in the market, as well as to adjust the factors
used to determine bonuses to promote good sustained fund performance. INVESCO
Institutional (N.A.), Inc. evaluates competitive market compensation by
reviewing compensation survey results conducted by an independent third party of
investment industry compensation. Each portfolio manager's compensation consists
of the following five elements:
- - BASE SALARY. Each portfolio manager is paid a base salary which is set at a
level determined to be appropriate based upon an individual's experience
and responsibilities through the use of independent compensation surveys of
the investment management industry.
- - ANNUAL BONUS. Each portfolio manager is paid an annual cash bonus which has
a performance driven component and a discretionary component, the combined
total of which will typically range from 50 to over 100 percent of the
manager's base salary. Generally, the majority of the bonus is pre-tax
performance driven, based on the success of the team's investment results
which are measured against appropriate market benchmarks and peer groups.
The remaining portion of the bonus is discretionary and is determined by
the sub-advisor's Chief Investment Officer and Chief Executive Officer.
- - EQUITY-BASED COMPENSATION. Portfolio managers may be awarded options to
purchase common shares and/or granted restricted shares or deferred shares
of stock of AIM's parent company, AMVESCAP PLC ("AMVESCAP"), from pools
determined from time to time by the Remuneration Committee of the AMVESCAP
Board of Directors. Awards of equity-based compensation typically vest over
time, so as to create incentives to retain key talent.
- - PARTICIPATION IN GROUP INSURANCE PROGRAMS. Portfolio managers are provided
life insurance coverage in the form of a group variable universal life
insurance
S-5
policy, under which they may make additional contributions to purchase
additional insurance coverage or for investment purposes.
- - PARTICIPATION IN DEFERRED COMPENSATION PLAN. Portfolio managers are
eligible to participate in a non-qualified deferred compensation plan,
which affords participating employees the tax benefits of deferring the
receipt of a portion of their cash compensation.
Portfolio managers also participate in benefit plans and programs available
generally to all employees.
PORTFOLIO TRANSACTIONS
For a discussion of the Trust's brokerage policy, see heading "Brokerage
Allocation and Other Practices" in the Trust's Statement of Additional
Information attached hereto as Appendix I.
DESCRIPTION OF SHARES
For a discussion of the Trust's authorized securities and the characteristics of
the Trust's shares of beneficial interest, see heading "General Information
About the Trust" in the Trust's Statement of Additional Information attached
hereto as Appendix I.
DETERMINATION OF NET ASSET VALUE
For a discussion of the Trust's valuation and pricing procedures and a
description of its purchase and redemption procedures, see heading "Purchase,
Redemption and Pricing of Shares" in the Trust's Statement of Additional
Information attached hereto as Appendix I.
TAXES
For a discussion of any tax information relating to ownership of the Trust's
shares, see heading "Dividends, Distributions and Tax Matters" in the Trust's
Statement of Additional information attached hereto as Appendix I.
FINANCIAL INFORMATION
AIM Select Real Estate Income Fund (the Buying Fund) has not yet commenced
operations, and therefore does not have financial statements as of the date of
this Statement of Additional Information. The Buying Fund will commence
operations if shareholders of your Fund approve the reorganization of your Fund
from a closed-end, exchange-traded fund to an open-end, multiple-class fund, the
Buying Fund (the "Reorganization").
Upon the closing of the Reorganization, all of the assets your Fund will be
transferred to the Buying Fund and the Buying Fund will assume the liabilities
of your Fund. The Buying Fund has been formed solely to effectuate the
Reorganization and will not have portfolio securities until the closing of the
Reorganization, therefore pro forma financial statements are not presented. In
addition, upon closing of the Reorganization, the historical financial
statements for your Fund will presented in certain of the Buying Fund's required
filings. The financial
S-6
statements of your Fund, both audited and unaudited, are set forth below in
Appendix II and Appendix III, respectively.
The audited financial statements of AIM Select Real Estate Income Fund (your
Fund), and the report thereon by PricewaterhouseCoopers LLP, are set forth as
Appendix II.
The unaudited financial statements of AIM Select Real Estate Income Fund (your
Fund) are set forth as Appendix III.
S-7
Appendix I
STATEMENT OF
ADDITIONAL INFORMATION
AIM COUNSELOR SERIES TRUST
11 GREENWAY PLAZA
SUITE 100
HOUSTON, TEXAS 77046-1173
(713) 626-1919
----------
THIS STATEMENT OF ADDITIONAL INFORMATION RELATES TO THE PORTFOLIO (THE "FUND")
OF AIM COUNSELOR SERIES TRUST LISTED BELOW. THIS STATEMENT OF ADDITIONAL
INFORMATION IS NOT A PROSPECTUS, AND IT SHOULD BE READ IN CONJUNCTION WITH THE
PROSPECTUSES FOR THE FUND LISTED BELOW. YOU MAY OBTAIN, WITHOUT CHARGE, A COPY
OF ANY PROSPECTUSES FOR THE FUND LISTED BELOW FROM AN AUTHORIZED DEALER OR BY
WRITING TO:
AIM INVESTMENT SERVICES, INC.
P.O. BOX 4739
HOUSTON, TEXAS 77210-4739
OR BY CALLING
(800) 959-4246
----------
THIS STATEMENT OF ADDITIONAL INFORMATION, DATED DECEMBER 6, 2006, RELATES TO THE
CLASS A, CLASS B, AND CLASS C SHARES OF THE FOLLOWING PROSPECTUS:
FUND DATED
---- -----
AIM SELECT REAL ESTATE INCOME FUND DECEMBER 6, 2006
THIS STATEMENT OF ADDITIONAL INFORMATION, DATED DECEMBER 6, 2006, ALSO RELATES
TO THE INSTITUTIONAL CLASS SHARES OF THE FOLLOWING PROSPECTUS:
FUND DATED
---- -----
AIM SELECT REAL ESTATE INCOME FUND DECEMBER 6, 2006
AIM COUNSELOR SERIES TRUST
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
PAGE
----
GENERAL INFORMATION ABOUT THE TRUST...................................... 1
Fund History.......................................................... 1
Shares of Beneficial Interest......................................... 1
DESCRIPTION OF THE FUND AND ITS INVESTMENTS AND RISKS.................... 4
Classification........................................................ 4
Investment Strategies and Risks....................................... 4
Equity Investments................................................. 4
Foreign Investments................................................ 6
Debt Investments................................................... 7
Other Investments.................................................. 14
Investment Techniques.............................................. 15
Derivatives........................................................ 20
Additional Securities or Investment Techniques..................... 26
Fund Policies......................................................... 26
Temporary Defensive Positions......................................... 28
Portfolio Turnover.................................................... 28
Policies and Procedures for Disclosure of Fund Holdings............... 28
MANAGEMENT OF THE TRUST.................................................. 31
Board of Trustees..................................................... 31
Management Information................................................ 31
Trustee Ownership of Fund Shares................................... 34
Compensation.......................................................... 39
Retirement Plan For Trustees....................................... 39
Deferred Compensation Agreements................................... 40
Purchase of Class A Shares of the Funds at Net Asset Value......... 40
Codes of Ethics....................................................... 40
Proxy Voting Policies................................................. 40
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES...................... 41
INVESTMENT ADVISORY AND OTHER SERVICES................................... 41
Investment Advisor.................................................... 41
Investment Sub-Advisor................................................ 42
Portfolio Managers................................................. 43
Securities Lending Arrangements.................................... 43
Service Agreements.................................................... 43
Other Service Providers............................................... 43
BROKERAGE ALLOCATION AND OTHER PRACTICES................................. 45
Brokerage Transactions................................................ 45
Commissions........................................................... 45
Broker Selection...................................................... 45
Directed Brokerage (Research Services)................................ 48
Regular Brokers....................................................... 49
Allocation of Portfolio Transactions.................................. 49
Allocation of Equity Initial Public Offering ("IPO")
Transactions....................................................... 49
i
PURCHASE, REDEMPTION AND PRICING OF SHARES............................... 50
Transactions Through Financial Intermediaries......................... 50
Purchase and Redemption of Shares..................................... 50
Institutional Class Shares............................................ 69
Offering Price........................................................ 69
Redemptions in Kind................................................... 71
Backup Withholding.................................................... 71
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS................................. 72
Dividends and Distributions........................................... 72
Tax Matters........................................................... 73
DISTRIBUTION OF SECURITIES............................................... 81
Distribution Plans.................................................... 81
Distributor........................................................... 83
FINANCIAL STATEMENTS..................................................... 84
PENDING LITIGATION....................................................... 84
APPENDICIES:
RATINGS OF DEBT SECURITIES............................................... A-1
PERSONS TO WHOM AIM PROVIDES NON-PUBLIC PORTFOLIO HOLDINGS ON
AN ONGOING BASIS...................................................... B-1
TRUSTEES AND OFFICERS.................................................... C-1
TRUSTEE COMPENSATION TABLE............................................... D-1
PROXY POLICIES AND PROCEDURES............................................ E-1
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES...................... F-1
PORTFOLIO MANAGERS....................................................... G-1
CERTAIN FINANCIAL ADVISORS THAT RECEIVE ONE OR
MORE TYPES OF PAYMENTS................................................ H-1
PENDING LITIGATION....................................................... I-1
ii
GENERAL INFORMATION ABOUT THE TRUST
FUND HISTORY
AIM Counselor Series Trust (the "Trust") is a Delaware statutory trust and
is registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management investment company. The Trust currently
consists of seven separate portfolios: AIM Advantage Health Sciences Fund, AIM
Floating Rate Fund, AIM Multi-Sector Fund, AIM Select Real Estate Income Fund,
AIM Structured Core Fund, AIM Structured Growth Fund and AIM Structured Value
Fund (each a "fund" and collectively, the "funds"). This Statement of Additional
Information relates solely to AIM Select Real Estate Income Fund (the "Fund").
Under the Second Amended and Restated Agreement and Declaration of Trust, dated
December 6, 2005, as amended, (the "Trust Agreement"), the Board of Trustees of
the Trust (the "Board") is authorized to create new series of shares without the
necessity of a vote of shareholders of the Trust.
The Trust was organized as a Delaware statutory trust on July 29, 2003.
Pursuant to shareholder approval obtained at a shareholder meeting held on
October 21, 2003, each series portfolio of AIM Counselor Series Funds, Inc. (the
"Company") and INVESCO Multi-Sector Fund, the single series portfolio of AIM
Manager Series Funds, Inc. were redomesticated as new series of the Trust on
November 25, 2003. The Company was incorporated under the laws of Maryland as
INVESCO Advantage Series Funds, Inc. on April 24, 2000. On November 8, 2000, the
Company changed its name to INVESCO Counselor Series Funds, Inc. and on October
1, 2003, the Company's name was changed to AIM Counselor Series Funds, Inc.
INVESCO Manager Series Funds, Inc. ("Manager Series Funds") was incorporated
under the laws of Maryland on May 23, 2002 and on October 1, 2003, Manager
Series Fund's name was changed to AIM Manager Series Funds, Inc.
On May 16, 2001, AIM Advantage Health Sciences Fund ("Health Sciences
Fund") assumed all the assets and liabilities of INVESCO Global Health Sciences
Fund. On September 30, 2003, Health Sciences Fund's name was changed from
INVESCO Advantage Global Health Sciences Fund to INVESCO Advantage Health
Sciences Fund. On October 15, 2004, Health Sciences Fund's name was changed from
INVESCO Advantage Health Sciences Fund to AIM Advantage Health Sciences Fund. On
October 15, 2004, AIM Multi-Sector Fund's name was changed from INVESCO
Multi-Sector Fund to AIM Multi-Sector Fund.
Pursuant to shareholder approval obtained at a shareholder meeting held on
April 11, 2006, AIM Floating Rate Fund, a closed-end interval fund reorganized
as an open-end series portfolio of the Trust on April 13, 2006.
Subject to shareholder approval of closed-end AIM Select Real Estate Income
Fund (the "Closed-End Fund"), the sole series portfolio AIM Select Real Estate
Income Fund, at a meeting to be held on February 28, 2007, the Fund will assume
all of the assets and liabilities of the Closed-End Fund The sole purpose of the
reorganization is to convert the Closed-End Fund into an open-end fund.
"Open-end" means that the Fund may issue an indefinite number of shares
which are continuously offered and which may be redeemed at net asset value per
share ("NAV"). A "management" investment company actively buys and sells
securities for the portfolio of the Fund at the direction of a professional
manager. Open-end management investment companies (or one or more series of such
companies, such as the Fund) are commonly referred to as mutual funds.
SHARES OF BENEFICIAL INTEREST
Shares of beneficial interest of the Trust are redeemable at their net
asset value (subject, in certain circumstances, to a contingent deferred sales
charge or redemption fee) at the option of the shareholder or at the option of
the Trust in certain circumstances.
1
The Trust allocates moneys and other property it receives from the issue or
sale of shares of each of its series of shares, and all income, earnings and
profits from such issuance and sales, subject only to the rights of creditors,
to the appropriate fund. These assets constitute the underlying assets of each
fund, are segregated on the Trust's books of account, and are charged with the
expenses of such fund and its respective classes. The Trust allocates any
general expenses of the Trust not readily identifiable as belonging to a
particular fund by or under the direction of the Board, primarily on the basis
of relative net assets, or other relevant factors.
Each share of each fund represents an equal proportionate interest in that
fund with each other share and is entitled to such dividends and distributions
out of the income belonging to such fund as are declared by the Board. Each fund
offers the following separate classes of shares.
INSTITUTIONAL
FUND CLASS A CLASS B CLASS C CLASS R CLASS
- ---------------------------------- ------- ------- ------- ------- -------------
AIM Advantage Health Sciences Fund X X X
AIM Floating Rate Fund X X X X
AIM Multi-Sector Fund X X X
AIM Select Real Estate Income Fund X X X X
AIM Structured Core Fund X X X X X
AIM Structured Growth Fund X X X X X
AIM Structured Value Fund X X X X
This Statement of Additional Information relates solely to the Class A,
Class B, Class C and Institutional Class shares of the Fund. The Institutional
Class shares of the Fund are intended for use by certain eligible institutional
investors, including the following:
- banks and trust companies acting in a fiduciary or similar capacity;
- bank and trust company common and collective trust funds;
- banks and trust companies investing for their own account;
- entities acting for the account of a public entity (e.g., Taft-Hartley
funds, states, cities or government agencies);
- retirement plans;
- platform sponsors with which A I M Distributors, Inc. ("AIM
Distributors") has entered into an agreement;
- proprietary asset allocation funds; and
- A I M Management Group Inc. and its affiliates.
Each class of shares represents an interest in the same portfolio of
investments. Differing sales charges and expenses will result in differing net
asset values and dividends and distributions. Upon any
2
liquidation of the Trust, shareholders of each class are entitled to share pro
rata in the net assets belonging to the applicable fund allocable to such class
available for distribution after satisfaction of outstanding liabilities of the
fund allocable to such class.
Each share of a fund generally has the same voting, dividend, liquidation
and other rights; however, each class of shares of a fund is subject to
different sales loads, conversion features, exchange privileges and
class-specific expenses. Only shareholders of a specific class may vote on
matters relating to that class' distribution plan.
Because Class B shares automatically convert to Class A shares on or about
month-end which is at least eight years after the date of purchase, the Fund's
distribution plan adopted pursuant to Rule 12b-1 under the 1940 Act requires
that Class B shareholders must also approve any material increase in
distribution fees submitted to Class A shareholders of the Fund. A pro rata
portion of shares from reinvested dividends and distributions convert along with
the Class B shares.
Except as specifically noted above, shareholders of each fund are entitled
to one vote per share (with proportionate voting for fractional shares),
irrespective of the relative net asset value of the shares of a fund. However,
on matters affecting an individual fund or class of shares, a separate vote of
shareholders of that fund or class is required. Shareholders of a fund or class
are not entitled to vote on any matter which does not affect that fund or class
but that requires a separate vote of another fund or class. An example of a
matter that would be voted on separately by shareholders of each fund is the
approval of the advisory agreement with A I M Advisors, Inc. ("AIM"), and an
example of a matter that would be voted on separately by shareholders of each
class of shares is approval of the distribution plans. When issued, shares of
each fund are fully paid and nonassessable, have no preemptive or subscription
rights, and are freely transferable. Other than the automatic conversion of
Class B shares to Class A shares, there are no conversion rights. Shares do not
have cumulative voting rights, which means that in situations in which
shareholders elect trustees, holders of more than 50% of the shares voting for
the election of trustees can elect all of the trustees of the Trust, and the
holders of less than 50% of the shares voting for the election of trustees will
not be able to elect any trustees.
Under Delaware law, shareholders of a Delaware statutory trust shall be
entitled to the same limitations of liability extended to shareholders of
private for-profit corporations. There is a remote possibility; however, that
shareholders could, under certain circumstances, be held liable for the
obligations of the Trust to the extent the courts of another state which does
not recognize such limited liability were to apply the laws of such state to a
controversy involving such obligations. The Trust Agreement disclaims
shareholder liability for acts or obligations of the Trust and requires that
notice of such disclaimer be given in each agreement, obligation or instrument
entered into or executed by the Trust or the trustees to all parties, and each
party thereto must expressly waive all rights of action directly against
shareholders of the Trust. The Trust Agreement provides for indemnification out
of the property of a fund for all losses and expenses of any shareholder of such
fund held liable on account of being or having been a shareholder. Thus, the
risk of a shareholder incurring financial loss due to shareholder liability is
limited to circumstances in which a fund is unable to meet its obligations and
the complaining party is not held to be bound by the disclaimer.
The trustees and officers of the Trust will not be liable for any act,
omission or obligation of the Trust or any trustee or officer; however, a
trustee or officer is not protected against any liability to the Trust or to the
shareholders to which a trustee or officer would otherwise be subject by reason
of willful misfeasance, bad faith, gross negligence, or reckless disregard of
the duties involved in the conduct of his or her office with the Trust
("Disabling Conduct"). The Trust's Bylaws generally provide for indemnification
by the Trust of the trustees, the officers and employees or agents of the Trust,
provided that such persons have not engaged in Disabling Conduct.
Indemnification does not extend to judgments or amounts paid in settlement in
any actions by or in the right of the Trust. The Trust Agreement also authorizes
the purchase of liability insurance on behalf of trustees and officers. The
Trust's Bylaws provide for the advancement of payments to current and former
trustees, officers and employees or agents of the Trust, or anyone serving at
their request, in connection with the preparation and presentation of a defense
to any claim, action, suit or proceeding, expenses for which such person would
3
be entitled to indemnification; provided that any advancement of payments would
be reimbursed unless it is ultimately determined that such person is entitled to
indemnification for such expenses.
SHARE CERTIFICATES. Shareholders of the Fund do not have the right to
demand or require the Trust to issue share certificates and share certificates
are not issued.
DESCRIPTION OF THE FUND AND ITS INVESTMENTS AND RISKS
CLASSIFICATION
The Trust is an open-end management investment company. The Fund is
"non-diversified" for purposes of the 1940 Act, which means the Fund can invest
a greater percentage of its assets in any one issuer than a diversified fund
can.
INVESTMENT STRATEGIES AND RISKS
Set forth below are detailed descriptions of the various types of
securities and investment techniques that AIM and/or the sub-advisor, INVESCO
Institutional (N.A.), Inc. ("INVESCO Institutional" or the "Sub-Advisor"), may
use in managing the Fund, as well as the risks associated with those types of
securities and investment techniques. The descriptions of the types of
securities and investment techniques below supplement the discussion of
principal investment strategies and risks contained in the Fund's Prospectus;
where a particular type of security or investment technique is not discussed in
the Fund's Prospectus, that security or investment technique is not a principal
investment strategy.
The Fund may not invest in all of the types of securities or use all of the
investment techniques described below at any one time. The Fund's transactions
in a particular type of security or use of a particular technique is subject to
limitations imposed by the Fund's investment objectives, policies and
restrictions described in the Fund's Prospectus and/or this Statement of
Additional Information, as well as the federal securities laws. In addition to
those described below, AIM and/or the Sub-Advisor may invest in other types of
securities and may use other investment techniques in managing the Fund, subject
to limitations imposed by the Fund's investment objectives, policies and
restrictions described in the Fund's Prospectus and/or this Statement of
Additional Information, as well as the federal securities laws.
The Fund's investment objectives, policies, strategies and practices
described below are non-fundamental unless otherwise indicated.
Equity Investments
COMMON STOCK. Common stock is issued by companies principally to raise cash
for business purposes and represents a residual interest in the issuing company.
The Fund participates in the success or failure of any company in which it holds
stock. The prices of equity securities change in response to many factors
including the historical and prospective earnings of the issuer, the value of
its assets, general economic conditions, interest rates, investor perceptions
and market liquidity.
PREFERRED STOCK. Preferred stock, unlike common stock, often offers a
stated dividend rate payable from a corporation's earnings. If interest rates
rise, the fixed dividend on preferred stocks may be less attractive, causing the
price of preferred stocks to decline. Preferred stock may have mandatory sinking
fund provisions, as well as call/redemption provisions prior to maturity, a
negative feature when interest rates decline. Dividends on some preferred stock
may be "cumulative," requiring all or a portion of prior unpaid dividends to be
paid before dividends are paid on the issuer's common stock. Preferred stock
also generally has a preference over common stock on the distribution of a
corporation's assets in the event of liquidation of the corporation, and may be
"participating," which means that it may be entitled to a dividend exceeding the
stated dividend in certain cases. In some cases an issuer may offer auction rate
preferred stock, which means that the dividend to be paid is set by auction and
will often be reset at
4
stated intervals. The rights of preferred stocks on the distribution of a
corporation's assets in the event of a liquidation are generally subordinate to
the rights associated with a corporation's debt securities.
CONVERTIBLE SECURITIES. Convertible securities include bonds, debentures,
notes, preferred stocks and other securities that may be converted into a
prescribed amount of common stock or other equity securities at a specified
price and time. The holder of convertible securities is entitled to receive
interest paid or accrued on debt, or dividends paid or accrued on preferred
stock, until the security matures or is converted.
The value of a convertible security depends on interest rates, the yield of
similar nonconvertible securities, the financial strength of the issuer and the
seniority of the security in the issuer's capital structure. Convertible
securities may be illiquid, and may be required to convert at a time and at a
price that is unfavorable to the Fund.
The Fund will invest in a convertible security based primarily on the
characteristics of the equity security into which it converts, and without
regard to the credit rating of the convertible security (even if the credit
rating is below investment grade). To the extent that the Fund invests in
convertible securities with credit ratings below investment grade, such
securities may have a higher likelihood of default, although this may be
somewhat offset by the convertibility feature. See also "Debt Investments -
Lower Rated Securities" below.
ALTERNATIVE ENTITY SECURITIES. Companies that are formed as limited
partnerships, limited liability companies, business trusts or other
non-corporate entities may issue equity securities that are similar to common or
preferred stock of corporations.
REAL ESTATE INVESTMENT TRUSTS ("REITS"). The Fund may invest all of its
total assets in equity securities (common stock, preferred stock and convertible
preferred stock) and/or debt securities and convertible debt securities issued
by REITS. REITs are trusts that sell equity or debt securities to investors and
use the proceeds to invest in real estate or interests therein. A REIT may focus
on particular projects, such as apartment complexes, or geographic regions, such
as the southeastern United States, or both.
REITs can generally be classified as equity REITs, mortgage REITs and
hybrid REITs. Equity REITs generally invest a majority of their assets in
income-producing real estate properties in order to generate cash flow from
rental income and a gradual asset appreciation. The income-producing real estate
properties in which equity REITs invest typically include properties such as
office, retail, industrial, hotel and apartment buildings, self storage,
specialty and diversified and healthcare facilities. Equity REITs can realize
capital gains by selling properties that have appreciated in value. Mortgage
REITs invest the majority of their assets in real estate mortgages and derive
their income primarily from interest payments on the mortgages. Hybrid REITs
combine the characteristics of both equity REITs and mortgage REITs. The Fund
will invest primarily in equity REITs, but may invest its total assets in
mortgage REITs and hybrid REITs.
REITs can be listed and traded on national securities exchanges or can be
traded privately between individual owners. The Fund may invest in both publicly
and privately traded REITs.
The Fund could conceivably own real estate directly as a result of a
default on the securities it owns. The Fund, therefore, may be subject to
certain risks associated with the direct ownership of real estate including
difficulties in valuing and trading real estate, declines in the value of real
estate, risks related to general and local economic conditions, adverse changes
in the climate for real estate, environmental liability risks, increases in
property taxes and operating expenses, changes in zoning laws, casualty or
condemnation losses, limitations on rents, changes in neighborhood values, the
appeal of properties to tenants, and increases in interest rates.
5
In addition to the risks described above, equity REITs may be affected by
any changes in the value of the underlying property owned by the trusts, while
mortgage REITs may be affected by the quality of any credit extended. Equity and
mortgage REITs are dependent upon management skill, are not diversified, and are
therefore subject to the risk of financing single or a limited number of
projects. Such trusts are also subject to heavy cash flow dependency, defaults
by borrowers, self-liquidation, and the possibility of failing to maintain an
exemption from the 1940 Act. Changes in interest rates may also affect the value
of debt securities held by the Fund. By investing in REITs indirectly through
the Fund, a shareholder will bear not only his/her proportionate share of the
expenses of the Fund, but also, indirectly, similar expenses of the REITs.
Foreign Investments
FOREIGN SECURITIES. The Fund may invest up to 25% of its total assets in
foreign securities.
Foreign securities are equity or debt securities issued by issuers outside
the United States, and include securities in the form of American Depositary
Receipts ("ADRs"), European Depositary Receipts ("EDRs"), or other securities
representing underlying securities of foreign issuers. Depositary receipts are
typically issued by a bank or trust company and evidence ownership of underlying
securities issued by foreign corporations.
Investments by the Fund in foreign securities, whether denominated in U.S.
dollars or foreign currencies, may entail some or all of the risks set forth
below. Investments by the Fund in ADRs, EDRs or similar securities also may
entail some or all of the risks described below.
Currency Risk. The value of the Fund's foreign investments will be affected
by changes in currency exchange rates. The U.S. dollar value of a foreign
security decreases when the value of the U.S. dollar rises against the foreign
currency in which the security is denominated, and increases when the value of
the U.S. dollar falls against such currency.
Political and Economic Risk. The economies of many of the countries in
which the Fund may invest may not be as developed as the United States' economy
and may be subject to significantly different forces. Political or social
instability, expropriation or confiscatory taxation, and limitations on the
removal of funds or other assets could also adversely affect the value of the
Fund's investments.
Regulatory Risk. Foreign companies may not be registered with the
Securities and Exchange Commission ("SEC") and are generally not subject to the
regulatory controls imposed on United States issuers and, as a consequence,
there is generally less publicly available information about foreign securities
than is available about domestic securities. Foreign companies are not subject
to uniform accounting, auditing and financial reporting standards, corporate
governance practices and requirements comparable to those applicable to domestic
companies. Income from foreign securities owned by the Fund may be reduced by a
withholding tax at the source, which tax would reduce dividend income payable to
the Fund's shareholders.
Market Risk. The securities markets in many of the countries in which the
Fund invests will have substantially less trading volume than the major United
States markets. As a result, the securities of some foreign companies may be
less liquid and experience more price volatility than comparable domestic
securities. Increased custodian costs as well as administrative costs (such as
the need to use foreign custodians) may be associated with the maintenance of
assets in foreign jurisdictions. There is generally less government regulation
and supervision of foreign stock exchanges, brokers and issuers which may make
it difficult to enforce contractual obligations. In addition, transaction costs
in foreign securities markets are likely to be higher, since brokerage
commission rates in foreign countries are likely to be higher than in the United
States.
Risks of Developing Countries. The Fund may invest up to 5% of its total
assets in securities of companies located in developing countries. Developing
countries are those countries that are not included in the MSCI World Index. The
Fund considers various factors when determining whether a
6
company is in a developing country, including whether (1) it is organized under
the laws of a developing country; (2) it has a principal office in a developing
country; (3) it derives 50% or more of its total revenues from business in a
developing country; or (4) its securities are traded principally on a stock
exchange, or in an over-the-counter market, in a developing country. Investments
in developing countries present risks greater than, and in addition to, those
presented by investments in foreign issuers in general. A number of developing
countries restrict, to varying degrees, foreign investment in stocks.
Repatriation of investment income, capital, and the proceeds of sales by foreign
investors may require governmental registration and/or approval in some
developing countries. A number of the currencies of developing countries have
experienced significant declines against the U.S. dollar in recent years, and
devaluation may occur after investments in these currencies by the Fund.
Inflation and rapid fluctuations in inflation rates have had and may continue to
have negative effects on the economies and securities markets of certain
emerging market countries. Many of the developing securities markets are
relatively small or less diverse, have low trading volumes, suffer periods of
relative illiquidity, and are characterized by significant price volatility.
There is a risk in developing countries that a future economic or political
crisis could lead to price controls, forced mergers of companies, expropriation
or confiscatory taxation, seizure, nationalization, or creation of government
monopolies, any of which may have a detrimental effect on the Fund's
investments.
FOREIGN GOVERNMENT OBLIGATIONS. Debt securities issued by foreign
governments are often, but not always, supported by the full faith and credit of
the foreign governments, or their subdivisions, agencies or instrumentalities,
that issue them. These securities involve the risks discussed above with respect
to foreign securities. Additionally, the issuer of the debt or the governmental
authorities that control repayment of the debt may be unwilling or unable to pay
interest or repay principal when due. Political or economic changes or the
balance of trade may affect a country's willingness or ability to service its
debt obligations. Periods of economic uncertainty may result in the volatility
of market prices of sovereign debt obligations, especially debt obligations
issued by the governments of developing countries. Foreign government
obligations of developing countries, and some structures of emerging market debt
securities, both of which are generally below investment grade, are sometimes
referred to as "Brady Bonds".
FOREIGN EXCHANGE TRANSACTIONS. The Fund has authority to deal in foreign
exchange between currencies of the different countries in which it will invest
as a hedge against possible variations in the foreign exchange rates between
those currencies. The Fund may commit the same percentage of its assets to
foreign exchange hedges as it can invest in foreign securities. Foreign exchange
transactions include direct purchases of futures contracts with respect to
foreign currency, and contractual agreements to purchase or sell a specified
currency at a specified future date (up to one year) at a price set at the time
of the contract. Such contractual commitments may be forward currency contracts
entered into directly with another party or exchange traded futures contracts.
The Fund may utilize either specific transactions ("transaction hedging")
or portfolio positions ("position hedging") to hedge foreign currency exposure
through foreign exchange transactions. Transaction hedging is the purchase or
sale of foreign currency with respect to specific receivables or payables of the
Fund accruing in connection with the purchase or sale of its portfolio
securities, the sale and redemption of shares of the Fund, or the payment of
dividends and distributions by the Fund. Position hedging is the purchase or
sale of foreign currency with respect to portfolio security positions (or
underlying portfolio security positions, such as in an ADR) denominated or
quoted in a foreign currency. There can be no guarantee that these investments
will be successful. Additionally, foreign exchange transactions may involve some
of the risks of investments in foreign securities.
Debt Investments
U.S. GOVERNMENT OBLIGATIONS. Obligations issued or guaranteed by the U.S.
Government, its agencies and instrumentalities include bills, notes and bonds
issued by the U.S. Treasury, as well as "stripped" or "zero coupon" U.S.
Treasury obligations representing future interest or principal payments on U.S.
Treasury notes or bonds. Stripped securities are sold at a discount to their
"face value," and may exhibit greater price volatility than interest-bearing
securities because investors receive no payment until
7
maturity. Obligations of certain agencies and instrumentalities of the U.S.
Government, such as the Government National Mortgage Association ("GNMA"), are
supported by the full faith and credit of the U.S. Treasury; others, such as
those of the Federal National Mortgage Association ("FNMA"), are supported by
the right of the issuer to borrow from the U.S. Treasury; others, such as those
of the former Student Loan Marketing Association ("SLMA"), are supported by the
discretionary authority of the U.S. Government to purchase the agency's
obligations; still others, although issued by an instrumentality chartered by
the U.S. Government, like the Federal Farm Credit Bureau ("FFCB"), are supported
only by the credit of the instrumentality. The U.S. Government may choose not to
provide financial support to U.S. Government-sponsored agencies or
instrumentalities if it is not legally obligated to do so, in which case, if the
issuer were to default, and the Fund held securities of such issuer, it might
not be able to recover its investment from the U.S. Government.
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES. Mortgage-backed securities are
mortgage-related securities issued or guaranteed by the U.S. Government, its
agencies and instrumentalities, or issued by nongovernment entities.
Mortgage-related securities represent pools of mortgage loans assembled for sale
to investors by various government agencies such as GNMA and government-related
organizations such as FNMA and the Federal Home Loan Mortgage Corporation
("FHLMC"), as well as by nongovernment issuers such as commercial banks, savings
and loan institutions, mortgage bankers and private mortgage insurance
companies. Although certain mortgage-related securities are guaranteed by a
third party or otherwise similarly secured, the market value of the security,
which may fluctuate, is not so secured.
There are a number of important differences among the agencies and
instrumentalities of the U.S. Government that issue mortgage-related securities
and among the securities they issue. Mortgage-related securities issued by GNMA
include GNMA Mortgage Pass-Through Certificates (also known as "Ginnie Maes")
which are guaranteed as to the timely payment of principal and interest. That
guarantee is backed by the full faith and credit of the U.S. Treasury. GNMA is a
corporation wholly owned by the U.S. Government within the Department of Housing
and Urban Development. Mortgage-related securities issued by FNMA include FNMA
Guaranteed Mortgage Pass-Through Certificates (also known as "Fannie Maes") and
are guaranteed as to payment of principal and interest by FNMA itself and backed
by a line of credit with the U.S. Treasury. FNMA is a government-sponsored
entity wholly owned by public stockholders. Mortgage-related securities issued
by FHLMC include FHLMC Mortgage Participation Certificates (also known as
"Freddie Macs") guaranteed as to payment of principal and interest by FHLMC
itself and backed by a line of credit with the U.S. Treasury. FHLMC is a
government-sponsored entity wholly owned by public stockholders.
Other asset-backed securities are structured like mortgage-backed
securities, but instead of mortgage loans or interests in mortgage loans, the
underlying assets may include such items as motor vehicle installment sales or
installment loan contracts, leases of various types of real and personal
property, and receivables from credit card agreements and from sales of personal
property. Regular payments received in respect of such securities include both
interest and principal. Asset-backed securities typically have no U.S.
Government backing. Additionally, the ability of an issuer of asset-backed
securities to enforce its security interest in the underlying assets may be
limited.
If the Fund purchases a mortgage-backed or other asset-backed security at a
premium, that portion may be lost if there is a decline in the market value of
the security whether resulting from changes in interest rates or prepayments in
the underlying collateral. As with other interest-bearing securities, the prices
of such securities are inversely affected by changes in interest rates. Although
the value of a mortgage-backed or other asset-backed security may decline when
interest rates rise, the converse is not necessarily true, since in periods of
declining interest rates the mortgages and loans underlying the securities are
prone to prepayment, thereby shortening the average life of the security and
shortening the period of time over which income at the higher rate is received.
When interest rates are rising, the rate of prepayment tends to decrease,
thereby lengthening the period of time over which income at the lower rate is
received. For these and other reasons, a mortgage-backed or other asset-backed
security's average maturity may be shortened or lengthened as a result of
interest rate fluctuations and, therefore, it is not possible to predict
accurately the security's return.
8
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS"). A CMO is a hybrid between a
mortgage-backed bond and a mortgage pass-through security. Similar to a bond,
interest and prepaid principal is paid, in most cases, semiannually. CMOs may be
collateralized by whole mortgage loans, but are more typically collateralized by
portfolios of mortgage pass-through securities guaranteed by GNMA, FHLMC, or
FNMA, and their income streams.
CMOs are structured into multiple classes, each bearing a different stated
maturity. Actual maturity and average life will depend upon the prepayment
experience of the collateral. CMOs provide for a modified form of call
protection through a de facto breakdown of the underlying pool of mortgages
according to how quickly the loans are repaid. Monthly payment of principal
received from the pool of underlying mortgages, including prepayments, is first
returned to investors holding the shortest maturity class. Investors holding the
longer maturity classes receive principal only after the first class has been
retired. An investor is partially guarded against a sooner than desired return
of principal because of the sequential payments.
In a typical CMO transaction, a corporation ("issuer") issues multiple
series (e.g., A, B, C, Z) of CMO bonds ("Bonds"). Proceeds of the Bond offering
are used to purchase mortgages or mortgage pass-through certificates
("Collateral"). The Collateral is pledged to a third party trustee as security
for the Bonds. Principal and interest payments from the Collateral are used to
pay principal on the Bonds in the order A, B, C, Z. The Series A, B, and C Bonds
all bear current interest. Interest on a Series Z Bond is accrued and added to
principal and a like amount is paid as principal on the Series A, B, or C Bond
currently being paid off. When the Series A, B, and C Bonds are paid in full,
interest and principal on the Series Z Bond begins to be paid currently. With
some CMOs, the issuer serves as a conduit to allow loan originators (primarily
builders or savings and loan associations) to borrow against their loan
portfolios.
CMOs that are issued or guaranteed by the U.S. government or by any of its
agencies or instrumentalities will be considered U.S. government securities by
the Fund, while other CMOs, even if collateralized by U.S. government
securities, will have the same status as other privately issued securities for
purposes of applying the Fund's diversification tests.
FHLMC CMOs. FHLMC CMOs are debt obligations of FHLMC issued in multiple
classes having different maturity dates which are secured by the pledge of a
pool of conventional mortgage loans purchased by FHLMC. Unlike FHLMC
Participation Certificates ("PCs"), payments of principal and interest on the
CMOs are made semiannually, as opposed to monthly. The amount of principal
payable on each semiannual payment date is determined in accordance with FHLMC's
mandatory sinking fund schedule, which, in turn, is equal to approximately 100%
of FHA prepayment experience applied to the mortgage collateral pool. All
sinking fund payments in the CMOs are allocated to the retirement of the
individual classes of bonds in the order of their stated maturities. Payment of
principal on the mortgage loans in the collateral pool in excess of the amount
of FHLMC's minimum sinking fund obligation for any payment date are paid to the
holders of the CMOs as additional sinking fund payments. Because of the
"pass-through" nature of all principal payments received on the collateral pool
in excess of FHLMC's minimum sinking fund requirement, the rate at which
principal of the CMOs is actually repaid is likely to be such that each class of
bonds will be retired in advance of its scheduled maturity date.
If collection of principal (including prepayments) on the mortgage loans
during any semiannual payment period is not sufficient to meet FHLMC's minimum
sinking fund obligation on the next sinking fund payment date, FHLMC agrees to
make up the deficiency from its general funds.
Risks of Mortgage-Related Securities. Investment in mortgage-backed
securities poses several risks, including prepayment, market, and credit risk.
Prepayment risk reflects the risk that borrowers may prepay their mortgages
faster than expected, thereby affecting the investment's average life and
perhaps its yield. Whether or not a mortgage loan is prepaid is almost entirely
controlled by the borrower. Borrowers are most likely to exercise prepayment
options at the time when it is least advantageous to investors, generally
prepaying mortgages as interest rates fall, and slowing payments as interest
rates rise. Besides the effect of prevailing interest rates, the rate of
prepayment and refinancing of mortgages
9
may also be affected by home value appreciation, ease of the refinancing process
and local economic conditions.
Market risk reflects the risk that the price of the security may fluctuate
over time. The price of mortgage-backed securities may be particularly sensitive
to prevailing interest rates, the length of time the security is expected to be
outstanding, and the liquidity of the issue. In a period of unstable interest
rates, there may be decreased demand for certain types of mortgage-backed
securities, and if the Fund is invested in such securities and wishes to sell
them, it may be difficult to find a buyer, which may in turn decrease the price
at which they may be sold.
Credit risk reflects the risk that the Fund may not receive all or part of
its principal because the issuer or credit enhancer has defaulted on its
obligations. Obligations issued by U.S. government-related entities are
guaranteed as to the payment of principal and interest, but are not backed by
the full faith and credit of the U.S. government. The performance of private
label mortgage-backed securities, issued by private institutions, is based on
the financial health of those institutions. With respect to GNMA certificates,
although GNMA guarantees timely payment even if homeowners delay or default,
tracking the "pass-through" payments may, at times, be difficult.
BANK INSTRUMENTS. The Fund may invest in certificates of deposits, time
deposits, and bankers' acceptances from U.S. or foreign banks. A bankers'
acceptance is a bill of exchange or time draft drawn on and accepted by a
commercial bank. A certificate of deposit is a negotiable interest-bearing
instrument with a specific maturity. Certificates of deposit are issued by banks
and savings and loan institutions in exchange for the deposit of funds, and
normally can be traded in the secondary market prior to maturity. A time deposit
is a non-negotiable receipt issued by a bank in exchange for the deposit of
funds. Like a certificate of deposit, it earns a specified rate of interest over
a definite period of time; however, it cannot be traded in the secondary market.
The Fund may invest in certificates of deposit ("Eurodollar CDs") and time
deposits ("Eurodollar time deposits") of foreign branches of domestic banks.
Accordingly, an investment in the Fund may involve risks that are different in
some respects from those incurred by an investment company which invests only in
debt obligations of U.S. domestic issuers. Such risks include future political
and economic developments, the possible seizure or nationalization of foreign
deposits and the possible imposition of foreign country withholding taxes on
interest income.
COMMERCIAL INSTRUMENTS. The Fund intends to invest in commercial
instruments, including commercial paper, master notes and other short-term
corporate instruments, that are denominated in U.S. dollars. Commercial paper
consists of short-term promissory notes issued by corporations. Commercial paper
may be traded in the secondary market after its issuance. Master notes are
demand notes that permit the investment of fluctuating amounts of money at
varying rates of interest pursuant to arrangements with issuers who meet the
quality criteria of the Fund. The interest rate on a master note may fluctuate
based upon changes in specified interest rates or be reset periodically
according to a prescribed formula or may be a set rate. Although there is no
secondary market in master demand notes, if such notes have a demand feature,
the payee may demand payment of the principal amount of the note upon relatively
short notice.
PARTICIPATION INTERESTS. The Fund may purchase participations in corporate
loans. Participation interests generally will be acquired from a commercial bank
or other financial institution (a "Lender") or from other holders of a
participation interest (a "Participant"). The purchase of a participation
interest either from a Lender or a Participant will not result in any direct
contractual relationship with the borrowing company ("the Borrower"). The Fund
generally will have no right directly to enforce compliance by the borrower with
the terms of the credit agreement. Instead, the Fund will be required to rely on
the Lender or the Participant that sold the participation interest both for the
enforcement of the Fund's rights against the Borrower and for the receipt and
processing of payments due to the Fund under the loans. Under the terms of a
participation interest, the Fund may be regarded as a member of the Participant
and thus the Fund is subject to the credit risk of both the Borrower and a
Participant. Participation interests are
10
generally subject to restrictions on resale. The Fund considers participation
interests to be illiquid and therefore subject to the Fund's percentage
limitation for investments in illiquid securities.
MUNICIPAL SECURITIES. "Municipal Securities" include debt obligations of
states, territories or possessions of the United States and the District of
Columbia and their political subdivisions, agencies and instrumentalities,
issued to obtain funds for various public purposes, including the construction
of a wide range of public facilities such as airports, bridges, highways,
housing, hospitals, mass transportation, schools, streets and water and sewer
works.
Other public purposes for which Municipal Securities may be issued include
the refunding of outstanding obligations, obtaining funds for general operating
expenses and lending such funds to other public institutions and facilities. In
addition, certain types of industrial development bonds are issued by or on
behalf of public authorities to obtain funds to provide for the construction,
equipment, repair or improvement of privately operated housing facilities,
airport, mass transit, industrial, port or parking facilities, air or water
pollution control facilities and certain local facilities for water supply, gas,
electricity or sewage or solid waste disposal. The principal and interest
payments for industrial development bonds or pollution control bonds are often
the sole responsibility of the industrial user and therefore may not be backed
by the taxing power of the issuing municipality. The interest paid on such bonds
may be exempt from federal income tax, although current federal tax laws place
substantial limitations on the purposes and size of such issues. Such
obligations are considered to be Municipal Securities provided that the interest
paid thereon, in the opinion of bond counsel, qualifies as exempt from federal
income tax. However, interest on Municipal Securities may give rise to a federal
alternative minimum tax liability and may have other collateral federal income
tax consequences. See "Dividends, Distributions and Tax Matters - Tax Matters."
The two major classifications of Municipal Securities are bonds and notes.
Bonds may be further classified as "general obligation" or "revenue" issues.
General obligation bonds are secured by the issuer's pledge of its full faith,
credit and taxing power for the payment of principal and interest. Revenue bonds
are payable from the revenues derived from a particular facility or class of
facilities, and in some cases, from the proceeds of a special excise or other
specific revenue source, but not from the general taxing power. Tax-exempt
industrial development bonds are in most cases revenue bonds and do not
generally carry the pledge of the credit of the issuing municipality. Notes are
short-term instruments which usually mature in less than two years. Most notes
are general obligations of the issuing municipalities or agencies and are sold
in anticipation of a bond sale, collection of taxes or receipt of other
revenues. There are, of course, variations in the risks associated with
Municipal Securities, both within a particular classification and between
classifications. The Fund's assets may consist of any combination of general
obligation bonds, revenue bonds, industrial revenue bonds and notes. The
percentage of such Municipal Securities held by the Fund will vary from time to
time.
Municipal Securities also include the following securities:
- Bond Anticipation Notes usually are general obligations of state
and local governmental issuers which are sold to obtain interim
financing for projects that will eventually be funded through the
sale of long-term debt obligations or bonds.
- Tax Anticipation Notes are issued by state and local governments
to finance the current operations of such governments. Repayment
is generally to be derived from specific future tax revenues. Tax
anticipation notes are usually general obligations of the issuer.
- Revenue Anticipation Notes are issued by governments or
governmental bodies with the expectation that future revenues
from a designated source will be used to repay the notes. In
general, they also constitute general obligations of the issuer.
- Tax-Exempt Commercial Paper (Municipal Paper) is similar to
taxable commercial paper, except that tax-exempt commercial paper
is issued by states, municipalities and their agencies.
11
The Fund also may purchase participation interests or custodial receipts
from financial institutions. These participation interests give the purchaser an
undivided interest in one or more underlying Municipal Securities.
Subsequent to its purchase by the Fund, an issue of Municipal Securities
may cease to be rated by Moody's Investors Service, Inc. ("Moody's") or Standard
and Poor's Ratings Services ("S&P"), or another nationally recognized
statistical rating organization ("NRSRO"), or the rating of such a security may
be reduced below the minimum rating required for purchase by the Fund. Neither
event would require the Fund to dispose of the security, but AIM will consider
such events to be relevant in determining whether the Fund should continue to
hold the security. To the extent that the ratings applied by Moody's, S&P or
another NRSRO to Municipal Securities may change as a result of changes in these
rating systems, the Fund will attempt to use comparable ratings as standards for
its investments in Municipal Securities in accordance with the investment
policies described herein.
Quality Standards. The following quality standards apply at the time a
security is purchased. Information concerning the ratings criteria of Moody's,
S&P, and Fitch Investors Service, Inc. ("Fitch") appears herein under "Appendix
A - Ratings of Debt Securities".
Since the Fund invests in securities backed by insurance companies and
other financial institutions, changes in the financial condition of these
institutions could cause losses to the Fund and affect its share price.
The Fund may invest in securities which are insured by financial insurance
companies. Since a limited number of entities provide such insurance, the Fund
may invest more than 25% of its assets in securities insured by the same
insurance company.
Other Considerations. The ability of the Fund to achieve its investment
objective depends upon the continuing ability of the issuers or guarantors of
Municipal Securities held by the Fund to meet their obligations for the payment
of interest and principal when due. The securities in which the Fund invests may
not yield as high a level of current income as longer term or lower grade
securities, which generally have less liquidity and greater fluctuation in
value.
There is a risk that some or all of the interest received by the Fund from
Municipal Securities might become taxable as a result of tax law changes or
determinations of the Internal Revenue Service ("IRS").
The yields on Municipal Securities are dependent on a variety of factors,
including general economic and monetary conditions, money market factors,
conditions of the Municipal Securities market, size of a particular offering,
and maturity and rating of the obligation. Generally, the yield realized by a
Fund's shareholders will be the yield realized by the Fund on its investments,
reduced by the general expenses of the Fund and the Trust. The market values of
the Municipal Securities held by the Fund will be affected by changes in the
yields available on similar securities. If yields increase following the
purchase of a Municipal Security, the market value of such Municipal Security
will generally decrease. Conversely, if yields decrease, the market value of a
Municipal Security will generally increase.
INVESTMENT GRADE DEBT OBLIGATIONS. The Fund may invest in U.S.
dollar-denominated debt obligations issued or guaranteed by U.S. corporations or
U.S. commercial banks, U.S. dollar-denominated obligations of foreign issuers
and debt obligations of foreign issuers denominated in foreign currencies. Such
debt obligations include, among others, bonds, notes, debentures and variable
rate demand notes. In choosing investment grade debt securities on behalf of the
Fund, its investment adviser may consider (i) general economic and financial
conditions; (ii) the specific issuer's (a) business and management, (b) cash
flow, (c) earnings coverage of interest and dividends, (d) ability to operate
under adverse economic conditions, (e) fair market value of assets, and (f) in
the case of foreign issuers,
12
unique political, economic or social conditions applicable to such issuer's
country; and, (iii) other considerations deemed appropriate.
LOWER RATED SECURITIES. Securities that receive a rating of Ba or BB or
lower by Moody's, S&P and Fitch are considered below investment grade
securities. Debt securities of below grade investment quality are commonly
referred to as junk bonds. Companies that issue junk bonds are often highly
leveraged, and may not have more traditional methods of financing available to
them. During an economic downturn or recession, highly leveraged issuers of high
yield securities may experience financial stress, and may not have sufficient
revenues to meet their interest payment obligations. Economic downturns tend to
disrupt the market for junk bonds, lowering their values, and increasing their
price volatility. The risk of issuer default is higher with respect to junk
bonds because such issues may be subordinated to other creditors of the issuer.
The credit rating of a junk bond does not necessarily address its market
value risk, and ratings may from time to time change to reflect developments
regarding the issuer's financial condition. The lower the rating of a junk bond,
the more speculative its characteristics.
Securities of below investment grade quality are regarded as having
predominately speculative characteristics with respect to capacity to pay
interest and repay principal.
Lower-rated securities may be more susceptible to real or perceived adverse
economic and competitive industry conditions than higher grade securities. The
prices of lower-rated securities have been found to be less sensitive to
interest rate changes than more highly rated investments, but more sensitive to
adverse economic downturns or individual corporate developments. Yields on
lower-rated securities will fluctuate. If the issuer of lower-rated securities
defaults, the Fund may incur additional expenses to seek recovery.
The secondary markets in which lower-rated securities are traded may be
less liquid than the market for higher grade securities. Less liquidity in the
secondary trading markets could adversely affect the price at which the Fund
could sell a particular lower-rated security when necessary to meet liquidity
needs or in response to a specific economic event, such as a deterioration in
the creditworthiness of the issuer, and could adversely affect and cause large
fluctuations in the net asset value of the Fund's shares. Adverse publicity and
investor perceptions may decrease the values and liquidity of high yield
securities.
It is reasonable to expect that any adverse economic conditions could
disrupt the market for lower-rated securities, have an adverse impact on the
value of such securities, and adversely affect the ability of the issuers of
such securities to repay principal and pay interest thereon. New laws and
proposed new laws may adversely impact the market for lower-rated securities.
Descriptions of debt securities ratings are found in Appendix A.
LIQUID ASSETS. For cash management purposes, the Fund may hold a portion of
its assets in cash or cash equivalents, including shares of affiliated money
market funds. In anticipation of or in response to adverse market or other
conditions, or atypical circumstances such as unusually large cash inflows or
redemptions, the Fund may temporarily hold all or a portion of its assets in
cash, cash equivalents (including shares of affiliated money market funds) or
high-quality debt instruments. As a result, the Fund may not achieve its
investment objective.
Cash equivalents include money market instruments (such as certificates of
deposit, time deposits, bankers' acceptances from U.S. or foreign banks, and
repurchase agreements), shares of affiliated money market funds or high-quality
debt obligations (such as U.S. Government obligations, commercial paper, master
notes and other short-term corporate instruments and municipal obligations).
13
Other Investments
OTHER INVESTMENT COMPANIES. The Fund may purchase shares of other
investment companies. The Fund is prohibited under the 1940 Act from purchasing
shares of other investment companies that have AIM as an investment advisor (the
"AIM Funds"), absent an exemptive order from the SEC. The Fund has obtained such
an exemptive order allowing it to invest in money market funds that have AIM or
an affiliate of AIM as an investment advisor (the "Affiliated Money Market
Funds"), provided that investments in Affiliated Money Market Funds do not
exceed 25% of the total assets of the Fund.
The following restrictions apply to investments in other investment
companies: (i) the Fund may not purchase more than 3% of the total outstanding
voting stock of another investment company; (ii) the Fund may not invest more
than 5% of its total assets in securities issued by another investment company;
and (iii) the Fund may not invest more than 10% of its total assets in
securities issued by other investment companies. These restrictions do not apply
to the Fund's investments in Affiliated Money Market Funds, although such
investments are subject to the 25% restriction discussed above.
With respect to the Fund's purchase of shares of another investment
company, including an Affiliated Money Market Fund, the Fund will indirectly
bear its proportionate share of the advisory fees and other operating expenses
of such investment company.
DEFAULTED SECURITIES. In order to enforce its rights in defaulted
securities, the Fund may be required to participate in various legal proceedings
or take possession of and manage assets securing the issuer's obligations on the
defaulted securities. This could increase the Fund's operating expenses and
adversely affect its net asset value. Any investments by the Fund in defaulted
securities will also be considered illiquid securities subject to the
limitations described herein, unless AIM determines that such defaulted
securities are liquid under guidelines adopted by the Board.
VARIABLE OR FLOATING RATE INSTRUMENTS. The Fund may invest in securities
that have variable or floating interest rates which are readjusted on set dates
(such as the last day of the month or calendar quarter) in the case of variable
rates or whenever a specified interest rate change occurs in the case of a
floating rate instrument. Variable or floating interest rates generally reduce
changes in the market price of securities from their original purchase price
because, upon readjustment, such rates approximate market rates. Accordingly, as
interest rates decrease or increase, the potential for capital appreciation or
depreciation is less for variable or floating rate securities than for fixed
rate obligations. Many securities with variable or floating interest rates
purchased by the Fund are subject to payment of principal and accrued interest
(usually within seven days) on the Fund's demand. The terms of such demand
instruments require payment of principal and accrued interest by the issuer, a
guarantor, and/or a liquidity provider. All variable or floating rate
instruments will meet the applicable quality standards of the Fund. AIM will
monitor the pricing, quality and liquidity of the variable or floating rate
securities held by the Fund.
INDEXED SECURITIES. The Fund may invest in indexed securities the value of
which is linked to interest rates, commodities, indices or other financial
indicators. Most indexed securities are short to intermediate term fixed income
securities whose values at maturity (principal value) or interest rates rise or
fall according to changes in the value of one or more specified underlying
instruments. Indexed securities may be positively or negatively indexed (i.e.,
their principal value or interest rates may increase or decrease if the
underlying instrument appreciates), and may have return characteristics similar
to direct investments in the underlying instrument or to one or more options on
the underlying instrument. Indexed securities may be more volatile than the
underlying instrument itself and could involve the loss of all or a portion of
the principal amount of the indexed security.
SYNTHETIC MUNICIPAL INSTRUMENTS. AIM believes that certain synthetic
municipal instruments provide opportunities for mutual funds to invest in high
credit quality securities providing attractive returns, even in market
conditions where the supply of short-term tax-exempt instruments may be limited.
The Fund may invest in synthetic municipal instruments the value of and return
on which are derived from underlying securities. Synthetic municipal instruments
comprise a large percentage of tax-exempt
14
securities eligible for purchase by tax-exempt money market funds. The types of
synthetic municipal instruments in which the Fund may invest include tender
option bonds and variable rate trust certificates. Both types of instruments
involve the deposit into a trust or custodial account of one or more long-term
tax-exempt bonds or notes ("Underlying Bonds"), and the sale of certificates
evidencing interests in the trust or custodial account to investors such as the
Fund. The trustee or custodian receives the long-term fixed rate interest
payments on the Underlying Bonds, and pays certificate holders short-term
floating or variable interest rates which are reset periodically. A "tender
option bond" provides a certificate holder with the conditional right to sell
its certificate to the Sponsor or some designated third party at specified
intervals and receive the par value of the certificate plus accrued interest (a
demand feature). A "variable rate trust certificate" evidences an interest in a
trust entitling the certificate holder to receive variable rate interest based
on prevailing short-term interest rates and also typically providing the
certificate holder with the conditional demand feature the right to tender its
certificate at par value plus accrued interest.
All synthetic municipal instruments must meet the minimum quality standards
for the Fund's investments and must present minimal credit risks. In selecting
synthetic municipal instruments for the Fund, AIM considers the creditworthiness
of the issuer of the Underlying Bond, the Sponsor and the party providing
certificate holders with a conditional right to sell their certificates at
stated times and prices (a demand feature). Typically, a certificate holder
cannot exercise the demand feature upon the occurrence of certain conditions,
such as where the issuer of the Underlying Bond defaults on interest payments.
Moreover, because synthetic municipal instruments involve a trust or custodial
account and a third party conditional demand feature, they involve complexities
and potential risks that may not be present where a municipal security is owned
directly.
The tax-exempt character of the interest paid to certificate holders is
based on the assumption that the holders have an ownership interest in the
Underlying Bonds; however, the Internal Revenue Service has not issued a ruling
addressing this issue. In the event the Internal Revenue Service issues an
adverse ruling or successfully litigates this issue, it is possible that the
interest paid to the Fund on certain synthetic municipal instruments would be
deemed to be taxable. The Fund relies on opinions of special tax counsel on this
ownership question and opinions of bond counsel regarding the tax-exempt
character of interest paid on the Underlying Bonds.
Investment Techniques
DELAYED DELIVERY TRANSACTIONS. Delayed delivery transactions, also referred
to as forward commitments, involve commitments by the Fund to dealers or issuers
to acquire or sell securities at a specified future date beyond the customary
settlement for such securities. These commitments may fix the payment price and
interest rate to be received or paid on the investment. The Fund may purchase
securities on a delayed delivery basis to the extent it can anticipate having
available cash on the settlement date. Delayed delivery agreements will not be
used as a speculative or leverage technique.
Investment in securities on a delayed delivery basis may increase the
Fund's exposure to market fluctuation and may increase the possibility that the
Fund will incur short-term gains subject to federal taxation or short-term
losses if the Fund must engage in portfolio transactions in order to honor a
delayed delivery commitment. Until the settlement date, the Fund will segregate
liquid assets of a dollar value sufficient at all times to make payment for the
delayed delivery transactions. Such segregated liquid assets will be
marked-to-market daily, and the amount segregated will be increased if necessary
to maintain adequate coverage of the delayed delivery commitments. No additional
delayed delivery agreements or when-issued commitments (as described below) will
be made by the Fund if, as a result, more than 25% of the Fund's total assets
would become so committed.
The delayed delivery securities, which will not begin to accrue interest or
dividends until the settlement date, will be recorded as an asset of the Fund
and will be subject to the risk of market fluctuation. The purchase price of the
delayed delivery securities is a liability of the Fund until settlement. Absent
extraordinary circumstances, the Fund will not sell or otherwise transfer the
delayed delivery basis securities prior to settlement.
15
The Fund may enter into buy/sell back transactions (a form of delayed
delivery agreement). In a buy/sell back transaction, the Fund enters a trade to
sell securities at one price and simultaneously enters a trade to buy the same
securities at another price for settlement at a future date.
WHEN-ISSUED SECURITIES. Purchasing securities on a "when-issued" basis
means that the date for delivery of and payment for the securities is not fixed
at the date of purchase, but is set after the securities are issued. The payment
obligation and, if applicable, the interest rate that will be received on the
securities are fixed at the time the buyer enters into the commitment. The Fund
will only make commitments to purchase such securities with the intention of
actually acquiring such securities, but the Fund may sell these securities
before the settlement date if it is deemed advisable.
Securities purchased on a when-issued basis and the securities held in the
Fund's portfolio are subject to changes in market value based upon the public's
perception of the creditworthiness of the issuer and, if applicable, changes in
the level of interest rates. Therefore, if the Fund is to remain substantially
fully invested at the same time that it has purchased securities on a
when-issued basis, there will be a possibility that the market value of the
Fund's assets will fluctuate to a greater degree. Furthermore, when the time
comes for the Fund to meet its obligations under when-issued commitments, the
Fund will do so by using then available cash flow, by sale of the segregated
liquid assets, by sale of other securities or, although it would not normally
expect to do so, by directing the sale of the when-issued securities themselves
(which may have a market value greater or less than the Fund's payment
obligation).
Investment in securities on a when-issued basis may increase the Fund's
exposure to market fluctuation and may increase the possibility that the Fund
will incur short-term gains subject to federal taxation or short-term losses if
the Fund must sell another security in order to honor a when-issued commitment.
The Fund will employ techniques designed to reduce such risks. If the Fund
purchases a when-issued security, the Fund will segregate liquid assets in an
amount equal to the when-issued commitment. If the market value of such
segregated assets declines, additional liquid assets will be segregated on a
daily basis so that the market value of the segregated assets will equal the
amount of the Fund's when-issued commitments. No additional delayed delivery
agreements (as described above) or when-issued commitments will be made by the
Fund if, as a result, more than 25% of the Fund's total assets would become so
committed.
SHORT SALES. The Fund intends from time to time to sell securities short. A
short sale is effected when it is believed that the price of a particular
security will decline, and involves the sale of a security which the Fund does
not own in the hope of purchasing the same security at a later date at a lower
price. To make delivery to the buyer, the Fund must borrow the security from a
broker-dealer through which the short sale is executed, and the broker-dealer
delivers such securities, on behalf of the Fund, to the buyer. The broker-dealer
is entitled to retain the proceeds from the short sale until the Fund delivers
to such broker-dealer the securities sold short. In addition, the Fund is
required to pay to the broker-dealer the amount of any dividends paid on shares
sold short.
To secure its obligation to deliver to such broker-dealer the securities
sold short, the Fund must segregate an amount of cash or liquid securities equal
to the difference between the current market value of the securities sold short
and any cash or liquid securities deposited as collateral with the broker-dealer
in connection with the short sale (including the proceeds of the short sale). As
a result of these requirements, the Fund will not gain any leverage merely by
selling short, except to the extent that it earns interest on the immobilized
cash or liquid securities. The amounts deposited with the broker-dealer or
segregated as described above do not have the effect of limiting the amount of
money that the Fund may lose on a short sale.
The Fund is said to have a short position in the securities sold short
until it delivers to the broker-dealer the securities sold short, at which time
the Fund receives the proceeds of the sale. The Fund will normally close out a
short position by purchasing on the open market and delivering to the
broker-dealer an equal amount of the securities sold short.
16
The Fund will realize a gain if the price of a security declines between
the date of the short sale and the date on which the Fund purchases a security
to replace the borrowed security. On the other hand, the Fund will incur a loss
if the price of the security increases between those dates. The amount of any
gain will be decreased and the amount of any loss increased by any premium or
interest that the Fund may be required to pay in connection with a short sale.
It should be noted that possible losses from short sales differ from those that
could arise from a cash investment in a security in that losses from a short
sale may be limitless, while the losses from a cash investment in a security
cannot exceed the total amount of the Fund's investment in the security. For
example, if the Fund purchases a $10 security, potential loss is limited to $10;
however, if the Fund sells a $10 security short, it may have to purchase the
security for return to the broker-dealer when the market value of that security
is $50, thereby incurring a loss of $40.
The Fund may also make short sales "against the box," meaning that at all
times when a short position is open the Fund owns an equal amount of such
securities or securities convertible into or exchangeable for, without payment
of any further consideration, securities of the same issue as, and in an amount
equal to, the securities sold short. To secure its obligation to deliver the
securities sold short "against the box", the Fund will segregate with its
custodian an equal amount of the securities sold short or securities convertible
into or exchangeable for an equal amount of such securities. Short sales
"against the box" result in a "constructive sale" and require the Fund to
recognize any taxable gain unless an exception to the constructive sale rule
applies.
Short sales and short sales "against the box" may afford the Fund an
opportunity to earn additional current income to the extent the Fund is able to
enter into arrangements with broker-dealers through which the short sales are
executed to receive income with respect to the proceeds of the short sales
during the period the Fund's short positions remain open. There is no assurance
that the Fund will be able to enter into such arrangements.
See "Dividends, Distributions and Tax Matters - Tax Matters - Determination
of Taxable Income of a Regulated Investment Company."
MARGIN TRANSACTIONS. The Fund will not purchase any security on margin,
except that the Fund may obtain such short-term credits as may be necessary for
the clearance of purchases and sales of portfolio securities. The payment by the
Fund of initial or variation margin in connection with futures or related
options transactions will not be considered the purchase of a security on
margin.
INTERFUND LOANS. The Fund may lend uninvested cash up to 15% of its net
assets to other funds advised by AIM (the "AIM Funds") and the Fund may borrow
from other AIM Funds to the extent permitted under the Fund's investment
restrictions. During temporary or emergency periods, the percentage of the
Fund's net assets that may be loaned to other AIM Funds may be increased as
permitted by the SEC. If any interfund borrowings are outstanding, the Fund
cannot make any additional investments. If the Fund has borrowed from other AIM
Funds and has aggregate borrowings from all sources that exceed 10% of its total
assets, the Fund will secure all of its loans from other AIM Funds. The ability
of the Fund to lend its securities to other AIM Funds is subject to certain
other terms and conditions.
BORROWING. The Fund may borrow money to a limited extent for temporary or
emergency purposes. If there are unusually heavy redemptions because of changes
in interest rates or Fund performance, or for any other reason, the Fund may
have to sell a portion of its investment portfolio at a time when it may be
disadvantageous to do so. Selling fund securities under these circumstances may
result in a lower net asset value per share or decreased dividend income, or
both. The Trust believes that, in the event of abnormally heavy redemption
requests, the Fund's borrowing ability would help to mitigate any such effects
and could make the forced sale of their portfolio securities less likely.
LENDING PORTFOLIO SECURITIES. The Fund may lend its portfolio securities
(principally to broker-dealers) where such loans are callable at any time and
are continuously secured by segregated collateral
17
equal to no less than the market value, determined daily, of the loaned
securities. Such collateral will be cash, letters of credit, or debt securities
issued or guaranteed by the U.S. Government or any of its agencies. The Fund may
lend portfolio securities to the extent of one-third of its total assets.
The Fund will not have the right to vote securities while they are on loan,
but it can call a loan in anticipation of an important vote. The Fund would
receive income in lieu of dividends on loaned securities and would, at the same
time, earn interest on the loan collateral or on the investment of any cash
collateral. Lending securities entails a risk of loss to the Fund if and to the
extent that the market value of the loaned securities increases and the
collateral is not increased accordingly, or in the event of a default by the
borrower. The Fund could also experience delays and costs in gaining access to
the collateral.
Any cash received as collateral for loaned securities will be invested, in
accordance with the Fund's investment guidelines, in short-term money market
instruments or Affiliated Money Market Funds. For purposes of determining
whether the Fund is complying with its investment policies, strategies and
restrictions, the Fund will consider the loaned securities as assets of the
Fund, but will not consider any collateral received as a Fund asset.
REPURCHASE AGREEMENTS. The Fund may engage in repurchase agreement
transactions involving the types of securities in which it is permitted to
invest. Repurchase agreements are agreements under which the Fund acquires
ownership of a security from a broker-dealer or bank that agrees to repurchase
the security at a mutually agreed upon time and price (which is higher than the
purchase price), thereby determining the yield during the Fund's holding period.
The Fund may, however, enter into a "continuing contract" or "open" repurchase
agreement under which the seller is under a continuing obligation to repurchase
the underlying obligation from the Fund on demand and the effective interest
rate is negotiated on a daily basis.
If the seller of a repurchase agreement fails to repurchase the security in
accordance with the terms of the agreement, the Fund might incur expenses in
enforcing its rights, and could experience losses, including a decline in the
value of the underlying security and loss of income. In addition, although the
Bankruptcy Code and other insolvency laws may provide certain protections for
some types of repurchase agreements, if the seller of a repurchase agreement
should be involved in bankruptcy or insolvency proceedings, the Fund may incur
delay and costs in selling the underlying security or may suffer a loss of
principal and interest if the value of the underlying security declines. The
securities underlying a repurchase agreement will be marked-to-market every
business day so that the value of such securities is at least equal to the
investment value of the repurchase agreement, including any accrued interest
thereon.
The Fund may invest its cash balances in joint accounts with other AIM
Funds for the purpose of investing in repurchase agreements with maturities not
to exceed 60 days, and in certain other money market instruments with remaining
maturities not to exceed 90 days. Repurchase agreements are considered loans by
the Fund under the 1940 Act.
REVERSE REPURCHASE AGREEMENTS. The Fund may engage in reverse repurchase
agreements. Reverse repurchase agreements are agreements that involve the sale
by the Fund of securities to financial institutions such as banks and
broker-dealers, with an agreement that the Fund will repurchase the securities
at an agreed upon price and date. During the reverse repurchase agreement
period, the Fund continues to receive interest and principal payments on the
securities sold. The Fund may employ reverse repurchase agreements (i) for
temporary emergency purposes, such as to meet unanticipated net redemptions so
as to avoid liquidating other portfolio securities during unfavorable market
conditions; (ii) to cover short-term cash requirements resulting from the timing
of trade settlements; or (iii) to take advantage of market situations where the
interest income to be earned from the investment of the proceeds of the
transaction is greater than the interest expense of the transaction.
Reverse repurchase agreements involve the risk that the market value of
securities to be purchased by the Fund may decline below the price at which the
Fund is obligated to repurchase the
18
securities, or that the other party may default on its obligation, so that the
Fund is delayed or prevented from completing the transaction. In the event the
buyer of securities under a reverse repurchase agreement files for bankruptcy or
becomes insolvent, the Fund's use of the proceeds from the sale of the
securities may be restricted pending a determination by the other party, or its
trustee or receiver, whether to enforce the Fund's obligation to repurchase the
securities. At the time the Fund enters into a reverse repurchase agreement, it
will segregate liquid assets having a dollar value equal to the repurchase
price, and will continually monitor the account to ensure that such equivalent
value is maintained at all times. Reverse repurchase agreements are considered
borrowings by the Fund under the 1940 Act.
ILLIQUID SECURITIES. The Fund may invest up to 15% of its net assets in
securities that are illiquid, including repurchase agreements with remaining
maturities in excess of seven (7) days. Illiquid securities are securities that
cannot be disposed of within seven days in the normal course of business at the
price at which they are valued. Illiquid securities may include securities that
are subject to restrictions on resale because they have not been registered
under the Securities Act of 1933 (the "1933 Act"). Restricted securities may, in
certain circumstances, be resold pursuant to Rule 144A under the 1933 Act, and
thus may or may not constitute illiquid securities.
Limitations on the resale of restricted securities may have an adverse
effect on their marketability, which may prevent the Fund from disposing of them
promptly at reasonable prices. The Fund may have to bear the expense of
registering such securities for resale, and the risk of substantial delays in
effecting such registrations.
RULE 144A SECURITIES. Rule 144A securities are securities which, while
privately placed, are eligible for purchase and resale pursuant to Rule 144A
under the 1933 Act. This Rule permits certain qualified institutional buyers,
such as the Fund, to trade in privately placed securities even though such
securities are not registered under the 1933 Act. AIM, under the supervision of
the Board, will consider whether securities purchased under Rule 144A are
illiquid and thus subject to the Fund's restriction on investment in illiquid
securities. Determination of whether a Rule 144A security is liquid or not is a
question of fact. In making this determination AIM will consider the trading
markets for the specific security taking into account the unregistered nature of
a Rule 144A security. In addition, AIM could consider the (i) frequency of
trades and quotes; (ii) number of dealers and potential purchasers; (iii) dealer
undertakings to make a market; and (iv) nature of the security and of market
place trades (for example, the time needed to dispose of the security, the
method of soliciting offers and the mechanics of transfer). AIM will also
monitor the liquidity of Rule 144A securities and, if as a result of changed
conditions, AIM determines that a Rule 144A security is no longer liquid, AIM
will review the Fund's holdings of illiquid securities to determine what, if
any, action is required to assure that the Fund complies with its restriction on
investment in illiquid securities. Investing in Rule 144A securities could
increase the amount of the Fund's investments in illiquid securities if
qualified institutional buyers are unwilling to purchase such securities.
UNSEASONED ISSUERS. Investments in the equity securities of companies
having less than three years' continuous operations (including operations of any
predecessor) involve more risk than investments in the securities of more
established companies because unseasoned issuers have only a brief operating
history and may have more limited markets and financial resources. As a result,
securities of unseasoned issuers tend to be more volatile than securities of
more established companies.
19
Derivatives
As set forth below, the Fund may invest in the following: (i) forward
currency contracts, futures contracts, options on securities, options on
indices, options on currencies, and options on futures contracts to attempt to
hedge against the overall level of investment and currency risk normally
associated with the Fund's investments; and (ii) equity-linked derivative
products designed to replicate the composition and performance of particular
indices. These instruments are often referred to as "derivatives," which may be
defined as financial instruments whose performance is derived, at least in part,
from the performance of another asset (such as a security, currency or an index
of securities).
EQUITY-LINKED DERIVATIVES. Equity-Linked Derivatives are interests in a
securities portfolio designed to replicate the composition and performance of a
particular index. Equity-Linked Derivatives are exchange traded. The performance
results of Equity-Linked Derivatives will not replicate exactly the performance
of the pertinent index due to transaction and other expenses, including fees to
service providers, borne by the Equity-Linked Derivatives. Examples of such
products include S&P Depositary Receipts ("SPDRs"), World Equity Benchmark
Series ("WEBs"), NASDAQ 100 tracking shares ("QQQs"), Dow Jones Industrial
Average Instruments ("DIAMONDS") and Optimised Portfolios As Listed Securities
("OPALS"). Investments in Equity-Linked Derivatives involve the same risks
associated with a direct investment in the types of securities included in the
indices such products are designed to track. There can be no assurance that the
trading price of the Equity-Linked Derivatives will equal the underlying value
of the basket of securities purchased to replicate a particular index or that
such basket will replicate the index. Investments in Equity-Linked Derivatives
may constitute investments in other investment companies and, therefore, the
Fund may be subject to the same investment restrictions with Equity-Linked
Derivatives as with other investment companies. See "Other Investment
Companies."
PUT AND CALL OPTIONS. The Fund may purchase and sell put and call options.
A call option gives the purchaser the right to buy the underlying security,
contract or foreign currency at the stated exercise price at any time prior to
the expiration of the option (or on a specified date if the option is a European
style option), regardless of the market price or exchange rate of the security,
contract or foreign currency, as the case may be, at the time of exercise. If
the purchaser exercises the call option, the writer of a call option is
obligated to sell the underlying security, contract or foreign currency. A put
option gives the purchaser the right to sell the underlying security, contract
or foreign currency at the stated exercise price at any time prior to the
expiration date of the option (or on a specified date if the option is a
European style option), regardless of the market price or exchange rate of the
security, contract or foreign currency, as the case may be, at the time of
exercise. If the purchaser exercises the put option, the writer of a put option
is obligated to buy the underlying security, contract or foreign currency. The
premium paid to the writer is consideration for undertaking the obligations
under the option contract. Until an option expires or is offset, the option is
said to be "open." When an option expires or is offset, the option is said to be
"closed."
The Fund will not write (sell) options if, immediately after such sale, the
aggregate value of securities or obligations underlying the outstanding options
exceeds 20% of the Fund's total assets. The Fund will not purchase options if,
at the time of the investment, the aggregate premiums paid for the options will
exceed 5% of the Fund's total assets.
Pursuant to federal securities rules and regulations, if the Fund writes
options, it may be required to set aside assets to reduce the risks associated
with using those options. This process is described in more detail below in the
section "Cover."
Writing Options. The Fund may write put and call options in an attempt to
realize, through the receipt of premiums, a greater current return than would be
realized on the underlying security, contract, or foreign currency alone. The
Fund may only write a call option on a security if it owns an equal amount of
such securities or securities convertible into, or exchangeable, without payment
of any further consideration, for securities of the same issue as, and equal in
amount to, the securities subject to the call option. In return for the premium
received for writing a call option, the Fund foregoes the opportunity for profit
from a price increase in the underlying security, contract, or foreign currency
above the exercise
20
price so long as the option remains open, but retains the risk of loss should
the price of the security, contract, or foreign currency decline.
The Fund may write a put option without owning the underlying security if
it covers the option as described in the section "Cover." The Fund may only
write a put option on a security as part of an investment strategy and not for
speculative purposes. In return for the premium received for writing a put
option, the Fund assumes the risk that the price of the underlying security,
contract, or foreign currency will decline below the exercise price, in which
case the put would be exercised and the Fund would suffer a loss.
If an option that the Fund has written expires, it will realize a gain in
the amount of the premium; however, such gain may be offset by a decline in the
market value of the underlying security, contract or currency during the option
period. If a call option is exercised, the Fund will realize a gain or loss from
the sale of the underlying security, contract or currency, which will be
increased or offset by the premium received. The Fund would write a put option
at an exercise price that, reduced by the premium received on the option,
reflects the price it is willing to pay for the underlying security, contract or
currency. The obligation imposed upon the writer of an option is terminated upon
the expiration of the option, or such earlier time at which the Fund effects a
closing purchase transaction by purchasing an option (put or call as the case
may be) identical to that previously sold.
Writing call options can serve as a limited hedge because declines in the
value of the hedged investment would be offset to the extent of the premium
received for writing the option. Closing transactions may be effected in order
to realize a profit on an outstanding call option, to prevent an underlying
security, contract or currency from being called or to permit the sale of the
underlying security, contract or currency. Furthermore, effecting a closing
transaction will permit the Fund to write another call option on the underlying
security, contract or currency with either a different exercise price or
expiration date, or both.
Purchasing Options. The Fund may purchase a call option for the purpose of
acquiring the underlying security, contract or currency for its portfolio. The
Fund is not required to own the underlying security in order to purchase a call
option, and may only cover the transaction with cash, liquid assets and/or
short-term debt securities. Utilized in this fashion, the purchase of call
options would enable the Fund to acquire the security, contract or currency at
the exercise price of the call option plus the premium paid. So long as it holds
such a call option, rather than the underlying security or currency itself, the
Fund is partially protected from any unexpected increase in the market price of
the underlying security, contract or currency. If the market price does not
exceed the exercise price, the Fund could purchase the security on the open
market and could allow the call option to expire, incurring a loss only to the
extent of the premium paid for the option. The Fund may also purchase call
options on underlying securities, contracts or currencies against which it has
written other call options. For example, where the Fund has written a call
option on an underlying security, rather than entering a closing transaction of
the written option, it may purchase a call option with a different exercise
strike and/or expiration date that would eliminate some or all of the risk
associated with the written call. Used in combinations, these strategies are
commonly referred to as "call spreads."
The Fund may only purchase a put option on an underlying security, contract
or currency ("protective put") owned by the Fund in order to protect against an
anticipated decline in the value of the security, contract or currency. Such
hedge protection is provided only during the life of the put option. The premium
paid for the put option and any transaction costs would reduce any profit
realized when the security, contract or currency is delivered upon the exercise
of the put option. Conversely, if the underlying security, contract or currency
does not decline in value, the option may expire worthless and the premium paid
for the protective put would be lost. The Fund may also purchase put options on
underlying securities, contracts or currencies against which it has written
other put options. For example, where the Fund has written a put option on an
underlying security, rather than entering a closing transaction of the written
option, it may purchase a put option with a different exercise price and/or
expiration date that would eliminate some or all of the risk associated with the
written put. Used in combinations, these strategies are commonly referred to as
"put spreads." Likewise, the Fund may write
21
call options on underlying securities, contracts or currencies against which it
has purchased protective put options. This strategy is commonly referred to as a
"collar."
Over-The-Counter Options. Options may be either listed on an exchange or
traded in over-the-counter ("OTC") markets. Listed options are third-party
contracts (i.e., performance of the obligations of the purchaser and seller is
guaranteed by the exchange or clearing corporation) and have standardized strike
prices and expiration dates. OTC options are two-party contracts with negotiated
strike prices and expiration dates. The Fund will not purchase an OTC option
unless it believes that daily valuations for such options are readily
obtainable. OTC options differ from exchange-traded options in that OTC options
are transacted with dealers directly and not through a clearing corporation
(which guarantees performance). Consequently, there is a risk of non-performance
by the dealer. Since no exchange is involved, OTC options are valued on the
basis of an average of the last bid prices obtained from dealers, unless a
quotation from only one dealer is available, in which case only that dealer's
price will be used. In the case of OTC options, there can be no assurance that a
liquid secondary market will exist for any particular option at any specific
time. Because purchased OTC options in certain cases may be difficult to dispose
of in a timely manner, the Fund may be required to treat some or all of these
options (i.e., the market value) as illiquid securities. Although the Fund will
enter into OTC options only with dealers that are expected to be capable of
entering into closing transactions with it, there is no assurance that the Fund
will in fact be able to close out an OTC option position at a favorable price
prior to expiration. In the event of insolvency of the dealer, the Fund might be
unable to close out an OTC option position at any time prior to its expiration.
Index Options. Index options (or options on securities indices) are similar
in many respects to options on securities, except that an index option gives the
holder the right to receive, upon exercise, cash instead of securities, if the
closing level of the securities index upon which the option is based is greater
than, in the case of a call, or less than, in the case of a put, the exercise
price of the option. The amount of cash is equal to the difference between the
closing price of the index and the exercise price of the call or put times a
specified multiple (the "multiplier"), which determines the total dollar value
for each point of such difference.
The risks of investment in index options may be greater than options on
securities. Because index options are settled in cash, when the Fund writes a
call on an index it cannot provide in advance for its potential settlement
obligations by acquiring and holding the underlying securities. The Fund can
offset some of the risk of writing a call index option position by holding a
diversified portfolio of securities similar to those on which the underlying
index is based. However, the Fund cannot, as a practical matter, acquire and
hold a portfolio containing exactly the same securities as underlie the index
and, as a result, bears a risk that the value of the securities held will not be
perfectly correlated with the value of the index.
Pursuant to federal securities rules and regulations, if the Fund writes
index options, it may be required to set aside assets to reduce the risks
associated with writing those options. This process is described in more detail
below in the section "Cover".
STRADDLES. The Fund may, for hedging purposes, write straddles
(combinations of put and call options on the same underlying security) to adjust
the risk and return characteristics of the Fund's overall position. A possible
combined position would involve writing a covered call option at one strike
price and buying a call option at a lower price, in order to reduce the risk of
the written covered call option in the event of a substantial price increase.
Because combined options positions involve multiple trades, they result in
higher transaction costs and may be more difficult to open and close out.
WARRANTS. The Fund may purchase warrants. Warrants are, in effect,
longer-term call options. They give the holder the right to purchase a given
number of shares of a particular company at specified prices within certain
periods of time. The purchaser of a warrant expects that the market price of the
security will exceed the purchase price of the warrant plus the exercise price
of the warrant, thus giving him a profit. Since the market price may never
exceed the exercise price before the expiration date of the warrant, the
purchaser of the warrant risks the loss of the entire purchase price of the
warrant. Warrants generally trade in the open market and may be sold rather than
exercised. Warrants are sometimes sold
22
in unit form with other securities of an issuer. Units of warrants and common
stock may be employed in financing young, unseasoned companies. The purchase
price of a warrant varies with the exercise price of the warrant, the current
market value of the underlying security, the life of the warrant and various
other investment factors.
Futures Contracts and Options on Futures Contracts. The Fund may purchase
futures contracts and options on futures contracts.
A futures contract is a two party agreement to buy or sell a specified
amount of a specified security or currency (or delivery of a cash settlement
price, in the case of an index future) for a specified price at a designated
date, time and place (collectively, "Futures Contracts"). A stock index Futures
Contract provides for the delivery, at a designated date, time and place, of an
amount of cash equal to a specified dollar amount times the difference between
the stock index value at the close of trading on the contract and the price
agreed upon in the Futures Contract; no physical delivery of stocks comprising
the index is made. Brokerage fees are incurred when a Futures Contract is bought
or sold, and margin deposits must be maintained at all times when a Futures
Contract is outstanding.
The Fund will enter into Futures Contracts for hedging purposes only; that
is, Futures Contracts will be sold to protect against a decline in the price of
securities or currencies that the Fund owns, or Futures Contracts will be
purchased to protect the Fund against an increase in the price of securities or
currencies it has committed to purchase or expects to purchase. The Fund's
hedging may include sales of Futures Contracts as an offset against the effect
of expected increases in interest rates, and decreases in currency exchange
rates and stock prices, and purchases of Futures Contracts as an offset against
the effect of expected declines in interest rates, and increases in currency
exchange rates or stock prices.
The Fund currently may not invest in any security (including futures
contracts or options thereon) that is secured by physical commodities.
The Fund will only enter into Futures Contracts that are traded (either
domestically or internationally) on futures exchanges and are standardized as to
maturity date and underlying financial instrument. Futures exchanges and trading
thereon in the United States are regulated under the Commodity Exchange Act and
by the Commodity Futures Trading Commission ("CFTC"). Foreign futures exchanges
and trading thereon are not regulated by the CFTC and are not subject to the
same regulatory controls. For a further discussion of the risks associated with
investments in foreign securities, see "Foreign Investments" in this Statement
of Additional Information.
Closing out an open Futures Contract is effected by entering into an
offsetting Futures Contract for the same aggregate amount of the identical
financial instrument or currency and the same delivery date. There can be no
assurance, however, that the Fund will be able to enter into an offsetting
transaction with respect to a particular Futures Contract at a particular time.
If the Fund is not able to enter into an offsetting transaction, it will
continue to be required to maintain the margin deposits on the Futures Contract.
"Margin" with respect to Futures Contracts is the amount of funds that must
be deposited by the Fund in order to initiate Futures Contracts trading and
maintain its open positions in Futures Contracts. A margin deposit made when the
Futures Contract is entered ("initial margin") is intended to ensure the Fund's
performance under the Futures Contract. The margin required for a particular
Futures Contract is set by the exchange on which the Futures Contract is traded
and may be significantly modified from time to time by the exchange during the
term of the Futures Contract.
Subsequent payments, called "variation margin," received from or paid to
the futures commission merchant through which the Fund entered into the Futures
Contract will be made on a daily basis as the price of the underlying security,
currency or index fluctuates making the Futures Contract more or less valuable,
a process known as marking-to-market.
23
If the Fund were unable to liquidate a Futures Contract or an option on a
Futures Contract position due to the absence of a liquid secondary market or the
imposition of price limits, it could incur substantial losses. The Fund would
continue to be subject to market risk with respect to the position. In addition,
except in the case of purchased options, the Fund would continue to be required
to make daily variation margin payments and might be required to maintain the
position being hedged by the Futures Contract or option or to maintain cash or
securities in a segregated account.
Options on Futures Contracts. Options on Futures Contracts are similar to
options on securities or currencies except that options on Futures Contracts
give the purchaser the right, in return for the premium paid, to assume a
position in a Futures Contract (a long position if the option is a call and a
short position if the option is a put) at a specified exercise price at any time
during the period of the option. Upon exercise of the option, the delivery of
the Futures Contract position by the writer of the option to the holder of the
option will be accompanied by delivery of the accumulated balance in the
writer's Futures Contract margin account. The Fund currently may not invest in
any security (including futures contracts or options thereon) that is secured by
physical commodities.
Limitations on Futures Contracts and Options on Futures Contracts and on
Certain Options on Currencies. To the extent that the Fund enters into Futures
Contracts, options on Futures Contracts and options on foreign currencies traded
on a CFTC-regulated exchange, in each case other than for bona fide hedging
purposes (as defined by the CFTC), the aggregate initial margin and premiums
required to establish those positions (excluding the amount by which options are
"in-the-money") will not exceed 5% of the total assets of the Fund, after taking
into account unrealized profits and unrealized losses on any contracts it has
entered into. This guideline may be modified by the Board, without a shareholder
vote. This limitation does not limit the percentage of the Fund's assets at risk
to 5%.
Pursuant to federal securities rules and regulations, the Fund's use of
Futures Contracts and options on Futures Contracts may require that Fund to set
aside assets to reduce the risks associated with using Futures Contracts and
options on Futures Contracts. This process is described in more detail below in
the section "Cover."
FORWARD CURRENCY CONTRACTS. The Fund may engage in forward currency
transactions in anticipation of, or to protect itself against, fluctuations in
exchange rates. A forward currency contract is an obligation, usually arranged
with a commercial bank or other currency dealer, to purchase or sell a currency
against another currency at a future date and price as agreed upon by the
parties. The Fund either may accept or make delivery of the currency at the
maturity of the forward currency contract. The Fund may also, if its contra
party agrees prior to maturity, enter into a closing transaction involving the
purchase or sale of an offsetting contract. Forward currency contracts are
traded over-the-counter, and not on organized commodities or securities
exchanges. As a result, it may be more difficult to value such contracts, and it
may be difficult to enter into closing transactions.
The Fund may enter into forward currency contracts with respect to a
specific purchase or sale of a security, or with respect to its portfolio
positions generally. When the Fund purchases a security denominated in a foreign
currency for settlement in the near future, it may immediately purchase in the
forward market the currency needed to pay for and settle the purchase. By
entering into a forward currency contract with respect to the specific purchase
or sale of a security denominated in a foreign currency, the Fund can secure an
exchange rate between the trade and settlement dates for that purchase or sale
transaction. This practice is sometimes referred to as "transaction hedging."
Position hedging is the purchase or sale of foreign currency with respect to
portfolio security positions denominated or quoted in a foreign currency.
The cost to the Fund of engaging in forward currency contracts varies with
factors such as the currencies involved, the length of the contract period and
the market conditions then prevailing. Because forward currency contracts are
usually entered into on a principal basis, no fees or commissions are involved.
The use of forward currency contracts does not eliminate fluctuations in the
prices of the underlying securities the Fund owns or intends to acquire, but it
does establish a rate of exchange in advance. In addition, while forward
currency contract sales limit the risk of loss due to a decline in the
24
value of the hedged currencies, they also limit any potential gain that might
result should the value of the currencies increase.
Pursuant to federal securities rules and regulations, the Fund's use of
forward currency contracts may require that Fund to set aside assets to reduce
the risks associated with using forward currency contracts. This process is
described in more detail below in the section "Cover."
COVER. Transactions using forward currency contracts, futures contracts and
options (other than options purchased by the Fund) expose the Fund to an
obligation to another party. The Fund will not enter into any such transactions
unless, in addition to complying with all the restrictions noted in the
disclosure above, it owns either (1) an offsetting ("covered") position in
securities, currencies, or other options, forward currency contracts or futures
contracts or (2) cash, liquid assets and/or short-term debt securities with a
value sufficient at all times to cover its potential obligations not covered as
provided in (1) above. The Fund will comply with SEC guidelines regarding cover
for these instruments and, if the guidelines so require, set aside cash or
liquid securities. To the extent that a futures contract, forward currency
contract or option is deemed to be illiquid, the assets used to "cover" the
Fund's obligation will also be treated as illiquid for purposes of determining
the Fund's maximum allowable investment in illiquid securities.
Even though options purchased by the Fund do not expose the Fund to an
obligation to another party, but rather provide the Fund with a right to
exercise, the Fund intends to "cover" the cost of any such exercise. To the
extent that a purchased option is deemed illiquid, the Fund will treat the
market value of the option (i.e., the amount at risk to the Fund) as illiquid,
but will not treat the assets used as cover on such transactions as illiquid.
Assets used as cover cannot be sold while the position in the corresponding
forward currency contract, futures contract or option is open, unless they are
replaced with other appropriate assets. If a large portion of the Fund's assets
are used for cover or otherwise set aside, it could affect portfolio management
or the Fund's ability to meet redemption requests or other current obligations.
GENERAL RISKS OF OPTIONS, FUTURES AND CURRENCY STRATEGIES. The use by the
Fund of options, futures contracts and forward currency contracts involves
special considerations and risks, as described below. Risks pertaining to
particular strategies are described in the sections that follow.
(1) Successful use of hedging transactions depends upon AIM's or the
Sub-Advisor's ability to correctly predict the direction of changes in the value
of the applicable markets and securities, contracts and/or currencies. While AIM
and the Sub-Advisor are experienced in the use of these instruments, there can
be no assurance that any particular hedging strategy will succeed.
(2) There might be imperfect correlation, or even no correlation, between
the price movements of an instrument (such as an option contract) and the price
movements of the investments being hedged. For example, if a "protective put" is
used to hedge a potential decline in a security and the security does decline in
price, the put option's increased value may not completely offset the loss in
the underlying security. Such a lack of correlation might occur due to factors
unrelated to the value of the investments being hedged, such as changing
interest rates, market liquidity, and speculative or other pressures on the
markets in which the hedging instrument is traded.
(3) Hedging strategies, if successful, can reduce risk of loss by wholly or
partially offsetting the negative effect of unfavorable price movements in the
investments being hedged. However, hedging strategies can also reduce
opportunity for gain by offsetting the positive effect of favorable price
movements in the hedged investments.
(4) There is no assurance that a liquid secondary market will exist for any
particular option, futures contract or option thereon or forward currency
contract at any particular time.
25
(5) As described above, the Fund might be required to maintain assets as
"cover," maintain segregated accounts or make margin payments when it takes
positions in instruments involving obligations to third parties. If the Fund
were unable to close out its positions in such instruments, it might be required
to continue to maintain such assets or accounts or make such payments until the
position expired or matured. The requirements might impair the Fund's ability to
sell a portfolio security or make an investment at a time when it would
otherwise be favorable to do so, or require that the Fund sell a portfolio
security at a disadvantageous time.
(6) There is no assurance that the Fund will use hedging transactions. For
example, if the Fund determines that the cost of hedging will exceed the
potential benefit to the Fund, the Fund will not enter into such transaction.
Additional Securities or Investment Techniques
INVESTMENTS IN ENTITIES WITH RELATIONSHIPS WITH THE FUND/ADVISOR. The Fund
may invest in securities issued, sponsored or guaranteed by the following types
of entities or their affiliates: (i) entities that sell shares of the AIM Funds;
(ii) entities that rate or rank the AIM Funds; (iii) exchanges on which the AIM
Funds buy or sell securities; and (iv) entities that provide services to the AIM
Funds (e.g., custodian banks). The Fund will decide whether to invest in or sell
securities issued by these entities based on the merits of the specific
investment opportunity.
FUND POLICIES
FUNDAMENTAL RESTRICTIONS. The Fund is subject to the following investment
restrictions, which may be changed only by a vote of the Fund's outstanding
shares. Fundamental restrictions may be changed only by a vote of the lesser of
(i) 67% or more of the Fund's shares present at a meeting if the holders of more
than 50% of the outstanding shares are present in person or represented by
proxy, or (ii) more than 50% of the Fund's outstanding shares. Any investment
restriction that involves a maximum or minimum percentage of securities or
assets (other than with respect to borrowing) shall not be considered to be
violated unless an excess over or a deficiency under the percentage occurs
immediately after, and is caused by, an acquisition or disposition of securities
or utilization of assets by the Fund.
(1) The Fund may not borrow money or issue senior securities, except as
permitted by the 1940 Act, and the rules and regulations promulgated thereunder,
as such statute, rules and regulations are amended from time to time or are
interpreted from time to time by the SEC staff (collectively, the "1940 Act Laws
and Interpretations") or except to the extent that the Fund may be permitted to
do so by exemptive order or similar relief (collectively, with the 1940 Act Laws
and Interpretations, the "1940 Act Laws, Interpretations and Exemptions").
(2) The Fund may not underwrite the securities of other issuers. This
restriction does not prevent the Fund from engaging in transactions involving
the acquisition, disposition or resale of its portfolio securities, regardless
of whether the Fund may be considered to be an underwriter under the 1933 Act.
(3) The Fund will concentrate (as such term may be defined or interpreted
by the 1940 Act Laws, Interpretations and Exemptions) its investments in the
securities of domestic and foreign companies principally engaged in the real
estate industry and other real estate related investments. For purposes of the
Fund's fundamental restriction regarding industry concentration, companies
principally engaged in the real estate industry shall consist of companies (i)
that at least 50% of its assets, gross income or net profits are attributable to
ownership, financing, construction, management, or sale of residential,
commercial or industrial real estate, including listed equity REITs and other
real estate operating companies that either own property or make construction or
mortgage loans, real estate developers, companies with substantial real estate
holdings and other companies whose products and services are related to the real
estate industry. Other real estate related investments may include but are not
limited to commercial or residential mortgage backed securities, commercial
property whole loans, and other types of equity and debt securities related to
the real estate industry.
26
(4) The Fund may not purchase real estate or sell real estate unless
acquired as a result of ownership of securities or other instruments. This
restriction does not prevent the Fund from investing in issuers that invest,
deal, or otherwise engage in transactions in real estate or interests therein,
or investing in securities that are secured by real estate or interests therein.
(5) The Fund may not purchase physical commodities or sell physical
commodities unless acquired as a result of ownership of securities or other
instruments. This restriction does not prevent the Fund from engaging in
transactions involving futures contracts and options thereon or investing in
securities that are secured by physical commodities.
(6) The Fund may not make personal loans or loans of its assets to persons
who control or are under common control with the Fund, except to the extent
permitted by 1940 Act Laws, Interpretations and Exemptions. This restriction
does not prevent the Fund from, among other things, purchasing debt obligations,
entering into repurchase agreements, loaning its assets to broker-dealers or
institutional investors, or investing in loans, including assignments and
participation interests.
(7) The Fund may, notwithstanding any other fundamental investment policy
or limitation, invest all of its assets in the securities of a single open-end
management investment company with substantially the same fundamental investment
objectives, policies and restrictions as the Fund.
The investment restrictions set forth above provide the Fund with the
ability to operate under new interpretations of the 1940 Act or pursuant to
exemptive relief from the SEC without receiving prior shareholder approval of
the change. Even though the Fund has this flexibility, the Board has adopted
non-fundamental restrictions for the Fund relating to certain of these
restrictions which AIM and the Fund's sub-advisor must follow in managing the
Fund. Any changes to these non-fundamental restrictions, which are set forth
below, require the approval of the Board.
NON-FUNDAMENTAL RESTRICTIONS. The following non-fundamental investment
restrictions apply to the Fund. They may be changed for the Fund without
approval of the Fund's voting securities.
(1) In complying with the fundamental restriction regarding borrowing money
and issuing senior securities, the Fund may borrow money in an amount not
exceeding 33 1/3% of its total assets (including the amount borrowed) less
liabilities (other than borrowings). The Fund may borrow from banks,
broker-dealers or an AIM Fund. The Fund may not borrow for leveraging, but may
borrow for temporary or emergency purposes, in anticipation of or in response to
adverse market conditions, or for cash management purposes. The Fund may not
purchase additional securities when any borrowings from banks exceed 5% of the
Fund's total assets or when any borrowings from an AIM Fund are outstanding.
(2) In complying with the fundamental restriction with regard to making
loans, the Fund may lend up to 33 1/3% of its total assets and may lend money to
an AIM Fund, on such terms and conditions as the SEC may require in an exemptive
order.
(3) Notwithstanding the fundamental restriction with regard to investing
all assets in an open-end fund, the Fund may not invest all of its assets in the
securities of a single open-end management investment company with the same
fundamental investment objectives, policies and restrictions as the Fund.
(4) Notwithstanding the fundamental restriction with regard to engaging in
transactions involving futures contracts and options thereon or investing in
securities that are secured by physical commodities, the Fund currently may not
invest in any security (including futures contracts or options thereon) that is
secured by physical commodities.
(5) The Fund may not acquire any securities of registered open-end
investment companies or registered unit investment trusts in reliance on
Sections 12(d)(1)(F) or 12(d)(1)(G) of the 1940 Act.
27
ADDITIONAL NON-FUNDAMENTAL POLICY.
As a non-fundamental policy:
The Fund normally invests at least 80% of its assets in equity and debt
securities of companies principally engaged in the real estate industry and
other real-estate related investments. For purposes of the foregoing sentence,
"assets" means net assets, plus the amount of any borrowings for investment
purposes. The Fund will provide written notice to its shareholders prior to any
change to this policy, as required by the 1940 Act Laws, Interpretations and
Exemptions.
TEMPORARY DEFENSIVE POSITIONS
In anticipation of or in response to adverse market or other conditions, or
atypical circumstances such as unusually large cash inflows or redemptions, the
Fund may temporarily hold all or a portion of their assets in cash, cash
equivalents or high-quality debt instruments. The Fund may also invest up to 25%
of its total assets in Affiliated Money Market Funds for these purposes.
PORTFOLIO TURNOVER
The Fund engages in trading when the Sub-Advisor has concluded that the
sale of a security owned by the Fund and/or the purchase of another security can
enhance principal and/or increase income. A security may be sold to avoid any
prospective decline in market value, or a security may be purchased in
anticipation of a market rise. Consistent with the Fund's investment objectives,
a security also may be sold and a comparable security purchased coincidentally
in order to take advantage of what is believed to be a disparity in the normal
yield and price relationship between the two securities.
POLICIES AND PROCEDURES FOR DISCLOSURE OF FUND HOLDINGS
The Board has adopted policies and procedures with respect to the
disclosure of the Fund's portfolio holdings (the "Holdings Disclosure Policy").
AIM and the Board may amend the Holdings Disclosure Policy at any time without
prior notice. Details of the Holdings Disclosure Policy and a description of the
basis on which employees of AIM and its affiliates may release information about
portfolio securities in certain contexts are provided below.
PUBLIC RELEASE OF PORTFOLIO HOLDINGS. The Fund discloses the following
portfolio holdings information on http://www.aiminvestments.com(1):
APPROXIMATE DATE OF WEBSITE INFORMATION REMAINS POSTED ON
INFORMATION POSTING WEBSITE
----------- ---------------------------------- -----------------------------
Top ten holdings as of month-end 15 days after month-end Until replaced with the
following month's top ten
holdings
Select holdings included in the 29 days after calendar quarter-end Until replaced with the
Fund's Quarterly Performance Update following quarter's Quarterly
Performance Update
Complete portfolio holdings as of 30 days after calendar quarter-end For one year
calendar quarter-end
Complete portfolio holdings as of 60-70 days after fiscal For one year
fiscal quarter-end quarter-end
- ----------
(1) To locate a Fund's portfolio holdings information on
http://www.aiminvestments.com, click on the Products and Performance tab,
then click on the Mutual Funds link, then click on the Fund Overview link
and select the Fund from the drop-down menu. Links to the Fund's portfolio
holdings are located in the upper right side of this website page.
28
These holdings are listed along with the percentage of the Fund's net
assets they represent. Generally, employees of AIM and its affiliates may not
disclose such portfolio holdings until one day after they have been posted on
http://www.aiminvestments.com. You may also obtain the publicly available
portfolio holdings information described above by contacting us at
1-800-959-4246.
SELECTIVE DISCLOSURE OF PORTFOLIO HOLDINGS PURSUANT TO NON-DISCLOSURE
AGREEMENT. Employees of AIM and its affiliates may disclose non-public full
portfolio holdings on a selective basis only if the Internal Compliance Controls
Committee (the "ICCC") of A I M Management Group Inc. ("AIM Management")
approves the parties to whom disclosure of non-public full portfolio holdings
will be made. The ICCC must determine that the proposed selective disclosure
will be made for legitimate business purposes of the Fund and address any
perceived conflicts of interest between shareholders of such Fund and AIM or its
affiliates as part of granting its approval.
The Board exercises continuing oversight of the disclosure of Fund
portfolio holdings by (1) overseeing the implementation and enforcement of the
Holdings Disclosure Policy and the AIM Funds Code of Ethics by the Chief
Compliance Officer (or her designee) of AIM and the AIM Funds and (2)
considering reports and recommendations by the Chief Compliance Officer
concerning any material compliance matters (as defined in Rule 38a-1 under the
1940 Act and Rule 206(4)-7 under the Investment Advisers Act of 1940, as
amended) that may arise in connection with the Holdings Disclosure Policy.
Pursuant to the Holdings Disclosure Policy, the Board reviews the types of
situations in which AIM provides such selective disclosure and approves
situations involving perceived conflicts of interest between shareholders of the
Fund and AIM or its affiliates brought to the Board's attention by AIM.
AIM discloses non-public full portfolio holdings information to the
following persons in connection with the day-to-day operations and management of
the AIM Funds:
- Attorneys and accountants;
- Securities lending agents;
- Lenders to the AIM Funds;
- Rating and rankings agencies;
- Persons assisting in the voting of proxies;
- AIM Funds' custodians;
- The AIM Funds' transfer agent(s) (in the event of a redemption in
kind);
- Pricing services, market makers, or other persons who provide systems
or software support in connection with AIM Funds' operations (to
determine the price of securities held by an AIM Fund);
- Financial printers;
- Brokers identified by the AIM Funds' portfolio management team who
provide execution and research services to the team; and
- Analysts hired to perform research and analysis to the AIM Funds'
portfolio management team.
In many cases, AIM will disclose current portfolio holdings on a daily
basis to these persons. In these situations, AIM has entered into non-disclosure
agreements which provide that the recipient of the portfolio holdings will
maintain the confidentiality of such portfolio holdings and will not trade on
such information ("Non-disclosure Agreements"). Please refer to Appendix B for a
list of examples of persons to whom AIM provides non-public portfolio holdings
on an ongoing basis.
AIM will also disclose non-public portfolio holdings information if such
disclosure is required by applicable laws, rules or regulations, or by
regulatory authorities having jurisdiction over AIM and its affiliates or the
Fund.
The Holdings Disclosure Policy provides that AIM will not request, receive
or accept any compensation (including compensation in the form of the
maintenance of assets in the Fund or other
29
mutual fund or account managed by AIM or one of its affiliates) for the
selective disclosure of portfolio holdings information.
DISCLOSURE OF CERTAIN PORTFOLIO HOLDINGS AND RELATED INFORMATION WITHOUT
NON-DISCLOSURE AGREEMENT. AIM and its affiliates that provide services to the
Fund, and the Fund's Sub-Advisors, if applicable, and each of their employees
may receive or have access to portfolio holdings as part of the day to day
operations of the Fund.
From time to time, employees of AIM and its affiliates may express their
views orally or in writing on one or more of the Fund's portfolio securities or
may state that the Fund has recently purchased or sold, or continues to own, one
or more securities. The securities subject to these views and statements may be
ones that were purchased or sold since the Fund's most recent quarter-end and
therefore may not be reflected on the list of the Fund's most recent quarter-end
portfolio holdings disclosed on the website. Such views and statements may be
made to various persons, including members of the press, brokers and other
financial intermediaries that sell shares of the Fund, shareholders in the Fund,
persons considering investing in the Fund or representatives of such
shareholders or potential shareholders, such as fiduciaries of a 401(k) plan or
a trust and their advisers, and other entities for which AIM or its affiliates
provides or may provide investment advisory services. The nature and content of
the views and statements provided to each of these persons may differ.
From time to time, employees of AIM and its affiliates also may provide
oral or written information ("portfolio commentary") about the Fund, including,
but not limited to, how the Fund's investments are divided among various
sectors, industries, countries, investment styles and capitalization sizes, and
among stocks, bonds, currencies and cash, security types, bond maturities, bond
coupons and bond credit quality ratings. This portfolio commentary may also
include information on how these various weightings and factors contributed to
Fund performance. AIM may also provide oral or written information ("statistical
information") about various financial characteristics of the Fund or its
underlying portfolio securities including, but not limited to, alpha, beta,
R-squared, coefficient of determination, duration, maturity, information ratio,
sharpe ratio, earnings growth, payout ratio, price/book value, projected
earnings growth, return on equity, standard deviation, tracking error, weighted
average quality, market capitalization, percent debt to equity, price to cash
flow, dividend yield or growth, default rate, portfolio turnover, and risk and
style characteristics. This portfolio commentary and statistical information
about the Fund may be based on the Fund's portfolio as of the most recent
quarter-end or the end of some other interim period, such as month-end. The
portfolio commentary and statistical information may be provided to various
persons, including those described in the preceding paragraph. The nature and
content of the information provided to each of these persons may differ.
DISCLOSURE OF PORTFOLIO HOLDINGS BY TRADERS. Additionally, employees of AIM
and its affiliates may disclose one or more of the portfolio securities of the
Fund when purchasing and selling securities through broker-dealers, requesting
bids on securities, obtaining price quotations on securities, or in connection
with litigation involving the Fund's portfolio securities. AIM does not enter
into formal Non-disclosure Agreements in connection with these situations;
however, the Fund would not continue to conduct business with a person who AIM
believed was misusing the disclosed information.
DISCLOSURE OF PORTFOLIO HOLDINGS OF OTHER AIM-MANAGED PRODUCTS. AIM and its
affiliates manage products sponsored by companies other than AIM, including
investment companies, offshore funds, and separate accounts. In many cases,
these other products are managed in a similar fashion to certain AIM Funds (as
defined herein) and thus have similar portfolio holdings. The sponsors of these
other products managed by AIM and its affiliates may disclose the portfolio
holdings of their products at different times than AIM discloses portfolio
holdings for the AIM Funds.
AIM provides portfolio holdings information for portfolios of AIM Variable
Insurance Funds (the "Insurance Funds") to insurance companies whose variable
annuity and variable life insurance accounts invest in the Insurance Funds
("Insurance Companies"). AIM may disclose portfolio holdings information for the
Insurance Funds to Insurance Companies with which AIM has entered into
Non-disclosure Agreements up to five days prior to the scheduled dates for AIM's
disclosure of similar portfolio holdings
30
information for other AIM Funds on http://www.aiminvestments.com. AIM provides
portfolio holdings information for the Insurance Funds to such Insurance
Companies to allow them to disclose this information on their websites at
approximately the same time that AIM discloses portfolio holdings information
for the other AIM Funds on its website. AIM manages the Insurance Funds in a
similar fashion to certain other AIM Funds and thus the Insurance Funds and such
other AIM Funds have similar portfolio holdings. AIM does not disclose the
portfolio holdings information for the Insurance Funds on its website, and not
all Insurance Companies disclose this information on their websites.
MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES
The Trustees have the authority to take all actions necessary in connection
with the business affairs of the Trust. The Trustees, among other things,
approve the investment objectives, policies and procedures for the Funds. The
Trust enters into agreements with various entities to manage the day-to-day
operations of the Funds, including the Funds' investment advisers,
administrator, transfer agent, distributor and custodians. The Trustees are
responsible for selecting these service providers, and approving the terms of
their contracts with the Funds. On an ongoing basis, the Trustees exercise
general oversight of these service providers.
Certain trustees and officers of the Trust are affiliated with AIM and AIM
Management, the parent corporation of AIM. All of the Trust's executive officers
hold similar offices with some or all of the other AIM Funds.
MANAGEMENT INFORMATION
The trustees and officers of the Trust, their principal occupations during
at least the last five years and certain other information concerning them are
set forth in Appendix C.
The standing committees of the Board are the Audit Committee, the
Compliance Committee, the Governance Committee, the Investments Committee, the
Valuation Committee, and the Special Market Timing Litigation Committee (the
"Committees").
The members of the Audit Committee are James T. Bunch, Dr. Prema
Mathai-Davis, Lewis F. Pennock, Dr. Larry Soll, Raymond Stickel, Jr. (Chair) and
Ruth H. Quigley (Vice Chair). The Audit Committee's primary purposes are to: (i)
assist the Board in oversight of the independent registered public accountant's
qualifications, independence and performance; (ii) appoint independent
registered public accountants for the Fund; (iii) pre-approve all permissible
audit and non-audit services that are provided to the Fund by their independent
registered public accountants to the extent required by Section 10A(h) and (i)
of the Exchange Act; (iv) pre-approve, in accordance with Rule 2-01(c)(7)(ii) of
Regulation S-X, certain non-audit services provided by the Fund's independent
registered public accountants to the Fund's investment adviser and certain other
affiliated entities; (v) oversee the financial reporting process for the Fund;
(vi) prepare an audit committee report for inclusion in any proxy statement
issued by a Fund to the extent required by Regulation 14A under the Exchange
Act; (vii) assist the Board's oversight of the performance of the Fund's
internal audit function to the extent an internal audit function exists; (viii)
assist the Board's oversight of the integrity of the Fund's financial
statements; and (ix) assist the Board's oversight of the Fund's compliance with
legal and regulatory requirements. During the fiscal year ended December 31,
2005, the Audit Committee held seven meetings.
The members of the Compliance Committee are Frank S. Bayley, Bruce L.
Crockett (Chair), Albert R. Dowden (Vice Chair) and Mr. Stickel. The Compliance
Committee is responsible for: (i) recommending to the Board and the independent
trustees the appointment, compensation and removal of the Fund's Chief
Compliance Officer; (ii) recommending to the independent trustees the
appointment, compensation and removal of the Fund's Senior Officer appointed
pursuant to the terms of the Assurances of Discontinuance entered into by the
New York Attorney General, AIM and INVESCO
31
Funds Group, Inc. ("IFG"); (iii) recommending to the independent trustees the
appointment and removal of AIM's independent Compliance Consultant (the
"Compliance Consultant") and reviewing the report prepared by the Compliance
Consultant upon its compliance review of AIM (the "Report") and any objections
made by AIM with respect to the Report; (iv) reviewing any report prepared by a
third party who is not an interested person of AIM, upon the conclusion by such
third party of a compliance review of AIM; (iv) reviewing all reports on
compliance matters from the Fund's Chief Compliance Officer, (vi) reviewing all
recommendations made by the Senior Officer regarding AIM's compliance
procedures, (vii) reviewing all reports from the Senior Officer of any
violations of state and federal securities laws, the Colorado Consumer
Protection Act, or breaches of AIM's fiduciary duties to Fund shareholders and
of AIM's Code of Ethics; (viii) overseeing all of the compliance policies and
procedures of the Fund and its service providers adopted pursuant to Rule 38a-1
of the 1940 Act; (ix) from time to time, reviewing certain matters related to
redemption fee waivers and recommending to the Board whether or not to approve
such matters; (x) receiving and reviewing quarterly reports on the activities of
AIM's Internal Compliance Controls Committee; (xi) reviewing all reports made by
AIM's Chief Compliance Officer; (xii) reviewing and recommending to the
independent trustees whether to approve procedures to investigate matters
brought to the attention of AIM's ombudsman; (xiii) risk management oversight
with respect to the Fund and, in connection therewith, receiving and overseeing
risk management reports from AMVESCAP PLC that are applicable to the Fund or its
service providers; and (xiv) overseeing potential conflicts of interest that are
reported to the Compliance Committee by the AIM, the Chief Compliance Officer,
the Senior Officer and/or the Compliance Consultant. During the fiscal year
ended December 31, 2005, the Compliance Committee held seven meetings.
The members of the Governance Committee are Bob R. Baker, Jack M. Fields
(Vice Chair), and Messrs. Bayley, Crockett and Dowden (Chair). The Governance
Committee is responsible for: (i) nominating persons who will qualify as
independent trustees for (a) election as trustees in connection with meetings of
shareholders of the Fund that are called to vote on the election of trustees,
(b) appointment by the Board as trustees in connection with filling vacancies
that arise in between meetings of shareholders; (ii) reviewing the size of the
Board, and recommending to the Board whether the size of the Board shall be
increased or decreased; (iii) nominating the Chair of the Board; (iv) monitoring
the composition of the Board and each committee of the Board, and monitoring the
qualifications of all trustees; (v) recommending persons to serve as members of
each committee of the Board (other than the Compliance Committee), as well as
persons who shall serve as the chair and vice chair of each such committee; (vi)
reviewing and recommending the amount of compensation payable to the independent
trustees; (vii) overseeing the selection of independent legal counsel to the
independent trustees; (viii) reviewing and approving the compensation paid to
independent legal counsel to the independent trustees; (ix) reviewing and
approving the compensation paid to counsel and other advisers, if any, to the
Committees of the Board; and (x) reviewing as they deem appropriate
administrative and/or logistical matters pertaining to the operations of the
Board.
The Governance Committee will consider nominees recommended by a
shareholder to serve as trustees, provided: (i) that such person is a
shareholder of record at the time he or she submits such names and is entitled
to vote at the meeting of shareholders at which trustees will be elected; and
(ii) that the Governance Committee or the Board, as applicable, shall make the
final determination of persons to be nominated. During the fiscal year ended
December 31, 2005, the Governance Committee held seven meetings.
Notice procedures set forth in the Trust's bylaws require that any
shareholder of the Fund desiring to nominate a trustee for election at a
shareholder meeting must submit to the Trust's Secretary the nomination in
writing not later than the close of business on the later of the 90th day prior
to such shareholder meeting or the tenth day following the day on which public
announcement is made of the shareholder meeting and not earlier than the close
of business on the 120th day prior to the shareholder meeting.
The members of the Investments Committee are Carl Frischling, Robert H.
Graham, Philip A. Taylor and Messrs. Baker (Vice Chair), Bayley (Chair), Bunch,
Crockett, Dowden, Fields, Pennock, Soll, Stickel, and Dr. Mathai-Davis (Vice
Chair) and Miss Quigley (Vice Chair). The Investments Committee's
32
primary purposes are to: (i) assist the Board in its oversight of the investment
management services provided by AIM as well as any sub-advisers; and (ii) review
all proposed and existing advisory, sub-advisory and distribution arrangements
for the Fund, and to recommend what action the full Boards and the independent
trustees take regarding the approval of all such proposed arrangements and the
continuance of all such existing arrangements. During the fiscal year ended
December 31, 2005, the Investments Committee held seven meetings.
The Investments Committee has established three Sub-Committees. The
Sub-Committees are responsible for: (i) reviewing the performance, fees and
expenses of the Fund that have been assigned to a particular Sub-Committee (for
each Sub-Committee, the "Designated Funds"), unless the Investments Committee
takes such action directly; (ii) reviewing with the applicable portfolio
managers from time to time the investment objective(s), policies, strategies and
limitations of the Designated Funds; (iii) evaluating the investment advisory,
sub-advisory and distribution arrangements in effect or proposed for the
Designated Funds, unless the Investments Committee takes such action directly;
(iv) being familiar with the registration statements and periodic shareholder
reports applicable to their Designated Funds; and (v) such other
investment-related matters as the Investments Committee may delegate to the
Sub-Committee from time to time.
The members of the Valuation Committee are Messrs. Bunch, Pennock (Vice
Chair), Soll, and Taylor and Miss Quigley (Chair). The Valuation Committee is
responsible for: (i) developing a sufficient knowledge of the valuation process
and of AIM's Procedures for Valuing Securities (Pricing Procedures) (the
"Pricing Procedures") in order to carry out their responsibilities; (ii)
periodically reviewing information provided by AIM or other advisers regarding
industry developments in connection with valuation and pricing, and making
recommendations to the Board with respect to the Pricing Procedures based upon
such review; (iii) reviewing the reports described in the Pricing Procedures and
other information from AIM regarding fair value determinations made pursuant to
the Pricing Procedures by AIM's internal valuation committee, and reporting to
and making recommendations to the Board in connection with such reports; (iv)
receiving the reports of AIM's internal valuation committee requesting approval
of any changes to pricing vendors or pricing methodologies as required by the
Pricing Procedures, receiving the annual report of AIM evaluating the pricing
vendors, and approving changes to pricing vendors and pricing methodologies as
provided in the Pricing Procedures and recommending the pricing vendors for
approval by the Board annually; (v) upon request of AIM, assisting AIM's
internal valuation committee and/or the Board in resolving particular fair
valuation issues; (vi) receiving any reports of concerns by AIM's internal
valuation committee regarding actual or potential conflicts of interest by
investment personnel or others that could color their input or recommendations
regarding pricing issues, and receiving information from AIM disclosing
differences between valuation and pricing procedures used for the Fund and
private funds, if any, advised by AIM for which AIM Fund Administration has
exclusive accounting responsibility, and the reasons for such differences; and
(vii) in each of the foregoing areas, making regular reports to the Board.
During the fiscal year ended December 31, 2005, the Valuation Committee held
three meetings.
The members of the Special Market Timing Litigation Committee are Messrs.
Bayley, Bunch (Chair), Crockett and Dowden (Vice Chair). The Special Market
Timing Litigation Committee is responsible: (i) for receiving reports from time
to time from management, counsel for management, counsel for the AIM Funds and
special counsel for the independent trustees, as applicable, related to (a) the
civil lawsuits, including purported class action and shareholder derivative
suits, that have been filed against the AIM Funds concerning alleged excessive
short term trading in shares of the AIM Funds ("market timing") and (b) the
civil enforcement actions and investigations related to market timing activity
in the AIM Funds that were settled with certain regulators, including without
limitation the SEC, the New York Attorney General and the Colorado Attorney
General, and for recommending to the independent trustees what actions, if any,
should be taken by the AIM Funds in light of all such reports; (ii) for
overseeing the investigation(s) on behalf of the independent trustees by special
counsel for the independent trustees and the independent trustees' financial
expert of market timing activity in the AIM Funds, and for recommending to the
independent trustees what actions, if any, should be taken by the AIM Funds in
light of the results of such investigation(s); (iii) for (a) reviewing the
methodology developed by AIM's Independent Distribution Consultant (the
"Distribution Consultant") for the monies ordered to be
33
paid under the settlement order with the SEC, and making recommendations to the
independent trustees as to the acceptability of such methodology and (b)
recommending to the independent trustees whether to consent to any firm with
which the Distribution Consultant is affiliated entering into any employment,
consultant, attorney-client, auditing or other professional relationship with
AIM, or any of its present or former affiliates, directors, officers, employees
or agents acting in their capacity as such for the period of the Distribution
Consultant's engagement and for a period of two years after the engagement; and
(iv) for taking reasonable steps to ensure that any AIM Fund which the Special
Market Timing Litigation Committee determines was harmed by improper market
timing activity receives what the Special Market Timing Litigation Committee
deems to be full restitution. During the fiscal year ended December 31, 2005,
the Special Market Timing Litigation Committee held three meetings.
Trustee Ownership of Fund Shares
The dollar range of equity securities beneficially owned by each trustee
(i) in the Funds and (ii) on an aggregate basis, in all registered investment
companies overseen by the trustee within the AIM Funds complex, is set forth in
Appendix C.
Approval of Investment Advisory Agreement
The Board oversees the management of the Fund and, as required by law,
determines whether to approve the Fund's advisory agreement with AIM. Based upon
the recommendation of the Investments Committee of the Board, at a meeting held
on September 19, 2006, the Board, including all of the independent trustees,
approved the initial advisory agreement (the "Advisory Agreement") between the
Fund and AIM for an initial period ending June 30, 2007.
The Board considered the factors discussed below in evaluating the fairness
and reasonableness of the Advisory Agreement at the meeting on September 19,
2006 and as part of the Board's ongoing oversight of the Fund. In their
deliberations, the Board and the independent trustees did not identify any
particular factor that was controlling, and each trustee attributed different
weights to the various factors. The discussion below serves as a summary of the
material factors and the conclusions with respect thereto that formed the basis
for the Board's approval of the Fund's Advisory Agreement. After consideration
of all of the factors below and based on its informed business judgment, the
Board determined that the Fund's Advisory Agreement is in the best interests of
the Fund and its shareholders and that the compensation to AIM under the Fund's
Advisory Agreement is fair and reasonable and would have been obtained through
arm's length negotiations.
- The nature and extent of the advisory services to be provided by
AIM. The Board reviewed the services to be provided by AIM under
the Advisory Agreement. Based on such review, the Board concluded
that the range of services to be provided by AIM under the
Advisory Agreement was appropriate. The Board also noted that AIM
currently is providing services to AIM Select Real Estate Income
Fund, a closed-end fund which is proposed to be reorganized as
the Fund (the "Predecessor Fund"), in accordance with the terms
of the Predecessor Fund's Advisory Agreement.
- The quality of services to be provided by AIM. The Board reviewed
the credentials and experience of the officers and employees of
AIM who will provide investment advisory services to the Fund. In
reviewing the qualifications of AIM to provide investment
advisory services, the Board considered such issues as AIM's
portfolio and product review process, various back office support
functions provided by AIM and AIM's equity and fixed income
trading operations. Based on the review of these and other
factors, the Board concluded that the quality of services to be
provided by AIM was appropriate. The Board also noted that AIM
currently is providing satisfactory services to the Predecessor
Fund in accordance with the terms of the Predecessor Fund's
Advisory Agreement.
34
- The performance of the Fund relative to comparable funds. Not
applicable because this is a new Fund. However, the Board
reviewed the performance of the Predecessor Fund (at net asset
value) during the past one and three calendar years against the
performance of funds advised by other advisors with investment
strategies comparable to those of the Predecessor Fund. The Board
noted that the Predecessor Fund's performance (at net asset
value) in such periods was below the median performance of such
comparable funds. Based on this review and after taking account
of all of the other factors that the Board considered in
determining whether to approve the Advisory Agreement for the
Fund, the Board concluded that no changes should be made to the
Fund and that it was not necessary to change the Fund's portfolio
management team at this time. However, due to the Predecessor
Fund's under-performance, the Board also concluded that it would
be appropriate for the Board to continue to closely monitor and
review the performance of the Fund.
- The performance of the Fund relative to indices. Not applicable
because this is a New Fund. However, the Board reviewed the
performance of the Predecessor Fund (at net asset value) during
the past one and three calendar years against the performance of
the MSCI U.S. REIT Index. The Board noted that the Predecessor
Fund's performance was below the performance of such Index for
the one year period and comparable to such Index for the three
year period. The Board also noted that the performance of such
Index does not reflect fees, while the performance of the
Predecessor Fund does reflect fees. Based on this review and
after taking account of all of the other factors that the Board
considered in determining whether to approve the Advisory
Agreement for the Fund, the Board concluded that no changes
should be made to the Fund and that it was not necessary to
change the Fund's portfolio management team at this time.
However, due to the Predecessor Fund's under-performance, the
Board also concluded that it would be appropriate for the Board
to continue to closely monitor and review the performance of the
Fund.
- Meeting with the Fund's portfolio managers and investment
personnel. The Board intends to meet periodically with the Fund's
portfolio managers and/or other investment personnel to ensure
that such individuals are competent and able to carry out their
responsibilities under the Advisory Agreement.
- Overall performance of AIM. Not applicable because this is a new
Fund. However, the Board considered the overall performance of
AIM in providing investment advisory and portfolio administrative
services to the Predecessor Fund and other mutual funds advised
by AIM and concluded that such performance was satisfactory.
- Fees relative to those clients of AIM with comparable investment
strategies. The Board reviewed the advisory fee rate for the Fund
under the Advisory Agreement. The Board noted that this rate was
(i) below the effective advisory fee rate (before waivers) for
one mutual fund advised by AIM with investment strategies
comparable to those of the Fund and the same as the effective
advisory fee rate (before waivers) for a second mutual fund
advised by AIM with investment strategies comparable to those of
the Fund; (ii) below the effective advisory fee rate (before
waivers) for one variable insurance fund advised by AIM and
offered to insurance company separate accounts with investment
strategies comparable to those of the Fund; and (iii) above the
effective sub-advisory fee rate for a variable insurance fund
sub-advised by an AIM affiliate and offered to insurance company
separate accounts with investment strategies comparable to those
of the Fund, although the total advisory fees for such variable
insurance fund were comparable to those for the Fund. Based on
this review, the Board concluded that the advisory fee rate for
the Fund under the Advisory Agreement was fair and reasonable.
35
- Fees relative to those of comparable funds with other advisors.
The Board reviewed the advisory fee rate for the Fund under the
Advisory Agreement. The Board compared contractual advisory fee
rates at a common asset level as of June 30, 2006 and noted that
the Fund's rate was at the median rate of the funds advised by
other advisors with investment strategies comparable to those of
the Fund that the Board reviewed. Based on this review, the Board
concluded that the advisory fee rate for the Fund under the
Advisory Agreement was fair and reasonable.
- Expense limitations and fee waivers. The Board noted that there
were no fee waivers or expense limitations currently in effect
for the Fund. The Board concluded that no such waivers or
limitations were necessary at this time because the Fund's
overall expense ratio was comparable to the median expense ratio
of the funds advised by other advisors with investment strategies
comparable to those of the Fund that the Board reviewed.
- Breakpoints and economies of scale. The Board reviewed the
structure of the Fund's advisory fee under the Advisory
Agreement, noting that it contains seven breakpoints. The Board
reviewed the level of the Fund's advisory fees, and noted that
such fees, as a percentage of the Fund's net assets, would
decrease as net assets increase because the Advisory Agreement
includes breakpoints. The Board noted that, due to the Fund's
asset levels upon the reorganization of the Predecessor Fund as
the Fund and the way in which the advisory fee breakpoints have
been structured, the Fund would benefit from the breakpoints. The
Board concluded that the Fund's fee levels under the Advisory
Agreement therefore would reflect economies of scale and that it
was not necessary to change the advisory fee breakpoints in the
Fund's advisory fee schedule.
- Investments in affiliates money market funds. The Board also took
into account the fact that uninvested cash and cash collateral
from securities lending arrangements, if any (collectively, "cash
balances") of the Fund may be invested in money market funds
advised by AIM pursuant to the terms of an SEC exemptive order.
The Board found that the Fund may realize certain benefits upon
investing cash balances in AIM advised money market funds,
including a higher net return, increased liquidity, increased
diversification or decreased transaction costs. The Board also
found that the Fund will not receive reduced services if it
invests its cash balances in such money market funds. The Board
noted that, to the extent the Fund invests in affiliated money
market funds, AIM has voluntarily agreed to waive a portion of
the advisory fees it receives from the Fund attributable to such
investment. The Board further determined that the proposed
securities lending program and related procedures with respect to
the lending Fund is in the best interests of the lending Fund and
its respective shareholders. The Board therefore concluded that
the investment of cash collateral received in connection with the
securities lending program in the money market funds according to
the procedures is in the best interests of the lending Fund and
its respective shareholders.
- Profitability of AIM and its affiliates. The Board reviewed
information concerning the profitability of AIM's (and its
affiliates') investment advisory and other activities and its
financial condition. The Board considered the overall
profitability of AIM, as well as the profitability of AIM in
connection with managing the Predecessor Fund. The Board noted
that AIM's operations remain profitable, although increased
expenses in recent years have reduced AIM's profitability. Based
on the review of the profitability of AIM's and its affiliates'
investment advisory and other activities and its financial
condition, the Board concluded that the compensation to be paid
by the Fund to AIM under its Advisory Agreement was not
excessive.
- Benefits of soft dollars to AIM. The Board considered the
benefits realized by AIM as a result of brokerage transactions
executed through "soft dollar" arrangements. Under these
arrangements, brokerage commissions paid by the Fund and/or other
funds advised by AIM are used to pay for research and execution
services. This research may
36
be used by AIM in making investment decisions for the Fund. The
Board concluded that such arrangements were appropriate.
- AIM's financial soundness in light of the Fund's needs. The Board
considered whether AIM is financially sound and has the resources
necessary to perform its obligations under the Advisory
Agreement, and concluded that AIM has the financial resources
necessary to fulfill its obligations under the Advisory
Agreement.
- Historical relationship between the Fund and AIM. In determining
whether to approve the Advisory Agreement for the Fund, the Board
also considered the prior relationship between AIM, the
Predecessor Fund and the Fund, as well as the Board's knowledge
of AIM's operations, and concluded that it was beneficial to
maintain the current relationship, in part, because of such
knowledge. The Board also reviewed the general nature of the
non-investment advisory services currently performed by AIM and
its affiliates, such as administrative, transfer agency and
distribution services, and the fees received by AIM and its
affiliates for performing such services. In addition to reviewing
such services, the trustees also considered the organizational
structure employed by AIM and its affiliates to provide those
services. Based on the review of these and other factors, the
Board concluded that AIM and its affiliates were qualified to
provide non-investment advisory services to the Fund, including
administrative, transfer agency and distribution services, and
that AIM and its affiliates currently are providing satisfactory
non-investment advisory services to the Predecessor Fund.
- Other factors and current trends. The Board considered the steps
that AIM and its affiliates have taken over the last several
years, and continue to take, in order to improve the quality and
efficiency of the services they provide to the Funds in the areas
of investment performance, product line diversification,
distribution, fund operations, shareholder services and
compliance. The Board concluded that these steps taken by AIM
have improved, and are likely to continue to improve, the quality
and efficiency of the services AIM and its affiliates provide to
the Fund in each of these areas, and support the Board's approval
of the Advisory Agreement for the Fund.
Approval of Sub-Advisory Agreement
The Board oversees the management of the Fund and, as required by law,
determines whether to approve the Fund's sub-advisory agreement. Based upon the
recommendation of the Investments Committee of the Board, at a meeting held on
September 19, 2006, the Board, including all of the independent trustees,
approved the sub-advisory agreement (the "Sub-Advisory Agreement") between
INVESCO Institutional and AIM with respect to the Fund for an initial period
ending June 30, 2007.
The Board considered the factors discussed below in evaluating the fairness
and reasonableness of the Sub-Advisory Agreement at the meeting on September 19,
2006 and as part of the Board's ongoing oversight of the Fund. In their
deliberations, the Board and the independent trustees did not identify any
particular factor that was controlling, and each trustee attributed different
weights to the various factors. The discussion below serves as a discussion of
the material factors and the conclusions with respect thereto that formed the
basis for the Board's approval of the Sub-Advisory Agreement. After
consideration of all of the factors below and based on its informed business
judgment, the Board determined that the Sub-Advisory Agreement is in the best
interests of the Fund and its shareholders.
- The nature and extent of the advisory services to be provided by
the Sub-Advisor. The Board reviewed the services to be provided
by the Sub-Advisor under the Sub-Advisory Agreement. Based on
such review, the Board concluded that the range of services to be
provided by the Sub-Advisor under the Sub-Advisory Agreement was
appropriate. The Board also noted that the Sub-Advisor currently
is providing services to the Predecessor Fund in accordance with
the terms of the Predecessor Fund's Sub-Advisory Agreement.
37
- The quality of services to be provided by the Sub-Advisor. The
Board reviewed the credentials and experience of the officers and
employees of the Sub-Advisor who will provide investment advisory
services to the Fund. Based on the review of these and other
factors, the Board concluded that the quality of services to be
provided by the Sub-Advisor was appropriate. The Board also noted
that the Sub-Advisor currently is providing satisfactory services
to the Predecessor Fund in accordance with the terms of the
Predecessor Fund's Sub-Advisory Agreement.
- The performance of the Fund relative to comparable funds. Not
applicable because this is a new Fund. However, the Board
reviewed the performance of the Predecessor Fund (at net asset
value) during the past one and three calendar years against the
performance of funds advised by other advisors with investment
strategies comparable to those of the Predecessor Fund. The Board
noted that the Predecessor Fund's performance (at net asset
value) in such periods was below the median performance of such
comparable funds. Based on this review and after taking account
of all of the other factors that the Board considered in
determining whether to approve the Advisory Agreement for the
Fund, the Board concluded that no changes should be made to the
Fund and that it was not necessary to change the Fund's portfolio
management team at this time. However, due to the Predecessor
Fund's under-performance, the Board also concluded that it would
be appropriate for the Board to continue to closely monitor and
review the performance of the Fund.
- The performance of the Fund relative to indices. Not applicable
because this is a New Fund. However, the Board reviewed the
performance of the Predecessor Fund (at net asset value) during
the past one and three calendar years against the performance of
the MSCI U.S. REIT Index. The Board noted that the Predecessor
Fund's performance was below the performance of such Index for
the one year period and comparable to such Index for the three
year period. The Board also noted that the performance of such
Index does not reflect fees, while the performance of the
Predecessor Fund does reflect fees. Based on this review and
after taking account of all of the other factors that the Board
considered in determining whether to approve the Advisory
Agreement for the Fund, the Board concluded that no changes
should be made to the Fund and that it was not necessary to
change the Fund's portfolio management team at this time.
However, due to the Predecessor Fund's under-performance, the
Board also concluded that it would be appropriate for the Board
to continue to closely monitor and review the performance of the
Fund.
- Meeting with the Fund's portfolio managers and investment
personnel. The Board intends to meet periodically with the Fund's
portfolio managers and/or other investment personnel to ensure
that such individuals are competent and able to carry out their
responsibilities under the Sub-Advisory Agreement.
- Overall performance of the Sub-Advisor. Not applicable because
this is a new Fund. However, the Board considered the overall
performance of the Sub-Advisor in providing investment advisory
services to the Predecessor Fund and concluded that such
performance was satisfactory.
- Fees relative to those clients of the Sub-Advisor with comparable
investment strategies. The Board reviewed the sub-advisory fee
rate for the Fund under the Sub-Advisory Agreement and the
sub-advisory fees paid thereunder. The Board noted that this rate
was (i) comparable to the sub-advisory fee rate for one mutual
fund sub-advised by the Sub-Advisor with investment strategies
comparable to those of the Fund and the same as the sub-advisory
fee rate for a second mutual fund sub-advised by the Sub-Advisor
with investment strategies comparable to those of the Fund; (ii)
the same as the sub-advisory fee rate for one variable insurance
fund sub-advised by the Sub-Advisor and offered to insurance
company separate accounts with investment strategies comparable
to those of
38
the Fund; and (iii) below the sub-advisory fee rate for one
variable insurance fund sub-advised by the Sub-Advisor and
offered to insurance company separate accounts with investment
strategies comparable to those of the Fund. The Board also
considered the services to be provided by the Sub-Advisor
pursuant to the Sub-Advisory Agreement and the services to be
provided by AIM pursuant to the Advisory Agreement, as well as
the allocation of fees between AIM and the Sub-Advisor pursuant
to the Sub-Advisory Agreement. The Board noted that the
sub-advisory fees have no direct effect on the Fund or its
shareholders, as they are paid by AIM to the Sub-Advisor, and
that AIM and the Sub-Advisor are affiliates. Based on this
review, the Board concluded that the sub-advisory fee rate under
the Sub-Advisory Agreement was fair and reasonable.
- Profitability of AIM and its affiliates. The Board reviewed
information concerning the profitability of AIM's (and its
affiliates') investment advisory and other activities and its
financial condition. The Board considered the overall
profitability of AIM, as well as the profitability of AIM in
connection with managing the Predecessor Fund. The Board noted
that AIM's operations remain profitable, although increased
expenses in recent years have reduced AIM's profitability. Based
on the review of the profitability of AIM's and its affiliates'
investment advisory and other activities and its financial
condition, the Board concluded that the compensation to be paid
by the Fund to AIM under its Advisory Agreement was not
excessive.
- The Sub-Advisor's financial soundness in light of the Fund's
needs. The Board considered whether the Sub-Advisor is
financially sound and has the resources necessary to perform its
obligations under the Sub-Advisory Agreement, and concluded that
the Sub-Advisor has the financial resources necessary to fulfill
its obligations under the Sub-Advisory Agreement.
COMPENSATION
Each trustee who is not affiliated with AIM is compensated for his or her
services according to a fee schedule which recognizes the fact that such trustee
also serves as a director or trustee of other AIM Funds. Each such trustee
receives a fee, allocated among the AIM Funds for which he or she serves as a
director or trustee, which consists of an annual retainer component and a
meeting fee component. The Chair of the Board and Chairs and Vice Chairs of
certain committees receive additional compensation for their services.
Information regarding compensation paid or accrued for each trustee of the
Trust who was not affiliated with AIM during the year ended December 31, 2005 is
found in Appendix D.
Retirement Plan For Trustees
The trustees have adopted a retirement plan for the trustees of the Trust
who are not affiliated with AIM. The retirement plan includes a retirement
policy as well as retirement benefits for the non-AIM-affiliated trustees.
The trustees have also adopted a retirement policy that permits each
non-AIM-affiliated trustee to serve until December 31 of the year in which the
trustee turns 72. A majority of the trustees may extend from time to time the
retirement date of a trustee.
Annual retirement benefits are available to each non-AIM-affiliated trustee
of the Trust and/or the other AIM Funds (each, a "Covered Fund") who has at
least five years of credited service as a trustee (including service to a
predecessor fund) for a Covered Fund. Effective January 1, 2006, for retirements
after December 31, 2005, the retirement benefits will equal 75% of the trustee's
annual retainer paid to or accrued by any Covered Fund with respect to such
trustee during the twelve-month period prior to retirement, including the amount
of any retainer deferred under a separate deferred compensation agreement
between the Covered Fund and the trustee. The amount of the annual retirement
benefit
39
does not include additional compensation paid for Board meeting fees or
compensation paid to the Chair of the Board and the Chairs and Vice Chairs of
certain Board committees, whether such amounts are paid directly to the trustee
or deferred. The annual retirement benefit is payable in quarterly installments
for a number of years equal to the lesser of (i) sixteen years or (ii) the
number of such trustee's credited years of service. If a trustee dies prior to
receiving the full amount of retirement benefits, the remaining payments will be
made to the deceased trustee's designated beneficiary for the same length of
time that the trustee would have received the payment based on his or her
service. A trustee must have attained the age of 65 (60 in the event of death or
disability) to receive any retirement benefit. A trustee may make an irrevocable
election to commence payment of retirement benefits upon retirement from the
Board before age 72; in such a case the annual retirement benefit is subject to
a reduction for early payment.
Deferred Compensation Agreements
Messrs. Crockett, Edward K. Dunn, Jr. (a former trustee), Fields,
Frischling, and Drs. Mathai-Davis and Soll (for purposes of this paragraph only,
the "Deferring Trustees") have each executed a Deferred Compensation Agreement
(collectively, the "Compensation Agreements"). Pursuant to the Compensation
Agreements, the Deferring Trustees have the option to elect to defer receipt of
up to 100% of their compensation payable by the Trust, and such amounts are
placed into a deferral account and deemed to be invested in one or more AIM
Funds selected by the Deferring Trustees. Distributions from the Deferring
Trustees' deferral accounts will be paid in cash, generally in equal quarterly
installments over a period of up to ten (10) years (depending on the
Compensation Agreement) beginning on the date selected under the Compensation
Agreement. If a Deferring Trustee dies prior to the distribution of amounts in
his or her deferral account, the balance of the deferral account will be
distributed to his or her designated beneficiary. The Compensation Agreements
are not funded and, with respect to the payments of amounts held in the deferral
accounts, the Deferring Trustees have the status of unsecured creditors of the
Trust and of each other AIM Fund from which they are deferring compensation.
Purchase of Class A Shares of the Funds at Net Asset Value
The trustees and other affiliated persons of the Trust may purchase Class A
shares of the AIM Funds without paying an initial sales charge. AIM Distributors
permits such purchases because there is a reduced sales effort involved in sales
to such purchasers, thereby resulting in relatively low expenses of
distribution. For a complete description of the persons who will not pay an
initial sales charge on purchases of Class A shares of the Fund, see "Purchase,
Redemption and Pricing of Shares - Purchase and Redemption of Shares - Purchases
of Class A Shares, Class A3 Shares of AIM Limited Maturity Treasury Fund and AIM
Tax-Free Intermediate Fund and AIM Cash Reserve Shares of AIM Money Market Fund
- - Purchases of Class A Shares at Net Asset Value."
CODES OF ETHICS
AIM, the Trust, AIM Distributors and INVESCO Institutional have adopted
Codes of Ethics which apply to all AIM Fund trustees and officers, and employees
of AIM and its subsidiaries, and INVESCO Institutional and govern, among other
things, personal trading activities of such persons. The Codes of Ethics are
intended to address conflicts of interest with the Trust that may arise from
personal trading, including personal trading in most of the funds within The AIM
Family of Funds --Registered Trademark--. Personal trading, including personal
trading involving securities that may be purchased or held by a fund within The
AIM Family of Funds --Registered Trademark--, is permitted under the Codes
subject to certain restrictions; however, employees are required to pre-clear
security transactions with the Compliance Officer or a designee and to report
transactions on a regular basis.
PROXY VOTING POLICIES
The Board has delegated responsibility for decisions regarding proxy voting
for securities held by the Fund to the Fund's investment Sub-Advisor. AIM and
the Sub-Advisor will vote such proxies in
40
accordance with its proxy policies and procedures, which have been reviewed and
approved by the Board, and which are found in Appendix E.
Any material changes to the proxy policies and procedures will be submitted
to the Board for approval. The Board will be supplied with a summary quarterly
report of the Fund's proxy voting record.
Information regarding how the Fund will vote proxies related to its
portfolio securities during the 12 months ended June 30, 2007 will be available
at our website, http://www.aiminvestments.com. This information will also be
available at the SEC website, http://www.sec.gov.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
Information about the ownership of each class of each Fund's shares by
beneficial or record owners of such Funds and by trustees and officers as a
group is found in Appendix F. A shareholder who owns beneficially 25% or more of
the outstanding shares of a Fund is presumed to "control" that Fund.
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISOR
AIM, the Fund's investment advisor, was organized in 1976, and along with
its subsidiaries, manages or advises over 200 investment portfolios encompassing
a broad range of investment objectives. AIM is a direct, wholly owned subsidiary
of AIM Management, a holding company that has been engaged in the financial
services business since 1976. AIM Management is an indirect, wholly owned
subsidiary of AMVESCAP. AMVESCAP and its subsidiaries are an independent global
investment management group. Certain of the directors and officers of AIM are
also executive officers of the Trust and their affiliations are shown under
"Management Information" herein.
As investment advisor, AIM supervises all aspects of the Fund's operations
and provides investment advisory services to the Fund. AIM obtains and evaluates
economic, statistical and financial information to formulate and implement
investment programs for the Fund. The Master Investment Advisory Agreement (the
"Advisory Agreement") provides that, in fulfilling its responsibilities, AIM may
engage the services of other investment managers with respect to the Fund. The
investment advisory services of AIM and the investment sub-advisory services of
the Sub-Advisor are not exclusive and AIM and the Sub-Advisor are free to render
investment advisory services to others, including other investment companies.
AIM is also responsible for furnishing to the Fund, at AIM's expense, the
services of persons believed to be competent to perform all supervisory and
administrative services required by the Fund, in the judgment of the trustees,
to conduct their respective businesses effectively, as well as the offices,
equipment and other facilities necessary for their operations. Such functions
include the maintenance of the Fund's accounts and records, and the preparation
of all requisite corporate documents such as tax returns and reports to the SEC
and shareholders.
The Advisory Agreement provides that the Fund will pay or cause to be paid
all expenses of such Fund not assumed by AIM, including, without limitation:
brokerage commissions, taxes, legal, auditing or governmental fees, the cost of
preparing share certificates, custodian, transfer and shareholder service agent
costs, expenses of issue, sale, redemption, and repurchase of shares, expenses
of registering and qualifying shares for sale, expenses relating to trustee and
shareholder meetings, the cost of preparing and distributing reports and notices
to shareholders, the fees and other expenses incurred by the Trust on behalf of
the Fund in connection with membership in investment company organizations, and
the cost of printing copies of prospectuses and statements of additional
information distributed to shareholders.
41
AIM, at its own expense, furnishes to the Trust office space and
facilities. AIM furnishes to the Trust all personnel for managing the affairs of
the Trust and each of its series of shares.
Pursuant to the Advisory Agreement with the Trust, AIM receives a monthly
fee from the Fund calculated at the following annual rates indicated in the
second column below, based on the average daily net assets of the Fund during
the year:
ANNUAL RATE/NET ASSETS PER
FUND NAME ADVISORY AGREEMENTS
--------- ------------------------------------
AIM Select Real Estate Income Fund 0.75% of the first $250 million
0.74% of the next $250 million
0.73% of the next $500 million
0.72% of the next $1.5 billion
0.71% of the next $2.5 billion
0.70% of the next $2.5 billion
0.69% of the next $2.5 billion
0.68% of the excess over $10 billion
AIM may from time to time waive or reduce its fee. Voluntary fee waivers or
reductions may be rescinded at any time without further notice to investors.
During periods of voluntary fee waivers or reductions, AIM will retain its
ability to be reimbursed for such fee prior to the end of each fiscal year.
Contractual fee waivers or reductions set forth in the Fee Table in a Prospectus
may not be terminated or amended to the Fund's detriment during the period
stated in the agreement between AIM and the Fund.
AIM has voluntarily agreed to waive a portion of advisory fees payable by
the Fund. The amount of the waiver will equal 25% of the advisory fee AIM
receives from the Affiliated Money Market Funds as a result of the Fund's
Investment of uninvested cash in an Affiliated Money Market Fund. Termination of
this agreement requires approval by the Board. See "Description of the Fund and
Its Investments and Risks - Investment Strategies and Risks - Other Investments
- - Other Investment Companies."
INVESTMENT SUB-ADVISOR
AIM has entered into a Sub-Advisory Agreement with INVESCO Institutional to
provide investment sub-advisory services to the Fund.
INVESCO Institutional is registered as an investment advisor under the
Advisers Act. INVESCO Institutional is responsible for the Fund's day-to-day
management including the Fund's investment decisions and the execution of
securities transaction with respect to the Fund.
AIM and INVESCO Institutional are indirect wholly owned subsidiaries of
AMVESCAP.
For the services to be rendered by INVESCO Institutional under the
Sub-Advisory Agreement, the Advisor will pay the Sub-Advisor a fee which will be
computed daily and paid as of the last day of each month on the basis of the
Fund's daily net asset value, using for each daily calculation the most recently
determined net asset value of the Fund. (See "Computation of Net Asset Value.")
On an annual basis, the sub-advisory fee is equal to 0.40% of the Advisor's
compensation of the sub-advised assets per year, for the Fund.
The management fees payable by the Closed-End Fund, the amounts waived by
AIM and the net fee paid by the Closed-End Fund for the last three fiscal years
ended December 31 will be included in this Statement of Additional Information
at the effective time of the Reorganization.
42
Portfolio Managers
Appendix G contains the following information regarding the portfolio
managers identified in the Fund's prospectus:
- The dollar range of the manager's investments in the Fund.
- A description of the manager's compensation structure.
- Information regarding other accounts managed by the manager and
potential conflicts of interest that might arise from the
management of multiple accounts.
Securities Lending Arrangements
If a Fund engages in securities lending, AIM will provide the Fund
investment advisory services and related administrative services. The Advisory
Agreement describes the administrative services to be rendered by AIM if a Fund
engages in securities lending activities, as well as the compensation AIM may
receive for such administrative services. Services to be provided include: (a)
overseeing participation in the securities lending program to ensure compliance
with all applicable regulatory and investment guidelines; (b) assisting the
securities lending agent or principal (the "agent") in determining which
specific securities are available for loan; (c) monitoring the agent to ensure
that securities loans are effected in accordance with AIM's instructions and
with procedures adopted by the Board; (d) preparing appropriate periodic reports
for, and seeking appropriate approvals from, the Board with respect to
securities lending activities; (e) responding to agent inquiries; and (f)
performing such other duties as may be necessary.
AIM's compensation for advisory services rendered in connection with
securities lending is included in the advisory fee schedule. As compensation for
the related administrative services AIM will provide, a lending Fund will pay
AIM a fee equal to 25% of the net monthly interest or fee income retained or
paid to the Fund from such activities. AIM currently intends to waive such fee,
and has agreed to seek Board approval prior to its receipt of all or a portion
of such fee.
SERVICE AGREEMENTS
ADMINISTRATIVE SERVICES AGREEMENT. AIM and the Trust have entered into a
Master Administrative Services Agreement ("Administrative Services Agreement")
pursuant to which AIM may perform or arrange for the provision of certain
accounting and other administrative services to the Fund which are not required
to be performed by AIM under the Advisory Agreement. The Administrative Services
Agreement provides that it will remain in effect and continue from year to year
only if such continuance is specifically approved at least annually by the
Board, including the independent trustees, by votes cast in person at a meeting
called for such purpose. Under the Administrative Services Agreement, AIM is
entitled to receive from the Fund reimbursement of its costs or such reasonable
compensation as may be approved by the Board. Currently, AIM is reimbursed for
the services of the Trust's principal financial officer and her staff, and any
expenses related to fund accounting services.
Administrative services fees paid to AIM by the Closed-End Fund for the
last three fiscal years ended December 31 will be included in this Statement of
Additional Information at the effective time of the Reorganization.
OTHER SERVICE PROVIDERS
TRANSFER AGENT. AIM Investment Services, Inc. ("AIS"), 11 Greenway Plaza,
Suite 100, Houston, Texas 77046, a wholly owned subsidiary of AIM, is the
Trust's transfer agent.
The Transfer Agency and Service Agreement (the "TA Agreement") between the
Trust and AIS provides that AIS will perform certain services related to the
servicing of shareholders of the Fund. Other
43
such services may be delegated or sub-contracted to third party intermediaries.
For servicing accounts holding Class A, A3, B, C, P, R, AIM Cash Reserve and
Investor Class Shares, the TA Agreement provides that the Trust, on behalf of
the Funds, will pay AIS an annual fee rate per open shareholder account plus
certain out of pocket expenses. This fee is paid monthly at the rate of 1/12 of
the annual rate and is based upon the number of open shareholder accounts during
each month. In addition, all fees payable by AIS or its affiliates to third
party intermediaries who service accounts pursuant to sub-transfer agency,
omnibus account services and sub-accounting agreements are charged back to the
Fund, subject to certain limitations approved by the Board of the Trust. These
payments are made in consideration of services that would otherwise be provided
by AIS if the accounts serviced by such intermediaries were serviced by AIS
directly. For more information regarding such payments to intermediaries, see
the discussion under "Administrative and Processing Support Payments" below.
For servicing accounts holding Institutional Class Shares, the TA Agreement
provides that the Trust, on behalf of the Fund, will pay AIS a fee equal to
$2.00 per trade executed, to be billed monthly plus certain out-of-pocket
expenses. In addition, all fees payable by AIS or its affiliates to third party
intermediaries who service accounts pursuant to sub-transfer agency, omnibus
account services and sub-accounting agreements are charged back to the Fund,
subject to certain limitations approved by the Board of the Trust (including a
limitation on the amount of any fee payable to an intermediary of 0.10% of the
average net assets held in accounts serviced by such intermediary). These
payments are made in consideration of services that would otherwise be provided
by AIS if the accounts serviced by such intermediaries were serviced by AIS
directly. For more information regarding such payments to intermediaries, see
the discussion under "Administrative and Processing Support Payments," below.
CUSTODIANS. State Street Bank and Trust Company (the "Custodian"), 225
Franklin Street, Boston, Massachusetts 02110, is custodian of all securities and
cash of the Fund. JPMorgan Chase Bank of Texas, N.A., 712 Main Street, Houston,
Texas 77002, serves as sub-custodian for purchases of shares of the Fund. The
Bank of New York, 2 Hanson Place, Brooklyn, New York 11217-1431, also serves as
sub-custodian to facilitate cash management.
The Custodian is authorized to establish separate accounts in foreign
countries and to cause foreign securities owned by the Fund to be held outside
the United States in branches of U.S. banks and, to the extent permitted by
applicable regulations, in certain foreign banks and securities depositories.
AIM is responsible for selecting eligible foreign securities depositories and
for assessing the risks associated with investing in foreign countries,
including the risk of using eligible foreign securities depositories in a
country. The Custodian is responsible for monitoring eligible foreign securities
depositories.
Under its contract with the Trust, the Custodian maintains the portfolio
securities of the Fund, administers the purchases and sales of portfolio
securities, collects interest and dividends and other distributions made on the
securities held in the portfolio of the Fund and performs other ministerial
duties. These services do not include any supervisory function over management
or provide any protection against any possible depreciation of assets.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM. The Fund's independent
registered public accounting firm is responsible for auditing the financial
statements of the Fund. The Audit Committee of the Board appointed
______________________________________________as the independent registered
public accounting firm to audit the financial statements of the Fund for the
fiscal year ending December 31, 2006. Such appointment was ratified and approved
by the Board.
COUNSEL TO THE TRUST. Legal matters for the Trust have been passed upon by
Ballard Spahr Andrews & Ingersoll, LLP, 1735 Market Street, Philadelphia,
Pennsylvania 19103-7599.
44
BROKERAGE ALLOCATION AND OTHER PRACTICES
The Sub-Advisor has adopted compliance procedures that cover, among other
items, brokerage allocation and other trading practices. Unless specifically
noted, the Sub-Advisor's procedures do not materially differ from AIM's
procedures as set forth below.
BROKERAGE TRANSACTIONS
AIM or the Sub-Advisor makes decisions to buy and sell securities for the
Fund, selects broker-dealers (each, a "Broker"), effects the Fund's investment
portfolio transactions, allocates brokerage fees in such transactions and, where
applicable, negotiates commissions and spreads on transactions. AIM's primary
consideration in effecting a security transaction is to obtain best execution,
which AIM defines as prompt and efficient execution of the transaction at the
best obtainable price with payment of commissions, mark-ups or mark-downs which
are reasonable in relation to the value of the brokerage services provided by
the Broker. While AIM seeks reasonably competitive commission rates, the Fund
may not pay the lowest commission or spread available. See "Broker Selection"
below.
Some of the securities in which the Fund invests are traded in
over-the-counter markets. Portfolio transactions placed in such markets may be
effected on a principal basis at net prices without commissions, but which
include compensation to the Broker in the form of a mark up or mark down, or on
an agency basis, which involves the payment of negotiated brokerage commissions
to the Broker, including electronic communication networks. Purchases of
underwritten issues include a commission or concession paid by the issuer (not
the Fund) to the underwriter. Purchases of money market instruments may be made
directly from issuers without the payment of commissions.
Traditionally, commission rates have not been negotiated on stock markets
outside the United States. Although in recent years many overseas stock markets
have adopted a system of negotiated rates, a number of markets maintain an
established schedule of minimum commission rates.
Brokerage commissions paid by the Closed-End Fund during the last three
fiscal years ended December 31 will be included in this Statement of Additional
Information at the effective time of the Reorganization.
COMMISSIONS
Brokerage commission paid by the Closed-End Fund to Brokers affiliated with
the Closed-End Fund, AIM, AIM Distributors, or any affiliates of such entities
during the last three fiscal years ended December 31 will be included in this
Statement of Additional Information at the effective time of the Reorganization.
The Fund may engage in certain principal and agency transactions with banks
and their affiliates that own 5% or more of the outstanding voting securities of
an AIM Fund, provided the conditions of an exemptive order received by the AIM
Funds from the SEC are met. In addition, a Fund may purchase or sell a security
from or to certain other AIM Funds or other accounts (and may invest in the
Affiliated Money Market Funds) provided the Fund follows procedures adopted by
the Boards of the various AIM Funds, including the Trust. These inter-fund
transactions do not generate brokerage commissions but may result in custodial
fees or taxes or other related expenses.
BROKER SELECTION
AIM's primary consideration in selecting Brokers to execute portfolio
transactions for the Fund is to obtain best execution. In selecting a Broker to
execute a portfolio transaction in equity securities for the Fund, AIM considers
the full range and quality of a Broker's services, including the value of
research and/or brokerage services provided, execution capability, commission
rate, willingness to commit capital, anonymity and responsiveness. AIM's primary
consideration when selecting a Broker to execute a portfolio transaction in
fixed income securities for the Fund is the Broker's ability to deliver or sell
the
45
relevant fixed income securities; however, AIM will also consider the various
factors listed above. In each case, the determinative factor is not the lowest
commission or spread available but whether the transaction represents the best
qualitative execution for the Fund. AIM will not select Brokers based upon their
promotion or sale of Fund shares.
In choosing Brokers to execute portfolio transactions for the Fund, AIM may
select Brokers that provide brokerage and/or research services ("Soft Dollar
Products") to the Fund and/or the other accounts over which AIM and its
affiliates have investment discretion. Section 28(e) of the Securities Exchange
Act of 1934, as amended, provides that AIM, under certain circumstances,
lawfully may cause an account to pay a higher commission than the lowest
available. Under Section 28(e)(1), AIM must make a good faith determination that
the commissions paid are "reasonable in relation to the value of the brokerage
and research services provided ... viewed in terms of either that particular
transaction or [AIM's] overall responsibilities with respect to the accounts as
to which [it] exercises investment discretion." The services provided by the
Broker also must lawfully and appropriately assist AIM in the performance of its
investment decision-making responsibilities. Accordingly, the Fund may pay a
Broker higher commissions than those available from another Broker in
recognition of such Broker's provision of Soft Dollar Products to AIM.
AIM faces a potential conflict of interest when it uses client trades to
obtain Soft Dollar Products. This conflict exists because AIM is able to use the
Soft Dollar Products to manage client accounts without paying cash for the Soft
Dollar Products, which reduces AIM's expenses to the extent that AIM would have
purchased such products had they not been provided by Brokers. Section 28(e)
permits AIM to use Soft Dollar Products for the benefit of any account it
manages. Certain AIM-managed accounts may generate soft dollars used to purchase
Soft Dollar Products that ultimately benefit other AIM-managed accounts,
effectively cross subsidizing the other AIM-managed accounts that benefit
directly from the product. AIM may not use all of the Soft Dollar Products
provided by Brokers through which the Fund effects securities transactions in
connection with managing such Fund.
AIM and certain of its affiliates presently engage in the following
instances of cross-subsidization:
1. Fixed income funds normally do not generate soft dollar commissions to
pay for Soft Dollar Products. Therefore, soft dollar commissions used
to pay for Soft Dollar Products which are used to manage the fixed
income AIM Funds are generated entirely by equity AIM Funds and other
equity client accounts managed by AIM or A I M Capital, Inc. ("AIM
Capital"), a subsidiary of AIM. In other words, the fixed income AIM
Funds are cross-subsidized by the equity AIM Funds in that the fixed
income AIM Funds receive the benefit of Soft Dollar Products services
for which they do not pay.
2. The investment models used to manage many of the AIM Funds are also
used to manage other accounts of AIM and/or AIM Capital. The Soft
Dollar Products obtained through the use of soft dollar commissions
generated by the transactions of the AIM Funds and/or other accounts
managed by AIM and/or AIM Capital are used to maintain the investment
models relied upon by both of these advisory affiliates.
This type of cross-subsidization occurs in both directions. For
example, soft dollar commissions generated by transactions of the AIM
Funds and/or other accounts managed by AIM are used for Soft Dollar
Products which may benefit those AIM Funds and/or accounts as well as
accounts managed by AIM Capital. Additionally, soft dollar commissions
generated by transactions of accounts managed by AIM Capital are used
for Soft Dollar Products which may benefit those accounts as well as
accounts managed by AIM. In certain circumstances, AIM Capital
accounts may indicate that their transactions should not be used to
generate soft dollar commissions but may still receive the benefits of
Soft Dollar Products received by AIM or AIM Capital.
3. Some of the common investment models used to manage various Funds and
other accounts of AIM and/or AIM Capital are also used to manage
accounts of AIM Private Asset Management,
46
Inc. ("APAM"), another AIM subsidiary. The Soft Dollar Products
obtained through the use of soft dollar commissions generated by the
transactions of the Fund and/or other accounts managed by AIM and/or
AIM Capital are used to maintain the investment models relied upon by
AIM, AIM Capital and APAM. This cross-subsidization occurs in only one
direction. Most of APAM's accounts do not generate soft dollar
commissions which can be used to purchase Soft Dollar Products. The
soft dollar commissions generated by transactions of the Fund and/or
other accounts managed by AIM and/or AIM Capital are used for Soft
Dollar Products which may benefit the accounts managed by AIM, AIM
Capital and APAM; however, APAM does not provide any soft dollar
research benefit to the Fund and/or other accounts managed by AIM or
AIM Capital.
AIM and AIM Capital attempt to reduce or eliminate the potential conflicts
of interest concerning the use of Soft Dollar Products by directing client
trades for Soft Dollar Products only if AIM and AIM Capital conclude that the
Broker supplying the product is capable of providing best execution.
Certain Soft Dollar Products may be available directly from a vendor on a
hard dollar basis; other Soft Dollar Products are available only through Brokers
in exchange for soft dollars. AIM uses soft dollars to purchase two types of
Soft Dollar Products:
- proprietary research created by the Broker executing the trade, and
- other products created by third parties that are supplied to AIM
through the Broker executing the trade.
Proprietary research consists primarily of traditional research reports,
recommendations and similar materials produced by the in house research staffs
of broker-dealer firms. This research includes evaluations and recommendations
of specific companies or industry groups, as well as analyses of general
economic and market conditions and trends, market data, contacts and other
related information and assistance. AIM periodically rates the quality of
proprietary research produced by various Brokers. Based on the evaluation of the
quality of information that AIM receives from each Broker, AIM develops an
estimate of each Broker's share of AIM clients' commission dollars. AIM attempts
to direct trades to the firms to meet these estimates.
AIM also uses soft dollars to acquire products from third parties that are
supplied to AIM through Brokers executing the trades or other Brokers who "step
in" to a transaction and receive a portion of the brokerage commission for the
trade. AIM may from time to time instruct the executing Broker to allocate or
"step out" a portion of a transaction to another Broker. The Broker to which AIM
has "stepped out" would then settle and complete the designated portion of the
transaction, and the executing Broker would settle and complete the remaining
portion of the transaction that has not been "stepped out." Each Broker may
receive a commission or brokerage fee with respect to that portion of the
transaction that it settles and completes.
Soft Dollar Products received from Brokers supplement AIM's own research
(and the research of certain of its affiliates), and may include the following
types of products and services:
- Database Services - comprehensive databases containing current and/or
historical information on companies and industries and indices.
Examples include historical securities prices, earnings estimates and
financial data. These services may include software tools that allow
the user to search the database or to prepare value-added analyses
related to the investment process (such as forecasts and models used
in the portfolio management process).
- Quotation/Trading/News Systems - products that provide real time
market data information, such as pricing of individual securities and
information on current trading, as well as a variety of news services.
47
- Economic Data/Forecasting Tools - various macro economic forecasting
tools, such as economic data or currency and political forecasts for
various countries or regions.
- Quantitative/Technical Analysis - software tools that assist in
quantitative and technical analysis of investment data.
- Fundamental/Industry Analysis - industry specific fundamental
investment research.
- Fixed Income Security Analysis - data and analytical tools that
pertain specifically to fixed income securities. These tools assist in
creating financial models, such as cash flow projections and interest
rate sensitivity analyses, which are relevant to fixed income
securities.
- Other Specialized Tools - other specialized products, such as
consulting analyses, access to industry experts, and distinct
investment expertise such as forensic accounting or custom built
investment-analysis software.
If AIM determines that any service or product has a mixed use (i.e., it
also serves functions that do not assist the investment decision-making or
trading process), AIM will allocate the costs of such service or product
accordingly in its reasonable discretion. AIM will allocate brokerage
commissions to Brokers only for the portion of the service or product that AIM
determines assists it in the investment decision-making or trading process and
will pay for the remaining value of the product or service in cash.
Outside research assistance is useful to AIM since the Brokers used by AIM
tend to provide more in-depth analysis of a broader universe of securities and
other matters than AIM's staff follows. In addition, such services provide AIM
with a diverse perspective on financial markets. Some Brokers may indicate that
the provision of research services is dependent upon the generation of certain
specified levels of commissions and underwriting concessions by AIM's clients,
including the Fund. However, the Fund is not under any obligation to deal with
any Broker in the execution of transactions in portfolio securities. In some
cases, Soft Dollar Products are available only from the Broker providing them.
In other cases, Soft Dollar Products may be obtainable from alternative sources
in return for cash payments. AIM believes that because Broker research
supplements rather than replaces AIM's research, the receipt of such research
tends to improve the quality of AIM's investment advice. The advisory fee paid
by the Fund is not reduced because AIM receives such services. To the extent the
Fund's portfolio transactions are used to obtain Soft Dollar Products, the
brokerage commissions obtained by the Fund might exceed those that might
otherwise have been paid.
AIM may determine target levels of brokerage business with various Brokers
on behalf of its clients (including the Fund) over a certain time period. The
target levels will be based upon the following factors, among others: (1) the
execution services provided by the Broker; and (2) the research services
provided by the Broker. Portfolio transactions may be effected through Brokers
that recommend the Fund to their clients, or that act as agent in the purchase
of the Fund's shares for their clients, provided that AIM believes such Brokers
provide best execution and such transactions are executed in compliance with
AIM's policy against using directed brokerage to compensate Brokers for
promoting or selling AIM Fund shares. AIM will not enter into a binding
commitment with Brokers to place trades with such Brokers involving brokerage
commissions in precise amounts.
DIRECTED BROKERAGE (RESEARCH SERVICES)
Directed brokerage (research services) paid by the Closed-End Fund during
the last fiscal year ended December 31, 2006 will be included in this Statement
of Additional Information as of the effective time of the Reorganization.
48
REGULAR BROKERS
Information concerning the Closed-End Fund's acquisition of securities of
its regular Brokers during the last fiscal year ended December 31, 2006 will be
included in this Statement of Additional Information as of the effective time of
the Reorganization.
ALLOCATION OF PORTFOLIO TRANSACTIONS
AIM and its affiliates manage numerous AIM Funds and other accounts. Some
of these accounts may have investment objectives similar to the Fund.
Occasionally, identical securities will be appropriate for investment by one of
the AIM Funds and by another fund or one or more other accounts. However, the
position of each account in the same security and the length of time that each
account may hold its investment in the same security may vary. The timing and
amount of purchase by each account will also be determined by its cash position.
If the purchase or sale of securities is consistent with the investment policies
of the Fund and one or more other accounts, and is considered at or about the
same time, AIM will allocate transactions in such securities among the Fund and
these accounts on a pro rata basis based on order size or in such other manner
believed by AIM to be fair and equitable. AIM may combine such transactions, in
accordance with applicable laws and regulations, to obtain the most favorable
execution. Simultaneous transactions could, however, adversely affect the Fund's
ability to obtain or dispose of the full amount of a security which it seeks to
purchase or sell.
ALLOCATION OF EQUITY INITIAL PUBLIC OFFERING ("IPO") TRANSACTIONS
Certain of the AIM Funds or other accounts managed by AIM may become
interested in participating in equity IPOs. Purchases of equity IPOs by one AIM
Fund or other account may also be considered for purchase by one or more other
AIM Funds or accounts. AIM shall combine indications of interest for equity IPOs
for all AIM Funds and accounts participating in purchase transactions for that
IPO. When the full amount of all IPO orders for such AIM Funds and accounts
cannot be filled completely, AIM shall allocate such transactions in accordance
with the following procedures:
AIM or the sub-advisor will determine the eligibility of each AIM Fund and
account that seeks to participate in a particular equity IPO by reviewing a
number of factors, including market capitalization/liquidity suitability and
sector/style suitability of the investment with the AIM Fund's or account's
investment objective, policies, strategies and current holdings. AIM will
allocate equity securities issued in IPOs to eligible AIM Funds and accounts on
a pro rata basis based on order size.
INVESCO Institutional allocates equity IPOs on a pro rata basis based on
account size or in such other manner believed by INVESCO Institutional to be
fair and equitable.
49
PURCHASE, REDEMPTION AND PRICING OF SHARES
TRANSACTIONS THROUGH FINANCIAL INTERMEDIARIES
If you are investing indirectly in the Fund through a financial
intermediary such as a broker-dealer, a bank (including a bank trust
department), an insurance company separate account, an investment advisor, an
administrator or trustee of a retirement plan or a qualified tuition plan or a
sponsor of a fee-based program that maintains a master account (an omnibus
account) with the Fund for trading on behalf of its customers, different
guidelines, conditions and restrictions may apply than if you held your shares
of the Fund directly. These differences may include, but are not limited to: (i)
different eligibility standards to purchase and sell shares, different
eligibility standards to invest in funds with limited offering status and
different eligibility standards to exchange shares by telephone; (ii) different
minimum and maximum initial and subsequent purchase amounts; (iii) system
inability to provide Letter of Intent privileges; and (iv) different annual
amounts (less than 12%) subject to withdrawal under a Systematic Redemption Plan
without being subject to a contingent deferred sales charge. The financial
intermediary through whom you are investing may also choose to adopt different
exchange and/or transfer limit guidelines and restrictions, including different
trading restrictions designed to discourage excessive or short-term trading. The
financial intermediary through whom you are investing may also choose to impose
a redemption fee that has different characteristics, which may be more or less
restrictive, than the redemption fee currently imposed on certain Funds.
If the financial intermediary is managing your account, you may also be
charged a transaction or other fee by such financial intermediary, including
service fees for handling redemption transactions. Consult with your financial
intermediary (or, in the case of a retirement plan, your plan sponsor) to
determine what fees, guidelines, conditions and restrictions, including any of
the above, may be applicable to you.
PURCHASE AND REDEMPTION OF SHARES
Purchases of Class A Shares, Class A3 Shares of AIM Limited Maturity
Treasury Fund and AIM Tax-Free Intermediate Fund and AIM Cash Reserve Shares of
AM Money Market Fund
INITIAL SALES CHARGES. Each AIM Fund (other than AIM Tax-Exempt Cash Fund)
is grouped into one of four categories to determine the applicable initial sales
charge for its Class A Shares. The sales charge is used to compensate AIM
Distributors and participating dealers for their expenses incurred in connection
with the distribution of the Funds' shares. You may also be charged a
transaction or other fee by the financial institution managing your account.
Class A Shares of AIM Tax-Exempt Cash Fund, Class A3 Shares of AIM Limited
Maturity Treasury Fund and AIM Tax-Free Intermediate Fund and AIM Cash Reserve
Shares of AIM Money Market Fund are sold without an initial sales charge.
CATEGORY I FUNDS
AIM Advantage Health Sciences Fund
AIM Asia Pacific Growth Fund
AIM Basic Balanced Fund
AIM Basic Value Fund
AIM Capital Development Fund
AIM Charter Fund
AIM China Fund
AIM Conservative Allocation Fund
AIM Constellation Fund
AIM Developing Markets Fund
AIM Diversified Dividend Fund
AIM Dynamics Fund
AIM Energy Fund
AIM European Growth Fund
AIM European Small Company Fund
AIM Financial Services Fund
AIM Global Aggressive Growth Fund
AIM Global Equity Fund
AIM Global Growth Fund
AIM Global Health Care Fund
AIM Global Real Estate Fund
AIM Global Value Fund
AIM Gold & Precious Metals Fund
AIM Growth Allocation Fund
AIM Income Allocation Fund
AIM International Allocation Fund
50
AIM International Core Equity Fund
AIM International Growth Fund
AIM International Small Company Fund
AIM Japan Fund
AIM Large Cap Basic Value Fund
AIM Large Cap Growth Fund
AIM Leisure Fund
AIM Mid Cap Basic Value Fund
AIM Mid Cap Core Equity Fund
AIM Moderate Allocation Fund
AIM Moderate Growth Allocation Fund
AIM Moderately Conservative Allocation Fund
AIM Multi-Sector Fund
AIM Opportunities I Fund
AIM Opportunities II Fund
AIM Opportunities III Fund
AIM Real Estate Fund
AIM Select Equity Fund
AIM Select Real Estate Income Fund
AIM Small Cap Equity Fund
AIM Small Cap Growth Fund
AIM Structured Core Fund
AIM Structured Growth Fund
AIM Structured Value Fund
AIM Summit Fund
AIM Technology Fund
AIM Trimark Endeavor Fund
AIM Trimark Fund
AIM Trimark Small Companies Fund
AIM Utilities Fund
Dealer
Investor's Sales Charge Concession
-------------------------- -------------
As a As a As a
Percentage Percentage Percentage
of the Public of the Net of the Public
Amount of Investment in Offering Amount Offering
Single Transaction Price Invested Price
----------------------- ------------- ---------- -------------
Less than $ 25,000 5.50% 5.82% 4.75%
$ 25,000 but less than $ 50,000 5.25 5.54 4.50
$ 50,000 but less than $ 100,000 4.75 4.99 4.00
$100,000 but less than $ 250,000 3.75 3.90 3.00
$250,000 but less than $ 500,000 3.00 3.09 2.50
$500,000 but less than $1,000,000 2.00 2.04 1.60
CATEGORY II FUNDS
AIM High Income Municipal Fund
AIM High Yield Fund
AIM Income Fund
AIM Intermediate Government Fund
AIM International Bond Fund
AIM Municipal Bond Fund
AIM Total Return Bond Fund
Dealer
Investor's Sales Charge Concession
-------------------------- -------------
As a As a As a
Percentage Percentage Percentage
of the Public of the Net of the Public
Amount of Investment in Offering Amount Offering
Single Transaction Price Invested Price
----------------------- ------------- ---------- -------------
Less than $ 50,000 4.75% 4.99% 4.00%
$ 50,000 but less than $ 100,000 4.00 4.17 3.25
$100,000 but less than $ 250,000 3.75 3.90 3.00
$250,000 but less than $ 500,000 2.50 2.56 2.00
$500,000 but less than $1,000,000 2.00 2.04 1.60
51
CATEGORY III FUNDS
AIM Limited Maturity Treasury Fund
AIM Tax-Free Intermediate Fund
Dealer
Investor's Sales Charge Concession
-------------------------- -------------
As a As a As a
Percentage Percentage Percentage
of the Public of the Net of the Public
Amount of Investment in Offering Amount Offering
Single Transaction Price Invested Price
----------------------- ------------- ---------- -------------
Less than $ 100,000 1.00% 1.01% 0.75%
$100,000 but less than $ 250,000 0.75 0.76 0.50
$250,000 but less than $1,000,000 0.50 0.50 0.40
As of the close of business on October 30, 2002, Class A Shares of AIM
Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund were closed to
new investors. Current investors must maintain a share balance in order to
continue to make incremental purchases.
CATEGORY IV FUNDS
AIM Enhanced Short Bond Fund
AIM Floating Rate Fund
AIM Short Term Bond Fund
Dealer
Investor's Sales Charge Concession
-------------------------- -------------
As a As a As a
Percentage Percentage Percentage
of the Public of the Net of the Public
Amount of Investment in Offering Amount Offering
Single Transaction Price Invested Price
----------------------- ------------- ---------- -------------
Less than $ 100,000 2.50% 2.56% 2.00%
$100,000 but less than $ 250,000 2.00 2.04 1.50
$250,000 but less than $ 500,000 1.50 1.52 1.25
$500,000 but less than $1,000,000 1.25 1.27 1.00
LARGE PURCHASES OF CLASS A SHARES. Investors who purchase $1,000,000 or
more of Class A Shares of Category I, II, III or IV Funds do not pay an initial
sales charge. In addition, investors who currently own Class A shares of
Category I, II, III or IV Funds and make additional purchases that result in
account balances of $1,000,000 or more do not pay an initial sales charge on the
additional purchases. The additional purchases, as well as initial purchases of
$1,000,000 or more, are referred to as Large Purchases. However, if an investor
makes a Large Purchase of Class A shares of a Category I, II or IV Fund, each
share will generally be subject to a 1.00% contingent deferred sales charge
("CDSC") if the investor redeems those shares within 18 months after purchase.
Large Purchases of Class A shares by investors who were Class K shareholders of
record on October 21, 2005 are not subject to a CDSC.
AIM Distributors may pay a dealer concession and/or advance a service fee
on Large Purchases, as set forth below. Exchanges between the AIM Funds may
affect total compensation paid.
52
PURCHASES OF CLASS A SHARES BY NON-RETIREMENT PLANS. AIM Distributors may
make the following payments to dealers of record for Large Purchases of Class A
shares of Category I, II or IV Funds by investors other than: (i) retirement
plans that are maintained pursuant to Sections 401 and 457 of the Internal
Revenue Code of 1986, as amended (the "Code"), and (ii) retirement plans that
are maintained pursuant to Section 403 of the Code if the employer or plan
sponsor is a tax-exempt organization operated pursuant to Section 501(c)(3) of
the Code:
PERCENT OF PURCHASES
1% of the first $2 million
plus 0.80% of the next $1 million
plus 0.50% of the next $17 million
plus 0.25% of amounts in excess of $20 million
If (i) the amount of any single purchase order plus (ii) the public
offering price of all other shares owned by the same customer submitting the
purchase order on the day on which the purchase order is received equals or
exceeds $1,000,000, the purchase will be considered a "jumbo accumulation
purchase." With regard to any individual jumbo accumulation purchase, AIM
Distributors may make payment to the dealer of record based on the cumulative
total of jumbo accumulation purchases made by the same customer over the life of
his or her account(s).
If an investor made a Large Purchase of Class A shares of a Category III
Fund on and after November 15, 2001 and through October 30, 2002 and exchanges
those shares for Class A shares of a Category I or II Fund, AIM Distributors
will pay an additional dealer concession of 0.75% upon exchange.
If an investor makes a Large Purchase of Class A3 shares of a Category III
Fund on and after October 31, 2002 and exchanges those shares for Class A shares
of a Category I, II or IV Fund, AIM Distributors will pay 1.00% of such purchase
as dealer compensation upon the exchange. The Class A shares of the Category I,
II and IV Funds, received in exchange generally will be subject to a 1.00% CDSC
if the investor redeems such shares within 18 months from the date of exchange.
PURCHASES OF CLASS A SHARES BY CERTAIN RETIREMENT PLANS AT NAV. For
purchases of Class A shares of Category I, II and IV Funds, AIM Distributors may
make the following payments to investment dealers or other financial service
firms for sales of such shares at net asset value ("NAV") to certain retirement
plans provided that the applicable dealer of record is able to establish that
the retirement plan's purchase of Class A shares is a new investment (as defined
below):
PERCENT OF PURCHASE
0.50% of the first $20 million
plus 0.25% of amounts in excess of $20 million
This payment schedule will be applicable to purchases of Class A shares at
NAV by the following types of retirement plans: (i) all plans maintained
pursuant to Sections 401 and 457 of the Code, and (ii) plans maintained pursuant
to Section 403 of the Code if the employer or plan sponsor is a tax-exempt
organization operated pursuant to Section 501(c) (3) of the Code.
A "new investment" means a purchase paid for with money that does not
represent (i) the proceeds of one or more redemptions of AIM Fund shares, (ii)
an exchange of AIM Fund shares, (iii) the repayment of one or more retirement
plan loans that were funded through the redemption of AIM Fund shares, or (iv)
money returned from another fund family. If AIM Distributors pays a dealer
concession in connection with a plan's purchase of Class A shares at NAV, such
shares may be subject to a CDSC of
53
1.00% of net assets for 12 months, commencing on the date the plan first invests
in Class A shares of an AIM Fund. If the applicable dealer of record is unable
to establish that a plan's purchase of Class A shares at NAV is a new
investment, AIM Distributors will not pay a dealer concession in connection with
such purchase and such shares will not be subject to a CDSC.
With regard to any individual jumbo accumulation purchase, AIM Distributors
may make payment to the dealer of record based on the cumulative total of jumbo
accumulation purchases made by the same plan over the life of the plan's
account(s).
PURCHASERS QUALIFYING FOR REDUCTIONS IN INITIAL SALES CHARGES. As shown in
the tables above, purchases of certain amounts of AIM Fund shares may reduce the
initial sales charges. These reductions are available to purchasers that meet
the qualifications listed below. We will refer to purchasers that meet these
qualifications as "Qualified Purchasers."
DEFINITIONS
As used herein, the terms below shall be defined as follows:
- "Individual" refers to a person, as well as his or her Spouse or
Domestic Partner and his or her Children;
- "Spouse" is the person to whom one is legally married under state law;
- "Domestic Partner" is an adult with whom one shares a primary
residence for at least six-months, is in a relationship as a couple
where one or each of them provides personal or financial welfare of
the other without a fee, is not related by blood and is not married;
- "Child" or "Children" include a biological, adopted or foster son or
daughter, a Step-child, a legal ward or a Child of a person standing
in loco parentis;
- "Parent" is a person's biological or adoptive mother or father;
- "Step-child" is the child of one's Spouse by a previous marriage or
relationship;
- "Step-parent" is the Spouse of a Child's Parent; and
- "Immediate Family" includes an Individual (including, as defined
above, a person, his or her Spouse or Domestic Partner and his or her
Children) as well as his or her Parents, Step-parents and the Parents
of Spouse or Domestic Partner.
INDIVIDUALS
- an Individual (including his or her spouse or domestic partner, and
children);
- a retirement plan established exclusively for the benefit of an
Individual, specifically including, but not limited to, a Traditional
IRA, Roth IRA, SEP IRA, SIMPLE IRA, Solo 401(k), Keogh plan, or a
tax-sheltered 403(b)(7) custodial account; and
- a qualified tuition plan account, maintained pursuant to Section 529
of the Code, or a Coverdell Education Savings Account, maintained
pursuant to Section 530 of the Code (in either case, the account must
be established by an Individual or have an Individual named as the
beneficiary thereof).
54
EMPLOYER-SPONSORED RETIREMENT PLANS
- a retirement plan maintained pursuant to Sections 401, 403 (only if
the employer or plan sponsor is a tax-exempt organization operated
pursuant to Section 501(c)(3) of the Code), 408 (includes SEP, SARSEP
and SIMPLE IRA plans) or 457 of the Code, if:
a. the employer or plan sponsor submits all contributions for all
participating employees in a single contribution transmittal (the
AIM Funds will not accept separate contributions submitted with
respect to individual participants);
b. each transmittal is accompanied by a single check or wire
transfer; and
c. if the AIM Funds are expected to carry separate accounts in the
names of each of the plan participants, (i) the employer or plan
sponsor notifies AIM Distributors in writing that the separate
accounts of all plan participants should be linked, and (ii) all
new participant accounts are established by submitting an
appropriate Account Application on behalf of each new participant
with the contribution transmittal.
HOW TO QUALIFY FOR REDUCTIONS IN INITIAL SALES CHARGES. The following
sections discuss different ways that a Qualified Purchaser can qualify for a
reduction in the initial sales charges for purchases of Class A shares of the
AIM Funds.
LETTERS OF INTENT
A Qualified Purchaser may pay reduced initial sales charges by (i)
indicating on the Account Application that he, she or it intends to provide a
Letter of Intent ("LOI"); and (ii) subsequently fulfilling the conditions of
that LOI. Employer-sponsored retirement plans, with the exception of Solo 401(k)
plans and SEP plans, are not eligible for a LOI.
The LOI confirms the total investment in shares of the AIM Funds that the
Qualified Purchaser intends to make within the next 13 months. By marking the
LOI section on the account application and by signing the account application,
the Qualified Purchaser indicates that he, she or it understands and agrees to
the terms of the LOI and is bound by the provisions described below:
Calculating the Initial Sales Charge
- Each purchase of fund shares normally subject to an initial sales
charge made during the 13-month period will be made at the public
offering price applicable to a single transaction of the total dollar
amount indicated by the LOI (to determine what the applicable public
offering price is, look at the sales charge table in the section on
"Initial Sales Charges" above).
- It is the purchaser's responsibility at the time of purchase to
specify the account numbers that should be considered in determining
the appropriate sales charge.
- The offering price may be further reduced as described below under
"Rights of Accumulation" if the Transfer Agent is advised of all other
accounts at the time of the investment.
- Shares acquired through reinvestment of dividends and capital gains
distributions will not be applied to the LOI.
55
Calculating the Number of Shares to be Purchased
- Purchases made within 90 days before signing an LOI will be applied
toward completion of the LOI. The LOI effective date will be the date
of the first purchase within the 90-day period.
- Purchases made more than 90 days before signing an LOI will be applied
toward the completion of the LOI based on the value of the shares
purchased that is calculated at the public offering price on the
effective date of the LOI.
- If a purchaser wishes to revise the LOI investment amount upward, he,
she or it may submit a written and signed request at anytime prior to
the completion of the original LOI. This revision will not change the
original expiration date.
- The Transfer Agent will process necessary adjustments upon the
expiration or completion date of the LOI.
Fulfilling the Intended Investment
- By signing an LOI, a purchaser is not making a binding commitment to
purchase additional shares, but if purchases made within the 13-month
period do not total the amount specified, the purchaser will have to
pay the increased amount of sales charge.
- To assure compliance with the provisions of the 1940 Act, the Transfer
Agent will escrow in the form of shares an appropriate dollar amount
(computed to the nearest full share) out of the initial purchase (or
subsequent purchases if necessary). All dividends and any capital gain
distributions on the escrowed shares will be credited to the
purchaser. All shares purchased, including those escrowed, will be
registered in the purchaser's name. If the total investment specified
under this LOI is completed within the 13-month period, the escrowed
shares will be promptly released.
- If the intended investment is not completed, the purchaser will pay
the Transfer Agent the difference between the sales charge on the
specified amount and the sales charge on the amount actually
purchased. If the purchaser does not pay such difference within 20
days of the expiration date, he or she irrevocably constitutes and
appoints the Transfer Agent as his attorney to surrender for
redemption any or all shares, to make up such difference within 60
days of the expiration date.
- Shareholders of AIM Basic Balanced Fund, AIM Developing Markets Fund,
AIM Global Aggressive Growth Fund, AIM Global Equity Fund, AIM Global
Growth Fund, AIM Global Health Care Fund and AIM Real Estate Fund who
have a Letter of Intent in place as of November 1, 2005, will be able
to complete the Letter of Intent under the current pricing schedule,
and future Letters of Intent or subsequent purchases will be subject
to the Category I pricing.
Canceling the LOI
- If at any time before completing the LOI Program, the purchaser wishes
to cancel the agreement, he or she must give written notice to AIM
Distributors or its designee.
- If at any time before completing the LOI Program the purchaser
requests the Transfer Agent to liquidate or transfer beneficial
ownership of his total shares, the LOI will be automatically canceled.
If the total amount purchased is less than the amount specified in the
LOI, the Transfer Agent will redeem an appropriate number of escrowed
shares equal to the difference between the sales charge actually paid
and the sales charge that would have been paid if the total purchases
had been made at a single time.
56
Other Persons Eligible for the LOI Privilege
The LOI privilege is also available to holders of the Connecticut General
Guaranteed Account, established for tax qualified group annuities, for contracts
purchased on or before June 30, 1992.
LOIs and Contingent Deferred Sales Charges
All LOIs to purchase $1,000,000 or more of Class A Shares of Category I, II
and IV Funds are subject to an 18-month, 1% CDSC.
RIGHTS OF ACCUMULATION
A Qualified Purchaser may also qualify for reduced initial sales charges
based upon his, her or its existing investment in shares of any of the AIM Funds
at the time of the proposed purchase. To determine whether or not a reduced
initial sales charge applies to a proposed purchase, AIM Distributors takes into
account not only the money which is invested upon such proposed purchase, but
also the value of all shares of the AIM Funds owned by such purchaser,
calculated at their then current public offering price.
If a purchaser qualifies for a reduced sales charge, the reduced sales
charge applies to the total amount of money being invested, even if only a
portion of that amount exceeds the breakpoint for the reduced sales charge. For
example, if a purchaser already owns qualifying shares of any AIM Fund with a
value of $20,000 and wishes to invest an additional $20,000 in a fund with a
maximum initial sales charge of 5.50%, the reduced initial sales charge of 5.25%
will apply to the full $20,000 purchase and not just to the $15,000 in excess of
the $25,000 breakpoint.
To qualify for obtaining the discount applicable to a particular purchase,
the purchaser or his dealer must furnish the Transfer Agent with a list of the
account numbers and the names in which such accounts of the purchaser are
registered at the time the purchase is made.
Rights of Accumulation are also available to holders of the Connecticut
General Guaranteed Account, established for tax-qualified group annuities, for
contracts purchased on or before June 30, 1992.
If an investor's new purchase of Class A shares of a Category I, II or IV
Fund is at net asset value, the newly purchased shares will be subject to a CDSC
if the investor redeems them prior to the end of the 18 month holding period (12
months for Category III Fund shares).
OTHER REQUIREMENTS FOR REDUCTIONS IN INITIAL SALES CHARGES. As discussed
above, investors or dealers seeking to qualify orders for a reduced initial
sales charge must identify such orders and, if necessary, support their
qualification for the reduced charge. AIM Distributors reserves the right to
determine whether any purchaser is entitled to the reduced sales charge based on
the definition of a Qualified Purchaser listed above. No person or entity may
distribute shares of the AIM Funds without payment of the applicable sales
charge other than to Qualified Purchasers.
Purchases of Class A shares of AIM Tax-Exempt Cash Fund, Class A3 Shares of
AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund, AIM Cash
Reserve Shares of AIM Money Market Fund and Investor Class shares of any Fund
will not be taken into account in determining whether a purchase qualifies for a
reduction in initial sales charges.
PURCHASES OF CLASS A SHARES AT NET ASSET VALUE. AIM Distributors permits
certain categories of persons to purchase Class A shares of AIM Funds without
paying an initial sales charge. These are typically categories of persons whose
transactions involve little expense, such as persons who have a relationship
with the funds or with AIM and certain programs for purchase. It is the
purchasers' responsibilities to notify AIM Distributors or its designee of any
qualifying relationship at the time of purchase.
57
AIM Distributors believes that it is appropriate and in the Funds' best
interests that such persons, and certain other persons whose purchases result in
relatively low expenses of distribution, be permitted to purchase shares through
AIM Distributors without payment of a sales charge.
Accordingly, the following purchasers will not pay initial sales charges on
purchases of Class A shares because there is a reduced sales effort involved in
sales to these purchasers:
- AIM Management and its affiliates, or their clients;
- Any current or retired officer, director, trustee or employee (and
members of their Immediate Family) of AIM Management, its affiliates
or The AIM Family of Funds, --Registered Trademark-- and any
foundation, trust, employee benefit plan or deferred compensation plan
established exclusively for the benefit of, or by, such persons;
- Any current or retired officer, director, or employee (and members of
their Immediate Family), of DST Systems, Inc. or Personix, a division
of Fiserv Solutions, Inc.;
- Sales representatives and employees (and members of their Immediate
Family) of selling group members of financial institutions that have
arrangements with such selling group members;
- Purchases through approved fee-based programs;
- Employer-sponsored retirement plans that are Qualified Purchasers, as
defined above, provided that:
a. a plan's assets are at least $1 million;
b. there are at least 100 employees eligible to participate in the
plan; or
c. all plan transactions are executed through a single omnibus
account per AIM Fund and the financial institution or service
organization has entered into the appropriate agreement with the
distributor; further provided that retirement plans maintained
pursuant to Section 403(b) of the Code are not eligible to
purchase shares at NAV based on the aggregate investment made by
the plan or the number of eligible employees unless the employer
or plan sponsor is a tax-exempt organization operated pursuant to
Section 501(c)(3) of the Code;
- Shareholders of record of Advisor Class shares of AIM International
Growth Fund or AIM Worldwide Growth Fund on February 12, 1999 who have
continuously owned shares of the AIM Funds;
- Shareholders of record or discretionary advised clients of any
investment advisor holding shares of AIM Weingarten Fund or AIM
Constellation Fund on September 8, 1986, or of AIM Charter Fund on
November 17, 1986, who have continuously owned shares and who purchase
additional shares of the same Fund;
- Unitholders of G/SET series unit investment trusts investing proceeds
from such trusts in shares of AIM Weingarten Fund or AIM Constellation
Fund; provided, however, prior to the termination date of the trusts,
a unitholder may invest proceeds from the redemption or repurchase of
his units only when the investment in shares of AIM Weingarten Fund
and AIM Constellation Fund is effected within 30 days of the
redemption or repurchase;
- A shareholder of a fund that merges or consolidates with an AIM Fund
or that sells its assets to an AIM Fund in exchange for shares of an
AIM Fund;
58
- Shareholders of the former GT Global funds as of April 30, 1987 who
since that date continually have owned shares of one or more of these
funds;
- Certain former AMA Investment Advisers' shareholders who became
shareholders of the AIM Global Health Care Fund in October 1989, and
who have continuously held shares in the GT Global funds since that
time;
- Shareholders of record of Advisor Class shares of an AIM Fund on
February 11, 2000 who have continuously owned shares of that AIM Fund,
and who purchase additional shares of that AIM Fund;
- Shareholders of Investor Class shares of an AIM Fund;
- Qualified Tuition Programs created and maintained in accordance with
Section 529 of the Code;
- Insurance company separate accounts;
- Additional purchases of Class A shares by shareholders of record of
Class K shares on October 21, 2005 whose Class K shares were converted
to Class A shares;
- Retirement plan established exclusively for the benefit of an
individual (specifically including, but not limited to, a Traditional
IRA, Roth IRA, SEP IRA, SIMPLE IRA, Solo 401(k), Keogh plan, or a
tax-sheltered 403(b)(7) custodial account) if:
a. such plan is funded by a rollover of assets from an
Employer-Sponsored Retirement Plan;
b. the account being funded by such rollover is to be maintained by
the same trustee, custodian or administrator that maintained the
plan from which the rollover distribution funding such rollover
originated, or an affiliate thereof; and
c. the dealer of record with respect to the account being funded by
such rollover is the same as the dealer of record with respect to
the plan from which the rollover distribution funding such
rollover originated, or an affiliate thereof.
- Transfers to IRAs that are attributable to AIM Fund investments held
in 403(b)(7)s, SIMPLEs, SEPs, SARSEPs, Traditional or Roth IRAs; and
- Rollovers from AIM-held 403(b)(7)s, 401(K)s, SEPs, SIMPLEs, SARSEPs,
Money Purchase Plans, and Profit Sharing Plans if the assets are
transferred to an AIM IRA.
In addition, an investor may acquire shares of any of the AIM Funds at net asset
value in connection with:
- the reinvestment of dividends and distributions from a Fund;
- exchanges of shares of certain Funds, as more fully described in the
Prospectus;
- the purchase of shares in connection with the repayment of a
retirement plan loan administered by AIS;
- a merger, consolidation or acquisition of assets of a Fund; or
- the purchase of Class A shares with proceeds from the redemption of
Class B or Class C shares where the redemption and purchase are
effectuated on the same business day.
59
PAYMENTS TO DEALERS. AIM Distributors may elect to re-allow the entire
initial sales charge to dealers for all sales with respect to which orders are
placed with AIM Distributors during a particular period. Dealers to whom
substantially the entire sales charge is re-allowed may be deemed to be
"underwriters" as that term is defined under the 1933 Act.
The financial advisor through which you purchase your shares may receive
all or a portion of the sales charges and Rule 12b-1 distribution fees discussed
above. In addition to those payments, AIM Distributors or one or more of its
corporate affiliates (collectively, the "ADI Affiliates") may make additional
cash payments to financial advisors in connection with the promotion and sale of
shares of AIM funds. ADI Affiliates make these payments from their own
resources, from AIM Distributors' retention of underwriting concessions and from
payments to AIM Distributors under Rule 12b-1 plans. These additional cash
payments are described below. The categories described below are not mutually
exclusive. The same financial advisor may receive payments under more than one
or all categories. Most financial advisors that sell shares of AIM funds receive
one or more types of these cash payments. Financial advisors negotiate the cash
payments to be paid on an individual basis. Where services are provided, the
costs of providing the services and the overall package of services provided may
vary from one financial advisor to another. ADI Affiliates do not make an
independent assessment of the cost of providing such services.
In this context, "financial advisors" include any broker, dealer, bank
(including bank trust departments), transfer agent, registered investment
advisor, financial planner, retirement plan administrator and any other
financial intermediary having a selling, administration or similar agreement
with ADI Affiliates. A list of certain financial advisors that received one or
more types of payments below during the 2005 calendar year is attached hereto as
Appendix H. This list is not necessarily current and will change over time.
Certain arrangements are still being negotiated, and there is a possibility that
payments will be made retroactively to financial intermediaries not listed
below. Accordingly, please contact your financial advisor to determine whether
they currently may be receiving such payments and to obtain further information
regarding any such payments.
REVENUE SHARING PAYMENTS. ADI Affiliates make revenue sharing payments as
incentives to certain financial advisors to promote and sell shares of AIM
funds. The benefits ADI Affiliates receive when they make these payments
include, among other things, placing AIM funds on the financial advisor's funds
sales system, placing AIM funds on the financial advisor's preferred or
recommended fund list, and access (in some cases on a preferential basis over
other competitors) to individual members of the financial advisor's sales force
or to the financial advisor's management. Revenue sharing payments are sometimes
referred to as "shelf space" payments because the payments compensate the
financial advisor for including AIM funds in its fund sales system (on its
"sales shelf"). ADI Affiliates compensate financial advisors differently
depending typically on the level and/or type of considerations provided by the
financial advisor. In addition, payments typically apply only to retail sales,
and may not apply to other types of sales or assets (such as sales to retirement
plans, qualified tuition programs, or fee based advisor programs - some of which
may generate certain other payments described below.)
The revenue sharing payments ADI Affiliates make may be calculated on sales
of shares of AIM funds ("Sales-Based Payments"), in which case the total amount
of such payments shall not exceed 0.25% of the public offering price of all
shares sold by the financial advisor during the particular period. Such payments
also may be calculated on the average daily net assets of the applicable AIM
funds attributable to that particular financial advisor ("Asset-Based
Payments"), in which case the total amount of such cash payments shall not
exceed 0.25% per annum of those assets during a defined period. Sales-Based
Payments primarily create incentives to make new sales of shares of AIM funds
and Asset-Based Payments primarily create incentives to retain previously sold
shares of AIM funds in investor accounts. ADI Affiliates may pay a financial
advisor either or both Sales-Based Payments and Asset-Based Payments.
ADMINISTRATIVE AND PROCESSING SUPPORT PAYMENTS. ADI Affiliates also may
make payments to certain financial advisors that sell AIM Fund shares for
certain administrative services, including record keeping and sub-accounting
shareholder accounts. Payments for these services typically do not exceed
60
0.25% of average annual assets or $19 per annum per shareholder account. ADI
Affiliates also may make payments to certain financial advisors that sell AIM
Fund shares in connection with client account maintenance support, statement
preparation and transaction processing. The types of payments that ADI
Affiliates may make under this category include, among others, payment of ticket
charges per purchase or exchange order placed by a financial advisor, payment of
networking fees of up to $12 per shareholder account maintained on certain
mutual fund trading systems, or one-time payments for ancillary services such as
setting up funds on a financial advisor's mutual fund trading systems. All fees
payable by ADI Affiliates pursuant to a sub-transfer agency, omnibus account
service or sub-accounting agreement are charged back to the AIM Funds, subject
to certain limitations approved by the Board of the Trust.
With respect to Institutional Class shares, ADI Affiliates also may make
payments to certain financial advisors that sell AIM fund shares for certain
administrative services, including record keeping and sub-accounting shareholder
accounts. Payments for these services typically do not exceed 0.10% of average
annual assets. All fees payable by ADI Affiliates pursuant to a sub-transfer
agency, omnibus account service or sub-accounting agreement are charged back to
the AIM Funds, subject to certain limitations approved by the Board of the
Trust.
OTHER CASH PAYMENTS. From time to time, ADI Affiliates, at their expense,
may provide additional compensation to financial advisors which sell or arrange
for the sale of shares of the Fund. Such compensation provided by ADI Affiliates
may include financial assistance to financial advisors that enable ADI
Affiliates to participate in and/or present at conferences or seminars, sales or
training programs for invited registered representatives and other employees,
client entertainment, client and investor events, and other financial
advisor-sponsored events, and travel expenses, including lodging incurred by
registered representatives and other employees in connection with client
prospecting, retention and due diligence trips. Other compensation may be
offered to the extent not prohibited by state laws or any self-regulatory
agency, such as the NASD, Inc. ("NASD"). ADI Affiliates make payments for
entertainment events it deems appropriate, subject to ADI Affiliates guidelines
and applicable law. These payments may vary depending upon the nature of the
event or the relationship.
ADI Affiliates are motivated to make the payments described above since
they promote the sale of AIM fund shares and the retention of those investments
by clients of financial advisors. To the extent financial advisors sell more
shares of AIM funds or retain shares of AIM funds in their clients' accounts,
ADI Affiliates benefit from the incremental management and other fees paid to
ADI Affiliates by the AIM funds with respect to those assets.
In certain cases these payments could be significant to the financial
advisor. Your financial advisor may charge you additional fees or commissions
other than those disclosed in this prospectus. You can ask your financial
advisor about any payments it receives from ADI Affiliates or the AIM funds, as
well as about fees and/or commissions it charges.
Purchases of Class B Shares
Class B shares are sold at net asset value, and are not subject to an
initial sales charge. Instead, investors may pay a CDSC if they redeem their
shares within six years after purchase. See the Prospectus for additional
information regarding contingent deferred sales charges. AIM Distributors may
pay sales commissions to dealers and institutions who sell Class B shares of the
AIM Funds at the time of such sales. Payments will equal 4.00% of the purchase
price and will consist of a sales commission equal to 3.75% plus an advance of
the first year service fee of 0.25%.
Purchases of Class C Shares
Class C shares are sold at net asset value, and are not subject to an
initial sales charge. Instead, investors may pay a CDSC if they redeem their
shares within the first year after purchase (no CDSC applies to Class C shares
of AIM Enhanced Short Bond Fund or AIM Short Term Bond Fund unless you exchange
shares of another AIM Fund that are subject to a CDSC into AIM Enhanced Short
Bond Fund or AIM Short Term Bond Fund). See the Prospectus for additional
information regarding this CDSC.
61
AIM Distributors may pay sales commissions to dealers and institutions who sell
Class C shares of the AIM Funds (except for Class C shares of AIM Enhanced Short
Bond Fund and AIM Short Term Bond Fund) at the time of such sales. Payments with
respect to Funds other than AIM Floating Rate Fund will equal 1.00% of the
purchase price and will consist of a sales commission of 0.75% plus an advance
of the first year service fee of 0.25%. Payments with respect to AIM Floating
Rate Fund will equal 0.75% of the purchase price and will consist of a sales
commission of 0.50% plus an advance of the first year service fee of 0.25%.
These commissions are not paid on sales to investors exempt from the CDSC,
including shareholders of record of AIM Advisor Funds, Inc. on April 30, 1995,
who purchase additional shares in any of the Funds on or after May 1, 1995, and
in circumstances where AIM Distributors grants an exemption on particular
transactions.
Class K Shares
Class K shares converted to Class A shares at the close of business on
October 21, 2005. If AIM Distributors paid a concession at the time of sale to
the dealer of record, the Class K shares were subject to a 0.70% CDSC at the
time of redemption if all retirement plan assets were redeemed within one year
from the date of the retirement plan's initial purchase. This CDSC will continue
to apply if all retirement plan assets are redeemed within 12 months from the
date of the retirement plan's initial purchase.
Payments with Regard to Class K Shares
For Class A shares acquired by a former Class K shareholder (i) as a result
of a fund merger; or (ii) as a result of the conversion of Class K shares into
Class A shares on October 21, 2005, AIM Distributors will pay financial
intermediaries 0.45% on such Class A shares as follows: (i) 0.25% from the Class
A shares' Rule 12b-1 plan fees; and (ii) 0.20% from AIM Distributors' own
resources provided that, on an annualized basis for 2005 as of October 21, 2005,
the 0.20% exceeds $2,000 per year.
Purchase and Redemption of Class P Shares
Class P shares of the AIM Summit Fund are only sold to members of the
general public through AIM Summit Investors Plans I and AIM Summit Investors
Plans II (the "Summit Plans"). The Summit Plans are periodic payment plans, each
registered as a unit investment trust under the 1940 Act. The terms of offering
shares of the AIM Summit Fund and the procedures for requesting redemptions
through the Summit Plans are set forth in the Summit Plans respective
prospectuses. Shares of the AIM Summit Fund are sold to the Summit Plans at net
asset value. The Summit Plans are currently closed to new investors.
The AIM Summit Fund's prospectus for Class P shares provides for a limited
group of individuals (certain individuals employed by or otherwise affiliated
with the AIM Distributors) to purchase Class P shares of the AIM Summit Fund
directly at net asset value. Investors in the Summit Plans also acquire direct
ownership of Class P shares of the AIM Summit Fund upon the termination or
completion of their periodic payment plans.
Shareholder inquiries concerning the status of an account in Class P shares
of the AIM Summit Fund should be directed to AIS by calling (800) 959-4246. For
information regarding inquiries concerning accounts in the Summit Plans, see the
applicable prospectus.
Purchases of Class R Shares
Class R shares are sold at net asset value, and are not subject to an
initial sales charge. If AIM Distributors pays a concession to the dealer of
record, however, the Class R shares are subject to a 0.75% CDSC at the time of
redemption if all retirement plan assets are redeemed within one year from the
date of the retirement plan's initial purchase. For purchases of Class R shares
of Category I or II Funds, AIM Enhanced Short Bond Fund, AIM Floating Rate Fund
or AIM Short Term Bond Fund, AIM Distributors may make the following payments to
dealers of record provided that the applicable
62
dealer of record is able to establish that the purchase of Class R shares is a
new investment or a rollover from a retirement plan in which an AIM Fund was
offered as an investment option:
PERCENT OF CUMULATIVE PURCHASES
0.75% of the first $5 million
plus 0.50% of amounts in excess of $5 million
With regard to any individual purchase of Class R shares, AIM Distributors
may make payment to the dealer of record based on the cumulative total of
purchases made by the same plan over the life of the plan's account(s).
Purchases of Investor Class Shares
Investor Class shares are sold at net asset value, and are not subject to
an initial sales charge or to a CDSC. AIM Distributors may pay dealers and
institutions an annual service fee of 0.25% of average daily net assets and such
payments will commence immediately.
Purchases of Institutional Class Shares
Institutional Class shares are sold at net asset value, and are not subject
to an initial sales charge or to a CDSC.
Exchanges
TERMS AND CONDITIONS OF EXCHANGES. Normally, shares of an AIM Fund to be
acquired by exchange are purchased at their net asset value or applicable
offering price, as the case may be, determined on the date that such request is
received, but under unusual market conditions such purchases may be delayed for
up to five business days if it is determined that a fund would be materially
disadvantaged by an immediate transfer of the proceeds of the exchange. If a
shareholder is exchanging into a fund paying daily dividends, and the release of
the exchange proceeds is delayed for the foregoing five-day period, such
shareholder will not begin to accrue dividends until the sixth business day
after the exchange.
EXCHANGES BY TELEPHONE. AIM Distributors has made arrangements with certain
dealers and investment advisory firms to accept telephone instructions to
exchange shares between any of the AIM Funds. AIM Distributors reserves the
right to impose conditions on dealers or investment advisors who make telephone
exchanges of shares of the funds, including the condition that any such dealer
or investment advisor enter into an agreement (which contains additional
conditions with respect to exchanges of shares) with AIM Distributors. To
exchange shares by telephone, a shareholder, dealer or investment advisor who
has satisfied the foregoing conditions must call AIS at (800) 959-4246. If a
shareholder is unable to reach AIS by telephone, he may also request exchanges
by fax, telegraph or use overnight courier services to expedite exchanges by
mail, which will be effective on the business day received by AIS as long as
such request is received in good order prior to the close of the customary
trading session of the New York Stock Exchange ("NYSE"). AIS and AIM
Distributors may in certain cases be liable for losses due to unauthorized or
fraudulent transactions if they do not follow reasonable procedures for
verification of telephone transactions. Such reasonable procedures may include
recordings of telephone transactions (maintained for six months), requests for
confirmation of the shareholder's Social Security Number and current address,
and mailings of confirmations promptly after the transaction.
Redemptions
GENERAL. Shares of the AIM Funds may be redeemed directly through AIM
Distributors or through any dealer who has entered into an agreement with AIM
Distributors. In addition to the Funds' obligation to redeem shares, AIM
Distributors may also repurchase shares as an accommodation to shareholders. To
effect a repurchase, those dealers who have executed Selected Dealer Agreements
63
with AIM Distributors must phone orders to the order desk of the Funds at
(800)959-4246 and guarantee delivery of all required documents in good order. A
repurchase is effected at the net asset value per share of the applicable Fund
next determined after the repurchase order is received in good order. Such an
arrangement is subject to timely receipt by AIS, the Funds' transfer agent, of
all required documents in good order. If such documents are not received within
a reasonable time after the order is placed, the order is subject to
cancellation. While there is no charge imposed by a Fund or by AIM Distributors
(other than any applicable contingent deferred sales charge and any applicable
redemption fee) when shares are redeemed or repurchased, dealers may charge a
fair service fee for handling the transaction.
SUSPENSION OF REDEMPTIONS. The right of redemption may be suspended or the
date of payment postponed when (a) trading on the NYSE is restricted, as
determined by applicable rules and regulations of the SEC, (b) the NYSE is
closed for other than customary weekend and holiday closings, (c) the SEC has by
order permitted such suspension, or (d) an emergency as determined by the SEC
exists making disposition of portfolio securities or the valuation of the net
assets of a Fund not reasonably practicable.
REDEMPTIONS BY TELEPHONE. By signing an account application form, an
investor appoints AIS as his true and lawful attorney-in-fact to surrender for
redemption any and all unissued shares held by AIS in the designated account(s),
present or future, with full power of substitution in the premises. AIS and AIM
Distributors are thereby authorized and directed to accept and act upon any
telephone redemptions of shares held in any of the account(s) listed, from any
person who requests the redemption. An investor acknowledges by signing the form
that he understands and agrees that AIS and AIM Distributors may not be liable
for any loss, expense or cost arising out of any telephone redemption requests
effected in accordance with the authorization set forth in these instructions if
they reasonably believe such request to be genuine, but may in certain cases be
liable for losses due to unauthorized or fraudulent transactions. Procedures for
verification of telephone transactions may include recordings of telephone
transactions (maintained for six months), requests for confirmation of the
shareholder's Social Security Number and current address, and mailings of
confirmations promptly after the transactions. AIS reserves the right to cease
to act as attorney-in-fact subject to this appointment, and AIM Distributors
reserves the right to modify or terminate the telephone redemption privilege at
any time without notice. An investor may elect not to have this privilege by
marking the appropriate box on the application. Then any redemptions must be
effected in writing by the investor.
SYSTEMATIC REDEMPTION PLAN. A Systematic Redemption Plan permits a
shareholder of an AIM Fund to withdraw on a regular basis at least $50 per
withdrawal. Under a Systematic Redemption Plan, all shares are to be held by
AIS. To provide funds for payments made under the Systematic Redemption Plan,
AIS redeems sufficient full and fractional shares at their net asset value in
effect at the time of each such redemption.
Payments under a Systematic Redemption Plan constitute taxable events.
Since such payments are funded by the redemption of shares, they may result in a
return of capital and in capital gains or losses, rather than in ordinary
income. Because sales charges are imposed on additional purchases of Class A
shares, it is disadvantageous to effect such purchases while a Systematic
Redemption Plan is in effect.
Each AIM Fund bears its share of the cost of operating the Systematic
Redemption Plan.
Contingent Deferred Sales Charges Imposed upon Redemption of Shares
A CDSC may be imposed upon the redemption of Large Purchases of Class A
shares of Category I, II and IV Funds, upon the redemption of Class B shares or
Class C shares (no CDSC applies to Class C shares of AIM Enhanced Short Bond
Fund or AIM Short Term Bond Fund unless you exchange shares of another AIM Fund
that are subject to a CDSC into AIM Enhanced Short Bond Fund or AIM Short Term
Bond Fund) and, in certain circumstances, upon the redemption of Class R shares.
See the Prospectus for additional information regarding CDSCs.
64
CONTINGENT DEFERRED SALES CHARGE EXCEPTIONS FOR LARGE PURCHASES OF CLASS A
SHARES. An investor who has made a Large Purchase of Class A shares of a
Category I, II, III or IV Fund will not be subject to a CDSC upon the redemption
of those shares in the following situations:
- Redemptions of shares of Category I, II or IV Funds, held more than 18
months;
- Redemptions of shares of Category III Funds purchased on or after
November 15, 2001 and through October 30, 2002 and held for more than
12 months;
- Redemptions of shares held by retirement plans in cases where (i) the
plan has remained invested in Class A shares of a Fund for at least 12
months, or (ii) the redemption is not a complete redemption of shares
held by the plan;
- Redemptions from private foundations or endowment funds;
- Redemptions of shares by the investor where the investor's dealer
waives the amounts otherwise payable to it by the distributor and
notifies the distributor prior to the time of investment;
- Redemptions of shares of Category I, II, III or IV Funds and AIM Cash
Reserve Shares of AIM Money Market Fund, and shares of AIM Enhanced
Short Bond Fund, AIM Floating Rate Fund or AIM Short Term Bond
acquired by exchange from Class A shares of a Category I, II or IV
Fund unless the shares acquired by exchange (on or after November 15,
2001 and through October 30, 2002 with respect to Category III Funds)
are redeemed within 18 months of the original purchase of the
exchanges of Category I, II or IV Fund;
- Redemptions of shares of Category III Funds, shares of AIM Tax-Exempt
Cash Fund or AIM Cash Reserve Shares of AIM Money Market Fund acquired
by exchange from Class A shares of a Category III Fund purchased prior
to November 15, 2001;
- Redemptions of shares of Category I, II or IV Funds acquired by
exchange on and after November 15, 2001 from AIM Cash Reserve Shares
of AIM Money Market Fund if the AIM Cash Reserve Shares were acquired
by exchange from a Category I, II or IV Fund, unless the Category I,
II or IV Fund shares acquired by exchange are redeemed within 18
months of the original purchase of the exchanged Category I, II or IV
Funds;
- Redemptions of shares of Category I, II or IV Funds by retirement plan
participants resulting from a total redemption of the plan assets that
occurs more than one year from the date of the plan's initial
purchase; and
- Redemptions of shares of Category I, II or IV Funds held by an
Investor Class shareholder.
CONTINGENT DEFERRED SALES CHARGE EXCEPTIONS FOR CLASS B AND C SHARES.
Investors who purchased former GT Global funds Class B shares before June 1,
1998 are subject to the following waivers from the CDSC otherwise due upon
redemption:
- Total or partial redemptions resulting from a distribution following
retirement in the case of a tax-qualified employer-sponsored
retirement;
- Minimum required distributions made in connection with an IRA, Keogh
Plan or custodial account under Section 403(b) of the Code or other
retirement plan following attainment of age 70 1/2;
65
- Redemptions pursuant to distributions from a tax-qualified
employer-sponsored retirement plan, which is invested in the former GT
Global funds, which are permitted to be made without penalty pursuant
to the Code, other than tax-free rollovers or transfers of assets, and
the proceeds of which are reinvested in the former GT Global funds;
- Redemptions made in connection with participant-directed exchanges
between options in an employer-sponsored benefit plan;
- Redemptions made for the purpose of providing cash to fund a loan to a
participant in a tax-qualified retirement plan;
- Redemptions made in connection with a distribution from any retirement
plan or account that is permitted in accordance with the provisions of
Section 72(t)(2) of the Code, and the regulations promulgated
thereunder;
- Redemptions made in connection with a distribution from a qualified
profit-sharing or stock bonus plan described in Section 401(k) of the
Code to a participant or beneficiary under Section 401(k)(2)(B)(IV) of
the Code upon hardship of the covered employee (determined pursuant to
Treasury Regulation Section 1.401(k)-1(d)(2)); and
- Redemptions made by or for the benefit of certain states, counties or
cities, or any instrumentalities, departments or authorities thereof
where such entities are prohibited or limited by applicable law from
paying a sales charge or commission.
CDSCs will not apply to the following redemptions of Class B or Class C shares,
as applicable:
- Additional purchases of Class C shares of AIM International Core
Equity Fund and AIM Real Estate Fund by shareholders of record on
April 30, 1995, of AIM International Value Fund, predecessor to AIM
International Core Equity Fund, and AIM Real Estate Fund, except that
shareholders whose broker-dealers maintain a single omnibus account
with AIS on behalf of those shareholders, perform sub-accounting
functions with respect to those shareholders, and are unable to
segregate shareholders of record prior to April 30, 1995, from
shareholders whose accounts were opened after that date will be
subject to a CDSC on all purchases made after March 1, 1996;
- Redemptions following the death or post-purchase disability of (1) any
registered shareholders on an account or (2) a settlor of a living
trust, of shares held in the account at the time of death or initial
determination of post-purchase disability;
- Certain distributions from individual retirement accounts, Section
403(b) retirement plans, Section 457 deferred compensation plans and
Section 401 qualified plans, where redemptions result from (i)
required minimum distributions to plan participants or beneficiaries
who are age 70 1/2 or older, and only with respect to that portion of
such distributions that does not exceed 12% annually of the
participant's or beneficiary's account value in a particular Fund;
(ii) in kind transfers of assets where the participant or beneficiary
notifies the distributor of the transfer no later than the time the
transfer occurs; (iii) tax-free rollovers or transfers of assets to
another plan of the type described above invested in Class B or Class
C shares of one or more of the Funds; (iv) tax-free returns of excess
contributions or returns of excess deferral amounts; and (v)
distributions on the death or disability (as defined in the Code) of
the participant or beneficiary;
- Amounts from a Systematic Redemption Plan of up to an annual amount of
12% of the account value on a per fund basis, at the time the
withdrawal plan is established, provided the investor reinvests his
dividends;
66
- Liquidation by the Fund when the account value falls below the minimum
required account size of $500; and
- Investment account(s) of AIM.
CDSCs will not apply to the following redemptions of Class C shares:
- A total or partial redemption of shares where the investor's dealer of
record notifies the distributor prior to the time of investment that
the dealer would waive the upfront payment otherwise payable to him;
- A total or partial redemption which is necessary to fund a
distribution requested by a participant in a retirement plan
maintained pursuant to Section 401, 403, or 457 of the Code;
- Redemptions of Class C shares of a Fund other than AIM Enhanced Short
Bond Fund or AIM Short Term Bond Fund if you received such Class C
shares by exchanging Class C shares of AIM Enhanced Short Bond Fund or
AIM Short Term Bond Fund; and
- Redemptions of Class C shares of AIM Enhanced Short Bond Fund or AIM
Short Term Bond Fund if you received such Class C shares by exchanging
Class C shares of another Fund and the original purchase was subject
to a CDSC.
CONTINGENT DEFERRED SALES CHARGE EXCEPTIONS FOR CLASS R SHARES AND FORMER CLASS
K SHAREHOLDERS THAT ACQUIRED CLASS A SHARES.
CDSCs will not apply to redemptions of Class A shares acquired as a result
of conversion of Class K shares into Class A shares where the retirement plan's
dealer of record notified the distributor prior to the time of purchase that the
dealer waived the upfront payment otherwise payable to him.
CDSCs will not apply to the following redemptions of Class R shares:
- A total or partial redemption of Class R shares where the retirement
plan's dealer of record notifies the distributor prior to the time of
investment that the dealer waives the upfront payment otherwise
payable to him; and
- Redemptions of shares held by retirement plans in cases where (i) the
plan has remained invested in Class R shares of a Fund for at least 12
months, or (ii) the redemption is not a complete redemption of all
Class R shares held by the plan.
General Information Regarding Purchases, Exchanges and Redemptions
GOOD ORDER. Purchase, exchange and redemption orders must be received in
good order in accordance with AIS policy and procedures and U.S. regulations.
AIS reserves the right to refuse transactions. Transactions not in good order
will not be processed and once brought into good order, will receive current
price. To be in good order, an investor or financial intermediary must supply
AIS with all required information and documentation, including signature
guarantees when required. In addition, if a purchase of shares is made by check,
the check must be received in good order. This means that the check must be
properly completed and signed, and legible to AIS in its sole discretion. If a
check used to purchase shares does not clear, or if any investment order must be
canceled due to nonpayment, the investor or financial intermediary will be
responsible for any resulting loss.
AUTHORIZED AGENTS. AIS and AIM Distributors may authorize agents to accept
purchase and redemption orders that are in good form on behalf of the AIM Funds.
In certain cases, these authorized agents are authorized to designate other
intermediaries to accept purchase and redemption orders on a
67
Fund's behalf. The Fund will be deemed to have received the purchase or
redemption order when the Fund's authorized agent or its designee accepts the
order. The order will be priced at the net asset value next determined after the
order is accepted by the Fund's authorized agent.
TIMING OF PURCHASE ORDERS. It is the responsibility of the dealer or other
financial intermediary to ensure that all orders are transmitted on a timely
basis to AIS. Any loss resulting from the failure of the dealer or financial
intermediary to submit an order within the prescribed time frame will be borne
by that dealer or financial intermediary.
SIGNATURE GUARANTEES. In addition to those circumstances listed in the
"Shareholder Information" section of each Fund's prospectus, signature
guarantees are required in the following situations: (1) requests to transfer
the registration of shares to another owner; (2) telephone exchange and
telephone redemption authorization forms; (3) changes in previously designated
wiring or electronic funds transfer instructions; (4) written redemptions or
exchanges of shares held in certificate form previously reported to AIM as lost,
whether or not the redemption amount is under $250,000 or the proceeds are to be
sent to the address of record; and (5) requests to redeem accounts where the
proceeds are over $250,000 or the proceeds are to be sent to an address or a
bank other than the address or bank of record. AIM Funds may waive or modify any
signature guarantee requirements at any time.
Acceptable guarantors include banks, broker-dealers, credit unions,
national securities exchanges, savings associations and any other organization,
provided that such institution or organization qualifies as an "eligible
guarantor institution" as that term is defined in rules adopted by the SEC, and
further provided that such guarantor institution is listed in one of the
reference guides contained in AIS' current Signature Guarantee Standards and
Procedures, such as certain domestic banks, credit unions, securities dealers,
or securities exchanges. Notary Public signatures are not an acceptable
replacement for a signature guarantee. AIS will also accept signatures with
either: (1) a signature guaranteed with a medallion stamp of the STAMP Program,
or (2) a signature guaranteed with a medallion stamp of the NYSE Medallion
Signature Program, provided that in either event, the amount of the total
transaction involved does not exceed the surety coverage amount indicated on the
medallion. For information regarding whether a particular institution or
organization qualifies as an "eligible guarantor institution," an investor
should contact the Client Services Department of AIS.
TRANSACTIONS BY TELEPHONE. By signing an account application form, an
investor appoints AIS as his true and lawful attorney-in-fact to surrender for
redemption any and all unissued shares held by AIS in the designated account(s),
or in any other account with any of the AIM Funds, present or future, which has
the identical registration as the designated account(s), with full power of
substitution in the premises. AIS and AIM Distributors are thereby authorized
and directed to accept and act upon any telephone redemptions of shares held in
any of the account(s) listed, from any person who requests the redemption
proceeds to be applied to purchase shares in any one or more of the AIM Funds,
provided that such fund is available for sale and provided that the registration
and mailing address of the shares to be purchased are identical to the
registration of the shares being redeemed. An investor acknowledges by signing
the form that he understands and agrees that AIS and AIM Distributors may not be
liable for any loss, expense or cost arising out of any telephone exchange
requests effected in accordance with the authorization set forth in these
instructions if they reasonably believe such request to be genuine, but may in
certain cases be liable for losses due to unauthorized or fraudulent
transactions. Procedures for verification of telephone transactions may include
recordings of telephone transactions (maintained for six months), requests for
confirmation of the shareholder's Social Security Number and current address,
and mailings of confirmations promptly after the transactions. AIS reserves the
right to modify or terminate the telephone exchange privilege at any time
without notice. An investor may elect not to have this privilege by marking the
appropriate box on the application. Then any exchanges must be effected in
writing by the investor.
INTERNET TRANSACTIONS. An investor may effect transactions in his account
through the internet by establishing a Personal Identification Number (PIN). By
establishing a PIN the investor acknowledges and agrees that neither AIS nor AIM
Distributors will be liable for any loss, expense or cost arising out of
68
any internet transaction effected by them in accordance with any instructions
submitted by a user who transmits the PIN as authentication of his or her
identity. Procedures for verification of internet transactions include requests
for confirmation of the shareholder's personal identification number and mailing
of confirmations promptly after the transactions. The investor also acknowledges
that the ability to effect internet transactions may be terminated at any time
by the AIM Funds.
ABANDONED PROPERTY. It is the responsibility of the investor to ensure that
AIS maintains a correct address for his account(s). An incorrect address may
cause an investor's account statements and other mailings to be returned to AIS.
Upon receiving returned mail, AIS will attempt to locate the investor or
rightful owner of the account. If unsuccessful, AIS will retain a shareholder
locator service with a national information database to conduct periodic
searches for the investor. If the search firm is unable to locate the investor,
the search firm will determine whether the investor's account has legally been
abandoned. AIS is legally obligated to escheat (or transfer) abandoned property
to the appropriate state's unclaimed property administrator in accordance with
statutory requirements. The investor's last known address of record determines
which state has jurisdiction.
INSTITUTIONAL CLASS SHARES
Before the initial purchase of shares, an investor must submit a completed
account application to his financial intermediary, who should forward the
application to AIM Investment Services, Inc. at P.O. Box 4497, Houston, Texas
77210-4497. An investor may change information in his account application by
submitting written changes or a new account application to his intermediary or
to AIS.
A financial intermediary may submit a written request to AIS for correction
of transactions involving the Fund's shares. If AIS agrees to correct a
transaction, and the correction requires a dividend adjustment, the intermediary
must agree in writing to reimburse the Fund for any resulting loss.
An investor may terminate his relationship with an intermediary and become
the shareholder of record on his account. However, until the investor
establishes a relationship with an intermediary, the investor will not be able
to purchase additional shares of the Fund, except through the reinvestments of
distributions.
Payment for redeemed shares is normally made by Federal Reserve wire to the
bank account designated in the investor's account application, but may be sent
by check at the investor's request. By providing written notice to his financial
intermediary or to AIS, an investor may change the bank account designated to
receive redemption proceeds. AIS may request additional documentation,
AIS may request that an intermediary maintain separate master accounts in
the Fund for shares held by the intermediary (a) for its own account, for the
account or other institutions and for accounts for which the intermediary acts
as a fiduciary; and (b) for accounts for which the intermediary acts in some
other capacity. An intermediary may aggregate its master accounts and
sub-accounts to satisfy the minimum investment requirement.
Platform sponsors that provide investment vehicles to fund Section 401
defined contribution plans and have entered into written agreements with AIM
Distributors to waive applicable investment minimums may purchase Institutional
Class shares for accounts within such plans.
OFFERING PRICE
The following formula may be used to determine the public offering price
per Class A share of an investor's investment:
Net Asset Value / (1 - Sales Charge as % of Offering Price) = Offering
Price.
69
For example, at the close of business on August 31, 2006, AIM Multi-Sector
Fund - Class A shares had a net asset value per share of $25.53. The offering
price, assuming an initial sales charge of 5.50%, therefore was $27.02.
Institutional Class shares of the Fund are offered at net asset value.
Calculation of Net Asset Value
The Fund determines its net asset value per share once daily as of the
close of the customary trading session of the NYSE (generally 4:00 p.m. Eastern
time) on each business day of the Fund. In the event the NYSE closes early
(i.e., before 4:00 p.m. Eastern time) on a particular day, the Fund determines
its net asset value per share as of the close of the NYSE on such day. For
purposes of determining net asset value per share, futures and options contracts
generally will be valued 15 minutes after the close of the customary trading
session of the 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. The
Fund determines net asset value per share by dividing the value of the Fund's
securities, cash and other assets (including interest accrued but not collected)
attributable to a particular class, less all its liabilities (including accrued
expenses and dividends payable) attributable to that class, by the total number
of shares outstanding of that class. Determination of the Fund's net asset value
per share is made in accordance with generally accepted accounting principles.
The net asset value for shareholder transactions may be different than the net
asset value reported in the Fund's financial statements due to adjustments
required by generally accepted accounting principles made to the net asset value
of the Fund at period end.
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 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.
Each equity security (excluding convertible bonds) held by the Fund is
valued at its last sales price on the exchange where the security is principally
traded or, lacking any sales on a particular day, the security is valued at the
closing bid price on that day. Each security traded in the over-the-counter
market (but not including securities reported on the NASDAQ National Market
System) is valued on the basis of prices furnished by independent pricing
vendors or market makers. Each equity security reported on the NASDAQ National
Market System is valued at the NASDAQ Official Closing Price ("NOCP") or absent
a NOCP, at the closing bid price on that day. Debt securities (including
convertible bonds) are fair valued using an evaluated quote provided by an
independent pricing vendor. Evaluated quotes provided by the pricing vendor may
be determined without exclusive reliance on quoted prices, and may reflect
appropriate factors such as institution-size trading in similar groups of
securities, developments related to special securities, dividend rate, yield,
quality, coupon rate, maturity, type of issue, individual trading
characteristics and other market data.
Securities for which market prices are not provided by any of the above
methods are valued based upon quotes furnished by independent sources and are
valued at the last bid price in the case of equity securities and in the case of
debt obligations, the mean between the last bid and asked prices. Securities for
which market quotations are not available, including situations where market
quotations are unreliable, are valued at fair value as determined in good faith
by or under the supervision of the Trust's officers in accordance with
procedures approved by the Board. Short-term investments are valued at amortized
cost when the security has 60 days or less to maturity.
Generally, trading in corporate bonds, U.S. Government securities and money
market instruments is substantially completed each day at various times prior to
the close of the customary trading session of the NYSE. The values of such
securities used in computing the net asset value of the
70
Fund's share are determined at such times. Occasionally, events affecting the
values of such securities may occur between the times at which such values are
determined and the close of the customary trading session of the NYSE. If AIM
believes a development/event has actually caused a closing price to no longer
reflect current market value, the closing price may be adjusted to reflect the
fair value of the affected security as of the close of the NYSE as determined in
good faith using procedures approved by the Board.
Foreign securities are converted into U.S. dollar amounts using exchange
rates as of the close of the NYSE. Trading in certain 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. If an issuer specific event has occurred that AIM
determines, in its judgment, is likely to have affected the closing price of a
foreign security, it will price the security at fair value. Issuer specific
events may include a merger or insolvency, events which affect a geographical
area or an industry segment, such as political events or natural disasters, or
market events, such as a significant movement in the U.S. market. AIM also
relies on a screening process from a pricing vendor to indicate the degree of
certainty, based on historical data, that the closing price in the principal
market where a foreign security trades is not the current market value as of the
close of the NYSE. For foreign securities where AIM believes, at the approved
degree of certainty, that the price is not reflective of current market value,
AIM will use the indication of fair value from the pricing vendor to determine
the fair value of the security. The pricing vendor, pricing methodology or
degree of certainty may change from time to time. Multiple factors may be
considered by the pricing vendor 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.
Fund securities primarily traded in foreign markets may be traded in such
markets on days that are not business days of the Fund. Because the net asset
value per share of each Fund is determined only on business days of the Fund,
the value of the portfolio securities of a Fund that invests in foreign
securities may change on days when an investor cannot exchange or redeem shares
of the Fund.
REDEMPTIONS IN KIND
Although the Fund generally intends to pay redemption proceeds solely in
cash, the Fund reserves the right to determine, in their sole discretion,
whether to satisfy redemption requests by making payment in securities or other
property (known as a redemption in kind). For instance, the Fund may make a
redemption in kind if a cash redemption would disrupt its operations or
performance. Securities that will be delivered as payment in redemptions in kind
will be valued using the same methodologies that the Fund typically utilizes in
valuing such securities. Shareholders receiving such securities are likely to
incur transaction and brokerage costs on their subsequent sales of such
securities, and the securities may increase or decrease in value until the
shareholder sells them. The Trust, on behalf of the Fund made an election under
Rule 18f-1 under the 1940 Act (a "Rule 18f-1 Election") and therefore, the
Trust, on behalf of the Fund, is obligated to redeem for cash all shares
presented to such Fund for redemption by any one shareholder in an amount up to
the lesser of $250,000 or 1% of the Fund's net assets in any 90-day period. The
Rule 18f-1 Election is irrevocable while Rule 18f-1 under the 1940 Act is in
effect unless the SEC by order permits withdrawal of such Rule 18f-1 Election.
BACKUP WITHHOLDING
Accounts submitted without a correct, certified taxpayer identification
number or, alternatively, a completed Internal Revenue Service ("IRS") Form W-8
(for non-resident aliens) or Form W-9 (certifying exempt status) accompanying
the registration information will generally be subject to backup withholding.
Each AIM Fund, and other payers, generally must withhold, 28% of redemption
payments and reportable dividends (whether paid or accrued) in the case of any
shareholder who fails to provide the
71
Fund with a taxpayer identification number ("TIN") and a certification that he
is not subject to backup withholding.
An investor is subject to backup withholding if:
1. the investor fails to furnish a correct TIN to the Fund;
2. the IRS notifies the Fund that the investor furnished an incorrect
TIN;
3. the investor or the Fund is notified by the IRS that the investor is
subject to backup withholding because the investor failed to report
all of the interest and dividends on such investor's tax return (for
reportable interest and dividends only);
4. the investor fails to certify to the Fund that the investor is not
subject to backup withholding under (3) above (for reportable interest
and dividend accounts opened after 1983 only); or
5. the investor does not certify his TIN. This applies only to non-exempt
mutual fund accounts opened after 1983.
Interest and dividend payments are subject to backup withholding in all
five situations discussed above. Redemption proceeds and long-term gain
distributions are subject to backup withholding only if (1), (2) or (5) above
applies.
Certain payees and payments are exempt from backup withholding and
information reporting. AIM or AIS will not provide Form 1099 to those payees.
Investors should contact the IRS if they have any questions concerning
withholding.
IRS PENALTIES - Investors who do not supply the AIM Funds with a correct
TIN will be subject to a $50 penalty imposed by the IRS unless such failure is
due to reasonable cause and not willful neglect. If an investor falsifies
information on this form or makes any other false statement resulting in no
backup withholding on an account which should be subject to backup withholding,
such investor may be subject to a $500 penalty imposed by the IRS and to certain
criminal penalties including fines and/or imprisonment.
NONRESIDENT ALIENS - Nonresident alien individuals and foreign entities are
not subject to the backup withholding previously discussed, but must certify
their foreign status by attaching IRS Form W-8 to their application. Form W-8
generally remains in effect for a period starting on the date the Form is signed
and ending on the last day of the third succeeding calendar year. Such
shareholders may, however, be subject to federal income tax withholding at a 30%
rate on ordinary income dividends and other distributions. Under applicable
treaty law, residents of treaty countries may qualify for a reduced rate of
withholding or a withholding exemption.
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS
DIVIDENDS AND DISTRIBUTIONS
It is the present policy of the Fund to declare daily and pay monthly net
investment income dividends and declare and pay annually any capital gain
distributions. A portion of the dividends paid by a REIT may be considered
return of capital and would not currently be regarded as taxable income to the
Fund. It is the Fund's intention to distribute substantially all of its net
investment income and realized net capital gains. In determining the amount of
capital gains, if any, available for distribution, capital gains will be offset
against available net capital losses, if any, carried forward from previous
fiscal periods. All dividends and distributions will be automatically reinvested
in additional shares of the same class of the Fund unless the shareholder has
requested in writing to receive such dividends and distributions in cash or that
they be invested in shares of another AIM Fund, subject to the terms and
conditions set forth in the Prospectus under the caption "Special Plans -
Automatic Dividend Investment." Such dividends and distributions will be
reinvested at the net asset value per share determined on the ex-dividend date.
If a
72
shareholder's account does not have any shares in it on a dividend or capital
gain distribution payment date, the dividend or distribution will be paid in
cash whether or not the shareholder has elected to have such dividends or
distributions reinvested.
When purchase orders are received prior to noon EST, dividends will begin
accruing on the first business day after the purchase order for shares of the
Fund is effective (settle date), and accrue up to and including the day to which
a redemption order is effective (settle date). Thus, if a purchase order is
effective on Friday, dividends will begin accruing on Monday (unless Monday is
not a business day of the Fund).
Dividends on Class B and Class C shares are expected to be lower than those
for Class A shares because of higher distribution fees paid by Class B and Class
C shares. Other class-specific expenses may also affect dividends on shares of
those classes. Expenses attributable to a particular class ("Class Expenses")
include distribution plan expenses, which must be allocated to the class for
which they are incurred. Other expenses may be allocated as Class Expenses,
consistent with applicable legal principles under the 1940 Act and the Code.
TAX MATTERS
The following is only a summary of certain additional tax considerations
generally affecting the Fund and its shareholders that are not described in the
Prospectus. No attempt is made to present a detailed explanation of the tax
treatment of the Fund or its shareholders, and the discussion here and in the
Prospectus is not intended as a substitute for careful tax planning.
QUALIFICATION AS A REGULATED INVESTMENT COMPANY. The Fund has elected to be
taxed under Subchapter M of the Code as a regulated investment company and
intends to maintain its qualification as such in each of its taxable years. As a
regulated investment company, the Fund is not subject to federal income tax on
the portion of its net investment income (i.e., taxable interest, dividends and
other taxable ordinary income, net of expenses) and capital gain net income
(i.e., the excess of capital gains over capital losses) that it distributes to
shareholders, provided that it distributes an amount equal to (i) at least 90%
of its investment company taxable income (i.e., net investment income, net
foreign currency ordinary gain or loss and the excess of net short-term capital
gain over net long-term capital loss) and (ii) at least 90% of the excess of its
tax-exempt interest income under Code Section 103(a) over its deductions
disallowed under Code Sections 265 and 171(a)(2) for the taxable year (the
"Distribution Requirement"), and satisfies certain other requirements of the
Code that are described below. Distributions by the Fund made during the taxable
year or, under specified circumstances, within twelve months after the close of
the taxable year, will be considered distributions of income and gain of the
taxable year and can therefore satisfy the Distribution Requirement.
Treasury regulations permit a regulated investment company, in determining
its investment company taxable income and net capital gain (i.e., the excess of
net long-term capital gain over net short-term capital loss) for any taxable
year, to elect (unless it has made a taxable year election for excise tax
purposes as discussed below) to treat all or part of any net capital loss, any
net long-term capital loss or any net foreign currency loss incurred after
October 31 as if it had been incurred in the succeeding year.
The Fund may use "equalization accounting" in determining the portion of
its net investment income and capital gain net income that has been distributed.
A Fund that elects to use equalization accounting will allocate a portion of its
realized investment income and capital gains to redemptions of Fund shares and
will reduce the amount of such income and gains that it distributes in cash.
However, the Fund intends to make cash distributions for each taxable year in an
aggregate amount that is sufficient to satisfy the Distribution Requirement
without taking into account its use of equalization accounting. The IRS has not
published any guidance concerning the methods to be used in allocating
investment income and capital gains to redemptions of shares. In the event that
the IRS determines that the Fund is using an improper method of allocation and
has under-distributed its net investment income
73
and capital gain net income for any taxable year, such Fund may be liable for
additional federal income tax.
In addition to satisfying the Distribution Requirement, a regulated
investment company must derive at least 90% of its gross income from dividends,
interest, certain payments with respect to securities loans, gains from the sale
or other disposition of stock, securities or foreign currencies (to the extent
such currency gain is directly related to the regulated investment company's
principal business of investing in stock or securities), other income
(including, but not limited to, gains from options, futures or forward
contracts) derived from its business of investing in such stock, securities or
currencies and net income derived from certain publicly traded partnerships (the
"Income Requirement"). Under certain circumstances, the Fund may be required to
sell portfolio holdings in order to meet this requirement.
In addition to satisfying the requirements described above, the Fund must
satisfy an asset diversification test in order to qualify as a regulated
investment company (the "Asset Diversification Test"). Under this test, at the
close of each quarter of the Fund's taxable year, at least 50% of the value of
the Fund's assets must consist of cash and cash items, U.S. Government
securities, securities of other regulated investment companies, and securities
of other issuers, as to which the Fund has not invested more than 5% of the
value of the Fund's total assets in securities of such issuer and as to which
the Fund does not hold more than 10% of the outstanding voting securities of
such issuer, and no more than 25% of the value of its total assets may be
invested in the securities of any one issuer (other than U.S. Government
securities and securities of other regulated investment companies) or of two or
more issuers which the Fund controls and which are engaged in the same or
similar trades or businesses, or, collectively, in the securities of certain
publicly traded partnerships.
For purposes of the Asset Diversification Test, the IRS has ruled that the
issuer of a purchased listed call option on stock is the issuer of the stock
underlying the option. The IRS has also informally ruled that, in general, the
issuers of purchased or written call and put options on securities, of long and
short positions on futures contracts on securities and of options on such future
contracts are the issuers of the securities underlying such financial
instruments where the instruments are traded on an exchange.
Where the writer of a listed call option owns the underlying securities,
the IRS has ruled that the Asset Diversification Test will be applied solely to
such securities and not to the value of the option itself. With respect to
options on securities indexes, futures contracts on securities indexes and
options on such futures contracts, the IRS has informally ruled that the issuers
of such options and futures contracts are the separate entities whose securities
are listed on the index, in proportion to the weighting of securities in the
computation of the index. It is unclear under present law who should be treated
as the issuer of forward foreign currency exchange contracts, of options on
foreign currencies, or of foreign currency futures and related options. It has
been suggested that the issuer in each case may be the foreign central bank or
the foreign government backing the particular currency. Due to this uncertainty
and because the Fund may not rely on informal rulings of the IRS, the Fund may
find it necessary to seek a ruling from the IRS as to the application of the
Asset Diversification Test to certain of the foregoing types of financial
instruments or to limit its holdings of some or all such instruments in order to
stay within the limits of such test.
Under an IRS revenue procedure, the Fund may treat its position as lender
under a repurchase agreement as a U.S. Government security for purposes of the
Asset Diversification Test where the repurchase agreement is fully
collateralized (under applicable SEC standards) with securities that constitute
U.S. Government securities.
74
If for any taxable year the Fund does not qualify as a regulated investment
company, all of its taxable income (including its net capital gain) will be
subject to tax at regular corporate rates without any deduction for
distributions to shareholders, and such distributions will be taxable as
ordinary dividends to the extent of such Fund's current and accumulated earnings
and profits. Such distributions generally will be eligible for the dividends
received deduction (to the extent discussed below) in the case of corporate
shareholders and will be included in the qualified dividend income of
noncorporate shareholders. See "Fund Distributions" below.
DETERMINATION OF TAXABLE INCOME OF A REGULATED INVESTMENT COMPANY. In
general, gain or loss recognized by the Fund on the disposition of an asset will
be a capital gain or loss. However, gain recognized on the disposition of a debt
obligation purchased by the Fund at a market discount (generally, at a price
less than its principal amount) will be treated as ordinary income to the extent
of the portion of the market discount which accrued during the period of time
the Fund held the debt obligation unless the Fund made an election to accrue
market discount into income. If a Fund purchases a debt obligation that was
originally issued at a discount, the Fund is generally required to include in
gross income each year the portion of the original issue discount which accrues
during such year. In addition, under the rules of Code Section 988, gain or loss
recognized on the disposition of a debt obligation denominated in a foreign
currency or an option with respect thereto (but only to the extent attributable
to changes in foreign currency exchange rates), and gain or loss recognized on
the disposition of a foreign currency forward contract or of foreign currency
itself, will generally be treated as ordinary income or loss. In certain cases,
the Fund may make an election to treat such gain or loss as capital.
Certain hedging transactions that may be engaged in by the Fund (such as
short sales "against the box") may be subject to special tax treatment as
"constructive sales" under Section 1259 of the Code if the Fund holds certain
"appreciated financial positions" (defined generally as any interest (including
a futures or forward contract, short sale or option) with respect to stock,
certain debt instruments, or partnership interests if there would be a gain were
such interest sold, assigned, or otherwise terminated at its fair market value).
Upon entering into a constructive sales transaction with respect to an
appreciated financial position, the Fund will generally be deemed to have
constructively sold such appreciated financial position and will recognize gain
as if such position were sold, assigned, or otherwise terminated at its fair
market value on the date of such constructive sale (and will take into account
any gain for the taxable year which includes such date).
Some of the forward foreign currency exchange contracts, options and
futures contracts that the Fund may enter into will be subject to special tax
treatment as "Section 1256 contracts." Section 1256 contracts that the Fund
holds are treated as if they are sold for their fair market value on the last
business day of the taxable year, regardless of whether a taxpayer's obligations
(or rights) under such contracts have terminated (by delivery, exercise,
entering into a closing transaction or otherwise) as of such date. Any gain or
loss recognized as a consequence of the year-end deemed disposition of Section
1256 contracts is combined with any other gain or loss that was previously
recognized upon the termination of Section 1256 contracts during that taxable
year. The net amount of such gain or loss for the entire taxable year (including
gain or loss arising as a consequence of the year-end deemed sale of such
contracts) is deemed to be 60% long-term and 40% short-term gain or loss.
However, in the case of Section 1256 contracts that are forward foreign currency
exchange contracts, the net gain or loss is separately determined and (as
discussed above) generally treated as ordinary income or loss. If such a future
or option is held as an offsetting position and can be considered a straddle
under Section 1092 of the Code, such a straddle will constitute a mixed
straddle. A mixed straddle will be subject to both Section 1256 and Section 1092
unless certain elections are made by the Fund.
Other hedging transactions in which the Fund may engage may result in
"straddles" or "conversion transactions" for U.S. federal income tax purposes.
The straddle and conversion transaction rules may affect the character of gains
(or in the case of the straddle rules, losses) realized by the Fund. In
addition, losses realized by the Fund on positions that are part of a straddle
may be deferred under the straddle rules, rather than being taken into account
in calculating the taxable income for the taxable year in which the losses are
realized. Because only a few regulations implementing the straddle rules and the
conversion transaction rules have been promulgated, the tax consequences to the
Fund of hedging
75
transactions are not entirely clear. The hedging transactions may increase the
amount of short-term capital gain realized by the Fund (and, if they are
conversion transactions, the amount of ordinary income) which is taxed as
ordinary income when distributed to shareholders.
Because application of any of the foregoing rules governing Section 1256
contracts, constructive sales, straddle and conversion transactions may affect
the character of gains or losses, defer losses and/or accelerate the recognition
of gains or losses from the affected investment or straddle positions, the
taxable income of the Fund may exceed or be less than its book income.
Accordingly, the amount which must be distributed to shareholders and which will
be taxed to shareholders as ordinary income, qualified dividend income or
long-term capital gain may also differ from the book income of the Fund and may
be increased or decreased as compared to a fund that did not engage in such
transactions.
SWAP AGREEMENTS. The Fund may enter into swap agreements. The rules
governing the tax aspects of certain types of swap agreements are in a
developing stage and are not entirely clear in certain respects. Accordingly,
while the Fund intends to account for such transactions in a manner deemed to be
appropriate, the IRS might not accept such treatment. If it did not, the status
of the Fund as a regulated investment company might be affected. The Fund
intends to monitor developments in this area. Certain requirements that must be
met under the Code in order for the Fund to qualify as a regulated investment
company may limit the extent to which the Fund will be able to engage in certain
types of swap agreements.
EXCISE TAX ON REGULATED INVESTMENT COMPANIES. A 4% non-deductible excise
tax is imposed on a regulated investment company that fails to distribute in
each calendar year an amount equal to 98% of ordinary taxable income for the
calendar year and 98% of capital gain net income (excess of capital gains over
capital losses) for the one-year period ended on October 31 of such calendar
year (or, at the election of a regulated investment company having a taxable
year ending November 30 or December 31, for its taxable year (a "taxable year
election")). The balance of such income must be distributed during the next
calendar year. For the foregoing purposes, a regulated investment company is
treated as having distributed any amount on which it is subject to income tax
for any taxable year ending in such calendar year.
For purposes of the excise tax, a regulated investment company shall (1)
reduce its capital gain net income (but not below its net capital gain) by the
amount of any net ordinary loss for the calendar year and (2) exclude Section
988 foreign currency gains and losses incurred after October 31 (or after the
end of its taxable year if it has made a taxable year election) in determining
the amount of ordinary taxable income for the current calendar year (and,
instead, include such gains and losses in determining ordinary taxable income
for the succeeding calendar year).
The Fund generally intends to make sufficient distributions or deemed
distributions of its ordinary taxable income and capital gain net income prior
to the end of each calendar year to avoid liability for the excise tax. However,
in the event that the IRS determines that the Fund is using an improper method
of allocation for purposes of equalization accounting (as discussed above), the
Fund may be liable for excise tax. Moreover, investors should note that a Fund
may in certain circumstances be required to liquidate portfolio investments to
make sufficient distributions to avoid excise tax liability. In addition, under
certain circumstances, the Fund may elect to pay a minimal amount of excise tax.
PFIC INVESTMENTS. The Fund is permitted to invest in foreign equity
securities and thus may invest in stocks of foreign companies that are
classified under the Code as passive foreign investment companies ("PFICs"). In
general, a foreign company is classified as a PFIC if at least one-half of its
assets constitute investment-type assets or 75% or more of its gross income is
investment-type income.
The application of the PFIC rules may affect, among other things, the
character of gain, the amount of gain or loss and the timing of the recognition
and character of income with respect to PFIC stock, as well as subject the Fund
itself to tax on certain income from PFIC stock. For these reasons the amount
that must be distributed to shareholders, and which will be taxed to
shareholders as ordinary
76
income or long-term capital gain, may be increased or decreased substantially as
compared to a fund that did not invest in PFIC stock.
FUND DISTRIBUTIONS. The Fund anticipates distributing substantially all of
its investment company taxable income for each taxable year. Such distributions
will be taxable to shareholders as ordinary income and treated as dividends for
federal income tax purposes, but they will only qualify for the 70% dividends
received deduction for corporations and as qualified dividend income for
individuals and other noncorporate taxpayers to the extent discussed below, and
to the extent that shareholders have held their fund shares for a minimum
required period that is discussed below.
The Fund may either retain or distribute to shareholders its net capital
gain (net long-term capital gain over net short-term capital loss) for each
taxable year. The Fund currently intends to distribute any such amounts. If net
capital gain is distributed and designated as a capital gain dividend, it will
be taxable to shareholders as long-term capital gain (currently taxable at a
maximum rate of 15% for noncorporate shareholders or as unrecaptured Section
1250 gain attributable to flow through of gain from the Fund's REIT investments
and currently taxable at a maximum rate of 25%% for noncorporate shareholders)
regardless of the length of time the shareholder has held his shares or whether
such gain was recognized by the Fund prior to the date on which the shareholder
acquired his shares. Conversely, if the Fund elects to retain its net capital
gain, the Fund will be taxed thereon (except to the extent of any available
capital loss carry forwards) at the 35% corporate tax rate. If the Fund elects
to retain its net capital gain, it is expected that the Fund also will elect to
have shareholders treated as if each received a distribution of its pro rata
share of such gain, with the result that each shareholder will be required to
report its pro rata share of such gain on its tax return as long-term capital
gain, will receive a refundable tax credit for its pro rata share of tax paid by
the Fund on the gain, and will increase the tax basis for its shares by an
amount equal to the deemed distribution less the tax credit.
Ordinary income dividends paid by the Fund with respect to a taxable year
will qualify for the 70% dividends received deduction generally available to
corporations (other than corporations, such as "S" corporations, which are not
eligible for the deduction because of their special characteristics and other
than for purposes of special taxes such as the accumulated earnings tax and the
personal holding company tax) to the extent of the amount of qualifying
dividends, if any, received by the Fund from domestic corporations for the
taxable year. As described below, the alternative minimum tax applicable to
corporations may reduce the value of the dividends received deduction. The Fund
is expected to earn few, if any, dividends that produce qualified dividend
income or dividends eligible for the dividends received deduction.
Ordinary income dividends paid by the Fund to individuals and other
noncorporate taxpayers will be treated as qualified dividend income that is
subject to tax at a maximum rate of 15% to the extent of the amount of
qualifying dividends, if any, received by the Fund from domestic corporations
and from foreign corporations that are either incorporated in a possession of
the United States, or are eligible for benefits under certain income tax
treaties with the United States that include an exchange of information program.
In addition, qualifying dividends include dividends paid with respect to stock
of a foreign corporation that is readily tradable on an established securities
market in the United States. Dividends received by the Fund from Passive Foreign
Investment Companies are not qualifying dividends. If the qualifying dividend
income received by a Fund is equal to 95% (or a greater percentage) of the
Fund's gross income (exclusive of net capital gain) in any taxable year, all of
the ordinary income dividends paid by the Fund will be qualifying dividend
income.
Alternative minimum tax ("AMT") is imposed in addition to, but only to the
extent it exceeds, the regular tax and is computed at a maximum rate of 28% for
non-corporate taxpayers and 20% for corporate taxpayers on the excess of the
taxpayer's alternative minimum taxable income ("AMTI") over an exemption amount.
However, the AMT on capital gain dividends and qualified dividend income paid by
the Fund to a noncorporate shareholder may not exceed a maximum rate of 15%. The
corporate dividends received deduction is not itself an item of tax preference
that must be added back to taxable income or is otherwise disallowed in
determining a corporation's AMTI. However, corporate shareholders will generally
be required to take the full amount of any dividend received from the Fund into
account
77
(without a dividends received deduction) in determining their adjusted current
earnings, which are used in computing an additional corporate preference item
(i.e., 75% of the excess of a corporate taxpayer's adjusted current earnings
over its AMTI (determined without regard to this item and the AMTI net operating
loss deduction)) that is includable in AMTI. However, certain small corporations
are wholly exempt from the AMT.
Distributions by the Fund that are not from earnings and profits will be
treated as a return of capital to the extent of (and in reduction of) the
shareholder's tax basis in his shares; any excess will be treated as gain from
the sale of its shares.
Distributions by the Fund will be treated in the manner described above
regardless of whether such distributions are paid in cash or reinvested in
additional shares of the Fund (or of another fund). Shareholders receiving a
distribution in the form of additional shares will be treated as receiving a
distribution in an amount equal to the fair market value of the shares received,
determined as of the ex-dividend date.
Ordinarily, shareholders are required to take distributions by the Fund
into account in the year in which the distributions are made. However, dividends
declared in October, November or December of any year and payable to
shareholders of record on a specified date in such a month will be deemed to
have been received by the shareholders (and made by the Fund) on December 31 of
such calendar year if such dividends are actually paid in January of the
following year. Shareholders will be advised annually as to the U.S. federal
income tax consequences of distributions made (or deemed made) during the year
in accordance with the guidance that has been provided by the IRS.
If the net asset value of shares is reduced below a shareholder's cost as a
result of a distribution by the Fund, such distribution generally will be
taxable even though it represents a return of invested capital. Investors should
be careful to consider the tax implications of buying shares of the Fund just
prior to a distribution. The price of shares purchased at this time may reflect
the amount of the forthcoming distribution. Those purchasing just prior to a
distribution will receive a distribution which generally will be taxable to
them.
SALE OR REDEMPTION OF SHARES. A shareholder will recognize gain or loss on
the sale or redemption of shares of the Fund in an amount equal to the
difference between the proceeds of the sale or redemption and the shareholder's
adjusted tax basis in the shares. All or a portion of any loss so recognized may
be deferred under the wash sale rules if the shareholder purchases other shares
of the Fund within 30 days before or after the sale or redemption. In general,
any gain or loss arising from (or treated as arising from) the sale or
redemption of shares of the Fund will be considered capital gain or loss and
will be long-term capital gain or loss if the shares were held for longer than
one year. Currently, any long-term capital gain recognized by a non-corporate
shareholder will be subject to a maximum tax rate of 15%. However, any capital
loss arising from the sale or redemption of shares held for six months or less
will be treated as a long-term capital loss to the extent of the amount of
capital gain dividends received on such shares. Capital losses in any year are
deductible only to the extent of capital gains plus, in the case of a
non-corporate taxpayer, $3,000 of ordinary income.
If a shareholder (a) incurs a sales load in acquiring shares of the Fund,
(b) disposes of such shares less than 91 days after they are acquired, and (c)
subsequently acquires shares of the Fund or another fund at a reduced sales load
pursuant to a right to reinvest at such reduced sales load acquired in
connection with the acquisition of the shares disposed of, then the sales load
on the shares disposed of (to the extent of the reduction in the sales load on
the shares subsequently acquired) shall not be taken into account in determining
gain or loss on the shares disposed of, but shall be treated as incurred on the
acquisition of the shares subsequently acquired. The wash sale rules may also
limit the amount of loss that may be taken into account on disposition after
such adjustments.
BACKUP WITHHOLDING. The Fund may be required to withhold 28% of taxable
distributions and/or redemption payments. For more information refer to
"Purchase, Redemption and Pricing of Shares - Backup Withholding".
78
FOREIGN SHAREHOLDERS. Taxation of a shareholder who, as to the United
States, is a nonresident alien individual, foreign trust or estate, foreign
corporation, or foreign partnership ("foreign shareholder"), depends on whether
the income from the Fund is "effectively connected" with a U.S. trade or
business carried on by such shareholder. If the income from the Fund is not
effectively connected with a U.S. trade or business carried on by a foreign
shareholder, distributions (other than distributions of long-term gain) will be
subject to U.S. withholding tax at the rate of 30% (or lower treaty rate) upon
the gross amount of the distribution to the extent discussed below. Such a
foreign shareholder would generally be exempt from U.S. federal income tax on
gains realized on the redemption of shares of the Fund, capital gain dividends
and amounts retained by the Fund that are designated as undistributed net
capital gain.
As a consequence of the enactment of the American Jobs Creation Act of
2004, such a foreign shareholder will also generally be exempt from U.S. federal
income tax on distributions that the Fund designates as "short-term capital gain
dividends" or as "interest-related dividends" for Fund taxable years beginning
after December 31, 2004 and before January 1, 2008. The aggregate amount that
may be designated as short-term capital gain dividends for a Fund's taxable year
is generally equal to the excess (if any) of the Fund's net short-term capital
gain over its net long-term capital loss. The aggregate amount designated as
interest-related dividends for any Fund taxable year is generally limited to the
excess of the amount of "qualified interest income" of the Fund over allocable
expenses. Qualified interest income is generally equal to the sum of a Fund's
U.S.-source income that constitutes (1) bank deposit interest; (2) short-term
original issue discount that is exempt from withholding tax; (3) interest on a
debt obligation which is in registered form, unless it is earned on a debt
obligation issued by a corporation or partnership in which the Fund holds a
10-percent ownership interest or its payment is contingent on certain events;
and (4) interest-related dividends received from another regulated investment
company.
If the income from the Fund is effectively connected with a U.S. trade or
business carried on by a foreign shareholder, then ordinary income dividends,
capital gain dividends, short-term capital gain dividends, interest-related
dividends and any gains realized upon the sale or redemption of shares of the
Fund will be subject to U.S. federal income tax at the rates applicable to U.S.
citizens or domestic corporations. For this purpose with respect to
distributions made by the Fund before 2008, no portion of a dividend may be
designated as a capital gain dividend or short-term capital gain dividend
received by a foreign shareholder to the extent that it is attributable to gain
from the sale or exchange of a "U.S. real property interest". Instead, dividends
paid from such gain will be treated as ordinary income dividends. A "U.S. real
property interest" is, generally, (i) an interest in real property located in
the United States or the Virgin Islands or (ii) an interest in a domestic
corporation unless the taxpayer establishes that during the five years ending on
the date of disposition (the "testing period") the fair market value of the
corporation's real property interests is less than 50% of the sum of the value
of its real property interest plus other assets held for use in a trade or
business. However, an interest that the Fund holds in another regulated
investment company (or in a REIT) in which foreign persons have, at all times
during the testing period, held less than 50% in value of its stock will not be
treated as a "U.S. real property interest."
In the case of foreign non-corporate shareholders, the Fund may be required
to withhold U.S. federal income tax at a rate of 28% on distributions that are
otherwise exempt from withholding tax (or taxable at a reduced treaty rate)
unless such shareholders furnish the Fund with proper notification of their
foreign status.
Foreign persons who file a United States tax return to obtain a U.S. tax
refund and who are not eligible to obtain a social security number must apply to
the IRS for an individual taxpayer identification number, using IRS Form W-7.
For a copy of the IRS Form W-7 and accompanying instructions, please contact
your tax adviser or the IRS.
Transfers by gift of shares of the Fund by a foreign shareholder who is a
nonresident alien individual will not be subject to U.S. federal gift tax. An
individual who, at the time of death, is a foreign shareholder will nevertheless
be subject to U.S. federal estate tax with respect to shares at the graduated
rates applicable to U.S. citizens and residents, unless a treaty exception
applies. In the absence of a treaty, there is a $13,000 statutory estate tax
credit. Estates of non-resident alien shareholders dying
79
after December 31, 2004 and before January 1, 2008 will be able to exempt from
federal estate tax the proportion of the value of the Fund's shares attributable
to "qualifying assets" held by the Fund at the end of the quarter immediately
preceding the non-resident alien shareholder's death (or such other time as the
IRS may designate in regulations). Qualifying assets include bank deposits and
other debt obligations that pay interest or accrue original issue discount that
is exempt from withholding tax, debt obligations of a domestic corporation that
are treated as giving rise to foreign source income, and other investments that
are not treated for tax purposes as being within the United States. Shareholders
will be advised annually of the portion of the Fund's assets that constituted
qualifying assets at the end of each quarter of its taxable year.
The tax consequences to a foreign shareholder entitled to claim the
benefits of an applicable tax treaty may be different from those described
herein. Foreign shareholders are urged to consult their own tax advisers with
respect to the particular tax consequences to them of an investment in the Fund,
including the applicability of foreign tax.
FOREIGN INCOME TAX. Investment income received by the Fund from sources
within foreign countries may be subject to foreign income tax withheld at the
source. The United States has entered into tax treaties with many foreign
countries which entitle the Funds to a reduced rate of, or exemption from, tax
on such income. It is impossible to determine the effective rate of foreign tax
in advance since the amount of a Fund's assets to be invested in various
countries is not known.
If more than 50% of the value of the Fund's total assets at the close of
each taxable year consists of the stock or securities of foreign corporations,
the Fund may elect to "pass through" to the Fund's shareholders the amount of
foreign income tax paid by the Fund (the "Foreign Tax Election"). Pursuant to
the Foreign Tax Election, shareholders will be required (i) to include in gross
income, even though not actually received, their respective pro-rata shares of
the foreign income tax paid by the Fund that are attributable to any
distributions they receive; and (ii) either to deduct their pro-rata share of
foreign tax in computing their taxable income, or to use it (subject to various
Code limitations) as a foreign tax credit against Federal income tax (but not
both). No deduction for foreign tax may be claimed by a non-corporate
shareholder who does not itemize deductions or who is subject to alternative
minimum tax.
Foreign shareholders may be subject to U.S. withholding tax on a rate of
30% on the income resulting from the Foreign Tax Election, but may not be able
to claim a credit or deduction with respect to the withholding tax for the
foreign tax treated as having been paid by them.
Unless certain requirements are met, a credit for foreign tax is subject to
the limitation that it may not exceed the shareholder's U.S. tax (determined
without regard to the availability of the credit) attributable to the
shareholder's foreign source taxable income. In determining the source and
character of distributions received from the Fund for this purpose, shareholders
will be required to allocate Fund distributions according to the source of the
income realized by the Fund. The Fund's gain from the sale of stock and
securities and certain currency fluctuation gain and loss will generally be
treated as derived from U.S. sources. In addition, the limitation on the foreign
tax credit is applied separately to foreign source "passive" income, such as
dividend income, and the portion of foreign source income consisting of
qualified dividend income is reduced by approximately 57% to account for the tax
rate differential. Individuals who have no more than $300 ($600 for married
persons filing jointly) of creditable foreign tax included on Form 1099 and
whose foreign source income is all "qualified passive income" may elect each
year to be exempt from the foreign tax credit limitation and will be able to
claim a foreign tax credit without filing Form 1116 with its corresponding
requirement to report income and tax by country. Moreover, no foreign tax credit
will be allowable to any shareholder who has not held his shares of the Fund for
at least 16 days during the 30-day period beginning 15 days before the day such
shares become ex-dividend with respect to any Fund distribution to which foreign
income taxes are attributed (taking into account certain holding period
reduction requirements of the Code). Because of these limitations, shareholders
may be unable to claim a credit for the full amount of their proportionate
shares of the foreign income tax paid by a Fund.
80
EFFECT OF FUTURE LEGISLATION; LOCAL TAX CONSIDERATIONS. The foregoing
general discussion of U.S. federal income tax consequences is based on the Code
and the regulations issued thereunder as in effect on September 7, 2006. Future
legislative or administrative changes or court decisions may significantly
change the conclusions expressed herein, and any such changes or decisions may
have a retroactive effect with respect to the transactions contemplated herein.
Rules of state and local taxation of ordinary income, qualified dividend
income and capital gain dividends may differ from the rules for U.S. federal
income taxation described above. Distributions may also be subject to additional
state, local and foreign taxes depending on each shareholder's particular
situation. Non-U.S. shareholders may be subject to U.S. tax rules that differ
significantly from those summarized above. Shareholders are urged to consult
their tax advisers as to the consequences of these and other state and local tax
rules affecting investment in the Funds.
DISTRIBUTION OF SECURITIES
DISTRIBUTION PLANS
The Trust has adopted distribution plans pursuant to Rule 12b-1 under the
1940 Act with respect to the Fund's Class A shares, Class B shares and Class C
shares (collectively the "Plans").
The Fund, pursuant to its Class A, Class B and Class C Plans, pays AIM
Distributors compensation at the annual rate, shown immediately below, of the
Fund's average daily net assets of the applicable class.
FUND CLASS A CLASS B CLASS C
---- ------- ------- -------
AIM Select Real Estate Income Fund 0.25% 1.00% 1.00%
All of the Plans compensate AIM Distributors for the purpose of financing
any activity which is primarily intended to result in the sale of shares of the
Fund. Such activities include, but are not limited to, the following: printing
of prospectuses and statements of additional information and reports for other
than existing shareholders; overhead; preparation and distribution of
advertising material and sales literature; expenses of organizing and conducting
sales seminars; supplemental payments to dealers and other institutions such as
asset-based sales charges or as payments of service fees under shareholder
service arrangements; and costs of administering each Plan.
Amounts payable by the Fund under the Class A, Class B and Class C Plans
need not be directly related to the expenses actually incurred by AIM
Distributors on behalf of the Fund. These Plans do not obligate the Fund to
reimburse AIM Distributors for the actual allocated share of expenses AIM
Distributors may incur in fulfilling its obligations under these Plans. Thus,
even if AIM Distributors' actual allocated share of expenses exceeds the fee
payable to AIM Distributors at any given time, under these plans the Fund will
not be obligated to pay more than that fee. If AIM Distributors' actual
allocated share of expenses is less than the fee it receives, under these plans
AIM Distributors will retain the full amount of the fee.
AIM Distributors may from time to time waive or reduce any portion of its
12b-1 fee for Class A and Class C shares. Voluntary fee waivers or reductions
may be rescinded at any time without further notice to investors. During periods
of voluntary fee waivers or reductions, AIM Distributors will retain its ability
to be reimbursed for such fee prior to the end of each fiscal year. Contractual
fee waivers or reductions set forth in the Fee Table in a Prospectus may not be
terminated or amended to the Fund's detriment during the period stated in the
agreement between AIM Distributors and the Fund.
The Fund may pay a service fee of 0.25% of the average daily net assets of
the Class A, Class B and Class C shares, as applicable, attributable to the
customers of selected dealers and financial institutions to such dealers and
financial institutions, including AIM Distributors, acting as principal, who
81
furnish continuing personal shareholder services to their customers who purchase
and own the applicable class of shares of the Fund. Under the terms of a
shareholder service agreement, such personal shareholder services include
responding to customer inquiries and providing customers with information about
their investments. Any amounts not paid as a service fee under each Plan would
constitute an asset-based sales charge.
Under a Shareholder Service Agreement, the Fund agrees to pay periodically fees
to selected dealers and other institutions who render the foregoing services to
their customers. The fees payable under a Shareholder Service Agreement will be
calculated at the end of each payment period for each business day of the Fund
during such period at the annual rate specified in each agreement based on the
average daily net asset value of the Fund's shares purchased or acquired through
exchange. Fees shall be paid only to those selected dealers or other
institutions who are dealers or institutions of record at the close of business
on the last business day of the applicable payment period for the account in
which the Fund's shares are held.
Selected dealers and other institutions entitled to receive compensation
for selling Fund shares may receive different compensation for selling shares of
one particular class over another. Under the Plans, certain financial
institutions which have entered into service agreements and which sell shares of
the Fund on an agency basis, may receive payments from the Fund pursuant to the
respective Plans. AIM Distributors does not act as principal, but rather as
agent for the Fund, in making dealer incentive and shareholder servicing
payments to dealers and other financial institutions under the Plans. These
payments are an obligation of the Fund and not of AIM Distributors.
Payments pursuant to the Plans are subject to any applicable limitations
imposed by rules of the NASD.
As required by Rule 12b-1, the Plans and related forms of Shareholder
Service Agreements were approved by the Board, including a majority of the
trustees who are not "interested persons" (as defined in the 1940 Act) of the
Trust and who have no direct or indirect financial interest in the operation of
the Plans or in any agreements related to the Plans (the "Rule 12b-1 Trustees").
In approving the Plans in accordance with the requirements of Rule 12b-1, the
trustees considered various factors and determined that there is a reasonable
likelihood that the Plans would benefit each class of the Fund and its
respective shareholders.
The anticipated benefits that may result from the Plans with respect to the
Fund and/or the classes of the Fund and its shareholders include but are not
limited to the following: (1) rapid account access; (2) relatively predictable
flow of cash; and (3) a well-developed, dependable network of shareholder
service agents to help to curb sharp fluctuations in rates of redemptions and
sales, thereby reducing the chance that an unanticipated increase in net
redemptions could adversely affect the performance of the Fund.
Unless terminated earlier in accordance with their terms, the Plans
continue from year to year as long as such continuance is specifically approved,
in person, at least annually by the Board, including a majority of the Rule
12b-1 Trustees. A Plan may be terminated as to the Fund or class by the vote of
a majority of the Rule 12b-1 Trustees or, with respect to a particular class, by
the vote of a majority of the outstanding voting securities of that class.
Any change in the Plans that would increase materially the distribution
expenses paid by the applicable class requires shareholder approval; otherwise,
the Plans may be amended by the trustees, including a majority of the Rule 12b-1
Trustees, by votes cast in person at a meeting called for the purpose of voting
upon such amendment. As long as the Plans are in effect, the selection or
nomination of the Independent Trustees is committed to the discretion of the
Independent Trustees.
The Class B Plan obligates Class B shares to continue to make payments to
AIM Distributors following termination of the Class B shares Distribution
Agreement with respect to Class B shares sold by or attributable to the
distribution efforts of AIM Distributors or its predecessors, unless there has
been a
82
complete termination of the Class B Plan (as defined in such Plan) and the Class
B Plan expressly authorizes AIM Distributors to assign, transfer or pledge its
rights to payments pursuant to the Class B Plan.
DISTRIBUTOR
The Trust has entered into master distribution agreements, as amended,
relating to the Fund (the "Distribution Agreements") with AIM Distributors, a
registered broker-dealer and a wholly owned subsidiary of AIM, pursuant to which
AIM Distributors acts as the distributor of shares of the Fund. The address of
AIM Distributors is P.O. Box 4739, Houston, Texas 77210-4739. Certain trustees
and officers of the Trust are affiliated with AIM Distributors. See "Management
of the Trust."
The Distribution Agreement provides AIM Distributors with the exclusive
right to distribute shares of the Fund on a continuous basis directly and
through other broker-dealers with whom AIM Distributors has entered into
selected dealer agreements. AIM Distributors has not undertaken to sell any
specified number of shares of any classes of the Fund.
AIM Distributors expects to pay sales commissions from its own resources to
dealers and institutions who sell Class B and Class C shares of the Fund at the
time of such sales.
Payments with respect to Class B shares will equal 4.0% of the purchase
price of the Class B shares sold by the dealer or institution, and will consist
of a sales commission equal to 3.75% of the purchase price of the Class B shares
sold plus an advance of the first year service fee of 0.25% with respect to such
shares. The portion of the payments to AIM Distributors under the Class B Plan
which constitutes an asset-based sales charge (0.75%) is intended in part to
permit AIM Distributors to recoup a portion of such sales commissions plus
financing costs. In the future, if multiple distributors serve a Fund, each such
distributor (or its assignee or transferee) would receive a share of the
payments under the Class B Plan based on the portion of the Fund's Class B
shares sold by or attributable to the distribution efforts of that distributor.
AIM Distributors may pay sales commissions to dealers and institutions who
sell Class C shares of the AIM Funds at the time of such sales. Payments with
respect to Class C shares will equal 1.00% of the purchase price of the Class C
shares sold by the dealer or institution, and will consist of a sales commission
of 0.75% of the purchase price of the Class C shares sold plus an advance of the
first year service fee of 0.25% with respect to such shares. AIM Distributors
will retain all payments received by it relating to Class C shares for the first
year after they are purchased. The portion of the payments to AIM Distributors
under the Class C Plan which constitutes an asset-based sales charge (0.75%) is
intended in part to permit AIM Distributors to recoup a portion of the sales
commissions to dealers plus financing costs, if any. After the first full year,
AIM Distributors will make quarterly payments to dealers and institutions based
on the average net asset value of Class C shares which are attributable to
shareholders for whom the dealers and institutions are designated as dealers of
record. These payments will consist of an asset-based sales charge of 0.75% and
a service fee of 0.25%.
The Trust (on behalf of any class of any Fund) or AIM Distributors may
terminate the Distribution Agreements on 60 days' written notice without
penalty. The Distribution Agreements will terminate automatically in the event
of their assignment. In the event the Class B shares Distribution Agreement is
terminated, AIM Distributors would continue to receive payments of asset-based
distribution fees in respect of the outstanding Class B shares attributable to
the distribution efforts of AIM Distributors of its predecessors; provided,
however that complete termination of the Class B Plan (as defined in such plan)
would terminate all payments to AIM Distributors. Termination of the Class B
Plan or the Distribution Agreement for Class B shares would not affect the
obligation of Class B shareholders to pay contingent deferred sales charges.
83
FINANCIAL STATEMENTS
Financial statements of the Closed-End Fund will be included in this
Statement of Additional Information at the effective time of the reorganization
of the Closed-End Fund into the Fund.
PENDING LITIGATION
Regulatory Action Alleging Market Timing
On August 30, 2005, the West Virginia Office of the State Auditor -
Securities Commission ("WVASC") issued a Summary Order to Cease and Desist and
Notice of Right to Hearing to AIM and ADI (Order No. 05-1318). The WVASC makes
findings of fact that AIM and ADI entered into certain arrangements permitting
market timing of the AIM Funds, including those formerly advised by INVESCO
Funds Group, Inc. ("IFG") (the former investment advisor to certain AIM Funds),
and failed to disclose these arrangements in the prospectuses for such Funds,
and conclusions of law to the effect that AIM and ADI violated the West Virginia
securities laws. The WVASC orders AIM and ADI to cease any further violations
and seeks to impose monetary sanctions, including restitution to affected
investors, disgorgement of fees, reimbursement of investigatory, administrative
and legal costs and an "administrative assessment," to be determined by the
Commissioner. Initial research indicates that these damages could be limited or
capped by statute.
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 AIM Funds, IFG, AIM, AIM Management, AMVESCAP PLC
("AMVESCAP"), the parent company of IFG and AIM, certain related entities,
certain of their current and former officers and/or certain unrelated third
parties) based on allegations of improper market timing and related activity in
the AIM Funds. 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 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; injunctive relief; disgorgement of management
fees; imposition of a constructive trust; removal of certain directors and/or
employees; various corrective measures under ERISA; rescission of certain Funds'
advisory agreements; interest; and attorneys' and experts' fees. A list
identifying such lawsuits (excluding those lawsuits that have been recently
transferred as mentioned herein) that have been served on IFG, AIM, the AIM
Funds or related entities, or for which service of process has been waived, as
of July 9, 2006 is set forth in Appendix I-1.
All lawsuits based on allegations of market timing, late trading, and
related issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court") for consolidated or coordinated pre-trial
proceedings. Pursuant to an Order of the MDL Court, plaintiffs in these lawsuits
consolidated their claims for pre-trial purposes into three amended complaints
against various AIM- and IFG-related parties. A list identifying the amended
complaints in the MDL Court is included in Appendix I-1. Plaintiffs in two of
the underlying lawsuits transferred to the MDL Court continue to seek remand of
their action to state court. These lawsuits are identified in Appendix I-1.
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 AIM Funds, IFG and/or AIM)
alleging that certain AIM 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. A
list identifying such lawsuits that have been served on IFG, AIM, the AIM Funds
or related entities, or for which service of process has been waived, as of July
9, 2006 is set forth in Appendix I-2.
84
Private Civil Actions Alleging Excessive Advisory and/or 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, INVESCO Institutional (N.A.), Inc. ("IINA"), ADI
and/or INVESCO Distributors, Inc. ("INVESCO Distributors")) alleging that the
defendants charged excessive advisory and/or 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 Federal 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. A list identifying such lawsuits that have
been served on IFG, AIM, the AIM Funds or related entities, or for which service
of process has been waived, as of July 9, 2006 is set forth in Appendix I-3.
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 Funds) alleging that the defendants
improperly used the assets of the AIM Funds to pay brokers to aggressively
promote the sale of the AIM 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. A list identifying such lawsuits that have been
served on IFG, AIM, the AIM Funds or related entities, or for which service of
process has been waived, as of July 9, 2006 is set forth in Appendix I-4.
85
APPENDIX A
RATINGS OF DEBT SECURITIES
The following is a description of the factors underlying the debt ratings
of Moody's, S&P and Fitch:
MOODY'S LONG-TERM DEBT RATINGS
Moody's corporate ratings are as follows:
AAA: Bonds and preferred stock which are rated Aaa are judged to be of the
best quality. They carry the smallest degree of investment risk and are
generally referred to as "gilt-edged." Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position of such
issues.
AA: Bonds and preferred stock which are rated Aa are judged to be of high
quality by all standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. These are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may be
other elements present which make the long-term risk in Aa rated bonds appear
somewhat larger than those securities rated Aaa.
A: Bonds and preferred stock which are rated A possess many favorable
investment attributes and are to be considered as upper-medium-grade
obligations. Factors giving security to principal and interest are considered
adequate, but elements may be present which suggest a susceptibility to
impairment sometime in the future.
BAA: Bonds and preferred stock which are rated Baa are considered as
medium-grade obligations, i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate for the
present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well.
BA: Bonds and preferred stock which are rated Ba are judged to have
speculative elements; their future cannot be considered as well assured. Often
the protection of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B: Bonds and preferred stock which are rated B generally lack
characteristics of the desirable investment. Assurance of interest and principal
payments or of maintenance of other terms of the contract over any long period
of time may be small.
CAA: Bonds and preferred stock which are rated Caa are of poor standing.
Such issues may be in default or there may be present elements of danger with
respect to principal or interest.
CA: Bonds and preferred stock which are rated Ca represent obligations
which are speculative in a high degree. Such issues are often in default or have
other marked shortcomings.
C: Bonds and preferred stock which are rated C are the lowest rated class
of bonds, and issues so rated can be regarded as having extremely poor prospects
of ever attaining any real investment standing.
A-1
Note: Moody's applies numerical modifiers 1, 2, and 3 in each generic
rating classification from Aa through Caa. The modifier 1 indicates that the
obligation ranks in the higher end of its generic rating category; the modifier
2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the
lower end of that generic rating category.
MOODY'S SHORT-TERM PRIME RATING SYSTEM
Moody's short-term ratings are opinions of the ability of issuers to honor
senior financial obligations and contracts. Such obligations generally have an
original maturity not exceeding one year, unless explicitly noted.
Moody's employs the following designations, all judged to be investment
grade, to indicate the relative repayment ability of rated issuers.
PRIME-1: Issuers (or supporting institutions) rated Prime-1 have a superior
ability for repayment of senior short-term obligations. Prime-1 repayment
ability will often be evidenced by many of the following characteristics:
leading market positions in well-established industries; high rates of return on
funds employed; conservative capitalization structure with moderate reliance on
debt and ample asset protection; broad margins in earnings coverage of fixed
financial charges and high internal cash generation; and well-established access
to a range of financial markets and assured sources of alternate liquidity.
PRIME-2: Issuers (or supporting institutions) rated Prime-2 have a strong
ability to repay senior short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
PRIME-3: Issuers (or supporting institutions) rated Prime-3 have an acceptable
ability for repayment of senior short-term debt obligations. The effect of
industry characteristics and market compositions may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.
NOT PRIME: Issuers rated Not Prime do not fall within any of the Prime rating
categories.
Note: In addition, in certain countries the prime rating may be modified by
the issuer's or guarantor's senior unsecured long-term debt rating.
Moody's municipal ratings are as follows:
MOODY'S U.S. LONG-TERM MUNICIPAL BOND RATING DEFINITIONS
Municipal Ratings are opinions of the investment quality of issuers and
issues in the US municipal and tax-exempt markets. As such, these ratings
incorporate Moody's assessment of the default probability and loss severity of
these issuers and issues.
Municipal Ratings are based upon the analysis of four primary factors
relating to municipal finance: economy, debt, finances, and
administration/management strategies. Each of the factors is evaluated
individually and for its effect on the other factors in the context of the
municipality's ability to repay its debt.
AAA: Issuers or issues rated Aaa demonstrate the strongest creditworthiness
relative to other US municipal or tax-exempt issuers or issues.
A-2
AA: Issuers or issues rated Aa demonstrate very strong creditworthiness
relative to other US municipal or tax-exempt issuers or issues.
A: Issuers or issues rated A present above-average creditworthiness
relative to other US municipal or tax-exempt issuers or issues.
BAA: Issuers or issues rated Baa represent average creditworthiness
relative to other US municipal or tax-exempt issuers or issues.
BA: Issuers or issues rated Ba demonstrate below-average creditworthiness
relative to other US municipal or tax-exempt issuers or issues.
B: Issuers or issues rated B demonstrate weak creditworthiness relative to
other US municipal or tax-exempt issuers or issues.
CAA: Issuers or issues rated Caa demonstrate very weak creditworthiness
relative to other US municipal or tax-exempt issuers or issues.
CA: Issuers or issues rated Ca demonstrate extremely weak creditworthiness
relative to other US municipal or tax-exempt issuers or issues.
C: Issuers or issues rated C demonstrate the weakest creditworthiness
relative to other US municipal or tax-exempt issuers or issues.
Note: Also, Moody's applies numerical modifiers 1, 2, and 3 in each generic
rating classification from Aa to Caa. The modifier 1 indicates that the issue
ranks in the higher end of its generic rating category; the modifier 2 indicates
a mid-range ranking; and the modifier 3 indicates that the issue ranks in the
lower end of its generic category.
MOODY'S MIG/VMIG US SHORT-TERM RATINGS
In municipal debt issuance, there are three rating categories for
short-term obligations that are considered investment grade. These ratings are
designated as Moody's Investment Grade (MIG) and are divided into three levels -
MIG 1 through MIG 3.
In addition, those short-term obligations that are of speculative quality
are designated SG, or speculative grade.
In the case of variable rate demand obligations (VRDOs), a two-component
rating is assigned. The first element represents Moody's evaluation of the
degree of risk associated with scheduled principal and interest payments. The
second element represents Moody's evaluation of the degree of risk associated
with the demand feature, using the MIG rating scale.
The short-term rating assigned to the demand feature of VRDOs is designated
as VMIG. When either the long- or short-term aspect of a VRDO is not rated, that
piece is designated NR, e.g., Aaa/NR or NR/VMIG 1.
MIG ratings expire at note maturity. By contrast, VMIG rating expirations
will be a function of each issue's specific structural or credit features.
Gradations of investment quality are indicated by rating symbols, with each
symbol representing a group in which the quality characteristics are broadly the
same.
A-3
MIG 1/VMIG 1: This designation denotes superior credit quality. Excellent
protection is afforded by established cash flows, highly reliable liquidity
support or demonstrated broad-based access to the market for refinancing.
MIG 2/VMIG 2: This designation denotes strong credit quality. Margins of
protection are ample although not as large as in the preceding group.
MIG 3/VMIG 3: This designation denotes acceptable credit quality. Liquidity and
cash flow protection may be narrow and market access for refinancing is likely
to be less well established.
SG: This designation denotes speculative-grade credit quality. Debt instruments
in this category may lack sufficient margins of protection.
STANDARD & POOR'S LONG-TERM CORPORATE AND MUNICIPAL RATINGS
Issue credit ratings are based in varying degrees, on the following
considerations: likelihood of payment - capacity and willingness of the obligor
to meet its financial commitment on an obligation in accordance with the terms
of the obligation; nature of and provisions of the obligation; and protection
afforded by, and relative position of, the obligation in the event of
bankruptcy, reorganization, or other arrangement under the laws of bankruptcy
and other laws affecting creditors' rights.
The issue ratings definitions are expressed in terms of default risk. As
such, they pertain to senior obligations of an entity. Junior obligations are
typically rated lower than senior obligations, to reflect the lower priority in
bankruptcy, as noted above.
S&P describes its ratings for corporate and municipal bonds as follows:
AAA: Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the highest rated issues only in a small degree.
A: Debt rated A has a strong capacity to meet its financial commitments although
it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB: Debt rated BBB exhibits adequate protection parameters. However, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to meet its financial commitment on the obligation.
BB-B-CCC-CC-C: Debt rated BB, B, CCC, CC and C is regarded as having significant
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest. While
such debt will likely have some quality and protective characteristics, these
may be outweighed by large uncertainties or major exposures to adverse
conditions.
NR: Not Rated.
S&P DUAL RATINGS
S&P assigns "dual" ratings to all debt issues that have a put option or
demand feature as part of their structure.
A-4
The first rating addresses the likelihood of repayment of principal and
interest as due, and the second rating addresses only the demand feature. The
long-term debt rating symbols are used for bonds to denote the long-term
maturity and the commercial paper rating symbols for the put option (for
example, AAA/A-1+). With short-term demand debt, the note rating symbols are
used with the commercial paper rating symbols (for example, SP-1+/A-1+).
S&P COMMERCIAL PAPER RATINGS
An S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365 days.
These categories are as follows:
A-1: This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
A-3: Issues carrying this designation have adequate capacity for timely payment.
They are, however, more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.
B: Issues rated 'B' are regarded as having only speculative capacity for timely
payment.
C: This rating is assigned to short-term debt obligations with a doubtful
capacity for payment.
D: Debt rated 'D' is in payment default. The 'D' rating category is used when
interest payments or principal payments are not made on the date due, even if
the applicable grace period has not expired, unless Standard & Poor's believes
such payments will be made during such grace period.
S&P SHORT-TERM MUNICIPAL RATINGS
An S&P note rating reflect the liquidity factors and market-access risks
unique to notes. Notes due in three years or less will likely receive a note
rating. Notes maturing beyond three years will most likely receive a long-term
debt rating. The following criteria will be used in making that assessment:
amortization schedule (the larger the final maturity relative to other
maturities, the more likely it will be treated as a note); and source of payment
(the more dependant the issue is on the market for its refinancing, the more
likely it will be treated as a note).
Note rating symbols are as follows:
SP-1: Strong capacity to pay principal and interest. An issue determined to
possess a very strong capacity to pay debt service is given a plus (+)
designation.
SP-2: Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term of the
notes.
SP-3: Speculative capacity to pay principal and interest.
A-5
FITCH LONG-TERM CREDIT RATINGS
Fitch Ratings provides an opinion on the ability of an entity or of a
securities issue to meet financial commitments, such as interest, preferred
dividends, or repayment of principal, on a timely basis. These credit ratings
apply to a variety of entities and issues, including but not limited to
sovereigns, governments, structured financings, and corporations; debt,
preferred/preference stock, bank loans, and counterparties; as well as the
financial strength of insurance companies and financial guarantors.
Credit ratings are used by investors as indications of the likelihood of
getting their money back in accordance with the terms on which they invested.
Thus, the use of credit ratings defines their function: "investment grade"
ratings (international Long-term 'AAA' - 'BBB' categories; Short-term 'F1' -
'F3') indicate a relatively low probability of default, while those in the
"speculative" or "non-investment grade" categories (international Long-term 'BB'
- - 'D'; Short-term 'B' - 'D') either signal a higher probability of default or
that a default has already occurred. Ratings imply no specific prediction of
default probability. However, for example, it is relevant to note that over the
long term, defaults on 'AAA' rated U.S. corporate bonds have averaged less than
0.10% per annum, while the equivalent rate for 'BBB' rated bonds was 0.35%, and
for 'B' rated bonds, 3.0%.
Fitch ratings do not reflect any credit enhancement that may be provided by
insurance policies or financial guaranties unless otherwise indicated.
Entities or issues carrying the same rating are of similar but not
necessarily identical credit quality since the rating categories do not fully
reflect small differences in the degrees of credit risk.
Fitch credit and research are not recommendations to buy, sell or hold any
security. Ratings do not comment on the adequacy of market price, the
suitability of any security for a particular investor, or the tax-exempt nature
of taxability of payments of any security.
The ratings are based on information obtained from issuers, other obligors,
underwriters, their experts, and other sources Fitch Ratings believes to be
reliable. Fitch Ratings does not audit or verify the truth or accuracy of such
information. Ratings may be changed or withdrawn as a result of changes in, or
the unavailability of, information or for other reasons.
Our program ratings relate only to standard issues made under the program
concerned; it should not be assumed that these ratings apply to every issue made
under the program. In particular, in the case of non-standard issues, i.e.,
those that are linked to the credit of a third party or linked to the
performance of an index, ratings of these issues may deviate from the applicable
program rating.
Credit ratings do not directly address any risk other than credit risk. In
particular, these ratings do not deal with the risk of loss due to changes in
market interest rates and other market considerations.
AAA: Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong capacity for timely payment of financial
commitments, which is unlikely to be affected by foreseeable events.
AA: Bonds considered to be investment grade and of very high credit quality. The
obligor has a very strong capacity for timely payment of financial commitments
which is not significantly vulnerable to foreseeable events.
A: Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
A-6
BBB: Bonds considered to be investment grade and of good credit quality. The
obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances are more
likely to impair this capacity.
PLUS (+) MINUS (-): Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus and
minus signs, however, are not used in the "AAA" category.
NR: Indicates that Fitch does not rate the specific issue.
WITHDRAWN: A rating will be withdrawn when an issue matures or is called or
refinanced and at Fitch's discretion, when Fitch Ratings deems the amount of
information available to be inadequate for ratings purposes.
RATINGWATCH: Ratings are placed on RatingWatch to notify investors that there is
a reasonable possibility of a rating change and the likely direction of such
change. These are designated as "Positive," indicating a potential upgrade,
"Negative," for potential downgrade, or "Evolving," if ratings may be raised,
lowered or maintained. RatingWatch is typically resolved over a relatively short
period.
FITCH SPECULATIVE GRADE BOND RATINGS
BB: Bonds are considered speculative. There is a possibility of credit risk
developing, particularly as the result of adverse economic changes over time.
However, business and financial alternatives may be available to allow financial
commitments to be met.
B: Bonds are considered highly speculative. Significant credit risk is present
but a limited margin of safety remains. While bonds in this class are currently
meeting financial commitments, the capacity for continued payment is contingent
upon a sustained, favorable business and economic environment.
CCC: Default is a real possibility. Capacity for meeting financial commitments
is solely reliant upon sustained, favorable business or economic developments.
CC: Default of some kind appears probable.
C: Bonds are in imminent default in payment of interest or principal.
DDD, DD, AND D: Bonds are in default on interest and/or principal payments. Such
bonds are extremely speculative and are valued on the basis of their prospects
for achieving partial or full recovery value in liquidation or reorganization of
the obligor. "DDD" represents the highest potential for recovery on these bonds,
and "D" represents the lowest potential for recovery.
PLUS (+) MINUS (-): Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus and
minus signs, however, are not used in categories below CCC.
FITCH SHORT-TERM CREDIT RATINGS
The following ratings scale applies to foreign currency and local currency
ratings. A Short-term rating has a time horizon of less than 12 months for most
obligations, or up to three years for U.S. public finance securities, and thus
places greater emphasis on the liquidity necessary to meet financial commitments
in a timely manner.
F-1+: Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
A-7
F-1: Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
"F-1+."
F-2: Good Credit Quality. Issues assigned this rating have a satisfactory degree
of assurance for timely payment, but the margin of safety is not as great as in
the case of the higher ratings.
F-3: Fair Credit Quality. Issues assigned this rating have characteristics
suggesting that the degree of assurance for timely payment is adequate, however,
near-term adverse changes could result in a reduction to non-investment grade.
B: Speculative. Minimal capacity for timely payment of financial commitments,
plus vulnerability to near-term adverse changes in financial and economic
conditions.
C: High default risk. Default is a real possibility. Capacity for meeting
financial commitments is solely reliant upon a sustained, favorable business and
economic environment.
D: Default. Issues assigned this rating are in actual or imminent payment
default.
A-8
APPENDIX B
PERSONS TO WHOM AIM PROVIDES
NON-PUBLIC PORTFOLIO HOLDINGS ON AN ONGOING BASIS
(AS OF JULY 24, 2006)
SERVICE PROVIDER DISCLOSURE CATEGORY
---------------- -------------------------------------------------
ABN AMRO Financial Services, Inc. Broker (for certain AIM funds)
A.G. Edwards & Sons, Inc. Broker (for certain AIM funds)
AIM Investment Services, Inc. Transfer Agent
Anglemyer & Co. Analyst (for certain AIM funds)
Ballard Spahr Andrews & Ingersoll, LLP Legal Counsel
BB&T Capital Markets Broker (for certain AIM funds)
Bear, Stearns & Co. Inc. Broker (for certain AIM funds)
Belle Haven Investments L.P. Broker (for certain AIM funds)
Bloomberg System Provider (for certain AIM funds)
BOSC, Inc. Broker (for certain AIM funds)
BOWNE & Co. Financial Printer
Brown Brothers Harriman & Co. Securities Lender (for certain AIM funds)
Cabrera Capital Markets Broker (for certain AIM funds)
CENVEO Financial Printer
Citigroup Global Markets Broker (for certain AIM funds)
Classic Printers Inc. Financial Printer
Coastal Securities, LP Broker (for certain AIM funds)
Color Dynamics Financial Printer
D.A. Davidson (formerly Kirkpatrick, Pettis, Smith, Pollian,
Inc.) Broker (for certain AIM funds)
Duncan-Williams, Inc. Broker (for certain AIM funds)
Earth Color Houston Financial Printer
EMCO Press Financial Printer
Empirical Research Partners Analyst (for certain AIM funds)
Fidelity Investments Broker (for certain AIM funds)
First Albany Capital Broker (for certain AIM funds)
First Tryon Securities Broker (for certain AIM funds)
F T Interactive Data Corporation Pricing Vendor
GainsKeeper Software Provider (for certain AIM funds)
GCom2 Solutions Software Provider (for certain AIM funds)
George K. Baum & Company Broker (for certain AIM funds)
Global Trend Alert Analyst (for certain AIM funds)
Grover Printing Financial Printer
Gulfstream Graphics Corp. Financial Printer
Hattier, Sanford & Reynoir Broker (for certain AIM funds)
Howe Barnes Investments, Inc. Broker (for certain AIM funds)
Hutchinson, Shockey, Erley & Co. Broker (for certain AIM funds)
iMoneyNet Rating & Ranking Agency (for certain AIM funds)
Initram Data, Inc. Pricing Vendor
Institutional Shareholder Services, Inc. Proxy Voting Service (for certain AIM funds)
J.P. Morgan Securities, Inc. Analyst (for certain AIM funds)
JPMorgan Securities Inc.\Citigroup Global Markets
Inc.\JPMorgan Chase Bank, N.A. Lender (for certain AIM funds)
B-1
SERVICE PROVIDER DISCLOSURE CATEGORY
---------------- -------------------------------------------------
John Hancock Investment Management Services, LLC Sub-advisor (for certain sub-advised accounts)
Jorden Burt LLP Special Insurance Counsel
Kevin Dann & Partners Analyst (for certain AIM funds)
Kramer, Levin Naftalis & Frankel LLP Legal Counsel
Legg Mason Wood Walker Broker (for certain AIM funds)
Lehman Brothers, Inc. Broker (for certain AIM funds)
Lipper, Inc. Rating & Ranking Agency (for certain AIM funds)
Loan Pricing Corporation Pricing Service (for certain AIM funds)
Loop Capital Markets Broker (for certain AIM funds)
McDonald Investments Inc. Broker (for certain AIM funds)
Mesirow Financial, Inc. Broker (for certain AIM funds)
Moody's Investors Service Rating & Ranking Agency (for certain AIM funds)
Moore Wallace North America Financial Printer
Morgan Keegan & Company, Inc. Broker (for certain AIM funds)
Morrison Foerster LLP Legal Counsel
MS Securities Services, Inc. and Morgan Stanley & Co.
Incorporated Securities Lender (for certain AIM funds)
Muzea Insider Consulting Services, LLC Analyst (for certain AIM funds)
Noah Financial, LLC Analyst (for certain AIM funds)
Page International Financial Printer
PricewaterhouseCoopers LLP Independent Registered Public Accounting Firm
(for certain AIM funds)
Printing Arts of Houston Financial Printer
Protective Securities Broker (for certain AIM funds)
Ramirez & Co., Inc. Broker (for certain AIM funds)
Raymond James & Associates, Inc. Broker (for certain AIM funds)
RBC Capital Markets Corporation Analyst (for certain AIM funds)
RBC Dain Rauscher Incorporated Broker (for certain AIM funds)
Reuters America Inc. Pricing Service (for certain AIM funds)
Robert W. Baird & Co. Incorporated Broker (for certain AIM funds)
RR Donnelley Financial Financial Printer
Ryan Beck & Co. Broker (for certain AIM funds)
Salomon Smith Barney Broker (for certain AIM funds)
SBK Brooks Investment Corp. Broker (for certain AIM funds)
Seattle Northwest Securities Corporation Broker (for certain AIM funds)
Siebert Brandford Shank & Co., L.L.C. Broker (for certain AIM funds)
Signature Press Financial Printer
Simon Printing Company Financial Printer
Southwest Precision Printers, Inc. Financial Printer
Standard and Poor's Rating and Ranking Agency (for certain AIM funds)
Standard and Poor's/Standard and Poor's Securities
Evaluations, Inc. Pricing Service (for certain AIM funds)
State Street Bank and Trust Company Custodian (for certain AIM funds); Lender (for
certain AIM Funds); Securities Lender (for
certain AIM funds)
Sterne, Agee & Leach, Inc. Broker (for certain AIM funds)
Stifel, Nicholaus & Company, Incorporated Broker (for certain AIM funds)
The Bank of New York Custodian (for certain AIM funds)
The MacGregor Group, Inc. Software Provider
Thomson Information Services Incorporated Software Provider
UBS Financial Services, Inc. Broker (for certain AIM funds)
B-2
SERVICE PROVIDER DISCLOSURE CATEGORY
---------------- -------------------------------------------------
VCI Group Inc. Financial Printer
Wachovia National Bank, N.A. Broker (for certain AIM funds)
Western Lithograph Financial Printer
Wiley Bros. Aintree Capital L.L.C. Broker (for certain AIM funds)
XSP, LLC\Solutions Plus, Inc. Software Provider
B-3
APPENDIX C
TRUSTEES AND OFFICERS
As of August 31, 2006
The address of each trustee and officer is 11 Greenway Plaza, Suite 100,
Houston, Texas 77046-1173. Each trustee oversees 109 portfolios in the AIM
Funds. The trustees serve for the life of the Trust, subject to their earlier
death, incapacitation, resignation, retirement or removal as more specifically
provided in the Trust's organizational documents. Column two below includes
length of time served with predecessor entities, if any.
TRUSTEE OTHER
NAME,YEAR OF BIRTH AND/OR TRUSTEESHIP(S)
AND POSITION(S)HELD OFFICER PRINCIPAL OCCUPATION(S) HELD BY
WITH THE TRUST SINCE DURING PAST 5 YEARS TRUSTEE
------------------- ------- ----------------------- --------------
Robert H. Graham(1)-- 1946 2003 Director and Chairman, A I M Management
Trustee and Vice Chair Group Inc. (financial services holding None
company); Director and Vice Chairman,
AMVESCAP PLC; Chairman, AMVESCAP PLC - AIM
Division (parent of AIM and a global
investment management firm); and Trustee,
and Vice Chair of The AIM Family of Funds
--Registered Trademark--
Formerly: President and Chief Executive
Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director and Chairman, A I M Capital
Management, Inc. (registered investment
advisor), A I M Distributors, Inc. (registered
broker dealer), AIM Investment Services, Inc.
(registered transfer agent), and Fund
Management Company (registered broker dealer);
Chief Executive Officer, AMVESCAP PLC -
Managed Products; and President and Principal
Executive Officer of The AIM Family of Funds
--Registered Trademark--
Philip A. Taylor(2) - 1954 Director, Chief Executive Officer and
Trustee, President and President, A I M Management Group Inc., AIM None
Principal Executive Officer Mutual Fund Dealer Inc., AIM Funds
Management Inc. (registered investment
advisory) and 1371 Preferred Inc., Director
and President, A I M Advisors, Inc., INVESCO
Funds Group, Inc. (registered investment
advisor and registered transfer agent) and AIM
GP Canada Inc.; Director, A I M Capital
Management, Inc. and A I M Distributors, Inc.;
Director and Chairman, AIM Investment
Services, Inc., Fund Management Company and
INVESCO Distributors, Inc. (registered broker
dealer); Director, President and Chairman, AVZ
Callco Inc., AMVESCAP Inc. and AIM Canada
Holdings Inc.; Director and Chief Executive
- ----------
(1) Mr. Graham is considered an interested person of the Trust because he is a
director of AMVESCAP PLC, parent of the advisor to the Trust.
(2) Mr. Taylor was appointed as President and Principal Executive Officer of
the Trust on August 1, 2006 and was appointed as Trustee of the Trust on
September 20, 2006. Mr. Taylor is considered an interested person of the
Trust because he is an officer and a director of the advisor to, and a
director of the principal underwriter of, the Trust.
C-1
Officer, AIM Trimark Global Fund Inc. and AIM
Trimark Canada Fund Inc.; Trustee, President
and Principal Executive Officer, The AIM
Family of Funds --Registered Trademark--
(other than AIM Treasurer's Series Trust,
Short-Term Investments Trust and Tax-Free
Investments Trust); and Trustee and Executive
Vice President, The AIM Family of Funds
--Registered Trademark-- (AIM Treasurer's
Series Trust, Short-Term Investments Trust and
Tax-Free Investments Trust only)
Formerly: President and Principal Executive
Officer, The AIM Family of Funds --Registered
Trademark-- (AIM Treasurer's Series Trust,
Short-Term Investments Trust and Tax-Free
Investments Trust only); Chairman, AIM Canada
Holdings, Inc.; Executive Vice President and
Chief Operations Officer, AIM Funds Management
Inc. (registered investment advisor);
President, AIM Trimark Global Fund Inc. and
AIM Trimark Canada Fund Inc.; and Director,
Trimark Trust
INDEPENDENT TRUSTEES
Bruce L. Crockett-- 1944 2003 Chairman, Crockett Technology Associates ACE Limited (insurance
Trustee and Chair (technology consulting company) company); and Captaris,
Inc. (unified messaging
provider)
Bob R. Baker - 1936 1983 Retired None
Trustee
Frank S. Bayley -- 1939 2003 Retired Badgley Funds, Inc.
Trustee Formerly: Partner, law firm of Baker & (registered investment
McKenzie company) (2 portfolios)
James T. Bunch - 1942 2000 Founder, Green, Manning & Bunch Ltd., None
Trustee (investment banking firm); and Director,
Policy Studies, Inc. and Van Gilder
Insurance Corporation
Albert R. Dowden -- 1941 2003 Director of a number of public and private None
Trustee business corporations, including the Boss
Group, Ltd. (private investment and
management); Cortland Trust, Inc. (Chairman)
(registered investment company) (3
portfolios); Annuity and Life Re (Holdings),
Ltd. (insurance company); CompuDyne
Corporation (provider of products and services
to the public security market); and Homeowners
of America Holding Corporation (property
casualty company)
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President, AB
Volvo; director of various affiliated Volvo
companies
Jack M. Fields -- 1952 2003 Chief Executive Officer, Twenty First Administaff; and
Trustee Century Group, Inc. (government affairs Discovery Global
company); and Owner, Dos Angelos Ranch, Education Fund
L.P. (non-profit)
Formerly: Chief Executive Officer, Texana
Timber LP (sustainable forestry company)
Carl Frischling -- 1937 2003 Partner, law firm of Kramer Levin Naftalis Cortland Trust, Inc.
Trustee and Frankel LLP (registered investment
company) (3
C-2
portfolios)
Prema Mathai-Davis - 1950 2003 Formerly: Chief Executive Officer, YWCA of None
Trustee the USA
Lewis F. Pennock -- 1942 2003 Partner, law firm of Pennock & Cooper None
Trustee
Ruth H. Quigley -- 1935 2003 Retired None
Trustee
Larry Soll - 1942 1997 Retired None
Trustee
Raymond Stickel, Jr. - 1944 2005 Retired Director, Mainstay VP
Trustee Series Funds, Inc. (21
Formerly: Partner, Deloitte & Touche portfolios)
OTHER OFFICERS
Russell C. Burk - 1958 2005 Senior Vice President and Senior Officer of N/A
Senior Vice President and The AIM Family of Funds
Senior Officer --Registered Trademark--
Formerly: Director of Compliance and Assistant
General Counsel, ICON Advisers, Inc.;
Financial Consultant, Merrill Lynch; General
Counsel and Director of Compliance, ALPS
Mutual Funds, Inc.
John M. Zerr - 1962 2006 Director, Senior Vice President, Secretary N/A
Senior Vice President, and General Counsel, A I M Management Group
Chief Legal Officer and Inc. and A I M Advisors, Inc.; Director,
Secretary Vice President and Secretary, INVESCO
Distributors, Inc.; Vice President and
Secretary, A I M Capital Management, Inc., AIM
Investment Services, Inc., and Fund Management
Company; Senior Vice President and Secretary,
A I M Distributors, Inc.; Director, INVESCO
Funds Group, Inc.; and Senior Vice President,
Chief Legal Officer and Secretary of The AIM
Family of Funds --Registered Trademark--
Formerly: Chief Operating Officer, Senior Vice
President, General Counsel, and Secretary,
Liberty Ridge Capital, Inc. (an investment
adviser); Vice President and Secretary, PBHG
Funds (an investment company); Vice President
and Secretary, PBHG Insurance Series Fund (an
investment company); General Counsel and
Secretary, Pilgrim Baxter Value Investors (an
investment adviser); Chief Operating Officer,
General Counsel and Secretary, Old Mutual
Investment Partners (a broker-dealer); General
Counsel and Secretary, Old Mutual Fund
Services (an administrator); General Counsel
and Secretary, Old Mutual Shareholder Services
(a shareholder servicing center); Executive
Vice President, General Counsel and Secretary,
Old Mutual Capital, Inc. (an investment
adviser); and Vice President and Secretary,
Old Mutual Advisors Funds (an investment
company)
C-3
Lisa O. Brinkley -- 1959 2004 Global Compliance Director, AMVESCAP PLC; N/A
Vice President and Vice President of The AIM Family of
Funds --Registered Trademark--
Formerly: Senior Vice President, A I M
Management Group Inc.; Senior Vice President
and Chief Compliance Officer, A I M Advisors,
Inc.; Vice President and Chief Compliance
Officer, A I M Capital Management, Inc. and A
I M Distributors, Inc.; and Vice President,
AIM Investment Services, Inc. and Fund
Management Company; Senior Vice President and
Chief Compliance Officer of The AIM Family of
Funds --Registered Trademark--; and Senior
Vice President and Compliance Director,
Delaware Investments Family of Funds
Kevin M. Carome - 1956 Vice 2003 Senior Vice President and General Counsel, N/A
President AMVESCAP PLC; Director, INVESCO Funds
Group, Inc. and Vice President of The AIM
Family of Funds --Registered Trademark--
Formerly: Director, Senior Vice President,
Secretary and General Counsel, A I M
Management Group Inc. and A I M Advisors,
Inc.; Senior Vice President, A I M
Distributors, Inc.; Director, Vice President
and General Counsel, Fund Management Company;
Vice President, A I M Capital Management, Inc.
and AIM Investment Services, Inc.; and Senior
Vice President, Chief Legal Officer and
Secretary of the AIM Family of Funds
--Registered Trademark--; Director and Vice
President, INVESCO Distributors, Inc.; Chief
Executive Officer and President, INVESCO Funds
Group, Inc.; Senior Vice President and General
Counsel, Liberty Financial Companies, Inc.;
and Senior Vice President and General Counsel,
Liberty Funds Group, LLC
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President, Treasurer and Advisors, Inc.; and Vice President,
Principal Financial Officer Treasurer and Principal Financial Officer
of The AIM Family of Funds
--Registered Trademark--
Formerly: Senior Vice President, AIM
Investment Services, Inc. and Vice
President, A I M Distributors, Inc.
J. Philip Ferguson- 1945 2005 Executive Vice President, A I M Management N/A
Vice President Group Inc.; Senior Vice President and Chief
Investment Officer, A I M Advisors, Inc.;
Director, Chairman, Chief Executive Officer,
President and Chief Investment Officer, A I M
Capital Management, Inc.; and Vice President
of The AIM Family of Funds
--Registered Trademark--
Formerly: Senior Vice President, AIM Private
Asset Management, Inc.; and Chief Equity
Officer, Senior Vice President and Senior
Investment Officer, A I M Capital Management,
Inc.
C-4
Karen Dunn Kelley -- 1960 2003 Director of Cash Management, Managing NA
Vice President Director and Chief Cash Management Officer,
A I M Capital Management, Inc.; Director and
President, Fund Management Company; Vice
President, A I M Advisors, Inc.; and Vice
President of The AIM Family of Funds
--Registered Trademark--
Todd L. Spillane - 1958 2006 Senior Vice President, A I M Management N/A
Chief Compliance Officer Group Inc.; Senior Vice President and Chief
Compliance Officer, A I M Advisors, Inc.;
Chief Compliance Officer of The AIM Family of
Funds --Registered Trademark--; Vice President
and Chief Compliance Officer, A I M Capital
Management, Inc.; and Vice President, A I M
Distributors, Inc., AIM Investment Services,
Inc. and Fund Management Company
Formerly: Global Head of Product Development,
AIG-Global Investment Group, Inc.; Chief
Compliance Officer and Deputy General Counsel,
AIG-SunAmerica Asset Management, and Chief
Compliance Officer, Chief Operating Officer
and Deputy General Counsel, American General
Investment Management
C-5
TRUSTEE OWNERSHIP OF FUND SHARES AS OF DECEMBER 31, 2005
AGGREGATE DOLLAR RANGE OF EQUITY
SECURITIES IN ALL REGISTERED
INVESTMENT COMPANIES OVERSEEN BY
DOLLAR RANGE OF EQUITY SECURITIES TRUSTEE IN THE AIM FAMILY OF FUNDS
NAME OF TRUSTEE PER FUND --REGISTERED TRADEMARK--
--------------- --------------------------------- ----------------------------------
Robert H. Graham - 0 - Over $100,000
Mark H. Williamson(4) - 0 - Over $100,000
Bob R. Baker - 0 - Over $100,000
Frank S. Bayley - 0 - Over $100,000
James T. Bunch - 0 - Over $100,0003 (3)
Bruce L. Crockett - 0 - Over - $100,000(3)
Albert R. Dowden - 0 - Over $100,000
Edward K. Dunn, Jr.(5) - 0 - Over $100,000(3)
Jack M. Fields - 0 - Over $100,000(3)
Carl Frischling - 0 - Over $100,000(3)
Prema Mathai-Davis - 0 - Over $100,000(3)
Lewis F. Pennock - 0 - Over $100,000
Ruth H. Quigley - 0 - $50,001 - $100,000
Larry Soll AIM Multi-Sector Fund $10,001 - $50,000 Over $100,000(3)
Raymond Stickel, Jr(6) - 0 - Over $100,000
- ----------
(3) Includes the total amount of compensation deferred by the trustee at his or
her election pursuant to a deferred compensation plan. Such deferred
compensation is placed in a deferral account and deemed to be invested in
one or more of the AIM Funds.
(4) Mr. Williamson retired effective September 20, 2006.
(5) Mr. Dunn retired effective March 31, 2006.
(6) Mr. Stickel was elected as a trustee of the Trust effective
October 1, 2005.
C-6
APPENDIX D
TRUSTEES COMPENSATION TABLE
Set forth below is information regarding compensation paid or accrued for
each trustee of the Trust who was not affiliated with AIM during the year ended
December 31, 2005:
RETIREMENT ESTIMATED
AGGREGATE BENEFITS ANNUAL TOTAL
COMPENSATION ACCRUED BENEFITS COMPENSATION
FROM THE BY ALL UPON FROM ALL AIM
TRUSTEE TRUST(1) AIM FUNDS(2) RETIREMENT(3) FUNDS(4)
------- ------------ ------------ ------------- ------------
Bob R. Baker $2,165 $200,136 $162,613 $213,750
Frank S. Bayley 2,306 132,526 120,000 229,000
James T. Bunch 2,024 162,930 120,000 198,500
Bruce L. Crockett 3,432 83,764 120,000 359,000
Albert R. Dowden 2,306 112,024 120,000 229,000
Edward K. Dunn, Jr.(6) 2,306 141,485 120,000 229,000
Jack M. Fields 2,014 59,915 120,000 185,000
Carl Frischling(5) 2,024 59,042 120,000 195,250
Gerald J. Lewis(6) 2,024 162,930 114,375 198,500
Prema Mathai-Davis 2,165 69,131 120,000 213,750
Lewis F. Pennock 2,024 86,670 120,000 198,500
Ruth H. Quigley 2,165 154,658 120,000 213,750
Larry Soll 2,024 201,483 138,990 198,500
Raymond Stickel, Jr.(7) N/A -- 120,000 54,000
(1) Amounts shown are based on the fiscal year ended August 31, 2005. The total
amount of compensation deferred by all trustees of the Trust during the
fiscal year ended August 31, 2005, including earnings, was $5,307.
(2) During the fiscal year ended August 31, 2005, the total amount of expenses
allocated to the Trust in respect of such retirement benefits was $5,563.
(3) These amounts represent the estimated annual benefits payable by the AIM
Funds upon the trustee's retirement and assumes each trustee serves until
his or her normal retirement date.
(4) All trustees currently serve as trustees of 19 registered investment
companies advised by AIM.
(5) During the fiscal year ended August 31, 2005, the Trust paid $8,771 in
legal fees to Kramer Levin Naftalis & Frankel LLP for services rendered by
such firm as counsel to the independent trustees of the Trust. Mr.
Frischling is a partner of such firm.
(6) Mr. Dunn and Mr. Lewis retired effective March 31, 2006 and December 31,
2005, respectively.
(7) Mr. Stickel was elected as trustee of the Trust effective October 1, 2005.
D-1
APPENDIX E
PROXY POLICIES AND PROCEDURES
(AIM Select Real Estate Income Fund)
(effective April 1, 2006)
GENERAL POLICY
INVESCO Institutional (N.A.), Inc. and its wholly-owned subsidiaries, and
INVESCO Global Asset Management (N.A.), Inc. (collectively, "INVESCO"), each has
responsibility for making investment decisions that are in the best interests of
its clients. As part of the investment management services it provides to
clients, INVESCO may be authorized by clients to vote proxies appurtenant to the
shares for which the clients are beneficial owners.
INVESCO believes that it has a duty to manage clients' assets in the best
economic interests of the clients and that the ability to vote proxies is a
client asset.
INVESCO reserves the right to amend its proxy policies and procedures from time
to time without prior notice to its clients.
PROXY VOTING POLICIES
VOTING OF PROXIES
INVESCO will vote client proxies in accordance with the procedures set forth
below unless the client for non-ERISA clients retains in writing the right to
vote, the named fiduciary (e.g., the plan sponsor) for ERISA clients retains in
writing the right to direct the plan trustee or a third party to vote proxies or
INVESCO determines that any benefit the client might gain from voting a proxy
would be outweighed by the costs associated therewith.
BEST ECONOMIC INTERESTS OF CLIENTS
In voting proxies, INVESCO will take into consideration those factors that may
affect the value of the security and will vote proxies in a manner in which, in
its opinion, is in the best economic interests of clients. INVESCO endeavors to
resolve any conflicts of interest exclusively in the best economic interests of
clients.
ISS SERVICES
INVESCO has contracted with Institutional Shareholder Services ("ISS"), an
independent third party service provider, to vote INVESCO's clients' proxies
according to ISS's proxy voting recommendations. In addition, ISS will provide
proxy analyses, vote recommendations, vote execution and record-keeping services
for clients for which INVESCO has proxy voting responsibility. On an annual
basis, INVESCO will review information obtained from ISS to ascertain whether
ISS (i) has the capacity and competency to adequately analyze proxy issues, and
(ii) can make such recommendations in an impartial manner and in the best
economic interest of INVESCO's clients. This may include a review of ISS'
Policies, Procedures and Practices Regarding Potential Conflicts of Interests
and obtaining information about the work ISS does for corporate issuers and the
payments ISS receives from such issuers.
Custodians forward proxy materials for clients who rely on INVESCO to vote
proxies to ISS. ISS is responsible for exercising the voting rights in
accordance with the ISS proxy voting guidelines. If INVESCO receives proxy
materials in connection with a client's account where the client has, in
writing, communicated to INVESCO that the client, plan fiduciary or other third
party has reserved the right to vote
E-1
proxies, INVESCO will forward to the party appointed by client any proxy
materials it receives with respect to the account. In order to avoid voting
proxies in circumstances where INVESCO, or any of its affiliates have or may
have any conflict of interest, real or perceived, INVESCO has engaged ISS to
provide the proxy analyses, vote recommendations and voting of proxies.
In the event that (i) ISS recuses itself on a proxy voting matter and makes no
recommendation or (ii) INVESCO decides to override the ISS vote recommendation,
the Proxy Committee will review the issue and direct ISS how to vote the proxies
as described below.
PROXY COMMITTEE
The Proxy Committee shall have seven (7) members, which shall include
representatives from portfolio management, operations, and legal/compliance or
other functional departments as deemed appropriate who are knowledgeable
regarding the proxy process. A majority of the members of the Proxy Committee
shall constitute a quorum and the Proxy Committee shall act by a majority vote.
The chair of the Proxy Committee shall be chosen by the Chief Compliance Officer
of INVESCO. The Proxy Committee shall keep minutes of its meetings that shall be
kept with the proxy voting records of INVESCO. The Proxy Committee will appoint
a Proxy Manager to manage the proxy voting process, which includes the voting of
proxies and the maintenance of appropriate records.
Proxy Committee meetings shall be called by the Proxy Manager when override
submissions are made and in instances when ISS has recused itself from a vote
recommendation. In these situations, the Proxy Committee shall meet and
determine how proxies are to be voted in the best interests of clients.
The Proxy Committee periodically reviews new types of corporate governance
issues, evaluates proposals not addressed by the ISS proxy voting guidelines in
instances when ISS has recused itself, and determines how INVESCO should vote.
The Committee monitors adherence to these Procedures, industry trends and
reviews the ISS proxy voting guidelines.
ISS RECUSAL
When ISS makes no recommendation on a proxy voting issue or is recused due to a
conflict of interest, the Proxy Committee will review the issue and, if INVESCO
does not have a conflict of interest, direct ISS how to vote the proxies. In
such cases where INVESCO has a conflict of interest, INVESCO, in its sole
discretion, shall either (a) vote the proxies pursuant to ISS's general proxy
voting guidelines, (b) engage an independent third party to provide a vote
recommendation, or (c) contact its client(s) for direction as to how to vote the
proxies.
OVERRIDE OF ISS RECOMMENDATION
There may be occasions where the INVESCO investment personnel, senior officers
or a member of the Proxy Committee seek to override ISS's recommendations if
they believe that ISS's recommendations are not in accordance with the best
economic interests of clients. In the event that an individual listed above in
this section disagrees with an ISS recommendation on a particular voting issue,
the individual shall document in writing the reasons that he/she believes that
the ISS recommendation is not in accordance with clients' best economic
interests and submit such written documentation to the Proxy Manager for
consideration by the Proxy Committee. Upon review of the documentation and
consultation with the individual and others as the Proxy Committee deems
appropriate, the Proxy Committee may make a determination to override the ISS
voting recommendation if the Committee determines that it is in the best
economic interests of clients and the Committee has addressed conflict of
interest issues as discussed below.
E-2
PROXY COMMITTEE MEETINGS
When a Proxy Committee Meeting is called, whether because of an ISS recusal or
request for override of an ISS recommendation, the Proxy Committee shall review
the report of the Chief Compliance Officer as to whether any INVESCO person has
reported a conflict of interest.
The Proxy Committee shall review the information provided to it to determine if
a real or perceived conflict of interest exists and the minutes of the Proxy
Committee shall:
(1) describe any real or perceived conflict of interest,
(2) discuss any procedure used to address such conflict of interest,
(3) report any contacts from outside parties (other than routine
communications from proxy solicitors), and
(4) include confirmation that the recommendation as to how the proxies are
to be voted is in the best economic interests of clients and was made
without regard to any conflict of interest.
Based on the above review and determinations, the Proxy Committee will direct
ISS how to vote the proxies.
CERTAIN PROXY VOTES MAY NOT BE CAST
In some cases, INVESCO may determine that it is not in the best economic
interests of clients to vote proxies. For example, proxy voting in certain
countries outside the United States requires share blocking. Shareholders who
wish to vote their proxies must deposit their shares 7 to 21 days before the
date of the meeting with a designated depositary. During the blocked period,
shares to be voted at the meeting cannot be sold until the meeting has taken
place and the shares have been returned to the Custodian/Sub-Custodian bank. In
addition, voting certain international securities may involve unusual costs to
clients. In other cases, it may not be possible to vote certain proxies despite
good faith efforts to do so, for instance when inadequate notice of the matter
is provided. In the instance of loan securities, voting of proxies typically
requires termination of the loan, so it is not usually in the best economic
interests of clients to vote proxies on loaned securities. INVESCO typically
will not, but reserves the right to, vote where share blocking restrictions,
unusual costs or other barriers to efficient voting apply. If INVESCO does not
vote, it would have made the determination that the cost of voting exceeds the
expected benefit to the client. The Proxy Manager shall record the reason for
any proxy not being voted, which record shall be kept with the proxy voting
records of INVESCO.
PROXY VOTING RECORDS
Clients may obtain information about how INVESCO voted proxies on their behalf
by contacting their client services representative. Alternatively, clients may
make a written request for proxy voting information to: Proxy Manager, 1360
Peachtree Street, N.E., Atlanta, Georgia 30309.
CONFLICTS OF INTEREST
PROCEDURES TO ADDRESS CONFLICTS OF INTEREST AND IMPROPER INFLUENCE
In order to avoid voting proxies in circumstances where INVESCO or any of its
affiliates have or may have any conflict of interest, real or perceived, INVESCO
has contracted with ISS to provide proxy analyses, vote recommendations and
voting of proxies. Unless noted otherwise by ISS, each vote recommendation
provided by ISS to INVESCO includes a representation from ISS that ISS faces no
conflict of interest with
E-3
respect to the vote. In instances where ISS has recused itself and makes no
recommendation on a particular matter or if an override submission is requested,
the Proxy Committee shall determine how the proxy is to be voted and instruct
the Proxy Manager accordingly in which case the conflict of interest provisions
discussed below shall apply.
In effecting the policy of voting proxies in the best economic interests of
clients, there may be occasions where the voting of such proxies may present a
real or perceived conflict of interest between INVESCO, as the investment
manager, and clients.
For each director, officer and employee of INVESCO ("INVESCO person"), the
interests of INVESCO's clients must come first, ahead of the interest of INVESCO
and any person within the INVESCO organization, which includes INVESCO's
affiliates.
Accordingly, each INVESCO person must not put "personal benefit," whether
tangible or intangible, before the interests of clients of INVESCO or otherwise
take advantage of the relationship to INVESCO's clients. "Personal benefit"
includes any intended benefit for oneself or any other individual, company,
group or organization of any kind whatsoever, except a benefit for a client of
INVESCO, as appropriate. It is imperative that each of INVESCO's directors,
officers and employees avoid any situation that might compromise, or call into
question, the exercise of fully independent judgment in the interests of
INVESCO's clients.
Occasions may arise where a person or organization involved in the proxy voting
process may have a conflict of interest. A conflict of interest may also exist
if INVESCO has a business relationship with (or is actively soliciting business
from) either the company soliciting the proxy or a third party that has a
material interest in the outcome of a proxy vote or that is actively lobbying
for a particular outcome of a proxy vote. An INVESCO person (excluding members
of the Proxy Committee) shall not be considered to have a conflict of interest
if the INVESCO person did not know of the conflict of interest and did not
attempt to influence the outcome of a proxy vote. Any individual with actual
knowledge of a conflict of interest relating to a particular referral item shall
disclose that conflict to the Chief Compliance Officer.
The following are examples of situations where a conflict may exist:
- Business Relationships - where INVESCO manages money for a company or
an employee group, manages pension assets or is actively soliciting
any such business, or leases office space from a company;
- Personal Relationships - where a INVESCO person has a personal
relationship with other proponents of proxy proposals, participants in
proxy contests, corporate directors, or candidates for directorships;
and
- Familial Relationships - where an INVESCO person has a known familial
relationship relating to a company (e.g. a spouse or other relative
who serves as a director of a public company or is employed by the
company).
In the event that INVESCO (or an affiliate) manages assets for a company, its
pension plan, or related entity or where any member of the Proxy Committee has a
personal conflict of interest, and where clients' funds are invested in that
company's shares, the Proxy Committee will not take into consideration this
relationship and will vote proxies in that company solely in the best economic
interest of its clients.
It is the responsibility of the Proxy Manager and each member of the Proxy
Committee to report any real or potential conflict of interest of which such
individual has actual knowledge to the Chief Compliance Officer, who shall
present any such information to the Proxy Committee. However, once a particular
conflict has been reported to the Chief Compliance Officer, this requirement
shall be deemed satisfied with respect to all individuals with knowledge of such
conflict.
E-4
In addition, the Proxy Manager and each member of the Proxy Committee shall
certify annually as to their compliance with this policy. In addition, any
INVESCO person who submits an ISS override recommendation to the Proxy Committee
shall certify as to their compliance with this policy concurrently with the
submission of their override recommendation. A form of such certification is
attached as Appendix A hereto.
In addition, members of the Proxy Committee must notify INVESCO's Chief
Compliance Officer, with impunity and without fear of retribution or
retaliation, of any direct, indirect or perceived improper influence made by
anyone within INVESCO or by an affiliated company's representatives with regard
to how INVESCO should vote proxies. The Chief Compliance Officer will
investigate the allegations and will report his or her findings to the INVESCO
Risk Management Committee. In the event that it is determined that improper
influence was made, the Risk Management Committee will determine the appropriate
action to take which may include, but is not limited to, (1) notifying the
affiliated company's Chief Executive Officer, its Management Committee or Board
of Directors, (2) taking remedial action, if necessary, to correct the result of
any improper influence where clients have been harmed, or (3) notifying the
appropriate regulatory agencies of the improper influence and to fully cooperate
with these regulatory agencies as required. In all cases, the Proxy Committee
shall not take into consideration the improper influence in determining how to
vote proxies and will vote proxies solely in the best economic interest of
clients.
Furthermore, members of the Proxy Committee must advise INVESCO's Chief
Compliance Officer and fellow Committee members of any real or perceived
conflicts of interest he or she may have with regard to how proxies are to be
voted regarding certain companies (e.g., personal security ownership in a
company, or personal or business relationships with participants in proxy
contests, corporate directors or candidates for corporate directorships). After
reviewing such conflict, upon advice from the Chief Compliance Officer, the
Committee may require such Committee member to recuse himself or herself from
participating in the discussions regarding the proxy vote item and from casting
a vote regarding how INVESCO should vote such proxy.
ISS PROXY VOTING GUIDELINES
A copy of the most recent ISS US Proxy Voting Guidelines Summary can be found on
ISS's website at www.issproxy.com.
E-5
APPENDIX A
ACKNOWLEDGEMENT AND CERTIFICATION
I acknowledge that I have read the INVESCO Proxy Voting Policy (a copy of
which has been supplied to me, which I will retain for future reference) and
agree to comply in all respects with the terms and provisions thereof. I have
disclosed or reported all real or potential conflicts of interest to the INVESCO
Compliance Officer and will continue to do so as matters arise. I have complied
with all provisions of this Policy.
-------------------------
Print Name
- ------------------------- -------------------------
Date Signature
E-6
APPENDIX F
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
To the best knowledge of the Trust, the names and addresses of the record
and beneficial holders of 5% or more of the outstanding shares of each class of
the Trust's equity securities and the percentage of the outstanding shares held
by such holders are set forth below. Unless otherwise indicated below, the Trust
has no knowledge as to whether all or any portion of the shares owned of record
are also owned beneficially.
A shareholder who owns beneficially 25% or more of the outstanding
securities of a fund is presumed to "control" that Fund as defined in the 1940
Act. Such control may affect the voting rights of other shareholders.
All information listed below is as of September 5, 2006.
AIM ADVANTAGE HEALTH SCIENCES FUND
CLASS A SHARES CLASS B SHARES CLASS C SHARES
-------------- -------------- --------------
PERCENTAGE PERCENTAGE PERCENTAGE
NAME AND ADDRESS OF OWNED OF OWNED OF OWNED OF
PRINCIPAL HOLDER RECORD RECORD RECORD
- ------------------- -------------- -------------- --------------
Bear Stearns Securities Corp -- -- --
1 Metrotech Center North
Brooklyn, NY 11201-3807
Charles Schwab & Co Inc. -- --
Special Custody Acct for the
Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco CA 94104-4122
Citigroup Global Markets -- --
Attn: Cindy Tempesta
7th Floor 333 West 34th St
New York, NY 10001-2402
Merrill Lynch
4800 Deer Lake Dr East
Jacksonville FL 32246-6484
Morgan Stanley DW -- --
Attn Mutual Fund Operations
3 Harborside Pl Fl 6
Jersey City, NJ 07311-3907
F-1
AIM MULTI-SECTOR FUND
INSTITUTIONAL
CLASS A SHARES CLASS B SHARES CLASS C SHARES CLASS SHARES
-------------- -------------- -------------- -------------
PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
NAME AND ADDRESS OF OWNED OF OWNED OF OWNED OF OWNED OF
PRINCIPAL HOLDER RECORD RECORD RECORD RECORD
- ------------------- -------------- -------------- -------------- -------------
Charles Schwab & Co Inc. -- -- --
Special Custody Acct for the
Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco CA 94104-4122
Merrill Lynch -- -- --
4800 Deer Lake Dr East
Jacksonville FL, 32246-6484
AIM Growth Allocation Fund -- -- --
Omnibus Account
C/O AIM Advisors
11 E. Greenway Plz Ste 100
Houston TX 77046-1113
AIM Moderate Asset Allocation Fund -- -- --
Omnibus Account
C/O AIM Advisors
11 E. Greenway Plz Ste 100
Houston TX 77046-1113
AIM Moderate Growth -- -- --
Allocation Fund Omnibus Account
C/O AIM Advisors
11 E. Greenway Plz Ste 100
Houston TX 77046-1113
AIM STRUCTURED CORE FUND
INSTITUTIONAL
CLASS A SHARES CLASS B SHARES CLASS C SHARES CLASS R SHARES CLASS SHARES
-------------- -------------- -------------- -------------- -------------
PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
NAME AND ADDRESS OF OWNED OF OWNED OF OWNED OF OWNED OF OWNED OF
PRINCIPAL HOLDER RECORD RECORD RECORD RECORD RECORD
- ------------------- -------------- -------------- -------------- -------------- -------------
A I M Advisors, Inc.(1)
Attn: Corporate Controller
11 E. Greenway Plaza, Suite 1919
Houston TX 77046-1103
(1) Owned of record and beneficially.
(2) A shareholder who holds 25% or more of the outstanding shares of a Fund may
be presumed to be in "control" of such Fund as defined in the 1940 Act.
F-2
AIM STRUCTURED GROWTH FUND
INSTITUTIONAL
CLASS A SHARES CLASS B SHARES CLASS C SHARES CLASS R SHARES CLASS SHARES
-------------- -------------- -------------- -------------- -------------
PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
NAME AND ADDRESS OF OWNED OF OWNED OF OWNED OF OWNED OF OWNED OF
PRINCIPAL HOLDER RECORD RECORD RECORD RECORD RECORD
- ------------------- -------------- -------------- -------------- -------------- -------------
A I M Advisors, Inc.(1)
Attn: Corporate Controller
11 E. Greenway Plaza, Suite 1919
Houston TX 77046-1103
AIM STRUCTURED VALUE FUND
INSTITUTIONAL
CLASS A SHARES CLASS B SHARES CLASS C SHARES CLASS R SHARES CLASS SHARES
-------------- -------------- -------------- -------------- -------------
PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
NAME AND ADDRESS OF OWNED OF OWNED OF OWNED OF OWNED OF OWNED OF
PRINCIPAL HOLDER RECORD RECORD RECORD RECORD RECORD
- ------------------- -------------- -------------- -------------- -------------- -------------
A I M Advisors, Inc.(1)
Attn: Corporate Controller
11 E. Greenway Plaza, Suite 1919
Houston TX 77046-1103
(1) Owned of record and beneficially.
(2) A shareholder who holds 25% or more of the outstanding shares of a Fund may
be presumed to be in "control" of such Fund as defined in the 1940 Act.
MANAGEMENT OWNERSHIP
As of September 5, 2006, the trustees and officers as a group owned less
than 1% of the outstanding shares of each class of each Fund.
F-3
APPENDIX G
PORTFOLIO MANAGERS
PORTFOLIO MANAGER FUND HOLDINGS AND INFORMATION ON OTHER MANAGED ACCOUNTS
The following chart reflects the portfolio managers' investments in the
funds that they manage. The chart also reflects information regarding accounts
other than the Fund for which each portfolio manager has day-to-day management
responsibilities. Accounts are grouped into three categories: (i) mutual funds,
(ii) other pooled investment vehicles, and (iii) other accounts. To the extent
that any of these accounts pay advisory fees that are based on account
performance ("performance-based fees"), information on those accounts is
specifically broken out. In addition, any assets denominated in foreign
currencies have been converted into U.S. Dollars using the exchange rates as of
the applicable date.
The following table reflects information as of October 31, 2006:
OTHER REGISTERED OTHER POOLED
MUTUAL FUNDS INVESTMENT VEHICLES OTHER ACCOUNTS
DOLLAR (ASSETS IN MILLIONS) (ASSETS IN MILLIONS) (ASSETS IN MILLIONS)
RANGE OF -------------------- -------------------- --------------------
INVESTMENTS IN NUMBER OF NUMBER OF NUMBER OF
PORTFOLIO MANAGER THE FUND(1) ACCOUNTS ASSETS ACCOUNTS ASSETS ACCOUNTS ASSETS
- ----------------- -------------- ---------- ------- ---------- ------- ---------- -------
AIM SELECT REAL ESTATE INCOME FUND
Mark Blackburn
Paul Curbo
Joe Rodriguez
Jim Trowbridge
POTENTIAL CONFLICTS OF INTEREST
Actual or apparent conflicts of interest may arise when a portfolio manager
has day-to-day management responsibilities with respect to more than one Fund or
other account. More specifically, portfolio managers who manage multiple Funds
and/or other accounts may be presented with one or more of the following
conflicts:
- - The management of multiple Funds and/or other accounts may result in a
portfolio manager devoting unequal time and attention to the management of
each Fund and/or other account. AIM seeks to manage such competing
interests for the time and attention of portfolio managers by having
portfolio managers focus on a particular investment discipline. Most other
accounts managed by a portfolio manager are managed using the same
investment models that are used in connection with the management of the
Funds.
- - If a portfolio manager identifies a limited investment opportunity which
may be suitable for more than one Fund or other account, a Fund may not be
able to take full advantage of that opportunity due to an allocation of
filled purchase or sale orders across all eligible Funds and other
accounts. To deal with these situations, AIM and the Funds have adopted
procedures for allowing portfolio transactions across multiple accounts.
- ----------
(1) This column reflects investments in a Fund's shares owned directly by a
portfolio manager or beneficially owned by a portfolio manager (as
determined in accordance with Rule 16a-1(a) (2) under the Securities
Exchange Act of 1934, as amended). A portfolio manager is presumed to be a
beneficial owner of securities that are held by his or her immediate family
members sharing the same household.
G-1
- - With respect to securities transactions for the Funds, AIM determines which
broker to use to execute each order, consistent with its duty to seek best
execution of the transaction. However, with respect to certain other
accounts (such as mutual funds for which AIM or an affiliate acts as
sub-advisor, other pooled investment vehicles that are not registered
mutual funds, and other accounts managed for organizations and
individuals), AIM may be limited by the client with respect to the
selection of brokers or may be instructed to direct trades through a
particular broker. In these cases, trades for a Fund in a particular
security may be placed separately from, rather than aggregated with, such
other accounts. Having separate transactions with respect to a security may
temporarily affect the market price of the security or the execution of the
transaction, or both, to the possible detriment of the Fund or other
account(s) involved.
- - Finally, the appearance of a conflict of interest may arise where AIM has
an incentive, such as a performance-based management fee, which relates to
the management of one Fund or account but not all Funds and accounts with
respect to which a portfolio manager has day-to-day management
responsibilities.
AIM and the Funds have adopted certain compliance procedures which are
designed to address these types of conflicts. However, there is no guarantee
that such procedures will detect each and every situation in which a conflict
arises.
DESCRIPTION OF COMPENSATION STRUCTURE
INVESCO INSTITUTIONAL, (N.A.) INC.
Each portfolio manager's compensation consists of the following five elements:
- BASE SALARY. Each portfolio manager is paid a base salary which is set
at a level determined to be appropriate based upon an individual's
experience and responsibilities through the use of independent
compensation surveys of the investment management industry.
- ANNUAL BONUS. Each portfolio manager is paid an annual cash bonus
which has a performance driven component and a discretionary
component, the combined total of which will typically range from 50 to
over 100 percent of the manager's base salary. Generally, the majority
of the of the bonus is pre-tax performance driven, based on the
success of the team's investment results which are measured against
appropriate market benchmarks and peer groups.. The remaining portion
of the bonus is discretionary and is determined by the sub-advisor's
Chief Investment Officer and Chief Executive Officer.
- EQUITY-BASED COMPENSATION. Portfolio managers may be awarded options
to purchase common shares and/or granted restricted shares or deferred
shares of AMVESCAP stock from pools determined from time to time by
the Remuneration Committee of the AMVESCAP Board of Directors. Awards
of equity-based compensation typically vest over time, so as to create
incentives to retain key talent.
- PARTICIPATION IN GROUP INSURANCE PROGRAMS. Portfolio managers are
provided life insurance coverage in the form of a group variable
universal life insurance policy, under which they may make additional
contributions to purchase additional insurance coverage or for
investment purposes.
PARTICIPATION IN DEFERRED COMPENSATION PLAN. Portfolio managers are eligible to
participate in a non-qualified deferred compensation plan, which affords
participating employees the tax benefits of deferring the receipt of a portion
of their cash compensation.
Portfolio managers also participate in benefit plans and programs available
generally to all employees.
G-2
APPENDIX H
CERTAIN FINANCIAL ADVISORS THAT RECEIVE ONE OR MORE TYPES OF PAYMENTS
1ST Global Capital Corporation
A G Edwards & Sons, Inc.
ADP Broker Dealer, Inc.
Advantage Capital Corporation
Advest, Inc
Allstate Life Insurance Company
American General Securities, Inc.
American Skandia Life Assurance Corporation
American United Life Insurance Company
Ameriprise Financial Services, Inc.
Amsouth Investment Services, Inc.
Associated Investment Services
Associated Securities Corporation
AXA Advisors, LLC
B N Y Investment Center Inc.
Banc One Securities Corporation
Bank of Oklahoma N.A.
Cadaret Grant & Company, Inc.
Cambridge Investment Research, Inc.
Capital Analysts, Inc.
Charles Schwab & Company, Inc.
Chase Investment Services Corporation
CitiCorp Investment Services
Citigroup Global Markets, Inc.
Citistreet Equities LLC
City National Bank
Comerica Bank
Comerica Securities, Inc.
Commonwealth Financial Network
Compass Brokerage, Inc.
Contemporary Financial Solutions, Inc.
CUNA Brokerage Services, Inc.
CUSO Financial Services, Inc.
Equity Services, Inc.
Fidelity Brokerage Services, LLC
Fidelity Institutional Operations Company, Inc.
Financial Network Investment Corporation
Fintegra Financial Solutions
Frost Brokerage Services, Inc.
FSC Securities Corporation
Great West Life & Annuity Company
Guardian Insurance & Annuity Company, Inc.
H & R Block Financial Advisors, Inc.
H Beck, Inc.
H. D. Vest Investment Securities, Inc.
Hibernia Investments LLC
Hilliard Lyons, Inc.
Hornor Townsend & Kent, Inc.
HSBC Brokerage, Inc.
Infinex Investments, Inc.
ING Financial Partners, Inc.
ING USA Annuity and Life Insurance Company
Intersecurities, Inc.
INVEST Financial Corporation, Inc.
Investment Centers of America, Inc.
Investments By Planners, Inc.
Investors Capital Corporation
Jefferson Pilot Securities Corporation
Lasalle Street Securities LLC
Leg Mason Wood Walker, Inc.
Lincoln Financial Advisors Corporation
Lincoln Investment Planning, Inc.
Linsco/Private Ledger Corporation
M & I Brokerage Services, Inc.
M & T Securities, Inc.
M M L Investors Services, Inc.
Manulife Wood Logan, Inc.
McDonald Investments, Inc.
Mellon Bank, N.A.
Merrill Lynch & Company, Inc.
Merrill Lynch Life Insurance Company
MetLife Securities, Inc.
Money Concepts Capital Corporation
Morgan Keegan & Company, Inc.
Morgan Stanley DW Inc.
Morningstar, Inc.
Multi-Financial Securities Corporation
Mutual Service Corporation
N F P Securities, Inc.
NatCity Investments, Inc.
National Planning Corporation
Nationwide Financial Services, Inc.
Nationwide Investment Services Corporation
Nationwide Life and Annuity Company of America
Nationwide Life and Annuity Insurance Company of America
Nationwide Life Insurance Company
New England Securities Corporation
Next Financial Group, Inc.
Northwestern Mutual Investment Services
NYLIFE Distributors, LLC
Oppenheimer & Company, Inc.
Pershing LLC
PFS Investments, Inc.
Piper Jaffray & Company
Popular Securities, Inc.
Prime Capital Services, Inc.
Primevest Financial Services, Inc.
Proequities, Inc.
R B C Centura Securities, Inc.
R B C Dain Rauscher, Inc.
Raymond James & Associates, Inc.
Raymond James Financial Services, Inc.
Royal Alliance Associates, Inc.
S I I Investments, Inc.
Securities America, Inc.
Securities Service Network, Inc.
Security Benefit life Insurance Company
Sentra Securities Corporation
Sigma Financial Corporation
Signator Investors, Inc.
Spelman & Company, Inc.
State Farm VP Management Corp
Stifel Nicolaus & Company, Inc.
Sungard Investment Products, Inc.
SunTrust Bank, Central Florida, N.A.
TD Waterhouse Investor Services, Inc.
Terra Securities Corporation
TFS Securities, Inc.
Tower Square Securities, Inc.
Transamerica Financial Advisors, Inc.
Transamerica Life Insurance & Annuity Company
U.S. Bancorp Investments, Inc.
UBS Financial Services, Inc.
United Planner Financial Service
USAllianz Securities, Inc.
UVEST Financial Services, Inc.
V S R Financial Services, Inc.
VALIC Financial Advisors, Inc.
Wachovia Securities, LLC
Walnut Street Securities, Inc.
Waterstone Financial Group, Inc.
Webster Investments Service Inc.
Wells Fargo Bank, N.A.
Wells Fargo Investments, LLC
Woodbury Financial Services, Inc.
X C U Capital Corporation, Inc.
H-1
APPENDIX I-1
PENDING LITIGATION ALLEGING MARKET TIMING
The following civil lawsuits, including purported class action and
shareholder derivative suits, involve, depending on the lawsuit, one or more AIM
Funds, IFG, AIM, AIM Management, AMVESCAP, certain related entities, certain of
their current and former officers and/or certain unrelated third parties and are
based on allegations of improper market timing and related activity in the AIM
Funds. These lawsuits either have been served or have had service of process
waived as of July 9, 2006 (with the exception of the Sayegh lawsuit discussed
below).
RICHARD LEPERA, ON BEHALF OF HIMSELF AND ALL OTHERS SIMILARLY SITUATED, V.
INVESCO FUNDS GROUP, INC., INVESCO STOCK FUNDS, INC., INVESCO BOND FUNDS,
INC., INVESCO SECTOR FUNDS, INC. AND DOE DEFENDANTS 1-100, in the District
Court, City and County of Denver, Colorado, (Civil Action No. 03-CV-7600),
filed on October 2, 2003. This claim alleges: common law breach of
fiduciary duty; common law breach of contract; and common law tortious
interference with contract. The plaintiff in this case is seeking:
compensatory and punitive damages; injunctive relief; disgorgement of
revenues and profits; and costs and expenses, including counsel fees and
expert fees.
MIKE SAYEGH, ON BEHALF OF THE GENERAL PUBLIC, V. JANUS CAPITAL CORPORATION,
JANUS CAPITAL MANAGEMENT LLC, JANUS INVESTMENT FUND, EDWARD J. STERN,
CANARY CAPITAL PARTNERS LLC, CANARY INVESTMENT MANAGEMENT LLC, CANARY
CAPITAL PARTNERS LTD., KAPLAN & CO. SECURITIES INC., BANK ONE CORPORATION,
BANC ONE INVESTMENT ADVISORS, THE ONE GROUP MUTUAL FUNDS, BANK OF AMERICA
CORPORATION, BANC OF AMERICA CAPITAL MANAGEMENT LLC, BANC OF AMERICA
ADVISORS LLC, NATIONS FUND INC., ROBERT H. GORDON, THEODORE H. SIHPOL III,
CHARLES D. BRYCELAND, SECURITY TRUST COMPANY, STRONG CAPITAL MANAGEMENT
INC., JB OXFORD & COMPANY, ALLIANCE CAPITAL MANAGEMENT HOLDING L.P.,
ALLIANCE CAPITAL MANAGEMENT L.P., ALLIANCE CAPITAL MANAGEMENT CORPORATION,
AXA FINANCIAL INC., ALLIANCEBERNSTEIN REGISTRANTS, GERALD MALONE, CHARLES
SCHAFFRAN, MARSH & MCLENNAN COMPANIES, INC., PUTNAM INVESTMENTS TRUST,
PUTNAM INVESTMENT MANAGEMENT LLC, PUTNAM INVESTMENT FUNDS, AND DOES 1-500,
in the Superior Court of the State of California, County of Los Angeles
(Case No. BC304655), filed on October 22, 2003 and amended on December 17,
2003 to substitute INVESCO Funds Group, Inc. and Raymond R. Cunningham for
unnamed Doe defendants. This claim alleges unfair business practices and
violations of Sections 17200 and 17203 of the California Business and
Professions Code. The plaintiff in this case is seeking: injunctive relief;
restitution, including pre-judgment interest; an accounting to determine
the amount to be returned by the defendants and the amount to be refunded
to the public; the creation of an administrative process whereby injured
customers of the defendants receive their losses; and counsel fees.
RAJ SANYAL, DERIVATIVELY ON BEHALF OF NATIONS INTERNATIONAL EQUITY FUND, V.
WILLIAM P. CARMICHAEL, WILLIAM H. GRIGG, THOMAS F. KELLER, CARL E. MUNDY,
JR., CORNELIUS J. PINGS, A. MAX WALKER, CHARLES B. WALKER, EDMUND L.
BENSON, III, ROBERT H. GORDON, JAMES B. SOMMERS, THOMAS S. WORD, JR.,
EDWARD D. BEDARD, GERALD MURPHY, ROBERT B. CARROLL, INVESCO GLOBAL ASSET
MANAGEMENT, PUTNAM INVESTMENT MANAGEMENT, BANK OF AMERICA CORPORATION,
MARSICO CAPITAL MANAGEMENT, LLC, BANC OF AMERICA ADVISORS, LLC, BANC OF
AMERICA CAPITAL MANAGEMENT, LLC, AND NATIONS FUNDS TRUST, in the Superior
Court Division, State of North Carolina (Civil Action No. 03-CVS-19622),
filed on November 14, 2003.
I-1
This claim alleges common law breach of fiduciary duty; abuse of control;
gross mismanagement; waste of fund assets; and unjust enrichment. The
plaintiff in this case is seeking: injunctive relief, including imposition
of a constructive trust; damages; restitution and disgorgement; and costs
and expenses, including counsel fees and expert fees.
L. SCOTT KARLIN, DERIVATIVELY ON BEHALF OF INVESCO FUNDS GROUP, INC. V.
AMVESCAP, PLC, INVESCO, INC., CANARY CAPITAL PARTNERS, LLC, CANARY
INVESTMENT MANAGEMENT, LLC, AND CANARY CAPITAL PARTNERS, LTD., in the
United States District Court, District of Colorado (Civil Action No.
03-MK-2406), filed on November 28, 2003. This claim alleges violations of
Section 36(b) of the Investment Company Act of 1940 ("Investment Company
Act"), and common law breach of fiduciary duty. The plaintiff in this case
is seeking damages and costs and expenses, including counsel fees and
expert fees.
RICHARD RAVER, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED,
V. INVESCO FUNDS GROUP, INC., INVESCO STOCK FUNDS, INC, AIM MANAGEMENT
GROUP, INC., AIM STOCK FUNDS, AIM STOCK FUNDS, INC., AMVESCAP PLC, INVESCO
ADVANTAGE HEALTH SCIENCES FUND, INVESCO CORE EQUITY FUND, INVESCO DYNAMICS
FUND, INVESCO ENERGY FUND, INVESCO FINANCIAL SERVICES FUND, INVESCO GOLD &
PRECIOUS METALS FUND, INVESCO HEALTH SCIENCES FUND, INVESCO INTERNATIONAL
CORE EQUITY FUND, INVESCO LEISURE FUND, INVESCO MID-CAP GROWTH FUND,
INVESCO MULTI-SECTOR FUND, INVESCO S&P 500 INDEX FUND, INVESCO SMALL
COMPANY GROWTH FUND, INVESCO TECHNOLOGY FUND, INVESCO TOTAL RETURN FUND,
INVESCO UTILITIES FUND, INVESCO ADVANTAGE FUND, INVESCO BALANCED FUND,
INVESCO EUROPEAN FUND, INVESCO GROWTH FUND, INVESCO HIGH YIELD FUND,
INVESCO GROWTH & INCOME FUND, INVESCO INTERNATIONAL BLUE CHIP VALUE FUND,
INVESCO REAL ESTATE OPPORTUNITY FUND, INVESCO SELECT FUND, INVESCO TAX-FREE
BOND FUND, INVESCO TELECOMMUNICATIONS FUND, INVESCO U.S. GOVERNMENT
SECURITIES FUND, INVESCO VALUE FUND, EDWARD J. STERN, CANARY INVESTMENT
MANAGEMENT, LLC, CANARY CAPITAL PARTNERS, LTD., CANARY CAPITAL PARTNERS,
LLC, AND DOES 1-100, in the United States District Court, District of
Colorado (Civil Action No. 03-F-2441), filed on December 2, 2003. This
claim alleges violations of: Sections 11 and 15 of the Securities Act of
1933 (the "Securities Act"); Sections 10(b) and 20(a) of the Securities
Exchange Act of 1934 (the "Exchange Act"); Rule 10b-5 under the Exchange
Act; and Sections 34(b), 36(a) and 36(b) of the Investment Company Act. The
claim also alleges common law breach of fiduciary duty. The plaintiffs in
this case are seeking: damages; pre-judgment and post-judgment interest;
counsel fees and expert fees; and other relief.
JERRY FATTAH, CUSTODIAN FOR BASIM FATTAH, INDIVIDUALLY AND ON BEHALF OF ALL
OTHERS SIMILARLY SITUATED, V. INVESCO ADVANTAGE HEALTH SCIENCES FUND,
INVESCO CORE EQUITY FUND, INVESCO DYNAMICS FUND, INVESCO ENERGY FUND,
INVESCO FINANCIAL SERVICES FUND, INVESCO GOLD & PRECIOUS METALS FUND,
INVESCO HEALTH SCIENCES FUND, INVESCO INTERNATIONAL CORE EQUITY FUND
(FORMERLY KNOWN AS INTERNATIONAL BLUE CHIP VALUE FUND), INVESCO LEISURE
FUND, INVESCO MID-CAP GROWTH FUND, INVESCO MULTI-SECTOR FUND, AIM INVESCO
S&P 500 INDEX FUND, INVESCO SMALL COMPANY GROWTH FUND, INVESCO TECHNOLOGY
FUND, INVESCO TOTAL RETURN FUND, INVESCO UTILITIES FUND, AIM MONEY MARKET
FUND, AIM INVESCO TAX-FREE MONEY FUND, AIM INVESCO TREASURER'S MONEY MARKET
RESERVE FUND, AIM INVESCO TREASURER'S TAX-EXEMPT RESERVE FUND, AIM INVESCO
U.S. GOVERNMENT MONEY FUND, INVESCO ADVANTAGE FUND, INVESCO BALANCED FUND,
INVESCO EUROPEAN FUND, INVESCO
I-2
GROWTH FUND, INVESCO HIGH YIELD FUND, INVESCO GROWTH & INCOME FUND, INVESCO
REAL ESTATE OPPORTUNITY FUND, INVESCO SELECT INCOME FUND, INVESCO TAX-FREE
BOND FUND, INVESCO TELECOMMUNICATIONS FUND, INVESCO U.S. GOVERNMENT
SECURITIES FUND, INVESCO VALUE FUND, INVESCO, INVESCO LATIN AMERICAN GROWTH
FUND (COLLECTIVELY KNOWN AS THE "INVESCO FUNDS"), AIM STOCK FUNDS, AIM
COUNSELOR SERIES TRUST, AIM SECTOR FUNDS INC., AIM BOND FUNDS INC., AIM
COMBINATION STOCK AND BOND FUNDS INC., AIM MONEY MARKET FUNDS INC., AIM
INTERNATIONAL FUNDS INC. (COLLECTIVELY KNOWN AS THE "INVESCO FUNDS
REGISTRANTS"), AMVESCAP PLC, INVESCO FUNDS GROUP INC., TIMOTHY MILLER,
RAYMOND CUNNINGHAM, THOMAS KOLBE, EDWARD STERN, AMERICAN SKANDIA INC.,
BREAN MURRAY & CO., INC., CANARY CAPITAL PARTNERS, LLC, CANARY INVESTMENT
MANAGEMENT, LLC, CANARY CAPITAL PARTNERS, LTD., AND JOHN DOES 1-100, in the
United States District Court, District of Colorado (Civil Action No.
03-F-2456), filed on December 4, 2003. This claim alleges violations of:
Sections 11 and 15 of Securities Act; Sections 10(b) and 20(a) of the
Exchange Act; Rule 10b-5 under the Exchange Act; and Section 206 of the
Investment Advisers Act of 1940, as amended (the "Advisers Act"). The
plaintiffs in this case are seeking: compensatory damages; rescission;
return of fees paid; accounting for wrongfully gotten gains, profits and
compensation; restitution and disgorgement; and other costs and expenses,
including counsel fees and expert fees.
EDWARD LOWINGER AND SHARON LOWINGER, INDIVIDUALLY AND ON BEHALF OF ALL
OTHERS SIMILARLY SITUATED, V. INVESCO ADVANTAGE HEALTH SCIENCES FUND,
INVESCO CORE EQUITY FUND, INVESCO DYNAMICS FUND, INVESCO ENERGY FUND,
INVESCO FINANCIAL SERVICES FUND, INVESCO GOLD & PRECIOUS METALS FUND,
INVESCO HEALTH SCIENCES FUND, INVESCO INTERNATIONAL CORE EQUITY FUND
(FORMERLY KNOWN AS INTERNATIONAL BLUE CHIP VALUE FUND), INVESCO LEISURE
FUND, INVESCO MID-CAP GROWTH FUND, INVESCO MULTI-SECTOR FUND, AIM INVESCO
S&P 500 INDEX FUND, INVESCO SMALL COMPANY GROWTH FUND, INVESCO TECHNOLOGY
FUND, INVESCO TOTAL RETURN FUND, INVESCO UTILITIES FUND, AIM MONEY MARKET
FUND, AIM INVESCO TAX-FREE MONEY FUND, AIM INVESCO TREASURER'S MONEY MARKET
RESERVE FUND, AIM INVESCO TREASURER'S TAX-EXEMPT RESERVE FUND, AIM INVESCO
U.S. GOVERNMENT MONEY FUND, INVESCO ADVANTAGE FUND, INVESCO BALANCED FUND,
INVESCO EUROPEAN FUND, INVESCO GROWTH FUND, INVESCO HIGH-YIELD FUND,
INVESCO GROWTH & INCOME FUND, INVESCO REAL ESTATE OPPORTUNITY FUND, INVESCO
SELECT INCOME FUND, INVESCO TAX-FREE BOND FUND, INVESCO TELECOMMUNICATIONS
FUND, INVESCO U.S. GOVERNMENT SECURITIES FUND, INVESCO VALUE FUND, INVESCO;
INVESCO LATIN AMERICAN GROWTH FUND (COLLECTIVELY KNOWN AS THE "INVESCO
FUNDS"), AIM STOCK FUNDS, AIM COUNSELOR SERIES TRUST, AIM SECTOR FUNDS
INC., AIM BOND FUNDS INC., AIM COMBINATION STOCK AND BOND FUNDS INC., AIM
MONEY MARKET FUNDS INC., AIM INTERNATIONAL FUNDS INC. (COLLECTIVELY KNOWN
AS THE "INVESCO FUNDS REGISTRANTS"), AMVESCAP PLC, INVESCO FUNDS GROUP,
INC., TIMOTHY MILLER, RAYMOND CUNNINGHAM, THOMAS KOLBE, EDWARD J. STERN,
AMERICAN SKANDIA INC., BREAN MURRAY & CO., INC., CANARY CAPITAL PARTNERS,
LLC, CANARY INVESTMENT MANAGEMENT, LLC, CANARY CAPITAL PARTNERS, LTD., AND
JOHN DOES 1-100, in the United States District Court, Southern District of
New York (Civil Action No. 03-CV-9634), filed on December 4, 2003. This
claim alleges violations of: Sections 11 and 15 of the Securities Act;
Sections 10(b) and 20(a) of the Exchange Act; Rule 10b-5 under the Exchange
Act; and Section 206 of the Advisers Act. The plaintiffs in this case are
seeking: compensatory damages; rescission; return of fees paid; accounting
for wrongfully gotten gains, profits and compensation; restitution and
disgorgement; and other costs and expenses, including counsel fees and
expert fees.
I-3
JOEL GOODMAN, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED,
V. INVESCO FUNDS GROUP, INC. AND RAYMOND R. CUNNINGHAM, in the District
Court, City and County of Denver, Colorado (Case Number 03CV9268), filed on
December 5, 2003. This claim alleges common law breach of fiduciary duty
and aiding and abetting breach of fiduciary duty. The plaintiffs in this
case are seeking: injunctive relief; accounting for all damages and for all
profits and any special benefits obtained; disgorgement; restitution and
damages; costs and disbursements, including counsel fees and expert fees;
and equitable relief.
STEVEN B. EHRLICH, CUSTODIAN FOR ALEXA P. EHRLICH, UGTMA/FLORIDA, AND DENNY
P. JACOBSON, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED,
V. INVESCO ADVANTAGE HEALTH SCIENCES FUND, INVESCO CORE EQUITY FUND,
INVESCO DYNAMICS FUND, INVESCO ENERGY FUND, INVESCO FINANCIAL SERVICES
FUND, INVESCO GOLD & PRECIOUS METALS FUND, INVESCO HEALTH SCIENCES FUND,
INVESCO INTERNATIONAL CORE EQUITY FUND (FORMERLY KNOWN AS INTERNATIONAL
BLUE CHIP VALUE FUND), INVESCO LEISURE FUND, INVESCO MID-CAP GROWTH FUND,
INVESCO MULTI-SECTOR FUND, AIM INVESCO S&P 500 INDEX FUND, INVESCO SMALL
COMPANY GROWTH FUND, INVESCO TECHNOLOGY FUND, INVESCO TOTAL RETURN FUND,
INVESCO UTILITIES FUND, AIM MONEY MARKET FUND, AIM INVESCO TAX-FREE MONEY
FUND, AIM INVESCO TREASURERS MONEY MARKET RESERVE FUND, AIM INVESCO
TREASURERS TAX-EXEMPT RESERVE FUND, AIM INVESCO US GOVERNMENT MONEY FUND,
INVESCO ADVANTAGE FUND, INVESCO BALANCED FUND, INVESCO EUROPEAN FUND,
INVESCO GROWTH FUND, INVESCO HIGH-YIELD FUND, INVESCO GROWTH & INCOME FUND,
INVESCO REAL ESTATE OPPORTUNITY FUND, INVESCO SELECT INCOME FUND, INVESCO
TAX-FREE BOND FUND, INVESCO TELECOMMUNICATIONS FUND, INVESCO U.S.
GOVERNMENT SECURITIES FUND, INVESCO VALUE FUND, INVESCO LATIN AMERICAN
GROWTH FUND (COLLECTIVELY KNOWN AS THE "INVESCO FUNDS"), AIM STOCK FUNDS,
AIM COUNSELOR SERIES TRUST, AIM SECTOR FUNDS INC., AIM BOND FUNDS INC., AIM
COMBINATION STOCK AND BOND FUNDS INC., AIM MONEY MARKET FUNDS INC., AIM
INTERNATIONAL FUNDS INC. (COLLECTIVELY KNOWN AS THE "INVESCO FUNDS
REGISTRANTS"), AMVESCAP PLC, INVESCO FUNDS GROUP, INC., TIMOTHY MILLER,
RAYMOND CUNNINGHAM, THOMAS KOLBE, EDWARD J. STERN, AMERICAN SKANDIA INC.,
BREAN MURRAY & CO., INC., CANARY CAPITAL PARTNERS, LLC, CANARY INVESTMENT
MANAGEMENT, LLC, CANARY CAPITAL PARTNERS, LTD., AND JOHN DOES 1-100, in the
United States District Court, District of Colorado (Civil Action No.
03-N-2559), filed on December 17, 2003. This claim alleges violations of:
Sections 11 and 15 of the Securities Act; Sections 10(b) and 20(a) of the
Exchange Act; Rule 10b-5 under the Exchange Act; and Section 206 of the
Advisers Act. The plaintiffs in this case are seeking: compensatory
damages; rescission; return of fees paid; accounting for wrongfully gotten
gains, profits and compensation; restitution and disgorgement; and other
costs and expenses, including counsel fees and expert fees.
JOSEPH R. RUSSO, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY
SITUATED, V. INVESCO ADVANTAGE HEALTH SCIENCES FUND, INVESCO CORE EQUITY
FUND, INVESCO DYNAMICS FUND, INVESCO ENERGY FUND, INVESCO FINANCIAL
SERVICES FUND, INVESCO GOLD & PRECIOUS METALS FUND, INVESCO HEALTH SCIENCES
FUND, INVESCO INTERNATIONAL CORE EQUITY FUND (FORMERLY KNOWN AS
INTERNATIONAL BLUE CHIP VALUE FUND), INVESCO LEISURE FUND, INVESCO MID-CAP
GROWTH FUND, INVESCO MULTI-SECTOR FUND, AIM INVESCO S&P 500 INDEX FUND,
INVESCO SMALL COMPANY GROWTH FUND, INVESCO TECHNOLOGY FUND, INVESCO TOTAL
RETURN FUND, INVESCO UTILITIES FUND, AIM MONEY MARKET FUND, AIM INVESCO
TAX-FREE MONEY FUND, AIM INVESCO TREASURERS MONEY MARKET RESERVE FUND,
I-4
AIM INVESCO TREASURERS TAX-EXEMPT RESERVE FUND, AIM INVESCO US GOVERNMENT
MONEY FUND, INVESCO ADVANTAGE FUND, INVESCO BALANCED FUND, INVESCO EUROPEAN
FUND, INVESCO GROWTH FUND, INVESCO HIGH-YIELD FUND, INVESCO GROWTH & INCOME
FUND, INVESCO REAL ESTATE OPPORTUNITY FUND, INVESCO SELECT INCOME FUND,
INVESCO TAX-FREE BOND FUND, INVESCO TELECOMMUNICATIONS FUND, INVESCO U.S.
GOVERNMENT SECURITIES FUND, INVESCO VALUE FUND, INVESCO LATIN AMERICAN
GROWTH FUND (COLLECTIVELY KNOWN AS THE "INVESCO FUNDS"), AIM STOCK FUNDS,
AIM COUNSELOR SERIES TRUST, AIM SECTOR FUNDS INC., AIM BOND FUNDS INC., AIM
COMBINATION STOCK AND BOND FUNDS INC., AIM MONEY MARKET FUNDS INC., AIM
INTERNATIONAL FUNDS INC. (COLLECTIVELY KNOWN AS THE "INVESCO FUNDS
REGISTRANTS"), AMVESCAP PLC, INVESCO FUNDS GROUP, INC., TIMOTHY MILLER,
RAYMOND CUNNINGHAM, THOMAS KOLBE, EDWARD J. STERN, AMERICAN SKANDIA INC.,
BREAN MURRAY & CO., INC., CANARY CAPITAL PARTNERS, LLC, CANARY INVESTMENT
MANAGEMENT, LLC, CANARY CAPITAL PARTNERS, LTD., AND JOHN DOES 1-100, in the
United States District Court, Southern District of New York (Civil Action
No. 03-CV-10045), filed on December 18, 2003. This claim alleges violations
of: Sections 11 and 15 of the Securities Act; Sections 10(b) and 20(a) of
the Exchange Act; Rule 10b-5 under the Exchange Act; and Section 206 of the
Advisers Act. The plaintiffs in this case are seeking: compensatory
damages; rescission; return of fees paid; accounting for wrongfully gotten
gains, profits and compensation; restitution and disgorgement; and other
costs and expenses, including counsel fees and expert fees.
MIRIAM CALDERON, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY
SITUATED, V. AMVESCAP PLC, AVZ, INC., AMVESCAP RETIREMENT, INC., AMVESCAP
NATIONAL TRUST COMPANY, ROBERT F. MCCULLOUGH, GORDON NEBEKER, JEFFREY G.
CALLAHAN, INVESCO FUNDS GROUP, INC., RAYMOND R. CUNNINGHAM, AND DOES 1-100,
in the United States District Court, District of Colorado (Civil Action No.
03-M-2604), filed on December 24, 2003. This claim alleges violations of
Sections 404, 405 and 406B of the Employee Retirement Income Security Act
("ERISA"). The plaintiffs in this case are seeking: declarations that the
defendants breached their ERISA fiduciary duties and that they are not
entitled to the protection of Section 404(c)(1)(B) of ERISA; an order
compelling the defendants to make good all losses to a particular
retirement plan described in this case (the "Retirement Plan") resulting
from the defendants' breaches of their fiduciary duties, including losses
to the Retirement Plan resulting from imprudent investment of the
Retirement Plan's assets, and to restore to the Retirement Plan all profits
the defendants made through use of the Retirement Plan's assets, and to
restore to the Retirement Plan all profits which the participants would
have made if the defendants had fulfilled their fiduciary obligations;
damages on behalf of the Retirement Plan; imposition of a constructive
trust, injunctive relief, damages suffered by the Retirement Plan, to be
allocated proportionately to the participants in the Retirement Plan;
restitution and other costs and expenses, including counsel fees and expert
fees.
PAT B. GORSUCH AND GEORGE L. GORSUCH V. INVESCO FUNDS GROUP, INC. AND AIM
ADVISER, INC., in the United States District Court, District of Colorado
(Civil Action No. 03-MK-2612), filed on December 24, 2003. This claim
alleges violations of Sections 15(a), 20(a) and 36(b) of the Investment
Company Act. The plaintiffs in this case are seeking: rescission and/or
voiding of the investment advisory agreements; return of fees paid;
damages; and other costs and expenses, including counsel fees and expert
fees.
LORI WEINRIB, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED,
V. INVESCO FUNDS GROUP, INC., AIM STOCK FUNDS, AIM COUNSELOR SERIES TRUST,
AIM SECTOR FUNDS INC., AIM BOND FUNDS INC., AIM COMBINATION
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STOCK AND BOND FUNDS INC., AIM MONEY MARKET FUNDS INC., AIM INTERNATIONAL
FUNDS INC., AMVESCAP PLC, TIMOTHY MILLER, RAYMOND CUNNINGHAM, THOMAS KOLBE,
EDWARD J. STERN, AMERICAN SKANDIA INC., BREAN MURRAY & CO., INC., CANARY
CAPITAL PARTNERS, LLC, CANARY INVESTMENT MANAGEMENT, LLC, CANARY CAPITAL
PARTNERS, LTD., AND JOHN DOES 1-100, in the United States District Court,
Southern District of New York (Civil Action No. 04-CV-00492), filed on
January 21, 2004. This claim alleges violations of: Sections 11 and 15 of
the 1933 Act; Sections 10(b) and 20(a) of the Exchange Act; Rule 10b-5
under the Exchange Act; and Section 206 of the Advisers Act. The plaintiffs
in this case are seeking: compensatory damages; rescission; return of fees
paid; accounting for wrongfully gotten gains, profits and compensation;
restitution and disgorgement; and other costs and expenses, including
counsel fees and expert fees.
ROBERT S. BALLAGH, JR., INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY
SITUATED, V. INVESCO FUNDS GROUP, INC., INVESCO STOCK FUNDS, INC., AIM
MANAGEMENT GROUP, INC., AIM STOCK FUNDS, AIM STOCK FUNDS, INC., AMVESCAP
PLC, INVESCO ADVANTAGE HEALTH SCIENCES FUND, INVESCO CORE EQUITY FUND,
INVESCO DYNAMICS FUND, INVESCO ENERGY FUND, INVESCO FINANCIAL SERVICES
FUND, INVESCO GOLD & PRECIOUS METALS FUND, INVESCO HEALTH SCIENCES FUND,
INVESCO INTERNATIONAL CORE EQUITY FUND, INVESCO LEISURE FUND, INVESCO
MID-CAP GROWTH FUND, INVESCO MULTI-SECTOR FUND, INVESCO S&P 500 INDEX FUND,
INVESCO SMALL COMPANY GROWTH FUND, INVESCO TECHNOLOGY FUND, INVESCO TOTAL
RETURN FUND, INVESCO UTILITIES FUND, INVESCO ADVANTAGE FUND, INVESCO
BALANCED FUND, INVESCO EUROPEAN FUND, INVESCO GROWTH FUND, INVESCO HIGH
YIELD FUND, INVESCO GROWTH & INCOME FUND, INVESCO INTERNATIONAL BLUE CHIP
VALUE FUND, INVESCO REAL ESTATE OPPORTUNITY FUND, INVESCO SELECT FUND,
INVESCO TAX-FREE BOND FUND, INVESCO TELECOMMUNICATIONS FUND, INVESCO U.S.
GOVERNMENT SECURITIES FUND, INVESCO VALUE FUND, EDWARD J. STERN, CANARY
INVESTMENT MANAGEMENT, LLC, CANARY CAPITAL PARTNERS, LTD., CANARY CAPITAL
PARTNERS, LLC, AND DOES 1-100, in the United States District Court,
District of Colorado (Civil Action No. 04-MK-0152), filed on January 28,
2004. This claim alleges violations of: Sections 11 and 15 of the
Securities Act; Sections 10(b) and 20(a) of the Exchange Act; Rule 10b-5
under the Exchange Act; and Sections 34(b), 36(a) and 36(b) of the
Investment Company Act. The claim also alleges common law breach of
fiduciary duty. The plaintiffs in this case are seeking: damages;
pre-judgment and post-judgment interest; counsel fees and expert fees; and
other relief.
JONATHAN GALLO, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY
SITUATED, V. INVESCO FUNDS GROUP, INC., INVESCO STOCK FUNDS, INC., AIM
MANAGEMENT GROUP, INC., AIM STOCK FUNDS, AIM STOCK FUNDS, INC., AMVESCAP
PLC, INVESCO ADVANTAGE HEALTH SCIENCES FUND, INVESCO CORE EQUITY FUND,
INVESCO DYNAMICS FUND, INVESCO ENERGY FUND, INVESCO FINANCIAL SERVICES
FUND, INVESCO GOLD & PRECIOUS METALS FUND, INVESCO HEALTH SCIENCES FUND,
INVESCO INTERNATIONAL CORE EQUITY FUND, INVESCO LEISURE FUND, INVESCO
MID-CAP GROWTH FUND, INVESCO MULTI-SECTOR FUND, INVESCO S&P 500 INDEX FUND,
INVESCO SMALL COMPANY GROWTH FUND, INVESCO TECHNOLOGY FUND, INVESCO TOTAL
RETURN FUND, INVESCO UTILITIES FUND, INVESCO ADVANTAGE FUND, INVESCO
BALANCED FUND, INVESCO EUROPEAN FUND, INVESCO GROWTH FUND, INVESCO HIGH
YIELD FUND, INVESCO GROWTH & INCOME FUND, INVESCO INTERNATIONAL BLUE CHIP
VALUE FUND, INVESCO REAL ESTATE OPPORTUNITY FUND, INVESCO SELECT FUND,
INVESCO TAX-FREE BOND FUND, INVESCO TELECOMMUNICATIONS FUND, INVESCO U.S.
GOVERNMENT SECURITIES FUND, INVESCO VALUE FUND, EDWARD J. STERN, CANARY
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INVESTMENT MANAGEMENT, LLC, CANARY CAPITAL PARTNERS, LTD., CANARY CAPITAL
PARTNERS, LLC, AND DOES 1-100, in the United States District Court,
District of Colorado (Civil Action No. 04-MK-0151), filed on January 28,
2004. This claim alleges violations of: Sections 11 and 15 of the
Securities Act; Sections 10(b) and 20(a) of the Exchange Act; Rule 10b-5
under the Exchange Act; and Sections 34(b), 36(a) and 36(b) of the
Investment Company Act. The claim also alleges common law breach of
fiduciary duty. The plaintiffs in this case are seeking: damages;
pre-judgment and post-judgment interest; counsel fees and expert fees; and
other relief.
EILEEN CLANCY, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED,
V. INVESCO ADVANTAGE HEALTH SCIENCES FUND, INVESCO CORE EQUITY FUND,
INVESCO DYNAMICS FUND, INVESCO ENERGY FUND, INVESCO FINANCIAL SERVICES
FUND, INVESCO GOLD & PRECIOUS METALS FUND, INVESCO HEALTH SCIENCES FUND,
INVESCO INTERNATIONAL CORE EQUITY FUND (FORMERLY KNOWN AS INTERNATIONAL
BLUE CHIP VALUE FUND), INVESCO LEISURE FUND, INVESCO MID-CAP GROWTH FUND,
INVESCO MULTI-SECTOR FUND, AIM INVESCO S&P 500 INDEX FUND, INVESCO SMALL
COMPANY GROWTH FUND, INVESCO TECHNOLOGY FUND, INVESCO TOTAL RETURN FUND,
INVESCO UTILITIES FUND, AIM MONEY MARKET FUND, AIM INVESCO TAX-FREE MONEY
FUND, AIM INVESCO TREASURER'S MONEY MARKET RESERVE FUND, AIM INVESCO
TREASURER'S TAX-EXEMPT RESERVE FUND, AIM INVESCO US GOVERNMENT MONEY FUND,
INVESCO ADVANTAGE FUND, INVESCO BALANCED FUND, INVESCO EUROPEAN FUND,
INVESCO GROWTH FUND, INVESCO HIGH-YIELD FUND, INVESCO GROWTH & INCOME FUND,
INVESCO REAL ESTATE OPPORTUNITY FUND, INVESCO SELECT INCOME FUND, INVESCO
TAX-FREE BOND FUND, INVESCO TELECOMMUNICATIONS FUND, INVESCO U.S.
GOVERNMENT SECURITIES FUND, INVESCO VALUE FUND, INVESCO, INVESCO LATIN
AMERICAN GROWTH FUND (COLLECTIVELY KNOWN AS THE "INVESCO FUNDS"), AIM STOCK
FUNDS, AIM COUNSELOR SERIES TRUST, AIM SECTOR FUNDS INC., AIM BOND FUNDS
INC., AIM COMBINATION STOCK AND BOND FUNDS INC., AIM MONEY MARKET FUNDS
INC., AIM INTERNATIONAL FUNDS INC. (COLLECTIVELY KNOWN AS THE "INVESCO
FUNDS REGISTRANTS"), AMVESCAP PLC, INVESCO FUNDS GROUP, INC., TIMOTHY
MILLER, RAYMOND CUNNINGHAM AND THOMAS KOLBE, in the United States District
Court, Southern District of New York (Civil Action No. 04-CV-0713), filed
on January 30, 2004. This claim alleges violations of Sections 11 and 15 of
the Securities Act. The plaintiffs in this case are seeking: compensatory
damages, rescission; return of fees paid; and other costs and expenses,
including counsel fees and expert fees.
SCOTT WALDMAN, ON BEHALF OF HIMSELF AND ALL OTHERS SIMILARLY SITUATED, V.
INVESCO FUNDS GROUP, INC., INVESCO DYNAMICS FUND, INVESCO EUROPEAN FUND,
INVESCO SMALL COMPANY GROWTH FUND, INVESCO TECHNOLOGY FUND, AIM STOCK
FUNDS, AIM COUNSELOR SERIES TRUST, AIM SECTOR FUNDS INC., AIM BOND FUNDS
INC., AIM COMBINATION STOCK AND BOND FUNDS INC., AIM MONEY MARKET FUNDS
INC., AIM INTERNATIONAL FUNDS INC., AMVESCAP PLC, AND RAYMOND CUNNINGHAM,
in the United States District Court, Southern District of New York (Civil
Action No. 04-CV-00915), filed on February 3, 2004. This claim alleges
violations of Sections 11 and 15 of the Securities Act and common law
breach of fiduciary duty. The plaintiffs in this case are seeking
compensatory damages; injunctive relief; and costs and expenses, including
counsel fees and expert fees.
CARL E. VONDER HAAR AND MARILYN P. MARTIN, ON BEHALF OF THEMSELVES AND ALL
OTHERS SIMILARLY SITUATED, V. INVESCO FUNDS GROUP, INC., INVESCO STOCK
FUNDS, INC. AND DOE DEFENDANTS 1-100, in the United States District Court,
District of Colorado (Civil Action No. 04-CV-812), filed on February 5,
2004. This claim
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alleges: common law breach of fiduciary duty; breach of contract; and
tortious interference with contract. The plaintiffs in this case are
seeking: injunctive relief; damages; disgorgement; and costs and expenses,
including counsel fees and expert fees.
HENRY KRAMER, DERIVATIVELY ON BEHALF OF INVESCO ENERGY FUND, INVESCO STOCK
FUNDS, INC., AND INVESCO MUTUAL FUNDS V. AMVESCAP, PLC, INVESCO FUNDS
GROUP, INC., CANARY CAPITAL PARTNERS, LLC, CANARY INVESTMENT MANAGEMENT,
LLC, AND CANARY CAPITAL PARTNERS, LTD., DEFENDANTS, AND INVESCO ENERGY
FUND, INVESCO STOCK FUNDS, INC., AND INVESCO MUTUAL FUNDS, NOMINAL
DEFENDANTS, in the United States District Court, District of Colorado
(Civil Action No. 04-MK-0397), filed on March 4, 2004. This claim alleges
violations of Section 36(b) of the Investment Company Act and common law
breach of fiduciary duty. The plaintiff in this case is seeking damages and
costs and expenses, including counsel fees and expert fees.
CYNTHIA L. ESSENMACHER, DERIVATIVELY ON BEHALF OF THE INVESCO DYNAMICS FUND
AND THE REMAINING "INVESCO FUNDS" V. INVESCO FUNDS GROUPS, INC., AMVESCAP
PLC, AIM MANAGEMENT GROUP, INC., RAYMOND CUNNINGHAM, TIMOTHY MILLER, THOMAS
KOLBE AND MICHAEL LEGOSKI, DEFENDANTS, AND INVESCO DYNAMICS FUND AND THE
"INVESCO FUNDS", NOMINAL DEFENDANTS, in the United States District Court,
District of Delaware (Civil Action No. 04-CV-188), filed on March 29, 2004.
This claim alleges: violations of Section 36(b) of the Investment Company
Act; violations of Section 206 of the Advisers Act; common law breach of
fiduciary duty; and civil conspiracy. The plaintiff in this case is
seeking: damages; injunctive relief; and costs and expenses, including
counsel fees and expert fees.
ANNE G. PERENTESIS (WIDOW) V. AIM INVESTMENTS, ET AL (INVESCO FUNDS GROUP,
INC.), in the District Court of Maryland for Baltimore County (Case No.
080400228152005), filed on July 21, 2005. This claim alleges financial
losses, mental anguish and emotional distress as a result of unlawful
market timing and related activity by the defendants. The plaintiff in this
case is seeking damages and costs and expenses.
Pursuant to an Order of the MDL Court, plaintiffs in the above lawsuits
(with the exception of Carl E. Vonder Haar, et al. v. INVESCO Funds Group, Inc.
et al. and Mike Sayegh v. Janus Capital Corporation, et al.) consolidated their
claims for pre-trial purposes into three amended complaints against various AIM-
and IFG-related parties: (i) a Consolidated Amended Class Action Complaint
purportedly brought on behalf of shareholders of the AIM Funds (the Lepera
lawsuit discussed below); (ii) a Consolidated Amended Fund Derivative Complaint
purportedly brought on behalf of the AIM Funds and fund registrants (the
Essenmacher lawsuit discussed below); and (iii) an Amended Class Action
Complaint for Violations of the Employee Retirement Income Securities Act
("ERISA") purportedly brought on behalf of participants in AMVESCAP's 401(k)
plan (the Calderon lawsuit discussed below). The plaintiffs in the Vonder Haar
and Sayegh lawsuits continue to seek remand of their lawsuits to state court.
Set forth below is detailed information about these three amended complaints.
RICHARD LEPERA, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED
(LEAD PLAINTIFF: CITY OF CHICAGO DEFERRED COMPENSATION PLAN), V. INVESCO
FUNDS GROUP, INC., AMVESCAP, PLC, AIM INVESTMENTS, AIM ADVISORS, INC.,
INVESCO INSTITUTIONAL (N.A.), INC., INVESCO ASSETS MANAGEMENT LIMITED,
INVESCO GLOBAL ASSETS MANAGEMENT (N.A.), AIM STOCK FUNDS, AIM MUTUAL FUNDS,
AIM COMBINATION STOCK & BOND FUNDS, AIM SECTOR FUNDS, AIM TREASURER'S
SERIES TRUST, INVESCO DISTRIBUTORS, INC., AIM DISTRIBUTORS, INC., RAYMOND
R. CUNNINGHAM, TIMOTHY J. MILLER, THOMAS A. KOLBE, MICHAEL D. LEGOSKI,
MICHAEL K.
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BRUGMAN, MARK WILLIAMSON, EDWARD J. STERN, CANARY CAPITAL PARTNERS, LLC,
CANARY INVESTMENT MANAGEMENT, LLC, CANARY CAPITAL PARTNERS, LTD., RYAN
GOLDBERG, MICHAEL GRADY, CITIGROUP, INC., CITIGROUP GLOBAL MARKETS
HOLDINGS, INC., SALOMON SMITH BARNEY, INC., MORGAN STANLEY DW, ANNA
BRUGMAN, ANB CONSULTING, LLC, KAPLAN & CO. SECURITIES INC., SECURITY TRUST
COMPANY, N.A., GRANT D. SEEGER, JB OXFORD HOLDINGS, INC., NATIONAL CLEARING
CORPORATION, JAMES G. LEWIS, KRAIG L. KIBBLE, JAMES Y. LIN, BANK OF AMERICA
CORPORATION, BANC OF AMERICA SECURITIES LLC, THEODORE C. SIHPOL, III, BEAR
STEARNS & CO., INC., BEAR STEARNS SECURITIES CORP., CHARLES SCHWAB & CO.,
CREDIT SUISSE FIRST BOSTON (USA) INC., PRUDENTIAL FINANCIAL, INC.,
PRUDENTIAL SECURITIES, INC., CANADIAN IMPERIAL BANK OF COMMERCE, JP MORGAN
CHASE AND CO., AND JOHN DOE DEFENDANTS 1-100, in the MDL Court (Case No.
04-MD-15864; No. 04-CV-00814-JFM) (originally in the United States District
Court for the District of Colorado), filed on September 29, 2004. This
lawsuit alleges violations of Sections 11, 12(a) (2), and 15 of the
Securities Act; Section 10(b) of the Exchange Act and Rule 10b-5
promulgated thereunder; Section 20(a) of the Exchange Act; Sections 34(b),
36(a), 36(b) and 48(a) of the Investment Company Act; breach of fiduciary
duty/constructive fraud; aiding and abetting breach of fiduciary duty; and
unjust enrichment. The plaintiffs in this lawsuit are seeking: compensatory
damages, including interest; and other costs and expenses, including
counsel and expert fees.
CYNTHIA ESSENMACHER, SILVANA G. DELLA CAMERA, FELICIA BERNSTEIN AS
CUSTODIAN FOR DANIELLE BROOKE BERNSTEIN, EDWARD CASEY, TINA CASEY, SIMON
DENENBERG, GEORGE L. GORSUCH, PAT B. GORSUCH, L. SCOTT KARLIN, HENRY
KRAMER, JOHN E. MORRISEY, HARRY SCHIPPER, BERTY KREISLER, GERSON SMITH,
CYNTHIA PULEO, ZACHARY ALAN STARR, JOSHUA GUTTMAN, AND AMY SUGIN,
DERIVATIVELY ON BEHALF OF THE MUTUAL FUNDS, TRUSTS AND CORPORATIONS
COMPRISING THE INVESCO AND AIM FAMILY OF MUTUAL FUNDS V. AMVESCAP, PLC,
INVESCO FUNDS GROUP, INC., INVESCO DISTRIBUTORS, INC., INVESCO
INSTITUTIONAL (N.A.), INC., INVESCO ASSETS MANAGEMENT LIMITED, INVESCO
GLOBAL ASSETS MANAGEMENT (N.A.), AIM MANAGEMENT GROUP, INC., AIM ADVISERS,
INC., AIM INVESTMENT SERVICES, INC., AIM DISTRIBUTORS, INC., FUND
MANAGEMENT COMPANY, MARK H. WILLIAMSON, RAYMOND R. CUNNINGHAM, TIMOTHY
MILLER, THOMAS KOLBE, MICHAEL LEGOSKI, MICHAEL BRUGMAN, FRED A. DEERING,
VICTOR L. ANDREWS, BOB R. BAKER, LAWRENCE H. BUDNER, JAMES T. BUNCH, GERALD
J. LEWIS, JOHN W. MCINTYRE, LARRY SOLL, RONALD L. GROOMS, WILLIAM J.
GALVIN, JR., ROBERT H. GRAHAM, FRANK S. BAYLEY, BRUCE L. CROCKETT, ALBERT
R. DOWDEN, EDWARD K. DUNN, JACK M. FIELDS, CARL FRISCHILING, PREMA
MATHAI-DAVIS, LEWIS F. PENNOCK, RUTH H. QUIGLEY, LOUIS S. SKLAR, OWEN DALY
II, AURUM SECURITIES CORP., AURUM CAPITAL MANAGEMENT CORP., GOLDEN GATE
FINANCIAL GROUP, LLC, BANK OF AMERICA CORP., BANC OF AMERICA SECURITIES
LLC, BANK OF AMERICA, N.A., BEAR STEARNS & CO., INC., CANARY CAPITAL
PARTNERS, LLC, CANARY CAPITAL PARTNERS, LTD., CANARY INVESTMENT MANAGEMENT,
LLC, EDWARD J. STERN, CANADIAN IMPERIAL BANK OF COMMERCE, CIRCLE TRUST
COMPANY, RYAN GOLDBERG, MICHAEL GRADY, KAPLAN & CO. SECURITIES, INC., JP
MORGAN CHASE & CO., OPPENHEIMER & CO., INC., PRITCHARD CAPITAL PARTNERS
LLC, TIJA MANAGEMENT, TRAUTMAN WASSERMAN & COMPANY, INC., DEFENDANTS, AND
THE INVESCO FUNDS AND THE AIM FUNDS AND ALL TRUSTS AND CORPORATIONS THAT
COMPRISE THE INVESCO FUNDS AND AIM FUNDS THAT WERE MANAGED BY INVESCO AND
AIM, NOMINAL DEFENDANTS, in the MDL Court (Case No. 04-MD-15864-FPS; No.
04-819), filed on September 29, 2004. This lawsuit alleges violations of
Sections 206 and 215 of the Investment Advisers Act; Sections
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36(a), 36(b) and 47 of the Investment Company Act; control person liability
under Section 48 of the Investment Company Act; breach of fiduciary duty;
aiding and abetting breach of fiduciary duty; breach of contract; unjust
enrichment; interference with contract; and civil conspiracy. The
plaintiffs in this lawsuit are seeking: removal of director defendants;
removal of adviser, sub-adviser and distributor defendants; rescission of
management and other contracts between the Funds and defendants; rescission
of 12b-1 plans; disgorgement of management fees and other
compensation/profits paid to adviser defendants; compensatory and punitive
damages; and fees and expenses, including attorney and expert fees.
MIRIAM CALDERON, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY
SITUATED, V. AVZ, INC., AMVESCAP RETIREMENT, INC., AMVESCAP NATIONAL TRUST
COMPANY, INVESCO FUNDS GROUP, INC., AMVESCAP, ROBERT F. MCCULLOUGH, GORDON
NEBEKER, JEFFREY G. CALLAHAN, AND RAYMOND R. CUNNINGHAM, in the MDL Court
(Case No. 1:04-MD-15864-FPS), filed on September 29, 2004. This lawsuit
alleges violations of ERISA Sections 404, 405 and 406. The plaintiffs in
this lawsuit are seeking: declaratory judgment; restoration of losses
suffered by the plan; disgorgement of profits; imposition of a constructive
trust; injunctive relief; compensatory damages; costs and attorneys' fees;
and equitable restitution.
On March 1, 2006, the MDL Court entered orders on Defendants' Motions to
dismiss in the derivative (Essenmacher) and class action (Lepera) lawsuits. The
MDL Court dismissed all derivative causes of action in the Essenmacher lawsuit
but two: (i) the excessive fee claim under Section 36(b) of the Investment
Company Act of 1940 (the "1940 Act"); and (ii) the "control person liability"
claim under Section 48 of the 1940 Act. The MDL Court dismissed all claims
asserted in the Lepera class action lawsuit but three: (i) the securities fraud
claims under Section 10(b) of the Securities Exchange Act of 1934; (ii) the
excessive fee claim under Section 36(b) of the 1940 Act (which survived only
insofar as plaintiffs seek recovery of fees associated with the assets involved
in market timing); and (iii) the "control person liability" claim under Section
48 of the 1940 Act. On June 14, 2006, the MDL Court entered an order dismissing
the Section 48 claim in the derivative (Essenmacher) lawsuit. Based on the MDL
Court's March 1, 2006 and June 14, 2006 orders, all claims asserted against the
Funds that have been transferred to the MDL Court have been dismissed, although
certain Funds remain nominal defendants in the derivative (Essenmacher) lawsuit.
Defendants filed their Original Answer in the class action (Lepera) lawsuit on
March 31, 2006. The MDL Court has indefinitely deferred Defendants' obligation
to answer the derivative (Essenmacher) lawsuit. The Plaintiffs in the class
action (Lepera) lawsuit stipulated that their claims against AIM, ADI and AIM
Investment Services, Inc. ("AIS") are based solely on successor liability for
alleged timing in the AIM Funds formerly advised by IFG and that they are not
making any claims based on alleged timing in the other AIM Funds. Based upon
this stipulation, AIM withdrew its pending Motion to Dismiss the claims against
AIM, ADI and AIS.
On February 27, 2006, Judge Motz for the MDL Court issued a memorandum
opinion on the AMVESCAP Defendants' motion to dismiss the ERISA (Calderon)
lawsuit. Judge Motz granted the motion in part and denied the motion in part,
holding that: (i) Plaintiff has both constitutional and statutory standing to
pursue her claims under ERISA Section 502(a)(2); (ii) Plaintiff lacks standing
under ERISA Section 502(a)(3) to obtain equitable relief; (iii) the motion is
granted as to the claims alleged under ERISA Section 404 for failure to
prudently and loyally manage plan assets against certain AMVESCAP Defendants;
(iv) the motion is denied as to the claims alleged under ERISA Section 404 for
failure to prudently and loyally manage plan assets against AMVESCAP and certain
other AMVESCAP Defendants. The opinion also: (i) confirmed Plaintiff's
abandonment of her claims that the Defendants engaged in prohibited transactions
and/or misrepresentation; (ii) postponed consideration of the duty to monitor
and co-fiduciary duty claims until after any possible amendments to the
complaints; (iii) stated that Plaintiff may seek leave to amend her complaint
within 40 days of the date of filing of the memorandum opinion. On April 4,
2006, Judge Motz entered an Order implementing these rulings in the ERISA
(Calderon) lawsuit against the AMVESCAP Defendants. On May 8, 2006, Plaintiff
filed a Second Amended Class Action Complaint in order to comply with Judge
Motz's Order. The remaining defendants are AVZ, Inc. (as Plan Sponsor) and
AMVESCAP National Trust Company (as Plan Trustee and Asset Custodian), and the
remaining claims
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are based on alleged breaches of Defendants' fiduciary duties caused by a
failure to prudently and loyally manage Plan assets and failure to provide
complete and accurate information to Plan Participants and Beneficiaries.
Plaintiff removed certain Defendants and all claims against them, including
AMVESCAP Retirement, Inc., IFG and AMVESCAP.
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APPENDIX I-2
PENDING LITIGATION ALLEGING INADEQUATELY EMPLOYED FAIR VALUE PRICING
The following civil class action lawsuits involve, depending on the
lawsuit, one or more AIM Funds, IFG and/or AIM and allege that the defendants
inadequately employed fair value pricing. These lawsuits either have been served
or have had service of process waived as of July 9, 2006.
T.K. PARTHASARATHY, EDMUND WOODBURY, STUART ALLEN SMITH AND SHARON SMITH,
INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED, V. T. ROWE
PRICE INTERNATIONAL FUNDS, INC., T. ROWE PRICE INTERNATIONAL, INC., ARTISAN
FUNDS, INC., ARTISAN PARTNERS LIMITED PARTNERSHIP, AIM INTERNATIONAL FUNDS,
INC. AND AIM ADVISORS, INC., in the Third Judicial Circuit Court for
Madison County, Illinois (Case No. 2003-L-001253), filed on September 23,
2003. This claim alleges: common law breach of duty and common law
negligence and gross negligence. The plaintiffs in these cases are seeking:
compensatory and punitive damages; interest; and attorneys' fees and costs.
The Third Judicial Circuit Court for Madison County, Illinois has issued an
order severing the claims of plaintiff Parthasarathy from the claims of the
other plaintiffs against AIM and other defendants. As a result, AIM is a
defendant in the following severed action: EDMUND WOODBURY, STUART ALLEN
SMITH and SHARON SMITH, Individually and On Behalf of All Others Similarly
Situated, v. AIM INTERNATIONAL FUNDS, INC., ET AL., in the Third Judicial
Circuit Court for Madison County, Illinois (Case No. 03-L-1253A). The
claims made by Plaintiffs and the relief sought in the Woodbury lawsuit are
identical to those in the Parthasarathy lawsuit. On April 22, 2005,
Defendants in the Woodbury lawsuit removed the action to Federal Court
(U.S. District Court, Southern District of Illinois, No. 05-CV-302-DRH).
Based on a recent Federal appellate court decision (the "Kircher" case),
AIM and the other defendants in the Woodbury lawsuit removed the action to
Federal court (U.S. District Court, Southern District of Illinois, Cause
No. 05-CV-302-DRH) on April 22, 2005. On April 26, 2005, AIM and the other
defendants filed their Motion to Dismiss Plaintiffs' state law based
claims. On June 10, 2005, the Court dismissed the Woodbury lawsuit based
upon the Kircher ruling and ordered the court clerk to close this case.
Plaintiffs filed a Motion to Amend the Judgment arguing that the Kircher
ruling does not apply to require the dismissal of the claims against AIM in
the Woodbury lawsuit. On July 7, 2005, the Court denied this Motion.
Plaintiffs have filed a Notice of Appeal. On September 2, 2005, the Court
combined the nine cases on this subject matter, including the case against
AIM.
JOHN BILSKI, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED,
V. AIM INTERNATIONAL FUNDS, INC., AIM ADVISORS, INC., INVESCO INTERNATIONAL
FUNDS, INC., INVESCO FUNDS GROUP, INC., T. ROWE PRICE INTERNATIONAL FUNDS,
INC. AND T. ROWE PRICE INTERNATIONAL, INC., in the United States District
Court, Southern District of Illinois (East St. Louis) (Case No. 03-772),
filed on November 19, 2003. This claim alleges: violations of Sections
36(a) and 36(b) of the Investment Company Act of 1940; common law breach of
duty; and common law negligence and gross negligence. The plaintiff in this
case is seeking: compensatory and punitive damages; interest; and
attorneys' fees and costs. This lawsuit has been transferred to the MDL
Court by order of the United States District Court, Southern District of
Illinois (East St. Louis).
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APPENDIX I-3
PENDING LITIGATION ALLEGING EXCESSIVE ADVISORY AND/OR DISTRIBUTION FEES
The following civil lawsuits, including purported class action and
shareholder derivative suits, involve, depending on the lawsuit, one or more of
IFG, AIM, IINA, ADI and/or INVESCO Distributors and allege that the defendants
charged excessive advisory and/or distribution fees and failed to pass on to
shareholders the perceived savings generated by economies of scale and, in some
cases, also allege that the defendants adopted unlawful distribution plans.
These lawsuits either have been served or have had service of process waived as
of July 9, 2006.
All of the lawsuits discussed below have been transferred to the United
States District Court for the Southern District of Texas, Houston Division by
order of the applicable United States District Court in which they were
initially filed. By order of the United States District Court for the Southern
District of Texas, Houston Division, the Kondracki and Papia lawsuits discussed
below have been consolidated for pre-trial purpose into the Berdat lawsuit
discussed below and administratively closed. On December 29, 2005, Defendants
filed a Notice of Tag-Along case in the MDL Court regarding this matter due to
the extensive allegations of market timing contained in Plaintiffs' Second
Amended Consolidated Complaint. Pursuant to a Transfer Order issued by the MDL
Court on June 16, 2006, the Berdat lawsuit was transferred to the MDL Court for
pre-trial proceedings.
RONALD KONDRACKI V. AIM ADVISORS, INC. AND AIM DISTRIBUTOR, INC., in the
United States District Court for the Southern District of Illinois (Civil
Action No. 04-CV-263-DRH), filed on April 16, 2004. This claim alleges
violations of Section 36(b) of the Investment Company Act of 1940 (the
"Investment Company Act"). The plaintiff in this case is seeking: damages;
injunctive relief; prospective relief in the form of reduced fees;
rescission of the investment advisory agreements and distribution plans;
and costs and expenses, including counsel fees.
DOLORES BERDAT, MARVIN HUNT, MADELINE HUNT, RANDAL C. BREVER AND RHONDA
LECURU V. INVESCO FUNDS GROUP, INC., INVESCO INSTITUTIONAL (N.A.), INC.,
INVESCO DISTRIBUTORS, INC., AIM ADVISORS, INC. AND AIM DISTRIBUTORS, INC.,
in the United States District Court for the Middle District of Florida,
Tampa Division (Case No. 8:04-CV-978-T24-TBM), filed on April 29, 2004.
This claim alleges violations of Sections 36(b) and 12(b) of the Investment
Company Act. The plaintiffs in this case are seeking: damages; injunctive
relief; rescission of the investment advisory agreements and distribution
plans; and costs and expenses, including counsel fees.
FERDINANDO PAPIA, FRED DUNCAN, GRACE GIAMANCO, JEFFREY S. THOMAS, COURTNEY
KING, KATHLEEN BLAIR, HENRY BERDAT, RUTH MOCCIA, MURRAY BEASLEY AND FRANCES
J. BEASLEY V. A I M ADVISORS, INC. AND A I M DISTRIBUTORS, INC., in the
United States District Court for the Middle District of Florida, Tampa
Division (Case No. 8:04-CV-977-T17-MSS), filed on April 29, 2004. This
claim alleges violations of Sections 36(b) and 12(b) of the Investment
Company Act. The plaintiffs in this case are seeking: damages; injunctive
relief; rescission of the investment advisory agreements and distribution
plans; and costs and expenses, including counsel fees.
I-13
APPENDIX I-4
PENDING LITIGATION ALLEGING IMPROPER MUTUAL FUND SALES PRACTICES
AND DIRECTED-BROKERAGE ARRANGEMENTS
The following civil lawsuits, including purported class action and
shareholder derivative suits, involve, depending on the lawsuit, one or more of
AIM Management, IFG, AIM, AIS and/or certain of the trustees of the AIM Funds
and allege that the defendants improperly used the assets of the AIM Funds to
pay brokers to aggressively push the AIM Funds over other mutual funds and that
the defendants concealed such payments from investors by disguising them as
brokerage commissions. These lawsuits either have been served or have had
service of process waived as of July 9, 2006.
By order of the United States District Court for the Southern District of
Texas, Houston Division, the claims made in the Beasley, Kehlbeck Trust, Fry,
Apu and Bendix lawsuits discussed below were consolidated into the Boyce lawsuit
discussed below and these other lawsuits were administratively closed. On June
7, 2005, Plaintiffs filed their Consolidated Amended Complaint in which they
make substantially identical allegations to those of the individual underlying
lawsuits. However, the City of Chicago Deferred Compensation Plan has been
joined as an additional plaintiff in the Consolidated Amended Complaint.
Plaintiffs added defendants, including current and former directors/trustees of
the AIM Funds formerly advised by IFG. On December 16, 2005, Defendants filed
their Motions to Dismiss these claims. Defendants' Motion to Dismiss has been
fully briefed and argued and is pending a decision by the Court.
JOY D. BEASLEY AND SHEILA MCDAID, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS
SIMILARLY SITUATED, V. AIM MANAGEMENT GROUP INC., INVESCO FUNDS GROUP,
INC., AIM INVESTMENT SERVICES, INC., AIM ADVISORS, INC., ROBERT H. GRAHAM,
MARK H. WILLIAMSON, FRANK S. BAYLEY, BRUCE L. CROCKETT, ALBERT R. DOWDEN,
EDWARD K. DUNN, JR., JACK M. FIELDS, CARL FRISCHLING, PREMA MATHAI-DAVIS,
LEWIS F. PENNOCK, RUTH H. QUIGLEY, AND LOUIS S. SKLAR, AND JOHN DOES 1-100,
DEFENDANTS, AND AIM AGGRESSIVE GROWTH FUND, AIM ASIA PACIFIC GROWTH FUND,
AIM BALANCED FUND, AIM BASIC BALANCED FUND, AIM BASIC VALUE FUND, AIM BLUE
CHIP FUND, AIM CAPITAL DEVELOPMENT FUND, AIM CHARTER FUND, AIM
CONSTELLATION FUND, AIM DENT DEMOGRAPHIC TRENDS FUND, AIM DEVELOPING
MARKETS FUND, AIM DIVERSIFIED DIVIDEND FUND, AIM EMERGING GROWTH FUND, AIM
EUROPEAN GROWTH FUND, AIM EUROPEAN SMALL COMPANY FUND, AIM FLOATING RATE
FUND, AIM GLOBAL AGGRESSIVE GROWTH FUND, AIM GLOBAL EQUITY FUND, AIM GLOBAL
GROWTH FUND, AIM GLOBAL HEALTH CARE FUND, AIM GLOBAL VALUE FUND, AIM HIGH
INCOME MUNICIPAL FUND, AIM HIGH YIELD FUND, AIM INCOME FUND, AIM
INTERMEDIATE GOVERNMENT FUND, AIM INTERNATIONAL EMERGING GROWTH FUND, AIM
INTERNATIONAL GROWTH FUND, AIM LARGE CAP BASIC VALUE FUND, AIM LARGE CAP
GROWTH FUND, AIM LIBRA FUND, AIM LIMITED MATURITY TREASURY FUND, AIM MID
CAP BASIC VALUE FUND, AIM MID CAP CORE EQUITY FUND, AIM MID CAP GROWTH
FUND, AIM MUNICIPAL BOND FUND, AIM OPPORTUNITIES I FUND, AIM OPPORTUNITIES
II FUND, AIM OPPORTUNITIES III FUND, AIM PREMIER EQUITY FUND, AIM REAL
ESTATE FUND, AIM SELECT EQUITY FUND, AIM SHORT TERM BOND FUND, AIM SMALL
CAP EQUITY FUND, AIM SMALL CAP GROWTH FUND, AIM TAX-FREE INTERMEDIATE FUND,
AIM TOTAL RETURN BOND FUND, AIM TRIMARK ENDEAVOR FUND, AIM TRIMARK FUND,
AIM TRIMARK SMALL COMPANIES FUND, AIM WEINGARTEN FUND, INVESCO ADVANTAGE
HEALTH SCIENCES FUND, INVESCO CORE EQUITY FUND, INVESCO DYNAMICS FUND,
INVESCO ENERGY FUND, INVESCO FINANCIAL SERVICES FUND, INVESCO GOLD &
PRECIOUS METALS FUND, INVESCO HEALTH SCIENCES FUND, INVESCO INTERNATIONAL
CORE EQUITY FUND, INVESCO LEISURE FUND, INVESCO MID-CAP GROWTH FUND,
INVESCO MULTI-
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SECTOR FUND, INVESCO S&P 500 INDEX FUND, INVESCO SMALL COMPANY GROWTH FUND,
INVESCO TECHNOLOGY FUND, INVESCO TOTAL RETURN FUND, INVESCO UTILITIES FUND,
NOMINAL DEFENDANTS, in the United States District Court for the District of
Colorado (Civil Action No. 04-B-0958), filed on May 10, 2004. The
plaintiffs voluntarily dismissed this case in Colorado and re-filed it on
July 2, 2004 in the United States District Court for the Southern District
of Texas, Houston Division (Civil Action H-04-2589). This claim alleges
violations of Sections 34(b), 36(b) and 48(a) of the Investment Company Act
of 1940 (the "Investment Company Act") and violations of Sections 206 and
215 of the Investment Advisers Act of 1940 (the "Advisers Act"). The claim
also alleges common law breach of fiduciary duty. The plaintiffs in this
case are seeking: 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.
RICHARD TIM BOYCE V. AIM MANAGEMENT GROUP INC., INVESCO FUNDS GROUP, INC.,
AIM INVESTMENT SERVICES, INC., AIM ADVISORS, INC., ROBERT H. GRAHAM, MARK
H. WILLIAMSON, FRANK S. BAYLEY, BRUCE L. CROCKETT, ALBERT R. DOWDEN, EDWARD
K. DUNN, JR., JACK M. FIELDS, CARL FRISCHLING, PREMA MATHAI-DAVIS, LEWIS F.
PENNOCK, RUTH H. QUIGLEY, AND LOUIS S. SKLAR, AND JOHN DOES 1-100,
DEFENDANTS, AND AIM AGGRESSIVE GROWTH FUND, AIM ASIA PACIFIC GROWTH FUND,
AIM BALANCED FUND, AIM BASIC BALANCED FUND, AIM BASIC VALUE FUND, AIM BLUE
CHIP FUND, AIM CAPITAL DEVELOPMENT FUND, AIM CHARTER FUND, AIM
CONSTELLATION FUND, AIM DENT DEMOGRAPHIC TRENDS FUND, AIM DEVELOPING
MARKETS FUND, AIM DIVERSIFIED DIVIDEND FUND, AIM EMERGING GROWTH FUND, AIM
EUROPEAN GROWTH FUND, AIM EUROPEAN SMALL COMPANY FUND, AIM FLOATING RATE
FUND, AIM GLOBAL AGGRESSIVE GROWTH FUND, AIM GLOBAL EQUITY FUND, AIM GLOBAL
GROWTH FUND, AIM GLOBAL HEALTH CARE FUND, AIM GLOBAL VALUE FUND, AIM HIGH
INCOME MUNICIPAL FUND, AIM HIGH YIELD FUND, AIM INCOME FUND, AIM
INTERMEDIATE GOVERNMENT FUND, AIM INTERNATIONAL EMERGING GROWTH FUND, AIM
INTERNATIONAL GROWTH FUND, AIM LARGE CAP BASIC VALUE FUND, AIM LARGE CAP
GROWTH FUND, AIM LIBRA FUND, AIM LIMITED MATURITY TREASURY FUND, AIM MID
CAP BASIC VALUE FUND, AIM MID CAP CORE EQUITY FUND, AIM MID CAP GROWTH
FUND, AIM MUNICIPAL BOND FUND, AIM OPPORTUNITIES I FUND, AIM OPPORTUNITIES
II FUND, AIM OPPORTUNITIES III FUND, AIM PREMIER EQUITY FUND, AIM REAL
ESTATE FUND, AIM SELECT EQUITY FUND, AIM SHORT TERM BOND FUND, AIM SMALL
CAP EQUITY FUND, AIM SMALL CAP GROWTH FUND, AIM TAX-FREE INTERMEDIATE FUND,
AIM TOTAL RETURN BOND FUND, AIM TRIMARK ENDEAVOR FUND, AIM TRIMARK FUND,
AIM TRIMARK SMALL COMPANIES FUND, AIM WEINGARTEN FUND, INVESCO ADVANTAGE
HEALTH SCIENCES FUND, INVESCO CORE EQUITY FUND, INVESCO DYNAMICS FUND,
INVESCO ENERGY FUND, INVESCO FINANCIAL SERVICES FUND, INVESCO GOLD &
PRECIOUS METALS FUND, INVESCO HEALTH SCIENCES FUND, INVESCO INTERNATIONAL
CORE EQUITY FUND, INVESCO LEISURE FUND, INVESCO MID-CAP GROWTH FUND,
INVESCO MULTI-SECTOR FUND, INVESCO S&P 500 INDEX FUND, INVESCO SMALL
COMPANY GROWTH FUND, INVESCO TECHNOLOGY FUND, INVESCO TOTAL RETURN FUND,
INVESCO UTILITIES FUND, NOMINAL DEFENDANTS, in the United States District
Court for the District of Colorado (Civil Action No. 04-N-0989), filed on
May 13, 2004. The plaintiff voluntarily dismissed this case in Colorado and
re-filed it on July 1, 2004 in the United States District Court for the
Southern District of Texas, Houston Division (Civil Action H-04-2587). This
claim alleges violations of Sections 34(b), 36(b) and 48(a) of the
Investment Company Act and violations of Sections 206 and 215 of the
Advisers Act. The claim also alleges common law breach of fiduciary duty.
The plaintiff in this case is
I-15
seeking: 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.
KEHLBECK TRUST DTD 1-25-93, BILLY B. KEHLBECK AND DONNA J. KEHLBECK, TTEES
V. AIM MANAGEMENT GROUP INC., INVESCO FUNDS GROUP, INC., AIM INVESTMENT
SERVICES, INC., AIM ADVISORS, INC., ROBERT H. GRAHAM, MARK H. WILLIAMSON,
FRANK S. BAYLEY, BRUCE L. CROCKETT, ALBERT R. DOWDEN, EDWARD K. DUNN, JR.,
JACK M. FIELDS, CARL FRISCHLING, PREMA MATHAI-DAVIS, LEWIS F. PENNOCK, RUTH
H. QUIGLEY, AND LOUIS S. SKLAR, AND JOHN DOES 1-100, DEFENDANTS, AND AIM
AGGRESSIVE GROWTH FUND, AIM ASIA PACIFIC GROWTH FUND, AIM BALANCED FUND,
AIM BASIC BALANCED FUND, AIM BASIC VALUE FUND, AIM BLUE CHIP FUND, AIM
CAPITAL DEVELOPMENT FUND, AIM CHARTER FUND, AIM CONSTELLATION FUND, AIM
DENT DEMOGRAPHIC TRENDS FUND, AIM DEVELOPING MARKETS FUND, AIM DIVERSIFIED
DIVIDEND FUND, AIM EMERGING GROWTH FUND, AIM EUROPEAN GROWTH FUND, AIM
EUROPEAN SMALL COMPANY FUND, AIM FLOATING RATE FUND, AIM GLOBAL AGGRESSIVE
GROWTH FUND, AIM GLOBAL EQUITY FUND, AIM GLOBAL GROWTH FUND, AIM GLOBAL
HEALTH CARE FUND, AIM GLOBAL VALUE FUND, AIM HIGH INCOME MUNICIPAL FUND,
AIM HIGH YIELD FUND, AIM INCOME FUND, AIM INTERMEDIATE GOVERNMENT FUND, AIM
INTERNATIONAL EMERGING GROWTH FUND, AIM INTERNATIONAL GROWTH FUND, AIM
LARGE CAP BASIC VALUE FUND, AIM LARGE CAP GROWTH FUND, AIM LIBRA FUND, AIM
LIMITED MATURITY TREASURY FUND, AIM MID CAP BASIC VALUE FUND, AIM MID CAP
CORE EQUITY FUND, AIM MID CAP GROWTH FUND, AIM MUNICIPAL BOND FUND, AIM
OPPORTUNITIES I FUND, AIM OPPORTUNITIES II FUND, AIM OPPORTUNITIES III
FUND, AIM PREMIER EQUITY FUND, AIM REAL ESTATE FUND, AIM SELECT EQUITY
FUND, AIM SHORT TERM BOND FUND, AIM SMALL CAP EQUITY FUND, AIM SMALL CAP
GROWTH FUND, AIM TAX-FREE INTERMEDIATE FUND, AIM TOTAL RETURN BOND FUND,
AIM TRIMARK ENDEAVOR FUND, AIM TRIMARK FUND, AIM TRIMARK SMALL COMPANIES
FUND, AIM WEINGARTEN FUND, INVESCO ADVANTAGE HEALTH SCIENCES FUND, INVESCO
CORE EQUITY FUND, INVESCO DYNAMICS FUND, INVESCO ENERGY FUND, INVESCO
FINANCIAL SERVICES FUND, INVESCO GOLD & PRECIOUS METALS FUND, INVESCO
HEALTH SCIENCES FUND, INVESCO INTERNATIONAL CORE EQUITY FUND, INVESCO
LEISURE FUND, INVESCO MULTI-SECTOR FUND, INVESCO MID-CAP GROWTH FUND,
INVESCO S&P 500 INDEX FUND, INVESCO SMALL COMPANY GROWTH FUND, INVESCO
TECHNOLOGY FUND, INVESCO TOTAL RETURN FUND, INVESCO UTILITIES FUND, NOMINAL
DEFENDANTS, in the United States District Court for the Southern District
of Texas, Houston Division (Civil Action No. H-04-2802), filed on July 9,
2004. This claim alleges violations of Sections 34(b), 36(b) and 48(a) of
the Investment Company Act and violations of Sections 206 and 215 of the
Advisers Act. The claim also alleges common law breach of fiduciary duty.
The plaintiff in this case is seeking: 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.
JANICE R. FRY, BOB J. FRY, JAMES P. HAYES, VIRGINIA L. MAGBUAL, HENRY W.
MEYER AND GEORGE ROBERT PERRY V. AIM MANAGEMENT GROUP INC., INVESCO FUNDS
GROUP, INC., AIM INVESTMENT SERVICES, INC., AIM ADVISORS, INC., ROBERT H.
GRAHAM, MARK H. WILLIAMSON, FRANK S. BAYLEY, BRUCE L. CROCKETT, ALBERT R.
DOWDEN, EDWARD K. DUNN, JR., JACK M. FIELDS, CARL FRISCHLING, PREMA
MATHAI-DAVIS, LEWIS F. PENNOCK, RUTH H. QUIGLEY, AND LOUIS S. SKLAR, AND
JOHN DOES 1-100,
I-16
DEFENDANTS, AND AIM AGGRESSIVE GROWTH FUND, AIM ASIA PACIFIC GROWTH FUND,
AIM BALANCED FUND, AIM BASIC BALANCED FUND, AIM BASIC VALUE FUND, AIM BLUE
CHIP FUND, AIM CAPITAL DEVELOPMENT FUND, AIM CHARTER FUND, AIM
CONSTELLATION FUND, AIM DENT DEMOGRAPHIC TRENDS FUND, AIM DEVELOPING
MARKETS FUND, AIM DIVERSIFIED DIVIDEND FUND, AIM EMERGING GROWTH FUND, AIM
EUROPEAN GROWTH FUND, AIM EUROPEAN SMALL COMPANY FUND, AIM FLOATING RATE
FUND, AIM GLOBAL AGGRESSIVE GROWTH FUND, AIM GLOBAL EQUITY FUND, AIM GLOBAL
GROWTH FUND, AIM GLOBAL HEALTH CARE FUND, AIM GLOBAL VALUE FUND, AIM GROUP
INCOME FUND, AIM GROUP VALUE FUND, AIM HIGH INCOME MUNICIPAL FUND, AIM HIGH
YIELD FUND, AIM INCOME FUND, AIM INTERMEDIATE GOVERNMENT FUND, AIM
INTERNATIONAL EMERGING GROWTH FUND, AIM INTERNATIONAL GROWTH FUND, AIM
LARGE CAP BASIC VALUE FUND, AIM LARGE CAP GROWTH FUND, AIM LIBRA FUND, AIM
LIMITED MATURITY TREASURY FUND, AIM MID CAP BASIC VALUE FUND, AIM MID CAP
CORE EQUITY FUND, AIM MID CAP GROWTH FUND, AIM MUNICIPAL BOND FUND, AIM
OPPORTUNITIES I FUND, AIM OPPORTUNITIES II FUND, AIM OPPORTUNITIES III
FUND, AIM PREMIER EQUITY FUND, AIM REAL ESTATE FUND, AIM SELECT EQUITY
FUND, AIM SHORT TERM BOND FUND, AIM SMALL CAP EQUITY FUND, AIM SMALL CAP
GROWTH FUND, AIM TAX-FREE INTERMEDIATE FUND, AIM TOTAL RETURN BOND FUND,
AIM TRIMARK ENDEAVOR FUND, AIM TRIMARK FUND, AIM TRIMARK SMALL COMPANIES
FUND, AIM WEINGARTEN FUND, INVESCO ADVANTAGE HEALTH SCIENCES FUND, INVESCO
CORE EQUITY FUND, INVESCO DYNAMICS FUND, INVESCO ENERGY FUND, INVESCO
FINANCIAL SERVICES FUND, INVESCO GOLD & PRECIOUS METALS FUND, INVESCO
HEALTH SCIENCES FUND, INVESCO INTERNATIONAL CORE EQUITY FUND, INVESCO
LEISURE FUND, INVESCO MULTI-SECTOR FUND, INVESCO MID-CAP GROWTH FUND,
INVESCO S&P 500 INDEX FUND, INVESCO SMALL COMPANY GROWTH FUND, INVESCO
TECHNOLOGY FUND, INVESCO TOTAL RETURN FUND, INVESCO UTILITIES FUND, NOMINAL
DEFENDANTS, in the United States District Court for the Southern District
of Texas, Houston Division (Civil Action No. H-04-2832), filed on July 12,
2004. This claim alleges violations of Sections 34(b), 36(b) and 48(a) of
the Investment Company Act and violations of Sections 206 and 215 of the
Advisers Act. The claim also alleges common law breach of fiduciary duty.
The plaintiff in this case is seeking: 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.
ROBERT P. APU, SUZANNE K. APU, MARINA BERTI, KHANH DINH, FRANK KENDRICK,
EDWARD A. KREZEL, DAN B. LESIUK, JOHN B. PERKINS, MILDRED E. RUEHLMAN,
LOUIS E. SPERRY, J. DORIS WILLSON AND ROBERT W. WOOD V. AIM MANAGEMENT
GROUP INC., INVESCO FUNDS GROUP, INC., AIM INVESTMENT SERVICES, INC., AIM
ADVISORS, INC., ROBERT H. GRAHAM, MARK H. WILLIAMSON, FRANK S. BAYLEY,
BRUCE L. CROCKETT, ALBERT R. DOWDEN, EDWARD K. DUNN, JR., JACK M. FIELDS,
CARL FRISCHLING, PREMA MATHAI-DAVIS, LEWIS F. PENNOCK, RUTH H. QUIGLEY, AND
LOUIS S. SKLAR, AND JOHN DOES 1-100, DEFENDANTS, AND AIM AGGRESSIVE GROWTH
FUND, AIM ASIA PACIFIC GROWTH FUND, AIM BALANCED FUND, AIM BASIC BALANCED
FUND, AIM BASIC VALUE FUND, AIM BLUE CHIP FUND, AIM CAPITAL DEVELOPMENT
FUND, AIM CHARTER FUND, AIM CONSTELLATION FUND, AIM DENT DEMOGRAPHIC TRENDS
FUND, AIM DEVELOPING MARKETS FUND, AIM DIVERSIFIED DIVIDEND FUND, AIM
EMERGING GROWTH FUND, AIM EUROPEAN GROWTH FUND, AIM EUROPEAN SMALL COMPANY
FUND, AIM FLOATING RATE FUND, AIM GLOBAL AGGRESSIVE GROWTH FUND, AIM GLOBAL
EQUITY FUND, AIM GLOBAL GROWTH FUND, AIM GLOBAL HEALTH CARE FUND, AIM
GLOBAL
I-17
VALUE FUND, AIM GROUP INCOME FUND, AIM GROUP VALUE FUND, AIM HIGH INCOME
MUNICIPAL FUND, AIM HIGH YIELD FUND, AIM INCOME FUND, AIM INTERMEDIATE
GOVERNMENT FUND, AIM INTERNATIONAL EMERGING GROWTH FUND, AIM INTERNATIONAL
GROWTH FUND, AIM LARGE CAP BASIC VALUE FUND, AIM LARGE CAP GROWTH FUND, AIM
LIBRA FUND, AIM LIMITED MATURITY TREASURY FUND, AIM MID CAP BASIC VALUE
FUND, AIM MID CAP CORE EQUITY FUND, AIM MID CAP GROWTH FUND, AIM MUNICIPAL
BOND FUND, AIM OPPORTUNITIES I FUND, AIM OPPORTUNITIES II FUND, AIM
OPPORTUNITIES III FUND, AIM PREMIER EQUITY FUND, AIM REAL ESTATE FUND, AIM
SELECT EQUITY FUND, AIM SHORT TERM BOND FUND, AIM SMALL CAP EQUITY FUND,
AIM SMALL CAP GROWTH FUND, AIM TAX-FREE INTERMEDIATE FUND, AIM TOTAL RETURN
BOND FUND, AIM TRIMARK ENDEAVOR FUND, AIM TRIMARK FUND, AIM TRIMARK SMALL
COMPANIES FUND, AIM WEINGARTEN FUND, INVESCO ADVANTAGE HEALTH SCIENCES
FUND, INVESCO CORE EQUITY FUND, INVESCO DYNAMICS FUND, INVESCO ENERGY FUND,
INVESCO FINANCIAL SERVICES FUND, INVESCO GOLD & PRECIOUS METALS FUND,
INVESCO HEALTH SCIENCES FUND, INVESCO INTERNATIONAL CORE EQUITY FUND,
INVESCO LEISURE FUND, INVESCO MULTI-SECTOR FUND, INVESCO MID-CAP GROWTH
FUND, INVESCO S&P 500 INDEX FUND, INVESCO SMALL COMPANY GROWTH FUND,
INVESCO TECHNOLOGY FUND, INVESCO TOTAL RETURN FUND, INVESCO UTILITIES FUND,
NOMINAL DEFENDANTS, in the United States District Court for the Southern
District of Texas, Houston Division (Civil Action No. H-04-2884), filed on
July 15, 2004. This claim alleges violations of Sections 34(b), 36(b) and
48(a) of the Investment Company Act and violations of Sections 206 and 215
of the Advisers Act. The claim also alleges common law breach of fiduciary
duty. The plaintiff in this case is seeking: 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.
HARVEY R. BENDIX, CVETAN GEORGIEV, DAVID M. LUCOFF, MICHAEL E. PARMELEE,
TRUSTEE OF THE HERMAN S. AND ESPERANZA A. DRAYER RESIDUAL TRUST U/A 1/22/83
AND STANLEY S. STEPHENSON, TRUSTEE OF THE STANLEY J. STEPHENSON TRUST V.
AIM MANAGEMENT GROUP INC., INVESCO FUNDS GROUP, INC., AIM INVESTMENT
SERVICES, INC., AIM ADVISORS, INC., ROBERT H. GRAHAM, MARK H. WILLIAMSON,
FRANK S. BAYLEY, BRUCE L. CROCKETT, ALBERT R. DOWDEN, EDWARD K. DUNN, JR.,
JACK M. FIELDS, CARL FRISCHLING, PREMA MATHAI-DAVIS, LEWIS F. PENNOCK, RUTH
H. QUIGLEY, AND LOUIS S. SKLAR, AND JOHN DOES 1-100, DEFENDANTS, AND AIM
AGGRESSIVE GROWTH FUND, AIM ASIA PACIFIC GROWTH FUND, AIM BALANCED FUND,
AIM BASIC BALANCED FUND, AIM BASIC VALUE FUND, AIM BLUE CHIP FUND, AIM
CAPITAL DEVELOPMENT FUND, AIM CHARTER FUND, AIM CONSTELLATION FUND, AIM
DENT DEMOGRAPHIC TRENDS FUND, AIM DEVELOPING MARKETS FUND, AIM DIVERSIFIED
DIVIDEND FUND, AIM EMERGING GROWTH FUND, AIM EUROPEAN GROWTH FUND, AIM
EUROPEAN SMALL COMPANY FUND, AIM FLOATING RATE FUND, AIM GLOBAL AGGRESSIVE
GROWTH FUND, AIM GLOBAL EQUITY FUND, AIM GLOBAL GROWTH FUND, AIM GLOBAL
HEALTH CARE FUND, AIM GLOBAL VALUE FUND, AIM GROUP INCOME FUND, AIM GROUP
VALUE FUND, AIM HIGH INCOME MUNICIPAL FUND, AIM HIGH YIELD FUND, AIM INCOME
FUND, AIM INTERMEDIATE GOVERNMENT FUND, AIM INTERNATIONAL EMERGING GROWTH
FUND, AIM INTERNATIONAL GROWTH FUND, AIM LARGE CAP BASIC VALUE FUND, AIM
LARGE CAP GROWTH FUND, AIM LIBRA FUND, AIM LIMITED MATURITY TREASURY FUND,
AIM MID CAP BASIC VALUE FUND, AIM MID CAP CORE EQUITY FUND, AIM MID CAP
GROWTH FUND, AIM MUNICIPAL BOND FUND, AIM OPPORTUNITIES I FUND, AIM
OPPORTUNITIES II FUND, AIM OPPORTUNITIES III FUND, AIM PREMIER EQUITY FUND,
AIM REAL
I-18
ESTATE FUND, AIM SELECT EQUITY FUND, AIM SHORT TERM BOND FUND, AIM SMALL
CAP EQUITY FUND, AIM SMALL CAP GROWTH FUND, AIM TAX-FREE INTERMEDIATE FUND,
AIM TOTAL RETURN BOND FUND, AIM TRIMARK ENDEAVOR FUND, AIM TRIMARK FUND,
AIM TRIMARK SMALL COMPANIES FUND, AIM WEINGARTEN FUND, INVESCO ADVANTAGE
HEALTH SCIENCES FUND, INVESCO CORE EQUITY FUND, INVESCO DYNAMICS FUND,
INVESCO ENERGY FUND, INVESCO FINANCIAL SERVICES FUND, INVESCO GOLD &
PRECIOUS METALS FUND, INVESCO HEALTH SCIENCES FUND, INVESCO INTERNATIONAL
CORE EQUITY FUND, INVESCO LEISURE FUND, INVESCO MULTI-SECTOR FUND, INVESCO
MID-CAP GROWTH FUND, INVESCO S&P 500 INDEX FUND, INVESCO SMALL COMPANY
GROWTH FUND, INVESCO TECHNOLOGY FUND, INVESCO TOTAL RETURN FUND, INVESCO
UTILITIES FUND, NOMINAL DEFENDANTS, in the United States District Court for
the Southern District of Texas, Houston Division (Civil Action No.
H-04-3030), filed on July 27, 2004. This claim alleges violations of
Sections 34(b), 36(b) and 48(a) of the Investment Company Act and
violations of Sections 206 and 215 of the Advisers Act. The claim also
alleges common law breach of fiduciary duty. The plaintiff in this case is
seeking: 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.
I-19
Appendix II
AIM SELECT REAL ESTATE INCOME FUND
Annual Report to Shareholders o December 31, 2005
[COVER IMAGE]
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
--Registered Trademark-- --Registered Trademark--
AIM SELECT REAL ESTATE INCOME FUND'S PRIMARY INVESTMENT OBJECTIVE IS HIGH
CURRENT INCOME; THE FUND'S SECONDARY INVESTMENT OBJECTIVE IS CAPITAL
APPRECIATION.
o Unless otherwise stated, information presented in this report is as of
December 31, 2005, and is based on total net assets attributable to common
shares plus assets attributable to outstanding preferred shares.
<Table>
GENERAL INFORMATION Fund preferred shares or borrowing, are quality, including non-investment grade
borne entirely by the common shareholders. securities commonly referred to as "junk
o AIM Select Real Estate Income Fund Common share income may fall if the bonds." Securities of below-investment
performance figures are historical, and dividend rate on Fund preferred shares or grade quality are regarded as having
they reflect Fund expenses, the the interest rate on any borrowings rises predominantly speculative characteristics
reinvestment of distributions (if any) and and will fluctuate as the dividend rate on with respect to capacity to pay interest
changes in net asset value (NAV) for Fund preferred shares or the interest on and repay principal.
performance based on NAV and changes in any borrowings varies.
market price for performance based on o The Fund's Declaration of Trust and
market price. o REITs tend to be small- to medium-sized Bylaws include provisions that could limit
companies. REIT shares, like other smaller the ability of other entities or persons
PRINCIPAL RISKS OF INVESTING IN THE FUND company shares, may be more volatile than to acquire control of the Fund or convert
and perform differently from the Fund to open-end status. These
o The performance of the Fund will be larger-company shares. There may be less provisions could have the effect of
closely linked to the performance of the trading in a smaller company's shares, depriving the common shareholders of
real estate markets. Property values may which means that buy and sell transactions opportunities to sell their common shares
fall due to declining rents or increasing in those shares could have a larger impact at a premium over the then-current market
vacancies resulting from economic, legal, on the share's prices than is the case prices of the common shares.
cultural, or technological developments. with larger-company shares.
The Fund invests substantial assets in o An investment in the Fund is subject to
Real Estate Investment Trusts (REITs). o The Fund is classified as investment risk, including the possible
REIT prices may drop because of poor "non-diversified" under the Investment loss of the entire principal amount that
management or because borrowers fail to Company Act of 1940. It can invest a you invest. Your common shares at any
pay their loans. Many REITs use leverage greater portion of its assets in point in time may be worth less than what
(and some may be highly leveraged), which obligations of a single issuer than a you invested, even after taking into
increases investment risk and could "diversified" fund. As a result, the Fund account the reinvestment of Fund dividends
adversely affect a REIT's operation and will be more susceptible than a more and distributions. The value of the Fund's
market value in periods of rising interest widely diversified fund to any single portfolio securities may move up or down,
rates in addition to the risks normally corporate, economic, political or sometimes rapidly and unpredictably.
associated with debt financing. Financial regulatory occurrence.
covenants related to REIT leveraging may o Investing in a single-sector mutual fund
affect the ability of REITs to operate o The prices of foreign securities may be may involve greater risk and potential
effectively. Real estate risks may also affected by factors not present with reward than investing in a more
arise if a portfolio company fails to securities traded in the U.S. markets, diversified fund. Due to significant
carry adequate insurance or if a portfolio including currency exchange rates, market volatility, results of an
company becomes liable for removal or political and economic conditions, less investment made today may differ
other costs related to environmental stringent regulation and higher substantially from the historical
contamination. Investing in REITs presents volatility. As a result, many foreign performance shown. Call your financial
risks not associated with investing in securities may be less liquid and more advisor for more current information.
stocks. volatile than U.S. securities.
ABOUT INDEXES USED IN THIS REPORT
o The Fund has the ability to use leverage o If the Fund enters into interest rate
through the issuance of preferred shares, swaps, interest rate caps, or options or o The unmanaged Standard & Poor's
commercial paper or notes, and/or futures transactions, a decline in Composite Index of 500 Stocks (the S&P
borrowing in an aggregate amount of up to interest rates may result in a decline in 500 --Registered Trademark-- INDEX) is an
30% of the Fund's total assets after such the net amount receivable by the Fund index of common stocks frequently used as
issuance and/or borrowing. It has under the interest rate hedging a general measure of U.S. stock market
currently issued preferred shares. The use transaction (or increase the net amount performance.
of leverage by the Fund can result in payable by the Fund under the interest
greater volatility of the NAV and market rate hedging transaction), which could o The unmanaged NATIONAL ASSOCIATION OF
price of the Fund's common shares because result in a decline in the NAV of the REAL ESTATE INVESTMENT TRUSTS (THE NAREIT)
changes in the value of the Fund's common shares. EQUITY INDEX tracks the performance of
portfolio investments, including equity REITs listed on New York Stock
investments purchased with the proceeds of o The Fund may invest up to 20% of its Exchange, NASDAQ National Market System,
the issuance of total assets in securities of and the American Stock Exchange.
below-investment grade
</Table>
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
AIMinvestments.com
<Table>
o The MSCI US REIT INDEX, formerly known o The certifications of the Fund's NOTICE IS HEREBY GIVEN THAT THE FUND MAY
as the Morgan Stanley REIT Index, is a principal executive officer and principal IN THE FUTURE PURCHASE ITS COMMON SHARES
total-return index composed of the most financial officer, as required by Section OR ITS AUCTION RATE PREFERRED SHARES FROM
actively traded real estate investment 302 of the Sarbanes-Oxley Act of 2002, are TIME TO TIME, AT SUCH TIME, AND IN SUCH
trusts and is designed to be a measure of filed with Securities and Exchange AMOUNTS, AS MAY BE DEEMED ADVANTAGEOUS TO
real estate equity performance. The index Commission (SEC) with the Fund's Form THE FUND. NOTHING HEREIN SHALL BE
was developed with a base value of 200 as N-CSR for the period covered by this CONSIDERED A COMMITMENT TO PURCHASE SUCH
of December 31, 1994. Annual Report to Shareholders. The Fund's SHARES.
Form N-CSR for the period covered by this
o The unmanaged LIPPER SECTOR EQUITY FUND Annual Report to Shareholders will be The Fund provides a complete list of its
CATEGORY AVERAGE (Closed end Funds) posted on the SEC's Web site, www.sec.gov, holdings four times in each fiscal year,
represents an average of all the within in 10 days after this Report is at the quarter-ends. For the second and
closed-end sector equity funds tracked by first sent to shareholders. fourth quarters, the lists appear in the
Lipper, Inc., an independent mutual fund Fund's semiannual and annual reports to
performance monitor. OTHER INFORMATION ABOUT THE ADVISOR shareholders. For the first and third
quarters, the Fund files the lists with
o The Fund is not managed to track the o Additional Compensation of Certain the Securities and Exchange Commission
performance of any particular index, Broker-Dealers. Pursuant to an agreement (SEC) on Form N-Q. The most recent list of
including the indexes defined here, and entered into on May 28, 2002, at the time portfolio holdings is available at
consequently, the performance of the Fund of the initial offering of the Fund's AIMinvestments.com. From our home
may deviate significantly from the common shares, the Fund's advisor makes page, click on Products & Performance,
performance of the indexes. incentive fee payments to certain then AIM Select Real Estate Income Fund,
broker-dealers who participated in the then Fund overview and then holdings.
o A direct investment cannot be made in an underwriting of such offering in Shareholders can also look up the Fund's
index. Unless otherwise indicated, index consideration of the Fund's receipt from Forms N-Q on the SEC's Web site at
results include reinvested dividends, and such broker-dealers of after market sec.gov. Copies of the Fund's Forms N-Q
they do not reflect sales charges. support services designed to maintain the may be reviewed and copied at the SEC's
Performance of an index of funds reflects visibility of the Fund on an ongoing Public Reference Room at 450 Fifth
fund expenses; performance of a market basis. Annual fees paid by the Fund's Street, N.W., Washington, D.C. 20549-0102.
does not. advisor shall not exceed 0.10% of the You can obtain information on the
Fund's aggregate Managed Assets (average operation of the Public Reference
OTHER INFORMATION daily net assets attributable to the Room, including information about
Fund's common shares, plus assets duplicating fee charges, by calling
o Property type classifications used in attributable to the Fund's Preferred 1-202-942-8090 or 1-800-732-0330,or by
this report are generally according to the Shares that are outstanding, plus the electronic request at the following e-mail
National Association of Real Estate principal amount of any borrowings). Over address: publicinfo@sec.gov. The SEC file
Investment Trusts (NAREIT) Equity Index, time, these payments cannot exceed, in the numbers for the Fund are 811-21048 and
which is exclusively owned by the National aggregate, $12,583,413. 333-84256 for common shares and 333-90388
Association of Real Estate Investment for preferred shares.
Trusts (NAREIT).
A description of the policies and
o The Fund's audit committee Charter is procedures that the Fund uses to determine
available on the AIM Website, how to vote proxies relating to portfolio
AIMinvestments.com. Go to securities is available without
AIMinvestments.com. Under the Products charge, upon request, from our Client
list, click on AIM Select Real Estate Services department at 800-959-4246 or on
Income Fund, then click on Fund overview, the AIM Web site, AIMinvestments.com. On
then on Charter of the Audit Committees of the home page, scroll down and click on
the AIM Funds. You may also obtain a AIM Funds Proxy Policy. The information is
printed copy by calling AIM's Client also available on the SEC Web
Services department a 800-959-4246. site, sec.gov.
o The Fund's Annual CEO Certification of Information regarding how the Fund voted
Compliance regarding the Fund's compliance proxies related to its portfolio
with NYSE corporate governance listing securities during the 12 months ended June
standards was filed with the NYSE on June 30, 2005, is available at our Web site. Go
17, 2005. to AIMinvestments.com, access the About Us
tab, click on Required Notices and then
click on Proxy Voting Activity.
Next, select the Fund from the drop-down
menu. The information is also available on
the SEC Web site, sec.gov.
</Table>
2
<Table>
DIVIDEND REINVESTMENT PLAN below the net asset value per Common Share o If, on the payment date of the dividend,
at the time of valuation, the Plan the closing market price per Common Shares
o The Fund has adopted the following Administrator will receive the dividend or plus per share brokerage commissions
Dividend Reinvestment Plan: distribution in cash and will purchase applicable to an open market purchase of
Common Shares in the open market, on the Common Shares is at or above the net asset
You may elect to have all dividends, New York Stock Exchange or elsewhere, for value per Common Share, the Fund will
including any capital gain dividends, the participants' accounts. It is possible issue new shares at a price equal to the
on your Common Shares automatically that the market price for the Common greater of (i) net asset value per Common
reinvested by Computershare Trust Shares may increase before the Plan Share on that trading date or (ii) 95% of
Company, N.A. as plan administrator Administrator has completed its purchases. the closing market price on that trading
(the "Plan Administrator") for the Therefore, the weighted average purchase date.
Common Shareholders, in additional price per share paid by the Plan
Common shares under the Dividend Administrator may exceed the closing o The Plan Administrator maintains all
Reinvestment Plan (the "Plan"). You may market price at the time of valuation, shareholders' accounts in the Plan and
elect to participate in the Plan by resulting in the purchase of fewer shares gives written confirmation of all
contacting the Plan Administrator at than if the dividend or distribution had transactions in the accounts, including
1-800-730-6001. If you do not participate, been paid in Common Shares issued by the information you may need for tax records.
you will receive all distributions in cash Fund. The Plan Administrator will use all Common Shares in your account will be held
paid by check mailed directly to you by dividends and distributions received in by the Plan Administrator in book-entry
Computershare Trust Company, N.A. as cash to purchase Common Shares in the open (non-certificated) form. Any proxy you
dividend paying agent. market prior to the next ex-dividend date. receive will include all Common Shares you
In the event it appears that the Plan have received under the Plan.
o If you decide to participate in the Administrator will not be able to complete
Plan, the number of Common Shares you will the open market purchases prior to the o You may withdraw from the Plan at any
receive will be determined as follows: next ex-dividend date, the Fund will time by giving notice to the Plan
determine whether to issue the remaining Administrator. If you withdraw completely
If, on the payment date of the dividend, shares at net asset value. Interest will from the Plan or the Plan is terminated,
the closing market price per Common Share not be paid on any uninvested cash the Plan Administrator will transfer your
plus per share brokerage commissions payments. account or issue the shares in your
applicable to an open market purchase of account to you (which may include a cash
Common Shares is
</Table>
3
<Table>
payment to you for any fraction of a share o All correspondence concerning the Plan and profits is treated as a non taxable
in your account). If you wish, the Plan should be directed to the Plan return of capital that reduces a
Administrator will sell your shares and Administrator at: P.O. Box 43011, shareholder's tax basis in their common
send you the proceeds, minus applicable Providence, RI 02940-3011. shares; any such distributions in excess
brokerage commissions and a $15.00 service of basis are treated as gain from the sale
fee. TRANSFERS OF SHARES AND CONTINUED of shares.
PARTICIPATION IN THE DIVIDEND REINVESTMENT
o There is no brokerage charge for PLAN o The tax treatment of dividends and
reinvestment of your dividends or distributions are the same regardless of
distributions in Common Shares. However, o A shareholder who holds Common Shares in whether they are paid in cash or
all participants will pay a pro rata share a brokerage account and participates in reinvested in additional Common Shares. If
of brokerage commissions incurred by the the dividend reinvestment plan may not be a shareholder sells his Common Shares, or
Plan Administrator when it makes open able to transfer the shares to another has shares repurchased by the Fund, the
market purchases. broker and continue to participate in the shareholder may realize a capital gain or
dividend reinvestment plan. loss, which will be long-term or
o Automatically reinvesting dividends and short-term depending on the shareholder's
distributions does not mean that you do TAX TREATMENT OF REINVESTED DIVIDENDS holding period for the shares. Fund
not have to pay income taxes due upon distributions also may be subject to state
receiving dividends and distributions. o Dividends paid out of the Fund's and local taxes.
"investment company taxable income" will
o The Fund reserves the right to amend or be taxable as ordinary income to the
terminate the Plan if in the judgment of extent of the Fund's earnings and profits.
the Board of Trustees the change is Distributions of net capital gain (the
warranted. There is no direct service excess of net long-term capital gain over
charge to participants in the Plan; net short-term capital loss), if any, are
however, the Fund reserves the right to taxable to shareholders as long-term
amend the Plan to include a service charge capital gain, regardless of the length of
payable by the participants. Additional time Fund shares were held. A distribution
information about the Plan may be obtained of an amount in excess of the Fund's
from the Plan Administrator. earnings
</Table>
4
AIM SELECT REAL ESTATE INCOME FUND
<Table>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE the Fund, with the intent of generating a
higher return on the assets than the Fund
======================================================================================= pays to borrow those assets. We also use
PERFORMANCE SUMMARY strategies designed to reduce the risk of
========================================== short-term interest rate movement, which
The Real Estate Investment Trust (REIT) FUND VS. INDEXES can affect the preferred share borrowing
market proved resilient during 2005. We are rate.
pleased to report AIM Select Real Estate TOTAL RETURNS, 12/31/04-12/31/05
Income Fund once again provided We attempt to control risk by
shareholders with positive returns. The Fund at NAV 4.44% diversification of property types,
Fund's primary objective, however, is high geographic location and limiting holding
current income with approximately 26% of Fund at Market 2.33 concentrations of any one security.
the Fund's assets invested in preferred
stocks. During the reporting period, REIT S&P 500 Index (Broad Market Index) 4.91 We will consider selling a holding
preferred stocks generally had lower when:
returns than REIT common stocks. As the NAREIT Equity Index
proportion of preferred stocks is higher (Style-specific Index) 12.17 o relative valuation falls below desired
in the Fund than in NAREIT Equity Index, levels
the Fund lagged this index during the MSCI US REIT Index
reporting period. (Former Style-specific Index) 12.13 o risk/return relationships change
significantly
Since the Fund is a closed-end Lipper Sector Equity Fund
management investment company, shares may Category Average o company fundamentals change (property
trade at a discount or premium to net (Closed-end Funds) type, geography or management changes)
asset value. As of December 31, 2005, the (Peer Group Index) 9.18
Fund Common Shares traded at a 14.4% dis- o a more attractive investment opportunity
SOURCE: LIPPER, INC. is identified.
========================================== MARKET CONDITIONS AND YOUR FUND
count to NAV, compared with 12.6% at the Despite record high oil prices and two
close of 2004. As of December 31, 2005, the Gulf Coast hurricanes, the broad U.S.
average discount rate to NAV of closed-end stock market (S&P 500 Index) produced
real estate funds available from Lipper positive returns during the year. The REIT
was 11.8%,compared with 10.2% at the end market continued to perform well in 2005,
of 2004. easily outdistancing the broad stock
market for the sixth consecutive year.
======================================================================================= Though another positive year for REITs,
performance fluctuated throughout the
HOW WE INVEST identify securities with: year.
The Fund holds primarily real estate o potential to pay attractive dividends In January of 2005, the REIT market
oriented securities. We focus on public relative to similar properties experienced a correction as investors took
companies whose value is driven by profits. Although REIT fundamentals are
tangible assets. Our goal is to create a o quality underlying properties not directly linked to interest rates,
portfolio that will provide high current REIT prices also dipped in the early part
income. We use a fundamentals-driven o solid management teams of 2005 amid fears of rising interest
investment process, including property rates. The REIT market sell-off proved
market cycle analysis, property o attractive valuations relative to short-lived as real estate markets
evaluation, and management and structure similar properties and geographical continued their underlying improvement in
review to location occupancies and rents.
The Fund may seek to increase portfolio Through the second half of the year,
yield through borrowing to provide REIT performance proved mixed but largely
leverage to positive. Supporting the market were
continued cash
========================================== ========================================== ==========================================
PORTFOLIO COMPOSITION TOP 10 SECURITY HOLDINGS
COMMON SHARE MARKET VALUE $14.98
By property type 1. Nationwide Health Properties,Inc. 3.7%
COMMON SHARE NET ASSET VALUE $17.49
Office Properties 20.7% 2. Colonial Properties Trust 3.6
MARKET PRICE DISCOUNT (14.35%)
Healthcare 18.1 3. Commercial Net Lease Realty 3.5
TOTAL NUMBER OF HOLDINGS 115
Diversified 13.4 4. Healthcare Realty Trust 3.1
At the close of the reporting period, the
Regional Malls 10.8 5. Prentiss Properties Trust 3.1 Fund's common shares NAV stood at $17.49,
and its market share price was $14.98.
Shopping Centers 7.4 6. Senior Housing Properties Trust 3.0 Since the Fund is a closed-end management
investment company, shares of the Fund may
Apartments 7.0 7. Health Care Property trade at a discount from the net asset
Investors, Inc. 2.9 value. This characteristic is separate and
Lodging-Resorts 5.7 distinct from the risk that NAV could
8. iStar Financial Inc. 2.9 decrease as a result of investment
Freestanding 5.5 activities and may be a greater risk to
9. Health Care REIT, Inc. 2.8 investors expecting to sell their shares
Industrial/Office Mixed 4.0 after a short time. The Fund cannot
10. Hospitality Properties Trust 2.7 predict whether shares will trade at,
Industrial Properties 2.6 above or below NAV.
The Fund's holdings are subject to change,
Self Storage Facilities 1.9 and there is no assurance that the Fund
will continue to hold any particular
Specialty Properties 1.8 security.
Manufactured Homes 0.3
Other Assets Less Liabilities 0.8
========================================== ========================================== ==========================================
</Table>
5
<Table>
inflows from both individuals and As the Fund's primary objective is JOE V. RODRIGUEZ,JR.,
institutions, increased merger and income, the Fund has exposure to REIT [RODRIGUEZ Director of Securities
acquisition activity and faster earnings preferred stocks. Due to their JR. Management, INVESCO
growth brought about by recovering fixed-income characteristics, REIT PHOTO] Real Estate, is lead
property market fundamentals (i.e., preferred shares may behave more like portfolio manager of
occupancy and rental rate improvements). bonds. During the year, REIT preferred AIM Select Real Estate Income Fund. He
stocks provided income but did not oversees all phases of the unit including
Select office REITs contributed to participate as fully in the share price securities research and administration.
performance with ARDEN REALTY, INC., a appreciation as REIT common stocks did. Mr. Rodriguez began his investment career
REIT that owns and manages commercial in 1983 and joined INVESCO Real Estate,
office property in Southern California, As part of our investment strategy, the the Dallas-based investment management
one of our top contributors for the year. Fund also leverages through the issuance affiliate of INVESCO Institutional (N.A.),
Arden witnessed significant price of preferred stocks which increases the Inc., in 1990. He has served on the
appreciation after General Electric Co. Fund's yield and may help or hurt NAV editorial boards of the National
announced plans to buy the REIT. depending on whether the REIT market is Association of Real Estate Investment
going up or down. We leverage through the Trusts (NAREIT) as well as the
Given the Fund's primary goal of issuance of auction rate preferred shares Institutional Real Estate Securities
income, we continued to have meaningful and then swap a portion of the floating Newsletter. He is a member of the National
exposure to the healthcare sector, as rates paid on the preferred shares for Association of Business Economists and the
healthcare REITs have historically fixed rates in an effort to mitigate American Real Estate Society. He also
produced a relatively high and steady interest rate uncertainty. Given the REIT served as adjunct professor of economics
stream of income. Healthcare REITs are environment during the reporting period, at the University of Texas at Dallas. In
typically viewed as yield-oriented leverage helped the Fund by boosting addition, Mr. Rodriguez was a contributing
vehicles due to their history of long and income and NAV. author to Real Estate Investment Trusts:
stable lease patterns. In general, shares Structure Analysis and Strategy, published
of higher-yielding REITs underperformed IN CLOSING by McGraw Hill. Mr. Rodriguez received his
during the year amid Federal Reserve B.B.A. in economics and finance as well as
interest rate increases. Therefore our We are encouraged by the resiliency of the his M.B.A. in finance from Baylor
large exposure to health care REITs proved REIT market during the year. During the University.
a drag on performance. reporting period, we believe REIT prices
largely reflected fair levels relative to MARK D. BLACKBURN,
Despite positive performance by the the value of their underlying holdings. [BLACKBURN Chartered Financial
REIT market during the year, a few Although REIT prices increased, we believe PHOTO] Analyst, Director of
holdings detracted from Fund performance. occupancy and rental rates have supported Investments, INVESCO
AMERICAN FINANCIAL REALTY TRUST, which that growth and that REIT fundamentals Real Estate, is
acquires, manages and operates properties continue to improve. We believe future portfolio manager of AIM Select Real
leased to regulated financial improvements in share prices may be Estate Income Fund. Prior to joining
institutions, declined amid concern over dependent on the strength of gross INVESCO in 1998, he worked as an associate
the company's business strategy. We domestic product expansion and investor director of the research, focusing on
believe the company's management became sentiment. We appreciate your continued equity securities research and
over-ambitious in their expansion plan. We participation in AIM Select Real Estate recommendations with a regional brokerage
continue to maintain our position because Income Fund. firm. He has approximately 18 years of
of its attractive relative valuation and experience in institutional investing and
believe it will make progress in The views and opinions expressed in risk management, along with a background
addressing investor concerns. management's discussion of Fund in evaluating the high-yield and
performance are those of A I M Advisors, convertible securities markets. Mr.
- ------------------------------------------ Inc. These views and opinions are subject Blackburn received a B.S. in accounting
The Fund should not be viewed as a vehicle to change at any time based on factors from Louisiana State University and an
for trading purposes. It is designed such as market and economic conditions. M.B.A. from Southern Methodist University.
primarily for risk-tolerant long-term These views and opinions may not be relied He is a Certified Public Accountant and a
investors. upon as investment advice or member of the National Association of Real
recommendations, or as an offer for a Estate Investment Trusts.
The performance data quoted represent particular security. The information is
past performance and cannot guarantee not a complete analysis of every aspect of JAMES W. TROWBRIDGE,
comparable future results; current any market, country, industry, security or [TROWBRIDGE portfolio manager,
performance may be lower of higher. Please the Fund. Statements of fact are from PHOTO] INVESCO Real Estate,
see your financial advisor for the most sources considered reliable, but A I M is portfolio manager
recent month-end performance. Fund Advisors, Inc. makes no representation or of AIM Select Real
performance figures are historical, and warranty as to their completeness or Estate Income Fund. In 1989, Mr.
they reflect Fund expenses, the accuracy. Although historical performance Trowbridge joined INVESCO Real Estate.
reinvestment of distributions (if any) and is no guarantee of future results, these With 30 years of real estate investment
changes in net asset value (NAV) for insights may help you understand our experience for major institutional
performance based on NAV and changes in investment management philosophy. investors, Mr. Trowbridge is responsible
market price for performance based on for integrating his knowledge into
market price. The value of your Fund See important Fund and index INVESCO's publicly traded REIT
shares will fluctuate so that you may have disclosures inside front cover. investments. Mr. Trowbridge received his
a gain or loss when you sell shares. B.S. in finance from Indiana University.
He has completed numerous appraisal and
Had the advisor not waived fees and/or income property courses sponsored by the
reimbursed expenses, returns would have American Appraisal Institute and the
been lower. Mortgage Bankers Association, of which he
- ------------------------------------------ has been active on several income property
subcommittees. He is a member of the
National Association of Real Estate
Investment Trusts.
Assisted by the Real Estate Team
</Table>
6
AIM SELECT REAL ESTATE INCOME FUND
<Table>
APPROVAL OF INVESTMENT ADVISORY AGREEMENT AND
SUMMARY OF INDEPENDENT WRITTEN FEE EVALUATION
The Board of Trustees of AIM Select Real back office support functions provided by rates at a common asset level and noted
Estate Income Fund (the "Board") oversees AIM and AIM's equity and fixed income that the Fund's rate was comparable to the
the management of AIM Select Real Estate trading operations. Based on the review of median rate of the funds advised by other
Income Fund (the "Fund") and, as required these and other factors, the Board advisors with investment strategies
by law, determines annually whether to concluded that the quality of services to comparable to those of the Fund that the
approve the continuance of the Fund's be provided by AIM was appropriate and Board reviewed. The Board noted that AIM
advisory agreement with A I M Advisors, that AIM currently is providing has agreed to limit the Fund's total
Inc. ("AIM"). Based upon the satisfactory services in accordance with operating expenses, as discussed below.
recommendation of the Investments the terms of the Advisory Agreement. Based on this review, the Board concluded
Committee of the Board, which is comprised that the advisory fee rate for the Fund
solely of independent trustees, at a o The performance of the Fund relative to under the Advisory Agreement was fair and
meeting held on June 30, 2005, the Board, comparable funds. The Board reviewed the reasonable.
including all of the independent trustees, performance of the Fund (at net asset
approved the continuance of the advisory value) during the past one and two o Expense limitations and fee waivers. The
agreement (the "Advisory Agreement") calendar years against the performance of Board noted that AIM has contractually
between the Fund and AIM for another year, funds advised by other advisors with agreed to waive fees and/or limit expenses
effective July 1, 2005. investment strategies comparable to those of the Fund through June 30, 2009 in an
of the Fund. The Board noted that the amount equal to a percentage of average
The Board considered the factors Fund's performance (at net asset value) in daily managed assets. The Board considered
discussed below in evaluating the fairness such periods was below the median the contractual nature of this fee
and reasonableness of the Advisory performance of such comparable funds. waiver/expense limitation and noted that
Agreement at the meeting on June 30, 2005 Based on this review and after taking it remains in effect until June 30, 2009.
and as part of the Board's ongoing account of all of the other factors that The Board considered the effect this fee
oversight of the Fund. In their the Board considered in determining waiver/expense limitation would have on
deliberations, the Board and the whether to continue the Advisory Agreement the Fund's estimated expenses and
independent trustees did not identify any for the Fund, the Board concluded that no concluded that the levels of fee
particular factor that was controlling, changes should be made to the Fund and waivers/expense limitations for the Fund
and each trustee attributed different that it was not necessary to change the were fair and reasonable.
weights to the various factors. Fund's portfolio management team at this
time. However, due to the Fund's o Breakpoints and economies of scale. The
One of the responsibilities of the under-performance, the Board also Board reviewed the structure of the Fund's
Senior Officer of the Fund, who is concluded that it would be appropriate for advisory fee under the Advisory Agreement,
independent of AIM and AIM's affiliates, management and the Board to continue to noting that it does not include any
is to manage the process by which the closely monitor the performance of the breakpoints. The Board considered whether
Fund's proposed management fees are Fund. it would be appropriate to add advisory
negotiated to ensure that they are fee breakpoints for the Fund or whether,
negotiated in a manner which is at arm's o The performance of the Fund relative to due to the nature of the Fund and the
length and reasonable. To that end, the indices. The Board reviewed the advisory fee structures of comparable
Senior Officer must either supervise a performance of the Fund (at net asset funds, it was reasonable to structure the
competitive bidding process or prepare an value) during the past one calendar year advisory fee without breakpoints. Based on
independent written evaluation. The Senior against the performance of the Morgan this review, the Board concluded that it
Officer has recommended an independent Stanley REIT Index. The Board noted that was not necessary to add advisory fee
written evaluation in lieu of a the Fund's performance in such period was breakpoints to the Fund's advisory fee
competitive bidding process and, upon the below the performance of such Index. The schedule. The Board reviewed the level of
direction of the Board, has prepared such Board also noted that the performance of the Fund's advisory fees, and noted that
an independent written evaluation. Such such Index does not reflect fees, while such fees, as a percentage of the Fund's
written evaluation also considered certain the performance of the Fund does reflect net assets, would remain constant under
of the factors discussed below. In fees. Based on this review and after the Advisory Agreement because the
addition, as discussed below, the Senior taking account of all of the other factors Advisory Agreement does not include any
Officer made certain recommendations to that the Board considered in determining breakpoints. The Board concluded that the
the Board in connection with such written whether to continue the Advisory Agreement Fund's fee levels under the Advisory
evaluation. for the Fund, the Board concluded that no Agreement therefore would not reflect
changes should be made to the Fund and economies of scale.
The discussion below serves as a that it was not necessary to change the
summary of the Senior Officer's Fund's portfolio management team at this o Investments in affiliated money market
independent written evaluation and time. However, due to the Fund's funds. The Board also took into account
recommendations to the Board in connection under-performance, the Board also the fact that uninvested cash and cash
therewith, as well as a discussion of the concluded that it would be appropriate for collateral from securities lending
material factors and the conclusions with management and the Board to continue to arrangements (collectively, "cash
respect thereto that formed the basis for closely monitor the performance of the balances") of the Fund may be invested in
the Board's approval of the Advisory Fund. money market funds advised by AIM pursuant
Agreement. After consideration of all of to the terms of an SEC exemptive order.
the factors below and based on its o Meeting with the Fund's portfolio The Board found that the Fund may realize
informed business judgment, the Board managers and investment personnel. With certain benefits upon investing cash
determined that the Advisory Agreement is respect to the Fund, the Board is meeting balances in AIM advised money market
in the best interests of the Fund and its periodically with such Fund's portfolio funds, including a higher net return,
shareholders and that the compensation to managers and/or other investment personnel increased liquidity, increased
AIM under the Advisory Agreement is fair and believes that such individuals are diversification or decreased transaction
and reasonable and would have been competent and able to continue to carry costs. The Board also found that the Fund
obtained through arm's length out their responsibilities under the will not receive reduced services if it
negotiations. Advisory Agreement. invests its cash balances in such money
market funds. The Board noted that, to the
o The nature and extent of the advisory o Overall performance of AIM. The Board extent the Fund invests in affiliated
services to be provided by AIM. The Board considered the overall performance of AIM money market funds, AIM has voluntarily
reviewed the services to be provided by in providing investment advisory and agreed to waive a portion of the advisory
AIM under the Advisory Agreement. Based on portfolio administrative services to the fees it receives from the Fund
such review, the Board concluded that the Fund and concluded that such performance attributable to such investment. The Board
range of services to be provided by AIM was satisfactory. further determined that the proposed
under the Advisory Agreement was securities lending program and related
appropriate and that AIM currently is o Fees relative to those of clients of AIM procedures with respect to the lending
providing services in accordance with the with comparable investment strategies. The Fund is in the best interests of the
terms of the Advisory Agreement. Board noted that AIM does not serve as an lending Fund and its respective
advisor to other mutual funds or other shareholders. The Board therefore
o The quality of services to be provided clients with investment strategies concluded that the investment of cash
by AIM. The Board reviewed the credentials comparable to those of the Fund. collateral received in connection with the
and experience of the officers and securities lending program in the money
employees of AIM who will provide o Fees relative to those of comparable market funds according to the procedures
investment advisory services to the Fund. funds with other advisors. The Board is in the best interests of the lending
In reviewing the qualifications of AIM to reviewed the advisory fee rate for the Fund and its respective shareholders.
provide investment advisory services, the Fund under the Advisory Agreement. The
Board reviewed the qualifications of AIM's Board compared effective contractual o Independent written evaluation and
investment personnel and considered such advisory fee recommendations of the Fund's Senior
issues as AIM's portfolio and product Officer. The Board noted
review process, various
(continued)
</Table>
7
AIM SELECT REAL ESTATE INCOME FUND
<Table>
that, upon their direction, the Senior regulatory inquiries and litigation the other factors that the Board
Officer of the Fund, who is independent of related to a wide range of issues. The considered in determining whether to
AIM and AIM's affiliates, had prepared an Board also considered the governance and continue the Advisory Agreement for the
independent written evaluation in order to compliance reforms being undertaken by AIM Fund, the Board concluded that no changes
assist the Board in determining the and its affiliates, including maintaining should be made to the Fund and that it was
reasonableness of the proposed management an internal controls committee and not necessary to change the Fund's
fees of the AIM Funds, including the Fund. retaining an independent compliance portfolio management team at this time.
The Board noted that the Senior Officer's consultant, and the fact that AIM has However, due to the Fund's
written evaluation had been relied upon by undertaken to cause the Fund to operate in under-performance, the Board also
the Board in this regard in lieu of a accordance with certain governance concluded that it would be appropriate for
competitive bidding process. In policies and practices. The Board management and the Board to continue to
determining whether to continue the concluded that these actions indicated a closely monitor the performance of the
Advisory Agreement for the Fund, the Board good faith effort on the part of AIM to Fund.
considered the Senior Officer's written adhere to the highest ethical standards,
evaluation and the recommendation made by and determined that the current regulatory o The performance of the Fund relative to
the Senior Officer to the Board that the and litigation environment to which AIM is indices. The Board reviewed the
Board consider implementing a process to subject should not prevent the Board from performance of the Fund (at net asset
assist them in more closely monitoring the continuing the Advisory Agreement for the value) during the past one calendar year
performance of the AIM Funds. The Board Fund. against the performance of the Morgan
concluded that it would be advisable to Stanley REIT Index. The Board noted that
implement such a process as soon as APPROVAL OF SUB-ADVISORY AGREEMENT the Fund's performance in such period was
reasonably practicable. below the performance of such Index. The
The Board oversees the management of the Board also noted that the performance of
o Profitability of AIM and its affiliates. Fund and, as required by law, determines such Index does not reflect fees, while
The Board reviewed information concerning annually whether to approve the the performance of the Fund does reflect
the profitability of AIM's (and its continuance of the Fund's sub-advisory fees. Based on this review and after
affiliates') investment advisory and other agreement. Based upon the recommendation taking account of all of the other factors
activities and its financial condition. of the Investments Committee of the Board, that the Board considered in determining
The Board considered the overall which is comprised solely of independent whether to continue the Advisory Agreement
profitability of AIM, as well as the trustees, at a meeting held on June 30, for the Fund, the Board concluded that no
profitability of AIM in connection with 2005, the Board, including all of the changes should be made to the Fund and
managing the Fund. The Board noted that independent trustees, approved the that it was not necessary to change the
AIM's operations remain profitable, continuance of the sub-advisory agreement Fund's portfolio management team at this
although increased expenses in recent (the "Sub-Advisory Agreement") between time. However, due to the Fund's
years have reduced AIM's profitability. INVESCO Institutional (N.A.), Inc. (the under-performance, the Board also
Based on the review of the profitability "Sub-Advisor") and AIM with respect to the concluded that it would be appropriate for
of AIM's and its affiliates' investment Fund for another year, effective July 1, management and the Board to continue to
advisory and other activities and its 2005. closely monitor the performance of the
financial condition, the Board concluded Fund.
that the compensation to be paid by the The Board considered the factors
Fund to AIM under its Advisory Agreement discussed below in evaluating the fairness o Meetings with the Fund's portfolio
was not excessive. and reasonableness of the Sub-Advisory managers and investment personnel. The
Agreement at the meeting on June 30, 2005 Board is meeting periodically with the
o Benefits of soft dollars to AIM. The and as part of the Board's ongoing Fund's portfolio managers and/or other
Board considered the benefits realized by oversight of the Fund. In their investment personnel and believes that
AIM as a result of brokerage transactions deliberations, the Board and the such individuals are competent and able to
executed through "soft dollar" independent trustees did not identify any continue to carry out their
arrangements. Under these arrangements, particular factor that was controlling, responsibilities under the Sub-Advisory
brokerage commissions paid by the Fund and each trustee attributed different Agreement.
and/or other funds advised by AIM are used weights to the various factors.
to pay for research and execution o Overall performance of the Sub-Advisor.
services. This research is used by AIM in The discussion below serves as a The Board considered the overall
making investment decisions for the Fund. discussion of the material factors and the performance of the Sub-Advisor in
The Board concluded that such arrangements conclusions with respect thereto that providing investment advisory services to
were appropriate. formed the basis for the Board's approval the Fund and concluded that such
of the Sub-Advisory Agreement. After performance was satisfactory.
o AIM's financial soundness in light of consideration of all of the factors below
the Fund's needs. The Board considered and based on its informed business o Advisory fees, expense limitations and
whether AIM is financially sound and has judgment, the Board determined that the fee waivers, and breakpoints and economies
the resources necessary to perform its Sub-Advisory Agreement is in the best of scale. In reviewing these factors, the
obligations under the Advisory Agreement, interests of the Fund and its Board considered only the advisory fees
and concluded that AIM has the financial shareholders. charged to the Fund by AIM and did not
resources necessary to fulfill its consider the sub-advisory fees paid by AIM
obligations under the Advisory Agreement. o The nature and extent of the advisory to the Sub-Advisor. The Board believes
services to be provided by the that this approach is appropriate because
o Historical relationship between the Fund Sub-Advisor. The Board reviewed the the sub-advisory fees have no effect on
and AIM. In determining whether to services to be provided by the Sub-Advisor the Fund or its shareholders, as they are
continue the Advisory Agreement for the under the Sub-Advisory Agreement. Based on paid by AIM rather than the Fund.
Fund, the Board also considered the prior such review, the Board concluded that the Furthermore, AIM and the Sub-Advisor are
relationship between AIM and the Fund, as range of services to be provided by the affiliates and the Board believes that the
well as the Board's knowledge of AIM's Sub-Advisor under the Sub-Advisory allocation of fees between them is a
operations, and concluded that it was Agreement was appropriate and that the business matter, provided that the
beneficial to maintain the current Sub-Advisor currently is providing advisory fees charged to the Fund are fair
relationship, in part, because of such services in accordance with the terms of and reasonable.
knowledge. The Board also reviewed the the Sub-Advisory Agreement.
general nature of the non-investment o Profitability of AIM and its affiliates.
advisory services currently performed by o The quality of services to be provided The Board reviewed information concerning
AIM and its affiliates, such as by the Sub-Advisor. The Board reviewed the the profitability of AIM's (and its
administrative, transfer agency and credentials and experience of the officers affiliates') investment advisory and other
distribution services, and the fees and employees of the Sub-Advisor who will activities and its financial condition.
received by AIM and its affiliates for provide investment advisory services to The Board considered the overall
performing such services. In addition to the Fund. Based on the review of these and profitability of AIM, as well as the
reviewing such services, the trustees also other factors, the Board concluded that profitability of AIM in connection with
considered the organizational structure the quality of services to be provided by managing the Fund. The Board noted that
employed by AIM and its affiliates to the Sub-Advisor was appropriate, and that AIM's operations remain profitable,
provide those services. Based on the the Sub-Advisor currently is providing although increased expenses in recent
review of these and other factors, the satisfactory services in accordance with years have reduced AIM's profitability.
Board concluded that AIM and its the terms of the Sub-Advisory Agreement. Based on the review of the profitability
affiliates were qualified to continue to of AIM's and its affiliates' investment
provide non-investment advisory services o The performance of the Fund relative to advisory and other activities and its
to the Fund, including administrative, comparable funds. The Board reviewed the financial condition, the Board concluded
transfer agency and distribution services, performance of the Fund (at net asset that the compensation to be paid by the
and that AIM and its affiliates currently value) during the past one and two Fund to AIM under its Advisory Agreement
are providing satisfactory non-investment calendar years against the performance of was not excessive.
advisory services. funds advised by other advisors with
investment strategies comparable to those o The Sub-Advisor's financial soundness in
o Other factors and current trends. In of the Fund. The Board noted that the light of the Fund's needs. The Board
determining whether to continue the Fund's performance (at net asset value) in considered whether the Sub-Advisor is
Advisory Agreement for the Fund, the Board such periods was below the median financially sound and has the resources
considered the fact that AIM, along with performance of such comparable funds. necessary to perform its obligations under
others in the mutual fund industry, is Based on this review and after taking the Sub-Advisory Agreement, and concluded
subject to account of all of that the Sub-Advisor has the financial
resources necessary to fulfill its
obligations under the Sub-Advisory
Agreement.
</Table>
8
AIM SELECT REAL ESTATE INCOME FUND
SCHEDULE OF INVESTMENTS
December 31, 2005
<Table>
<Caption>
SHARES VALUE
- -------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUSTS, COMMON STOCKS
& OTHER EQUITY INTERESTS-93.39%
APARTMENTS-5.34%
American Campus Communities, Inc. 390,600 $ 9,686,880
- -------------------------------------------------------------------------
Apartment Investment & Management Co.-Class A 75,000 2,840,250
- -------------------------------------------------------------------------
Education Realty Trust, Inc. 368,900 4,755,121
- -------------------------------------------------------------------------
GMH Communities Trust 368,400 5,713,884
- -------------------------------------------------------------------------
Home Properties, Inc. 129,300 5,275,440
- -------------------------------------------------------------------------
Town & Country Trust 267,900 9,057,699
=========================================================================
37,329,274
=========================================================================
DIVERSIFIED-13.13%
AEW Real Estate Income Fund 100,000 1,845,000
- -------------------------------------------------------------------------
CentraCore Properties Trust 89,400 2,402,178
- -------------------------------------------------------------------------
Colonial Properties Trust 784,078 32,915,594
- -------------------------------------------------------------------------
Crescent Real Estate Equities Co. 547,100 10,843,522
- -------------------------------------------------------------------------
iStar Financial Inc. 728,500 25,971,025
- -------------------------------------------------------------------------
Lexington Corporate Properties Trust 343,900 7,325,070
- -------------------------------------------------------------------------
Neuberger Berman Realty Income Fund Inc. 189,600 3,435,552
- -------------------------------------------------------------------------
Nuveen Real Estate Income Fund 77,400 1,547,226
- -------------------------------------------------------------------------
Real Estate Income Fund, Inc. 157,000 2,923,340
- -------------------------------------------------------------------------
Scudder RREEF Real Estate Fund, Inc. 120,700 2,482,799
=========================================================================
91,691,306
=========================================================================
FREESTANDING-7.12%
Commercial Net Lease Realty 1,546,000 31,492,020
- -------------------------------------------------------------------------
Getty Realty Corp. 418,400 10,999,736
- -------------------------------------------------------------------------
Realty Income Corp. 215,300 4,654,786
- -------------------------------------------------------------------------
Trustreet Properties, Inc. 175,000 2,558,500
=========================================================================
49,705,042
=========================================================================
HEALTHCARE-21.64%
Cogdell Spencer Inc. 175,000 2,955,750
- -------------------------------------------------------------------------
Health Care Property Investors, Inc. 1,020,200 26,076,312
- -------------------------------------------------------------------------
Health Care REIT, Inc. 755,300 25,604,670
- -------------------------------------------------------------------------
Healthcare Realty Trust, Inc. 854,600 28,432,542
- -------------------------------------------------------------------------
Nationwide Health Properties, Inc. 1,556,300 33,304,820
- -------------------------------------------------------------------------
Omega Healthcare Investors, Inc. 593,300 7,469,647
- -------------------------------------------------------------------------
Senior Housing Properties Trust 1,611,900 27,257,229
=========================================================================
151,100,970
=========================================================================
INDUSTRIAL PROPERTIES-2.45%
First Industrial Realty Trust, Inc. 444,500 17,113,250
=========================================================================
</Table>
<Table>
<Caption>
SHARES VALUE
- -------------------------------------------------------------------------
INDUSTRIAL/OFFICE MIXED-4.09%
Duke Realty Corp. 202,500 $ 6,763,500
- -------------------------------------------------------------------------
Liberty Property Trust 475,200 20,362,320
- -------------------------------------------------------------------------
Mission West Properties Inc. 150,000 1,461,000
=========================================================================
28,586,820
=========================================================================
LODGING-RESORTS-4.06%
Ashford Hospitality Trust 240,300 2,520,747
- -------------------------------------------------------------------------
DiamondRock Hospitality Co. 157,000 1,877,720
- -------------------------------------------------------------------------
Hospitality Properties Trust 597,900 23,975,790
=========================================================================
28,374,257
=========================================================================
MANUFACTURED HOMES-0.31%
Sun Communities, Inc. 69,600 2,185,440
=========================================================================
OFFICE PROPERTIES-21.51%
American Financial Realty Trust 1,611,700 19,340,400
- -------------------------------------------------------------------------
Brandywine Realty Trust 674,700 18,830,877
- -------------------------------------------------------------------------
CarrAmerica Realty Corp. 510,400 17,675,152
- -------------------------------------------------------------------------
Glenborough Realty Trust Inc. 375,600 6,798,360
- -------------------------------------------------------------------------
Highwoods Properties, Inc. 299,500 8,520,775
- -------------------------------------------------------------------------
HRPT Properties Trust 1,427,300 14,772,555
- -------------------------------------------------------------------------
Mack-Cali Realty Corp. 376,400 16,260,480
- -------------------------------------------------------------------------
Maguire Properties, Inc. 654,200 20,214,780
- -------------------------------------------------------------------------
Prentiss Properties Trust 682,900 27,780,372
=========================================================================
150,193,751
=========================================================================
REGIONAL MALLS-2.28%
Glimcher Realty Trust 655,500 15,941,760
=========================================================================
SELF STORAGE FACILITIES-2.30%
Extra Space Storage Inc. 527,000 8,115,800
- -------------------------------------------------------------------------
Public Storage, Inc.-Series A Dep. Shares 165,700 4,584,919
- -------------------------------------------------------------------------
U-Store-It Trust 160,000 3,368,000
=========================================================================
16,068,719
=========================================================================
SHOPPING CENTERS-8.09%
Cedar Shopping Centers Inc. 73,300 1,031,331
- -------------------------------------------------------------------------
Heritage Property Investment Trust 507,800 16,960,520
- -------------------------------------------------------------------------
Inland Real Estate Corp. 840,200 12,426,558
- -------------------------------------------------------------------------
New Plan Excel Realty Trust(a) 836,100 19,380,798
- -------------------------------------------------------------------------
Ramco-Gershenson Properties Trust 251,400 6,699,810
=========================================================================
56,499,017
=========================================================================
</Table>
F-1
AIM SELECT REAL ESTATE INCOME FUND
<Table>
<Caption>
SHARES VALUE
- -------------------------------------------------------------------------
SPECIALTY PROPERTIES-1.07%
Spirit Finance Corp. 656,600 $ 7,452,410
=========================================================================
Total Real Estate Investment Trusts, Common
Stocks & Other Equity Interests (Cost
$516,468,434) 652,242,016
=========================================================================
PREFERRED STOCKS-34.92%
APARTMENTS-3.66%
Apartment Investment & Management Co.- Series
T, 8.00% 200,000 5,000,000
- -------------------------------------------------------------------------
BRE Properties, Inc.
Series B, 8.08% 200,000 5,056,000
- -------------------------------------------------------------------------
Series D, 6.75% 200,000 4,900,000
- -------------------------------------------------------------------------
Equity Residential-Series K, 8.29%(b) 4,200 247,932
- -------------------------------------------------------------------------
Mid-America Apartment Communities, Inc.
Series F, 9.25% 47,000 1,214,480
- -------------------------------------------------------------------------
Series H, 8.30% 195,000 4,988,100
- -------------------------------------------------------------------------
Post Properties, Inc.-Series A, 8.50% 71,700 4,157,883
=========================================================================
25,564,395
=========================================================================
DIVERSIFIED-4.27%
Colonial Properties Trust-Series D, 8.13% 200,000 5,128,000
- -------------------------------------------------------------------------
Cousins Properties Inc.
Series A, 7.75% 375,000 9,656,250
- -------------------------------------------------------------------------
Series B, 7.50% 100,000 2,540,000
- -------------------------------------------------------------------------
Crescent Real Estate Equities Co.-Series B,
9.50% 51,400 1,346,680
- -------------------------------------------------------------------------
iStar Financial Inc.-Series E, 7.88% 185,000 4,662,000
- -------------------------------------------------------------------------
Lexington Corporate Properties Trust-Series
B, 8.05% 70,000 1,775,900
- -------------------------------------------------------------------------
Vornado Realty Trust-Series F, 6.75% 200,000 4,750,000
=========================================================================
29,858,830
=========================================================================
HEALTHCARE-1.75%
Health Care Property Investors, Inc.-Series
F, 7.10% 285,000 7,153,500
- -------------------------------------------------------------------------
Omega Healthcare Investors, Inc.-Series D,
8.38% 200,000 5,044,000
=========================================================================
12,197,500
=========================================================================
INDUSTRIAL PROPERTIES-0.94%
AMB Property Corp.-Series O, 7.00% 120,000 3,044,400
- -------------------------------------------------------------------------
EastGroup Properties, Inc.-Series D, 7.95% 135,000 3,434,400
- -------------------------------------------------------------------------
ProLogis-Series C, 8.54%(b) 950 55,634
=========================================================================
6,534,434
=========================================================================
INDUSTRIAL/OFFICE MIXED-1.04%
Bedford Property Investors, Inc.
Series A, 8.75%(b) 60,000 2,934,378
- -------------------------------------------------------------------------
Series B, 7.63% 139,200 3,424,320
- -------------------------------------------------------------------------
Duke Realty Corp.-Series B, 7.99%(b) 10,000 505,000
- -------------------------------------------------------------------------
PS Business Parks, Inc.-Series F, 8.75% 16,000 406,880
=========================================================================
7,270,578
=========================================================================
</Table>
<Table>
<Caption>
SHARES VALUE
- -------------------------------------------------------------------------
LODGING-RESORTS-3.35%
Eagle Hospitality Properties Trust,
Inc.-Series A, 8.25%(b) 49,700 $ 1,220,756
- -------------------------------------------------------------------------
FelCor Lodging Trust Inc.-Series C, 8.00% 138,700 3,331,574
- -------------------------------------------------------------------------
Hersha Hospitality Trust-Series A, 8.00% 40,100 990,069
- -------------------------------------------------------------------------
Hilton Hotels Corp., 8.00% 45,000 1,146,150
- -------------------------------------------------------------------------
Hospitality Properties Trust-Series B, 8.88% 450,000 11,578,500
- -------------------------------------------------------------------------
Innkeepers USA Trust-Series C, 8.00% 34,700 847,721
- -------------------------------------------------------------------------
LaSalle Hotel Properties
Series A, 10.25% 36,300 943,800
- -------------------------------------------------------------------------
Series B, 8.38% 40,000 1,020,400
- -------------------------------------------------------------------------
Series D, 7.50% 100,000 2,305,000
=========================================================================
23,383,970
=========================================================================
MANUFACTURED HOMES-0.11%
Affordable Residential Communities
Inc.-Series A, 8.25% 40,000 776,000
=========================================================================
OFFICE PROPERTIES-5.23%
Alexandria Real Estate Equities, Inc.-Series
B, 9.10% 5,600 142,184
- -------------------------------------------------------------------------
CarrAmerica Realty Corp.-Series E, 7.50% 75,000 1,893,750
- -------------------------------------------------------------------------
Corporate Office Properties Trust-Series G,
8.00% 300,000 7,542,000
- -------------------------------------------------------------------------
DRA CRT Acquisition Corp.-Series A, 8.50% 120,000 2,730,000
- -------------------------------------------------------------------------
Glenborough Realty Trust Inc.-Series A, $1.94
Conv. 25,245 636,174
- -------------------------------------------------------------------------
Highwoods Properties, Inc.-Series B, 8.00% 26,022 653,152
- -------------------------------------------------------------------------
HRPT Properties Trust
Series A, 9.88% 42,000 1,068,060
- -------------------------------------------------------------------------
Series B, 8.75% 510,000 13,209,000
- -------------------------------------------------------------------------
Kilroy Realty Corp.
Series E, 7.80% 51,600 1,316,832
- -------------------------------------------------------------------------
Series F, 7.50% 175,000 4,313,750
- -------------------------------------------------------------------------
SL Green Realty Corp.-Series C, 7.63% 120,000 3,022,800
=========================================================================
36,527,702
=========================================================================
REGIONAL MALLS-11.69%
CBL & Associates Properties, Inc.
Series B, 8.75% 315,000 16,096,500
- -------------------------------------------------------------------------
Series C, 7.75% 350,000 8,855,000
- -------------------------------------------------------------------------
Series D, 7.38% 175,000 4,378,500
- -------------------------------------------------------------------------
Glimcher Realty Trust
Series F, 8.75% 80,000 2,040,000
- -------------------------------------------------------------------------
Series G, 8.13% 134,600 3,351,540
- -------------------------------------------------------------------------
Mills Corp. (The)
Series B, 9.00% 650,000 16,594,500
- -------------------------------------------------------------------------
Series C, 9.00% 450,000 11,623,500
- -------------------------------------------------------------------------
Series E, 8.75% 600,000 15,360,000
- -------------------------------------------------------------------------
</Table>
F-2
AIM SELECT REAL ESTATE INCOME FUND
<Table>
<Caption>
SHARES VALUE
- -------------------------------------------------------------------------
REGIONAL MALLS-(CONTINUED)
Taubman Centers, Inc.
Series A, 8.30% 16,385 $ 415,524
- -------------------------------------------------------------------------
Series G, 8.00% 116,200 2,920,106
=========================================================================
81,635,170
=========================================================================
SELF STORAGE FACILITIES-0.21%
Public Storage, Inc.-Series G, 7.00% 60,000 1,494,000
=========================================================================
SHOPPING CENTERS-1.44%
Developers Diversified Realty Corp.-Class F,
8.60% 229,700 5,898,696
- -------------------------------------------------------------------------
Federal Realty Investment Trust-Series B,
8.50% 70,600 1,819,362
- -------------------------------------------------------------------------
Ramco-Gershenson Properties Trust-Series B,
9.50% 40,000 1,046,000
- -------------------------------------------------------------------------
Saul Centers, Inc.-Series A, 8.00% 50,000 1,280,000
=========================================================================
10,044,058
=========================================================================
</Table>
<Table>
<Caption>
SHARES VALUE
- -------------------------------------------------------------------------
SPECIALTY PROPERTIES-1.23%
Capital Automotive REIT-Series A, 7.50% 200,000 $ 4,990,000
- -------------------------------------------------------------------------
Entertainment Properties Trust-Series A,
9.50% 138,900 3,569,730
=========================================================================
8,559,730
=========================================================================
Total Preferred Stocks (Cost
$240,623,079) 243,846,367
=========================================================================
TOTAL INVESTMENTS-128.31% (Cost $757,091,513) 896,088,383
=========================================================================
OTHER ASSETS LESS LIABILITIES-1.04% 7,291,218
=========================================================================
AUCTION RATE PREFERRED SHARES, AT LIQUIDATION
VALUE-(29.35%) (205,000,000)
=========================================================================
NET ASSETS ATTRIBUTABLE TO COMMON
SHARES-100.00% $ 698,379,601
_________________________________________________________________________
=========================================================================
</Table>
Investment Abbreviations:
<Table>
Conv. - Convertible
Dep. - Depositary
REIT - Real Estate Investment Trust
</Table>
Notes to Schedule of Investments:
(a) A portion of the value was pledged as collateral to cover margin
requirements for open interest rate swap transactions. See Note 1I and Note
11.
(b) In accordance with the procedures established by the Board of Trustees,
security fair valued based on an evaluated quote provided by an independent
pricing service. The aggregate value of these securities at December 31,
2005 was $4,963,700, which represented 0.71% of the Fund's Net Assets. See
Note 1A.
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-3
AIM SELECT REAL ESTATE INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2005
<Table>
ASSETS:
Investments, at value (cost $757,091,513) $896,088,383
===========================================================
Receivables for:
Dividends 5,345,173
- -----------------------------------------------------------
Unrealized appreciation on interest rate
swap transactions 2,198,773
- -----------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 31,316
- -----------------------------------------------------------
Other assets 48,088
===========================================================
Total assets 903,711,733
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Interest payable on interest rate swap
transactions 17,346
- -----------------------------------------------------------
Due from custodian 40,132
- -----------------------------------------------------------
Trustee deferred compensation and
retirement plans 68,992
- -----------------------------------------------------------
Dividends declared on auction rate
preferred shares 92,786
- -----------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 189
- -----------------------------------------------------------
Accrued operating expenses 112,687
===========================================================
Total liabilities 332,132
===========================================================
Auction rate preferred shares, at liquidation
value 205,000,000
===========================================================
Net assets attributable to common shares $698,379,601
___________________________________________________________
===========================================================
NET ASSETS ATTRIBUTABLE TO COMMON SHARES
CONSIST OF:
Shares of beneficial interest -- common
shares $547,744,602
- -----------------------------------------------------------
Undistributed net investment income (53,044)
- -----------------------------------------------------------
Undistributed net realized gain from
investment securities and interest rate
swap transactions 9,492,400
- -----------------------------------------------------------
Unrealized appreciation of investment
securities and interest rate swap
transactions 141,195,643
===========================================================
$698,379,601
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
COMMON SHARE:
Outstanding 39,935,496
___________________________________________________________
===========================================================
Net asset value per common share $ 17.49
___________________________________________________________
===========================================================
Market value per common share $ 14.98
___________________________________________________________
===========================================================
Market price premium (discount) to net asset
value per common share (14.35)%
___________________________________________________________
===========================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-4
AIM SELECT REAL ESTATE INCOME FUND
STATEMENT OF OPERATIONS
For the year ended December 31, 2005
<Table>
INVESTMENT INCOME:
Dividends $ 42,912,756
- --------------------------------------------------------------------------
Dividends from affiliated money market funds 290,739
==========================================================================
Total investment income 43,203,495
==========================================================================
EXPENSES:
Advisory fees 8,724,737
- --------------------------------------------------------------------------
Administrative services fees 232,965
- --------------------------------------------------------------------------
Custodian fees 88,548
- --------------------------------------------------------------------------
Auction rate preferred shares auction fees 526,381
- --------------------------------------------------------------------------
Transfer agent fees 54,011
- --------------------------------------------------------------------------
Trustees' and officer's fees and benefits 44,050
- --------------------------------------------------------------------------
Other 514,297
==========================================================================
Total expenses 10,184,989
==========================================================================
Less: Fees waived and expenses reimbursed (2,910,797)
==========================================================================
Net expenses 7,274,192
==========================================================================
Net investment income 35,929,303
==========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES AND INTEREST RATE SWAP TRANSACTIONS:
Net realized gain (loss) from:
Investment securities 75,570,912
- --------------------------------------------------------------------------
Interest rate swap transactions (1,192,700)
==========================================================================
74,378,212
==========================================================================
Change in net unrealized appreciation (depreciation) of:
Investment securities (92,379,531)
- --------------------------------------------------------------------------
Interest rate swap transactions 3,677,345
==========================================================================
(88,702,186)
==========================================================================
Net gain (loss) from investment securities and interest rate
swap transactions (14,323,974)
==========================================================================
Net increase in net assets resulting from operations 21,605,329
==========================================================================
DISTRIBUTIONS TO AUCTION RATE PREFERRED SHAREHOLDERS FROM
NET INVESTMENT INCOME (6,598,783)
==========================================================================
NET INCREASE IN NET ASSETS FROM OPERATIONS ATTRIBUTABLE TO
COMMON SHARES $ 15,006,546
__________________________________________________________________________
==========================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-5
AIM SELECT REAL ESTATE INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2005 and 2004
<Table>
<Caption>
2005 2004
- -------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 35,929,303 $ 34,096,037
- -------------------------------------------------------------------------------------------
Net realized gain from investment securities, foreign
currencies and interest rate swap transactions 74,378,212 64,658,045
- -------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities and interest rate swap
transactions (88,702,186) 60,982,770
===========================================================================================
Net increase in net assets resulting from operations 21,605,329 159,736,852
===========================================================================================
Distributions to auction rate preferred shareholders from
net investment income (6,598,783) (3,084,524)
===========================================================================================
Net increase in net assets from operations attributable
to common shares 15,006,546 156,652,328
===========================================================================================
DISTRIBUTIONS TO COMMON SHAREHOLDERS FROM:
Net investment income (49,480,081) (49,360,273)
- -------------------------------------------------------------------------------------------
Net realized gains (66,504,582) (20,003,690)
===========================================================================================
Decrease in net assets resulting from distributions to
common shares (115,984,663) (69,363,963)
===========================================================================================
NET INCREASE (DECREASE) IN NET ASSETS ATTRIBUTABLE TO
COMMON SHARES (100,978,117) 87,288,365
===========================================================================================
NET ASSETS:
Beginning of year 799,357,718 712,069,353
===========================================================================================
End of year (including undistributed net investment income
of $(53,044) and $(38,884), respectively) $ 698,379,601 $799,357,718
___________________________________________________________________________________________
===========================================================================================
</Table>
NOTES TO FINANCIAL STATEMENTS
December 31, 2005
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.
Under the Trust's organizational documents, each Trustee, officer, employee
or other agent of the Trust (including the Trust's investment manager) is
indemnified against certain liabilities that may arise out of performance of
their duties to the Fund. Additionally, in the normal course of business, the
Fund enters into contracts that contain a variety of indemnification clauses.
The Fund's maximum exposure under these arrangements is unknown as this would
involve future claims that may be made against the Fund that have not yet
occurred. The risk of material loss as a result of such indemnification claims
is considered remote.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period including estimates
and assumptions related to taxation. Actual results could differ from those
estimates. 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,
which may be considered fair valued, 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.
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
F-6
AIM SELECT REAL ESTATE INCOME FUND
by an independent source at the mean between the last bid and ask prices.
For purposes of determining net asset value per share, futures and option
contracts generally are valued 15 minutes after the close of the customary
trading session of the New York Stock Exchange ("NYSE").
Interest rate swap transactions are marked to market daily based upon
quotations from market makers. The 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.
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 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.
Debt obligations (including convertible bonds) are fair valued using an
evaluated quote provided by an independent pricing service. Evaluated
quotes provided by the pricing service may be determined without exclusive
reliance on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, developments
related to specific securities, dividend rate, yield, quality, type of
issue, coupon rate, maturity, individual trading characteristics and other
market data. Short-term obligations having 60 days or less to maturity and
commercial paper are recorded at amortized cost which approximates value.
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.
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 the event is likely to have affected the closing price of the security,
the security will be valued at fair value in good faith using procedures
approved by the Board of Trustees. Adjustments to closing prices to reflect
fair value may also be based on a screening process of an independent
pricing service to indicate the degree of certainty, based on historical
data, that the closing price in the principal market where a foreign
security trades is not the current value as of the close of the NYSE.
Foreign securities meeting the approved degree of certainty that the price
is not reflective of current value will be priced at the indication of fair
value from the independent pricing service. Multiple factors may be
considered by the independent pricing service in determining adjustments to
reflect fair value and may include information relating to sector indices,
ADRs, domestic and foreign index futures.
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of brokers and information providers and other market data may be
reviewed in the course of making a good faith determination of a security's
fair value.
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. COUNTRY DETERMINATION -- For the purposes of making investment selection
decisions and presentation in the Schedule of Investments, AIM may
determine the country in which an issuer is located and/or credit risk
exposure based on various factors. These factors include the laws of the
country under which the issuer is organized, where the issuer maintains a
principal office, the country in which the issuer derives 50% or more of
its total revenues and the country that has the primary market for the
issuer's securities, as well as other criteria. Among the other criteria
that may be evaluated for making this determination are the country in
which the issuer maintains 50% or more of its assets, the type of security,
financial guarantees and enhancements, the nature of the collateral and the
sponsor organization. Country of issuer and/or credit risk exposure has
been determined to be United States of America unless otherwise noted.
F-7
AIM SELECT REAL ESTATE INCOME FUND
D. 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. Computershare, 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 the 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
December 31, 2005, no such restrictions have been placed on the Fund.
E. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, 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.
F. 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.
G. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency is valued at the close of
the NYSE based on quotations posted by banks and major currency dealers.
Portfolio securities and other assets and liabilities denominated in
foreign currencies are translated into U.S. dollar amounts at date of
valuation. Purchases and sales of portfolio securities (net of foreign
taxes withheld on disposition) and income items denominated in foreign
currencies are translated into U.S. dollar amounts on the respective dates
of such transactions. The Fund does not separately account for the portion
of the results of operations resulting from changes in foreign exchange
rates on investments and the fluctuations arising from changes in market
prices of securities held. The combined results of changes in foreign
exchange rates and the fluctuation of market prices on investments (net of
estimated foreign tax withholding) are included with the net realized and
unrealized gain or loss from investments in the Statement of Operations.
Reported net realized foreign currency gains or losses arise from (i) sales
of foreign currencies, (ii) currency gains or losses realized between the
trade and settlement dates on securities transactions, and (iii) the
difference between the amounts of dividends, interest, and foreign
withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
currency gains and losses arise from changes in the fair values of assets
and liabilities, other than investments in securities at fiscal period end,
resulting from changes in exchange rates.
H. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
I. 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.
The Fund records periodic payments made under interest rate agreements as
a component of realized gain (loss) in the Statement of Operations.
J. COLLATERAL -- To the extent the Fund has pledged or segregated a security
as collateral and that security is subsequently sold, it is the Fund's
practice to replace such collateral no later than the next business day.
F-8
AIM SELECT REAL ESTATE INCOME FUND
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Fund has entered into a master investment advisory agreement with AIM
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. For the
year ended December 31, 2005, average daily Managed Assets were $969,415,247.
Under the terms of a master sub-advisory agreement between AIM and INVESCO
Institutional (N.A.), Inc. ("INVESCO"), AIM pays INVESCO 50% of the amount paid
by the Fund to AIM, net of fee waivers and expense reimbursements.
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.
AIM is also voluntarily waiving a portion of the advisory fee payable by the
Fund equal to the difference between the income earned from investing in the
affiliated money market fund and the hypothetical income earned from investing
in an appropriate comparative benchmark. Voluntary fee waivers or reimbursements
may be modified or discontinued at any time upon consultation with the Board of
Trustees without further notice to investors.
For the year ended December 31, 2005, AIM waived fees of $2,909,990.
At the request of the Trustees of the Trust, AMVESCAP PLC ("AMVESCAP")
agreed to reimburse expenses incurred by the Fund in connection with market
timing matters in the AIM Funds, which may include legal, audit, shareholder
reporting, communications and trustee expenses. These expenses along with the
related expense reimbursement, are included in the Statement of Operations. For
the year ended December 31, 2005, AMVESCAP reimbursed expenses of the Fund in
the amount of $807.
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. Pursuant to such agreement, for the year ended
December 31, 2005, AIM was paid $232,965.
Certain officers and trustees of the Fund are officers and directors of AIM
and/or AIM Investments, the parent corporation of AIM.
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to an exemptive order from the Securities and
Exchange Commission ("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. The table below shows the transactions in and
earnings from investments in affiliated money market funds for the year ended
December 31, 2005.
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 12/31/04 AT COST FROM SALES (DEPRECIATION) 12/31/05 INCOME GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $2,872,828 $ 83,409,353 $ (86,282,181) $ -- $ -- $144,823 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 2,872,828 83,409,353 (86,282,181) -- -- 145,916 --
==================================================================================================================================
Total $5,745,656 $166,818,706 $(172,564,362) $ -- $ -- $290,739 $ --
__________________________________________________________________________________________________________________________________
==================================================================================================================================
</Table>
NOTE 4--TRUSTEES' AND OFFICER'S FEES AND BENEFITS
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to pay remuneration to each Trustee and Officer of the Fund who is not an
"interested person" of AIM. Trustees have the option to defer compensation
payable by the Fund, and "Trustees' and Officer's Fees and Benefits" also
include amounts accrued by the Fund to fund such deferred compensation amounts.
Those Trustees who defer compensation have the option to select various AIM
Funds in which their deferral accounts shall be deemed to be invested. Finally,
current Trustees are eligible to participate in a retirement plan that provides
for benefits to be paid upon retirement to Trustees over a period of time based
on the number of years of service. The Fund may have certain former Trustees who
also participate in a retirement plan and receive benefits under such plan.
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to fund such retirement benefits. Obligations under the deferred compensation
and retirement plans represent unsecured claims against the general assets of
the Fund.
During the year ended December 31, 2005, the Fund paid legal fees of $7,608
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
F-9
AIM SELECT REAL ESTATE INCOME FUND
NOTE 5--BORROWINGS
Effective October 31, 2005, the Fund is a participant in a committed line of
credit facility with a syndicate administered by JP Morgan Chase Bank. The Fund
may borrow up to the lesser of (i) $250,000,000, or (ii) the limits set by its
prospectus for borrowings. The Fund and other funds advised by AIM which are
parties to the line of credit may borrow on a first come, first served basis.
The funds which are party to the line of credit are charged a commitment fee of
0.06% on the unused balance of the committed line. During the year ended
December 31, 2005, the Fund did not borrow under the committed credit facility.
NOTE 6--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
The tax character of distributions paid during the years ended December 31, 2005
and 2004 was as follows:
<Table>
<Caption>
2005 2004
- -----------------------------------------------------------------------------------------
Distributions paid from:
Ordinary income -- Common Shares $ 36,742,272 $29,780,109
- -----------------------------------------------------------------------------------------
Ordinary income -- Preferred Shares 2,090,399 1,324,282
- -----------------------------------------------------------------------------------------
Long-term capital gain -- Common Shares 79,242,391 39,583,854
- -----------------------------------------------------------------------------------------
Long-term capital gain -- Preferred Shares 4,508,384 1,760,242
=========================================================================================
$122,583,446 $72,448,487
_________________________________________________________________________________________
=========================================================================================
</Table>
TAX COMPONENTS OF NET ASSETS -- COMMON SHARES:
As of December 31, 2005, the components of net assets of Common Shares on a tax
basis were as follows:
<Table>
<Caption>
2005
- --------------------------------------------------------------------------
Undistributed long-term gain $ 11,204,490
- --------------------------------------------------------------------------
Unrealized appreciation -- investments 139,483,553
- --------------------------------------------------------------------------
Temporary book/tax differences (53,044)
- --------------------------------------------------------------------------
Shares of beneficial interest -- Common Shares 547,744,602
==========================================================================
Total net assets -- Common Shares $698,379,601
__________________________________________________________________________
==========================================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation difference is attributable primarily to the deferral of losses on
wash sales. The tax-basis unrealized appreciation on investments amount includes
appreciation on interest rate swap transactions of $2,198,773.
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan expenses.
The Fund did not have a capital loss carryforward as of December 31, 2005.
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 year ended
December 31, 2005 was $165,926,039 and $219,857,889, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $146,614,058
- ------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (9,329,278)
==============================================================================
Net unrealized appreciation of investment securities $137,284,780
______________________________________________________________________________
==============================================================================
Cost of investments for tax purposes is $758,803,603.
</Table>
NOTE 8--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of organizational
expenses, interest rate swap transactions and distribution, on December 31,
2005, undistributed net investment income was increased by $20,135,401,
undistributed net realized gain was decreased by $20,144,981 and shares of
beneficial interest increased by $9,580. This reclassification had no effect on
the net assets of the Fund.
F-10
AIM SELECT REAL ESTATE INCOME FUND
NOTE 9--SHARE INFORMATION
For the year ended December 31, 2005, 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. The Fund issued 4,317, 24,178, 0 and 0 Common Shares for the
reinvestment of dividends during the period May 31, 2002 to December 31, 2002
and for the years ended December 31, 2003, 2004 and 2005, respectively.
NOTE 10--DISTRIBUTIONS DECLARED--COMMON SHARES
For January, 2006, a dividend of $0.104 per share was declared on December 7,
2005, payable on January 30, 2006, for fund common shareholders of record on
January 20, 2006.
For February, 2006, a dividend of $0.104 per share was declared on December
7, 2005, payable on February 27, 2006, for fund common shareholders of record on
February 17, 2006.
NOTE 11--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
December 31, 2005, 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% 4.3700% 09/19/07 $ 807,842
- ---------------------------------------------------------------------------------------------------------------------------------
Citibank, N.A. 42,000,000 4.6325% 4.2938% 08/02/09 151,517
- ---------------------------------------------------------------------------------------------------------------------------------
Citibank, N.A. 40,000,000 4.4500% 4.2906% 03/01/12 692,771
- ---------------------------------------------------------------------------------------------------------------------------------
Merrill Lynch Capital Services, Inc. 30,000,000 3.6000% 4.3600% 09/12/07 546,643
=================================================================================================================================
$2,198,773
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
* Based on 30 day London Interbank Offered Rate (LIBOR).
F-11
AIM SELECT REAL ESTATE INCOME FUND
NOTE 12--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
YEAR ENDED DECEMBER 31, OPERATIONS
----------------------------------- COMMENCED) TO
2005 2004 2003 DECEMBER 31, 2002
- ----------------------------------------------------------------------------------------------------------------------
Net asset value per common share, beginning of period $ 20.02 $ 17.83 $ 12.83 $ 14.33
- ----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.90 0.85 0.95(a) 0.49(a)
- ----------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (0.36) 3.16 5.33 (1.35)
======================================================================================================================
Total from investment operations 0.54 4.01 6.28 (0.86)
======================================================================================================================
Less distributions to auction rate preferred shareholders
from net investment income(b) (0.17) (0.08) (0.06) (0.04)
======================================================================================================================
Total from investment operations attributable to common
shares 0.37 3.93 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 charged to paid-in capital -- -- (0.00) (0.10)
======================================================================================================================
Less distributions to common shareholders:
Dividends from net investment income (1.24) (1.24) (0.79) (0.42)
- ----------------------------------------------------------------------------------------------------------------------
Dividends from net realized gains (1.66) (0.50) -- --
- ----------------------------------------------------------------------------------------------------------------------
Return of capital -- -- (0.43) (0.08)
======================================================================================================================
Total distributions to common shareholders (2.90) (1.74) (1.22) (0.50)
======================================================================================================================
Net asset value per common share, end of period $ 17.49 $ 20.02 $ 17.83 $ 12.83
======================================================================================================================
Market value per common share, end of period $ 14.98 $ 17.50 $ 16.59 $ 12.30
======================================================================================================================
Net asset value total return(c)(d) 4.44% 24.43% 51.41% (6.90)%
______________________________________________________________________________________________________________________
======================================================================================================================
Market value return(c)(d) 2.33% 16.89% 46.95% (14.73)%
______________________________________________________________________________________________________________________
======================================================================================================================
Ratios/supplemental data:
Net assets attributable to common shares, end of period
(000s omitted) $698,380 $799,358 $712,069 $511,940
______________________________________________________________________________________________________________________
======================================================================================================================
Ratio of expenses to average net assets attributable to
common shares:
With fee waivers and/or expense reimbursements(e) 0.95%(f) 0.93% 1.00%(a) 1.02%(a)(g)
- ----------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements(e) 1.33%(f) 1.32% 1.41%(a) 1.43%(a)(g)
======================================================================================================================
Ratio of net investment income to average net assets
attributable to common shares(e) 4.70%(f) 4.64% 6.46%(a) 6.28%(a)(g)
======================================================================================================================
Ratio of distributions to auction rate preferred
shareholders to average net assets attributable to common
shares 0.86%(f) 0.42% 0.43% 0.50%(g)
______________________________________________________________________________________________________________________
======================================================================================================================
Portfolio turnover rate(c) 17% 19% 37% 35%
______________________________________________________________________________________________________________________
======================================================================================================================
Auction rate preferred shares:
Liquidation value, end of period (000s omitted) $205,000 $205,000 $205,000 $205,000
- ----------------------------------------------------------------------------------------------------------------------
Total shares outstanding 8,200 8,200 8,200 8,200
- ----------------------------------------------------------------------------------------------------------------------
Asset coverage per share $110,168 $122,483 $111,838 $ 87,432
- ----------------------------------------------------------------------------------------------------------------------
Liquidation and market value per share $ 25,000 $ 25,000 $ 25,000 $ 25,000
______________________________________________________________________________________________________________________
======================================================================================================================
</Table>
(a) As a result of changes in accounting principles generally accepted in
the United States of America, 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) Based on average number of common shares outstanding.
(c) Not annualized for periods less than one year.
(d) 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. 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.
(e) Ratios do not reflect the effect of dividend payments to auction rate
preferred shareholders; income ratios reflect income earned on
investments made with assets attributable to auction rate preferred
shares.
(f) Ratios are based on average daily net assets attributable to common
shares of $764,415,247.
(g) Annualized.
F-12
AIM SELECT REAL ESTATE INCOME FUND
NOTE 13--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING
A I M Advisors, Inc. ("AIM"), the investment advisor to AIM Select Real Estate
Income Fund (the "Fund"), also serves as investment advisor to a number of
open-end mutual funds (the "AIM Funds").
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds), AIM and A I M Distributors, Inc. ("ADI") (the
distributor of the retail AIM Funds) reached final settlements with certain
regulators, including the Securities and Exchange Commission ("SEC"), the New
York Attorney General ("NYAG") and the Colorado Attorney General, to resolve
civil enforcement actions and/or investigations related to market timing and
related activity in the AIM Funds, including those formerly advised by IFG. As
part of the settlements, a $325 million fair fund (of which $110 million is
civil penalties) has been created to compensate shareholders harmed by market
timing and related activity in funds formerly advised by IFG. Additionally, AIM
and ADI created a $50 million fair fund ($30 million of which is civil
penalties) to compensate shareholders harmed by market timing and related
activity in funds advised by AIM, which was done pursuant to the terms of the
settlements. These two fair funds may increase as a result of contributions from
third parties who reach final settlements with the SEC or other regulators to
resolve allegations of market timing and/or late trading that also may have
harmed applicable AIM Funds. These two fair funds will be distributed in
accordance with a methodology to be determined by AIM's independent distribution
consultant, in consultation with AIM and the independent trustees of the AIM
Funds and acceptable to the staff of the SEC. As the methodology is unknown at
the present time, management of AIM and the Fund are unable to estimate the
impact, if any, that the distribution of these two fair funds may have on the
Fund or whether such distribution will have an impact on the Fund's financial
statements in the future. At the request of the trustees of the AIM Funds,
AMVESCAP PLC ("AMVESCAP"), the parent company of IFG and AIM, has agreed to pay
expenses incurred by such Funds related to market timing matters.
PENDING LITIGATION AND REGULATORY INQUIRIES
On April 12, 2005, the Attorney General of the State of West Virginia
("WVAG") filed a civil lawsuit against AIM, IFG and ADI, as well as numerous
unrelated mutual fund complexes and financial institutions. None of the AIM
Funds has been named as a defendant in this lawsuit. The WVAG complaint, filed
in the Circuit Court of Marshall County, West Virginia [Civil Action No.
05-C-81], alleges, in substance, that AIM, IFG and ADI engaged in unfair
competition and/or unfair or deceptive trade practices by failing to disclose in
the prospectuses for the AIM Funds, including those formerly advised by IFG,
that they had entered into certain arrangements permitting market timing of such
Funds. As a result of the foregoing, the WVAG alleges violations of W. Va. Code
sec. 46A-1-101, et seq. (the West Virginia Consumer Credit and Protection Act).
The WVAG complaint is seeking, among other things, injunctive relief, civil
monetary penalties and a writ of quo warranto against the defendants.
If AIM is unsuccessful in its defense of the WVAG lawsuit, it could be
barred from serving as an investment advisor for any investment company
registered under the Investment Company Act of 1940, as amended (a "registered
investment company"). Such results could affect the ability of AIM or any other
investment advisor directly or indirectly owned by AMVESCAP from serving as an
investment advisor to any registered investment company, including the Fund. The
Fund has been informed by AIM that, if these results occur, AIM will seek
exemptive relief from the SEC to permit it to continue to serve as the Fund's
investment advisor. There is no assurance that such exemptive relief will be
granted.
On October 19, 2005, this lawsuit was transferred for pretrial purposes to
the MDL Court (as defined below). On July 7, 2005, the Supreme Court of West
Virginia ruled in an unrelated lawsuit that is similar to this action that the
WVAG does not have authority to bring an action based upon conduct that is
ancillary to the purchase or sale of securities. AIM intends to seek dismissal
of the WVAG's lawsuit against it, IFG and ADI in light of this ruling.
On August 30, 2005, the West Virginia Office of the State
Auditor -- Securities Commission ("WVASC") issued a Summary Order to Cease and
Desist and Notice of Right to Hearing to AIM and ADI. The WVASC makes findings
of fact that essentially mirror the WVAG's allegations mentioned above and
conclusions of law to the effect that AIM and ADI violated the West Virginia
securities laws. The WVASC orders AIM and ADI to cease any further violations
and seeks to impose monetary sanctions to be determined by the Commissioner.
Initial research indicates that these damages could be limited or capped by
statute. AIM and ADI have the right to contest the WVASC's findings and
conclusions, which they intend to do.
Civil lawsuits, including purported class action and shareholder derivative
suits, have been filed against certain of the AIM Funds, IFG, AIM, ADI and/or
related entities and individuals, depending on the lawsuit, alleging:
- - that the defendants permitted improper market timing and related activity in
the AIM Funds;
- - that certain AIM Funds inadequately employed fair value pricing;
- - that the defendants charged excessive advisory and/or distribution fees and
failed to pass on to shareholders the perceived savings generated by economies
of scale and that the defendants adopted unlawful distribution plans; and
- - that the defendants improperly used the assets of the AIM Funds to pay brokers
to aggressively promote the sale of the AIM Funds over other mutual funds and
that the defendants concealed such payments from investors by disguising them
as brokerage commissions.
These lawsuits allege as theories of recovery, depending on the lawsuit,
violations of various provisions of the Federal and state securities laws and
ERISA, negligence, breach of fiduciary duty; and/or breach of contract. These
lawsuits seek remedies that include, depending on the lawsuit, damages,;
restitution, injunctive relief, imposition of a constructive trust, removal of
certain directors and/or employees, various corrective measures under ERISA,
F-13
AIM SELECT REAL ESTATE INCOME FUND
NOTE 13--LEGAL PROCEEDINGS--(CONTINUED)
rescission of certain AIM Funds' advisory agreements and/or distribution plans
and recovery of all fees paid, an accounting of all fund-related fees,
commissions and soft dollar payments, restitution of all commissions and fees
paid, and prospective relief in the form of reduced fees.
All lawsuits based on allegations of market timing, late trading, and
related activities have been transferred to the United States District Court for
the District of Maryland (the "MDL Court"). Pursuant to an Order of the MDL
Court, plaintiffs in these lawsuits consolidated their claims for pre-trial
purposes into three amended complaints against various AIM- and IFG-related
parties: (i) a Consolidated Amended Class Action Complaint purportedly brought
on behalf of shareholders of the AIM Funds; (ii) a Consolidated Amended Fund
Derivative Complaint purportedly brought on behalf of the AIM Funds and fund
registrants; and (iii) an Amended Class Action Complaint for Violations of the
Employee Retirement Income Securities Act ("ERISA") purportedly brought on
behalf of participants in AMVESCAP's 401(k) plan.
On August 25, 2005, the MDL Court issued rulings on the common issues of law
presented in motions to dismiss shareholder class action and derivative
complaints that were filed in unrelated lawsuits. On November 3, 2005, the MDL
Court issued short opinions for the most part applying these rulings to the AIM
and IFG lawsuits. The MDL Court dismissed all derivative causes of action but
one: the excessive fee claim under Section 36(b) of the Investment Company Act
of 1940 (the "1940 Act"). The Court dismissed all claims asserted in the class
action complaint but three: (i) the securities fraud claims under Section 10(b)
of the Securities Exchange Act of 1934, (ii) the excessive fee claim under
Section 36(b) of the 1940 Act (which survived only insofar as plaintiffs seek
recovery of fees associated with the assets involved in market timing); and
(iii) the MDL Court deferred ruling on the "control person liability" claim
under Section 48 of the 1940 Act. The question whether the duplicative Section
36(b) claim properly belongs in the derivative complaint or in the class action
complaint will be decided at a later date.
At the MDL Court's request, the parties submitted proposed orders
implementing these rulings in the AIM and IFG lawsuits. The MDL Court has not
entered any orders on the motions to dismiss in these lawsuits and it is
possible the orders may differ in some respects from the rulings described
above. Based on the MDL Court's opinion and both parties' proposed orders,
however, all claims asserted against the Funds that have been transferred to the
MDL Court will be dismissed, although certain Funds will remain nominal
defendants in the derivative lawsuit.
On December 6, 2005, the MDL Court issued rulings on the common issues of
law presented in defendants' omnibus motion to dismiss the ERISA complaints. The
ruling was issued in unrelated lawsuits that are similar to the ERISA lawsuits
brought against AIM and IFG and related entities. The MDL Court: (i) denied the
motion to dismiss on the grounds that the plaintiffs lack standing or that the
defendants' investments in company stock are entitled to a presumption of
prudence; (ii) granted the motion to dismiss as to defendants not named in the
employee benefit plan documents as fiduciaries but gave plaintiffs leave to
replead facts sufficient to show that such defendants acted as de facto
fiduciaries; and (iii) confirmed plaintiffs' withdrawal of their prohibited
transactions and misrepresentations claims.
IFG, AIM, ADI and/or related entities and individuals have received
inquiries from numerous regulators 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, among others, 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, contractual plans, issues related to
Section 529 college savings plans and procedures for locating lost security
holders. IFG, AIM and ADI are providing full cooperation with respect to these
inquiries. Regulatory actions and/or additional civil lawsuits related to these
or other issues may be filed against the AIM Funds, IFG, AIM and/or related
entities and individuals in the future.
At the present time, management of AIM and the Fund are unable to estimate
the impact, if any, that the outcome of the Regulatory Inquiries and Pending
Litigation described below may have on AIM or the Fund.
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
* * * * * *
As a result of the matters discussed above, investors in the Fund might react by
selling their shares which could have an adverse effect on market value of the
Fund's shares.
F-14
AIM SELECT REAL ESTATE INCOME FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees and Shareholders
of AIM Select Real Estate Income Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of AIM Select Real Estate Income Fund
(the "Fund") at December 31, 2005, the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the periods
indicated, in conformity with accounting principles generally accepted in the
United States of America. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 2005 by correspondence with the custodian and brokers, provide a
reasonable basis for our opinion.
/s/ PRICEWATERHOUSECOOPERS LLP
February 17, 2006
Houston, Texas
F-15
AIM SELECT REAL ESTATE INCOME FUND
PROXY RESULTS
An Annual Meeting of Shareholders of AIM Select Real Estate Income Fund, a
Delaware business trust, was held on May 9, 2005. The meeting was held for the
following purposes:
COMMON SHARES AND PREFERRED SHARES
(1) Election of Trustees. Nominees: Albert R. Dowden, Robert H. Graham, Gerald
J. Lewis and Mark H. Williamson
(2) *Ratification of the Audit Committee's appointment of
PricewaterhouseCoopers LLP as Independent Auditors.
PREFERRED SHARES
(1) Election of Trustee. Nominee: Carl Frischling
(2) *Ratification of the Audit Committee's appointment of
PricewaterhouseCoopers LLP as Independent Auditors.
The results of voting on the above matters were as follows:
<Table>
<Caption>
VOTES WITHHELD/
TRUSTEES/MATTER (COMMON SHARES AND PREFERRED SHARES) VOTES FOR AGAINST ABSTENTIONS
- ----------------------------------------------------------------------------------------------------
(1) Albert R. Dowden................................ 36,240,299 N/A 345,622
Robert H. Graham................................ 36,267,820 N/A 318,101
Gerald J. Lewis................................. 36,215,231 N/A 370,690
Mark H. Williamson.............................. 36,236,235 N/A 349,686
</Table>
<Table>
<Caption>
VOTES WITHHELD/
TRUSTEES/MATTER (PREFERRED SHARES) VOTES FOR AGAINST ABSTENTIONS
- ---------------------------------------------------------------------------------------------
Carl Frischling.............................. 5,842 N/A 0
(2) *Ratification of the Audit Committee's
selection of PricewaterhouseCoopers LLP as
Independent Auditors......................... 36,310,301 152,728 122,892
</Table>
* Proposal required approval by a combined vote of Common and Preferred Shares.
F-16
AIM SELECT REAL ESTATE INCOME FUND
TRUSTEES AND OFFICERS
As of December 31, 2005
The address of each trustee and officer of AIM Select Real Estate Income Fund
(the "Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each
trustee oversees 109 portfolios in the AIM Funds complex. The trustees serve for
the life of the Trust, subject to their earlier death, incapacitation,
resignation, retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- -------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 2002 Director and Chairman, A I M Management None
Trustee, Vice Chair, Group Inc. (financial services holding
Principal Executive Officer company); Director and Vice Chairman,
and President AMVESCAP PLC and Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a
global investment management firm)
Formerly: President and Chief Executive
Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director and Chairman, A I M
Capital Management, Inc. (registered
investment advisor), A I M Distributors,
Inc. (registered broker dealer), AIM
Investment Services, Inc., (registered
transfer agent), and Fund Management
Company (registered broker dealer); and
Chief Executive Officer, AMVESCAP
PLC -- Managed Products
- -------------------------------------------------------------------------------------------------------------------------------
Mark H. Williamson(2) -- 1951 2003 Director, President and Chief Executive None
Trustee and Executive Vice Officer, A I M Management Group Inc.;
President Director and President, A I M Advisors,
Inc.; Director, A I M Capital
Management, Inc. and A I M Distributors,
Inc.; Director and Chairman, AIM
Investment Services, Inc.; Fund
Management Company and INVESCO
Distributors, Inc. (registered broker
dealer); and Chief Executive Officer,
AMVESCAP PLC -- AIM Division
Formerly: Director, Chairman, President
and Chief Executive Officer, INVESCO
Funds Group, Inc.; President and Chief
Executive Officer, INVESCO Distributors,
Inc.; Chief Executive Officer, AMVESCAP
PLC -- Managed Products; and Chairman,
AIM Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- -------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 2002 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- -------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2004 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company (2 portfolios))
Formerly: Partner, law firm of Baker &
McKenzie
- -------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2004 Co-President and Founder, Green, Manning None
Trustee & Bunch Ltd., (investment banking firm);
and Director, Policy Studies, Inc. and
Van Gilder Insurance Corporation
- -------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2002 Director of a number of public and None
Trustee private business corporations, including
the Boss Group Ltd. (private investment
and management); Cortland Trust, Inc.
(Chairman) (registered investment
company (3 portfolios)); Annuity and
Life Re (Holdings), Ltd. (insurance
company); CompuDyne Corporation
(provider of products and services to
the public security market); and
Homeowners of America Holding
Corporation
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President, AB
Volvo; and director of various
affiliated Volvo companies
- -------------------------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 2002 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 2002 Chief Executive Officer, Twenty First Administaff, and Discovery Global
Trustee Century Group, Inc. (government affairs Education Fund (non-profit)
company); and Owner, Dos Angelos Ranch,
L.P.
Formerly: Chief Executive Officer,
Texana Timber LP (sustainable forestry
company)
- -------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 2002 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company (3 portfolios))
- -------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 2002 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
(1) Mr. Graham is considered an interested person of the Trust because he is a
director of AMVESCAP PLC, parent of the advisor to the Trust.
(2) Mr. Williamson is considered an interested person of the Trust because he is
an officer and a director of the advisor to, and a director of the principal
underwriter of, the Trust.
TRUSTEES AND OFFICERS--(CONTINUED)
As of December 31, 2005
AIM SELECT REAL ESTATE INCOME FUND
The address of each trustee and officer of AIM Select Real Estate Income Fund
(the "Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each
trustee oversees 109 portfolios in the AIM Funds complex. The trustees serve for
the life of the Trust, subject to their earlier death, incapacitation,
resignation, retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 2002 Partner, law firm of Pennock & Cooper None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2002 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2004 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Raymond Stickel, Jr. -- 1944 2005 Retired None
Trustee
Formerly: Partner, Deloitte & Touche
- -------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley -- 1959 2004 Senior Vice President, A I M Management N/A
Senior Vice President and Group Inc.; Senior Vice President and
Chief Compliance Officer Chief Compliance Officer, A I M
Advisors, Inc.; Vice President and Chief
Compliance Officer, A I M Capital
Management, Inc. and Vice President,
A I M Distributors, Inc., AIM Investment
Services, Inc. and Fund Management
Company
Formerly: Senior Vice President and
Compliance Director, Delaware
Investments Family of Funds and Chief
Compliance Officer, A I M Distributors,
Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Russell C. Burk -- 1958 2005 Formerly: Director of Compliance and N/A
Senior Vice President and Assistant General Counsel, ICON
Senior Officer Advisers, Inc.; Financial Consultant,
Merrill Lynch; General Counsel and
Director of Compliance, ALPS Mutual
Funds, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, N/A
Senior Vice President, Secretary and General Counsel, A I M
Secretary and Chief Legal Management Group Inc. and A I M
Officer Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Vice President, A I M Capital
Management, Inc., AIM Investment
Services, Inc. and Fund Management
Company; and Senior Vice President,
A I M Distributors, Inc.
Formerly: Senior Vice President and
General Counsel, Liberty Financial
Companies, Inc.; Senior Vice President
and General Counsel, Liberty Funds
Group, LLC; Vice President, A I M
Distributors, Inc.; and Director and
General Counsel, Fund Management Company
- -------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President, Principal Advisors, Inc.
Financial Officer and
Treasurer Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
J. Philip Ferguson -- 1945 2005 Senior Vice President and Chief N/A
Vice President Investment Officer, A I M Advisors Inc.;
Director, Chairman, Chief Executive
Officer, President and Chief Investment
Officer, A I M Capital Management, Inc.;
Executive Vice President, A I M
Management Group Inc.
Formerly: Senior Vice President, AIM
Private Asset Management, Inc.; and
Chief Equity Officer, and Senior
Investment Officer, A I M Capital
Management, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 2002 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.959.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR TRANSFER AGENT AUDITORS SUB-ADVISOR
(PREFERRED SHARES)
11 Greenway Plaza A I M Advisors, Inc. PricewaterhouseCoopers INVESCO Institutional
Suite 100 11 Greenway Plaza Deutsche Bank Trust LLP (N.A.), Inc.
Houston, TX 77046-1173 Suite 100 Company Americas 1201 Louisiana Street INVESCO Realty Advisors
Houston, TX 77046-1173 100 Plaza One Suite 2900 division
Jersey City, NJ Houston, TX 77002-5678 Three Galleria Tower
07311-3901 Suite 500
13155 Noel Road
Dallas, TX 75240-5042
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
Ballard Spahr INDEPENDENT TRUSTEES (COMMON SHARES) State Street Bank and
Andrews & Ingersoll, LLP Kramer, Levin, Naftalis Computershare Trust Trust Company
1735 Market Street & Frankel LLP Company, N.A. 225 Franklin Street
Philadelphia, PA 19103-7599 1177 Avenue of the P.O. Box 43010 Boston, MA 02110-2801
Americas Providence, RI
New York, NY 10036-2714 02940-0301
</Table>
TAX DISCLOSURES
REQUIRED FEDERAL INCOME TAX INFORMATION
Of ordinary dividends paid to shareholders during the Fund's tax year ended
December 31, 2005, 0% is eligible for the dividends received deduction for
corporations. The Fund distributed long-term capital gains of $83,750,774 for
the Fund's tax year ended December 31, 2005.
For its tax year ended December 31, 2005, the Fund designates 3.24% of the
maximum amount allowable of its dividend distributions as qualified dividend
income. Your actual amount of qualified dividend income for the calendar year
will be reported on form 1099-DIV. You should consult your tax advisor regarding
treatment of the amounts.
TAX INFORMATION FOR NON-RESIDENT ALIEN SHAREHOLDERS
For its tax year ended December 31, 2005, the Fund designates 0%, or the maximum
amount allowable of its dividend distributions as qualified interest income
exempt from U.S. income tax for non-resident alien shareholders. Your actual
amount of qualified interest income for the calendar year will be reported in
your Form 1042-S mailing. You should consult your tax advisor regarding
treatment of the amounts.
The Fund designates qualified short-term capital gain distributions exempt from
U.S. income tax for non-resident alien shareholders of $4,046,288 for the fund's
tax year ended December 31, 2005.
The percentage of qualifying assets not subject to the U.S. estate tax for the
fiscal quarters ended March 31, 2005, June 30, 2005, September 30, 2005 and
December 31, 2005 are 0%, 0.71%, 0.06% and 0%, respectively.
AIMinvestments.com SREI-AR-1
<Table>
YOUR GOALS. OUR SOLUTIONS.--Registered Trademark--
- ---------------------------------------------------------------------------------------
Mutual Retirement Annuities College Separately Offshore Cash [AIM INVESTMENTS LOGO APPEARS HERE]
Funds Products Savings Managed Products Management --Registered Trademark--
Plans Accounts
- ---------------------------------------------------------------------------------------
</Table>
Appendix III
AIM SELECT REAL ESTATE INCOME FUND
Semiannual Report to Shareholders o June 30, 2006
[COVER IMAGE]
[YOUR GOALS. OUR SOLUTIONS.] [AIM INVESTMENTS LOGO APPEARS HERE]
--Registered Trademark-- --Registered Trademark--
AIM SELECT REAL ESTATE INCOME FUND'S PRIMARY INVESTMENT OBJECTIVE IS HIGH
CURRENT INCOME; THE FUND'S SECONDARY INVESTMENT OBJECTIVE IS CAPITAL
APPRECIATION.
o Unless otherwise stated, information presented in this report is as of
June 30, 2006, and is based on total net assets attributable to common shares
plus assets attributable to outstanding preferred shares.
<Table>
GENERAL INFORMATION Fund preferred shares or borrowing, are rities commonly referred to as "junk
borne entirely by the common shareholders. bonds." Securities of below-investment
o AIM Select Real Estate Income Fund Common share income may fall if the grade quality are regarded as having
performance figures are historical, and dividend rate on Fund preferred shares or predominantly speculative characteristics
they reflect Fund expenses, the the interest rate on any borrowings rises with respect to capacity to pay interest
reinvestment of distributions (if any) and and will fluctuate as the dividend rate on and repay principal.
changes in net asset value (NAV) for Fund preferred shares or the interest on
performance based on NAV and changes in any borrowings varies. o The Fund's Declaration of Trust and
market price for performance based on Bylaws include provisions that could limit
market price. o REITs tend to be small- to the ability of other entities or persons
medium-sized companies. REIT shares, like to acquire control of the Fund or convert
PRINCIPAL RISKS OF INVESTING IN THE FUND other smaller company shares, may be more the Fund to open-end status. These
volatile than and perform differently from provisions could have the effect of
o The performance of the Fund will be larger-company shares. There may be less depriving the common shareholders of
closely linked to the performance of the trading in a smaller company's shares, opportunities to sell their common shares
real estate markets. Property values may which means that buy and sell transactions at a premium over the then-current market
fall due to declining rents or increasing in those shares could have a larger impact prices of the common shares.
vacancies resulting from economic, legal, on the share's prices than is the case
cultural, or technological developments. with larger-company shares. o An investment in the Fund is subject
The Fund invests substantial assets in to investment risk, including the possible
Real Estate Investment Trusts (REITs). o The Fund is classified as loss of the entire principal amount that
REIT prices may drop because of poor "non-diversified" under the Investment you invest. Your common shares at any
management or because borrowers fail to Company Act of 1940. It can invest a point in time may be worth less than what
pay their loans. Many REITs use leverage greater portion of its assets in you invested, even after taking into
(and some may be highly leveraged), which obligations of a single issuer than a account the reinvestment of Fund dividends
increases investment risk and could "diversified" Fund. As a result, the Fund and distributions. The value of the Fund's
adversely affect a REIT's operation and will be more susceptible than a more portfolio securities may move up or down,
market value in periods of rising interest widely diversified fund to any single sometimes rapidly and unpredictably.
rates in addition to the risks normally corporate, economic, political or
associated with debt financing. Financial regulatory occurrence. o Investing in a single-sector mutual
covenants related to REIT leveraging may fund may involve greater risk and
affect the ability of REITs to operate o The prices of foreign securities may potential reward than investing in a more
effectively. Real estate risks may also be affected by factors not present with diversified fund. Due to significant
arise if a portfolio company fails to securities traded in the U.S. markets, market volatility, results of an
carry adequate insurance or if a portfolio including currency exchange rates, investment made today may differ
company becomes liable for removal or political and economic conditions, less substantially from the historical
other costs related to environmental stringent regulation and higher performance shown. Call your financial
contamination. Investing in REITs presents volatility. As a result, many foreign advisor for more current information.
risks not associated with investing in securities may be less liquid and more
stocks. volatile than U.S. securities. ABOUT INDEXES USED IN THIS REPORT
o The Fund has the ability to use o If the Fund enters into interest rate o The unmanaged STANDARD & POOR'S
leverage through the issuance of preferred swaps, interest rate caps, or options or COMPOSITE INDEX OF 500 STOCKS (the
shares, commercial paper or notes, and/or futures transactions, a decline in S&P 500--Registered Trademark-- Index) is
borrowing in an aggregate amount of up to interest rates may result in a decline in an index of common stocks frequently used
30% of the Fund's total assets after such the net amount receivable by the Fund as a general measure of U.S. stock market
issuance and/or borrowing. It has under the interest rate hedging performance.
currently issued preferred shares. The use transaction (or increase the net amount
of leverage by the Fund can result in payable by the Fund under the interest o The unmanaged FTSE NATIONAL
greater volatility of the NAV and market rate hedging transaction), which could ASSOCIATION OF REAL ESTATE INVESTMENT
price of the Fund's common shares because result in a decline in the NAV of the TRUSTS (THE NAREIT) U.S. REAL ESTATE
changes in the value of the Fund's common shares. EQUITY INDEX tracks the performance of
portfolio investments, including equity REITs listed on New York Stock
investments purchased with the proceeds of o The Fund may invest up to 20% of its Exchange, NASDAQ National Market System,
the issuance of total assets in securities of and the American Stock Exchange.
below-investment grade quality, including
non-investment grade secu-
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
AIMinvestments.com
<Table>
o The MSCI U.S. REIT INDEX is a Funds. You may also obtain a printed copy The Fund provides a complete list of its
total-return index composed of the most by calling AIM's Client Services holdings four times in each fiscal year,
actively traded real estate investment department a 800-959-4246. at the quarter-ends. For the second and
trusts and is designed to be a measure of fourth quarters, the lists appear in the
real estate equity performance. The index o The Fund's Annual CEO Certification of Fund's semiannual and annual reports to
was developed with a base value of 200 as Compliance regarding the Fund's compliance shareholders. For the first and third
of December 31, 1994. It is compiled by with NYSE corporate governance listing quarters, the Fund files the lists with
Morgan Stanley Capital International. standards was filed with the NYSE on the Securities and Exchange Commission
June 5, 2006. (SEC) on Form N-Q. The most recent list of
o The unmanaged LIPPER SECTOR EQUITY portfolio holdings is available at
FUND CATEGORY AVERAGE (Closed-End Funds) o The certifications of the Fund's AIMinvestments.com. From our home page,
represents an average of all the principal executive officer and principal click on Products & Performance, then AIM
closed-end sector equity funds tracked by financial officer, as required by Section Select Real Estate Income Fund, then Fund
Lipper Inc., an independent mutual fund 302 of the Sarbanes-Oxley Act of 2002, are overview and then holdings. Shareholders
performance monitor. filed with Securities and Exchange can also look up the Fund's Forms N-Q on
Commission (SEC) with the Fund's Form the SEC's Web site at sec.gov. Copies of
o The unmanaged LIPPER CLOSED-END REAL N-CSR for the period covered by this the Fund's Forms N-Q may be reviewed and
ESTATE FUND INDEX represents an average of Semiannual Report to Shareholders. The copied at the SEC's Public Reference Room
the performance of the 10 largest Fund's Form N-CSR for the period covered at 100 F Street, N.E., Washington, D.C.
closed-end real estate funds tracked by by this Semiannual Report to Shareholders 20549. You can obtain information on the
Lipper Inc., an independent mutual fund will be posted on the SEC's Web site, operation of the Public Reference Room,
performance monitor. sec.gov, within 10 days after this Report including information about duplicating
is first sent to shareholders. fee charges, by calling 1-202-942-8090 or
o The Fund is not managed to track the 1-800-732-0330, or by electronic request
performance of any particular index, OTHER INFORMATION ABOUT THE ADVISOR at the following e-mail address:
including the indexes defined here, and publicinfo@sec.gov. The SEC file numbers
consequently, the performance of the Fund o Additional Compensation of Certain for the Fund are 811-21048 and 333-84256
may deviate significantly from the Broker-Dealers. Pursuant to an agreement for common shares and 333-90388 for
performance of the indexes. entered into on May 28, 2002, at the time preferred shares.
of the initial offering of the Fund's
o A direct investment cannot be made in common shares, the Fund's advisor makes A description of the policies and
an index. Unless otherwise indicated, incentive fee payments to certain procedures that the Fund uses to determine
index results include reinvested broker-dealers who participated in the how to vote proxies relating to portfolio
dividends, and they do not reflect sales underwriting of such offering in securities is available without charge,
charges. Performance of an index of funds consideration of the Fund's receipt from upon request, from our Client Services
reflects fund expenses; performance of a such broker-dealers of after market department at 800-959-4246 or on the AIM
market does not. support services designed to maintain the Web site, AIMinvestments.com. On the home
visibility of the Fund on an ongoing page, scroll down and click on AIM Funds
OTHER INFORMATION basis. Annual fees paid by the Fund's Proxy Policy. The information is also
advisor shall not exceed 0.10% of the available on the SEC Web site, sec.gov.
o Property type classifications used in Fund's aggregate Managed Assets (average
this report are generally according to the daily net assets attributable to the Information regarding how the Fund voted
FTSE National Association of Real Estate Fund's common shares, plus assets proxies related to its portfolio
Investment Trusts (NAREIT) U.S. Real attributable to the Fund's Preferred securities during the 12 months ended June
Estate Equity Index, which is exclusively Shares that are outstanding, plus the 30, 2006, is available at our Web site. Go
owned by the National Association of Real principal amount of any borrowings). Over to AIMinvestments.com, access the About Us
Estate Investment Trusts (NAREIT). time, these payments cannot exceed, in the tab, click on Required Notices and then
aggregate, $12,583,413. click on Proxy Voting Activity. Next,
o The Fund's audit committee Charter is select the Fund from the drop-down menu.
available on the AIM Web site, The information is also available on the
AIMinvestments.com. Go to SEC Web site, sec.gov.
AIMinvestments.com. Under the Products
list, click on AIM Select Real Estate
Income Fund, then click on Fund overview,
then on Charter of the Audit Committees of
the AIM
2
<Table>
DIVIDEND REINVESTMENT PLAN o If, on the payment date of the dividend, o All correspondence concerning the Plan
the closing market price per Common Shares should be directed to the Plan
o The Fund has adopted the following plus per share brokerage commissions Administrator at: P.O. Box 43011,
Dividend Reinvestment Plan: applicable to an open market purchase of Providence, RI 02940-3011
Common Shares is at or above the net asset
You may elect to have all dividends, value per Common Share, the Fund will TRANSFERS OF SHARES AND CONTINUED
including any capital gain dividends, on issue new shares at a price equal to the PARTICIPATION IN THE DIVIDEND REINVESTMENT
your Common Shares automatically greater of (i) net asset value per Common PLAN
reinvested by Computershare Trust Company, Share on that trading date or (ii) 95% of
N.A. as plan administrator (the "Plan the closing market price on that trading o A shareholder who holds Common Shares in
Administrator") for the Common date. a brokerage account and participates in
Shareholders, in additional Common shares the dividend reinvestment plan may not be
under the Dividend Reinvestment Plan (the o The Plan Administrator maintains all able to transfer the shares to another
"Plan"). You may elect to participate in shareholders' accounts in the Plan and broker and continue to participate in the
the Plan by contacting the Plan gives written confirmation of all dividend reinvestment plan.
Administrator at 1-800-730-6001. If you do transactions in the accounts, including
not participate, you will receive all information you may need for tax records. TAX TREATMENT OF REINVESTED DIVIDENDS
distributions in cash paid by check mailed Common Shares in your account will be held
directly to you by Computershare Trust by the Plan Administrator in book-entry o Dividends paid out of the Fund's
Company, N.A. as dividend paying agent. (non-certificated) form. Any proxy you "investment company taxable income" will
receive will include all Common Shares you be taxable as ordinary income to the
o If you decide to participate in the have received under the Plan. extent of the Fund's earnings and profits.
Plan, the number of Common Shares you will Distributions of net capital gain (the
receive will be determined as follows: o You may withdraw from the Plan at any excess of net long-term capital gain over
time by giving notice to the Plan net short-term capital loss), if any, are
If, on the payment date of the dividend, Administrator. If you withdraw completely taxable to shareholders as long-term
the closing market price per Common Share from the Plan or the Plan is terminated, capital gain, regardless of the length of
plus per share brokerage commissions the Plan Administrator will transfer your time fund shares were held. A distribution
applicable to an open market purchase of account or issue the shares in your of an amount in excess of the Fund's
Common Shares is below the net asset value account to you (which may include a cash earnings and profits is treated as a non
per Common Share at the time of valuation, payment to you for any fraction of a share taxable return of capital that reduces a
the Plan Administrator will receive the in your account). If you wish, the Plan shareholder's tax basis in their common
dividend or distribution in cash and will Administrator will sell your shares and shares; any such distributions in excess
purchase Common Shares in the open market, send you the proceeds, minus applicable of basis are treated as gain from the sale
on the New York Stock Exchange or brokerage commissions and a $15.00 service of shares.
elsewhere, for the participants' accounts. fee.
It is possible that the market price for o The tax treatment of dividends and
the Common Shares may increase before the o There is not brokerage charge for distributions are the same regardless of
Plan Administrator has completed its reinvestment of your dividends or whether they are paid in cash or
purchases. Therefore, the weighted average distributions in Common Shares. However, reinvested in additional Common Shares. If
purchase price per share paid by the Plan all participants will pay a pro rata share a shareholder sells his Common Shares, or
Administrator may exceed the closing of brokerage commissions incurred by the has shares repurchased by the Fund, the
market price at the time of valuation, Plan Administrator when it makes open shareholder may realize a capital gain or
resulting in the purchase of fewer shares market purchases. loss, which will be long-term or
than if the dividend or distribution had short-term depending on the shareholder's
been paid in Common Shares issued by the o Automatically reinvesting dividends and holding period for the shares. Fund
Fund. The Plan Administrator will use all distributions does not mean that you do distributions also may be subject to state
dividends and distributions received in not have to pay income taxes due upon and local taxes.
cash to purchase Common Shares in the open receiving dividends and distributions.
market prior to the next ex-dividend date.
In the event it appears that the Plan o The Fund reserves the right to amend or
Administrator will not be able to complete terminate the Plan if in the judgment of
the open market purchases prior to the the Board of Trustees the change is
next ex-dividend date, the Fund will warranted. There is no direct service
determine whether to issue the remaining charge to participants in the Plan;
shares at net asset value. Interest will however, the Fund reserves the right to
not be paid on any uninvested cash amend the Plan to include a service charge
payments. payable by the participants. Additional
information about the Plan may be obtained
from the Plan Administrator.
3
DEAR FELLOW SHAREHOLDERS OF THE AIM FAMILY OF
FUNDS--Registered Trademark--:
We're pleased to provide you with this report, which
[GRAHAM includes a discussion of how your Fund was managed during
PHOTO] the period under review in this report, and what factors
affected its performance. That discussion begins on page 6.
It's been said nothing is certain but death and taxes. We
would venture to add that one other thing is certain:
Markets change--and change often--in the short term. The
first six months of 2006 were a perfect example. Domestic
ROBERT H. GRAHAM and global equity markets were generally strong during the
early months of the period, but they became considerably
more volatile and negative beginning in May. Inflation fears
were the primary cause of this change in market sentiment:
o Amid signs of rising inflation, the U.S. Federal
Reserve Board continued to raise interest rates in
response to inflation risks.
o The dollar remained weak, making imports more expensive
and thereby raising inflation.
o Oil prices remained at historically high levels,
threatening to reduce consumer spending--and possibly
slowing the U.S. economy.
While we can't do anything about the ambiguity and
uncertainty surrounding death and taxes, we can suggest an
[TAYLOR alternative to reacting to fluctuating short-term market
PHOTO] conditions: Maintain a diversified portfolio. AIM
Investments--Registered Trademark-- can help by offering a
broad product line that gives your advisor the necessary
tools to build a portfolio that's right for you regardless
of market conditions. AIM offers a comprehensive range of
retail mutual funds, including domestic, global and
PHILIP TAYLOR international equity funds, taxable and tax-exempt
fixed-income funds, and a variety of allocation
portfolios--with varied risk and return characteristics to
match your needs. We maintain this extensive set of product
solutions for one reason: We believe in the value of
comprehensive, diversified investment portfolios.
We also believe in the value of a trusted financial
advisor who can create an investment plan you can stick with
for the long term. Your advisor can help allocate your
portfolio appropriately and review your investments
regularly to ensure they remain suitable as your financial
situation changes. While there are no guarantees with any
investment program, a long-term plan that's based on your
financial goals, risk tolerance and time horizon is more
likely to keep you and your investments on track.
OUR COMMITMENT TO YOU
In the short term, the one sure thing about markets is their
unpredictability. While past performance cannot guarantee
comparable future results, we believe that staying invested
for the long term with a thoughtful plan offers the best
opportunity for weathering that unpredictability. We at AIM
Investments remain committed to building solutions to help
you achieve your investment goals, and we're pleased you've
placed your trust in us.
Information about investing, the markets and your Fund is
always available on our Web site, AIMinvestments.com. If you
have questions about your individual account, we invite you
to contact one of our highly trained client services
representatives at 800-959-4246.
Sincerely,
/S/ ROBERT H. GRAHAM /S/ PHILIP TAYLOR
Robert H. Graham Philip Taylor
Vice Chair -- AIM Funds President -- AIM Funds
Chair, AIM Investments CEO, AIM Investments
August 10, 2006
AIM Investments is a registered service mark of A I M
Management Group Inc. A I M Advisors, Inc. and A I M Capital
Management, Inc. are the investment advisors. A I M
Distributors, Inc. is the distributor for the retail funds
represented by AIM Investments.
4
DEAR FELLOW AIM FUND SHAREHOLDERS:
At our meeting at the end of June, your Board completed its
comprehensive review* of each fund's advisory agreement with
A I M Advisors, Inc. (AIM) to make certain your interests
are being served in terms of fees, performance and
operations.
Looking ahead, your Board finds many reasons to be
positive about AIM's management and strategic direction.
[CROCKETT Most importantly, AIM management's investment management
PHOTO] discipline is paying off in terms of improved overall
performance. While work remains to be done, AIM's
complex-wide, asset-weighted mutual fund performance for the
trailing one-, three- and five-year periods is at its
highest since 2000. We are also pleased with AIM
BRUCE L. CROCKETT management's efforts to seek more cost-effective ways of
delivering superior service.
In addition, AIM is realizing the benefits of belonging
to a leading independent global investment management
organization in its parent company, AMVESCAP PLC, which is
dedicated to helping people worldwide build their financial
security. AMVESCAP manages more than $414 billion globally,
operating under the AIM, INVESCO, AIM Trimark, INVESCO
PERPETUAL and Atlantic Trust brands. These companies are
home to an abundance of investment talent that is gradually
being integrated and leveraged into centers of excellence,
each focusing on a given market segment or asset class. Over
the next few years, your Board will be meeting at these
various centers of excellence to learn about their progress
and how they can serve you by enhancing performance and
reducing costs.
The seven new AIM funds--which include Asian funds,
structured U.S. equity funds and specialized bond funds--are
an early example of the kind of opportunities the AMVESCAP
organization can provide AIM clients. More information on
these funds can be found on AIM's Web site.
Your Board is very pleased with the overall direction and
progress of the AIM Funds. We're working closely and
effectively with AIM's management to continue this momentum.
As always, your Board is eager to hear your views on how we
might better serve you. Please send your comments in a
letter addressed to me at AIM Investments, AIM Investments
Tower, 11 Greenway Plaza, Suite 100, Houston TX 77046.
Sincerely,
/S/ BRUCE L. CROCKETT
Bruce L. Crockett
Independent Chair
AIM Funds Board
August 10, 2006
*To learn more about all the factors we considered before
approving each fund's advisory agreement, go to the
"Products & Performance" tab at the AIM Web site
(aiminvestments.com) and click on "Investment Advisory
Agreement Renewals." The approval of the advisory agreement
information for your Fund is also included in this
semiannual report on pages 8-9.
5
AIM SELECT REAL ESTATE INCOME FUND
<Table>
MANAGEMENT'S DISCUSSION The Fund may seek to increase portfolio
OF FUND PERFORMANCE yield through borrowing to provide
leverage to the Fund, with the intent of
======================================================================================= generating a higher return on the assets
PERFORMANCE SUMMARY than the Fund pays to borrow those assets.
========================================== We also use strategies designed to reduce
During the six-month reporting period FUND VS. INDEXES the risk of short-term interest rate
ended June 30, 2006, AIM Select Real movement, which can affect the preferred
Estate Income Fund once again provided CUMULATIVE TOTAL RETURNS, 12/31/05-6/30/06 share borrowing rate.
shareholders with positive returns. The
Fund's primary objective is high current Fund at NAV 8.69% We attempt to control risk by
income with approximately 27.6% of the diversification of property types and
Fund's assets invested in preferred Fund at Market 7.95 geographic location as well as limiting
stocks. During the reporting period, REIT holding concentrations of any one
preferred stocks generally had lower S&P 500 Index security.
returns than REIT common stocks. As the (Broad Market Index) 2.71
proportion of preferred stocks is higher We will consider selling a holding
in the Fund than in the FTSE NAREIT U.S. FTSE NAREIT U.S. when:
Real Estate Equity Index, the Fund lagged Real Estate Equity Index
this index. (Style-Specific Index) 12.90 o Relative yield falls below desired
levels.
Since the Fund is a closed-end Lipper Closed-End
management investment company, shares may Real Estate Fund Index o Risk/return relationships change
trade at a discount or premium to NAV. As (Peer Group)(1) 12.32 significantly.
of June 30, 2006, the close of the
reporting period, the Fund's Common Shares Lipper Sector o Company fundamentals change (property
traded at a 14.9% discount to NAV, Equity Fund Category type, geography or management changes).
compared with 14.4% at the close of Average (Closed-End Funds) 7.28
2005. As of June 30, 2006, the close (Former Peer Group) o A more attractive yield on investment
opportunity is identified.
SOURCE: LIPPER INC.
MARKET CONDITIONS AND YOUR FUND
(1) Lipper recently reclassified AIM
Select Real Estate Income Fund from During the first four months of 2006,
the Lipper Sector Equity Fund Category equity markets generally posted positive
to the Lipper Closed-End Real Estate returns. However, over the last two months
Fund Category. of the reporting period, equity markets
========================================== retreated as investors became concerned
about persistently high energy prices and
of the fiscal year, the average discount rising interest rates and the potential
rate to NAV of closed-end real estate impact of both on economic growth and
funds available from Lipper was 11.5%, inflation. During the reporting period,
compared with 11.9% at the end of 2005. the U.S. Federal Reserve Board (the Fed)
continued its tightening policy, raising
======================================================================================= the key federal funds target rate to
5.25%.
HOW WE INVEST and management and structure review to
identify securities with: The REIT market easily outpaced the
Your Fund holds primarily real broad market as measured by the S&P 500
estate-oriented securities. We focus on o Potential to pay attractive dividends Index. REIT performance was positive
public companies whose value is driven by relative to similar properties. during the first
tangible assets. Our goal is to create a
portfolio that will provide high current o Quality underlying properties. (continued)
income. We use a fundamentals-driven
investment process, including property o Solid management teams.
market cycle analysis, property
evaluation, o Reasonable valuations relative to
similar companies.
========================================== ========================================== ==========================================
PORTFOLIO COMPOSITION TOP 10 SECURITY HOLDINGS* COMMON SHARE MARKET VALUE $15.55
By property type 1. Colonial Properties Trust 4.5% COMMON SHARE NET ASSET VALUE $18.28
Healthcare 19.6% 2. Brandywine Realty Trust 4.1 MARKET PRICE DISCOUNT (14.93%)
Diversified 15.6 3. Nationwide Health TOTAL NUMBER OF HOLDINGS* 123
Properties, Inc. 4.1
Office Properties 15.3 AT THE CLOSE OF THE REPORTING PERIOD, THE
4. Hospitality Properties Trust 3.6 FUND'S COMMON SHARES NAV STOOD AT $18.28,
Lodging-Resorts 9.7 AND ITS MARKET SHARE PRICE WAS $15.55.
5. National Retail Properties, Inc. 3.6 SINCE THE FUND IS A CLOSED-END MANAGEMENT
Shopping Centers 7.2 INVESTMENT COMPANY, SHARES OF THE FUND
6. Healthcare Realty Trust, Inc. 3.4 MAY TRADE AT A DISCOUNT FROM THE NAV.
Regional Malls 6.2 THIS CHARACTERISTIC IS SEPARATE AND
7. Senior Housing Properties Trust 3.4 DISTINCT FROM THE RISK THAT NAV COULD
Freestanding 5.9 DECREASE AS A RESULT OF INVESTMENT
8. iStar Financial Inc. 3.2 ACTIVITIES AND MAY BE A GREATER RISK TO
Apartments 4.6 INVESTORS EXPECTING TO SELL THEIR SHARES
9. Health Care Property AFTER A SHORT TIME. THE FUND CANNOT
Industrial/Office Mixed 4.5 Investors, Inc. 3.1 PREDICT WHETHER SHARES WILL TRADE AT,
ABOVE OR BELOW NAV.
Industrial Properties 3.6 10. Inland Real Estate Corp. 2.6 (continued)
Self Storage Facilities 2.4
Specialty Properties 1.9 The Fund's holdings are subject to change,
and there is no assurance that the Fund
Manufactured Homes 0.3 will continue to hold any particular
security.
Money Market Funds Plus
Other Assets Less Liabilities 3.2
*Excluding money market holdings.
========================================== ========================================== ==========================================
6
AIM SELECT REAL ESTATE INCOME FUND
<Table>
quarter of 2006 but retreated in April and institutions, was a detractor during the JOE V. RODRIGUEZ, JR.,
May. The sector rebounded in June to end period. Shares of the stock declined amid Director of Securities
the period with solid performance. The concern over the company's business [RODRIGUEZ Management, INVESCO
group's favorable relative performance was strategy. We continued to maintain our PHOTO] Real Estate, is lead
driven by a number of recurring themes, position because of its attractive manager of AIM Select
including ongoing REIT privatization relative valuation and believe it could Real Estate Income
activity; improving real estate operating make progress in addressing investor Fund. He oversees all
fundamentals; inclusion of two large-cap concerns. phases of the unit
REIT names into the S&P 500 Index and including
growing demand for stable, As the Fund's primary objective is securities research and administration.
income-producing assets and real estate in income, the Fund has exposure to REIT Mr. Rodriguez began his investment career
general. preferred stocks. Due to their in 1983 and joined INVESCO Real Estate,
fixed-income characteristics, REIT the Dallas-based investment management
Select holdings within the office preferred shares may behave more like affiliate of INVESCO Institutional (N.A.),
sector contributed the most to our bonds. During the year, REIT preferred Inc., in 1990. He has served on the
positive performance. CARRAMERICA REALTY stocks provided income but did not editorial boards of the National
CORP., which owns and operates office participate as fully in the share price Association of Real Estate Investment
properties, was a strong contributor. appreciation as REIT common stocks did. Trusts (NAREIT) as well as the
CarrAmerica Realty benefited after a Institutional Real Estate Securities
private equity firm, Blackstone Group, As part of our investment strategy, the Newsletter. He is a member of the National
announced in early March that it would pay Fund also leverages through the issuance Association of Business Economists,
$5.6 billion to acquire it. of preferred shares, which increases the American Real Estate Society and the
Fund's yield and may help or hurt NAV Institute of Certified Financial Planners.
Given the Fund's primary goal of depending on whether the REIT market is He also served as adjunct professor of
income, we continued to have meaningful going up or down. We leverage through the economics at the University of Texas at
exposure to the healthcare sector, as issuance of auction rate preferred shares Dallas. In addition, Mr. Rodriguez was a
healthcare REITs have historically and then swap a portion of the floating contributing author to Real Estate
produced a relatively high and steady rates paid on the preferred shares for Investment Trusts: Structure Analysis and
stream of income. Our positions within the fixed rates in an effort to mitigate Strategy, published by McGraw Hill. Mr.
health care and diversified sectors also interest rate uncertainty. Given the REIT Rodriguez earned his B.B.A. in economics
contributed positively to performance. environment during the reporting period, and finance as well as his M.B.A. in
Diversified REIT holding COLONIAL leverage helped the Fund by boosting finance from Baylor University.
PROPERTIES TRUST was our top contributor income and NAV.
to performance over the reporting period. MARK D. BLACKBURN,
The company owns a portfolio of IN CLOSING Chartered Financial
multifamily, office and retail properties [BLACKBURN Analyst, Director of
in the United States and reported positive We were encouraged by the resiliency of PHOTO] Investments, INVESCO
earnings. In addition, the company also the REIT market during the period. We Real Estate, is
made some recent acquisitions in the believe REIT prices largely reflected fair manager of AIM Select
Atlanta market that could potentially levels relative to the value of their Real Estate Income
allow them to grow and develop their underlying holdings. Although REIT prices Fund. Prior to joining
portfolio in the area. increased, we believe occupancy and rental INVESCO in 1998, he worked as an associate
rates have supported that growth and that director of research, focusing on equity
On the other hand, AMERICAN FINANCIAL REIT fundamentals continued to improve. securities research and recommendations
REALTY TRUST, which acquires, manages and Also important will be investor sentiment with a regional brokerage firm. He has
operates properties leased to regulated toward the interaction of economic growth approximately 19 years of experience in
financial against the backdrop of the Fed interest institutional investing and risk
rate policy. We appreciate your continued management, along with a background in
========================================== participation in AIM Select Real Estate evaluating the high-yield and convertible
Income Fund. securities markets. Mr. Blackburn earned a
THE FUND SHOULD NOT BE VIEWED AS A VEHICLE B.S. in accounting from Louisiana State
FOR TRADING PURPOSES. IT IS DESIGNED THE VIEWS AND OPINIONS EXPRESSED IN University and an M.B.A. from Southern
PRIMARILY FOR RISK-TOLERANT LONG-TERM MANAGEMENT'S DISCUSSION OF FUND Methodist University. He is a Certified
INVESTORS. PERFORMANCE ARE THOSE OF A I M ADVISORS, Public Accountant and a member of the
INC. THESE VIEWS AND OPINIONS ARE SUBJECT National Association of Real Estate
THE PERFORMANCE DATA QUOTED REPRESENT TO CHANGE AT ANY TIME BASED ON FACTORS Investment Trusts.
PAST PERFORMANCE AND CANNOT GUARANTEE SUCH AS MARKET AND ECONOMIC CONDITIONS.
COMPARABLE FUTURE RESULTS; CURRENT THESE VIEWS AND OPINIONS MAY NOT BE RELIED JAMES W. TROWBRIDGE,
PERFORMANCE MAY BE LOWER OF HIGHER. PLEASE UPON AS INVESTMENT ADVICE OR portfolio manager,
SEE YOUR FINANCIAL ADVISOR FOR THE MOST RECOMMENDATIONS, OR AS AN OFFER FOR A [TROWBRIDGE INVESCO Real Estate,
RECENT MONTH-END PERFORMANCE. FUND PARTICULAR SECURITY. THE INFORMATION IS PHOTO] is manager of AIM
PERFORMANCE FIGURES ARE HISTORICAL, AND NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF Select Real Estate
THEY REFLECT FUND EXPENSES, THE ANY MARKET, COUNTRY, INDUSTRY, SECURITY OR Income Fund. In 1989,
REINVESTMENT OF DISTRIBUTIONS (IF ANY) AND THE FUND. STATEMENTS OF FACT ARE FROM Mr. Trowbridge joined
CHANGES IN NAV FOR PERFORMANCE BASED ON SOURCES CONSIDERED RELIABLE, BUT A I M INVESCO Real Estate.
NAV AND CHANGES IN MARKET PRICE FOR ADVISORS, INC. MAKES NO REPRESENTATION OR With 31 years of real estate investment
PERFORMANCE BASED ON MARKET PRICE. THE WARRANTY AS TO THEIR COMPLETENESS OR experience for major institutional
VALUE OF YOUR FUND'S SHARES WILL FLUCTUATE ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE investors, Mr. Trowbridge is responsible
SO THAT YOU MAY HAVE A GAIN OR LOSS WHEN IS NO GUARANTEE OF FUTURE RESULTS, THESE for integrating his knowledge into
YOU SELL SHARES. INSIGHTS MAY HELP YOU UNDERSTAND OUR INVESCO's publicly traded REIT
INVESTMENT MANAGEMENT PHILOSOPHY. investments. Mr. Trowbridge earned his
HAD THE ADVISOR NOT WAIVED FEES AND/OR B.S. in finance from Indiana University.
REIMBURSED EXPENSES, RETURNS WOULD HAVE See important Fund and index He has completed numerous appraisal and
BEEN LOWER. disclosures inside front cover. income property courses sponsored by the
American Appraisal Institute and the
Mortgage Bankers Association, of which he
has been active on several income property
subcommittees. He is a member of the
National Association of Real Estate
Investment Trusts.
Assisted by the Real Estate Team
7
AIM SELECT REAL ESTATE INCOME FUND
APPROVAL OF INVESTMENT ADVISORY AGREEMENT
<Table>
The Board of Trustees of AIM Select Real (at net asset value) during the past one o Fees relative to those of comparable
Estate Income Fund (the "Board") oversees and two calendar years against the funds with other advisors. The Board
the management of AIM Select Real Estate performance of funds advised by other reviewed the advisory fee rate for the
Income Fund (the "Fund") and, as required advisors with investment strategies Fund under the Advisory Agreement. The
by law, determines annually whether to comparable to those of the Fund. The Board Board compared effective contractual
approve the continuance of the Fund's noted that the Fund's performance (at net advisory fee rates at a common asset level
advisory agreement with A I M Advisors, asset value) in such periods was below the at the end of the past calendar year and
Inc. ("AIM"). Based upon the median performance of such comparable noted that the Fund's rate was comparable
recommendation of the Investments funds. Based on this review and after to the median rate of the funds advised by
Committee of the Board, at a meeting held taking account of all of the other factors other advisors with investment strategies
on June 27, 2006, the Board, including all that the Board considered in determining comparable to those of the Fund that the
of the independent trustees, approved the whether to continue the Advisory Agreement Board reviewed. The Board noted that AIM
continuance of the advisory agreement (the for the Fund, the Board concluded that no has agreed to waive advisory fees of the
"Advisory Agreement") between the Fund and changes should be made to the Fund and Fund, as discussed below. Based on this
AIM for another year, effective July 1, that it was not necessary to change the review, the Board concluded that the
2006. Fund's portfolio management team at this advisory fee rate for the Fund under the
time. However, due to the Fund's Advisory Agreement was fair and
The Board considered the factors under-performance, the Board also reasonable.
discussed below in evaluating the fairness concluded that it would be appropriate for
and reasonableness of the Advisory the Board to continue to closely monitor o Expense limitations and fee waivers. The
Agreement at the meeting on June 27, 2006 and review the performance of the Fund. Board noted that AIM has contractually
and as part of the Board's ongoing Although the independent written agreed to waive advisory fees through
oversight of the Fund. In their evaluation of the Fund's Senior Officer June 30, 2009 in an amount equal to a
deliberations, the Board and the (discussed below) only considered Fund percentage of average daily managed
independent trustees did not identify any performance through the most recent assets. The Board considered the
particular factor that was controlling, calendar year, the Board also reviewed contractual nature of this fee waiver and
and each trustee attributed different more recent Fund performance, which did noted that it remains in effect until June
weights to the various factors. not change their conclusions. 30, 2009. The Board considered the effect
this fee waiver would have on the Fund's
One responsibility of the independent o The performance of the Fund relative to estimated expenses and concluded that the
Senior Officer of the Fund is to manage indices. The Board reviewed the levels of fee waivers/expense limitations
the process by which the Fund's proposed performance of the Fund (at net asset for the Fund were fair and reasonable.
management fees are negotiated to ensure value) during the past one and three
that they are negotiated in a manner which calendar years against the performance of o Breakpoints and economies of scale. The
is at arms' length and reasonable. To that the MSCI U.S. REIT Index. The Board noted Board reviewed the structure of the Fund's
end, the Senior Officer must either that the Fund's performance was below the advisory fee under the Advisory Agreement,
supervise a competitive bidding process or performance of such Index for the one year noting that it does not include any
prepare an independent written evaluation. period and comparable to such Index for breakpoints. The Board considered whether
The Senior Officer has recommended an the three year period. The Board also it would be appropriate to add advisory
independent written evaluation in lieu of noted that the performance of such Index fee breakpoints for the Fund or whether,
a competitive bidding process and, upon does not reflect fees, while the due to the nature of the Fund and the
the direction of the Board, has prepared performance of the Fund does reflect fees. advisory fee structures of comparable
such an independent written evaluation. Based on this review and after taking funds, it was reasonable to structure the
Such written evaluation also considered account of all of the other factors that advisory fee without breakpoints. Based on
certain of the factors discussed below. In the Board considered in determining this review, the Board concluded that it
addition, as discussed below, the Senior whether to continue the Advisory Agreement was not necessary to add advisory fee
Officer made a recommendation to the Board for the Fund, the Board concluded that no breakpoints to the Fund's advisory fee
in connection with such written changes should be made to the Fund and schedule. The Board reviewed the level of
evaluation. that it was not necessary to change the the Fund's advisory fees, and noted that
Fund's portfolio management team at this such fees, as a percentage of the Fund's
The discussion below serves as a time. However, due to the Fund's net assets, would remain constant under
summary of the Senior Officer's under-performance, the Board also the Advisory Agreement because the
independent written evaluation and concluded that it would be appropriate for Advisory Agreement does not include any
recommendation to the Board in connection the Board to continue to closely monitor breakpoints. The Board concluded that the
therewith, as well as a discussion of the and review the performance of the Fund. Fund's fee levels under the Advisory
material factors and the conclusions with Although the independent written Agreement therefore would not reflect
respect thereto that formed the basis for evaluation of the Fund's Senior Officer economies of scale.
the Board's approval of the Advisory (discussed below) only considered Fund
Agreement. After consideration of all of performance through the most recent o Investments in affiliated money market
the factors below and based on its calendar year, the Board also reviewed funds. The Board also took into account
informed business judgment, the Board more recent Fund performance, which did the fact that uninvested cash and cash
determined that the Advisory Agreement is not change their conclusions. collateral from securities lending
in the best interests of the Fund and its arrangements, if any (collectively, "cash
shareholders and that the compensation to o Meetings with the Fund's portfolio balances") of the Fund may be invested in
AIM under the Advisory Agreement is fair managers and investment personnel. With money market funds advised by AIM pursuant
and reasonable and would have been respect to the Fund, the Board is meeting to the terms of an SEC exemptive order.
obtained through arm's length periodically with such Fund's portfolio The Board found that the Fund may realize
negotiations. managers and/or other investment personnel certain benefits upon investing cash
and believes that such individuals are balances in AIM advised money market
Unless otherwise stated, information competent and able to continue to carry funds, including a higher net return,
presented below is as of June 27, 2006 and out their responsibilities under the increased liquidity, increased
does not reflect any changes that may have Advisory Agreement. diversification or decreased transaction
occurred since June 27, 2006, including costs. The Board also found that the Fund
but not limited to changes to the Fund's o Overall performance of AIM. The Board will not receive reduced services if it
performance, advisory fees, expense considered the overall performance of AIM invests its cash balances in such money
limitations and/or fee waivers. in providing investment advisory and market funds. The Board noted that, to the
portfolio administrative services to the extent the Fund invests uninvested cash in
o The nature and extent of the advisory Fund and concluded that such performance affiliated money market funds, AIM has
services to be provided by AIM. The Board was satisfactory. voluntarily agreed to waive a portion of
reviewed the services to be provided by the advisory fees it receives from the
AIM under the Advisory Agreement. Based on o Fees relative to those of clients of AIM Fund attributable to such investment. The
such review, the Board concluded that the with comparable investment strategies. The Board further determined that the proposed
range of services to be provided by AIM Board reviewed the effective advisory fee securities lending program and related
under the Advisory Agreement was rate (before waivers) for the Fund under procedures with respect to the lending
appropriate and that AIM currently is the Advisory Agreement. The Board noted Fund is in the best interests of the
providing services in accordance with the that this rate was below the total lending Fund and its respective
terms of the Advisory Agreement. advisory fee rate for a separately managed shareholders. The Board therefore
account/wrap account managed by an AIM concluded that the investment of cash
o The quality of services to be provided affiliate with investment strategies collateral received in connection with the
by AIM. The Board reviewed the credentials comparable to those of the Fund and above securities lending program in the money
and experience of the officers and the total advisory fee rates for 46 other market funds according to the procedures
employees of AIM who will provide separately managed accounts/wrap accounts is in the best interests of the lending
investment advisory services to the Fund. managed by an AIM affiliate with Fund and its respective shareholders.
In reviewing the qualifications of AIM to investment strategies comparable to those
provide investment advisory services, the of the Fund. The Board noted that AIM has o Independent written evaluation and
Board considered such issues as AIM's agreed to waive advisory fees of the Fund, recommendations of the Fund's Senior
portfolio and product review process, as discussed below. Based on this review, Officer. The Board noted that, upon their
various back office support functions the Board concluded that the advisory fee direction, the Senior Officer of the Fund,
provided by AIM and AIM's equity and fixed rate for the Fund under the Advisory who is independent of AIM and AIM's
income trading operations. Based on the Agreement was fair and reasonable. affiliates, had prepared an independent
review of these and other factors, the written evaluation in order to assist the
Board concluded that the quality of Board in
services to be provided by AIM was
appropriate and that AIM currently is (continued)
providing satisfactory services in
accordance with the terms of the Advisory
Agreement.
o The performance of the Fund relative to
comparable funds. The Board reviewed the
performance of the Fund
8
AIM SELECT REAL ESTATE INCOME FUND
<Table>
determining the reasonableness of the approved the continuance of the does reflect fees. Based on this review
proposed management fees of the AIM Funds, sub-advisory agreement (the "Sub-Advisory and after taking account of all of the
including the Fund. The Board noted that Agreement") between INVESCO Institutional other factors that the Board considered in
the Senior Officer's written evaluation (N.A.), Inc. (the "Sub-Advisor") and AIM determining whether to continue the
had been relied upon by the Board in this with respect to the Fund for another year, Advisory Agreement for the Fund, the Board
regard in lieu of a competitive bidding effective July 1, 2006. concluded that no changes should be made
process. In determining whether to to the Fund and that it was not necessary
continue the Advisory Agreement for the The Board considered the factors to change the Fund's portfolio management
Fund, the Board considered the Senior discussed below in evaluating the fairness team at this time. However, due to the
Officer's written evaluation. and reasonableness of the Sub-Advisory Fund's under-performance, the Board also
Agreement at the meeting on June 27, 2006 concluded that it would be appropriate for
o Profitability of AIM and its affiliates. and as part of the Board's ongoing the Board to continue to closely monitor
The Board reviewed information concerning oversight of the Fund. In their and review the performance of the Fund.
the profitability of AIM's (and its deliberations, the Board and the Although the independent written
affiliates') investment advisory and other independent trustees did not identify any evaluation of the Fund's Senior Officer
activities and its financial condition. particular factor that was controlling, (discussed below) only considered Fund
The Board considered the overall and each trustee attributed different performance through the most recent
profitability of AIM, as well as the weights to the various factors. calendar year, the Board also reviewed
profitability of AIM in connection with more recent Fund performance, which did
managing the Fund. The Board noted that The discussion below serves as a not change their conclusions.
AIM's operations remain profitable, discussion of the material factors and the
although increased expenses in recent conclusions with respect thereto that o Meetings with the Fund's portfolio
years have reduced AIM's profitability. formed the basis for the Board's approval managers and investment personnel. The
Based on the review of the profitability of the Sub-Advisory Agreement. After Board is meeting periodically with the
of AIM's and its affiliates' investment consideration of all of the factors below Fund's portfolio managers and/or other
advisory and other activities and its and based on its informed business investment personnel and believes that
financial condition, the Board concluded judgment, the Board determined that the such individuals are competent and able to
that the compensation to be paid by the Sub-Advisory Agreement is in the best continue to carry out their
Fund to AIM under its Advisory Agreement interests of the Fund and its shareholders responsibilities under the Sub-Advisory
was not excessive. and that the compensation to the Agreement.
Sub-Advisor under the Sub-Advisory
o Benefits of soft dollars to AIM. The Agreement is fair and reasonable. o Overall performance of the Sub-Advisor.
Board considered the benefits realized by The Board considered the overall
AIM as a result of brokerage transactions Unless otherwise stated, information performance of the Sub-Advisor in
executed through "soft dollar" presented below is as of June 27, 2006 and providing investment advisory services to
arrangements. Under these arrangements, does not reflect any changes that may have the Fund and concluded that such
brokerage commissions paid by the Fund occurred since June 27, 2006, including performance was satisfactory.
and/or other funds advised by AIM are used but not limited to changes to the Fund's
to pay for research and execution performance. o Fees relative to those clients of the
services. This research may be used by AIM Sub-Advisor with comparable investment
in making investment decisions for the o The nature and extent of the advisory strategies. The Board reviewed the
Fund. The Board concluded that such services to be provided by the sub-advisory fee rate for the Fund under
arrangements were appropriate. Sub-Advisor. The Board reviewed the the Sub-Advisory Agreement and the
services to be provided by the Sub-Advisor sub-advisory fees paid thereunder. The
o AIM's financial soundness in light of under the Sub-Advisory Agreement. Based on Board noted that this rate was comparable
the Fund's needs. The Board considered such review, the Board concluded that the to or above the total advisory fee rates
whether AIM is financially sound and has range of services to be provided by the for 19 separately managed accounts/wrap
the resources necessary to perform its Sub-Advisor under the Sub-Advisory accounts managed by the Sub-Advisor with
obligations under the Advisory Agreement, Agreement was appropriate and that the investment strategies comparable to those
and concluded that AIM has the financial Sub-Advisor currently is providing of the Fund and below the total advisory
resources necessary to fulfill its services in accordance with the terms of fee rates for 28 separately managed
obligations under the Advisory Agreement. the Sub-Advisory Agreement. accounts/wrap accounts managed by the
Sub-Advisor with investment strategies
o Historical relationship between the Fund o The quality of services to be provided comparable to those of the Fund. The Board
and AIM. In determining whether to by the Sub-Advisor. The Board reviewed the noted that AIM has agreed to limit the
continue the Advisory Agreement for the credentials and experience of the officers Fund's total annual operating expenses.
Fund, the Board also considered the prior and employees of the Sub-Advisor who will The Board also considered the services to
relationship between AIM and the Fund, as provide investment advisory services to be provided by the Sub-Advisor pursuant to
well as the Board's knowledge of AIM's the Fund. Based on the review of these and the Sub-Advisory Agreement and the
operations, and concluded that it was other factors, the Board concluded that services to be provided by AIM pursuant to
beneficial to maintain the current the quality of services to be provided by the Advisory Agreement, as well as the
relationship, in part, because of such the Sub-Advisor was appropriate, and that allocation of fees between AIM and the
knowledge. The Board also reviewed the the Sub-Advisor currently is providing Sub-Advisor pursuant to the Sub-Advisory
general nature of the non-investment satisfactory services in accordance with Agreement. The Board noted that the
advisory services currently performed by the terms of the Sub-Advisory Agreement. sub-advisory fees have no direct effect on
AIM and its affiliates, such as the Fund or its shareholders, as they are
administrative, transfer agency and o The performance of the Fund relative to paid by AIM to the Sub-Advisor, and that
distribution services, and the fees comparable funds. The Board reviewed the AIM and the Sub-Advisor are affiliates.
received by AIM and its affiliates for performance of the Fund (at net asset Based on this review, the Board concluded
performing such services. In addition to value) during the past one and two that the sub-advisory fee rate under the
reviewing such services, the trustees also calendar years against the performance of Sub-Advisory Agreement was fair and
considered the organizational structure funds advised by other advisors with reasonable.
employed by AIM and its affiliates to investment strategies comparable to those
provide those services. Based on the of the Fund. The Board noted that the o Profitability of AIM and its affiliates.
review of these and other factors, the Fund's performance (at net asset value) in The Board reviewed information concerning
Board concluded that AIM and its such periods was below the median the profitability of AIM's (and its
affiliates were qualified to continue to performance of such comparable funds. affiliates') investment advisory and other
provide non-investment advisory services Based on this review and after taking activities and its financial condition.
to the Fund, including administrative, account of all of the other factors that The Board considered the overall
transfer agency and distribution services, the Board considered in determining profitability of AIM, as well as the
and that AIM and its affiliates currently whether to continue the Advisory Agreement profitability of AIM in connection with
are providing satisfactory non-investment for the Fund, the Board concluded that no managing the Fund. The Board noted that
advisory services. changes should be made to the Fund and AIM's operations remain profitable,
that it was not necessary to change the although increased expenses in recent
o Other factors and current trends. The Fund's portfolio management team at this years have reduced AIM's profitability.
Board considered the steps that AIM and time. However, due to the Fund's Based on the review of the profitability
its affiliates have taken over the last under-performance, the Board also of AIM's and its affiliates' investment
several years, and continue to take, in concluded that it would be appropriate for advisory and other activities and its
order to improve the quality and the Board to continue to closely monitor financial condition, the Board concluded
efficiency of the services they provide to and review the performance of the Fund. that the compensation to be paid by the
the Funds in the areas of investment Although the independent written Fund to AIM under its Advisory Agreement
performance, product line diversification, evaluation of the Fund's Senior Officer was not excessive.
distribution, fund operations, shareholder (discussed below) only considered Fund
services and compliance. The Board performance through the most recent o The Sub-Advisor's financial soundness in
concluded that these steps taken by AIM calendar year, the Board also reviewed light of the Fund's needs. The Board
have improved, and are likely to continue more recent Fund performance, which did considered whether the Sub-Advisor is
to improve, the quality and efficiency of not change their conclusions. financially sound and has the resources
the services AIM and its affiliates necessary to perform its obligations under
provide to the Fund in each of these o The performance of the Fund relative to the Sub-Advisory Agreement, and concluded
areas, and support the Board's approval of indices. The Board reviewed the that the Sub-Advisor has the financial
the continuance of the Advisory Agreement performance of the Fund (at net asset resources necessary to fulfill its
for the Fund. value) during the past one and three obligations under the Sub-Advisory
calendar years against the performance of Agreement.
APPROVAL OF SUB-ADVISORY AGREEMENT the MSCI U.S. REIT Index. The Board noted
that the Fund's performance was below the
The Board oversees the management of the performance of such Index for the one year
Fund and, as required by law, determines period and comparable to such Index for
annually whether to approve the the three year period. The Board also
continuance of the Fund's sub-advisory noted that the performance of such Index
agreement. Based upon the recommendation does not reflect fees, while the
of the Investments Committee of the Board, performance of the Fund
at a meeting held on June 27, 2006, the
Board, including all of the independent
trustees,
9
AIM SELECT REAL ESTATE INCOME FUND
SCHEDULE OF INVESTMENTS
June 30, 2006
(Unaudited)
<Table>
<Caption>
SHARES VALUE
- ------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUSTS, COMMON STOCKS
& OTHER EQUITY INTERESTS-89.05%
APARTMENTS-2.39%
American Campus Communities, Inc. 420,900 $ 10,459,365
- ------------------------------------------------------------------------
Education Realty Trust, Inc. 397,400 6,616,710
========================================================================
17,076,075
========================================================================
DIVERSIFIED-14.75%
AEW Real Estate Income Fund 100,000 1,919,000
- ------------------------------------------------------------------------
CentraCore Properties Trust 95,400 2,361,150
- ------------------------------------------------------------------------
Colonial Properties Trust 837,978 41,396,113
- ------------------------------------------------------------------------
Crescent Real Estate Equities Co. 594,600 11,035,776
- ------------------------------------------------------------------------
DWS RREEF Real Estate Fund Inc. 122,435 2,686,224
- ------------------------------------------------------------------------
iStar Financial Inc. 778,800 29,399,700
- ------------------------------------------------------------------------
Lexington Corporate Properties Trust 373,800 8,074,080
- ------------------------------------------------------------------------
Neuberger Berman Realty Income Fund Inc. 192,800 3,846,360
- ------------------------------------------------------------------------
Nuveen Real Estate Income Fund 77,400 1,787,166
- ------------------------------------------------------------------------
Real Estate Income Fund, Inc. 157,000 2,954,740
========================================================================
105,460,309
========================================================================
FREESTANDING-7.61%
Getty Realty Corp. 491,200 13,969,728
- ------------------------------------------------------------------------
National Retail Properties Inc. 1,652,400 32,965,380
- ------------------------------------------------------------------------
Realty Income Corp. 234,100 5,126,790
- ------------------------------------------------------------------------
Trustreet Properties, Inc. 179,400 2,366,286
========================================================================
54,428,184
========================================================================
HEALTHCARE-23.47%
Cogdell Spencer Inc. 236,200 4,608,262
- ------------------------------------------------------------------------
Health Care Property Investors, Inc. 1,071,700 28,657,258
- ------------------------------------------------------------------------
Health Care REIT, Inc. 587,973 20,549,657
- ------------------------------------------------------------------------
Healthcare Realty Trust, Inc. 986,300 31,413,655
- ------------------------------------------------------------------------
Medical Properties Trust Inc. 207,000 2,285,280
- ------------------------------------------------------------------------
Nationwide Health Properties, Inc. 1,663,500 37,445,385
- ------------------------------------------------------------------------
Omega Healthcare Investors, Inc. 720,900 9,530,298
- ------------------------------------------------------------------------
Senior Housing Properties Trust 1,723,000 30,858,930
- ------------------------------------------------------------------------
Universal Health Realty Income Trust 77,200 2,420,220
========================================================================
167,768,945
========================================================================
INDUSTRIAL PROPERTIES-2.57%
First Industrial Realty Trust, Inc. 483,200 18,332,608
========================================================================
</Table>
<Table>
SHARES VALUE
- ------------------------------------------------------------------------
<Caption>
INDUSTRIAL/OFFICE MIXED-3.43%
Liberty Property Trust 516,600 $ 22,833,720
- ------------------------------------------------------------------------
Mission West Properties Inc. 153,700 1,702,996
========================================================================
24,536,716
========================================================================
LODGING-RESORTS-6.40%
Ashford Hospitality Trust, Inc. 567,800 7,165,636
- ------------------------------------------------------------------------
DiamondRock Hospitality Co. 45,000 666,450
- ------------------------------------------------------------------------
Hersha Hospitality Trust 523,800 4,866,102
- ------------------------------------------------------------------------
Hospitality Properties Trust 752,600 33,054,192
========================================================================
45,752,380
========================================================================
MANUFACTURED HOMES-0.34%
Sun Communities, Inc. 75,600 2,459,268
========================================================================
OFFICE PROPERTIES-14.42%
American Financial Realty Trust 1,736,500 16,809,320
- ------------------------------------------------------------------------
Brandywine Realty Trust 1,175,301 37,809,433
- ------------------------------------------------------------------------
Glenborough Realty Trust Inc. 421,600 9,081,264
- ------------------------------------------------------------------------
HRPT Properties Trust 1,551,300 17,933,028
- ------------------------------------------------------------------------
Mack-Cali Realty Corp. 409,300 18,795,056
- ------------------------------------------------------------------------
Parkway Properties, Inc. 58,000 2,639,000
========================================================================
103,067,101
========================================================================
REGIONAL MALLS-2.47%
Glimcher Realty Trust 712,500 17,677,125
========================================================================
SELF STORAGE FACILITIES-2.54%
Extra Space Storage Inc. 572,800 9,302,272
- ------------------------------------------------------------------------
Public Storage, Inc.-Series A Dep. Shares 167,200 4,464,240
- ------------------------------------------------------------------------
U-Store-It Trust 233,500 4,403,810
========================================================================
18,170,322
========================================================================
SHOPPING CENTERS-7.57%
Cedar Shopping Centers Inc. 181,200 2,667,264
- ------------------------------------------------------------------------
Heritage Property Investment Trust 547,500 19,118,700
- ------------------------------------------------------------------------
Inland Real Estate Corp. 1,581,800 23,537,184
- ------------------------------------------------------------------------
New Plan Excel Realty Trust(a) 58,000 1,432,020
- ------------------------------------------------------------------------
Ramco-Gershenson Properties Trust 273,400 7,362,662
========================================================================
54,117,830
========================================================================
</Table>
F-1
AIM SELECT REAL ESTATE INCOME FUND
<Table>
<Caption>
SHARES VALUE
- ------------------------------------------------------------------------
SPECIALTY PROPERTIES-1.09%
Spirit Finance Corp. 691,000 $ 7,780,660
========================================================================
Total Real Estate Investment Trusts, Common
Stocks & Other Equity Interests (Cost
$503,076,778) 636,627,523
========================================================================
PREFERRED STOCKS-35.54%
APARTMENTS-3.56%
Apartment Investment & Management Co.,
Class Y, 7.88% 20,000 496,000
- ------------------------------------------------------------------------
Series T, 8.00% 200,000 4,992,000
- ------------------------------------------------------------------------
Series V, 8.00% 128,300 3,201,085
- ------------------------------------------------------------------------
BRE Properties, Inc.,
Series B, 8.08% 200,000 5,044,000
- ------------------------------------------------------------------------
Series C, 6.75% 48,500 1,132,475
- ------------------------------------------------------------------------
Equity Residential-Series K, 8.29%(b) 4,200 230,081
- ------------------------------------------------------------------------
Mid-America Apartment Communities, Inc.,
Series F, 9.25% 47,000 1,243,150
- ------------------------------------------------------------------------
Series H, 8.30% 195,000 4,958,850
- ------------------------------------------------------------------------
Post Properties, Inc.-Series A, 8.50% 71,700 4,174,374
========================================================================
25,472,015
========================================================================
DIVERSIFIED-5.27%
Colonial Properties Trust-Series D, 8.13% 200,000 5,158,000
- ------------------------------------------------------------------------
Cousins Properties Inc.,
Series A, 7.75% 548,300 13,685,568
- ------------------------------------------------------------------------
Series B, 7.50% 60,000 1,500,000
- ------------------------------------------------------------------------
Crescent Real Estate Equities Co.-Series B,
9.50% 51,400 1,341,540
- ------------------------------------------------------------------------
iStar Financial Inc.,
Series E, 7.88% 185,000 4,615,750
- ------------------------------------------------------------------------
Series I, 7.50% 200,000 4,890,000
- ------------------------------------------------------------------------
Lexington Corporate Properties Trust-Series
B, 8.05% 70,000 1,781,500
- ------------------------------------------------------------------------
Vornado Realty Trust-Series F, 6.75% 200,000 4,730,000
========================================================================
37,702,358
========================================================================
HEALTHCARE-1.76%
Health Care Property Investors, Inc.-Series
F, 7.10% 285,000 7,039,500
- ------------------------------------------------------------------------
Health Care REIT, Inc.-Series F, 7.63% 16,600 417,158
- ------------------------------------------------------------------------
Omega Healthcare Investors, Inc.-Series D,
8.38% 200,000 5,124,000
========================================================================
12,580,658
========================================================================
INDUSTRIAL PROPERTIES-2.12%
AMB Property Corp.-Series O, 7.00% 120,000 3,002,400
- ------------------------------------------------------------------------
EastGroup Properties, Inc.-Series D, 7.95% 260,000 6,656,000
- ------------------------------------------------------------------------
First Industrial Realty Trust, Inc.-Series J,
7.25% 220,300 5,430,395
- ------------------------------------------------------------------------
ProLogis-Series C, 8.54%(b) 950 50,439
========================================================================
15,139,234
========================================================================
</Table>
<Table>
SHARES VALUE
- ------------------------------------------------------------------------
<Caption>
INDUSTRIAL/OFFICE MIXED-2.38%
Bedford Property Investors, Inc.,
Series A, 8.75%(c) 60,000 $ 2,640,000
- ------------------------------------------------------------------------
Series B, 7.63%(c) 139,200 2,714,400
- ------------------------------------------------------------------------
Duke Realty Corp.,
Series B, 7.99%(b) 10,000 507,188
- ------------------------------------------------------------------------
Series J, 6.63% 11,300 261,482
- ------------------------------------------------------------------------
Series M, 6.95% 120,000 2,946,000
- ------------------------------------------------------------------------
Series N, 7.25%(b) 200,000 5,062,500
- ------------------------------------------------------------------------
PS Business Parks, Inc.,
Series F, 8.75% 16,000 405,600
- ------------------------------------------------------------------------
Series O, 7.38% 100,000 2,480,000
========================================================================
17,017,170
========================================================================
LODGING-RESORTS-6.03%
Eagle Hospitality Properties Trust, Inc.
Series A, 8.25% 291,500 7,127,175
- ------------------------------------------------------------------------
FelCor Lodging Trust Inc.-Series C, 8.00% 138,700 3,398,150
- ------------------------------------------------------------------------
Hersha Hospitality Trust-Series A, 8.00% 43,800 1,086,678
- ------------------------------------------------------------------------
Hilton Hotels Corp., 8.00% 45,000 1,136,250
- ------------------------------------------------------------------------
Hospitality Properties Trust-Series B, 8.88% 450,000 11,556,000
- ------------------------------------------------------------------------
LaSalle Hotel Properties,
Series A, 10.25% 36,300 932,910
- ------------------------------------------------------------------------
Series B, 8.38% 40,000 1,017,600
- ------------------------------------------------------------------------
Series D, 7.50% 100,000 2,380,000
- ------------------------------------------------------------------------
Series E, 8.00% 105,300 2,658,825
- ------------------------------------------------------------------------
Strategic Hotels & Resorts, Inc.-Series B,
8.25% 72,700 1,793,509
- ------------------------------------------------------------------------
Strategic Hotels & Resorts, Inc.-Series C,
8.25% 200,000 4,980,000
- ------------------------------------------------------------------------
Sunstone Hotel Investors, Inc.-Series A,
8.00% 200,000 5,040,000
========================================================================
43,107,097
========================================================================
OFFICE PROPERTIES-5.27%
Alexandria Real Estate Equities, Inc.-Series
B, 9.10% 5,600 141,736
- ------------------------------------------------------------------------
CarrAmerica Realty Corp.-Series E, 7.50% 75,000 1,893,750
- ------------------------------------------------------------------------
Corporate Office Properties Trust-Series G,
8.00% 300,000 7,578,000
- ------------------------------------------------------------------------
DRA CRT Acquisition Corp.-Series A, 8.50% 120,000 2,760,000
- ------------------------------------------------------------------------
Glenborough Realty Trust Inc.-Series A, $1.94
Conv. 25,245 619,765
- ------------------------------------------------------------------------
Highwoods Properties, Inc.-Series B, 8.00% 16,891 423,964
- ------------------------------------------------------------------------
HRPT Properties Trust,
Series B, 8.75% 510,000 13,260,000
- ------------------------------------------------------------------------
Series C, 7.13% 100,000 2,455,000
- ------------------------------------------------------------------------
Kilroy Realty Corp.,
Series E, 7.80% 51,600 1,310,640
- ------------------------------------------------------------------------
Series F, 7.50% 175,000 4,292,750
- ------------------------------------------------------------------------
SL Green Realty Corp.-Series C, 7.63% 120,000 2,940,000
========================================================================
37,675,605
========================================================================
</Table>
F-2
AIM SELECT REAL ESTATE INCOME FUND
<Table>
<Caption>
SHARES VALUE
- ------------------------------------------------------------------------
REGIONAL MALLS-5.52%
CBL & Associates Properties, Inc.,
Series B, 8.75% 315,000 $ 15,970,500
- ------------------------------------------------------------------------
Series C, 7.75% 350,000 8,837,500
- ------------------------------------------------------------------------
Series D, 7.38% 175,000 4,331,250
- ------------------------------------------------------------------------
Glimcher Realty Trust,
Series F, 8.75% 80,000 2,055,200
- ------------------------------------------------------------------------
Series G, 8.13% 144,000 3,600,000
- ------------------------------------------------------------------------
Taubman Centers, Inc.-Series G, 8.00% 183,200 4,651,448
========================================================================
39,445,898
========================================================================
SELF STORAGE FACILITIES-0.55%
Public Storage, Inc.,
Series G, 7.00% 60,000 1,468,800
- ------------------------------------------------------------------------
Series I, 7.25% 100,000 2,480,000
========================================================================
3,948,800
========================================================================
SHOPPING CENTERS-1.76%
Cedar Shopping Centers Inc.-Series A, 8.88% 75,000 1,966,500
- ------------------------------------------------------------------------
Developers Diversified Realty Corp.-Class F,
8.60% 229,700 5,834,380
- ------------------------------------------------------------------------
Federal Realty Investment Trust-Series B,
8.50% 70,600 1,798,182
- ------------------------------------------------------------------------
Ramco-Gershenson Properties Trust-Series B,
9.50% 40,000 1,026,400
- ------------------------------------------------------------------------
Regency Centers Corp.,
6.70% 11,600 271,672
- ------------------------------------------------------------------------
Series D, 7.25% 13,600 338,776
- ------------------------------------------------------------------------
Saul Centers, Inc.-Series A, 8.00% 50,000 1,312,500
========================================================================
12,548,410
========================================================================
</Table>
<Table>
SHARES VALUE
- ------------------------------------------------------------------------
<Caption>
SPECIALTY PROPERTIES-1.32%
Digital Realty Trust, Inc.,
Series A, 8.50% 51,100 $ 1,292,319
- ------------------------------------------------------------------------
Series B, 7.88% 80,000 1,900,000
- ------------------------------------------------------------------------
Entertainment Properties Trust,
Series A, 9.50% 138,900 3,560,007
- ------------------------------------------------------------------------
Series B, 7.75% 112,800 2,695,920
========================================================================
9,448,246
========================================================================
Total Preferred Stocks
(Cost $253,897,400) 254,085,491
========================================================================
MONEY MARKET FUNDS-0.26%
Liquid Assets Portfolio-Institutional
Class(d) 931,148 931,148
- ------------------------------------------------------------------------
Premier Portfolio-Institutional Class(d) 931,148 931,148
========================================================================
Total Money Market Funds
(Cost $1,862,296) 1,862,296
========================================================================
TOTAL INVESTMENTS-124.85%
(Cost $758,836,474) 892,575,310
========================================================================
OTHER ASSETS LESS LIABILITIES-3.82% 27,370,166
========================================================================
AUCTION RATE PREFERRED SHARES AT LIQUIDATION
VALUE-(28.67)% (205,000,000)
========================================================================
NET ASSETS ATTRIBUTABLE TO COMMON
SHARES-100.00% $ 714,945,476
________________________________________________________________________
========================================================================
</Table>
Investment Abbreviations:
<Table>
Conv. - Convertible
Dep. - Depositary
REIT - Real Estate Investment Trust
</Table>
Notes to Schedule of Investments:
(a) A portion of the value was pledged as collateral to cover margin
requirements for open interest rate swap transactions. See Note 1H and Note
11.
(b) In accordance with the procedures established by the Board of Trustees,
security fair valued based on an evaluated quote provided by an independent
pricing service. The aggregate value of these securities at June 30, 2006
was $5,850,208, which represented 0.82% of the Fund's Net Assets
attributable to common shares. See Note 1A.
(c) Security considered to be illiquid. The Fund is limited to investing 10% of
net assets in illiquid securities at the time of purchase. The aggregate
value of these securities considered illiquid at June 30, 2006 was
$5,354,400, which represented 0.75% of the Fund's Net Assets attributable to
common shares.
(d) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-3
AIM SELECT REAL ESTATE INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2006
(Unaudited)
<Table>
ASSETS:
Investments, at value (cost $756,974,178) $890,713,014
- -----------------------------------------------------------
Investments in affiliated money market funds
(cost $1,862,296) 1,862,296
===========================================================
Total investments (cost $758,836,474) 892,575,310
===========================================================
Receivables for:
Investments sold 18,500,601
- -----------------------------------------------------------
Dividends 4,359,179
- -----------------------------------------------------------
Unrealized appreciation on interest rate
swap transactions 4,753,287
- -----------------------------------------------------------
Interest on interest rate swap transactions 86,362
- -----------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 29,881
- -----------------------------------------------------------
Other assets 32,117
===========================================================
Total assets 920,336,737
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Investments purchased 92,186
- -----------------------------------------------------------
Trustee deferred compensation and
retirement plans 73,294
- -----------------------------------------------------------
Dividends declared on auction rate
preferred shares 84,980
- -----------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 703
- -----------------------------------------------------------
Accrued operating expenses 140,098
===========================================================
Total liabilities 391,261
===========================================================
Auction rate preferred shares, at liquidation
value 205,000,000
===========================================================
Net assets attributable to common shares $714,945,476
___________________________________________________________
===========================================================
NET ASSETS ATTRIBUTABLE TO COMMON SHARES
CONSIST OF:
Shares of beneficial interest -- common
shares $534,711,129
- -----------------------------------------------------------
Undistributed net investment income (12,025,924)
- -----------------------------------------------------------
Undistributed net realized gain from
investment securities and interest rate
swap transactions 53,768,148
- -----------------------------------------------------------
Unrealized appreciation of investment
securities and interest rate swap
transactions 138,492,123
===========================================================
$714,945,476
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
COMMON SHARE:
Outstanding 39,108,196
___________________________________________________________
===========================================================
Net asset value per common share $ 18.28
___________________________________________________________
===========================================================
Market value per common share $ 15.55
___________________________________________________________
===========================================================
Market price premium (discount) to net asset
value per common share (14.93)%
___________________________________________________________
===========================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-4
AIM SELECT REAL ESTATE INCOME FUND
STATEMENT OF OPERATIONS
For the six months ended June 30, 2006
(Unaudited)
<Table>
INVESTMENT INCOME:
Dividends $20,450,010
- -------------------------------------------------------------------------
Dividends from affiliated money market funds 268,615
=========================================================================
Total investment income 20,718,625
=========================================================================
EXPENSES:
Advisory fees 4,154,966
- -------------------------------------------------------------------------
Administrative services fees 111,141
- -------------------------------------------------------------------------
Custodian fees 38,457
- -------------------------------------------------------------------------
Auction rate preferred shares remarketing fees 259,097
- -------------------------------------------------------------------------
Transfer agent fees 21,319
- -------------------------------------------------------------------------
Trustees' and officer's fees and benefits 20,474
- -------------------------------------------------------------------------
Other 200,405
=========================================================================
Total expenses 4,805,859
=========================================================================
Less: Fees waived and expense offset arrangement (1,397,183)
=========================================================================
Net expenses 3,408,676
=========================================================================
Net investment income 17,309,949
=========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES AND INTEREST RATE SWAP TRANSACTIONS:
Net realized gain from:
Investment securities 43,761,900
- -------------------------------------------------------------------------
Interest rate swap transactions 513,848
=========================================================================
44,275,748
=========================================================================
Change in net unrealized (depreciation) of:
Investment securities (5,258,034)
- -------------------------------------------------------------------------
Interest rate swap transactions 2,554,514
=========================================================================
(2,703,520)
=========================================================================
Net gain from investment securities and interest rate swap
transactions 41,572,228
=========================================================================
Net increase in net assets resulting from operations 58,882,177
=========================================================================
Distributions to auction rate preferred shareholders from
net investment income (4,564,371)
=========================================================================
Net increase in net assets from operations attributable to
common shares $54,317,806
_________________________________________________________________________
=========================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-5
AIM SELECT REAL ESTATE INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended June 30, 2006 and the year ended December 31, 2005
(Unaudited)
<Table>
<Caption>
JUNE 30, DECEMBER 31,
2006 2005
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 17,309,949 $ 35,929,303
- ------------------------------------------------------------------------------------------
Net realized gain from investment securities and interest
rate swap transactions 44,275,748 74,378,212
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities and interest rate swap
transactions (2,703,520) (88,702,186)
==========================================================================================
Net increase in net assets resulting from operations 58,882,177 21,605,329
==========================================================================================
Distributions to auction rate preferred shareholders from
net investment income (4,564,371) (6,598,783)
==========================================================================================
Net increase in net assets from operations attributable
to common shares 54,317,806 15,006,546
==========================================================================================
Distributions to common shareholders from:
Net investment income (24,718,458) (49,480,081)
- ------------------------------------------------------------------------------------------
Net realized gains -- (66,504,582)
==========================================================================================
Decrease in net assets resulting from distributions to
common shares (24,718,458) (115,984,663)
==========================================================================================
Capital stock transactions:
Decrease in common shares repurchased (Note 9) (13,033,473) --
==========================================================================================
Net increase (decrease) in net assets attributable to
common shares 16,565,875 (100,978,117)
==========================================================================================
NET ASSETS:
Beginning of period 698,379,601 799,357,718
==========================================================================================
End of period (including undistributed net investment
income of $(12,025,924) and $(53,044), respectively) $714,945,476 $ 698,379,601
__________________________________________________________________________________________
==========================================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-6
AIM SELECT REAL ESTATE INCOME FUND
STATEMENT OF CASH FLOWS
For the six months ended June 30, 2006
(Unaudited)
<Table>
CASH PROVIDED BY OPERATING ACTIVITIES:
Net increase in net assets resulting from operations $ 54,317,806
===========================================================================
ADJUSTMENTS TO RECONCILE NET INCREASE IN NET ASSETS TO NET
CASH PROVIDED BY OPERATIONS:
Purchases of investments (168,149,442)
- ---------------------------------------------------------------------------
Proceeds from disposition of investments 191,579,596
- ---------------------------------------------------------------------------
Decrease in dividends receivable 985,994
- ---------------------------------------------------------------------------
Increase in interest receivable on interest rate swap
transactions (86,362)
- ---------------------------------------------------------------------------
Decrease in other assets 17,406
- ---------------------------------------------------------------------------
Decrease in interest payable on interest rate swap
transactions (17,346)
- ---------------------------------------------------------------------------
Decrease in dividends payables declared on auction rate
preferred shares (7,806)
- ---------------------------------------------------------------------------
Increase in accrued expenses and other payables 32,227
- ---------------------------------------------------------------------------
Unrealized appreciation (depreciation) of investment
securities 5,258,034
- ---------------------------------------------------------------------------
Net realized gain from investment securities (43,761,900)
===========================================================================
Net cash provided by operating activities 40,168,207
===========================================================================
CASH USED IN FINANCING ACTIVITIES:
Decrease in payable to custodian (40,132)
- ---------------------------------------------------------------------------
Increase in interest rate swap transactions (513,848)
- ---------------------------------------------------------------------------
Disbursements from common shares repurchased (13,033,473)
- ---------------------------------------------------------------------------
Dividends paid to shareholders (24,718,458)
===========================================================================
Net cash provided by (used in) financing activities (38,305,911)
===========================================================================
Net increase in cash and cash equivalents 1,862,296
===========================================================================
Cash and cash equivalents at beginning of period 0
===========================================================================
Cash and cash equivalents at end of period $ 1,862,296
___________________________________________________________________________
===========================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-7
AIM SELECT REAL ESTATE INCOME FUND
NOTES TO FINANCIAL STATEMENTS
June 30, 2006
(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.
Under the Trust's organizational documents, each Trustee, officer, employee
or other agent of the Trust (including the Trust's investment manager) is
indemnified against certain liabilities that may arise out of performance of
their duties to the Fund. Additionally, in the normal course of business, the
Fund enters into contracts that contain a variety of indemnification clauses.
The Fund's maximum exposure under these arrangements is unknown as this would
involve future claims that may be made against the Fund that have not yet
occurred. The risk of material loss as a result of such indemnification claims
is considered remote.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period including estimates
and assumptions related to taxation. Actual results could differ from those
estimates. 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. Securities traded in the over-the-counter
market (but not securities reported on the NASDAQ National Market System)
are valued based on the prices furnished by independent pricing services,
in which case the securities may be considered fair valued, or by 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.
Futures contracts are valued at the final settlement price set by an
exchange on which they are principally traded. Listed options are valued at
the mean between the last bid and the ask prices from the exchange on which
they are principally traded. Options not listed on an exchange are valued
by an independent source at the mean between the last bid and ask prices.
For purposes of determining net asset value per share, futures and option
contracts generally are valued 15 minutes after the close of the customary
trading session of the New York Stock Exchange ("NYSE").
Interest rate swap transactions are marked to market daily based upon
quotations from market makers. The 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.
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 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.
Debt obligations (including convertible bonds) are fair valued using an
evaluated quote provided by an independent pricing service. Evaluated
quotes provided by the pricing service may be determined without exclusive
reliance on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, developments
related to specific securities, dividend rate, yield, quality, type of
issue, coupon rate, maturity, individual trading characteristics and other
market data. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates value.
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.
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 the event is likely to have affected the closing price of the security,
the security will be valued at fair value in good faith using procedures
approved by the Board of Trustees. Adjustments to closing prices to reflect
fair value may also be based on a screening process of an independent
pricing service to indicate the degree of certainty, based on historical
data, that the closing price in the principal market where a foreign
security trades is not the current market value as of the close of the
NYSE. Foreign securities meeting the approved degree of certainty that the
price is not reflective of current market value
F-8
AIM SELECT REAL ESTATE INCOME FUND
will be priced at the indication of fair value from the independent pricing
service. Multiple factors may be considered by the independent pricing
service in determining adjustments to reflect fair value and may include
information relating to sector indices, ADRs, domestic and foreign index
futures.
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of brokers and information providers and other market data may be
reviewed in the course of making a good faith determination of a security's
fair value.
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. COUNTRY DETERMINATION -- For the purposes of making investment selection
decisions and presentation in the Schedule of Investments, AIM may
determine the country in which an issuer is located and/or credit risk
exposure based on various factors. These factors include the laws of the
country under which the issuer is organized, where the issuer maintains a
principal office, the country in which the issuer derives 50% or more of
its total revenues and the country that has the primary market for the
issuer's securities, as well as other criteria. Among the other criteria
that may be evaluated for making this determination are the country in
which the issuer maintains 50% or more of its assets, the type of security,
financial guarantees and enhancements, the nature of the collateral and the
sponsor organization. Country of issuer and/or credit risk exposure has
been determined to be United States of America unless otherwise noted.
D. 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. Computershare, 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 1940 Act, 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
the 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, 2006, no such restrictions have been
placed on the Fund.
E. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, 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.
F. 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-9
AIM SELECT REAL ESTATE INCOME FUND
G. CASH AND CASH EQUIVALENTS -- Cash and cash equivalents in the Statement of
Cash Flows are comprised of cash and investments in affiliated money market
funds for the purpose of investing daily available cash balances.
H. 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.
The Fund records periodic payments made under interest rate agreements as
a component of realized gain (loss) in the Statement of Operations.
I. COLLATERAL -- To the extent the Fund has pledged or segregated a security
as collateral and that security is subsequently sold, it is the Fund's
practice to replace such collateral no later than the next business day.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Fund has entered into a master investment advisory agreement with AIM
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. For the
six months ended June 30, 2006, average daily Managed Assets were $930,977,641.
Under the terms of a master sub-advisory agreement between AIM and INVESCO
Institutional (N.A.), Inc. ("INVESCO"), AIM pays INVESCO 50% of the amount paid
by the Fund to AIM, net of fee waivers and expense reimbursements.
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.
AIM is also voluntarily waiving a portion of the advisory fee payable by the
Fund equal to the difference between the income earned from investing in the
affiliated money market fund and the hypothetical income earned from investing
in an appropriate comparative benchmark. Voluntary fee waivers or reimbursements
may be modified or discontinued at any time upon consultation with the Board of
Trustees without further notice to investors.
For the six months ended June 30, 2006, AIM waived fees of $1,386,497.
At the request of the Trustees of the Trust, AMVESCAP PLC ("AMVESCAP")
agreed to reimburse expenses incurred by the Fund in connection with market
timing matters in the AIM Funds, which may include legal, audit, shareholder
reporting, communications and trustee expenses. For the six months ended June
30, 2006, AMVESCAP did not reimburse any expenses.
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. Pursuant to such agreement, for the six months
ended June 30, 2006, AIM was paid $111,141.
Certain officers and trustees of the Fund are officers and directors of AIM
and/or AIM Investments, the parent corporation of AIM.
F-10
AIM SELECT REAL ESTATE INCOME FUND
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to an exemptive order from the Securities and
Exchange Commission ("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. The table below shows the transactions in and
earnings from investments in affiliated money market funds for the six months
ended June 30, 2006.
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 12/31/05 AT COST FROM SALES (DEPRECIATION) 06/30/06 INCOME GAIN (LOSS)
- ---------------------------------------------------------------------------------------------------------------------------------
Liquid Assets Portfolio-
Institutional Class $ -- $ 71,718,867 $ (70,787,719) $ -- $ 931,148 $133,970 $ --
- ---------------------------------------------------------------------------------------------------------------------------------
Premier Portfolio-
Institutional Class -- 2,862,340 (1,931,192) -- 931,148 910 --
- ---------------------------------------------------------------------------------------------------------------------------------
STIC Prime Portfolio-
Institutional Class -- 71,661,335 (71,661,335) -- -- 133,735 --
=================================================================================================================================
Total $ -- $146,242,542 $(144,380,246) $ -- $1,862,296 $268,615 $ --
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</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, 2006, the Fund received credits from this arrangement, which resulted
in the reduction of the Fund's total expenses of $10,686.
NOTE 5--TRUSTEES' AND OFFICER'S FEES AND BENEFITS
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to pay remuneration to each Trustee and Officer of the Fund who is not an
"interested person" of AIM. Trustees have the option to defer compensation
payable by the Fund, and "Trustees' and Officer's Fees and Benefits" also
include amounts accrued by the Fund to fund such deferred compensation amounts.
Those Trustees who defer compensation have the option to select various AIM
Funds in which their deferral accounts shall be deemed to be invested. Finally,
current Trustees are eligible to participate in a retirement plan that provides
for benefits to be paid upon retirement to Trustees over a period of time based
on the number of years of service. The Fund may have certain former Trustees who
also participate in a retirement plan and receive benefits under such plan.
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to fund such retirement benefits. Obligations under the deferred compensation
and retirement plans represent unsecured claims against the general assets of
the Fund.
During the six months ended June 30, 2006, the Fund paid legal fees of
$3,372 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel
to the Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 6--BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by JPMorgan Chase Bank. The Fund may borrow up to the
lesser of (i) $250,000,000, or (ii) the limits set by its prospectus for
borrowings. The Fund and other funds advised by AIM which are parties to the
line of credit may borrow on a first come, first served basis. The funds which
are party to the line of credit are charged a commitment fee of 0.06% on the
unused balance of the committed line. During the six months ended June 30, 2006,
the Fund did not borrow under the committed credit facility.
NOTE 7--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryforward) under income tax regulations. The tax character of
distributions paid during the year and the tax components of net assets will be
reported at the Fund's fiscal year-end.
The Fund did not have a capital loss carryforward as of December 31, 2005.
F-11
AIM SELECT REAL ESTATE INCOME FUND
NOTE 8--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the six months
ended June 30, 2006 was $168,241,628 and $201,414,073, respectively. For interim
reporting periods, the cost of investments for tax purposes includes reversals
of certain tax items, such as, wash sales that have occurred since the prior
fiscal year-end.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $141,804,962
- ------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (9,742,826)
==============================================================================
Net unrealized appreciation of investment securities $132,062,136
______________________________________________________________________________
==============================================================================
Cost of investments for tax purposes is $760,513,174.
</Table>
NOTE 9--SHARE INFORMATION
On October 27, 2005, the Board of Trustees approved the Fund to engage in
open-market share purchase of its Common Shares. For the six months ended June
30, 2006, the Fund repurchased 827,300 shares of Common Shares for $13,033,473.
The weighted average discount of market price to net asset value of Common
Shares repurchased during the six months ended June 30, 2006 was 14%.
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. The Fund issued 4,317, 24,178, 0, 0 and 0 Common Shares for the
reinvestment of dividends during the period May 31, 2002 (date investment
operations commenced) to December 31, 2002 and for the years ended December 31,
2003, 2004, 2005 and for the six months ended June 30, 2006, respectively.
NOTE 10--DISTRIBUTIONS DECLARED -- COMMON SHARES
For July, 2006, a dividend of $0.104 per share and a capital gain distribution
of $0.2867 per share were declared on June 28, 2006, payable on July 28, 2006,
for Fund Common Shareholders of record on July 18, 2006.
On August 1, 2006, the Board of Trustees of the Fund declared a distribution
of $0.104 per share payable on August 30, 2006 to shareholders of record on
August 18, 2006. Of the distribution, it is estimated that approximately $0.0254
per share represents net investment income and $0.0786 per share represents a
return of capital.
On August 1, 2006, the Board of Trustees of the Fund declared a distribution
of $0.104 per share payable on September 28, 2006 to shareholders of record on
September 18, 2006. Of the distribution, it is estimated that approximately
$0.0792 per share represents net investment income and $0.0248 per share
represents a return of capital.
NOTE 11--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, 2006, the Fund had open interest rate swap agreements as follows:
<Table>
<Caption>
FLOATING RATE*
(RATE RESET UNREALIZED
NOTIONAL AMOUNT FIXED RATE MONTHLY) TERMINATION DATE APPRECIATION
- --------------------------------------------------------------------------------------------------------------------------------
Citibank, N.A $40,000,000 3.5000% 4.7760% 09/19/07 $ 960,710
- --------------------------------------------------------------------------------------------------------------------------------
Citibank, N.A 42,000,000 4.6325% 4.6330% 08/02/09 1,015,573
- --------------------------------------------------------------------------------------------------------------------------------
Citibank, N.A 40,000,000 4.4500% 4.4500% 03/01/12 2,102,748
- --------------------------------------------------------------------------------------------------------------------------------
Merrill Lynch Capital Services, Inc. 30,000,000 3.6000% 4.7200% 09/12/07 674,256
================================================================================================================================
$4,753,287
________________________________________________________________________________________________________________________________
================================================================================================================================
</Table>
* Based on 30 day London Interbank Offered Rate (LIBOR).
NOTE 12--NEW ACCOUNTING STANDARD
In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 48, Accounting for Uncertainty in Income Taxes ("FIN 48").
FIN 48 prescribes a recognition threshold and measurement attribute for the
financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. FIN 48 also provides guidance on
derecognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition. The provisions for FIN 48 are effective for
fiscal years beginning after December 15, 2006. Management is currently
assessing the impact of FIN 48, if any, on the Fund's financial statements and
intends for the Fund to adopt the FIN 48 provisions during 2007.
F-12
AIM SELECT REAL ESTATE INCOME FUND
NOTE 13--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
MAY 31, 2002
SIX MONTHS (DATE INVESTMENT
ENDED YEAR ENDED DECEMBER 31, OPERATIONS COMMENCED)
JUNE 30, -------------------------------- TO DECEMBER 31,
2006 2005 2004 2003 2002
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value per common share, beginning of
period $ 17.49 $ 20.02 $ 17.83 $ 12.83 $ 14.33
- --------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.43 0.90 0.85 0.95(a) 0.49(a)
- --------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized
and unrealized) 1.05 (0.36) 3.16 5.33 (1.35)
================================================================================================================================
Total from investment operations 1.48 0.54 4.01 6.28 (0.86)
================================================================================================================================
Less distributions to auction rate preferred
shareholders from net investment income(b) (0.12) (0.17) (0.08) (0.06) (0.04)
================================================================================================================================
Total from investment operations attributable to
common shares 1.36 0.37 3.93 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 charged to paid-in capital -- -- -- (0.00) (0.10)
================================================================================================================================
Less distributions to common shareholders:
Dividends from net investment income (0.62) (1.24) (1.24) (0.79) (0.42)
- --------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- (1.66) (0.50) -- --
- --------------------------------------------------------------------------------------------------------------------------------
Return of capital -- -- -- (0.43) (0.08)
================================================================================================================================
Total distributions to common shareholders (0.62) (2.90) (1.74) (1.22) (0.50)
================================================================================================================================
Increase from common shares repurchased 0.05 -- -- -- --
================================================================================================================================
Net asset value per common share, end of period $ 18.28 $ 17.49 $ 20.02 $ 17.83 $ 12.83
================================================================================================================================
Market value per common share, end of period $ 15.55 $ 14.98 $ 17.50 $ 16.59 $ 12.30
================================================================================================================================
Net asset value total return(c)(d) 8.69% 4.44% 24.43% 51.41% (6.90)%
================================================================================================================================
Market value return(c)(d) 7.95% 2.33% 16.89% 46.95% (14.73)%
________________________________________________________________________________________________________________________________
================================================================================================================================
Ratios/supplemental data:
Net assets attributable to common shares, end of
period (000s omitted) $714,945 $698,380 $799,358 $712,069 $511,940
================================================================================================================================
Ratio of expenses to average net assets attributable
to common shares:
With fee waivers and/or expense reimbursements(e) 0.95%(f) 0.95% 0.93% 1.00%(a) 1.02%(a)(g)
- --------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense
reimbursements(e) 1.33%(f) 1.33% 1.32% 1.41%(a) 1.43%(a)(g)
================================================================================================================================
Ratio of net investment income to average net assets
attributable to common shares(e) 4.81%(f) 4.70% 4.64% 6.46%(a) 6.28%(a)(g)
================================================================================================================================
Ratio of distributions to auction rate preferred
shareholders to average net assets attributable to
common shares 1.27%(f) 0.86% 0.42% 0.43% 0.50%(g)
________________________________________________________________________________________________________________________________
================================================================================================================================
Portfolio turnover rate(h) 18% 17% 19% 37% 35%
________________________________________________________________________________________________________________________________
================================================================================================================================
Auction rate preferred shares:
Liquidation value, end of period (000s omitted) $205,000 $205,000 $205,000 $205,000 $205,000
================================================================================================================================
Total shares outstanding 8,200 8,200 8,200 8,200 8,200
================================================================================================================================
Asset coverage per share $112,188 $110,168 $122,483 $111,838 $ 87,432
================================================================================================================================
Liquidation and market value per share $ 25,000 $ 25,000 $ 25,000 $ 25,000 $ 25,000
________________________________________________________________________________________________________________________________
================================================================================================================================
</Table>
(a) As a result of changes in accounting principles generally accepted in
the United States of America, 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) Based on average number of common shares outstanding.
(c) Not annualized for periods less than one year.
(d) 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. 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.
(e) Ratios do not reflect the effect of dividend payments to auction rate
preferred shareholders; income ratios reflect income earned on
investments made with assets attributable to auction rate preferred
shares.
(f) Ratios are annualized and based on average daily net assets of
$725,977,641.
(g) Annualized.
(h) Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
F-13
AIM SELECT REAL ESTATE INCOME FUND
NOTE 14--SUBSEQUENT EVENT
On August 1, 2006, the Fund's Board of Trustees determined that it was in the
best interest of holders of the Fund's Common Shares to reorganize the Fund as
an open-end fund. Among other benefits, such reorganization will eliminate the
Common Shares' trading discount to net asset value. Formal Board approval of all
actions necessary to accomplish the reorganization is anticipated to occur in
the coming months, at which time the Fund will announce the terms of the
reorganization. Before the Fund can reorganize as an open-end fund, it will be
required to redeem its outstanding Preferred Shares and to obtain the approval
of the holders of its Common Shares. The reorganization also will be subject to
making the necessary regulatory filings with the SEC and receiving subsequent
SEC approval.
The Fund has, from time to time, purchased its Common Shares in open-market
purchases. The Fund has ceased purchasing its Common Shares as a result of the
Board's determination to reorganize the Fund as an open-end fund.
NOTE 15--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING
A I M Advisors, Inc. ("AIM"), the investment advisor to AIM Select Real Estate
Income Fund (the "Fund"), also serves as investment advisor to a number of
open-end mutual funds (the AIM Funds").
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds), AIM and A I M Distributors, Inc. ("ADI") (the
distributor of the retail AIM Funds) reached final settlements with certain
regulators, including the Securities and Exchange Commission ("SEC"), the New
York Attorney General and the Colorado Attorney General, to resolve civil
enforcement actions and/or investigations related to market timing and related
activity in the AIM Funds, including those formerly advised by IFG. As part of
the settlements, a $325 million fair fund ($110 million of which is civil
penalties) has been created to compensate shareholders harmed by market timing
and related activity in funds formerly advised by IFG. Additionally, AIM and ADI
created a $50 million fair fund ($30 million of which is civil penalties) to
compensate shareholders harmed by market timing and related activity in funds
advised by AIM, which was done pursuant to the terms of the settlement. These
two fair funds may increase as a result of contributions from third parties who
reach final settlements with the SEC or other regulators to resolve allegations
of market timing and/or late trading that also may have harmed applicable AIM
Funds. These two fair funds will be distributed in accordance with a methodology
to be determined by AIM's independent distribution consultant, in consultation
with AIM and the independent trustees of the AIM Funds and acceptable to the
staff of the SEC. Although the methodology is unknown at the present time,
because the Fund is not an open-end fund it is not expected that the Fund will
participate in the distribution of the two fair funds and such distribution
therefore is not expected to have an impact on the Fund's financial statements
in the future.
At the request of the trustees of the AIM Funds, AMVESCAP PLC ("AMVESCAP"),
the parent company of IFG and AIM, has agreed to reimburse expenses incurred by
the AIM Funds related to market timing matters.
PENDING LITIGATION AND REGULATORY INQUIRIES
On August 30, 2005, the West Virginia Office of the State Auditor-Securities
Commission ("WVASC") issued a Summary Order to Cease and Desist and Notice of
Right to Hearing to AIM and ADI (Order No. 05-1318). The WVASC makes findings of
fact that AIM and ADI entered into certain arrangements permitting market timing
of the AIM Funds, including those formerly advised by IFG, and failed to
disclose these arrangements in the prospectuses for such Funds, and conclusions
of law to the effect that AIM and ADI violated the West Virginia securities
laws. The WVASC orders AIM and ADI to cease any further violations and seeks to
impose monetary sanctions, including restitution to affected investors,
disgorgement of fees, reimbursement of investigatory, administrative and legal
costs and an "administrative assessment," to be determined by the Commissioner.
Initial research indicates that these damages could be limited or capped by
statute.
Civil lawsuits, including purported class action and shareholder derivative
suits, have been filed against certain of the AIM Funds, IFG, AIM, ADI and/or
related entities and individuals, depending on the lawsuit, alleging:
- that the defendants permitted improper market timing and related activity in
the AIM Funds;
- that certain AIM Funds inadequately employed fair value pricing;
- that the defendants charged excessive advisory and/or distribution fees and
failed to pass on to shareholders the perceived savings generated by
economies of scale and that the defendants adopted unlawful distribution
plans; and
- that the defendants improperly used the assets of the AIM Funds to pay
brokers to aggressively promote the sale of the AIM Funds over other mutual
funds and that the defendants concealed such payments from investors by
disguising them as brokerage commissions.
These lawsuits allege as theories of recovery, depending on the lawsuit,
violations of various provisions of the Federal and state securities laws and
ERISA, negligence, breach of fiduciary duty and/or breach of contract. These
lawsuits seek remedies that include, depending on the lawsuit, damages,
restitution, injunctive relief, imposition of a constructive trust, removal of
certain directors and/or employees, various corrective measures under ERISA,
rescission of certain AIM Funds' advisory agreements and/or distribution plans
and recovery of all fees paid, an accounting of all fund-related fees,
commissions and soft dollar payments, restitution of all commissions and fees
paid, and prospective relief in the form of reduced fees.
All lawsuits based on allegations of market timing, late trading and related
issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court"). Pursuant to an Order of the MDL Court,
plaintiffs in these lawsuits consolidated their claims for pre-trial purposes
into three amended complaints against various AIM- and IFG-related parties: (i)
a Consolidated Amended Class Action Complaint purportedly brought on behalf of
shareholders of the AIM Funds; (ii) a Consolidated Amended Fund Derivative
Complaint purportedly brought on behalf of the AIM
F-14
AIM SELECT REAL ESTATE INCOME FUND
NOTE 15--LEGAL PROCEEDINGS--(CONTINUED)
Funds and fund registrants; and (iii) an Amended Class Action Complaint for
Violations of the Employee Retirement Income Securities Act ("ERISA")
purportedly brought on behalf of participants in AMVESCAP's 401(k) plan. Based
on orders issued by the MDL Court, all claims asserted against the AIM Funds
that have been transferred to the MDL Court have been dismissed, although
certain Funds remain nominal defendants in the Consolidated Amended Fund
Derivative Complaint.
IFG, AIM, ADI and/or related entities and individuals have received
inquiries from numerous regulators 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, among others, 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, contractual plans, issues related to
Section 529 college savings plans and procedures for locating lost security
holders. IFG, AIM and ADI have advised the Fund that they are providing full
cooperation with respect to these inquiries. Regulatory actions and/or
additional civil lawsuits related to these or other issues may be filed against
the AIM Funds, IFG, AIM and/or related entities and individuals in the future.
At the present time, management of AIM and the Fund are unable to estimate
the impact, if any, that the outcome of the Pending Litigation and Regulatory
Inquiries described above may have on AIM or the Fund.
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
As a result of the matters discussed above, investors in the Fund might react by
selling their shares which could have an adverse effect on market value of the
Fund's shares.
F-15
AIM SELECT REAL ESTATE INCOME FUND
PROXY RESULTS
An Annual Meeting of Shareholders of AIM Select Real Estate Income Fund, a
Delaware business trust, was held on May 9, 2006. The meeting was held for the
following purpose:
COMMON SHARES AND PREFERRED SHARES
(1) Election of Trustees. Nominees: Bob R. Baker, Frank S. Bayley, Prema
Mathai-Davis, Ph.D., Lewis F. Pennock and Larry Soll, Ph.D.
(2) *Ratification of the Audit Committee's appointment of PricewaterhouseCoopers
LLP as independent registered public accountants.
The results of voting on the above matters were as follows:
<Table>
<Caption>
WITHHELD/
TRUSTEES/MATTER (COMMON SHARES AND PREFERRED SHARES) VOTES FOR VOTES AGAINST ABSTENTIONS
- -----------------------------------------------------------------------------------------------------------------
(1) Bob R. Baker................................................ 37,425,614 N/A 533,897
Frank S. Bayley............................................. 37,404,798 N/A 554,713
Prema Mathai-Davis, Ph.D. .................................. 37,436,654 N/A 522,857
Lewis F. Pennock............................................ 37,449,671 N/A 509,840
Larry Soll, Ph.D. .......................................... 37,444,163 N/A 515,348
(2) *Ratification of the Audit Committee's selection of
PricewaterhouseCoopers LLP as independent registered public
accountants................................................. 37,654,239 120,109 185,163
</Table>
* Proposal required approval by a combined vote of Common and Preferred Shares
F-16
AIM SELECT REAL ESTATE INCOME FUND
TRUSTEES AND OFFICERS
<Table>
BOARD OF TRUSTEES OFFICERS OFFICE OF THE FUND
Bob R. Baker Philip A. Taylor 11 Greenway Plaza
Frank S. Bayley President and Principal Suite 100
James T. Bunch Executive Officer Houston, TX 77046-1173
Bruce L. Crockett
Chair Mark H. Williamson INVESTMENT ADVISOR
Albert R. Dowden Executive Vice President A I M Advisors, Inc.
Jack M. Fields 11 Greenway Plaza
Carl Frischling Todd L. Spillane Suite 100
Robert H. Graham Chief Compliance Officer Houston, TX 77046-1173
Vice Chair
Prema Mathai-Davis Russell C. Burk SUB-ADVISOR
Lewis F. Pennock Senior Vice President and Senior Officer INVESCO Institutional (N.A.), Inc.
Ruth H. Quigley INVESCO Realty Advisors Division
Larry Soll John M. Zerr Three Galleria Tower
Raymond Stickel, Jr. Senior Vice President, Secretary Suite 500
Mark H. Williamson and Chief Legal Officer 13155 Noel Road
Dallas, TX 75240-5042
Sidney M. Dilgren
Vice President, Treasurer TRANSFER AGENT (PREFERRED SHARES)
and Principal Financial Officer Deutsche Bank Trust
Company Americas
Lisa O. Brinkley 100 Plaza One
Vice President Jersey City, NJ 07311-3901
Kevin M. Carome TRANSFER AGENT (COMMON SHARES)
Vice President Computershare Trust Company, N.A.
P.O. Box 43010
J. Philip Ferguson Providence, RI 02940-0310
Vice President
CUSTODIAN
Karen Dunn Kelley State Street Bank and Trust Company
Vice President 225 Franklin Street
Boston, MA 02110-2801
COUNSEL TO THE FUND
Ballard Spahr
Andrews & Ingersoll, LLP
1735 Market Street, 51st Floor
Philadelphia, PA 19103-7599
COUNSEL TO THE INDEPENDENT TRUSTEES
Kramer, Levin, Naftalis & Frankel LLP
1177 Avenue of the Americas
New York, NY 10036-2714
</Table>
AIMinvestments.com SREI-AR-1
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PART C
OTHER INFORMATION
Item 15. Indemnification
Indemnification provisions for officers, trustees, and employees of
the Registrant are set forth in Article VIII of the Registrant's
Second Amended and Restated Agreement and Declaration of Trust and
Article VIII of its Amended and Restated Bylaws, and are hereby
incorporated by reference. See Item 16(1) and (2) above. Under the
Second Amended and Restated Agreement and Declaration of Trust dated
December 6, 2005, (i) Trustees or officers, when acting in such
capacity, shall not be personally liable for any act, omission or
obligation of the Registrant or any Trustee or officer except by
reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his
office with the Trust; (ii) every Trustee, officer, employee or agent
of the Registrant shall be indemnified to the fullest extent
permitted under the Delaware Statutory Trust Act, the Registrant's
Bylaws and other applicable law; (iii) in case any shareholder or
former shareholder of the Registrant shall be held to be personally
liable solely by reason of his being or having been a shareholder of
the Registrant or any portfolio or class and not because of his acts
or omissions or for some other reason, the shareholder or former
shareholder (or his heirs, executors, administrators or other legal
representatives, or, in the case of a corporation or other entity,
its corporate or general successor) shall be entitled, out of the
assets belonging to the applicable portfolio (or allocable to the
applicable class), to be held harmless from and indemnified against
all loss and expense arising from such liability in accordance with
the Bylaws and applicable law. The Registrant, on behalf of the
affected portfolio (or class), shall upon request by the shareholder,
assume the defense of any such claim made against the shareholder for
any act or obligation of that portfolio (or class).
The Registrant and other investment companies and their respective
officers and trustees are insured under a joint Mutual Fund Directors
and Officers Liability Policy, issued by ICI Mutual Insurance Company
and certain other domestic insurers, with limits up to $60,000,000
(plus an additional $20,000,000 limit that applies to independent
directors/trustees only).
Section 16 of the Master Investment Advisory Agreement between the
Registrant and AIM provides that in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of
obligations or duties hereunder on the part of AIM or any of its
officers, directors or employees, that AIM shall not be subject to
liability to the Registrant or to any series of the Registrant, or to
any shareholder of any series of the Registrant for any act or
omission in the course of, or connected with, rendering services
hereunder or for any losses that may be sustained in the purchase,
holding or sale of any security. Any liability of AIM to any series
of the Registrant shall not automatically impart liability on the
part of AIM to any other series of the Registrant. No series of the
Registrant shall be liable for the obligations of any other series of
the Registrant.
Section 7 of the Master Intergroup Sub-Advisory Contract for Mutual
Funds (the "Sub-Advisory Contract") between AIM and INVESCO
Institutional (N.A.), Inc. provides that the Sub-advisor shall not be
liable for any costs or liabilities arising from any error of
judgment or mistake of law or any loss suffered by any series of the
Registrant or the Registrant in connection with the matters to which
the Sub-Advisory Contract relates except a loss resulting from
willful misfeasance, bad faith or gross negligence on the part of the
Sub-advisor in the performance by the Sub-advisor of its duties or
from reckless disregard by the Sub-advisor of its obligations and
duties under the Sub-Advisory Contract.
C-1
Section 7 of the Master Intergroup Sub-Advisory Contract for Mutual
Funds (the "Sub-Advisory Contract") between AIM and INVESCO Senior
Secured Management, Inc. provides that the Sub-advisor shall not be
liable for any costs or liabilities arising from any error of
judgment or mistake of law or any loss suffered by any series of the
Registrant or the Registrant in connection with the matters to which
the Sub-Advisory Contract relates except a loss resulting from
willful misfeasance, bad faith or gross negligence on the part of the
Sub-advisor in the performance by the Sub-advisor of its duties or
from reckless disregard by the Sub-advisor of its obligations and
duties under the Sub-Advisory Contract.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to trustees,
officers and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and
is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a trustee, officer or
controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such trustee, officer or
controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the
Act will be governed by the final adjudication of such issue.
Item 16. Exhibits
(1)(a) - (1) Second Amended and Restated Agreement and Declaration of
Trust of Registrant dated December 6, 2005 incorporated herein
by reference to Registrant's PEA No. 19 on Form N-1A, filed on
December 7, 2005.
- (2) Amendment No. 1, dated January 9, 2006, to the Second
Amended and Restated Agreement and Declaration of Trust of
Registrant, dated December 6, 2005 incorporated herein by
reference to Registrant's PEA No. 21 on Form N-1A, filed on
January 13, 2006.
- (3) Amendment No. 2, dated May 24, 2006, to the Second Amended
and Restated Agreement and Declaration of Trust of Registrant,
dated December 6, 2005 incorporated herein by reference to
Registrant's PEA No. 25 on Form N-1A, filed on September 22,
2006.
- (4) Amendment No. 3, dated July 5, 2006, to the Second Amended
and Restated Agreement and Declaration of Trust of Registrant,
dated December 6, 2005 incorporated herein by reference to
Registrant's PEA No. 25 on Form N-1A, filed on September 22,
2006.
- (5) Amendment No. 4, dated September 19, 2006, to the Second
Amended and Restated Agreement and Declaration of Trust of
Registrant, dated December 6, 2005 incorporated herein by
reference to Registrant's PEA No. 25 on Form N-1A, filed on
September 22, 2006.
(2)(a) - (1) Amended and Restated Bylaws dated September 14, 2005
incorporated herein by reference to Registrant's PEA No. 18 on
Form N-1A, filed on October 19, 2005.
C-2
- (2) Amendment to Amended and Restated Bylaws of Registrant,
adopted effective August 1, 2006 incorporated herein by
reference to Registrant's PEA No. 25 on Form N-1A, filed on
September 22, 2006.
(3) - Voting Trust Agreements - None.
(4) - Agreement and Plan of Reorganization by and among the Registrant
on behalf of AIM Select Real Estate Income Fund, AIM Select Real
Estate Income Fund on behalf of AIM Select Real Estate Income
Fund and A I M Advisors, Inc., is attached as Appendix I to the
Combined Proxy Statement Prospectus relating to AIM Select Real
Estate Income Fund contained in this Registration Statement.
(5) - Articles II, VI, VII, VIII and IX of the Second Amended and
Restated Agreement and Declaration of Trust and Articles IV, V
and VI of the Amended and Restated Bylaws, define rights of
holders of shares.
(6)(a) - (1) Master Investment Advisory Agreement dated November 25, 2003
between Registrant and A I M Advisors, Inc. incorporated herein
by reference to Registrant's PEA No. 16 on Form N-1A, filed on
March 1, 2004.
- (2) Amendment No. 1 to the Master Investment Advisory Agreement,
dated as of October 15, 2004 incorporated herein by reference to
Registrant's PEA No. 17 on Form N-1A, filed on November 30,
2004.
- (3) Amendment No. 2 to the Master Investment Advisory Agreement,
dated as of March 31, 2006 incorporated herein by reference to
Registrant's PEA No. 24 on Form N-1A, filed on April 13, 2006.
- (4) Amendment No. 3 to the Master Investment Advisory Agreement,
dated as of April 14, 2006 incorporated herein by reference to
Registrant's PEA No. 25 on Form N-1A, filed on September 22,
2006.
- (5) Form of Amendment No. 4 to the Master Investment Advisory
Agreement, dated as of March __, 2007 incorporated herein by
reference to Registrant's PEA No. 25 on Form N-1A, filed on
September 22, 2006.
(b) - (1) Master Intergroup Sub-Advisory Contract for Mutual Funds,
dated March 31, 2006, between A I M Advisors, Inc. and INVESCO
Institutional (N.A.), Inc. on behalf of AIM Structured Core
Fund, AIM Structured Growth Fund and AIM Structured Value Fund
incorporated herein by reference to Registrant's PEA No. 24 on
Form N-1A, filed on April 13, 2006.
- (2) Form of Amendment No. 1 to the Master Intergroup
Sub-Advisory Contract for Mutual Funds between A I M Advisors,
Inc. and INVESCO Institutional (N.A.), Inc., dated as of March
___, 2006 incorporated herein by reference to Registrant's PEA
No. 25 on Form N-1A, filed on September 22, 2006.
- (3) Master Intergroup Sub-Advisory Contract for Mutual Funds,
dated April 14, 2006, between A I M Advisors, Inc. and INVESCO
Senior Secured Management, Inc. on behalf of AIM Floating Rate
Fund incorporated herein by reference to Registrant's PEA No. 25
on Form N-1A, filed on September 22, 2006.
C-3
7 (a) - (1) First Restated Master Distribution Agreement, made as of
August 18, 2003, as subsequently amended, and as restated
September 20, 2006, by and between Registrant (all classes
except Class B shares) and A I M Distributors. Inc. incorporated
herein by reference to Registrant's PEA No. 26 on Form N-1A,
filed on October 13, 2006.
- (2) Form of Amendment No. 1 to the First Restated Master
Distribution Agreement, made as of August 18, 2003, as
subsequently amended, and as restated September 20, 2006, by and
between Registrant (all classes except Class B shares) and A I M
Distributors. Inc., dated March __, 2007 incorporated herein by
reference to Registrant's PEA No. 25 on Form N-1A, filed on
September 22, 2006.
(b) - (1) First Master Related Distribution Agreement, made as of
August 18, 2003, as subsequently amended, and as restated
September 20, 2006, by and between Registrant (Class B shares)
and A I M Distributors, Inc. incorporated herein by reference to
Registrant's PEA No. 26 on Form N-1A, filed on October 13, 2006.
- (2) Form of Amendment No. 1 to the First Restated Master
Distribution Agreement, made as of August 18, 2003, as
subsequently amended, and as restated September 20, 2006, by and
between Registrant (Class B shares) and A I M Distributors,
Inc., dated March ___, 2007 incorporated herein by reference to
Registrant's PEA No. 25 on Form N-1A, filed on September 22,
2006.
(c) - Form of Selected Dealer Agreement between A I M Distributors,
Inc. and selected dealers incorporated herein by reference to
Registrant's PEA No. 20 on Form N-1A, filed on December 20,
2005.
(d) - Form of Bank Selling Group Agreement between A I M Distributors,
Inc. and banks incorporated herein by reference to Registrant's
PEA No. 20 on Form N-1A, filed on December 20, 2005.
(8)(a) - AIM Retirement Plan for Eligible Directors/Trustees, as restated
October 1, 2001 incorporated herein by reference to Registrant's
PEA No. 18 on Form N-1A, filed on October 19, 2005.
(b) - Form of AIM Funds Director Deferred Compensation Agreement
incorporated herein by reference to Registrant's PEA No. 18 on
Form N-1A, filed on October 19, 2005.
(9)(a) - (1) Master Custodian Agreement between Registrant and State
Street Bank and Trust Company dated May 8, 2001 incorporated
herein by reference to Registrant's PEA No. 38 on Form N-1A,
filed on July 15, 2003.
- (2) Amendment No. 1 dated May 10, 2002 to the Master Custodian
Agreement between Registrant and State Street Bank and Trust
Company dated May 8, 2001 incorporated herein by reference to
Registrant's PEA No. 38 on Form N-1A, filed on July 15, 2003.
- (3) Amendment No. 2 dated December 8, 2003 to the Master
Custodian Agreement between Registrant and State Street Bank and
Trust Company dated May 8, 2001 incorporated herein by reference
to Registrant's PEA No. 17 on Form N-1A, filed on November 30,
2004.
C-4
- (4) Amendment No. 3 dated April 30, 2004 to the Master Custodian
Agreement between Registrant and State Street Bank and Trust
Company dated May 8, 2001 incorporated herein by reference to
Registrant's PEA No. 17 on Form N-1A, filed on November 30,
2004.
- (5) Amendment No. 4 dated September 8, 2004 to the Master
Custodian Agreement between Registrant and State Street Bank and
Trust Company dated May 8, 2001 incorporated herein by reference
to Registrant's PEA No. 17 on Form N-1A, filed on November 30,
2004.
- (6) Amendment No. 5 dated February 8, 2006 to the Master
Custodian Agreement between Registrant and State Street Bank and
Trust Company dated May 8, 2001 incorporated herein by reference
to Registrant's PEA No. 22 on Form N-1A, filed on February 17,
2006.
(10)(a) - (1) First Restated Master Distribution Plan effective as of
August 18, 2003 and as subsequently amended, and as restated
September 20, 2006 (Class A shares) incorporated herein by
reference to Registrant's PEA No. 25 on Form N-1A, filed on
September 22, 2006.
- (2) Form of Amendment No. 1 to the First Restated Master
Distribution Plan effective as of August 18, 2003 and as
subsequently amended, and as restated September 20, 2006 (Class
A shares), dated March __, 2007 incorporated herein by reference
to Registrant's PEA No. 25 on Form N-1A, filed on September 22,
2006
(b) - (1) First Restated Master Distribution Plan effective as of
August 18, 2003 and as restated September 20, 2006 (Class B
shares) incorporated herein by reference to Registrant's PEA No.
25 on Form N-1A, filed on September 22, 2006.
- (2) Form of Amendment No. 1 to the First Restated Master
Distribution Plan effective as of August 18, 2003 and as
restated September 20, 2006 (Class B shares), dated March __,
2007 incorporated herein by reference to Registrant's PEA No. 25
on Form N-1A, filed on September 22, 2006.
(c) - (1) First Restated Master Distribution Plan effective as of
August 18, 2003 and as subsequently amended, and as restated
September 20, 2006 (Class C shares) incorporated herein by
reference to Registrant's PEA No. 25 on Form N-1A, filed on
September 22, 2006.
- (2) Form of Amendment No. 1 to the First Restated Master
Distribution Plan effective as of August 18, 2003 and as
amended, and as restated September 20, 2006 (Class C shares),
dated March __, 2007 incorporated herein by reference to
Registrant's PEA No. 25 on Form N-1A, filed on September 22,
2006.
(d) - First Restated Master Distribution Plan effective as of August
18, 2003 and as subsequently amended, and as restated September
20, 2006 (Class R shares) incorporated herein by reference to
Registrant's PEA No. 25 on Form N-1A, filed on September 22,
2006.
(e) - Master Related Agreement to the First Restated Master
Distribution Plan (Class A shares) incorporated herein by
reference to Registrant's PEA No. 25 on Form N-1A, filed on
September 22, 2006.
C-5
(f) - Master Related Agreement to the First Restated Master
Distribution Plan (Class C shares) incorporated herein by
reference to Registrant's PEA No. 25 on Form N-1A, filed on
September 22, 2006.
(g) - Master Related Agreement to the First Restated Master
Distribution Plan (Class R shares) incorporated herein by
reference to Registrant's PEA No. 25 on Form N-1A, filed on
September 22, 2006.
(h) - Tenth Amended and Restated Multiple Class Plan of The AIM Family
of Funds(R), effective December 12, 2001, as amended and
restated July 5, 2006 incorporated herein by reference to
Registrant's PEA No. 25 on Form N-1A, filed on September 22,
2006.
(11) - Opinion of Counsel and Consent of Ballard Spahr Andrews &
Ingersoll, LLP, as to the legality of the securities being
registered is filed herewith electronically.
(12) - Opinion of Ballard Spahr Andrews & Ingersoll, LLP, supporting
the tax matters and consequences to shareholders will be filed
as part of a Post-Effective Amendment to a Registration
Statement on Form N-1A.
(13)(a) - Third Amended and Restated Transfer Agency and Service Agreement
between Registrant and AIM Investment Services, Inc. dated July
1, 2006 incorporated herein by reference to Registrant's PEA No.
25 on Form N-1A, filed on September 22, 2006.
(b) - (a) Second Amended and Restated Master Administrative Services
Agreement dated July 1, 2006 between Registrant and A I M
Advisors, Inc. incorporated herein by reference to Registrant's
PEA No. 25 on Form N-1A, filed on September 22, 2006.
(c) - Form of Memorandum of Agreement dated March 31, 2006, regarding
Securities Lending between Registrant, with respect to AIM
Advantage Health Sciences Fund, AIM Multi-Sector Fund, AIM
Structured Core Fund, AIM Structured Growth Fund and AIM
Structured Value Fund, and A I M Advisors, Inc. incorporated
herein by reference to Registrant's PEA No. 25 on Form N-1A,
filed on September 22, 2006.
(d) - Memorandum of Agreement dated July 1, 2006, regarding expense
limits between Registrant A I M Advisors, Inc. incorporated
herein by reference to Registrant's PEA No. 25 on Form N-1A,
filed on September 22, 2006.
(e) - Memorandum of Agreement dated July 1, 2006, between Registrant
and A I M Advisors, Inc., with respect to AIM Advantage Health
Sciences Fund and AIM Multi-Sector Fund incorporated herein by
reference to Registrant's PEA No. 25 on Form N-1A, filed on
September 22, 2006.
(14) - Consent of PricewaterhouseCoopers LLP is filed herewith.
(15) - Omitted Financial Statements - None.
(16) - Powers of Attorney for Baker, Bayley, Bunch, Crockett, Dowden,
Fields, Frischling, Graham, Mathai-Davis, Pennock, Quigley,
Soll, Stickel, Taylor and Zerr incorporated herein by reference
to Registrant's PEA No. 25 on Form N-1A, filed on September 22,
2006.
C-6
17 - Form of Proxy relating to the Special Meeting of Shareholders of
AIM Select Real Estate Income Fund is filed herewith.
Item 17. Undertakings
(1) The undersigned Registrant agrees that prior to any public
reoffering of the securities registered through the use of a
prospectus which is a part of this registration statement by any
person or party who is deemed to be an underwriter within the
meaning of Rule 145(c) of the Securities Act [17 CRF 203.145c],
the reoffering prospectus will contain the information called
for by the applicable registration form for reofferings by
persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable
form.
(2) The undersigned Registrant agrees that every prospectus that is
filed under paragraph (a) above will be filed as a part of an
amendment to the registration statement and will not be used
until the amendment is effective, and that, in determining any
liability under the 1933 Act, each post-effective amendment
shall be deemed to be a new registration statement for the
securities offered therein, and the offering of the securities
at that time shall be deemed to be the initial bona fide
offering of them.
(3) The undersigned Registrant undertakes to file an opinion of
counsel supporting the tax matters and consequences to
shareholders discussed in the prospectus in a post-effective
amendment to this registration statement.
C-7
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form N-14 to be signed
on its behalf by the undersigned, thereto duly authorized, in the City of
Houston, State of Texas, on the 13th day of November, 2006.
REGISTRANT: AIM COUNSELOR SERIES TRUST
By: /s/ Philip A. Taylor
------------------------------------
Philip A. Taylor, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form N-14 has been signed below by the following
persons in the capacities and on the dates indicated.
SIGNATURES TITLE DATE
---------- ----- ----
/s/ Philip A. Taylor Trustee & President November 13, 2006
- ----------------------------------- (Principal Executive Officer)
(Philip A. Taylor)
/s/ Bob R. Baker* Trustee November 13, 2006
- -----------------------------------
(Bob R. Baker)
/s/ Frank S. Bayley* Trustee November 13, 2006
- -----------------------------------
(Frank S. Bayley)
/s/ James T. Bunch* Trustee November 13, 2006
- -----------------------------------
(James T. Bunch)
/s/ Bruce L. Crockett* Chair & Trustee November 13, 2006
- -----------------------------------
(Bruce L. Crockett)
/s/ Albert R. Dowden* Trustee November 13, 2006
- -----------------------------------
(Albert R. Dowden)
/s/ Jack M. Fields* Trustee November 13, 2006
- -----------------------------------
(Jack M. Fields)
/s/ Carl Frischling* Trustee November 13, 2006
- -----------------------------------
(Carl Frischling)
/s/ Robert H. Graham* Trustee November 13, 2006
- -----------------------------------
(Robert H. Graham)
/s/ Prema Mathai-Davis* Trustee November 13, 2006
- -----------------------------------
(Prema Mathai-Davis)
/s/ Lewis F. Pennock* Trustee November 13, 2006
- -----------------------------------
(Lewis F. Pennock)
/s/ Ruth H. Quigley* Trustee November 13, 2006
- -----------------------------------
(Ruth H. Quigley)
/s/ Larry Soll* Trustee November 13, 2006
- -----------------------------------
(Larry Soll)
/s/ Raymond Stickel, Jr.* Trustee November 13, 2006
- -----------------------------------
(Raymond Stickel, Jr.)
/s/ Sidney M. Dilgren Vice President & Treasurer November 13, 2006
- ----------------------------------- (Principal Financial and
(Sidney M. Dilgren) Accounting Officer)
*By /s/ Philip A. Taylor
------------------------------
Philip A. Taylor
Attorney-in-Fact
* Philip A. Taylor, pursuant to powers of attorney filed in Post-Effective
Amendment No. 25 to the Registrant's Registration Statement on Form N-1A on
September 22, 2006.
INDEX
Exhibit
Number Description
- -------- -----------
11 Opinion of Counsel and Consent of Ballard Spahr Andrews & Ingersoll,
LLP as to the legality of the securities being registered
14 Consent of Pricewaterhouse Coopers LLP
17 Form of Proxy