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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file
number 811-3826
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AIM Sector Funds
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(Exact name of registrant as specified in charter)
11 Greenway Plaza, Suite 100 Houston, Texas 77046
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(Address of principal executive offices) (Zip code)
Robert H. Graham 11 Greenway Plaza, Suite 100 Houston, Texas 77046
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(Name and address of agent for service)
Registrant's telephone number, including area code: (713) 626-1919
-----------------------------
Date of fiscal year end: 7/31
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Date of reporting period: 03/31/05
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Item 1. Reports to Stockholders.
AIM ENERGY FUND
Annual Report to Shareholders . March 31, 2005
[COVER IMAGE]
FORMERLY INVESCO ENERGY FUND
[YOUR GOALS. OUR SOLUTIONS.]
- REGISTERED TRADEMARK -
[AIM INVESTMENTS LOGO]
- REGISTERED TRADEMARK -
AIM ENERGY FUND SEEKS CAPITAL GROWTH.
.. Unless otherwise stated, information presented in this report is as of
March 31, 2005, and is based on total net assets.
.. Effective October 15, 2004, INVESCO Energy Fund was renamed AIM Energy Fund.
ABOUT SHARE CLASSES
.. Effective September 30, 2003, Class B shares are not available as an
investment for retirement plans maintained pursuant to Section 401 of the
Internal Revenue Code, including 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.
.. Investor Class shares are closed to most investors. For more information on
who may continue to invest in the Investor Class shares, please see the
prospectus.
.. Class K shares are available only to certain retirement plans. Please see the
prospectus for more information.
PRINCIPAL RISKS OF INVESTING IN THE FUND
.. Investing in a single-sector or single-region mutual fund involves greater
risk and potential reward than investing in a more diversified fund.
.. International investing presents certain risks not associated with investing
solely in the United States. These include risks relating to fluctuations in the
value of the U.S. dollar relative to the values of other currencies, the custody
arrangements made for the Fund's foreign holdings, differences in accounting,
political risks and the lesser degree of public information required to be
provided by non-U.S. companies. The Fund may invest up to 25% of its assets in
the securities of non-U.S. issuers. Securities of Canadian issuers and American
Depository Receipts are not subject to this 25% limitation.
.. Portfolio turnover is greater than that of most funds, which may affect
performance.
.. Investing in small and mid-size companies involves risks not associated with
investing in more established companies, including business risk, significant
stock price fluctuations and illiquidity.
.. By concentrating on a small number of holdings, the Fund carries greater risk
because each investment has a greater effect on the fund's overall performance.
.. Short-term fluctuations in commodity prices may influence Fund returns and
increase price fluctuations of Fund shares.
.. The businesses in which the Fund invests may be adversely affected by foreign
governments and federal and state regulation of energy production, distribution
and sale.
ABOUT INDEXES USED IN THIS REPORT
.. The Dow Jones U.S. Energy Index measures the performance of energy companies
within the United States. The index maintains an approximate weighting of 95% in
U.S. coal, oil and drilling, and pipeline companies.
.. The unmanaged Lipper Natural Resources Fund Index represents an average of the
10 largest natural resources funds tracked by Lipper, Inc., an independent
mutual fund performance monitor, and is considered representative of natural
resources stocks.
.. The unmanaged Standard & Poor's Composite Index of 500 Stocks (the S&P 500
- --REGISTERED TRADEMARK-- Index) is an index of common stocks frequently used as
a general measure of U.S. stock market performance.
.. The Fund is not managed to track the performance of any particular index,
including the indexes defined here, and consequently, the performance of the
Fund may deviate significantly from the performance of the index.
.. A direct investment cannot be made in an index. Unless otherwise indicated,
index results include reinvested dividends, and they do not reflect sales
charges. Performance of an index of funds reflects fund expenses; performance of
a market index does not.
OTHER INFORMATION
.. The returns shown in the management's discussion of Fund performance are based
on net asset values calculated for shareholder transactions. Generally accepted
accounting principles require adjustments to be made to the net assets of the
fund at period end for financial reporting purposes, and as such, the net asset
values for shareholder transactions and the returns based on those net asset
values may differ from the net asset values and returns reported in the
Financial Highlights.
.. Industry classifications used in this report are generally according to the
Global Industry Classification Standard, which was developed by and is the
exclusive property and a service mark of Morgan Stanley Capital International
Inc. and Standard & Poor's.
The Fund provides a complete list of its holdings four times in each fiscal
year, at the quarter-ends. For the second and fourth quarters, the lists appear
in the Fund's semiannual and annual reports to shareholders. For the first and
third quarters, the Fund files the lists with the Securities and Exchange
Commission (SEC) on Form N-Q. Shareholders can look up the Fund's Forms N-Q on
the SEC's Web site at sec.gov. Copies of the Fund's Forms N-Q may be reviewed
and copied at the SEC's Public Reference Room at 450 Fifth Street, N.W.,
Washington, D.C. 20549-0102. You can obtain information on the operation of the
Public Reference Room, including information about duplicating fee charges, by
calling 1-202-942-8090 or by electronic request at the following E-mail address:
publicinfo@sec.gov. The SEC file numbers for the Fund are 811-3826 and
002-85905. The Fund's most recent portfolio holdings, as filed on Form N-Q, are
also available at AIMinvestments.com.
A description of the policies and procedures that the Fund uses to determine how
to vote proxies relating to portfolio securities is available without charge,
upon request, from our Client Services department at 800-959-4246 or on the AIM
Web site, AIMinvestments.com. On the home page, scroll down and click on AIM
Funds Proxy Policy. The information is also available on the SEC Web site,
sec.gov.
Information regarding how the Fund voted proxies related to its portfolio
securities during the 12 months ended June 30, 2004, is available at our Web
site. Go 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.
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THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND
PROSPECTUS, WHICH CONTAINS MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES
AND EXPENSES. INVESTORS SHOULD READ IT CAREFULLY BEFORE INVESTING.
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NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
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AIMINVESTMENTS.COM
AIM ENERGY FUND
DEAR FELLOW SHAREHOLDERS:
The fiscal year covered by this report saw both equities and
bonds* produce positive total returns, but it wasn't a very
smooth ride. Markets were at their best during the second
half of 2004--bonds during the third quarter of that year
and equities during the fourth. Returns turned negative for
both asset classes during the first quarter of 2005.
[GRAHAM PHOTO] The huge run-up in the price of oil over the course of the
fiscal year goes a long way toward explaining the markets'
loss of confidence early in 2005. The Consumer Price Index
rose more in March 2005 than one month earlier. Energy costs
advanced 4.0% in March; the petroleum-based subset of energy
increased 7.8%.
ROBERT H. GRAHAM Another negative factor has been Federal Reserve policy.
With a view to warding off potential inflation, the Federal
Reserve (the Fed) raised short-term interest rates in March,
the seventh such move since mid-year 2004. The Fed noted
that inflationary pressures have picked up recently and that
businesses' ability to raise prices appeared stronger than
in the recent past. There is a virtually universal
expectation that the Fed will continue to increase
short-term interest rates during 2005, which could
ultimately dampen economic performance. (In early May, after
the close of the reporting period, the Fed raised rates once
again.)
[WILLIAMSON PHOTO] Nevertheless, there was also much good news for investors
as of March 31, 2005:
. The Institute for Supply Management's manufacturing and
non-manufacturing indexes--based on surveys of purchasing
managers in industries that cover more than 80% of the
U.S. economy--both indicated continued healthy growth
during March and April and remained in very strong
territory. April was the 42nd month in a row these surveys
showed the economy as a whole expanding.
MARK H. WILLIAMSON . Job growth during March was weaker than in the recent
past, though the unemployment rate declined over the
course of the fiscal year. In fact, less than robust job
growth during March was good news for bond
investors--there is still enough slack in the job market
to keep wage inflation from becoming an issue.
. Bond yields haven't risen as much as might be expected
given seven increases in short-term rates over the fiscal
year. Evidently, the bond market is not anticipating a
long-term inflationary pattern.
So once again we are seeing a good news/bad news
combination--a situation that is far from unusual. Over the
short term, financial markets are unpredictable. It is over
the long term that they have been rewarding to investors,
and we remain confident in their long-term outlook. Given
the inability to make accurate short-term forecasts, as
always, we urge our shareholders to:
. keep a long-term investment perspective,
. make sure their portfolios are suitably diversified, and
. contact their financial advisors when they have questions
or concerns about their investments or the markets.
YOUR FUND
The following pages present a discussion of your Fund's
approach to investing, an explanation of its performance
over the fiscal year, and a summary of its portfolio as that
year closed. Further information about your Fund and The AIM
Family of Funds --REGISTERED TRADEMARK--, as well as general
information concerning investing, is always available on our
widely praised Web site, AIMinvestments.com. We invite you
to visit frequently.
As always, we at AIM are dedicated to building solutions
to help you meet your investment goals. We thank you for
your continued participation in AIM Investments --REGISTERED
TRADEMARK--. If you have any questions, please contact our
award-winning Client Service representatives at
800-959-4246. We are pleased to be of help.
Sincerely,
/s/ ROBERT H. GRAHAM /s/ MARK H. WILLIAMSON
Robert H. Graham Mark H. Williamson
Trustee, President & Chairman & President,
Vice Chair, AIM Funds A I M Advisors, Inc.
May 20, 2005
*Equities represented by the S&P 500 Index, an index of
common stocks often used as a general measure of U.S. stock
market performance; bonds by the Lehman U.S. Aggregate Bond
Index, an index compiled by Lehman Brothers, the global
investment bank, that represents the U.S. investment-grade
fixed-rate bond market.
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 AND A I M
DISTRIBUTORS, INC. IS THE DISTRIBUTOR FOR THE RETAIL FUNDS
REPRESENTED BY AIM INVESTMENTS.
AIM ENERGY FUND
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
Energy was by far the best-performing sector of the S&P 500 Index for the fiscal
year ended March 31, 2005. Most energy stocks benefited from rising oil
prices--a trend that had a positive effect on the performance of the Fund.
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FUND VS. INDEXES
TOTAL RETURNS, 3/31/04-3/31/05, EXCLUDING APPLICABLE SALES CHARGES. IF SALES
CHARGES WERE INCLUDED, RETURNS WOULD BE LOWER.
Class A Shares 47.55%
Class B Shares 46.63
Class C Shares 46.67
Class K Shares 47.39
Investor Class Shares 47.72
S&P 500 Index (Broad Market Index) 6.69
Dow Jones U.S. Energy Index
(Style-specific Index) 47.52
Lipper Natural Resources Fund Index
(Peer Group Index) 44.13
SOURCE: LIPPER, INC.
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While rising oil prices enhanced the performance of energy stocks, they
detracted from the performance of stocks in most other sectors, enabling the
Fund to post much better returns than the S&P 500 Index. The portfolio performed
in line with the Dow Jones U.S. Energy Index and outperformed the Lipper Natural
Resources Fund Index. The Fund outperformed its peer group because of favorable
stock selection and because some of its competitors had less exposure to energy.
HOW WE INVEST
We use a bottom-up approach to investing, selecting stocks based on an analysis
of individual companies. We believe that corporate earnings and production drive
stock prices. Our focus is on companies we believe have the potential to
increase productivity while containing costs. We also seek to own firms that
have the potential to increase earnings despite fluctuating commodity prices
through the use of innovative technologies or because of new discoveries or
higher production volumes.
Typically, we hold only 30 to 40 stocks in the fund. There were 39 stocks
in the portfolio at the close of the reporting period. We endeavor to control
risk by:
.. diversifying across most industries and sub-industries within the energy
sector;
.. generally avoiding excessive concentration of assets in a small number
of stocks (the Fund's top-10 holdings represented only about 40% of the
portfolio's total net assets at the close of the reporting period);
.. maintaining a cash position or cash equivalent position of approximately 5% to
potentially avoid having to sell stocks during market downturns.
We may sell or reduce our position in a stock when:
.. its valuation, in our opinion, becomes excessive in comparison to similar
investment opportunities;
.. the company reports disappointing earnings or its fundamentals deteriorate;
.. we identify a more attractive investment opportunity.
MARKET CONDITIONS AND YOUR FUND
Stocks, as measured by the performance of the S&P 500 Index, rose modestly over
the period as major economic indicators were generally favorable. Gross domestic
product, the broadest measure of overall economic activity, rose at annualized
rates of 3.3%, 4.0% and 3.8%, respectively, for the second, third and fourth
quarters of 2004, and 3.1% in the first quarter of 2005.
Most of the S&P 500 Index's gains were recorded in the fourth quarter of
2004. The index rose after the price of oil peaked in October and the U.S.
presidential campaign drew to a close. The S&P 500 Index declined in the first
quarter of 2005 as oil prices again increased and the Federal Reserve continued
raising interest rates to slow economic growth and curb potential inflation. In
the United States, the average retail price of a gallon of regular gasoline rose
to a record high of more than $2.15 per gallon at the end of March 2005,
according to the Energy Information
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PORTFOLIO COMPOSITION TOP 10 EQUITY HOLDINGS* TOTAL NET ASSETS $657.6 million
By industry TOTAL NUMBER OF HOLDINGS* 39
[PIE CHART]
Oil & Gas Drilling 15.0% 1. Murphy Oil Corp. 5.6%
Oil & Gas Refining, Marketing & 2. Grant Prideco, Inc. 3.9
Transportation 6.1% 3. Valero Energy Corp. 3.8
Diversified Metals & Mining 4.4% 4. BP PLC-ADR (United Kingdom) 3.4
Money Market Funds Plus Other 5. National-Oilwell Varco Inc 3.3
Assets Less Liabilities 4.1% 6. Schlumberger Ltd. (Netherlands) 3.2
Commodity Chemicals 1.9% 7. Noble Corp. (Cayman Islands) 3.1
Oil & Gas Equipment & Services 23.4% 8. Talisman Energy Inc. (Canada) 3.0
Oil & Gas Exploration & 9. ConocoPhillips 3.0
Services 22.6% 10. Total S.A.--ADR (France) 2.9
Intergrated Oil & Gas 22.5%
The Fund's holdings are subject to change, and there is no assurance that the
Fund will continue to hold any particular security.
*Excluding money market fund holdings.
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2
Administration (EIA) of the U.S. Department of Energy. That price was almost 40
cents more than a year ago, the EIA reported.
The EIA cited high world oil demand sparked by robust economic growth as
the primary reason for high crude oil and gasoline prices. Demand for petroleum
products is being driven by the rapidly expanding economies of China and, to a
lesser extent, India, and by the improving U.S. economy. Because of political
and technological constraints, supply was unable to keep pace with demand,
causing oil prices to rise.
This trend was beneficial to the energy stocks and to the Fund. The energy
sector of the S&P 500 Index rose 47.05% over the reporting period. The next
best-performing sector, utilities, rose 24.60%. Within the energy sector, all
industry categories performed well, with stocks of companies involved in
exploration and production posting the most impressive gains. The Fund had
significant assets in the stocks of exploration and production companies, and
this exposure enhanced performance. The Fund's focus on companies that have the
ability to maintain strong earnings despite fluctuating commodity prices helped
it keep pace with the Dow Jones U.S. Energy Index in the fourth quarter of 2004
when oil prices dropped briefly.
Stocks that enhanced performance included:
.. Valero Energy owns and operates 15 refineries. It also operates gas stations
under the Valero, Diamond Shamrock and Total brand names. The company purchased
refineries in 2003 and 2004, allowing it to increase output and improve service
to its brand-name gas stations in a cost effective manner.
.. Murphy Oil, an exploration and production firm, and the Fund's top holding at
the close of the reporting period, has benefited from its agreement with a major
discount retailer to fuel its gas pumps. Also, we believe new oil discoveries in
the Congo have the potential to increase Murphy's production capacity.
Detractors included:
.. Enbridge Energy, a pipeline operator, whose stock declined sharply at the
outset of the reporting period after its first quarter 2004 earnings fell short
of analysts' expectations. The Fund no longer owns the stock.
.. Eni, an Italian oil and gas firm, whose stock performed fairly well, but the
negative currency effect adversely affected returns for the Fund. We have
maintained our position in the stock because of the company's strategic position
in Europe and increasing production profile.
IN CLOSING
At the close of the fiscal year, crude oil and gas prices remained high, and no
one could be certain precisely how high they would climb. We continued to
believe that the energy sector offers long-term potential because:
.. Constrained oil supply and global economic expansion are likely to continue.
.. The world is likely to derive most of its energy from oil and gas for the
foreseeable future.
.. Global development and industrialization are likely to continue, resulting in
a continuing and growing need for crude oil and gas.
We thank you for your investment in AIM Energy Fund.
THE VIEWS AND OPINIONS EXPRESSED IN MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
ARE THOSE OF A I M ADVISORS, INC. THESE VIEWS AND OPINIONS ARE SUBJECT TO CHANGE
AT ANY TIME BASED ON FACTORS SUCH AS MARKET AND ECONOMIC CONDITIONS. THESE VIEWS
AND OPINIONS MAY NOT BE RELIED UPON AS INVESTMENT ADVICE OR RECOMMENDATIONS, OR
AS AN OFFER FOR A PARTICULAR SECURITY. THE INFORMATION IS NOT A COMPLETE
ANALYSIS OF EVERY ASPECT OF ANY MARKET, COUNTRY, INDUSTRY, SECURITY OR THE FUND.
STATEMENTS OF FACT ARE FROM SOURCES CONSIDERED RELIABLE, BUT A I M ADVISORS,
INC. MAKES NO REPRESENTATION OR WARRANTY AS TO THEIR COMPLETENESS OR ACCURACY.
ALTHOUGH HISTORICAL PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS, THESE
INSIGHTS MAY HELP YOU UNDERSTAND OUR INVESTMENT MANAGEMENT PHILOSOPHY.
See important Fund and index disclosures inside front cover.
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[SEGNER PHOTO]
JOHN S. SEGNER, Mr. Segner, the lead portfolio manager of AIM Energy Fund, has
more than 20 years of experience in the energy and investment industries. Before
joining the Fund's advisor in 1997, he was managing director and principal with
an investment management company that focused exclusively on publicly-traded
energy stocks. Prior to that, he held positions with several energy companies.
Mr. Segner holds a B.S. in civil engineering from the University of Alabama and
an M.B.A. with a concentration in finance from The University of Texas at
Austin.
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[RIGHT ARROW GRAPHIC]
FOR A PRESENTATION OF YOUR FUND'S LONG-TERM PERFORMANCE RECORD, PLEASE TURN TO
PAGE 5.
3
AIM ENERGY FUND
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, which may include sales charges (loads) on purchase payments; contingent
deferred sales charges on redemptions; and redemption fees, if any; and (2)
ongoing costs, including management fees; distribution and/or service fees
(12b-1); and other Fund expenses. This example is intended to help you
understand your ongoing costs (in dollars) of investing in the Fund and to
compare these costs with ongoing costs of investing in other mutual funds. The
example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period October 1, 2004, through March 31, 2005.
ACTUAL EXPENSES
The table below provides information about actual account values and actual
expenses. You may use the information in this table, together with the amount
you invested, to estimate the expenses that you paid over the period. Simply
divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number in the table
under the heading entitled "Actual Expenses Paid During Period" to estimate the
expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The table below also provides information about hypothetical account values and
hypothetical expenses based on the Fund's actual expense ratio and an assumed
rate of return of 5% per year before expenses, which is not the Fund's actual
return. The Fund's actual cumulative total returns at net asset value after
expenses for the six months ended March 31, 2005, appear in the table
"Cumulative Total Return" on page 5.
The hypothetical account values and expenses may not be used to estimate the
actual ending account balance or expenses you paid for the period. You may use
this information to compare the ongoing costs of investing in the Fund and other
funds. To do so, compare this 5% hypothetical example with the 5% hypothetical
examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight
your ongoing costs only and do not reflect any transactional costs, such as
sales charges (loads) on purchase payments, contingent deferred sales charges on
redemptions, and redemption fees, if any. Therefore, the hypothetical
information is useful in comparing ongoing costs only, and will not help you
determine the relative total costs of owning different funds.
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ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES ENDING ACCOUNT EXPENSES
SHARE VALUE VALUE PAID DURING VALUE PAID DURING
CLASS (10/01/04) (3/31/05)/1/ PERIOD/2/ (3/31/05) PERIOD/2/
A $ 1,000.00 $ 1,227.50 $ 7.44 $ 1,018.25 $ 6.74
B 1,000.00 1,223.70 11.03 1,015.01 10.00
C 1,000.00 1,223.60 11.03 1,015.01 10.00
K 1,000.00 1,224.10 7.98 1,017.75 7.24
Investor 1,000.00 1,228.20 6.89 1,018.75 6.24
/1/The actual ending account value is based on the actual total return of the
Fund for the period, October 1, 2004, to March 31, 2005, after actual expenses
and will differ from the hypothetical ending account value which is based on the
Fund's expense ratio and a hypothetical annual return of 5% before expenses. The
Fund's actual cumulative total returns at net asset value after expenses for the
six months ended March 31, 2005, appear in the table "Cumulative Total Return"
on page 5.
/2/Expenses are equal to the Fund's annualized expense ratio, 1.34%, 1.99%,
1.99%, 1.44% and 1.24% for Class A, B, C, K and Investor Class shares,
respectively, multiplied by the average account value over the period,
multiplied by 182/365 (to reflect the one-half year period).
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[ARROW
BUTTON For More Information Visit
IMAGE] AIMINVESTMENTS.COM
4
AIM ENERGY FUND
YOUR FUND'S LONG-TERM PERFORMANCE
Your Fund's total return includes reinvested distributions, Fund expenses and
management fees. Index results include reinvested dividends. Performance of an
index of funds reflects fund expenses and management fees; performance of a
market index does not. Performance shown in the chart and tables does not
reflect deduction of taxes a shareholder would pay on Fund distributions or sale
of Fund shares. Performance of the indexes does not reflect the effects of
taxes.
This chart, which is a logarithmic chart, presents the fluctuations in the value
of the Fund and its indexes. We believe that a logarithmic chart is more
effective than other types of charts in illustrating changes in value during the
early years shown in the chart. The vertical axis, the one that indicates the
dollar value of an investment, is constructed with each segment representing a
percent change in the value of the investment. In this chart, each segment
represents a doubling, or 100% change, in the value of the investment. In other
words, the space between $10,000 and $20,000 is the same size as the space
between $20,000 and $40,000, the space between $20,000 and $40,000 is the same
as that between $40,000 and $80,000, and so on.
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AVERAGE ANNUAL TOTAL RETURNS
As of 3/31/05, including applicable sales charges
CLASS A SHARES
Inception (3/28/02) 17.21%
1 Year 39.42
CLASS B SHARES
Inception (3/28/02) 17.88%
1 Year 41.63
CLASS C SHARES
Inception (2/14/00) 18.60%
5 Years 14.63
1 Year 45.67
CLASS K SHARES
Inception (11/30/00) 14.61%
1 Year 47.39
INVESTOR CLASS SHARES
Inception (1/19/84) 10.05%
10 Years 17.22
5 Years 15.38
1 Year 47.72
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RESULTS OF A $10,000 INVESTMENT
Fund and index data from 3/31/95
[MOUNTAIN CHART]
AIM ENERGY FUND LIPPER NATURAL RESOURCES DOW JONES U.S.
DATE INVESTOR CLASS SHARES S&P 500 INDEX FUND INDEX ENERGY INDEX
3/31/95 $ 10000 $ 10000 $ 10000 $ 10000
4/95 10396 10294 10287 10278
5/95 10762 10705 10526 10696
6/95 10437 10953 10450 10334
7/95 10620 11316 10693 10622
8/95 10640 11345 10736 10452
9/95 10832 11823 10820 10592
10/95 10348 11781 10370 10528
11/95 10861 12297 10994 11054
12/95 11651 12534 11524 11711
1/96 11425 12960 11720 11697
2/96 11691 13081 11860 11845
3/96 12306 13207 12463 12451
4/96 13435 13401 13057 12969
5/96 13373 13747 13072 12986
6/96 13527 13799 13039 13122
7/96 12952 13190 12493 12487
8/96 13813 13468 13097 12869
9/96 14500 14226 13527 13327
10/96 15451 14618 14181 14226
11/96 16314 15722 14852 14988
12/96 16174 15410 14851 15032
1/97 16666 16373 15211 15746
2/97 14954 16501 14136 14833
3/97 15715 15824 14282 15600
4/97 15547 16768 14240 15644
5/97 17315 17793 15522 16810
6/97 17427 18584 15750 17053
7/97 19306 20063 16901 18412
8/997 20716 18940 17305 18420
9/97 22348 19976 18392 19550
10/97 21731 19310 17882 19262
11/97 19601 20203 16896 18553
12/97 19262 20550 17040 18412
1/98 17255 20777 16006 17294
2/98 18011 22275 16828 18497
3/98 19358 23414 17684 19257
4/98 20032 23654 18154 20108
5/98 18768 23248 17200 19204
6/98 18438 24192 16533 18775
7/98 15701 23936 14579 17376
8/98 12635 20478 11762 15248
9/98 15055 21791 13853 17435
10/98 15536 23560 14347 17713
11/98 14216 24988 13380 17630
12/98 13902 26427 13101 17454
1/99 12883 27531 12311 16614
2/99 12318 26676 11881 16234
3/99 15636 27743 14303 18638
4/99 18209 28817 16729 21465
5/99 18209 28138 16224 20974
6/99 19187 29695 16983 20994
7/99 19682 28772 17345 21357
8/99 20741 28629 17788 21743
9/99 19998 27845 17155 20858
10/99 18829 29607 16511 20495
11/99 18704 30208 16342 20910
12/99 19724 31985 17492 20976
1/00 19779 30378 16746 21069
2/00 20026 29804 16992 20424
3/00 23949 32718 19557 22917
4/00 24074 31734 19366 22705
5/00 27461 31083 21238 24967
6/00 26854 31849 20305 23623
7/00 26000 31351 19552 23042
8/00 30295 33298 21790 25331
9/00 30901 31540 21760 26190
10/00 27777 31406 20623 25308
11/00 25044 28932 19504 24168
12/00 31200 29074 22604 26547
1/01 30020 30105 22092 25588
2/01 29930 27362 22197 25507
3/01 29481 25629 21489 25138
4/01 32709 27619 23672 27742
5/01 32709 27805 23427 27510
6/01 27764 27128 20854 24999
7/01 27047 26861 20479 24426
8/01 25822 25181 19638 23398
9/01 23072 23148 17621 21684
10/01 24791 23589 18870 22960
11/01 24030 25399 18509 22027
12/01 25957 25621 19759 23452
1/02 24493 25247 19155 22547
2/02 25404 24760 20021 23562
3/02 28783 25692 21736 25512
4/02 29606 24135 21773 24360
5/02 28964 23958 21630 23800
6/02 26945 22252 20403 23212
7/02 23957 20518 18011 20428
8/02 24390 20652 18400 20551
9/02 23090 18410 17044 18835
10/02 23598 20028 17477 19481
11/02 24226 21206 18074 20200
12/02 24839 19961 18332 20282
1/03 24315 19439 17783 19715
2/03 25288 19147 18357 20236
3/03 25123 19332 18113 20388
4/03 24779 20924 18186 20388
5/03 28052 22025 20304 22340
6/03 27334 22307 19905 22012
7/03 25631 22700 19075 21302
8/03 27305 23142 20367 22702
9/03 26573 22897 19879 22140
10/03 26828 24191 20384 22367
11/03 27335 24404 20712 22456
12/03 30443 25683 23143 25503
1/04 30833 26154 23310 25861
2/04 32686 26518 24618 27065
3/04 33163 26118 24709 26917
4/04 33508 25708 24392 27415
5/04 33210 26060 24239 27435
6/04 36006 26567 25961 29073
7/04 37216 25688 26626 30039
8/04 36081 25791 26287 29635
9/04 39891 26070 29073 32236
10/04 39859 26468 29184 32327
11/04 42936 27539 31761 34477
12/04 41592 28476 31300 33774
1/05 43443 27782 31847 34766
2/05 49704 28366 36311 41078
3/05 $ 48988 $ 27864 $ 35612 $ 39709
SOURCE: LIPPER, INC.
- --------------------------------------------------------------------------------
The performance data quoted represent past performance and cannot guarantee
comparable future results; current performance may be lower or higher. Please
visit AIMinvestments.com for the most recent month-end performance. Performance
figures reflect reinvested distributions, changes in net asset value and the
effect of the maximum applicable sales charge unless otherwise stated.
Investment return and principal value will fluctuate so that you may have a gain
or loss when you sell shares.
Class A share performance reflects the maximum 5.50% sales charge, and
Class B and Class C share performance reflects the applicable contingent
deferred sales charge (CDSC) for the period involved. The CDSC on Class B shares
declines from 5% beginning at the time of purchase to 0% at the beginning of the
seventh year. The CDSC on Class C shares is 1% for the first year after
purchase. Class K shares do not have a front-end sales charge; returns shown at
net asset value do not reflect a 0.70% CDSC that may be imposed on total
redemption on of retirement plan assets within the first year. Investor Class
shares do not have a front-end sales charge or a CDSC; therefore, performance is
at net asset value. The performance of the fund's share classes will differ due
to different sales charge structures and class expenses.
Had the advisor not waived fees and/or reimbursed expenses for the fund's
Class B, Class C and Class K shares in prior periods, returns would have been
lower.
- --------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURNS
Excluding applicable sales charges
6 months ended 3/31/05
Class A 22.75%
Class B 22.37
Class C 22.36
Class K 22.41
Investor Class 22.82
- --------------------------------------------------------------------------------
5
FINANCIALS
SCHEDULE OF INVESTMENTS
March 31, 2005
MARKET
SHARES VALUE
------------------------------------------------------------
DOMESTIC COMMON STOCKS-64.93%
COMMODITY CHEMICALS-1.91%
Lyondell Chemical Co. 450,000 $ 12,564,000
------------------------------------------------------------
DIVERSIFIED METALS & MINING-4.40%
CONSOL Energy Inc. 280,000 13,165,600
------------------------------------------------------------
Peabody Energy Corp. 340,000 15,762,400
------------------------------------------------------------
28,928,000
------------------------------------------------------------
INTEGRATED OIL & GAS-13.76%
ChevronTexaco Corp. 168,000 9,796,080
------------------------------------------------------------
ConocoPhillips 180,000 19,411,200
------------------------------------------------------------
Exxon Mobil Corp. 180,000 10,728,000
------------------------------------------------------------
Murphy Oil Corp. 375,000 37,023,750
------------------------------------------------------------
Occidental Petroleum Corp. 190,000 13,522,300
------------------------------------------------------------
90,481,330
------------------------------------------------------------
OIL & GAS DRILLING-4.57%
Patterson-UTI Energy, Inc. 650,000 16,263,000
------------------------------------------------------------
Rowan Cos., Inc. 460,000 13,767,800
------------------------------------------------------------
30,030,800
------------------------------------------------------------
OIL & GAS EQUIPMENT & SERVICES-16.68%
BJ Services Co. 280,000 14,526,400
------------------------------------------------------------
Cal Dive International, Inc./(a)/ 290,000 13,137,000
------------------------------------------------------------
Cooper Cameron Corp./(a)/ 165,000 9,439,650
------------------------------------------------------------
FMC Technologies, Inc./(a)/ 440,000 14,599,200
------------------------------------------------------------
Grant Prideco, Inc./(a)/ 1,050,000 25,368,000
------------------------------------------------------------
National-Oilwell Varco Inc./(a)/ 470,000 21,949,000
------------------------------------------------------------
Smith International, Inc. 170,000 10,664,100
------------------------------------------------------------
109,683,350
------------------------------------------------------------
OIL & GAS EXPLORATION &
PRODUCTION-17.46%
Apache Corp. 250,000 15,307,500
------------------------------------------------------------
Cheniere Energy, Inc./(a)/ 240,000 15,482,400
------------------------------------------------------------
Devon Energy Corp. 230,000 10,982,500
------------------------------------------------------------
Kerr-McGee Corp. 240,000 18,799,200
------------------------------------------------------------
Magnum Hunter Resources, Inc./(a)/ 740,000 11,921,400
------------------------------------------------------------
Newfield Exploration Co./(a)/ 200,000 14,852,000
------------------------------------------------------------
Noble Energy, Inc. 150,000 10,203,000
------------------------------------------------------------
Unocal Corp. 280,000 17,273,200
------------------------------------------------------------
114,821,200
------------------------------------------------------------
MARKET
SHARES VALUE
-----------------------------------------------------------------------------
OIL & GAS REFINING, MARKETING &
TRANSPORTATION-6.15%
Valero Energy Corp. 340,000 $ 24,911,800
-----------------------------------------------------------------------------
Williams Cos., Inc. (The) 825,000 15,518,250
-----------------------------------------------------------------------------
40,430,050
-----------------------------------------------------------------------------
Total Domestic Common Stocks
(Cost $281,939,279) 426,938,730
-----------------------------------------------------------------------------
FOREIGN STOCKS & OTHER EQUITY
INTERESTS-30.97%
BERMUDA-5.70%
Nabors Industries, Ltd. (Oil & Gas Drilling)/(a)/ 320,000 18,924,800
-----------------------------------------------------------------------------
Weatherford International Ltd. (Oil & Gas Equipment &
Services)/(a)/ 320,000 18,540,800
-----------------------------------------------------------------------------
37,465,600
-----------------------------------------------------------------------------
CANADA-5.12%
Canadian Natural Resources Ltd. (Oil & Gas Exploration
& Production) 250,000 14,205,000
-----------------------------------------------------------------------------
Talisman Energy Inc. (Oil & Gas Exploration &
Production) 570,000 19,465,500
-----------------------------------------------------------------------------
33,670,500
-----------------------------------------------------------------------------
CAYMAN ISLANDS-7.54%
GlobalSantaFe Corp. (Oil & Gas Drilling) 390,000 14,445,600
-----------------------------------------------------------------------------
Noble Corp. (Oil & Gas Drilling) 360,000 20,235,600
-----------------------------------------------------------------------------
Transocean Inc. (Oil & Gas Drilling)/(a)/ 290,000 14,923,400
-----------------------------------------------------------------------------
49,604,600
-----------------------------------------------------------------------------
FRANCE-2.94%
Total S.A.-ADR (Integrated Oil & Gas) 165,000 19,342,950
-----------------------------------------------------------------------------
ITALY-2.37%
Eni S.p.A-ADR (Integrated Oil & Gas) 120,000 15,619,200
-----------------------------------------------------------------------------
NETHERLANDS-3.22%
Schlumberger Ltd. (Oil & Gas Equipment & Services) 300,000 21,144,000
-----------------------------------------------------------------------------
UNITED KINGDOM-4.08%
BP PLC-ADR (Integrated Oil & Gas) 360,000 22,464,000
-----------------------------------------------------------------------------
Wood Group (John) PLC (Oil & Gas Equipment &
Services)/(b)/ 1,525,000 4,363,842
-----------------------------------------------------------------------------
26,827,842
-----------------------------------------------------------------------------
Total Foreign Stocks & Other Equity Interests
(Cost $152,962,414) 203,674,692
-----------------------------------------------------------------------------
F-1
MARKET
SHARES VALUE
--------------------------------------------------------------------
MONEY MARKET FUNDS-4.00%
Premier Portfolio-Institutional Class
(Cost $26,315,584)/(c)/ 26,315,584 $ 26,315,584
--------------------------------------------------------------------
TOTAL INVESTMENTS-99.90% (Cost $461,217,277) 656,929,006
--------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-0.10% 659,044
--------------------------------------------------------------------
NET ASSETS-100.00% $657,588,050
--------------------------------------------------------------------
Investment Abbreviations:
ADR - AmericanDepositary Receipt
Notes to Schedule of Investments:
/(a)/ Non-income producing security.
/(b)/ In accordance with the procedures established by the Board of Trustees,
the foreign security is fair valued using adjusted closing prices. The
market value of this security at March 31, 2005 represented 0.66% of the
Fund's Total Investments. See Note 1A.
/(c)/ The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
See accompanying notes which are an integral part of the financial statements.
F-2
STATEMENT OF ASSETS AND LIABILITIES
March 31, 2005
ASSETS:
Investments, at market value (cost $434,901,693) $630,613,422
- -------------------------------------------------------------------------------
Investments in affiliated money market funds (cost $26,315,584) 26,315,584
- -------------------------------------------------------------------------------
Total investments (cost $461,217,277) 656,929,006
- -------------------------------------------------------------------------------
Receivables for:
Fund shares sold 6,242,639
- -------------------------------------------------------------------------------
Dividends 374,201
- -------------------------------------------------------------------------------
Investment for trustee deferred compensation and retirement plans 40,833
- -------------------------------------------------------------------------------
Other assets 67,840
- -------------------------------------------------------------------------------
Total assets 663,654,519
- -------------------------------------------------------------------------------
LIABILITIES:
Payables for:
Fund shares reacquired 5,583,754
- -------------------------------------------------------------------------------
Trustee deferred compensation and retirement plans 52,916
- -------------------------------------------------------------------------------
Accrued distribution fees 212,621
- -------------------------------------------------------------------------------
Accrued trustees' fees 3,531
- -------------------------------------------------------------------------------
Accrued transfer agent fees 139,502
- -------------------------------------------------------------------------------
Accrued operating expenses 74,145
- -------------------------------------------------------------------------------
Total liabilities 6,066,469
- -------------------------------------------------------------------------------
Net assets applicable to shares outstanding $657,588,050
- -------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Shares of beneficial interest $461,947,227
- -------------------------------------------------------------------------------
Undistributed net investment income (loss) (37,209)
- -------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment
securities and foreign currencies (33,697)
- -------------------------------------------------------------------------------
Unrealized appreciation of investment securities and foreign
currencies 195,711,729
- -------------------------------------------------------------------------------
$657,588,050
- -------------------------------------------------------------------------------
NET ASSETS:
Class A $161,528,782
-----------------------------------------------------------
Class B $ 55,559,126
-----------------------------------------------------------
Class C $ 58,626,363
-----------------------------------------------------------
Class K $ 2,958,817
-----------------------------------------------------------
Investor Class $378,914,962
-----------------------------------------------------------
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Class A 4,915,441
-----------------------------------------------------------
Class B 1,727,162
-----------------------------------------------------------
Class C 1,850,846
-----------------------------------------------------------
Class K 97,775
-----------------------------------------------------------
Investor Class 11,558,093
-----------------------------------------------------------
Class A:
Net asset value per share $ 32.86
-----------------------------------------------------------
Offering price per share:
(Net asset value of $32.86 / 94.50%) $ 34.77
-----------------------------------------------------------
Class B:
Net asset value and offering price per share $ 32.17
-----------------------------------------------------------
Class C:
Net asset value and offering price per share $ 31.68
-----------------------------------------------------------
Class K:
Net asset value and offering price per share $ 30.26
-----------------------------------------------------------
Investor Class:
Net asset value and offering price per share $ 32.78
-----------------------------------------------------------
See accompanying notes which are an integral part of the financial statements.
F-3
STATEMENT OF OPERATIONS
For the year ended March 31, 2005
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $86,132) $ 4,503,513
--------------------------------------------------------------------------
Dividends from affiliated money market funds (includes
securities lending income of $233,654 less rebates of
$149,265) 328,128
--------------------------------------------------------------------------
Total investment income 4,831,641
--------------------------------------------------------------------------
EXPENSES:
Advisory fees 3,081,975
--------------------------------------------------------------------------
Administrative services fees 147,061
--------------------------------------------------------------------------
Custodian fees 31,813
--------------------------------------------------------------------------
Distribution fees:
Class A 262,371
--------------------------------------------------------------------------
Class B 317,963
--------------------------------------------------------------------------
Class C 286,422
--------------------------------------------------------------------------
Class K 5,527
--------------------------------------------------------------------------
Investor Class 709,185
--------------------------------------------------------------------------
Transfer agent fees 1,118,558
--------------------------------------------------------------------------
Trustees' fees and retirement benefits 21,981
--------------------------------------------------------------------------
Other 350,998
--------------------------------------------------------------------------
Total expenses 6,333,854
--------------------------------------------------------------------------
Less:Fees waived, expenses reimbursed and expense offset
arrangements (61,240)
--------------------------------------------------------------------------
Net expenses 6,272,614
--------------------------------------------------------------------------
Net investment income (loss) (1,440,973)
--------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES AND FOREIGN CURRENCIES:
Net realized gain from:
Investment securities 36,042,396
--------------------------------------------------------------------------
Foreign currencies 1,464
--------------------------------------------------------------------------
36,043,860
--------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of:
Investment securities 132,139,600
--------------------------------------------------------------------------
Foreign currencies (68)
--------------------------------------------------------------------------
132,139,532
--------------------------------------------------------------------------
Net gain from investment securities and foreign currencies 168,183,392
--------------------------------------------------------------------------
Net increase in net assets resulting from operations $166,742,419
--------------------------------------------------------------------------
See accompanying notes which are an integral part of the financial statements.
F-4
STATEMENT OF CHANGES IN NET ASSETS
For the years ended March 31, 2005 and 2004
2005
- -----------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (1,440,973)
- -----------------------------------------------------------------------------------------------------------------------------
Net realized gain from investment securities and foreign currencies 36,043,860
- -----------------------------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment securities and foreign currencies 132,139,532
- -----------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 166,742,419
- -----------------------------------------------------------------------------------------------------------------------------
Share transactions-net:
Class A 90,854,796
- -----------------------------------------------------------------------------------------------------------------------------
Class B 22,905,878
- -----------------------------------------------------------------------------------------------------------------------------
Class C 31,055,665
- -----------------------------------------------------------------------------------------------------------------------------
Class K 1,543,733
- -----------------------------------------------------------------------------------------------------------------------------
Investor Class 36,044,906
- -----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from share transactions 182,404,978
- -----------------------------------------------------------------------------------------------------------------------------
Net increase in net assets 349,147,397
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 308,440,653
- -----------------------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment income (loss) of $(37,209) and $(35,667), respectively) $657,588,050
- -----------------------------------------------------------------------------------------------------------------------------
2004
- ----------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (1,002,201)
- ----------------------------------------------------------------------------------------------------------------------------
Net realized gain from investment securities and foreign currencies 35,332,170
- ----------------------------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment securities and foreign currencies 41,847,988
- ----------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 76,177,957
- ----------------------------------------------------------------------------------------------------------------------------
Share transactions-net:
Class A 23,652,348
- ----------------------------------------------------------------------------------------------------------------------------
Class B 14,992,063
- ----------------------------------------------------------------------------------------------------------------------------
Class C 3,253,853
- ----------------------------------------------------------------------------------------------------------------------------
Class K 406,656
- ----------------------------------------------------------------------------------------------------------------------------
Investor Class (61,553,907)
- ----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from share transactions (19,248,987)
- ----------------------------------------------------------------------------------------------------------------------------
Net increase in net assets 56,928,970
- ----------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 251,511,683
- ----------------------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment income (loss) of $(37,209) and $(35,667), respectively) $308,440,653
- ----------------------------------------------------------------------------------------------------------------------------
See accompanying notes which are an integral part of the financial statements.
F-5
NOTES TO FINANCIAL STATEMENTS
March 31, 2005
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Energy Fund, formerly INVESCO Energy Fund, (the "Fund") is a series
portfolio of AIM Sector Funds (the "Trust"). The Trust is a Delaware statutory
trust registered under the Investment Company Act of 1940, as amended (the
"1940 Act"), as an open-end series management investment company consisting of
seven separate portfolios, each authorized to issue an unlimited number of
shares of beneficial interest. The Fund currently offers multiple classes of
shares. Matters affecting each portfolio or class will be voted on exclusively
by the shareholders of such portfolio or class. The assets, liabilities and
operations of each portfolio are accounted for separately. Information
presented in these financial statements pertains only to the Fund.
The Fund's investment objective is to seek capital growth. Each company
listed in the Schedule of Investments is organized in the United States of
America unless otherwise noted.
Under the Trust's organizational documents, 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. However, the Fund has not had prior claims or losses pursuant to
these contracts.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates. The following is a summary of the
significant accounting policies followed by the Fund in the preparation of its
financial statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy. A security listed or traded on an
exchange (except convertible bonds) is valued at its last sales price as of
the close of the customary trading session on the exchange where the
security is principally traded, or lacking any sales on a particular day,
the security is valued at the closing bid price on that day. Each security
traded in the over-the-counter market (but not securities reported on the
NASDAQ National Market System) is valued on the basis of prices furnished by
independent pricing services, 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 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 will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
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 market
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 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 and 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.
F-6
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 allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. DISTRIBUTIONS -- Distributions from income and net realized capital gain, if
any, are generally paid annually and recorded on ex-dividend date. The Fund
may elect to use a portion of the proceeds from redemptions as distributions
for federal income tax purposes.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
E. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
F. 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.
G. 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.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee based on the annual rate of the Fund's average
daily net assets as follows:
AVERAGE NET ASSETS RATE
-------------------------
First $350 million 0.75 %
-------------------------
Next $350 million 0.65 %
-------------------------
Next $1.3 billion 0.55 %
-------------------------
Next $2 billion 0.45 %
-------------------------
Next $2 billion 0.40 %
-------------------------
Next $2 billion 0.375%
-------------------------
Over $8 billion 0.35 %
-------------------------
Prior to September 30, 2004, AIM had entered into a sub-advisory agreement
with INVESCO Institutional (N.A.), Inc. ("INVESCO") whereby AIM paid INVESCO
40% of the fee paid by the Fund to AIM. Effective September 30, 2004, the
sub-advisory agreement between AIM and INVESCO was terminated.
AIM has voluntarily agreed to waive advisory fees and/or reimburse expenses
to the extent necessary to limit total annual operating expenses (excluding
certain items discussed below) of Class A, Class B, Class C, Class K and
Investor Class shares to 1.65%, 2.30%, 2.30%, 1.75% and 1.55% of average daily
net assets, respectively. AIM has contractually agreed to waive advisory fees
and/or reimburse expenses to the extent necessary to limit total annual
operating expenses (excluding certain items discussed below) of Class A, Class
B, Class C, Class K and Investor Class shares to 2.00%, 2.65%, 2.65%, 2.10% and
1.90% of average daily net assets, respectively, through March 31, 2006. In
determining the advisor's obligation to waive advisory fees and/or reimburse
expenses, the following expenses are not taken into account, and could cause
the total annual fund operating expenses to exceed the limits stated above: (i)
interest; (ii) taxes; (iii) dividend expense on short sales; (iv) extraordinary
items (these are expenses that are not anticipated to arise from the Fund's
day-to-day operations), or items designated as such by the Fund's Board of
Trustees; (v) expenses related to a merger or reorganization, as approved by
the Fund's Board of Trustees; and (vi) expenses that the Fund has incurred but
did not actually pay because of an expense offset arrangement. Currently, in
addition to the expense reimbursement arrangement with AMVESCAP PLC ("AMVESCAP")
F-7
described more fully below, the only expense offset arrangements from which the
Fund may benefit are in the form of credits that the Fund receives from banks
where the Fund or its transfer agent has deposit accounts in which it holds
uninvested cash. Those credits are used to pay certain expenses incurred by the
Fund. AIM did not waive fees and/or reimburse expenses during the period under
this expense limitation.
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
(excluding investments made in affiliated money market funds with cash
collateral from securities loaned by the fund). 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 March 31, 2005, AIM waived fees of $7,020.
For the year ended March 31, 2005, at the request of the Trustees of the
Trust, AMVESCAP agreed to reimburse $47,747 of expenses incurred by the Fund in
connection with market timing matters in the AIM Funds, including legal, audit,
shareholder reporting, communications and trustee expenses. These expenses
along with the related expense reimbursement are included in the Statement of
Operations.
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
March 31, 2005, AIM was paid $147,061.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AISI for certain expenses
incurred by AISI in the course of providing such services. AISI may make
payments to intermediaries that provide omnibus account services,
sub-accounting services and/or networking services. For the year ended March
31, 2005, the Fund paid AISI $1,118,558.
The Trust has entered into a master distribution agreement with A I M
Distributors, Inc. ("ADI") to serve as the distributor for the Class A, Class
B, Class C, Class K and Investor Class shares of the Fund. The Trust has
adopted plans pursuant to Rule 12b-1 under the 1940 Act with respect to the
Fund's Class A, Class B, Class C, Class K and Investor Class shares
(collectively the "Plans"). The Fund, pursuant to the Plans, pays ADI
compensation at the annual rate of 0.35% of the Fund's average daily net assets
of Class A shares, 1.00% of the average daily net assets of Class B and Class C
shares, 0.45% of the average daily net assets of Class K shares and 0.25% of
the average daily net assets of Investor Class shares. Of these amounts, up to
0.25% of the average daily net assets of the Class A, Class B, Class C, Class K
or Investor Class shares may be paid to furnish continuing personal shareholder
services to customers who purchase and own shares of such classes. Any amounts
not paid as a service fee under the Plans would constitute an asset-based sales
charge. NASD Rules also impose a cap on the total sales charges, including
asset-based sales charges that may be paid by any class of shares of the Fund.
Pursuant to the Plans, for the year ended March 31, 2005, the Class A, Class B,
Class C, Class K and Investor Class shares paid ADI $262,371, $317,963,
$286,422, $5,527 and $709,185, respectively.
Front-end sales commissions and contingent deferred sales charges ("CDSC")
(collectively the "sales charges") are not recorded as expenses of the Fund.
Front-end sales commissions are deducted from proceeds from the sales of Fund
shares prior to investment in Class A shares of the Fund. CDSC are deducted
from redemption proceeds prior to remittance to the shareholder. During the
year ended March 31, 2005, ADI advised the Fund that it retained $206,184 in
front-end sales commissions from the sale of Class A shares and $3,853,
$51,271, $9,483 and $0 from Class A, Class B, Class C and Class K shares,
respectively, for CDSC imposed upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of AIM,
AISI, and/or ADI.
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to an exemptive order from the Securities and
Exchange Commission ("SEC"), to invest daily available cash balances and cash
collateral from securities lending transactions 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 tables below show
the transactions in and earnings from investments in affiliated money market
funds for the year ended March 31, 2005.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 03/31/04 AT COST FROM SALES (DEPRECIATION) 03/31/05 INCOME GAIN (LOSS)
- ---------------------------------------------------------------------------------------------------------------
Premier Portfolio --
Institutional Class* $13,197,327 $231,905,620 $(218,787,363) $-- $26,315,584 $243,739 $--
- ---------------------------------------------------------------------------------------------------------------
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 03/31/04 AT COST FROM SALES (DEPRECIATION) 03/31/05 INCOME** GAIN (LOSS)
- ---------------------------------------------------------------------------------------------------------------
Premier Portfolio --
Institutional Class* $ 5,896,789 $263,659,667 $(269,556,456) $-- $ -- $ 84,389 $--
- ---------------------------------------------------------------------------------------------------------------
Total $19,094,116 $495,565,287 $(488,343,819) $-- $26,315,584 $328,128 $--
- ---------------------------------------------------------------------------------------------------------------
* On February 25, 2005 the Premier Portfolio investments were transferred from
the original shares with no name designation to the newly structured share
class designated as Institutional Class.
**Net of rebates.
F-8
NOTE 4--EXPENSE OFFSET ARRANGEMENTS
The expense offset arrangements are comprised of (i) transfer agency credits
which result from balances in Demand Deposit Accounts (DDA) used by the
transfer agent for clearing shareholder transactions and (ii) custodian credits
which result from periodic overnight cash balances at the custodian. For the
year ended March 31, 2005, the Fund received credits from these arrangements
which resulted in the reduction of the Fund's total expenses of $6,473.
NOTE 5--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each Trustee of the Trust who is
not an "interested person" of AIM. Trustees have the option to defer
compensation payable by the Trust. Those Trustees who defer compensation have
the option to select various AIM Funds in which their deferral accounts shall
be deemed to be invested.
Current Trustees are eligible to participate in a retirement plan that
provides for benefits to be paid upon retirement to Trustees over a period of
time based on the number of years of service. The Fund may have certain former
Trustees that also participate in a retirement plan and receive benefits under
such plan.
Obligations under the deferred compensation and retirement plans represent
unsecured claims against the general assets of the Fund.
During the year ended March 31, 2005, the Fund paid legal fees of $4,669 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
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate
available on investments in overnight repurchase agreements) is favorable to
both the lending fund and the borrowing fund. A loan will be secured by
collateral if the Fund's aggregate borrowings from all sources exceeds 10% of
the Fund's total assets. To the extent that the loan is required to be secured
by collateral, the collateral is marked to market daily to ensure that the
market value is at least 102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to
the credit facility can borrow on a first come, first served basis. Principal
on each loan outstanding shall bear interest at the bid rate quoted by SSB at
the time of the request for the loan.
During the year ended March 31, 2005, the Fund did not borrow or lend under
the interfund lending facility or borrow under the uncommitted unsecured
revolving credit facility.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, the custodian bank. To compensate
the custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds in the account so the custodian can be compensated by earning the
additional interest; or (ii) compensate by paying the custodian bank. In either
case, the custodian bank will be compensated at an amount equal to the Federal
Funds rate plus 100 basis points.
NOTE 7--PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities having a market value up to one-third of
the Fund's total assets. Such loans are secured by collateral equal to no less
than the market value of the loaned securities determined daily. Such
collateral will be cash or debt securities issued or guaranteed by the U.S.
Government or any of its agencies. Cash collateral received in connection with
these loans is invested in short-term money market instruments or affiliated
money market funds. It is the Fund's policy to obtain additional collateral
from or return excess collateral to the borrower by the end of the next
business day, following the valuation date of the securities loaned. Therefore,
the value of the collateral held may be temporarily less than the value of the
securities on loan. Lending securities entails a risk of loss to the Fund if
and to the extent that the market value of the securities loaned were to
increase and the borrower did not increase the collateral accordingly, and the
borrower fails to return the securities. The Fund could also experience delays
and costs in gaining access to the collateral. The Fund bears the risk of any
deficiency in the amount of the collateral available for return to the borrower
due to a loss on the collateral invested.
For the year ended March 31, 2005, the Fund received dividends on cash
collateral of $84,389 for securities lending transactions, which are net of
rebates. There were no securities out on loan as of March 31, 2005.
F-9
NOTE 8--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
There were no ordinary income or long-term capital gain distributions paid
during the years ended March 31, 2005 and 2004.
TAX COMPONENTS OF NET ASSETS:
As of March 31, 2005, the components of net assets on a tax basis were as
follows:
2005
----------------------------------------------------
Undistributed long-term gain $ 7,914,067
----------------------------------------------------
Unrealized appreciation -- investments 193,733,920
----------------------------------------------------
Temporary book/tax differences (37,209)
----------------------------------------------------
Capital loss carryforward (5,969,955)
----------------------------------------------------
Shares of Beneficial Interest 461,947,227
----------------------------------------------------
Total net assets $657,588,050
----------------------------------------------------
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 (depreciation) difference is attributable primarily to losses on
wash sales and the treatment of certain corporate actions.
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.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the
amount of capital loss carryforward actually available for the Fund to utilize.
The ability to utilize capital loss carryforward in the future may be limited
under the Internal Revenue Code and related regulations based on the results of
future transactions. Under these limitation rules, the Fund is limited as of
March 31, 2005 to utilizing $1,577,866 of capital loss carryforward in the
fiscal year ended March 31, 2006.
The Fund utilized $28,124,660 of capital loss carryforward in the current
period to offset net realized capital gain for federal income tax purposes. The
Fund has a capital loss carryforward as of March 31, 2005 which expires as
follows:
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
---------------------------------------------
March 31, 2006 $(1,450,461)
---------------------------------------------
March 31, 2007 (338,540)
---------------------------------------------
March 31, 2009 (4,180,954)
---------------------------------------------
Total capital loss carryforward $(5,969,955)
---------------------------------------------
* Capital loss carryforward as of the date listed above is reduced for
limitations, if any, to the extent required by the Internal Revenue Code. To
the extent that unrealized gains as of November 24, 2003, the date of the
reorganization of AIM Global Energy Fund into the Fund, are realized on
securities held in each fund at such date, the capital loss carryforward may
be further limited for up to five years from the date of the reorganization.
NOTE 9--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
March 31, 2005 was $353,655,427 and $186,602,925, respectively.
At the request of the Trustees, AIM recovered third party research credits
during the year ended March 31, 2005, in the amount of $10,818. The research
credits were recorded as realized gains.
UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENT SECURITIES ON A TAX BASIS
--------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $194,201,517
--------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (467,597)
--------------------------------------------------------------------------
Net unrealized appreciation of investment securities $193,733,920
--------------------------------------------------------------------------
Cost of investments for tax purposes is $463,195,086.
NOTE 10--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of expenses related to
the plan of reorganization, net operating losses and foreign currency
transactions on March 31, 2005, undistributed net investment income (loss) was
increased by $1,439,431, undistributed net realized gain (loss) decreased by
$1,464 and shares of beneficial interest decreased by $1,437,967. This
reclassification had no effect on the net assets of the Fund.
F-10
NOTE 11--SHARE INFORMATION
The Fund currently offers five different classes of shares: Class A shares,
Class B shares, Class C shares, Class K shares and Investor Class shares. Class
A shares are sold with a front-end sales charge. Class B shares and Class C
shares are sold with CDSC. Class K shares and Investor Class shares are sold at
net asset value. Under certain circumstances, Class A shares and Class K shares
are subject to CDSC. Generally, Class B shares will automatically convert to
Class A shares eight years after the end of the calendar month of purchase.
CHANGES IN SHARES OUTSTANDING/(A)/
- ---------------------------------------------------------------------------------------------------------------
YEAR ENDED MARCH 31,
----------------------------------------------------
2005 2004
------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------------
Sold:
Class A 4,287,940 $ 122,706,107 851,516 $ 16,541,002
- ---------------------------------------------------------------------------------------------------------------
Class B 1,461,350 40,038,277 220,684 4,484,414
- ---------------------------------------------------------------------------------------------------------------
Class C 1,555,291 42,670,079 574,044 10,662,837
- ---------------------------------------------------------------------------------------------------------------
Class K 102,116 2,738,142 103,035 1,737,485
- ---------------------------------------------------------------------------------------------------------------
Investor Class 5,562,598 152,006,788 4,652,095 88,072,923
- ---------------------------------------------------------------------------------------------------------------
Issued in connection with acquisitions:/(b)/
Class A -- -- 967,661 17,431,821
- ---------------------------------------------------------------------------------------------------------------
Class B -- -- 733,587 13,048,685
- ---------------------------------------------------------------------------------------------------------------
Class C -- -- 160,292 2,807,811
- ---------------------------------------------------------------------------------------------------------------
Automatic conversion of Class B shares to Class A shares:
Class A 144,941 3,897,072 31,167 642,445
- ---------------------------------------------------------------------------------------------------------------
Class B (147,616) (3,897,072) (31,592) (642,445)
- ---------------------------------------------------------------------------------------------------------------
Reacquired:
Class A (1,351,995) (35,748,383) (557,791) (10,962,920)
- ---------------------------------------------------------------------------------------------------------------
Class B (505,655) (13,235,327) (93,467) (1,898,591)
- ---------------------------------------------------------------------------------------------------------------
Class C (462,765) (11,614,414) (557,475) (10,216,795)
- ---------------------------------------------------------------------------------------------------------------
Class K (48,136) (1,194,409) (77,842) (1,330,829)
- ---------------------------------------------------------------------------------------------------------------
Investor Class (4,375,872) (115,961,882) (8,026,327) (149,626,830)
- ---------------------------------------------------------------------------------------------------------------
6,222,197 $ 182,404,978 (1,050,413) $ (19,248,987)
- ---------------------------------------------------------------------------------------------------------------
/(a)/There is one entity that is a record owner of more than 5% of the
outstanding shares of the Fund and owns 16% of the outstanding shares of
the Fund. AIM Distributors has an agreement with these entities to sell
Fund shares. The Fund, AIM and/or AIM affiliates may make payments to this
entity, which is considered to be related to the Fund, for providing
services to the Fund, AIM and/or AIM affiliates including but not limited
to services such as, securities brokerage, distribution, third party record
keeping and account servicing. The Trust has no knowledge as to whether all
or a portion of the shares owned of record by this entity are also owned
beneficially.
/(b)/As of the opening of business on November 24, 2003, the Fund acquired all
of the net assets of AIM Global Energy Fund pursuant to a plan of
reorganization approved by the Trustees of the Fund on June 9, 2003 and of
AIM Global Energy Fund shareholders on October 28, 2003. The acquisition
was accomplished by a tax-free exchange of 1,861,540 shares of the Fund for
2,594,959 shares of of AIM Global Energy Fund outstanding as of the close
of business on November 21, 2003. AIM Global Energy Fund's net assets at
that date of $33,288,317, including $87,465 of unrealized appreciation,
were combined with those of the Fund. The aggregate net assets of the Fund
immediately before the acquisition were $227,218,065.
F-11
NOTE 12--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
CLASS A
-------------------------------------
YEAR ENDED MARCH 31,
-------------------------------------
2005 2004 2003
- -----------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 22.27 $ 16.85 $ 19.26
- -----------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.09)/(a)/ (0.05)/(a)/ (0.05)/(a)(b)/
- -----------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) 10.68 5.47 (2.36)
- -----------------------------------------------------------------------------------------------------------------
Total from investment operations 10.59 5.42 (2.41)
- -----------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 32.86 $ 22.27 $ 16.85
- -----------------------------------------------------------------------------------------------------------------
Total return/(c)/ 47.55% 32.17% (12.51)%
- -----------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $161,529 $40,847 $ 9,131
- -----------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.47%/(d)/ 1.66% 1.46%
- -----------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.48%/(d)/ 1.74% 1.46%
- -----------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (0.32)%/(d)/ (0.25)% (0.33)%
- -----------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 45% 123% 144%
- -----------------------------------------------------------------------------------------------------------------
/(a)/Calculated using average shares outstanding.
/(b)/The net investment income (loss) per share was calculated after permanent
book tax differences, such as net operating losses, which were
reclassified from accumulated net investment income (loss) to paid in
capital. Had net investment income (loss) per share been calculated using
the current method, which is before reclassification of net operating
losses, net investment income (loss) per share would have been $(0.05) for
the year ended March 31, 2003.
/(c)/Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, and as such, the net asset value
for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and returns for shareholder
transactions. Does not include sales charges.
/(d)/Ratios are based on average daily net assets of $74,963,183.
CLASS B
------------------------------------
YEAR ENDED MARCH 31,
------------------------------------
2005 2004 2003
- ----------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 21.94 $ 16.71 $ 19.26
- ----------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.25)/(a)/ (0.18)/(a)/ (0.17)/(a)(b)/
- ----------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) 10.48 5.41 (2.38)
- ----------------------------------------------------------------------------------------------------------------
Total from investment operations 10.23 5.23 (2.55)
- ----------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 32.17 $ 21.94 $ 16.71
- ----------------------------------------------------------------------------------------------------------------
Total return/(c)/ 46.63% 31.30% (13.24)%
- ----------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $55,559 $20,164 $ 1,502
- ----------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 2.12%/(d)/ 2.31% 2.33%
- ----------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 2.13%/(d)/ 2.59% 2.41%
- ----------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (0.97)%/(d)/ (0.90)% (1.16)%
- ----------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 45% 123% 144%
- ----------------------------------------------------------------------------------------------------------------
/(a)/Calculated using average shares outstanding.
/(b)/The net investment income (loss) per share was calculated after permanent
book tax differences, such as net operating losses, which were
reclassified from accumulated net investment income (loss) to paid in
capital. Had net investment income (loss) per share been calculated using
the current method, which is before reclassification of net operating
losses, net investment income (loss) per share would have been $(0.17) for
the year ended March 31, 2003.
/(c)/Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, and as such, the net asset value
for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and returns for shareholder
transactions. Does not include sales charges.
/(d)/Ratios are based on average daily net assets of $31,796,265.
F-12
NOTE 12--FINANCIAL HIGHLIGHTS (CONTINUED)
CLASS C
-----------------------------------------------------------
YEAR ENDED MARCH 31,
-----------------------------------------------------------
2005 2004 2003 2002
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 21.60 $ 16.45 $ 18.98 $ 19.58
- ----------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.25)/(a)/ (0.17)/(a)/ (0.11)/(a)(b)/ (0.07)/(b)/
- ----------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) 10.33 5.32 (2.42) (0.53)
- ----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 10.08 5.15 (2.53) (0.60)
- ----------------------------------------------------------------------------------------------------------------------------------
Less distributions from net realized gains -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 31.68 $ 21.60 $ 16.45 $ 18.98
- ----------------------------------------------------------------------------------------------------------------------------------
Total return/(c)/ 46.67% 31.31% (13.33)% (3.06)%
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $58,626 $16,383 $ 9,566 $12,324
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (including interest expense):
With fee waivers and/or expense reimbursements 2.12%/(d)/ 2.31% 2.33% 2.27%
- ----------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 2.13%/(d)/ 2.59% 2.53% 2.27%
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (0.97)%/(d)/ (0.90)% (1.22)% (1.08)%
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 45% 123% 144% 144%
- ----------------------------------------------------------------------------------------------------------------------------------
-------
-------
2001
- ----------------------------------------------------------------------------------
Net asset value, beginning of period $17.39
- ----------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.05)/(b)/
- ----------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) 3.67
- ----------------------------------------------------------------------------------
Total from investment operations 3.62
- ----------------------------------------------------------------------------------
Less distributions from net realized gains (1.43)
- ----------------------------------------------------------------------------------
Net asset value, end of period $19.58
- ----------------------------------------------------------------------------------
Total return/(c)/ 22.35%
- ----------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $8,704
- ----------------------------------------------------------------------------------
Ratio of expenses to average net assets (including interest expense):
With fee waivers and/or expense reimbursements 2.05%
- ----------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 2.05%
- ----------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (1.10)%
- ----------------------------------------------------------------------------------
Portfolio turnover rate 166%
- ----------------------------------------------------------------------------------
/(a)/Calculated using average shares outstanding.
/(b)/The net investment income (loss) per share was calculated after permanent
book tax differences, such as net operating losses, which were reclassified
from accumulated net investment income (loss) to paid in capital. Had net
investment income (loss) per share been calculated using the current
method, which is before reclassification of net operating losses, net
investment income (loss) per share would have been $(0.11), $(0.16) and
$(0.10) for the years ended March 31, 2003, 2002 and 2001, respectively.
/(c)/Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, and as such, the net asset value
for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and returns for shareholder
transactions. Does not include sales charges.
/(d)/Ratios based on average daily net assets of $28,642,181.
F-13
NOTE 12--FINANCIAL HIGHLIGHTS (CONTINUED)
CLASS K
---------------------------------------------------------
YEAR ENDED MARCH 31,
---------------------------------------------------
2005 2004 2003 2002
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $20.53 $15.55 $ 17.98 $ 19.62
- -----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.10)/(a)/ (0.06)/(a)/ (0.14)/(a)(b)/ (0.05)/(b)/
- -----------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) 9.83 5.04 (2.29) (1.59)
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations 9.73 4.98 (2.43) (1.64)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $30.26 $20.53 $ 15.55 $ 17.98
- -----------------------------------------------------------------------------------------------------------------------------
Total return/(c)/ 47.39% 32.03% (13.52)% (8.36)%
- -----------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $2,959 $ 899 $ 289 $ 37
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.57%/(d)/ 1.76% 2.07% 11.62%
- -----------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.58%/(d)/ 3.70% 5.36% 11.62%
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (0.42)%/(d)/ (0.35)% (0.90)% (10.45)%
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate/(f)/ 45% 123% 144% 144%
- -----------------------------------------------------------------------------------------------------------------------------
----------------
NOVEMBER 30, 2000
(DATE SALES COMMENCED)
TO MARCH 31,
----------------------
2001
- -----------------------------------------------------------------------------------------
Net asset value, beginning of period $16.76
- -----------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.15)/(b)/
- -----------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) 3.01
- -----------------------------------------------------------------------------------------
Total from investment operations 2.86
- -----------------------------------------------------------------------------------------
Net asset value, end of period $19.62
- -----------------------------------------------------------------------------------------
Total return/(c)/ 17.06%
- -----------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 1
- -----------------------------------------------------------------------------------------
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 3.11%/(e)/
- -----------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 3.11%/(e)/
- -----------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (2.34)%/(e)/
- -----------------------------------------------------------------------------------------
Portfolio turnover rate/(f)/ 166%
- -----------------------------------------------------------------------------------------
/(a)/Calculated using average shares outstanding.
/(b)/The net investment income (loss) per share was calculated after permanent
book tax differences, such as net operating losses, which were reclassified
from accumulated net investment income (loss) to paid in capital. Had net
investment income (loss) per share been calculated using the current
method, which is before reclassification of net operating losses, net
investment income (loss) per share would have been $(0.14), $(0.27) and
$(0.15) for the years ended March 31, 2003, 2002 and 2001, respectively.
/(c)/Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, and as such, the net asset value
for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and returns for shareholder
transactions. Does not include sales charges and is not annualized for
periods less than one year.
/(d)/Ratios are based on average daily net assets of $1,228,327.
/(e)/Annualized.
/(f)/Not annualized for periods less than one year.
--------------------------------
--------------------------------
2005 2004
- ----------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 22.19 $ 16.81
- ----------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.06)/(a)/ (0.07)/(a)/
- ----------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) 10.65 5.45
- ----------------------------------------------------------------------------------------------------
Total from investment operations 10.59 5.38
- ----------------------------------------------------------------------------------------------------
Less distributions from net realized gains -- --
- ----------------------------------------------------------------------------------------------------
Net asset value, end of period $ 32.78 $ 22.19
- ----------------------------------------------------------------------------------------------------
Total return/(c)/ 47.72% 32.00%
- ----------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $378,915 $230,148
- ----------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 1.37%/(d)(e)/ 1.76%
- ----------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (0.22)%/(d)/ (0.35)%
- ----------------------------------------------------------------------------------------------------
Portfolio turnover rate 45% 123%
- ----------------------------------------------------------------------------------------------------
INVESTOR CLASS
---------------------------------------------
YEAR ENDED MARCH 31,
---------------------------------------------
2003 2002 2001
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 19.26 $ 19.73 $ 17.40
- ------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.10)/(a)(b)/ (0.07)/(a)(b)/ (0.08)/(a)(b)/
- ------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) (2.35) (0.40) 3.84
- ------------------------------------------------------------------------------------------------------------------------
Total from investment operations (2.45) (0.47) 3.76
- ------------------------------------------------------------------------------------------------------------------------
Less distributions from net realized gains -- -- (1.43)
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 16.81 $ 19.26 $ 19.73
- ------------------------------------------------------------------------------------------------------------------------
Total return/(c)/ (12.72)% (2.38)% 23.09%
- ------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $231,023 $358,439 $445,845
- ------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 1.69% 1.53% 1.41%
- ------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (0.57)% (0.34)% (0.35)%
- ------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 144% 144% 166%
- ------------------------------------------------------------------------------------------------------------------------
/(a)/Calculated using average shares outstanding.
/(b)/The net investment income (loss) per share was calculated after permanent
book tax differences, such as net operating losses, which were
reclassified from accumulated net investment income (loss) to paid in
capital. Had net investment income (loss) per share been calculated using
the current method, which is before reclassification of net operating
losses, net investment income (loss) per share would have been $(0.10),
$(0.07) and $(0.08) for the years ended March 31, 2003, 2002 and 2001,
respectively.
/(c)/Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, and as such, the net asset value
for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and returns for shareholder
transactions. Does not include sales charges.
/(d)/Ratios are based on average daily net assets of $283,673,891.
/(e)/After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements was
1.38%.
F-14
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
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds) and A I M Advisors, Inc. ("AIM") (the Fund's
investment advisor) reached final settlements with certain regulators,
including without limitation the Securities and Exchange Commission ("SEC"),
the New York Attorney General ("NYAG") and the Colorado Attorney General
("COAG"), to resolve civil enforcement actions and investigations related to
market timing activity and related issues in the AIM Funds, including those
formerly advised by IFG. These regulators alleged, in substance, that IFG and
AIM failed to disclose in the prospectuses for the AIM Funds that they advised
and to the independent directors/trustees of such Funds that they had entered
into certain arrangements permitting market timing of such Funds, thereby
breaching their fiduciary duties to such Funds. As a result of the foregoing,
the regulators alleged that IFG and AIM breached various Federal and state
securities, business and consumer protection laws. On the same date, A I M
Distributors, Inc. ("ADI") (the distributor of the retail AIM Funds) reached a
final settlement with the SEC to resolve an investigation relating to market
timing activity and related issues in the AIM Funds. The SEC also alleged that
ADI violated various Federal securities laws. The SEC also has settled related
market timing enforcement actions brought against certain former officers and
employees of IFG.
Under the terms of the settlements, IFG agreed to pay a total of $325
million, of which $110 million is civil penalties. Of this $325 million total
payment, half has been paid and the remaining half will be paid on or before
December 31, 2005. AIM and ADI agreed to pay a total of $50 million, of which
$30 million is civil penalties, all of which has been paid. The entire $325
million IFG settlement fund will be made available for distribution to the
shareholders of those AIM Funds that IFG formerly advised that were harmed by
market timing activity, and the entire $50 million settlement fund by AIM and
ADI will be made available for distribution to the shareholders of those AIM
Funds advised by AIM that were harmed by market timing activity, all as to be
determined by an independent distribution consultant. The IFG and AIM
settlement 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. The settlement funds will be
distributed in accordance with a methodology to be determined by the
independent distribution consultant, in consultation with AIM and the
independent trustees of the AIM Funds and acceptable to the staff of the SEC.
Under the settlements with the NYAG and COAG, AIM has agreed to reduce
management fees on certain equity and balanced AIM Funds by $15 million per
year for the next five years, based upon effective fee rates and assets under
management as of July 1, 2004, not to increase certain management fees and to
provide more information to investors regarding fees.
Under the terms of the settlements, AIM is undertaking certain governance and
compliance reforms, including maintaining an internal controls committee and
retaining an independent compliance consultant and a corporate ombudsman. Also,
commencing in 2007 and at least once every other year thereafter, AIM will
undergo a compliance review by an independent third party. In addition, under
the terms of the settlements, AIM has undertaken to cause the AIM Funds to
operate in accordance with certain governance policies and practices, including
retaining a full-time independent senior officer whose duties include
monitoring compliance and managing the process by which proposed management
fees to be charged the AIM Funds are negotiated. Also, commencing in 2008 and
not less than every fifth calendar year thereafter, the AIM Funds will hold
shareholder meetings at which their Boards of Trustees will be elected.
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
such Funds related to market timing matters.
The SEC has also settled market timing enforcement actions against Raymond R.
Cunningham (the former president and chief executive officer of IFG and a
former member of the board of directors of the AIM Funds formerly advised by
IFG), Timothy J. Miller (the former chief investment officer and a former
portfolio manager for IFG), Thomas A. Kolbe (the former national sales manager
of IFG) and Michael D. Legoski (a former assistant vice president in IFG's
sales department). As part of these settlements, the SEC ordered these
individuals to pay restitution and civil penalties in various amounts and
prohibited them from associating with, or serving as an officer or director of,
an investment advisor, broker, dealer and/or investment company, as applicable,
for certain periods of time.
The payments made in connection with the above-referenced settlements by IFG,
AIM and ADI will total approximately $375 million (not including AIM's
agreement to reduce management fees on certain equity and balanced AIM Funds by
$15 million per year for the next five years, based upon effective fee rates
and assets under management as of July 1, 2004). The manner in which the
settlement payments will be distributed is unknown at the present time and will
be determined by an independent distribution consultant appointed under the
settlement agreements. Therefore, management of AIM and the Fund are unable at
the present time to estimate the impact, if any, that the distribution of the
settlement payments may have on the Fund or whether such distribution will have
an impact on the Fund's financial statements 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, ADI or the Fund.
REGULATORY INQUIRIES AND PENDING LITIGATION
The mutual fund industry as a whole is currently subject to regulatory
inquiries and litigation related to a wide range of issues. These issues
include, among others, market timing activity, late trading, fair value
pricing, excessive or improper advisory and/or distribution fees, mutual fund
sales practices, including but not limited to revenue sharing and
directed-brokerage arrangements, investments in securities of other registered
investment companies, contractual plans, issues related to Section 529 college
savings plans, procedures for locating lost security holders and participation
in class action settlements.
As described more fully below, IFG and AIM are the subject of a number of
ongoing regulatory inquiries and civil lawsuits related to one or more of the
issues currently being scrutinized by various Federal and state regulators,
including but not limited to those issues described above. Additional
regulatory actions and/or civil lawsuits related to the above or other issues
may be filed against the AIM Funds, IFG, AIM and/or related entities and
individuals in the future. Additional regulatory inquiries related to the above
or other issues also may be received by the AIM Funds, IFG, AIM and/or related
entities and individuals in the future.
F-15
NOTE 13--LEGAL PROCEEDINGS (CONTINUED)
Ongoing Regulatory Inquiries Concerning IFG and AIM
IFG, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds formerly advised by IFG have received
regulatory inquiries in the form of subpoenas or other oral or written requests
for information and/or documents related to one or more of the following
issues, some of which concern one or more such 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, and investments in securities of other
registered investment companies. These regulators include the SEC, the NASD,
Inc. ("NASD"), the Florida Department of Financial Services, the Attorney
General of the State of West Virginia, the West Virginia Securities Commission
and the Bureau of Securities of the State of New Jersey. IFG and certain of
these other parties also have received more limited inquiries from the United
States Department of Labor ("DOL") and the United States Attorney's Office for
the Southern District of New York, some of which concern one or more of the AIM
Funds formerly advised by IFG. IFG is providing full cooperation with respect
to these inquiries.
AIM, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds have received regulatory inquiries in the form
of subpoenas or other oral or written requests for information and/or documents
related to one or more of the following issues, some of which concern one or
more AIM Funds: market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including revenue sharing and directed-brokerage arrangements,
investments in securities of other registered investment companies, contractual
plans, issues related to Section 529 college savings plans and procedures for
locating lost securityholders. These regulators include the SEC, the NASD, the
Department of Banking for the State of Connecticut, the Attorney General of the
State of West Virginia, the West Virginia Securities Commission and the Bureau
of Securities of the State of New Jersey. AIM and certain of these other
parties also have received more limited inquiries from the SEC, the NASD, the
DOL, the Internal Revenue Service, the United States Attorney's Office for the
Southern District of New York, the United States Attorney's Office for the
Central District of California, the United States Attorney's Office for the
District of Massachusetts, the Massachusetts Securities Division, the U.S.
Postal Inspection Service and the Commodity Futures Trading Commission, some of
which concern one or more AIM Funds. AIM is providing full cooperation with
respect to these inquiries.
Pending Regulatory Civil Action Alleging Market Timing
On April 12, 2005, the Attorney General of the State of West Virginia
("WVAG") filed civil proceedings 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 these proceedings. 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 (S) 46A-1-101, et seq. (the West Virginia Consumer Credit and Protection
Act). The WVAG complaint is seeking injunctive relief; civil monetary
penalties; a writ of quo warranto against the defendants; pre-judgment and
post-judgment interest; costs and expenses, including counsel fees; and other
relief.
If AIM is unsuccessful in its defense of the WVAG proceedings, it could be
barred from serving as an investment adviser 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 your Fund.
Your 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 your Fund's
investment advisor. There is no assurance that such exemptive relief will be
granted.
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, certain
related entities, certain of their current and former officers and/or certain
unrelated third parties) making allegations that are similar in many respects
to those in the settled regulatory actions brought by the SEC, the NYAG and the
COAG concerning market timing 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.
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
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. The plaintiffs in two of the underlying lawsuits
continue to seek remand of their lawsuit to state court.
Private Civil Actions Alleging Improper Use of Fair Value Pricing
Multiple civil class action lawsuits have been filed against various parties
(including, depending on the lawsuit, certain 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. Based on a recent court decision, the state court
action has been removed to Federal court.
F-16
NOTE 13--LEGAL PROCEEDINGS (CONTINUED)
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. All of these lawsuits have been
transferred to the United States District Court for the Southern District of
Texas, Houston Division and subsequently consolidated for pre-trial purposes
into one lawsuit.
Private Civil Actions Alleging Improper Charging of Distribution Fees on
Limited Offering Funds or Share Classes
Multiple civil lawsuits, including shareholder derivative suits, have been
filed against various parties (including, depending on the lawsuit, IFG, AIM,
ADI and/or certain of the trustees of the AIM Funds) alleging that the
defendants breached their fiduciary duties by charging distribution fees while
funds and/or specific share classes were closed generally to new investors
and/or while other share classes of the same fund were not charged the same
distribution fees. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the
Federal securities laws; and (ii) breach of fiduciary duty. These lawsuits have
been filed in Federal courts and seek such remedies as damages; injunctive
relief; and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Mutual Fund Sales Practices and
Directed-Brokerage Arrangements
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, AIM Management, IFG, AIM, AIM Investment Services, Inc. ("AIS")
and/or certain of the trustees of the AIM 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. These actions have been
consolidated for pre-trial purposes.
Private Civil Action Alleging Failure to Ensure Participation in Class Action
Settlements
A civil lawsuit, purporting to be a class action lawsuit, has been filed
against AIM, IINA, A I M Capital Management, Inc. and the trustees of the AIM
Funds alleging that the defendants breached their fiduciary duties by failing
to ensure that the AIM Funds participated in class action settlements in which
the AIM Funds were eligible to participate. This lawsuit alleges as theories of
recovery: (i) violation of various provisions of the Federal securities laws;
(ii) common law breach of fiduciary duty; and (iii) common law negligence. This
lawsuit has been filed in Federal court and seeks such remedies as compensatory
and punitive damages; forfeiture of all commissions and fees paid by the class
of plaintiffs; and costs and attorneys' fees.
* * * * * * * * * * * * * *
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.
F-17
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees
and Shareholders of AIM Energy 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 the AIM Energy Fund, formerly
known as INVESCO Energy Fund (one of the funds constituting AIM Sector Funds,
hereafter referred to as the "Fund") at March 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 March 31, 2005 by correspondence with the
custodian, provide a reasonable basis for our opinion.
/s/ PRICEWATERHOUSECOOPERS LLP
May 20, 2005
Houston, Texas
OTHER INFORMATION
TRUSTEES AND OFFICERS
As of March 31, 2005
The address of each trustee and officer of AIM Sector Funds (the "Trust"), is
11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 114
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.
NAME, YEAR OF BIRTH AND
POSITIONS(S) HELD WITH THE TRUSTEE AND/ PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
TRUST OR OFFICER SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- ---------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- ---------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham/1 /-- 1946 2003 Director and Chairman, A I M Management None
Trustee, Vice Chair and President Group Inc. (financial services holding
company); Director and Vice Chairman,
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 1998 Director, President and Chief Executive None
Trustee and Executive Vice President Officer, A I M Management Group Inc.;
Director, Chairman 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
(parent of AIM and a global investment
management firm)
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
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- ---------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett/3 /-- 1944 2003 Chairman, Crockett Technology ACE Limited (insurance
Trustee and Chair Associates (technology consulting company); and Captaris, Inc.
company) (unified messaging provider)
- ---------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 1983 Retired None
Trustee
- ---------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2003 Retired Badgley Funds, Inc. (registered
Trustee investment company)
Formerly: Partner, law firm of Baker &
McKenzie
- ---------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2000 Co-President and Founder, Green, None
Trustee Manning & Bunch Ltd., (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 None
Trustee private business corporations,
including the Boss Group Ltd. (private
investment and management); Cortland
Trust, Inc. (Chairman) (registered
investment company); Annuity and Life
Re (Holdings), Ltd. (insurance
company); and CompuDyne Corporation
(provider of products and services to
the public security market)
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 2003 Retired None
Trustee
Formerly: Chairman, Mercantile Mortgage
Corp.; President and Chief Operating
Officer, Mercantile-Sale Deposit &
Trust Co.; and President, Mercantile
Bankshares Corp.
- ---------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 2003 Chief Executive Officer, Twenty First Administaff and Discovery
Trustee Century Group, Inc. (government affairs Global Education Fund (non-
company) (owner) Dos Angelos Ranch, L.P. profit)
Formerly: Chief Executive Officer,
Texana Timber LP (sustainable forestry
company)
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 2003 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company)
- ---------------------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis -- 1933 2000 Chairman, Lawsuit Resolution Services General Chemical Group, Inc.
Trustee (San Diego, California)
- ---------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 2003 Formerly: Chief Executive Officer, YMCA None
Trustee of the USA
- ---------------------------------------------------------------------------------------------------------------------------------
/(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. Prior to
October 4, 2004, Mr. Graham served as Chairman of the Board of Trustees
of 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.
/(3)/ Mr. Crockett was elected Chair of the Board of Trustees of the Trust
effective October 4, 2004.
TRUSTEES AND OFFICERS (CONTINUED)
As of March 31, 2005
The address of each trustee and officer of AIM Sector Funds (the "Trust"), is
11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 114
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.
NAME, YEAR OF BIRTH AND
POSITION(S) HELD WITH THE TRUSTEE AND/ PRINCIPAL OCCUPATION(S) DURING PAST 5 OTHER DIRECTORSHIP(S)
TRUST OR OFFICER SINCE YEARS HELD BY TRUSTEE
- ----------------------------------------------------------------------------------------------------------------------
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
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- ----------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley/4/ -- 1959 2004 Senior Vice President, A I M Management N/A
Senior Vice President and Chief Group Inc.; Senior Vice President and
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., A I M
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/5/ -- 1958 2005 Formerly: Director of Compliance and N/A
Senior Vice President Assistant General Counsel, ICON
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 Secretary and General Counsel, A I M
Chief Legal Officer Management Group Inc. and A I M
Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Vice President, A I M Capital
Management, Inc., and A I M Investment
Services, Inc.; Director, Vice
President and General Counsel, Fund
Management Company; and Senior Vice
President, A I M Distributors, Inc.
Formerly: Senior Vice President and
General Counsel, Liberty Financial
Companies, Inc.; and Senior Vice
President and General Counsel, Liberty
Funds Group, LLC.; and Vice President,
A I M Distributors, Inc.
- ----------------------------------------------------------------------------------------------------------------------
Robert G. Alley -- 1948 2003 Managing Director, Chief Fixed Income N/A
Vice President Officer and Senior Investment Officer,
A I M Capital Management, Inc. and Vice
President, A I M Advisors, Inc.
- ----------------------------------------------------------------------------------------------------------------------
Stuart W. Coco -- 1955 2003 Managing Director and Director of Money N/A
Vice President Market Research and Special Projects,
A I M Capital Management, Inc.; and Vice
President, A I M Advisors, Inc.
- ----------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, N/A
Vice President and Treasurer A I M Advisors, Inc.
Formerly: Senior Vice President, A I M
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- ----------------------------------------------------------------------------------------------------------------------
J. Phillip Ferguson/4/ -- 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.; Chief
Equity Officer, and Senior Investment
Officer, A I M Capital Management,
Inc.; and Managing Partner, Beutel,
Goodman Capital Management
- ----------------------------------------------------------------------------------------------------------------------
Mark D. Greenberg -- 1957 2004 Senior Vice President and Senior N/A
Vice President Portfolio Manager, A I M Capital
Management, Inc.
Formerly: Senior Vice President and
Senior Portfolio Manager, INVESCO
Institutional (N.A.), Inc.
- ----------------------------------------------------------------------------------------------------------------------
William R. Keithler -- 1952 2004 Senior Vice President and Senior N/A
Vice President Portfolio Manager, A I M Capital
Management, Inc.
Formerly: Senior Vice President,
Director of Sector Management and
Senior Portfolio Manager, INVESCO
Institutional (N.A.), Inc.
- ----------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 2003 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.
- ----------------------------------------------------------------------------------------------------------------------
/(4)/ Ms. Brinkley was elected Senior Vice President and Chief Compliance
Officer of the Trust effective September 20, 2004.
/(5)/ Mr. Burk was elected Senior Vice President of the Trust effective
February 15, 2005.
/(6)/ Mr. Ferguson was elected Vice President of the Trust effective February
24, 2005.
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.
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza. A I M Advisors, Inc. A I M Distributors, Inc. PricewaterhouseCoopers LLP
Suite 100 11 Greenway Plaza 11 Greenway Plaza 1201 Louisiana Street
Houston, TX 77046-1173 Suite 100 Suite 100 Suite 2900
Houston, TX 77046-1173 Houston, TX 77046-1173 Houston, Texas 77002-5678
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
Ballard Spahr INDEPENDENT TRUSTEES AIM Investment Services, Inc. State Street Bank and Trust
Andrews & Ingersoll, LLP Kramer, Levin, Naftalis & P.O. Box 4739 Company
1735 Market Street Frankel LLP Houston, TX 77210-4739 225 Franklin Street
Philadelphia, PA 19103-7599 1177 Avenue of the Americas Boston, MA 02110-2801
New York, NY 10036-2714
Domestic Equity Sector Equity
AIM Aggressive Growth Fund AIM Advantage Health Sciences Fund/1/
AIM Basic Balanced Fund* AIM Energy Fund/1/
AIM Basic Value Fund AIM Financial Services Fund/1/
AIM Blue Chip Fund AIM Global Health Care Fund
AIM Capital Development Fund AIM Global Real Estate Fund
AIM Charter Fund AIM Gold & Precious Metals Fund/1/
AIM Constellation Fund AIM Leisure Fund/1/
AIM Diversified Dividend Fund AIM Multi-Sector Fund/1/
AIM Dynamics Fund/1/ AIM Real Estate Fund/7/
AIM Large Cap Basic Value Fund AIM Technology Fund/1/
AIM Large Cap Growth Fund AIM Utilities Fund/1/
AIM Mid Cap Basic Value Fund
AIM Mid Cap Core Equity Fund/2/ Fixed Income
AIM Mid Cap Growth Fund
AIM Opportunities I Fund TAXABLE
AIM Opportunities II Fund
AIM Opportunities III Fund AIM Floating Rate Fund
AIM Premier Equity Fund AIM High Yield Fund
AIM S&P 500 Index Fund/1/ AIM Income Fund
AIM Select Equity Fund AIM Intermediate Government Fund
AIM Small Cap Equity Fund/3/ AIM Limited Maturity Treasury Fund
AIM Small Cap Growth Fund/4/ AIM Money Market Fund
AIM Small Company Growth Fund/1/ AIM Short Term Bond Fund
AIM Trimark Endeavor Fund AIM Total Return Bond Fund
AIM Trimark Small Companies Fund Premier Portfolio
AIM Weingarten Fund Premier U.S. Government Money
Portfolio/1/
* Domestic equity and income fund
TAX-FREE
International/global Equity
AIM High Income Municipal Fund
AIM Asia Pacific Growth Fund AIM Municipal Bond Fund
AIM Developing Markets Fund AIM Tax-Exempt Cash Fund
AIM European Growth Fund AIM Tax-Free Intermediate Fund
AIM European Small Company Fund/5/ Premier Tax-Exempt Portfolio
AIM Global Aggressive Growth Fund
AIM Global Equity Fund Aim Allocation Solutions
AIM Global Growth Fund
AIM Global Value Fund AIM Conservative Allocation Fund
AIM International Core Equity Fund/1/ AIM Growth Allocation Fund/8/
AIM International Growth Fund AIM Moderate Allocation Fund
AIM International Small Company Fund/6/ AIM Moderate Growth Allocation Fund
AIM Trimark Fund AIM Moderately Conservative
Allocation Fund
/1/The following name changes became effective October 15, 2004: INVESCO
Advantage Health Sciences Fund to AIM Advantage Health Sciences Fund, INVESCO
Dynamics Fund to AIM Dynamics Fund, INVESCO Energy Fund to AIM Energy Fund,
INVESCO Financial Services Fund to AIM Financial Services Fund, INVESCO Gold &
Precious Metals Fund to AIM Gold & Precious Metals Fund, INVESCO International
Core Equity Fund to AIM International Core Equity Fund, INVESCO Leisure Fund to
AIM Leisure Fund, INVESCO Mid-Cap Growth Fund to AIM Mid Cap Stock Fund, INVESCO
Multi-Sector Fund to AIM Multi-Sector Fund, INVESCO S&P 500 Index Fund to AIM
S&P 500 Index Fund, INVESCO Small Company Growth Fund to AIM Small Company
Growth Fund, INVESCO Technology Fund to AIM Technology Fund, INVESCO U.S.
Government Money Fund to Premier U.S. Government Money Portfolio, INVESCO
Utilities Fund to AIM Utilities Fund. /2/As of end of business on February 27,
2004, AIM Mid Cap Core Equity Fund has limited public sales of its shares to
certain investors. For more information on who may continue to invest in the
Fund, please contact your financial advisor. /3/Effective December 13, 2004, AIM
Small Cap Equity Fund is open to all investors. /4/As of end of business on
March 18, 2002, AIM Small Cap Growth Fund has limited public sales of its shares
to certain investors. For more information on who may continue to invest in the
Fund, please contact your financial advisor. /5/As of end of business on March
28, 2005, AIM European Small Company Fund has limited public sales of its shares
to certain investors. For more information on who may continue to invest in the
Fund, please contact your financial advisor. /6/Effective December 30, 2004, AIM
International Emerging Growth Fund was renamed AIM International Small Company
Fund. As of end of business on March 14, 2005, the Fund has limited public sales
of its shares to certain investors. For more information on who may continue to
invest in the Fund, please contact your financial advisor. /7/As of end of
business on April 29, 2005, AIM Real Estate Fund has limited public sales of its
shares to certain investors. For more information on who may continue to invest
in the Fund, please contact your financial advisor. /8/Effective April 29, 2005,
AIM Aggressive Allocation Fund was renamed AIM Growth Allocation Fund.
If used after July 20, 2005, this report must be accompanied by a Fund
Performance & Commentary or by an AIM Quarterly Performance Review for the most
recent quarter-end. Mutual funds distributed by A I M Distributors, Inc.
A I M Management Group Inc. has provided leadership in the investment management
industry since 1976 and manages $131 billion in assets. AIM is a subsidiary of
AMVESCAP PLC, one of the world's largest independent financial services
companies with $375 billion in assets under management. Data as of March 31,
2005.
- --------------------------------------------------------------------------------
CONSIDER THE INVESTMENT OBJECTIVES, RISKS, AND CHARGES AND EXPENSES CAREFULLY.
FOR THIS AND OTHER INFORMATION ABOUT AIM FUNDS, OBTAIN A PROSPECTUS FROM YOUR
FINANCIAL ADVISOR AND READ IT CAREFULLY BEFORE INVESTING.
- --------------------------------------------------------------------------------
AIMinvestments.com I-ENE-AR-1 A I M Distributors, Inc.
[YOUR GOALS. OUR SOLUTIONS.]
- REGISTERED TRADEMARK -
Mutual Retirement Annuities College Separately Offshore Cash
Funds Products Savings Managed Products Management
Plans Accounts
[AIM INVESTMENTS LOGO]
- REGISTERED TRADEMARK -
AIM FINANCIAL SERVICES FUND
Annual Report to Shareholders . March 31, 2005
[COVER IMAGE]
FORMERLY INVESCO FINANCIAL SERVICES FUND
[YOUR GOALS. OUR SOLUTIONS.]
- REGISTERED TRADEMARK -
[AIM INVESTMENTS LOGO]
- REGISTERED TRADEMARK -
AIM FINANCIAL SERVICES FUND SEEKS TO PROVIDE CAPITAL GROWTH.
.. Unless otherwise stated, information presented in this report is as of
March 31, 2005, and is based on total net assets.
.. Effective October 15, 2004, INVESCO Financial Services Fund was renamed AIM
Financial Services Fund.
ABOUT SHARE CLASSES
.. Effective September 30, 2003, Class B shares are not available as an
investment for retirement plans maintained pursuant to Section 401 of the
Internal Revenue Code, including 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.
.. Class K shares are available only to certain retirement plans. Please see the
prospectus for more information.
.. Investor Class shares are closed to most investors. For more information on
who may continue to invest in the Investor Class shares, please see the
prospectus.
PRINCIPAL RISKS OF INVESTING IN THE FUND
.. Investing in a single-sector or single-region mutual fund involves greater
risk and potential reward than investing in a more diversified fund.
.. Investing in small and mid-size companies involves risks not associated with
investing in more established companies, including business risk, significant
stock price fluctuations and illiquidity.
.. The Fund may invest up to 25% of its assets in the securities of non-U.S.
issuers. Securities of Canadian issuers and American Depository Receipts are not
subject to this 25% limitation. International investing presents certain risks
not associated with investing solely in the United States. These include risks
relating to fluctuations in the value of the U.S. dollar relative to the values
of other currencies, the custody arrangements made for the Fund's foreign
holdings, differences in accounting, political risks and the lesser degree of
public information required to be provided by non-U.S. companies.
ABOUT INDEXES USED IN THIS REPORT
.. The unmanaged Lipper Financial Services Fund Index represents an average of
the 10 largest financial-services funds tracked by Lipper, Inc., an independent
mutual fund performance monitor.
.. The unmanaged Standard & Poor's Composite Index of 500 Stocks (the S&P 500
- --REGISTERED TRADEMARK-- Index) is an index of common stocks frequently used as
a general measure of U.S. stock market performance.
.. The S&P 500 Financials Index is a market capitalization weighted index of
companies involved in activities such as banking, consumer finance, investment
banking and brokerage, asset management, insurance and investment, and real
estate, including REITs.
.. The Fund is not managed to track the performance of any particular index,
including the indexes defined here, and consequently, the performance of the
Fund may deviate significantly from the performance of the indexes.
.. A direct investment cannot be made in an index. Unless otherwise indicated,
index results include reinvested dividends, and they do not reflect sales
charges. Performance of an index of funds reflects fund expenses; performance of
a market index does not.
OTHER INFORMATION
.. The returns shown in management's discussion of Fund performance are based on
net asset values calculated for shareholder transactions. Generally accepted
accounting principles require adjustments to be made to the net assets of the
Fund at period end for financial reporting purposes, and as such, the net asset
values for shareholder transactions and the returns based on those net asset
values may differ from the net asset values and returns reported in the
Financial Highlights.
.. Industry classifications used in this report are generally according to the
Global Industry Classification Standard, which was developed by and is the
exclusive property and a service mark of Morgan Stanley Capital International
Inc. and Standard & Poor's.
The Fund provides a complete list of its holdings four times in each fiscal
year, at the quarter-ends. For the second and fourth quarters, the lists appear
in the Fund's semiannual and annual reports to shareholders. For the first and
third quarters, the Fund files the lists with the Securities and Exchange
Commission (SEC) on Form N-Q. Shareholders can look up the Fund's Forms N-Q on
the SEC's Web site at sec.gov. Copies of the Fund's Forms N-Q may be reviewed
and copied at the SEC's Public Reference Room at 450 Fifth Street, N.W.,
Washington, D.C. 20549-0102. You can obtain information on the operation of the
Public Reference Room, including information about duplicating fee charges, by
calling 202-942-8090 or by electronic request at the following E-mail address:
publicinfo@sec.gov. The SEC file numbers for the Fund are 811-3826 and
002-85905. The Fund's most recent portfolio holdings, as filed on Form N-Q, are
also available at AIMinvestments.com.
A description of the policies and procedures that the Fund uses to determine how
to vote proxies relating to portfolio securities is available without charge,
upon request, from our Client Services department at 800-959-4246 or on the AIM
Web site, AIMinvestments.com. On the home page, scroll down and click on AIM
Funds Proxy Policy. The information is also available on the SEC's Web site,
sec.gov.
Information regarding how the Fund voted proxies related to its portfolio
securities during the 12 months ended June 30, 2004 is available at our Web
site. Go 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's Web site,
sec.gov.
- --------------------------------------------------------------------------------
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND
PROSPECTUS, WHICH CONTAINS MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES
AND EXPENSES. INVESTORS SHOULD READ IT CAREFULLY BEFORE INVESTING.
- --------------------------------------------------------------------------------
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
- --------------------------------------------------------------------------------
AIMINVESTMENTS.COM
AIM FINANCIAL SERVICES FUND
DEAR FELLOW SHAREHOLDERS:
[GRAHAM PHOTO] The fiscal year covered by this report saw both
equities and bonds* produce positive total returns, but it
wasn't a very smooth ride. Markets were at their best during
the second half of 2004--bonds during the third quarter of
that year and equities during the fourth. Returns turned
negative for both asset classes during the first quarter of
2005.
The huge run-up in the price of oil over the course of the
fiscal year goes a long way toward explaining the markets'
loss of confidence early in 2005. The Consumer Price Index
rose more in March 2005 than one month earlier. Energy costs
advanced 4.0% in March; the petroleum-based subset of energy
increased 7.8%.
ROBERT H. GRAHAM Another negative factor has been Federal Reserve
policy. With a view to warding off potential inflation, the
Federal Reserve (the Fed) raised short-term interest rates
in March, the seventh such move since mid-year 2004. The Fed
noted that inflationary pressures have picked up recently
and that businesses' ability to raise prices appeared
stronger than in the recent past. There is a virtually
universal expectation that the Fed will continue to increase
short-term interest rates during 2005, which could
ultimately dampen economic performance. (In early May, after
the close of the reporting period, the Fed raised rates once
again.)
[WILLIAMSON PHOTO] Nevertheless, there was also much good news for investors
as of March 31, 2005:
. The Institute for Supply Management's manufacturing and
non-manufacturing indexes--based on surveys of
purchasing managers in industries that cover more than
80% of the U.S. economy--both indicated continued
healthy growth during March and April and remained in
very strong territory. April was the 42nd month in a
row these surveys showed the economy as a whole
expanding.
MARK H. WILLIAMSON . Job growth during March was weaker than in the recent
past, though the unemployment rate declined over the
course of the fiscal year. In fact, less than robust
job growth during March was good news for bond
investors--there is still enough slack in the job
market to keep wage inflation from becoming an issue.
. Bond yields haven't risen as much as might be expected
given seven increases in short-term rates over the
fiscal year. Evidently, the bond market is not
anticipating a long-term inflationary pattern.
So once again we are seeing a good news/bad news
combination--a situation that is far from unusual. Over the
short term, financial markets are unpredictable. It is over
the long term that they have been rewarding to investors,
and we remain confident in their long-term outlook. Given
the inability to make accurate short-term forecasts, as
always, we urge our shareholders to:
. keep a long-term investment perspective,
. make sure their portfolios are suitably diversified, and
. contact their financial advisors when they have
questions or concerns about their investments or the
markets.
YOUR FUND
The following pages present a discussion of your Fund's
approach to investing, an explanation of its performance
over the fiscal year, and a summary of its portfolio as that
year closed. Further information about your Fund and The AIM
Family of Funds --REGISTERED TRADEMARK--, as well as
general information concerning investing, is always
available on our widely praised Web site,
AIMinvestments.com. We invite you to visit frequently.
As always, we at AIM are dedicated to building solutions
to help you meet your investment goals. We thank you for
your continued participation in AIM Investments --REGISTERED
TRADEMARK--. If you have any questions, please contact our
award-winning Client Service representatives at
800-959-4246. We are pleased to be of help.
Sincerely,
/s/ ROBERT H. GRAHAM /s/ MARK H. WILLIAMSON
Robert H. Graham Mark H. Williamson
Trustee, President & Chairman & President,
Vice Chair, AIM Funds A I M Advisors, Inc.
May 20, 2005
*Equities represented by the S&P 500 Index, an index of
common stocks often used as a general measure of U.S. stock
market performance; bonds by the Lehman U.S. Aggregate Bond
Index, an index compiled by Lehman Brothers, the global
investment bank, that represents the U.S. investment-grade
fixed-rate bond market.
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 AND A I M
DISTRIBUTORS, INC. IS THE DISTRIBUTOR FOR THE RETAIL FUNDS
REPRESENTED BY AIM INVESTMENTS.
AIM FINANCIAL SERVICES FUND
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
On October 1, 2004, the Fund's portfolio management team was changed with the
objective of improving long-term results. The Fund's new portfolio managers are
Michael J. Simon and Meggan M. Walsh. Each brings 15 years of investing and
financial sector experience to the management of the Fund.
For the fiscal year ended March 31, 2005, the performance of AIM Financial
Services Fund lagged that of its benchmark indexes and peer group.
- --------------------------------------------------------------------------------
FUND VS. INDEXES
TOTAL RETURNS, 3/31/04-3/31/05, EXCLUDING APPLICABLE SALES CHARGES. IF SALES
CHARGES WERE INCLUDED, RETURNS WOULD BE LOWER.
Class A Shares -3.57%
Class B Shares -4.19
Class C Shares -4.18
Class K Shares -3.66
Investor Class Shares -3.44
S&P 500 Index (Broad Market Index) 6.69
S&P 500 Financials Index (Style-specific Index) -1.01
Lipper Financial Services Fund Index
(Peer Group Index) 2.56
SOURCE: LIPPER, INC.
- --------------------------------------------------------------------------------
For the fiscal year, the financials sector was the second-weakest
performing sector in the S&P 500 Index. The Fund underperformed its
style-specific index for the year in part because of its lower relative industry
weightings in regional banks and real estate investment trusts, which were among
the better performing industries within the sector for the year. We suggest that
it is most informative to compare short-term results, such as one year, to the
style specific financials sector index, while comparisons to both the sector and
the broader market are important over multi-year holding periods.
The peer group index represents the performance of mutual funds that invest
in financial services companies and includes a variety of mandates such as
diversified U.S. financial funds, narrowly focused sub-industry funds, and
global funds. AIM Financial Services Fund underperformed its peer group index
largely because of strong performance by global financial funds and regional
bank funds in that index. In contrast, the bulk of our assets was invested in
domestic U.S. financial stocks.
HOW WE INVEST
Our objective is to create wealth by maintaining a long-term investment horizon
and investing in the two primary opportunities that we believe have historically
resulted in superior investment returns within the financial sector:
.. Common stocks of financial companies trading at a significant discount to
their estimated intrinsic value because of excessive short-term investor
pessimism. (The estimated intrinsic value represents our estimate of a stock's
"true" value based primarily on the company's future cash flows.)
.. Common stocks of reasonably valued financial companies that demonstrate
superior capital discipline by returning growing excess capital to shareholders
in the form of dividends and share repurchases.
To purchase a stock, we require a minimum of 50% upside potential between a
stock's price and our estimate of intrinsic value over a two-to three-year
investment horizon or the demonstrated ability and willingness to return growing
excess capital to shareholders in the form of dividends or share repurchases. We
maintain a proprietary database of intrinsic value estimates for current and
prospective investments and utilize a customized multifactor quality screen.
Purchase candidates are subject to exhaustive fundamental analysis and an
assessment of portfolio suitability, including analysis such as:
.. Adjustment for economic distortions permitted by generally accepted accounting
principles.
.. An estimate of sustainable growth and marginal return on economic equity.
.. A discounted cash flow model driven by growth and marginal return assumptions.
.. A detailed analysis of normalized earnings power.
.. An assessment of financial strength and capital adequacy.
.. An analysis of historical dividends and share repurchases in the context of a
company's ability to grow capital returned to shareholders in the future.
.. Relative valuation analysis versus history and peers.
- --------------------------------------------------------------------------------
TOP 10 EQUITY HOLDINGS* PORTFOLIO COMPOSITION TOTAL NET ASSETS $804.7 million
By industry TOTAL NUMBER OF HOLDINGS* 36
1. Citigroup Inc. 6.6% 1. Diversified Banks 15.3
2. Fannie Mae 6.5 2. Thrifts & Mortgage Finance 12.8
3. JPMorgan Chase & Co. 6.1
4. Hartford Financial Services 3. Other Diversified Financial Services 12.7
Group, Inc. (The) 5.1 4. Investment Banking & Brokerage 10.2
5. Bank of America Corp. 5.1 5. Multi-Line Insurance 9.4
6. Merrill Lynch & Co., Inc. 4.7 6. Property & Casualty Insurance 9.1
7. Bank of New York Co., Inc.(The) 4.6 7. Asset Management & Custody Banks 8.8
8. Freddie Mac 4.3 8. Regional Banks 6.2
9. Wells Fargo & Co. 3.7 9. Insurance Brokers 4.4
10. Morgan Stanley 3.6 10.Consumer Finance 3.2
3 Other Industries, Each
Less than 3% of Total Net Assets 4.8
Money Market Funds
Plus Other Assets Less Liabilities 3.1
The Fund's holdings are subject to change, and there is no assurance that the
Fund will continue to hold any particular security.
*Excluding money market fund holdings.
- --------------------------------------------------------------------------------
2
.. A traditional competitive analysis of the company and its industry.
.. Intangible considerations such as management execution.
Portfolio construction is largely a bottom-up process, driven by the two
investment opportunities described above, with careful attention to risk
management. The result is normally a 35- to 50-stock portfolio with investments
that are attractive from both a valuation and capital discipline perspective
representing top holdings. In constructing the portfolio, we focus on maximizing
the return potential of the valuation and return-of-capital opportunities while
striving to mitigate absolute investment risk by limiting commonality among
investments in the Fund. We do not mimic a static benchmark in an attempt to
neutralize short-term relative performance variation but focus risk management
on the more complex nature of absolute investment risk, an especially important
consideration given the inherent risk concentration of a single-sector
portfolio.
MARKET CONDITIONS AND YOUR FUND
The U.S. economy continued to strengthen for much of the fiscal year. In
response, the U.S. Federal Reserve raised its key federal funds target rate from
a decades-low 1.00% at the start of the fiscal year to 2.75% at fiscal year end.
The financials sector underperformed the broad market during the fiscal
year for two main reasons. First, investors worried about the potentially
adverse impact rising interest rates could have on financial stocks. Second, a
number of high-profile regulatory reviews of large financial companies caused
investor uncertainty.
We significantly restructured the portfolio since assuming management of
the Fund on October 1, 2004, at the midpoint of the fiscal year. Changes to the
portfolio were intended to increase the Fund's estimated intrinsic value and
representation of companies exhibiting superior capital discipline. Select
changes included adding to existing positions of Fannie Mae and Freddie Mac
because we believed the stocks are among the most undervalued within the
financials sector as a result of investor concerns surrounding the regulatory
scrutiny. Also, we purchased Federated Investors, an asset management firm,
because its management diligently returns cash to the company's shareholders.
The largest negative impact on performance relative to the Fund's benchmark
index and peer group index came from the Fund's holdings in Fannie Mae and
Freddie Mac. Both Fannie and Freddie are government-sponsored mortgage companies
that have been embroiled in accounting problems and regulatory probes. We
believe both companies, which operate attractive businesses that are vital to
the U.S. housing market, represent compelling investment opportunities at a
significant discount to their estimated intrinsic value and that is why we
continued to hold them at the close of the fiscal year.
Insurance broker Marsh & McLennan also detracted from performance during
the period. The stock declined after the company came under regulatory scrutiny
for its sales practices as part of a broader industry investigation.
Nonetheless, we continued to hold the stock in keeping with our long-term value
investment philosophy.
Fund holdings in stocks of investment banking companies were the most
significant contributors to performance during the year as fixed income markets
remained robust and stock market activity continued to recover from previously
depressed levels. Prudential Financial, the insurance, investment and real
estate giant, added to Fund performance as the company's capital discipline
became evident to investors with the considerable improvement in return on
equity. Also, national banking powerhouses, Bank of America and Wachovia,
contributed to Fund performance for the fiscal year. We held all three stocks at
the close of the fiscal year.
IN CLOSING
We believe a diversified portfolio of undervalued and capital disciplined
quality financial companies that profitably grow cash flows over time provides
the potential for superior long-term investment results within the financials
sector. As always, we thank you for your continuing investment in AIM Financial
Services Fund.
The views and opinions expressed in management's discussion of Fund performance
are those of A I M Advisors, Inc. These views and opinions are subject to change
at any time based on factors such as market and economic conditions. These views
and opinions may not be relied upon as investment advice or recommendations, or
as an offer for a particular security. The information is not a complete
analysis of every aspect of any market, country, industry, security or the Fund.
Statements of fact are from sources considered reliable, but A I M Advisors,
Inc. makes no representation or warranty as to their completeness or accuracy.
Although historical performance is no guarantee of future results, these
insights may help you understand our investment management philosophy.
See important Fund and index disclosures inside front cover.
- --------------------------------------------------------------------------------
[SIMON PHOTO]
MICHAEL J. SIMON, Chartered Financial Analyst, senior portfolio manager, is the
lead portfolio manager of AIM Financial Services Fund. He started his investment
career in 1989 and joined AIM in 2001. Mr. Simon received his B.B.A. in finance
from Texas Christian University and his M.B.A. from the University of Chicago.
He has served as Occasional Faculty in the Finance and Decision Sciences
Department of Texas Christian University's M.J. Neeley School of Business.
[WALSH PHOTO]
MEGGAN M. WALSH, Chartered Financial Analyst, senior portfolio manager, is a
portfolio manager of AIM Financial Services Fund. She has worked in the
investment industry since 1987. She joined AIM in 1991 as a trader of short-term
taxable fixed income securities. In 1998, Ms. Walsh assumed portfolio management
duties in AIM's equities department. Ms. Walsh received her bachelor's degree in
finance from the University of Maryland and her M.B.A. from Loyola College.
Assisted by the Basic Value Team and the Diversified Dividend Team
- --------------------------------------------------------------------------------
[RIGHT ARROW GRAPHIC]
FOR A PRESENTATION OF YOUR FUND'S LONG-TERM PERFORMANCE RECORD, PLEASE TURN TO
PAGE 5.
3
AIM FINANCIAL SERVICES FUND
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, which may include sales charges (loads) on purchase payments; contingent
deferred sales charges on redemptions; and redemption fees, if any; and (2)
ongoing costs, including management fees; distribution and/or service fees
(12b-1); and other Fund expenses. This example is intended to help you
understand your ongoing costs (in dollars) of investing in the Fund and to
compare these costs with ongoing costs of investing in other mutual funds. The
example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period October 1, 2004, through March 31, 2005.
ACTUAL EXPENSES
The table below provides information about actual account values and actual
expenses. You may use the information in this table, together with the amount
you invested, to estimate the expenses that you paid over the period. Simply
divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number in the table
under the heading entitled "Actual Expenses Paid During Period" to estimate the
expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The table below also provides information about hypothetical account values and
hypothetical expenses based on the Fund's actual expense ratio and an assumed
rate of return of 5% per year before expenses, which is not the Fund's actual
return. The Fund's actual cumulative total returns at net asset value after
expenses for the six months ended March 31, 2005, appear in the table
"Cumulative Total Returns" on page 5.
The hypothetical account values and expenses may not be used to estimate the
actual ending account balance or expenses you paid for the period. You may use
this information to compare the ongoing costs of investing in the Fund and other
funds. To do so, compare this 5% hypothetical example with the 5% hypothetical
examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight
your ongoing costs only and do not reflect any transactional costs, such as
sales charges (loads) on purchase payments, contingent deferred sales charges on
redemptions, and redemption fees, if any. Therefore, the hypothetical
information is useful in comparing ongoing costs only, and will not help you
determine the relative total costs of owning different funds.
- --------------------------------------------------------------------------------
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES ENDING ACCOUNT EXPENSES
SHARE VALUE VALUE PAID DURING VALUE PAID DURING
CLASS (10/1/04) (3/31/05)/1/ PERIOD/2/ (3/31/05) PERIOD/2/
A $ 1,000.00 $ 1,000.30 $ 6.73 $ 1,018.20 $ 6.79
B 1,000.00 997.20 9.96 1,014.96 10.05
C 1,000.00 997.20 9.96 1,014.96 10.05
K 1,000.00 999.80 7.23 1,017.70 7.29
Investor 1,000.00 1,000.80 6.24 1,018.70 6.29
/1/The actual ending account value is based on the actual total return of the
Fund for the period October 1, 2004, to March 31, 2005, after actual expenses
and will differ from the hypothetical ending account value which is based on the
Fund's expense ratio and a hypothetical annual return of 5% before expenses. The
Fund's actual cumulative total returns at net asset value after expenses for the
six months ended March 31, 2005, appear in the table "Cumulative Total Returns"
on page 5.
/2/Expenses are equal to the Fund's annualized expense ratio, 1.35%, 2.00%,
2.00%, 1.45% and 1.25% for Class A, B, C, K and Investor Class shares,
respectively, multiplied by the average account value over the period,
multiplied by 182/365 (to reflect the one-half year period).
- --------------------------------------------------------------------------------
[ARROW
BUTTON For More Information Visit
IMAGE] AIMINVESTMENTS.COM
4
AIM FINANCIAL SERVICES FUND
YOUR FUND'S LONG-TERM PERFORMANCE
Your Fund's total return includes reinvested distributions, maximum applicable
sales charges, Fund expenses and management fees. Performance of an index of
funds reflects fund expenses and management fees; performance of a market index
does not. Performance shown in the chart and tables does not reflect deduction
of taxes a shareholder would pay on Fund distributions or sale of Fund shares.
Performance of the indexes does not reflect the effects of taxes.
This chart, which is a logarithmic chart, presents the fluctuations in the
value of the Fund and its indexes. We believe that a logarithmic chart is more
effective than other types of charts in illustrating changes in value during the
early years shown in the chart. The vertical axis, the one that indicates the
dollar value of an investment, is constructed with each segment representing a
percent change in the value of the investment. In this chart, each segment
represents a doubling, or 100% change, in the value of the investment. In other
words, the space between $10,000 and $20,000 is the same size as the space
between $20,000 and $40,000, the space between $20,000 and $40,000 is the same
as that between $40,000 and $80,000, and so on.
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
As of 3/31/05, including applicable sales charges
CLASS A SHARES
Inception (3/28/02) 0.34%
1 Year -8.86
CLASS B SHARES
Inception (3/28/02) 0.81%
1 Year -8.59
CLASS C SHARES
Inception (2/14/00) 6.20%
5 Years 3.48
1 Year -5.05
CLASS K SHARES
Inception (11/30/00) 1.74%
1 Year -3.66
INVESTOR CLASS SHARES
Inception (6/2/86) 13.85%
10 Years 13.46
5 Years 4.32
1 Year -3.44
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
RESULTS OF A $10,000 INVESTMENT
Fund data from 6/2/86 (Index data from 5/31/86)
[MOUNTAIN CHART]
AIM FINANCIAL AIM FINANCIAL
SERVICES FUND SERVICES FUND
INVESTOR INVESTOR S&P 500
DATE CLASS SHARES S&P 500 INDEX DATE CLASS SHARES INDEX
6/2/86 $ 10000 $ 10000 1/96 44338 34769
6/86 10163 10169 2/96 46032 35093
7/86 9913 9601 3/96 46253 35431
8/86 10401 10312 4/96 45564 35952
9/86 9313 9460 5/96 45855 36878
10/86 9707 10006 6/96 45475 37019
11/86 9355 10249 7/96 44474 35384
12/86 9293 9987 8/96 46213 36132
1/87 9794 11332 9/96 48954 38163
2/87 10346 11779 10/96 52214 39215
3/87 10082 12119 1196 56177 42177
4/87 9618 12012 12/96 55194 41342
5/87 9468 12116 1/97 58622 43923
6/87 9769 12728 297 61054 44268
7/87 9807 13373 3/97 56310 42452
8/87 10133 13871 4/97 59937 44984
9/87 9807 13567 5/97 62994 47735
10/87 8217 10646 6/97 66893 49857
11/87 7843 9768 7/97 73201 53823
12/87 8269 10511 8/97 68831 50810
1/88 8979 10953 9/97 74420 53591
2/88 9186 11461 10/97 72998 51803
3/88 9186 11108 11/97 75575 54199
4/88 9173 11231 12/97 79913 55129
5/88 9432 11326 1/98 77812 55739
6/88 9935 11846 2/98 84153 59756
7/88 9871 11801 3/98 88731 62814
8/88 9703 11401 4/98 90745 63457
9/88 9910 11886 5/98 89321 62368
10/88 9910 12217 6/98 92474 64899
11/88 9700 12042 7/98 92418 64213
12/88 9686 12252 8/98 74027 54936
1/89 10316 13149 9/98 75648 58458
2/89 10237 12822 10/98 81587 63206
3/89 10670 13120 11/98 86718 67035
4/89 11248 13801 12/98 90664 70896
5/89 11785 14357 1/99 90537 73859
6/89 11877 14276 2/99 89695 71564
7/89 12823 15564 3/99 93956 74427
8/89 13203 15868 4/99 100298 77309
9/89 13532 15803 5/99 92254 75485
10/89 13045 15437 6/99 95169 79663
11/89 13464 15750 7/99 88774 77186
12/89 13262 16128 8/99 82559 76804
1/90 12035 15046 9/99 80727 74701
2/90 12439 15239 10/99 92626 79426
3/90 12483 15643 11/99 89754 81041
4/90 12382 15253 12/99 91334 85807
5/90 13349 16737 1/00 88932 81497
6/90 13349 16624 2/00 79567 79956
7/90 12569 16571 3/00 93181 87773
8/90 11415 15075 4/00 90162 85133
9/90 10607 14343 5/00 94247 83388
10/90 10416 14282 6/00 91598 85441
11/90 11444 15203 7/00 99806 84107
12/90 12313 15626 8/00 107670 89328
1/91 13313 16305 9/00 112440 84613
2/91 14719 17470 10/00 112856 84254
3/91 15718 17892 11/00 105001 77617
4/91 16399 17935 12/00 115711 77997
5/91 17847 18706 1/01 112483 80763
6/91 16485 17850 2/01 106713 73404
7/91 18470 18681 3/01 103661 68756
8/91 19803 19122 4/01 106460 74095
9/91 20572 18802 5/01 111453 74592
10/91 21516 19054 6/01 110773 72777
11/91 19713 18289 7/01 108546 72060
12/91 21428 20377 8/01 102446 67554
1/92 22662 19998 9/01 96781 62099
2/92 22852 20256 10/01 94516 63284
3/92 22455 19863 11/01 101917 68137
4/92 22720 20445 12/01 103955 68734
5/92 23381 20545 1/02 102770 67732
6/92 23248 20240 2/02 101475 66425
7/92 23527 21066 3/02 107624 68924
8/92 22350 20636 4/02 104266 64747
9/92 22893 20878 5/02 104266 64272
10/92 24036 20950 6/02 99574 59695
11/92 25718 21661 7/02 91867 55043
12/92 27161 21927 8/02 93282 55403
1/93 28848 22110 9/02 83898 49388
2/93 29935 22412 10/02 89771 53730
3/93 31103 22884 11/02 92060 56890
4/93 29653 22331 12/02 87770 53549
5/93 29449 22927 1/03 86322 52149
6/93 30315 22994 2/03 83499 51366
7/93 31148 22901 3/03 83524 51863
8/93 32441 23768 4/03 92160 56133
9/93 33197 23586 5/03 97073 59088
10/93 32284 24073 6/03 97461 59842
11/93 31328 23844 7/03 102490 60898
12/93 32187 24132 8/03 101260 62083
1/94 33278 24952 9/03 101564 61426
2/94 32266 24275 10/03 108582 64899
3/94 30366 23219 11/03 108017 65469
4/94 30812 23516 12/03 113677 68900
5/94 31561 23901 1/04 117758 70165
6/94 30914 23316 2/04 120914 71140
7/94 31662 24081 3/04 119221 70067
8/94 32390 25066 4/04 113403 68968
9/94 31380 24453 5/04 114708 69913
10/94 31562 25002 6/04 115442 71272
11/94 29974 24093 7/04 112175 68913
12/94 30295 24449 8/04 115338 69189
1/95 31082 25083 9/04 115027 69939
2/295 32385 26059 10/04 114486 71007
3/95 32550 26827 11/04 118104 73879
4/95 32963 27617 12/04 123383 76393
5/95 35096 28719 1/05 119842 74531
6/95 35303 29385 2/05 119590 76098
7/95 37146 30359 3/05 $ 115118 $ 74752
8/95 38947 30434
9/95 40229 31718
10/95 39706 31605
11/95 42116 32991
12/95 42356 33626
SOURCE: LIPPER, INC.
- --------------------------------------------------------------------------------
The performance data quoted represent past performance and cannot guarantee
comparable future results; current performance may be lower or higher. Please
visit AIMinvestments.com for the most recent month-end performance. Performance
figures reflect reinvested distributions, changes in net asset value and the
effect of the maximum sales charge unless otherwise stated. Investment return
and principal value will fluctuate so that you may have a gain or loss when you
sell shares.
Class A share performance reflects the maximum 5.50% sales charge, and
Class B and Class C share performance reflects the applicable contingent
deferred sales charge (CDSC) for the period involved. The CDSC on Class B shares
declines from 5% beginning at the time of purchase to 0% at the beginning of the
seventh year. The CDSC on Class C shares is 1% for the first year after
purchase.
Class K shares do not have a front-end sales charge; returns shown are at
net asset value and do not reflect a 0.70% CDSC that may be imposed on a total
redemption of retirement plan assets within the first year.
Investor Class shares do not have a front-end sales charge or a CDSC;
therefore, performance is at net asset value.
The performance of the Fund's share classes will differ due to different
sales charge structures and class expenses.
Had the advisor not waived fees and/or reimbursed expenses, performance
would have been lower for Class A, Class B and Class K shares.
- --------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURNS
Excluding applicable sales charges
6 months ended 3/31/05
Class A Shares 0.03%
Class B Shares -0.28
Class C Shares -0.28
Class K Shares -0.02
Investor Class Shares 0.08
- --------------------------------------------------------------------------------
5
FINANCIALS
SCHEDULE OF INVESTMENTS
March 31, 2005
MARKET
SHARES VALUE
----------------------------------------------------------------
COMMON STOCKS-96.82%
ASSET MANAGEMENT & CUSTODY
BANKS-8.81%
Bank of New York Co., Inc. (The) 1,271,700 $ 36,942,885
----------------------------------------------------------------
Federated Investors, Inc. -- Class B 454,050 12,854,156
----------------------------------------------------------------
Franklin Resources, Inc. 229,000 15,720,850
----------------------------------------------------------------
State Street Corp. 123,000 5,377,560
----------------------------------------------------------------
70,895,451
----------------------------------------------------------------
CONSUMER FINANCE-3.17%
Capital One Financial Corp. 341,200 25,511,524
----------------------------------------------------------------
DIVERSIFIED BANKS-15.30%
Anglo Irish Bank Corp. PLC (Ireland)/(a)/ 416,300 10,406,322
----------------------------------------------------------------
Bank of America Corp. 923,812 40,740,109
----------------------------------------------------------------
U.S. Bancorp 534,600 15,407,172
----------------------------------------------------------------
Wachovia Corp. 521,200 26,534,292
----------------------------------------------------------------
Wells Fargo & Co. 502,200 30,031,560
----------------------------------------------------------------
123,119,455
----------------------------------------------------------------
DIVERSIFIED CAPITAL MARKETS-1.25%
UBS A.G. (Switzerland) 119,000 10,043,600
----------------------------------------------------------------
DIVERSIFIED COMMERCIAL SERVICES-1.08%
H&R Block, Inc. 172,000 8,699,760
----------------------------------------------------------------
INSURANCE BROKERS-4.42%
Aon Corp. 637,700 14,565,068
----------------------------------------------------------------
Marsh & McLennan Cos., Inc. 690,000 20,989,800
----------------------------------------------------------------
35,554,868
----------------------------------------------------------------
INVESTMENT BANKING & BROKERAGE-10.17%
Goldman Sachs Group, Inc. (The) 45,200 4,971,548
----------------------------------------------------------------
Lehman Brothers Holdings Inc. 111,700 10,517,672
----------------------------------------------------------------
Merrill Lynch & Co., Inc. 665,600 37,672,960
----------------------------------------------------------------
Morgan Stanley 501,400 28,705,150
----------------------------------------------------------------
81,867,330
----------------------------------------------------------------
LIFE & HEALTH INSURANCE-2.48%
Prudential Financial, Inc. 347,000 19,917,800
----------------------------------------------------------------
MARKET
SHARES VALUE
---------------------------------------------------------------------
MULTI-LINE INSURANCE-9.41%
American International Group, Inc. 342,052 $ 18,953,101
---------------------------------------------------------------------
Genworth Financial Inc. -- Class A 556,500 15,314,880
---------------------------------------------------------------------
Hartford Financial Services Group, Inc. (The) 604,300 41,430,808
---------------------------------------------------------------------
75,698,789
---------------------------------------------------------------------
OTHER DIVERSIFIED FINANCIAL
SERVICES-12.66%
Citigroup Inc. 1,179,801 53,020,257
---------------------------------------------------------------------
JPMorgan Chase & Co. 1,412,472 48,871,531
---------------------------------------------------------------------
101,891,788
---------------------------------------------------------------------
PROPERTY & CASUALTY INSURANCE-9.14%
ACE Ltd. (Cayman Islands) 678,200 27,989,314
---------------------------------------------------------------------
Chubb Corp. (The) 74,000 5,865,980
---------------------------------------------------------------------
MBIA Inc. 231,000 12,076,680
---------------------------------------------------------------------
SAFECO Corp. 323,000 15,733,330
---------------------------------------------------------------------
St. Paul Travelers Cos., Inc. (The) 323,467 11,880,943
---------------------------------------------------------------------
73,546,247
---------------------------------------------------------------------
REGIONAL BANKS-6.18%
Cullen/Frost Bankers, Inc. 197,000 8,894,550
---------------------------------------------------------------------
Fifth Third Bancorp 484,050 20,804,469
---------------------------------------------------------------------
North Fork Bancorp., Inc. 478,500 13,273,590
---------------------------------------------------------------------
Zions Bancorp. 98,200 6,777,764
---------------------------------------------------------------------
49,750,373
---------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE-12.75%
Fannie Mae 956,500 52,081,425
---------------------------------------------------------------------
Freddie Mac 543,700 34,361,840
---------------------------------------------------------------------
PMI Group, Inc. (The) 425,600 16,177,056
---------------------------------------------------------------------
102,620,321
---------------------------------------------------------------------
Total Common Stocks
(Cost $639,955,935) 779,117,306
---------------------------------------------------------------------
MONEY MARKET FUNDS-3.15%
Premier Portfolio-Institutional Class
(Cost $25,338,683)/(b)/ 25,338,683 25,338,683
---------------------------------------------------------------------
TOTAL INVESTMENTS-99.97% (Cost $665,294,618) 804,455,989
---------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-0.03% 205,870
---------------------------------------------------------------------
NET ASSETS-100.00% $804,661,859
---------------------------------------------------------------------
Notes to Schedule of Investments:
/(a)/ In accordance with the procedures established by the Board of Trustees,
the foreign security is fair valued using adjusted closing market prices.
The market value of this security at March 31, 2005 represented 1.29% of
the Fund's Total Investments. See Note 1A.
/(b)/ The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
See accompanying notes which are an integral part of the financial statements.
F-1
STATEMENT OF ASSETS AND LIABILITIES
March 31, 2005
ASSETS:
Investments, at market value (cost $639,955,935) $779,117,306
- -----------------------------------------------------------------------------------
Investments in affiliated money market funds (cost $25,338,683) 25,338,683
- -----------------------------------------------------------------------------------
Total investments (cost $665,294,618) 804,455,989
- -----------------------------------------------------------------------------------
Receivables for:
Fund shares sold 1,917,801
- -----------------------------------------------------------------------------------
Dividends 1,350,635
- -----------------------------------------------------------------------------------
Investment for trustee deferred compensation and retirement plans 142,343
- -----------------------------------------------------------------------------------
Other assets 33,542
- -----------------------------------------------------------------------------------
Total assets 807,900,310
- -----------------------------------------------------------------------------------
LIABILITIES:
Payables for:
Fund shares reacquired 2,396,809
- -----------------------------------------------------------------------------------
Trustee deferred compensation and retirement plans 189,629
- -----------------------------------------------------------------------------------
Accrued distribution fees 234,675
- -----------------------------------------------------------------------------------
Accrued trustees' fees 5,674
- -----------------------------------------------------------------------------------
Accrued transfer agent fees 326,819
- -----------------------------------------------------------------------------------
Accrued operating expenses 84,845
- -----------------------------------------------------------------------------------
Total liabilities 3,238,451
- -----------------------------------------------------------------------------------
Net assets applicable to shares outstanding $804,661,859
- -----------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Shares of beneficial interest $616,411,856
- -----------------------------------------------------------------------------------
Undistributed net investment income 3,092,198
- -----------------------------------------------------------------------------------
Undistributed net realized gain from investment securities and foreign
currencies 45,996,434
- -----------------------------------------------------------------------------------
Unrealized appreciation of investment securities and foreign
currencies 139,161,371
- -----------------------------------------------------------------------------------
$804,661,859
- -----------------------------------------------------------------------------------
NET ASSETS:
Class A $ 81,761,267
-----------------------------------------------------------
Class B $ 65,389,757
-----------------------------------------------------------
Class C $ 23,931,856
-----------------------------------------------------------
Class K $ 1,128,636
-----------------------------------------------------------
Investor Class $632,450,343
-----------------------------------------------------------
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Class A 3,010,304
-----------------------------------------------------------
Class B 2,413,212
-----------------------------------------------------------
Class C 902,906
-----------------------------------------------------------
Class K 42,462
-----------------------------------------------------------
Investor Class 23,170,441
-----------------------------------------------------------
Class A:
Net asset value per share $ 27.16
-----------------------------------------------------------
Offering price per share:
(Net asset value of $27.16 / 94.50%) $ 28.74
-----------------------------------------------------------
Class B:
Net asset value and offering price per share $ 27.10
-----------------------------------------------------------
Class C:
Net asset value and offering price per share $ 26.51
-----------------------------------------------------------
Class K:
Net asset value and offering price per share $ 26.58
-----------------------------------------------------------
Investor Class:
Net asset value and offering price per share $ 27.30
-----------------------------------------------------------
See accompanying notes which are an integral part of the financial statements.
F-2
STATEMENT OF OPERATIONS
For the year ended March 31, 2005
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $275,832) $ 19,927,892
- -----------------------------------------------------------------------------------------------------
Dividends from affiliated money market funds 580,830
- -----------------------------------------------------------------------------------------------------
Total investment income 20,508,722
- -----------------------------------------------------------------------------------------------------
EXPENSES:
Advisory fees 6,238,104
- -----------------------------------------------------------------------------------------------------
Administrative services fees 305,430
- -----------------------------------------------------------------------------------------------------
Custodian fees 70,471
- -----------------------------------------------------------------------------------------------------
Distribution fees:
Class A 337,588
- -----------------------------------------------------------------------------------------------------
Class B 787,233
- -----------------------------------------------------------------------------------------------------
Class C 306,114
- -----------------------------------------------------------------------------------------------------
Class K 6,274
- -----------------------------------------------------------------------------------------------------
Investor Class 1,840,273
- -----------------------------------------------------------------------------------------------------
Transfer agent fees 2,698,643
- -----------------------------------------------------------------------------------------------------
Trustees' fees and retirement benefits 39,482
- -----------------------------------------------------------------------------------------------------
Other 472,069
- -----------------------------------------------------------------------------------------------------
Total expenses 13,101,681
- -----------------------------------------------------------------------------------------------------
Less:Fees waived, expenses reimbursed and expense offset arrangements (141,969)
- -----------------------------------------------------------------------------------------------------
Net expenses 12,959,712
- -----------------------------------------------------------------------------------------------------
Net investment income 7,549,010
- -----------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES AND FOREIGN CURRENCIES:
Net realized gain from:
Investment securities 92,852,002
- -----------------------------------------------------------------------------------------------------
Foreign currencies 67,088
- -----------------------------------------------------------------------------------------------------
92,919,090
- -----------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of:
Investment securities (135,097,683)
- -----------------------------------------------------------------------------------------------------
Foreign currencies (8,352)
- -----------------------------------------------------------------------------------------------------
(135,106,035)
- -----------------------------------------------------------------------------------------------------
Net gain (loss) from investment securities and foreign currencies (42,186,945)
- -----------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ (34,637,935)
- -----------------------------------------------------------------------------------------------------
See accompanying notes which are an integral part of the financial statements.
F-3
STATEMENT OF CHANGES IN NET ASSETS
For the years ended March 31, 2005 and 2004
2005
- --------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 7,549,010
- --------------------------------------------------------------------------------------------------------------------------
Net realized gain from investment securities and foreign currencies 92,919,090
- --------------------------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of investment securities and foreign currencies (135,106,035)
- --------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations (34,637,935)
- --------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class A (609,121)
- --------------------------------------------------------------------------------------------------------------------------
Class B (140,374)
- --------------------------------------------------------------------------------------------------------------------------
Class C (54,592)
- --------------------------------------------------------------------------------------------------------------------------
Class K (7,095)
- --------------------------------------------------------------------------------------------------------------------------
Investor Class (5,291,880)
- --------------------------------------------------------------------------------------------------------------------------
Total distributions from net investment income (6,103,062)
- --------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net realized gains:
Class A (7,597,576)
- --------------------------------------------------------------------------------------------------------------------------
Class B (6,185,077)
- --------------------------------------------------------------------------------------------------------------------------
Class C (2,405,416)
- --------------------------------------------------------------------------------------------------------------------------
Class K (101,359)
- --------------------------------------------------------------------------------------------------------------------------
Investor Class (58,366,582)
- --------------------------------------------------------------------------------------------------------------------------
Total distributions from net realized gains (74,656,010)
- --------------------------------------------------------------------------------------------------------------------------
Decrease in net assets resulting from distributions (80,759,072)
- --------------------------------------------------------------------------------------------------------------------------
Share transactions-net:
Class A (18,261,084)
- --------------------------------------------------------------------------------------------------------------------------
Class B (16,948,631)
- --------------------------------------------------------------------------------------------------------------------------
Class C (10,921,389)
- --------------------------------------------------------------------------------------------------------------------------
Class K (332,292)
- --------------------------------------------------------------------------------------------------------------------------
Investor Class (124,630,423)
- --------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from share transactions (171,093,819)
- --------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets (286,490,826)
- --------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 1,091,152,685
- --------------------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment income of $3,092,198 and $1,619,762, respectively) $ 804,661,859
- --------------------------------------------------------------------------------------------------------------------------
2004
- -------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 4,683,539
- -------------------------------------------------------------------------------------------------------------------------
Net realized gain from investment securities and foreign currencies 110,789,671
- -------------------------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of investment securities and foreign currencies 212,794,322
- -------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations 328,267,532
- -------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class A (32,046)
- -------------------------------------------------------------------------------------------------------------------------
Class B (173)
- -------------------------------------------------------------------------------------------------------------------------
Class C (1,386)
- -------------------------------------------------------------------------------------------------------------------------
Class K (4,801)
- -------------------------------------------------------------------------------------------------------------------------
Investor Class (2,983,902)
- -------------------------------------------------------------------------------------------------------------------------
Total distributions from net investment income (3,022,308)
- -------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net realized gains:
Class A --
- -------------------------------------------------------------------------------------------------------------------------
Class B --
- -------------------------------------------------------------------------------------------------------------------------
Class C --
- -------------------------------------------------------------------------------------------------------------------------
Class K --
- -------------------------------------------------------------------------------------------------------------------------
Investor Class --
- -------------------------------------------------------------------------------------------------------------------------
Total distributions from net realized gains --
- -------------------------------------------------------------------------------------------------------------------------
Decrease in net assets resulting from distributions (3,022,308)
- -------------------------------------------------------------------------------------------------------------------------
Share transactions-net:
Class A 91,472,322
- -------------------------------------------------------------------------------------------------------------------------
Class B 79,803,551
- -------------------------------------------------------------------------------------------------------------------------
Class C 21,470,386
- -------------------------------------------------------------------------------------------------------------------------
Class K (312,490)
- -------------------------------------------------------------------------------------------------------------------------
Investor Class (178,640,151)
- -------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from share transactions 13,793,618
- -------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets 339,038,842
- -------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 752,113,843
- -------------------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment income of $3,092,198 and $1,619,762, respectively) $1,091,152,685
- -------------------------------------------------------------------------------------------------------------------------
See accompanying notes which are an integral part of the financial statements.
F-4
NOTES TO FINANCIAL STATEMENTS
March 31, 2005
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Financial Services Fund, formerly INVESCO Financial Services Fund, (the
"Fund") is a series portfolio of AIM Sector Funds (the "Trust"). The Trust is a
Delaware statutory trust registered under the Investment Company Act of 1940,
as amended (the "1940 Act"), as an open-end series management investment
company consisting of seven separate portfolios, each authorized to issue an
unlimited number of shares of beneficial interest. The Fund currently offers
multiple classes of shares. Matters affecting each portfolio or class will be
voted on exclusively by the shareholders of such portfolio or class. The
assets, liabilities and operations of each portfolio are accounted for
separately. Information presented in these financial statements pertains only
to the Fund.
The Fund's investment objective is to seek capital growth. Each company
listed in the Schedule of Investments is organized in the United States of
America unless otherwise noted.
Under the Trust's organizational documents, 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. However, the Fund has not had prior claims or losses pursuant to
these contracts.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates. The following is a summary of the
significant accounting policies followed by the Fund in the preparation of its
financial statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy. A security listed or traded on an
exchange (except convertible bonds) is valued at its last sales price as of
the close of the customary trading session on the exchange where the
security is principally traded, or lacking any sales on a particular day,
the security is valued at the closing bid price on that day. Each security
traded in the over-the-counter market (but not securities reported on the
NASDAQ National Market System) is valued on the basis of prices furnished by
independent pricing services, 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 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 will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
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 market
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 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 and 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.
F-5
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 allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. DISTRIBUTIONS -- Distributions from income and net realized capital gain, if
any, are generally paid annually and recorded on ex-dividend date. The Fund
may elect to use a portion of the proceeds from redemptions as distributions
for federal income tax purposes.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
E. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
F. 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.
G. 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.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee based on the annual rate of the Fund's average
daily net assets as follows:
AVERAGE NET ASSETS RATE
-------------------------
First $350 million 0.75%
-------------------------
Next $350 million 0.65%
-------------------------
Next $1.3 billion 0.55%
-------------------------
Next $2 billion 0.45%
-------------------------
Next $2 billion 0.40%
-------------------------
Next $2 billion 0.375%
-------------------------
Over $8 billion 0.35%
-------------------------
Prior to September 30, 2004, AIM had entered into a sub-advisory agreement
with INVESCO Institutional (N.A.), Inc. ("INVESCO") whereby AIM paid INVESCO
40% of the fee paid by the Fund to AIM. Effective September 30, 2004, the
sub-advisory agreement between AIM and INVESCO was terminated.
AIM has voluntarily agreed to waive advisory fees and/or reimburse expenses
to the extent necessary to limit total annual operating expenses (excluding
certain items discussed below) of Class A, Class B, Class C, Class K and
Investor Class shares to 1.40%, 2.05%, 2.05%, 1.50% and 1.30% of average daily
net assets, respectively. AIM has contractually agreed to waive advisory fees
and/or reimburse expenses to the extent necessary to limit total annual
operating expenses (excluding certain items discussed below) of Class A, Class
B, Class C, Class K and Investor Class shares to 2.00%, 2.65%, 2.65%, 2.10% and
1.90% of average daily net assets, respectively, through March 31, 2006. In
determining the advisor's obligation to waive advisory fees and/or reimburse
expenses, the following expenses are not taken into account, and could cause
the total annual fund operating expenses to exceed the limits stated above: (i)
interest; (ii) taxes; (iii) dividend expense on short sales; (iv)
F-6
extraordinary items (these are expenses that are not anticipated to arise from
the Fund's day-to-day operations), or items designated as such by the Fund's
Board of Trustees; (v) expenses related to a merger or reorganization, as
approved by the Fund's Board of Trustees; and (vi) expenses that the Fund has
incurred but did not actually pay because of an expense offset arrangement.
Currently, in addition to the expense reimbursement arrangement with AMVESCAP
PLC ("AMVESCAP") described more fully below, the only expense offset
arrangements from which the Fund may benefit are in the form of credits that
the Fund receives from banks where the Fund or its transfer agent has deposit
accounts in which it holds uninvested cash. Those credits are used to pay
certain expenses incurred by the Fund. AIM did not waive fees and/or reimburse
expenses during the period under this expense limitation.
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 March 31, 2005, AIM waived fees of $15,532.
For the year ended March 31, 2005, at the request of the Trustees of the
Trust, AMVESCAP agreed to reimburse $113,345 of expenses incurred by the Fund
in connection with market timing matters in the AIM Funds, including legal,
audit, shareholder reporting, communications and trustee expenses. These
expenses along with the related expense reimbursement, are included in the
Statement of Operations.
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
March 31, 2005, AIM was paid $305,430.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AISI for certain expenses
incurred by AISI in the course of providing such services. AISI may make
payments to intermediaries that provide omnibus account services,
sub-accounting services and/or networking services. For the year ended March
31, 2005, the Fund paid AISI $2,698,643.
The Trust has entered into a master distribution agreement with A I M
Distributors, Inc. ("ADI") to serve as the distributor for the Class A, Class
B, Class C, Class K and Investor Class shares of the Fund. The Trust has
adopted plans pursuant to Rule 12b-1 under the 1940 Act with respect to the
Fund's Class A, Class B, Class C, Class K and Investor Class shares
(collectively the "Plans"). The Fund, pursuant to the Plans, pays ADI
compensation at the annual rate of 0.35% of the Fund's average daily net assets
of Class A shares, 1.00% of the average daily net assets of Class B and Class C
shares, 0.45% of the average daily net assets of Class K shares and 0.25% of
the average daily net assets of Investor Class shares. Of these amounts, up to
0.25% of the average daily net assets of the Class A, Class B, Class C, Class K
or Investor Class shares may be paid to furnish continuing personal shareholder
services to customers who purchase and own shares of such classes. Any amounts
not paid as a service fee under the Plans would constitute an asset-based sales
charge. NASD Rules also impose a cap on the total sales charges, including
asset-based sales charges that may be paid by any class of shares of the Fund.
Pursuant to the Plans, for the year ended March 31, 2005, the Class A, Class B,
Class C, Class K and Investor Class shares paid ADI $337,588, $787,233,
$306,114, $6,274 and $1,840,273, respectively.
Front-end sales commissions and contingent deferred sales charges ("CDSC")
(collectively the "sales charges") are not recorded as expenses of the Fund.
Front-end sales commissions are deducted from proceeds from the sales of Fund
shares prior to investment in Class A shares of the Fund. CDSC are deducted
from redemption proceeds prior to remittance to the shareholder. During the
year ended March 31, 2005, ADI advised the Fund that it retained $21,120 in
front-end sales commissions from the sale of Class A shares and $203, $11,539,
$3,138 and $0 from Class A, Class B, Class C and Class K shares, respectively,
for CDSC imposed upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of AIM,
AISI and/or ADI.
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 fund 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 an affiliated money market
fund for the year ended March 31, 2005.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS FROM APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 03/31/04 AT COST SALES (DEPRECIATION) 03/31/05 INCOME GAIN (LOSS)
- --------------------------------------------------------------------------------------------------------------------------------
Premier Portfolio-Institutional Class* $15,428,440 $262,481,563 $(252,571,320) $-- $25,338,683 $580,830 $--
- --------------------------------------------------------------------------------------------------------------------------------
* On February 25, 2005, the Premier Portfolio investments were transferred from
the original share class with no name designation to the newly structured
share class designated as Institutional Class.
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
The Fund is permitted to purchase or sell securities from or to certain other
AIM Funds under specified conditions outlined in procedures adopted by the
Board of Trustees of the Trust. The procedures have been designed to ensure
that any purchase or sale of securities by the Fund from or to another fund or
portfolio that is or could be considered an affiliate by virtue of having a
common investment advisor (or affiliated investment advisors), common Trustees
and/or common officers complies with Rule 17a-7 of the 1940 Act. Further, as
defined under the procedures, each transaction is effected at the current
market price. Pursuant to these procedures, during the year ended March 31,
2005, the Fund engaged in purchases and sales of securities of $4,252,743 and
$0, respectively.
F-7
NOTE 5--EXPENSE OFFSET ARRANGEMENTS
The expense offset arrangements are comprised of (i) transfer agency credits
which result from balances in Demand Deposit Accounts (DDA) used by the
transfer agent for clearing shareholder transactions and (ii) custodian credits
which result from periodic overnight cash balances at the custodian. For the
year ended March 31, 2005, the Fund received credits from these arrangements
which resulted in the reduction of the Fund's total expenses of $13,092.
NOTE 6--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each Trustee of the Trust who is
not an "interested person" of AIM. Trustees have the option to defer
compensation payable by the Trust. Those Trustees who defer compensation have
the option to select various AIM Funds in which their deferral accounts shall
be deemed to be invested.
Current Trustees are eligible to participate in a retirement plan that
provides for benefits to be paid upon retirement to Trustees over a period of
time based on the number of years of service. The Fund may have certain former
Trustees that also participate in a retirement plan and receive benefits under
such plan.
Obligations under the deferred compensation and retirement plans represent
unsecured claims against the general assets of the Fund.
During the year ended March 31, 2005, the Fund paid legal fees of $6,684 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 7--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate
available on investments in overnight repurchase agreements) is favorable to
both the lending fund and the borrowing fund. A loan will be secured by
collateral if the Fund's aggregate borrowings from all sources exceeds 10% of
the Fund's total assets. To the extent that the loan is required to be secured
by collateral, the collateral is marked to market daily to ensure that the
market value is at least 102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to
the credit facility can borrow on a first come, first served basis. Principal
on each loan outstanding shall bear interest at the bid rate quoted by SSB at
the time of the request for the loan.
During the year ended March 31, 2005, the Fund did not borrow or lend under
the interfund lending facility or borrow under the uncommitted unsecured
revolving credit facility.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, the custodian bank. To compensate
the custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds in the account so the custodian can be compensated by earning the
additional interest; or (ii) compensate by paying the custodian bank. In either
case, the custodian bank will be compensated at an amount equal to the Federal
Funds rate plus 100 basis points.
NOTE 8--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
The tax character of distributions paid during the years ended March 31, 2005
and 2004 were as follows:
2005 2004
-----------------------------------------------
Distributions paid from:
Ordinary income $16,719,790 $3,022,308
-----------------------------------------------
Long-term capital gain 64,039,282 --
-----------------------------------------------
Total distributions $80,759,072 $3,022,308
-----------------------------------------------
TAX COMPONENTS OF NET ASSETS:
As of March 31, 2005, the components of net assets on a tax basis were as
follows:
2005
-------------------------------------------------
Undistributed ordinary income $ 3,220,360
-------------------------------------------------
Undistributed long-term gain 46,597,065
-------------------------------------------------
Unrealized appreciation-investments 138,560,740
-------------------------------------------------
Temporary book/tax differences (128,162)
-------------------------------------------------
Shares of beneficial interest 616,411,856
-------------------------------------------------
Total net assets $804,661,859
-------------------------------------------------
F-8
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 (depreciation) difference is attributable primarily to the
deferral of losses on wash sales.
The temporary book/tax differences are a result of timing differences between
book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan expenses.
The Fund does not have a capital loss carryforward as of March 31, 2005.
NOTE 9--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
March 31, 2005 was $478,435,076 and $733,512,520, respectively.
At the request of the Trustees, AIM recovered third party research credits
during the year ended March 31, 2005, in the amount of $24,776. These research
credits were recorded as realized gains.
UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENT SECURITIES ON A TAX BASIS
--------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $167,640,531
--------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (29,079,791)
--------------------------------------------------------------------------
Net unrealized appreciation of investment securities $138,560,740
--------------------------------------------------------------------------
Cost of investments for tax purposes is $665,895,249.
NOTE 10--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of foreign currency
transactions, the use of a portion of the proceeds from redemptions as
distributions and expenses related to the plan of reorganization on March 31,
2005, undistributed net investment income was increased by $26,488,
undistributed net realized gain was decreased by $4,781,713 and shares of
beneficial interest increased by $4,755,225. This reclassification had no
effect on the net assets of the Fund.
F-9
NOTE 11--SHARE INFORMATION
The Fund currently offers five different classes of shares: Class A shares,
Class B shares, Class C shares, Class K shares and Investor Class shares. Class
A shares are sold with a front-end sales charge. Class B shares and Class C
shares are sold with CDSC. Class K shares and Investor Class shares are sold at
net asset value. Under certain circumstances, Class A shares and Class K shares
are subject to CDSC. Generally, Class B shares will automatically convert to
Class A shares eight years after the end of the calendar month of purchase.
CHANGES IN SHARES OUTSTANDING/(A)/
- ----------------------------------------------------------------------------------------------------------------
YEAR ENDED MARCH 31,
-----------------------------------------------------
2005 2004
------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------
Sold:
Class A 266,900 $ 7,830,418 323,245 $ 9,111,783
- ----------------------------------------------------------------------------------------------------------------
Class B 101,606 2,984,407 72,301 2,133,683
- ----------------------------------------------------------------------------------------------------------------
Class C 70,133 2,026,953 490,530 12,968,828
- ----------------------------------------------------------------------------------------------------------------
Class K 18,153 527,485 76,064 1,972,353
- ----------------------------------------------------------------------------------------------------------------
Investor Class 1,488,790 43,945,228 9,260,845 236,882,896
- ----------------------------------------------------------------------------------------------------------------
Issued as reinvestment of dividends:
Class A 266,982 7,643,700 1,032 27,971
- ----------------------------------------------------------------------------------------------------------------
Class B 206,921 5,922,067 6 161
- ----------------------------------------------------------------------------------------------------------------
Class C 82,697 2,314,688 43 1,136
- ----------------------------------------------------------------------------------------------------------------
Class K 3,869 108,455 181 4,801
- ----------------------------------------------------------------------------------------------------------------
Investor Class 2,145,370 61,722,150 105,190 2,862,271
- ----------------------------------------------------------------------------------------------------------------
Issued in connection with acquisitions:/(b)/
Class A -- -- 3,643,293 99,414,455
- ----------------------------------------------------------------------------------------------------------------
Class B -- -- 3,213,587 87,853,557
- ----------------------------------------------------------------------------------------------------------------
Class C -- -- 975,439 26,155,491
- ----------------------------------------------------------------------------------------------------------------
Automatic conversion of Class B shares to Class A shares:
Class A 158,966 4,634,274 63,785 1,907,801
- ----------------------------------------------------------------------------------------------------------------
Class B (159,324) (4,634,274) (63,734) (1,907,801)
- ----------------------------------------------------------------------------------------------------------------
Reacquired:
Class A (1,308,010) (38,369,476) (650,835) (18,989,688)
- ----------------------------------------------------------------------------------------------------------------
Class B (725,853) (21,220,831) (277,826) (8,276,049)
- ----------------------------------------------------------------------------------------------------------------
Class C (531,289) (15,263,030) (653,670) (17,655,069)
- ----------------------------------------------------------------------------------------------------------------
Class K (33,160) (968,232) (86,005) (2,289,644)
- ----------------------------------------------------------------------------------------------------------------
Investor Class (7,815,338) (230,297,801) (15,751,038) (418,385,318)
- ----------------------------------------------------------------------------------------------------------------
(5,762,587) $(171,093,819) 742,433 $ 13,793,618
- ----------------------------------------------------------------------------------------------------------------
/(a)/There is one entity that is a record owner of more than 5% of the
outstanding shares of the Fund and it owns 23% of the outstanding shares of
the Fund. AIM Distributors has an agreement with this entity to sell Fund
shares. The Fund, AIM and/or AIM affiliates may make payments to this
entity, which is considered to be related to the Fund, for providing
services to the Fund, AIM and/or AIM affiliates including but not limited
to services such as, securities brokerage, distribution, third party record
keeping and account servicing. The Trust has no knowledge as to whether all
or any portion of the shares owned of record by this entity are also owned
beneficially.
/(b)/As of the opening of business on November 24, 2003, the Fund acquired all
of the net assets of AIM Global Financial Services Fund pursuant to a plan
of reorganization approved by the Trustees of the Fund on June 9, 2003 and
of AIM Global Financial Services Fund shareholders on October 28, 2003. The
acquisition was accomplished by a tax-free exchange of 7,832,319 shares of
the Fund for 9,618,940 shares of of AIM Global Financial Services Fund
outstanding as of the close of business on November 21, 2003. AIM Global
Financial Services Fund's net assets at that date of $213,423,503,
including $28,871,384 of unrealized appreciation, were combined with those
of the Fund. The aggregate net assets of the Fund immediately before the
acquisition were $858,824,755.
F-10
NOTE 12--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
CLASS A
-----------------------------------
YEAR ENDED MARCH 31,
-----------------------------------
2005 2004 2003
- --------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 30.83 $ 21.68 $ 28.22
- --------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.23/(a)/ 0.16/(a)/ 0.06
- --------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) (1.19) 9.10 (6.37)
- --------------------------------------------------------------------------------------------------------
Total from investment operations (0.96) 9.26 (6.31)
- --------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.20) (0.11) (0.20)
- --------------------------------------------------------------------------------------------------------
Distributions from net realized gains (2.51) -- (0.03)
- --------------------------------------------------------------------------------------------------------
Total distributions (2.71) (0.11) (0.23)
- --------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 27.16 $ 30.83 $ 21.68
- --------------------------------------------------------------------------------------------------------
Total return/(b)/ (3.57)% 42.78% (22.36)%
- --------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $81,761 $111,766 $ 5,311
- --------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.38%/(c)/ 1.41% 1.38%
- --------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.39%/(c)/ 1.66% 1.51%
- --------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 0.79%/(c)/ 0.55% 0.49%
- --------------------------------------------------------------------------------------------------------
Portfolio turnover rate 53% 57% 60%
- --------------------------------------------------------------------------------------------------------
/(a)/Calculated using average shares outstanding.
/(b)/Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net
asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges.
/(c)/Ratios are based on average daily net assets of $96,453,575.
F-11
NOTE 12--FINANCIAL HIGHLIGHTS (CONTINUED)
CLASS B
-----------------------------------
YEAR ENDED MARCH 31,
-----------------------------------
2005 2004 2003
- --------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 30.82 $ 21.74 $ 28.22
- --------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.04/(a)/ (0.03)/(a)/ (0.03)
- --------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) (1.19) 9.11 (6.30)
- --------------------------------------------------------------------------------------------------------
Total from investment operations (1.15) 9.08 (6.33)
- --------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.06) (0.00) (0.11)
- --------------------------------------------------------------------------------------------------------
Distributions from net realized gains (2.51) -- (0.04)
- --------------------------------------------------------------------------------------------------------
Total distributions (2.57) (0.00) (0.15)
- --------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 27.10 $ 30.82 $ 21.74
- --------------------------------------------------------------------------------------------------------
Total return/(b)/ (4.19)% 41.78% (22.48)%
- --------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $65,390 $92,137 $ 990
- --------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 2.03%/(c)/ 2.06% 2.09%
- --------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 2.04%/(c)/ 2.34% 2.40%
- --------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets 0.14%/(c)/ (0.10)% (0.20)%
- --------------------------------------------------------------------------------------------------------
Portfolio turnover rate 53% 57% 60%
- --------------------------------------------------------------------------------------------------------
/(a)/Calculated using average shares outstanding.
/(b)/Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and returns for shareholder
transactions. Does not include sales charges.
/(c)/Ratios are based on average daily net assets of $78,723,304.
CLASS C
--------------------------------------------------
YEAR ENDED MARCH 31,
--------------------------------------------------
2005 2004 2003 2002
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 30.20 $ 21.38 $ 27.89 $ 28.72
- ----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.04/(a)/ (0.12)/(a)/ (0.25) (0.10)
- ----------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) (1.16) 8.94 (6.22) 0.87
- ----------------------------------------------------------------------------------------------------------------------
Total from investment operations (1.12) 8.82 (6.47) 0.77
- ----------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.06) (0.00) -- --
- ----------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (2.51) -- (0.04) (1.60)
- ----------------------------------------------------------------------------------------------------------------------
Total distributions (2.57) (0.00) (0.04) (1.60)
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 26.51 $ 30.20 $ 21.38 $ 27.89
- ----------------------------------------------------------------------------------------------------------------------
Total return/(b)/ (4.18)% 41.27% (23.22)% 2.98%
- ----------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $23,932 $38,696 $10,026 $16,880
- ----------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 2.03%/(c)(d)/ 2.38% 2.45% 2.07%
- ----------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets 0.14%/(c)/ (0.42)% (0.68)% (0.57)%
- ----------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 53% 57% 60% 81%
- ----------------------------------------------------------------------------------------------------------------------
--------
--------
2001
- --------------------------------------------------------------------------------
Net asset value, beginning of period $ 27.06
- --------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.09)/(a)/
- --------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) 3.05
- --------------------------------------------------------------------------------
Total from investment operations 2.96
- --------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.08)
- --------------------------------------------------------------------------------
Distributions from net realized gains (1.22)
- --------------------------------------------------------------------------------
Total distributions (1.30)
- --------------------------------------------------------------------------------
Net asset value, end of period $ 28.72
- --------------------------------------------------------------------------------
Total return/(b)/ 10.87%
- --------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $12,221
- --------------------------------------------------------------------------------
Ratio of expenses to average net assets 1.85%
- --------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (0.31)%
- --------------------------------------------------------------------------------
Portfolio turnover rate 99%
- --------------------------------------------------------------------------------
/(a)/Calculated using average shares outstanding.
/(b)/Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net
asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges.
/(c)/Ratios are based on average daily net assets of $30,611,411.
/(d)/After fee waivers and/or expense reimbursements. Ratio of expense to
average net assets prior to fee waivers and/or expense reimbursements was
2.04%.
F-12
NOTE 12--FINANCIAL HIGHLIGHTS (CONTINUED)
CLASS K
-----------------------------------------------
YEAR ENDED MARCH 31,
-----------------------------------------
2005 2004 2003 2002
- -------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $30.23 $21.27 $ 27.69 $28.67
- -------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.20/(a)/ 0.12/(a)/ 0.15 (0.03)/(a)/
- -------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) (1.16) 8.93 (6.41) 0.90
- -------------------------------------------------------------------------------------------------------------------
Total from investment operations (0.96) 9.05 (6.26) 0.87
- -------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.18) (0.09) (0.12) (0.25)
- -------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (2.51) -- (0.04) (1.60)
- -------------------------------------------------------------------------------------------------------------------
Total distributions (2.69) (0.09) (0.16) (1.85)
- -------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $26.58 $30.23 $ 21.27 $27.69
- -------------------------------------------------------------------------------------------------------------------
Total return/(b)/ (3.66)% 42.61% (22.62)% 3.38%
- -------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,129 $1,621 $ 1,348 $1,033
- -------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.48%/(c)/ 1.51% 1.78% 1.63%
- -------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.49%/(c)/ 2.24% 2.13% 1.63%
- -------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets 0.69%/(c)/ 0.45% 0.18% (0.12)%
- -------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate/(e)/ 53% 57% 60% 81%
- -------------------------------------------------------------------------------------------------------------------
------------
NOVEMBER 30,
2000 (DATE SALES
COMMENCED) TO
MARCH 31,
2001
----------------
- -------------------------------------------------------------------
Net asset value, beginning of period $29.35
- -------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.17)
- -------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) (0.38)
- -------------------------------------------------------------------------------------
Total from investment operations (0.55)
- -------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.13)
- -------------------------------------------------------------------------------------
Distributions from net realized gains --
- -------------------------------------------------------------------------------------
Total distributions (0.13)
- -------------------------------------------------------------------------------------
Net asset value, end of period $28.67
- -------------------------------------------------------------------------------------
Total return/(b)/ (1.97)%
- -------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 1
- -------------------------------------------------------------------------------------
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 3.35%/(d)/
- -------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 3.35%/(d)/
- -------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (1.80)%/(d)/
- -------------------------------------------------------------------------------------
Portfolio turnover rate/(e)/ 99%
- -------------------------------------------------------------------------------------
/(a)/Calculated using average shares outstanding.
/(b)/Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and returns for shareholder
transactions.
/(c)/Ratios are based on average daily net assets of $1,394,171.
/(d)/Annualized.
/(e)/Not annualized for periods less than one year.
F-13
NOTE 12--FINANCIAL HIGHLIGHTS (CONTINUED)
INVESTOR CLASS
------------------------------------------------------
YEAR ENDED MARCH 31,
------------------------------------------------------
2005 2004 2003 2002
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 30.96 $ 21.77 $ 28.22 $ 28.88
- --------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.27/(a)/ 0.15/(a)/ 0.10 0.07
- --------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) (1.19) 9.14 (6.42) 0.94
- --------------------------------------------------------------------------------------------------------------------------
Total from investment operations (0.92) 9.29 (6.32) 1.01
- --------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.23) (0.10) (0.10) (0.07)
- --------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (2.51) -- (0.03) (1.60)
- --------------------------------------------------------------------------------------------------------------------------
Total distributions (2.74) (0.10) (0.13) (1.67)
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 27.30 $ 30.96 $ 21.77 $ 28.22
- --------------------------------------------------------------------------------------------------------------------------
Total return/(b)/ (3.44)% 42.73% (22.39)% 3.82%
- --------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $632,450 $846,933 $734,440 $1,234,230
- --------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 1.28%/(c)(d)/ 1.42% 1.40% 1.27%
- --------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 0.89%/(c)/ 0.54% 0.38% 0.24%
- --------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 53% 57% 60% 81%
- --------------------------------------------------------------------------------------------------------------------------
-----------
-----------
2001
- ------------------------------------------------------------------------------
Net asset value, beginning of period $ 27.13
- ------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.10
- ------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) 2.97
- ------------------------------------------------------------------------------
Total from investment operations 3.07
- ------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.10)
- ------------------------------------------------------------------------------
Distributions from net realized gains (1.22)
- ------------------------------------------------------------------------------
Total distributions (1.32)
- ------------------------------------------------------------------------------
Net asset value, end of period $ 28.88
- ------------------------------------------------------------------------------
Total return/(b)/ 11.25%
- ------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,368,583
- ------------------------------------------------------------------------------
Ratio of expenses to average net assets 1.25%
- ------------------------------------------------------------------------------
Ratio of net investment income to average net assets 0.36%
- ------------------------------------------------------------------------------
Portfolio turnover rate 99%
- ------------------------------------------------------------------------------
/(a)/Calculated using average shares outstanding.
/(b)/Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net
asset values may differ from the net asset value and returns for
shareholder transactions.
/(c)/Ratios are based on average daily net assets of $736,109,176.
/(d)/After fee waivers and/or expense reimbursements. Ratio of expense to
average net assets prior to fee waivers and/or expense reimbursements was
1.29%.
F-14
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
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds) and A I M Advisors, Inc. ("AIM") (the Fund's
investment advisor) reached final settlements with certain regulators,
including without limitation the Securities and Exchange Commission ("SEC"),
the New York Attorney General ("NYAG") and the Colorado Attorney General
("COAG"), to resolve civil enforcement actions and investigations related to
market timing activity and related issues in the AIM Funds, including those
formerly advised by IFG. These regulators alleged, in substance, that IFG and
AIM failed to disclose in the prospectuses for the AIM Funds that they advised
and to the independent directors/trustees of such Funds that they had entered
into certain arrangements permitting market timing of such Funds, thereby
breaching their fiduciary duties to such Funds. As a result of the foregoing,
the regulators alleged that IFG and AIM breached various Federal and state
securities, business and consumer protection laws. On the same date, A I M
Distributors, Inc. ("ADI") (the distributor of the retail AIM Funds) reached a
final settlement with the SEC to resolve an investigation relating to market
timing activity and related issues in the AIM Funds. The SEC also alleged that
ADI violated various Federal securities laws. The SEC also has settled related
market timing enforcement actions brought against certain former officers and
employees of IFG.
Under the terms of the settlements, IFG agreed to pay a total of $325
million, of which $110 million is civil penalties. Of this $325 million total
payment, half has been paid and the remaining half will be paid on or before
December 31, 2005. AIM and ADI agreed to pay a total of $50 million, of which
$30 million is civil penalties, all of which has been paid. The entire $325
million IFG settlement fund will be made available for distribution to the
shareholders of those AIM Funds that IFG formerly advised that were harmed by
market timing activity, and the entire $50 million settlement fund by AIM and
ADI will be made available for distribution to the shareholders of those AIM
Funds advised by AIM that were harmed by market timing activity, all as to be
determined by an independent distribution consultant. The IFG and AIM
settlement 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. The settlement funds will be
distributed in accordance with a methodology to be determined by the
independent distribution consultant, in consultation with AIM and the
independent trustees of the AIM Funds and acceptable to the staff of the SEC.
Under the settlements with the NYAG and COAG, AIM has agreed to reduce
management fees on certain equity and balanced AIM Funds by $15 million per
year for the next five years, based upon effective fee rates and assets under
management as of July 1, 2004, not to increase certain management fees and to
provide more information to investors regarding fees.
Under the terms of the settlements, AIM is undertaking certain governance and
compliance reforms, including maintaining an internal controls committee and
retaining an independent compliance consultant and a corporate ombudsman. Also,
commencing in 2007 and at least once every other year thereafter, AIM will
undergo a compliance review by an independent third party. In addition, under
the terms of the settlements, AIM has undertaken to cause the AIM Funds to
operate in accordance with certain governance policies and practices, including
retaining a full-time independent senior officer whose duties include
monitoring compliance and managing the process by which proposed management
fees to be charged the AIM Funds are negotiated. Also, commencing in 2008 and
not less than every fifth calendar year thereafter, the AIM Funds will hold
shareholder meetings at which their Boards of Trustees will be elected.
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
such Funds related to market timing matters.
The SEC has also settled market timing enforcement actions against Raymond R.
Cunningham (the former president and chief executive officer of IFG and a
former member of the board of directors of the AIM Funds formerly advised by
IFG), Timothy J. Miller (the former chief investment officer and a former
portfolio manager for IFG), Thomas A. Kolbe (the former national sales manager
of IFG) and Michael D. Legoski (a former assistant vice president in IFG's
sales department). As part of these settlements, the SEC ordered these
individuals to pay restitution and civil penalties in various amounts and
prohibited them from associating with, or serving as an officer or director of,
an investment advisor, broker, dealer and/or investment company, as applicable,
for certain periods of time.
The payments made in connection with the above-referenced settlements by IFG,
AIM and ADI will total approximately $375 million (not including AIM's
agreement to reduce management fees on certain equity and balanced AIM Funds by
$15 million per year for the next five years, based upon effective fee rates
and assets under management as of July 1, 2004). The manner in which the
settlement payments will be distributed is unknown at the present time and will
be determined by an independent distribution consultant appointed under the
settlement agreements. Therefore, management of AIM and the Fund are unable at
the present time to estimate the impact, if any, that the distribution of the
settlement payments may have on the Fund or whether such distribution will have
an impact on the Fund's financial statements 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, ADI or the Fund.
REGULATORY INQUIRIES AND PENDING LITIGATION
The mutual fund industry as a whole is currently subject to regulatory
inquiries and litigation related to a wide range of issues. These issues
include, among others, market timing activity, late trading, fair value
pricing, excessive or improper advisory and/or distribution fees, mutual fund
sales practices, including but not limited to revenue sharing and
directed-brokerage arrangements, investments in securities of other registered
investment companies, contractual plans, issues related to Section 529 college
savings plans, procedures for locating lost security holders and participation
in class action settlements.
As described more fully below, IFG and AIM are the subject of a number of
ongoing regulatory inquiries and civil lawsuits related to one or more of the
issues currently being scrutinized by various Federal and state regulators,
including but not limited to those issues described above. Additional
regulatory actions and/or civil lawsuits related to the above or other issues
may be filed against the AIM Funds, IFG, AIM and/or related entities and
individuals in the future. Additional regulatory inquiries related to the above
or other issues also may be received by the AIM Funds, IFG, AIM and/or related
entities and individuals in the future.
F-15
NOTE 13--LEGAL PROCEEDINGS (CONTINUED)
Ongoing Regulatory Inquiries Concerning IFG and AIM
IFG, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds formerly advised by IFG have received
regulatory inquiries in the form of subpoenas or other oral or written requests
for information and/or documents related to one or more of the following
issues, some of which concern one or more such 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, and investments in securities of other
registered investment companies. These regulators include the SEC, the NASD,
Inc. ("NASD"), the Florida Department of Financial Services, the Attorney
General of the State of West Virginia, the West Virginia Securities Commission
and the Bureau of Securities of the State of New Jersey. IFG and certain of
these other parties also have received more limited inquiries from the United
States Department of Labor ("DOL") and the United States Attorney's Office for
the Southern District of New York, some of which concern one or more of the AIM
Funds formerly advised by IFG. IFG is providing full cooperation with respect
to these inquiries.
AIM, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds have received regulatory inquiries in the form
of subpoenas or other oral or written requests for information and/or documents
related to one or more of the following issues, some of which concern one or
more AIM Funds: market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including revenue sharing and directed-brokerage arrangements,
investments in securities of other registered investment companies, contractual
plans, issues related to Section 529 college savings plans and procedures for
locating lost securityholders. These regulators include the SEC, the NASD, the
Department of Banking for the State of Connecticut, the Attorney General of the
State of West Virginia, the West Virginia Securities Commission and the Bureau
of Securities of the State of New Jersey. AIM and certain of these other
parties also have received more limited inquiries from the SEC, the NASD, the
DOL, the Internal Revenue Service, the United States Attorney's Office for the
Southern District of New York, the United States Attorney's Office for the
Central District of California, the United States Attorney's Office for the
District of Massachusetts, the Massachusetts Securities Division, the U.S.
Postal Inspection Service and the Commodity Futures Trading Commission, some of
which concern one or more AIM Funds. AIM is providing full cooperation with
respect to these inquiries.
Pending Regulatory Civil Action Alleging Market Timing
On April 12, 2005, the Attorney General of the State of West Virginia
("WVAG") filed civil proceedings 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 these proceedings. 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 (S) 46A-1-101, et seq. (the West Virginia Consumer Credit and Protection
Act). The WVAG complaint is seeking injunctive relief; civil monetary
penalties; a writ of quo warranto against the defendants; pre-judgment and
post-judgment interest; costs and expenses, including counsel fees; and other
relief.
If AIM is unsuccessful in its defense of the WVAG proceedings, it could be
barred from serving as an investment adviser 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 your Fund.
Your 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 your Fund's
investment advisor. There is no assurance that such exemptive relief will be
granted.
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, certain
related entities, certain of their current and former officers and/or certain
unrelated third parties) making allegations that are similar in many respects
to those in the settled regulatory actions brought by the SEC, the NYAG and the
COAG concerning market timing 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.
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
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. The plaintiffs in two of the underlying lawsuits
continue to seek remand of their lawsuit to state court.
Private Civil Actions Alleging Improper Use of Fair Value Pricing
Multiple civil class action lawsuits have been filed against various parties
(including, depending on the lawsuit, certain 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. Based on a recent court decision, the state court
action has been removed to Federal court.
F-16
NOTE 13--LEGAL PROCEEDINGS (CONTINUED)
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. All of these lawsuits have been
transferred to the United States District Court for the Southern District of
Texas, Houston Division and subsequently consolidated for pre-trial purposes
into one lawsuit.
Private Civil Actions Alleging Improper Charging of Distribution Fees on
Limited Offering Funds or Share Classes
Multiple civil lawsuits, including shareholder derivative suits, have been
filed against various parties (including, depending on the lawsuit, IFG, AIM,
ADI and/or certain of the trustees of the AIM Funds) alleging that the
defendants breached their fiduciary duties by charging distribution fees while
funds and/or specific share classes were closed generally to new investors
and/or while other share classes of the same fund were not charged the same
distribution fees. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the
Federal securities laws; and (ii) breach of fiduciary duty. These lawsuits have
been filed in Federal courts and seek such remedies as damages; injunctive
relief; and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Mutual Fund Sales Practices and
Directed-Brokerage Arrangements
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, AIM Management, IFG, AIM, AIM Investment Services, Inc. ("AIS")
and/or certain of the trustees of the AIM 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. These actions have been
consolidated for pre-trial purposes.
Private Civil Action Alleging Failure to Ensure Participation in Class Action
Settlements
A civil lawsuit, purporting to be a class action lawsuit, has been filed
against AIM, IINA, A I M Capital Management, Inc. and the trustees of the AIM
Funds alleging that the defendants breached their fiduciary duties by failing
to ensure that the AIM Funds participated in class action settlements in which
the AIM Funds were eligible to participate. This lawsuit alleges as theories of
recovery: (i) violation of various provisions of the Federal securities laws;
(ii) common law breach of fiduciary duty; and (iii) common law negligence. This
lawsuit has been filed in Federal court and seeks such remedies as compensatory
and punitive damages; forfeiture of all commissions and fees paid by the class
of plaintiffs; and costs and attorneys' fees.
* * * * * * * * * * * * * *
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.
F-17
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees
and Shareholders of AIM Financial Services 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 the AIM Financial Services Fund,
formerly known as INVESCO Financial Services Fund (one of the funds
constituting AIM Sector Funds, hereafter referred to as the "Fund") at March
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 March 31, 2005 by
correspondence with the custodian, provide a reasonable basis for our opinion.
/s/ PRICEWATERHOUSECOOPERS LLP
May 20, 2005
Houston, Texas
OTHER INFORMATION
TRUSTEES AND OFFICERS
As of March 31, 2005
The address of each trustee and officer of AIM Sector Funds (the "Trust"), is
11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 114
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.
NAME, YEAR OF BIRTH AND
POSITIONS(S) HELD WITH THE TRUSTEE AND/ PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
TRUST OR OFFICER SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- ---------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- ---------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham/1 /-- 1946 2003 Director and Chairman, A I M Management None
Trustee, Vice Chair and President Group Inc. (financial services holding
company); Director and Vice Chairman,
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 1998 Director, President and Chief Executive None
Trustee and Executive Vice President Officer, A I M Management Group Inc.;
Director, Chairman 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
(parent of AIM and a global investment
management firm)
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
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- ---------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett/3 /-- 1944 2003 Chairman, Crockett Technology ACE Limited (insurance
Trustee and Chair Associates (technology consulting company); and Captaris, Inc.
company) (unified messaging provider)
- ---------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 1983 Retired None
Trustee
- ---------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2003 Retired Badgley Funds, Inc. (registered
Trustee investment company)
Formerly: Partner, law firm of Baker &
McKenzie
- ---------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2000 Co-President and Founder, Green, None
Trustee Manning & Bunch Ltd., (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 None
Trustee private business corporations,
including the Boss Group Ltd. (private
investment and management); Cortland
Trust, Inc. (Chairman) (registered
investment company); Annuity and Life
Re (Holdings), Ltd. (insurance
company); and CompuDyne Corporation
(provider of products and services to
the public security market)
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 2003 Retired None
Trustee
Formerly: Chairman, Mercantile Mortgage
Corp.; President and Chief Operating
Officer, Mercantile-Sale Deposit &
Trust Co.; and President, Mercantile
Bankshares Corp.
- ---------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 2003 Chief Executive Officer, Twenty First Administaff and Discovery
Trustee Century Group, Inc. (government affairs Global Education Fund (non-
company) (owner) Dos Angelos Ranch, L.P. profit)
Formerly: Chief Executive Officer,
Texana Timber LP (sustainable forestry
company)
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 2003 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company)
- ---------------------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis -- 1933 2000 Chairman, Lawsuit Resolution Services General Chemical Group, Inc.
Trustee (San Diego, California)
- ---------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 2003 Formerly: Chief Executive Officer, YMCA None
Trustee of the USA
- ---------------------------------------------------------------------------------------------------------------------------------
/(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. Prior to
October 4, 2004, Mr. Graham served as Chairman of the Board of Trustees
of 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.
/(3)/ Mr. Crockett was elected Chair of the Board of Trustees of the Trust
effective October 4, 2004.
Trustees and Officers (continued)
As of March 31, 2005
The address of each trustee and officer of AIM Sector Funds (the "Trust"), is
11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 114
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.
Name, Year of Birth and
Position(s) Held with the Trustee and/ Principal Occupation(s) During Past 5 Other Directorship(s)
Trust or Officer Since Years Held by Trustee
- ----------------------------------------------------------------------------------------------------------------------
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
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Other Officers
- ----------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley/4 /-- 1959 2004 Senior Vice President, A I M Management N/A
Senior Vice President and Chief Group Inc.; Senior Vice President and
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., A I M
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/5 /-- 1958 2005 Formerly: Director of Compliance and N/A
Senior Vice President Assistant General Counsel, ICON
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 Secretary and General Counsel, A I M
Chief Legal Officer Management Group Inc. and A I M
Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Vice President, A I M Capital
Management, Inc., and A I M Investment
Services, Inc.; Director, Vice
President and General Counsel, Fund
Management Company; and Senior Vice
President, A I M Distributors, Inc.
Formerly: Senior Vice President and
General Counsel, Liberty Financial
Companies, Inc.; and Senior Vice
President and General Counsel, Liberty
Funds Group, LLC.; and Vice President,
A I M Distributors, Inc.
- ----------------------------------------------------------------------------------------------------------------------
Robert G. Alley -- 1948 2003 Managing Director, Chief Fixed Income N/A
Vice President Officer and Senior Investment Officer,
A I M Capital Management, Inc. and Vice
President, A I M Advisors, Inc.
- ----------------------------------------------------------------------------------------------------------------------
Stuart W. Coco -- 1955 2003 Managing Director and Director of Money N/A
Vice President Market Research and Special Projects,
A I M Capital Management, Inc.; and
Vice President, A I M Advisors, Inc.
- ----------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, N/A
Vice President and Treasurer A I M Advisors, Inc.
Formerly: Senior Vice President, A I M
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- ----------------------------------------------------------------------------------------------------------------------
J. Phillip Ferguson/6 /-- 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.; Chief
Equity Officer, and Senior Investment
Officer, A I M Capital Management,
Inc.; and Managing Partner, Beutel,
Goodman Capital Management
- ----------------------------------------------------------------------------------------------------------------------
Mark D. Greenberg -- 1957 2004 Senior Vice President and Senior N/A
Vice President Portfolio Manager, A I M Capital
Management, Inc.
Formerly: Senior Vice President and
Senior Portfolio Manager, INVESCO
Institutional (N.A.), Inc.
- ----------------------------------------------------------------------------------------------------------------------
William R. Keithler -- 1952 2004 Senior Vice President and Senior N/A
Vice President Portfolio Manager, A I M Capital
Management, Inc.
Formerly: Senior Vice President,
Director of Sector Management and
Senior Portfolio Manager, INVESCO
Institutional (N.A.), Inc.
- ----------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 2003 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.
- ----------------------------------------------------------------------------------------------------------------------
/(4)/ Ms. Brinkley was elected Senior Vice President and Chief Compliance
Officer of the Trust effective September 20, 2004.
/(5)/ Mr. Burk was elected Senior Vice President of the Trust effective
February 15, 2005.
/(6)/ Mr. Ferguson was elected Vice President of the Trust effective February
24, 2005.
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.
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza. A I M Advisors, Inc. A I M Distributors, Inc. PricewaterhouseCoopers LLP
Suite 100 11 Greenway Plaza 11 Greenway Plaza 1201 Louisiana Street
Houston, TX 77046-1173 Suite 100 Suite 100 Suite 2900
Houston, TX 77046-1173 Houston, TX 77046-1173 Houston, Texas 77002-5678
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
Ballard Spahr INDEPENDENT TRUSTEES AIM Investment Services, Inc. State Street Bank and Trust
Andrews & Ingersoll, LLP Kramer, Levin, Naftalis & P.O. Box 4739 Company
1735 Market Street Frankel LLP Houston, TX 77210-4739 225 Franklin Street
Philadelphia, PA 19103-7599 1177 Avenue of the Americas Boston, MA 02110-2801
New York, NY 10036-2714
REQUIRED FEDERAL INCOME TAX INFORMATION (UNAUDITED)
Of ordinary dividends paid to shareholders during the Fund's tax year ended
March 31, 2005, 100% is eligible for the dividends received deduction for
corporations. The Fund distributed long-term capital gains of $68,814,282 for
Fund's tax year ended March 31, 2005.
For its tax year ended March 31, 2005, the Fund designated 100%, or the maximum
allowable, of its dividend distribution 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 amount.
Domestic Equity Sector Equity
AIM Aggressive Growth Fund AIM Advantage Health Sciences Fund/1/
AIM Basic Balanced Fund* AIM Energy Fund/1/
AIM Basic Value Fund AIM Financial Services Fund/1/
AIM Blue Chip Fund AIM Global Health Care Fund
AIM Capital Development Fund AIM Global Real Estate Fund
AIM Charter Fund AIM Gold & Precious Metals Fund/1/
AIM Constellation Fund AIM Leisure Fund/1/
AIM Diversified Dividend Fund AIM Multi-Sector Fund/1/
AIM Dynamics Fund/1/ AIM Real Estate Fund/7/
AIM Large Cap Basic Value Fund AIM Technology Fund/1/
AIM Large Cap Growth Fund AIM Utilities Fund/1/
AIM Mid Cap Basic Value Fund
AIM Mid Cap Core Equity Fund/2/ Fixed Income
AIM Mid Cap Growth Fund
AIM Opportunities I Fund TAXABLE
AIM Opportunities II Fund
AIM Opportunities III Fund AIM Floating Rate Fund
AIM Premier Equity Fund AIM High Yield Fund
AIM S&P 500 Index Fund/1/ AIM Income Fund
AIM Select Equity Fund AIM Intermediate Government Fund
AIM Small Cap Equity Fund/3/ AIM Limited Maturity Treasury Fund
AIM Small Cap Growth Fund/4/ AIM Money Market Fund
AIM Small Company Growth Fund/1/ AIM Short Term Bond Fund
AIM Trimark Endeavor Fund AIM Total Return Bond Fund
AIM Trimark Small Companies Fund Premier Portfolio
AIM Weingarten Fund Premier U.S. Government Money
Portfolio/1/
* Domestic equity and income fund
TAX-FREE
International/Global Equity AIM High Income Municipal Fund
AIM Municipal Bond Fund
AIM Asia Pacific Growth Fund AIM Tax-Exempt Cash Fund
AIM Developing Markets Fund AIM Tax-Free Intermediate Fund
AIM European Growth Fund Premier Tax-Exempt Portfolio
AIM European Small Company Fund/5/
AIM Global Aggressive Growth Fund AIM Allocation Solutions
AIM Global Equity Fund
AIM Global Growth Fund AIM Conservative Allocation Fund
AIM Global Value Fund AIM Growth Allocation Fund/8/
AIM International Core Equity Fund/1/ AIM Moderate Allocation Fund
AIM International Growth Fund AIM Moderate Growth Allocation Fund
AIM International Small Company Fund/6/ AIM Moderately Conservative
AIM Trimark Fund Allocation Fund
/1/The following name changes became effective October 15, 2004: INVESCO
Advantage Health Sciences Fund to AIM Advantage Health Sciences Fund, INVESCO
Dynamics Fund to AIM Dynamics Fund, INVESCO Energy Fund to AIM Energy Fund,
INVESCO Financial Services Fund to AIM Financial Services Fund, INVESCO Gold &
Precious Metals Fund to AIM Gold & Precious Metals Fund, INVESCO International
Core Equity Fund to AIM International Core Equity Fund, INVESCO Leisure Fund to
AIM Leisure Fund, INVESCO Mid-Cap Growth Fund to AIM Mid Cap Stock Fund, INVESCO
Multi-Sector Fund to AIM Multi-Sector Fund, INVESCO S&P 500 Index Fund to AIM
S&P 500 Index Fund, INVESCO Small Company Growth Fund to AIM Small Company
Growth Fund, INVESCO Technology Fund to AIM Technology Fund, INVESCO U.S.
Government Money Fund to Premier U.S. Government Money Portfolio, INVESCO
Utilities Fund to AIM Utilities Fund. /2/As of end of business on February 27,
2004, AIM Mid Cap Core Equity Fund has limited public sales of its shares to
certain investors. For more information on who may continue to invest in the
Fund, please contact your financial advisor. /3/Effective December 13, 2004, AIM
Small Cap Equity Fund is open to all investors. /4/As of end of business on
March 18, 2002, AIM Small Cap Growth Fund has limited public sales of its shares
to certain investors. For more information on who may continue to invest in the
Fund, please contact your financial advisor. /5/As of end of business on March
28, 2005, AIM European Small Company Fund has limited public sales of its shares
to certain investors. For more information on who may continue to invest in the
Fund, please contact your financial advisor. /6/Effective December 30, 2004, AIM
International Emerging Growth Fund was renamed AIM International Small Company
Fund. As of end of business on March 14, 2005, the Fund has limited public sales
of its shares to certain investors. For more information on who may continue to
invest in the Fund, please contact your financial advisor. /7/As of end of
business on April 29, 2005, AIM Real Estate Fund has limited public sales of its
shares to certain investors. For more information on who may continue to invest
in the Fund, please contact your financial advisor. /8/Effective April 29, 2005,
AIM Aggressive Allocation Fund was renamed AIM Growth Allocation Fund.
If used after July 20, 2005, this report must be accompanied by a Fund
Performance & Commentary or by an AIM Quarterly Performance Review for the most
recent quarter-end. Mutual funds distributed by A I M Distributors, Inc.
A I M Management Group Inc. has provided leadership in the investment management
industry since 1976 and manages $131 billion in assets. AIM is a subsidiary of
AMVESCAP PLC, one of the world's largest independent financial services
companies with $375 billion in assets under management. Data as of March 31,
2005.
- --------------------------------------------------------------------------------
CONSIDER THE INVESTMENT OBJECTIVES, RISKS, AND CHARGES AND EXPENSES CAREFULLY.
FOR THIS AND OTHER INFORMATION ABOUT AIM FUNDS, OBTAIN A PROSPECTUS FROM YOUR
FINANCIAL ADVISOR AND READ IT CAREFULLY BEFORE INVESTING.
- --------------------------------------------------------------------------------
AIMinvestments.com I-FSE-AR-1 A I M Distributors, Inc.
[YOUR GOALS. OUR SOLUTIONS.]
- REGISTERED TRADEMARK -
Mutual Retirement Annuities College Separately Offshore Cash
Funds Products Savings Managed Products Management
Plans Accounts
[AIM INVESTMENTS LOGO]
- REGISTERED TRADEMARK -
AIM GOLD & PRECIOUS METALS FUND
Annual Report to Shareholders . March 31, 2005
[COVER IMAGE]
FORMERLY INVESCO GOLD & PRECIOUS METALS FUND
[YOUR GOALS. OUR SOLUTIONS.]
- REGISTERED TRADEMARK -
[AIM INVESTMENTS LOGO]
- REGISTERED TRADEMARK -
AIM GOLD & PRECIOUS METALS FUND SEEKS CAPITAL GROWTH.
.. Unless otherwise stated, information presented in this report is as of
March 31, 2005, and is based on total net assets.
.. Effective October 15, 2004, INVESCO Gold & Precious Metals Fund was renamed
AIM Gold & Precious Metals Fund.
ABOUT SHARE CLASSES
.. Effective September 30, 2003, Class B shares are not available as an
investment for retirement plans maintained pursuant to Section 401 of the
Internal Revenue Code, including 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.
.. Investor Class shares are closed to most investors. For more information on
who may continue to invest in the Investor Class shares, please see the
prospectus.
PRINCIPAL RISKS OF INVESTING IN THE FUND
.. Investing in a single-sector or single-region mutual fund involves greater
risk and potential reward than investing in a more diversified fund.
.. International investing presents certain risks not associated with investing
solely in the United States. These include risks relating to fluctuations in the
value of the U.S. dollar relative to the values of other currencies, the custody
arrangements made for the Fund's foreign holdings, differences in accounting,
political risks and the lesser degree of public information required to be
provided by non-U.S. companies. The Fund may invest 100% of its assets in the
securities of non-U.S. issuers.
.. The securities of companies involved in exploring for, mining, processing or
dealing and investing in gold, gold bullion and other precious metals as well as
diamonds are highly dependent on the price of precious metals at any given time.
.. Fluctuations in the price of gold directly--and often dramatically--affect
the profitability and market value of companies in this sector. Changes in
political or economic climate for the two largest gold producers--South Africa
and the former Soviet Union--may have a direct impact on the price of gold
worldwide. Up to 10% of the Fund's assets at the time of purchase may be
invested in gold bullion. The Fund's investments directly in gold bullion will
earn no income return; appreciation in the market price of gold is the sole
manner in which the Fund can realize gains on bullion investments. The Fund may
have higher storage and custody costs in connection with its ownership of
bullion than those associated with the purchase, holding and sale of more
traditional types of investments.
.. Investing in small and mid-size companies involves risks not associated with
investing in more established companies, including business risk, significant
stock price fluctuations and illiquidity.
.. By concentrating on a small number of holdings, the Fund carries greater risk
because each investment has a greater effect on the Fund's overall performance.
ABOUT INDEXES USED IN THIS REPORT
.. The unmanaged Standard & Poor's Composite Index of 500 Stocks (the S&P 500
- --REGISTERED TRADEMARK-- Index) is an index of common stocks frequently used as
a general measure of U.S. stock market performance.
.. The unmanaged Lipper Gold Fund Index represents an average of the 30 largest
gold funds tracked by Lipper, Inc., an independent mutual fund performance
monitor.
.. The Philadelphia Gold & Silver Index is a capitalization-weighted index on the
Philadelphia Stock Exchange that includes the leading companies involved in the
mining of gold and silver. Returns for this index are price only.
.. The Fund is not managed to track the performance of any particular index,
including the indexes defined here, and consequently, the performance of the
Fund may deviate significantly from the performance of the indexes.
.. A direct investment cannot be made in an index. Unless otherwise indicated,
index results include reinvested dividends, and they do not reflect sales
charges. Performance of an index of funds reflects fund expenses; performance of
a market index does not.
OTHER INFORMATION
.. The returns shown in management's discussion of Fund performance are based
on net asset values calculated for shareholder transactions. Generally accepted
accounting principles require adjustments to be made to the net assets of the
Fund at period end for financial reporting purposes, and as such, the net asset
values for shareholder transactions and the returns based on those net asset
values may differ from the net asset values and returns reported in the
Financial Highlights.
.. Industry classifications used in this report are generally according to the
Global Industry Classification Standard, which was developed by and is the
exclusive property and a service mark of Morgan Stanley Capital International
Inc. and Standard & Poor's.
The Fund provides a complete list of its holdings four times in each fiscal
year, at the quarter-ends. For the second and fourth quarters, the lists appear
in the Fund's semiannual and annual reports to shareholders. For the first and
third quarters, the Fund files the lists with the Securities and Exchange
Commission (SEC) on Form N-Q. Shareholders can look up the Fund's Forms N-Q on
the SEC's Web site at sec.gov. Copies of the Fund's Forms N-Q may be reviewed
and copied at the SEC's Public Reference Room at 450 Fifth Street, N.W.,
Washington, D.C. 20549-0102. You can obtain information on the operation of the
Public Reference Room, including information about duplicating fee charges, by
calling 1-202-942-8090 or by electronic request at the following E-mail address:
publicinfo@sec.gov. The SEC file numbers for the Fund are 811-3826 and
002-85905. The Fund's most recent portfolio holdings, as filed on Form N-Q, are
also available at AIMinvestments.com.
A description of the policies and procedures that the Fund uses to determine how
to vote proxies relating to portfolio securities is available without charge,
upon request, from our Client Services department at 800-959-4246 or on the AIM
Web site, AIMinvestments.com. On the home page, scroll down and click on AIM
Funds Proxy Policy. The information is also available on the SEC Web site,
sec.gov.
Information regarding how the Fund voted proxies related to its portfolio
securities during the 12 months ended June 30, 2004, is available at our Web
site. Go 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.
- --------------------------------------------------------------------------------
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND
PROSPECTUS, WHICH CONTAINS MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES
AND EXPENSES. INVESTORS SHOULD READ IT CAREFULLY BEFORE INVESTING.
- --------------------------------------------------------------------------------
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
- --------------------------------------------------------------------------------
AIMINVESTMENTS.COM
AIM GOLD & PRECIOUS METALS FUND
DEAR FELLOW SHAREHOLDERS:
The fiscal year covered by this report saw both equities and
bonds* produce positive total returns, but it wasn't a very
smooth ride. Markets were at their best during the second
half of 2004--bonds during the third quarter of that year
and equities during the fourth. Returns turned negative for
both asset classes during the first quarter of 2005.
[GRAHAM PHOTO] The huge run-up in the price of oil over the course of the
fiscal year goes a long way toward explaining the markets'
loss of confidence early in 2005. The Consumer Price Index
rose more in March 2005 than one month earlier. Energy costs
advanced 4.0% in March; the petroleum-based subset of energy
increased 7.8%.
ROBERT H. GRAHAM Another negative factor has been Federal Reserve policy.
With a view to warding off potential inflation, the Federal
Reserve (the Fed) raised short-term interest rates in March,
the seventh such move since mid-year 2004. The Fed noted
that inflationary pressures have picked up recently and that
businesses' ability to raise prices appeared stronger than
in the recent past. There is a virtually universal
expectation that the Fed will continue to increase
short-term interest rates during 2005, which could
ultimately dampen economic performance. (In early May, after
the close of the reporting period, the Fed raised rates once
again.)
[WILLIAMSON PHOTO] Nevertheless, there was also much good news for investors
as of March 31, 2005:
. The Institute for Supply Management's manufacturing and
non-manufacturing indexes--based on surveys of purchasing
managers in industries that cover more than 80% of the
U.S. economy--both indicated continued healthy growth
during March and April and remained in very strong
territory. April was the 42nd month in a row these surveys
showed the economy as a whole expanding.
MARK H. WILLIAMSON . Job growth during March was weaker than in the recent
past, though the unemployment rate declined over the
course of the fiscal year. In fact, less than robust job
growth during March was good news for bond
investors--there is still enough slack in the job market
to keep wage inflation from becoming an issue.
. Bond yields haven't risen as much as might be expected
given seven increases in short-term rates over the fiscal
year. Evidently, the bond market is not anticipating a
long-term inflationary pattern.
So once again we are seeing a good news/bad news
combination--a situation that is far from unusual. Over the
short term, financial markets are unpredictable. It is over
the long term that they have been rewarding to investors,
and we remain confident in their long-term outlook. Given
the inability to make accurate short-term forecasts, as
always, we urge our shareholders to:
. keep a long-term investment perspective,
. make sure their portfolios are suitably diversified, and
. contact their financial advisors when they have questions
or concerns about their investments or the markets.
YOUR FUND
The following pages present a discussion of your Fund's
approach to investing, an explanation of its performance
over the fiscal year, and a summary of its portfolio as that
year closed. Further information about your Fund and The AIM
Family of Funds --REGISTERED TRADEMARK--, as well as general
information concerning investing, is always available on our
widely praised Web site, AIMinvestments.com. We invite you
to visit frequently.
As always, we at AIM are dedicated to building solutions
to help you meet your investment goals. We thank you for
your continued participation in AIM Investments --REGISTERED
TRADEMARK--. If you have any questions, please contact our
award-winning Client Service representatives at
800-959-4246. We are pleased to be of help.
Sincerely,
/s/ ROBERT H. GRAHAM /s/ MARK H. WILLIAMSON
Robert H. Graham Mark H. Williamson
Trustee, President & Chairman & President,
Vice Chair, AIM Funds A I M Advisors, Inc.
May 20, 2005
*Equities represented by the S&P 500 Index, an index of
common stocks often used as a general measure of U.S. stock
market performance; bonds by the Lehman U.S. Aggregate Bond
Index, an index compiled by Lehman Brothers, the global
investment bank, that represents the U.S. investment-grade
fixed-rate bond market.
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 AND A I M
DISTRIBUTORS, INC. IS THE DISTRIBUTOR FOR THE RETAIL FUNDS
REPRESENTED BY AIM INVESTMENTS.
AIM GOLD & PRECIOUS METALS FUND
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
The U.S. dollar, after falling to multiyear lows against other major currencies
in 2004, rallied in the first quarter of 2005, and inflation remained subdued.
These trends adversely affected gold and precious metal stocks and the Fund.
- --------------------------------------------------------------------------------
FUND VS. INDEXES
TOTAL RETURNS, 3/31/04-3/31/05, EXCLUDING APPLICABLE SALES CHARGES. IF SALES
CHARGES WERE INCLUDED, RETURNS WOULD BE LOWER.
Class A Shares -5.89%
Class B Shares -6.48
Class C Shares -6.58
Investor Class Shares -6.00
S&P 500 Index (Broad Market Index) 6.69
Philadelphia Gold & Silver Index
(Style-specific Index) -10.69
Lipper Gold Fund Index
(Peer Group Index) -7.27
SOURCE: LIPPER, INC., FACTSET RESEARCH SYSTEMS
- --------------------------------------------------------------------------------
The Fund underperformed the S&P 500 Index for the fiscal year because
investors generally favored more aggressive securities than gold stocks. The
Fund was overweight in diversified metals and mining in comparison to the
Philadelphia Gold & Silver Index. These stocks performed well for the Fund and
helped it hold up better than that index. The Fund's more conservative holdings
in "core companies," which tend to be less volatile in difficult market
environments for gold, helped it fare better than its peer group, as measured by
the Lipper Gold Fund Index.
HOW WE INVEST
The Fund invests in companies that are involved in the discovery, mining,
processing and exchange of gold and other precious metals. We use a bottom-up
approach to investing, selecting stocks based on an analysis of individual
companies. Our focus is on the stocks of companies that we believe have the
ability to:
.. increase production capacity at a low cost;
.. make major gold discoveries on a global basis;
.. benefit from rising gold prices.
One of our largest holdings, Freeport- McMoRan Copper & Gold, typifies our
strategy. The firm owns the lowest-cost gold and copper mine in the world and
has been increasing production. With copper prices rising, and exports to China
increasing, we believe the firm is in a potentially favorable position to
increase its earnings.
The Fund's portfolio will typically be composed of:
.. Core companies--major gold and precious metal firms with proven production
reserves;
.. Emerging companies--mid to small-sized exploration companies which we
believe have the capacity to make significant precious metal discoveries.
A decision to sell a stock may be prompted by any of the following reasons:
.. a better investment option becomes available;
.. valuation becomes too high;
.. corporate management changes the company's strategic direction to the
detriment of shareholders;
.. a company is adversely affected by a geopolitical or economic event.
MARKET CONDITIONS AND YOUR FUND
Stocks, as measured by the performance of the S&P 500 Index, rose modestly over
the fiscal year as major economic indicators were generally favorable. Gross
domestic product, the broadest measure of overall economic activity, rose at
annualized rates of 3.3%, 4.0% and 3.8%, respectively, for the second, third and
fourth quarters of 2004, and 3.1% in the first quarter of 2005.
Most of the S&P 500 Index's gains were recorded in the fourth quarter of
2004. The index rose after the price of oil peaked in October and the U.S.
presidential campaign drew to a close. The S&P 500 Index declined in the first
quarter of 2005, as oil prices again
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION TOP 10 EQUITY HOLDINGS* TOTAL NET ASSETS $127.0 million
By industry TOTAL NUMBER OF HOLDINGS* 34
[PIE CHART]
Diversified Metals & Mining 19.8% 1. Freeport-McMoRan Copper &
Gold Bullion 5.1% Gold, Inc.-Class B 6.2%
Money Market Funds Plus 2. Goldcorp Inc. (Canada) 5.3
Other Assets Less Liabilities 0.6% 3. Gold Bullion 5.1
Gold 53.6% 4. Barrick Gold Corp. (Canada) 4.7
Precious Metals & Minerals 20.9% 5. Teck Cominco Ltd.-Class B (Canada) 4.1
6. Pan American Silver Corp. (Canada) 4.0
7. Impala Platinum Holdings Ltd.
(South Africa) 4.0
8. Randgold Resources Ltd.-ADR
(United Kingdom) 3.9
9. IAMGOLD Corp. (Canada) 3.9
10. Inco Ltd. (Canada) 3.8
The fund's holdings are subject to change, and there is no assurance that the
Fund will continue to hold any particular security.
*Excluding money market fund holdings.
- --------------------------------------------------------------------------------
2
increased and the U.S. Federal Reserve continued raising interest rates to slow
economic growth and potentially curb inflation.
The price of gold, after dropping below $380 per ounce in May of 2004
climbed to nearly $450 per ounce by the close of 2004 before falling to about
$425 per ounce by the close of the fiscal year. Over the same period, the U.S.
dollar weakened against other major currencies in the latter part of 2004,
before strengthening in the first quarter of 2005. The consumer price index, a
measure of inflation, increased about 3.0% over reporting period--a higher rate
than in recent years, but close to the historical average.
This strategy proved beneficial for the Fund as diversified metals
and mining posted gains for the portfolio...
Investors typically tend to view gold and gold stocks as a "store of value"
for their assets during periods of a declining dollar, rising inflation and
geopolitical and economic uncertainty. As the dollar strengthened, inflation
remained subdued and the uncertainty surrounding the presidential election was
dispelled, gold faltered. Our holdings in "core companies", which comprised
about 70% of Fund holdings, helped cushion the Fund.
As a result of our long-term buy-and-hold philosophy, the Fund's industry
weightings remained relatively stable over the reporting period. We did,
however, increase the Fund's exposure to producers of metals other than gold. We
believe demand from high-tech firms for metals such as silver will increase as
the world economy strengthens, and demand for copper for electric wiring and
other uses will rise as China creates an infrastructure to support its growing
economy. This strategy proved beneficial for the Fund as diversified metals and
mining posted gains for the portfolio while its other industry weightings--gold
and precious metals and minerals--sustained losses.
A stock that enhanced Fund performance was Teck Cominco, a diversified
mining and refining company based in Vancouver, British Columbia, Canada.
Approximately 60% of the company's sales are derived from the mining, smelting
and refining of zinc. The firm also mines copper and gold. The company reported
record earnings for the fourth quarter of 2004.
Detracting from performance was Apollo Gold, a mining company operating
mainly in the United States and Canada. The firm has gold, silver, lead and zinc
mining operations in Montana, and Nevada and in Ontario, Canada. The company has
struggled in recent months because its existing mines have not been productive.
IN CLOSING
At the close of the reporting period, we remained generally optimistic about the
prospects for gold and precious metals stocks. The U.S. dollar's weakness
against the euro has been a major factor driving gold prices in the past few
years. While the dollar may have stabilized against the euro, we believe it
could depreciate in relation to Asian currencies. Also, we believe there could
be an upturn in inflation this year because of higher fuel costs, and that could
boost gold prices. We thank you for your investment in AIM Gold & Precious
Metals Fund.
THE VIEWS AND OPINIONS EXPRESSED IN MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
ARE THOSE OF A I M ADVISORS, INC. THESE VIEWS AND OPINIONS ARE SUBJECT TO CHANGE
AT ANY TIME BASED ON FACTORS SUCH AS MARKET AND ECONOMIC CONDITIONS. THESE VIEWS
AND OPINIONS MAY NOT BE RELIED UPON AS INVESTMENT ADVICE OR RECOMMENDATIONS, OR
AS AN OFFER FOR A PARTICULAR SECURITY. THE INFORMATION IS NOT A COMPLETE
ANALYSIS OF EVERY ASPECT OF ANY MARKET, COUNTRY, INDUSTRY, SECURITY OR THE FUND.
STATEMENTS OF FACT ARE FROM SOURCES CONSIDERED RELIABLE, BUT A I M ADVISORS,
INC. MAKES NO REPRESENTATION OR WARRANTY AS TO THEIR COMPLETENESS OR ACCURACY.
ALTHOUGH HISTORICAL PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS, THESE
INSIGHTS MAY HELP YOU UNDERSTAND OUR INVESTMENT MANAGEMENT PHILOSOPHY.
See important Fund and index disclosures inside front cover.
- --------------------------------------------------------------------------------
[SEGNER PHOTO]
JOHN S. SEGNER, the lead manager of AIM Gold & Precious Metals Fund, has more
than 20 years of experience in the energy and investment industries. Before
joining the Fund's advisor in 1997, he was managing director and principal with
an investment management company that focused exclusively on publicly-traded
energy stocks. Mr. Segner holds a B.S. in civil engineering from the University
of Alabama and an M.B.A. with a concentration in finance from The University of
Texas at Austin.
- --------------------------------------------------------------------------------
[RIGHT ARROW GRAPHIC]
FOR A PRESENTATION OF YOUR FUND'S LONG-TERM PERFORMANCE RECORD, PLEASE TURN TO
PAGE 5.
3
AIM GOLD & PRECIOUS METALS FUND
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, which may include sales charges (loads) on purchase payments; contingent
deferred sales charges on redemptions; and redemption fees, if any; and (2)
ongoing costs, including management fees; distribution and/or service fees
(12b-1); and other Fund expenses. This Example is intended to help you
understand your ongoing costs (in dollars) of investing in the Fund and to
compare these costs with ongoing costs of investing in other mutual funds. The
Example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period October 1, 2004, through March 31, 2005.
ACTUAL EXPENSES
The table below provides information about actual account values and actual
expenses. You may use the information in this table, together with the amount
you invested, to estimate the expenses that you paid over the period. Simply
divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number in the table
under the heading entitled "Actual Expenses Paid During Period" to estimate the
expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The table below also provides information about hypothetical account values and
hypothetical expenses based on the Fund's actual expense ratio and an assumed
rate of return of 5% per year before expenses, which is not the Fund's actual
return. The Fund's actual cumulative total return at net asset value after
expenses for the six months ended March 31, 2005, appears in the table
"Cumulative Total Returns" on page 5.
The hypothetical account values and expenses may not be used to estimate
the actual ending account balance or expenses you paid for the period. You may
use this information to compare the ongoing costs of investing in the Fund and
other funds. To do so, compare this 5% hypothetical example with the 5%
hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight
your ongoing costs only and do not reflect any transactional costs, such as
sales charges (loads) on purchase payments, contingent deferred sales charges on
redemptions, and redemption fees, if any. Therefore, the hypothetical
information is useful in comparing ongoing costs only, and will not help you
determine the relative total costs of owning different funds.
- --------------------------------------------------------------------------------
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES ENDING ACCOUNT EXPENSES
SHARE VALUE VALUE PAID DURING VALUE PAID DURING
CLASS (10/01/04) (3/31/05)/1/ PERIOD/2/ (3/31/05) PERIOD/2/
A $ 1,000.00 $ 961.30 $ 7.19 $ 1,017.60 $ 7.39
B 1,000.00 957.80 10.35 1,014.36 10.65
C 1,000.00 957.90 10.35 1,014.36 10.65
Investor 1,000.00 962.50 6.70 1,018.10 6.89
/1/The actual ending account value is based on the actual total return of the
Fund for the period October 1, 2004, to March 31, 2005, after actual expenses
and will differ from the hypothetical ending account value which is based on the
Fund's expense ratio and a hypothetical annual return of 5% before expenses. The
Fund's actual cumulative total return at net asset value after expenses for the
six months ended March 31, 2005, appears in the table "Cumulative Total Returns"
on page 5.
/2/Expenses are equal to the Fund's annualized expense ratio, 1.47%, 2.12%,
2.12%, and 1.37% for Class A, B, C, and Investor Class shares, respectively,
multiplied by the average account value over the period, multiplied by 182/365
(to reflect the one-half year period).
- --------------------------------------------------------------------------------
[ARROW
BUTTON For More Information Visit
IMAGE] AIMINVESTMENTS.COM
4
AIM GOLD & PRECIOUS METALS FUND
YOUR FUND'S LONG-TERM PERFORMANCE
Your Fund's total return includes reinvested distributions, Fund expenses and
management fees. Index results include reinvested dividends. Performance of an
index of funds reflects fund expenses and management fees; performance of a
market index does not. Performance shown in the chart and tables does not
reflect deduction of taxes a shareholder would pay on Fund distributions or sale
of Fund shares.
Performance of the indexes does not reflect the effects of taxes.
This chart, which is a logarithmic chart, presents the fluctuations in the
value of the Fund and its indexes. We believe that a logarithmic chart is more
effective than other types of charts in illustrating changes in value during the
early years shown in the chart. The vertical axis, the one that indicates the
dollar value of an investment, is constructed with each segment representing a
percent change in the value of the investment. In this chart, each segment
represents a doubling, or 100% change, in the value of the investment. In other
words, the space between $10,000 and $20,000 is the same size as the space
between $20,000 and $40,000, the space between $20,000 and $40,000 is the same
as that between $40,000 and $80,000, and so on.
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
As of 3/31/05, including applicable sales charges
CLASS A SHARES
Inception (3/28/02) 15.28%
1 Year -11.03
CLASS B SHARES
Inception (3/28/02) 16.50%
1 Year -11.11
CLASS C SHARES
Inception (2/14/00) 17.36%
5 Years 19.97
1 Year -7.51
INVESTOR CLASS SHARES
Inception (1/19/84) -1.38%
10 Years 1.13
5 Years 19.12
1 Year -6.00
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
RESULTS OF A $10,000 INVESTMENT
Fund and index data from 3/31/95
[MOUNTAIN CHART]
AIM GOLD & PRECIOUS
METALS-INVESTOR LIPPER GOLD FUND PHILADELPHIA GOLD
DATE CLASS SHARES INDEX S&P 500 INDEX & SILVER INDEX
3/31/95 $ 10000 $ 10000 $ 10000 $ 10000
4/95 10683 10054 10294 9587
5/95 11200 9990 10705 9838
6/95 11303 10105 10953 9854
7/95 11779 10570 11316 9732
8/95 11717 10648 11345 10057
9/95 11820 10703 11823 10183
10/95 10803 9475 11781 8787
11/95 10948 10007 12297 9929
12/95 11363 10193 12534 9873
1/96 13748 12139 12960 11564
2/96 15552 12404 13081 11811
3/96 16609 12445 13207 11792
4/96 17792 12706 13401 11759
5/96 19989 13511 13747 12207
6/96 16361 11595 13799 10147
7/96 16196 11355 13190 10195
8/96 17896 11987 13468 10212
9/96 17129 11365 14226 9443
10/96 16589 11250 14618 9478
11/96 16111 10880 15722 9854
12/96 15981 10674 15410 9572
1/97 15175 10066 16373 9035
2/97 17159 11347 16501 10040
3/97 13911 9757 15824 8537
4/97 13191 9089 16768 7695
5/97 13479 9436 17793 8552
6/97 12014 8597 18584 7838
7/97 10979 8259 20063 8028
8/97 10951 8295 18940 8106
9/97 11382 8690 19976 8978
10/97 9227 7264 19310 7208
11/97 6783 5726 20203 5806
12/97 7112 5984 20550 6083
1/98 7346 6331 20777 6147
2/98 7083 6138 22275 6186
3/98 7520 6494 23414 6696
4/98 7754 6947 23654 7209
5/98 6559 5920 23248 6125
6/98 5743 5296 24192 5880
7/98 5335 4976 23936 5159
8/98 3965 3823 20478 4008
9/98 5830 5508 21791 6148
10/98 5539 5427 23560 6181
11/98 5276 5245 24988 5818
12/98 5509 5218 26427 5327
1/99 5363 5097 27531 5187
2/99 5422 4970 26676 4965
3/99 5393 4995 27743 4900
4/99 6005 5713 28817 6020
5/99 5305 4892 28138 4991
6/99 5422 5092 29695 5487
7/99 4926 4833 28772 5155
8/99 5072 5008 28629 5521
9/99 6122 6115 27845 6580
10/99 5334 5511 29607 5702
11/99 5072 5360 30208 5496
12/99 5014 5447 31985 5573
1/00 4693 4908 30378 4918
2/00 4809 4901 29804 4900
3/00 4663 4628 32718 4632
4/00 4605 4380 31734 4489
5/00 4605 4437 31083 4614
6/00 4868 4685 31849 4740
7/00 4518 4360 31351 4169
8/00 4692 4648 33298 4291
9/00 4314 4332 31540 4093
10/00 3876 3947 31406 3597
11/00 3905 4118 28932 3860
12/00 4362 4502 29074 4215
1/01 4332 4496 30105 4006
2/01 4452 4681 27362 4305
3/01 4272 4254 25629 3900
4/01 4780 4884 27619 4520
5/01 4900 5109 27805 4684
6/01 4870 5142 27128 4366
7/01 4691 4868 26861 4350
8/01 4930 5145 25181 4637
9/01 5139 5314 23148 4738
10/01 5019 5203 23589 4471
11/01 4930 5204 25399 4310
12/01 5109 5459 25621 4463
1/02 5707 6076 25247 5028
2/02 6244 6690 24760 5342
3/02 6842 7336 25692 5812
4/02 7290 7777 24135 6064
5/02 8664 9218 23958 6907
6/02 7529 8091 22252 5859
7/02 6424 6707 20518 4964
8/02 7410 7789 20652 5695
9/02 7440 7852 18410 5718
10/02 6752 7198 20028 5201
11/02 6752 7210 21206 5196
12/02 8157 8774 19961 6293
1/03 8246 8858 19439 6313
2/03 7768 8320 19147 5902
3/03 7171 7708 19332 5487
4/03 7111 7685 20924 5354
5/03 7947 8565 22025 6023
6/03 8187 8819 22307 6448
7/03 8545 9309 22700 6651
8/03 9531 10643 23142 7461
9/03 9681 11022 22897 7471
10/03 10757 12335 24191 8041
11/03 12101 13373 24404 8991
12/03 12022 13543 25683 8924
1/04 10969 12276 26154 7836
2/04 11434 12515 26518 8182
3/04 11900 13264 26118 8605
4/04 9545 10500 25708 6718
5/04 10320 11290 26060 7363
6/04 10196 10942 26567 7075
7/04 10041 10744 25688 7130
8/04 10723 11446 25791 7772
9/04 11621 12510 26070 8359
10/04 11621 12758 26468 8479
11/04 12241 13447 27539 8752
12/04 11437 12709 28476 8145
1/05 10873 12044 27782 7494
2/05 11813 12981 28366 8114
3/05 $ 11186 $ 12299 $ 27864 $ 7685
SOURCE: LIPPER, INC.
- --------------------------------------------------------------------------------
The performance data quoted represent past performance and cannot guarantee
comparable future results; current performance may be lower or higher. Please
visit AIMinvestments.com for the most recent month-end performance. Performance
figures reflect reinvested distributions, changes in net asset value and the
effect of the maximum sales charge unless otherwise stated.
Investment return and principal value will fluctuate so that you may have a gain
or loss when you sell shares.
Class A share performance reflects the maximum 5.50% sales charge, and
Class B and Class C share performance reflects the applicable contingent
deferred sales charge (CDSC) for the period involved. The CDSC on Class B shares
declines from 5% beginning at the time of purchase to 0% at the beginning of the
seventh year. The CDSC on Class C shares is 1% for the first year after
purchase. Investor Class shares do not have a front-end sales charge or a CDSC;
therefore, performance is at net asset value.
The performance of the fund's share classes will differ due to different
sales charge structures and class expenses.
- --------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURNS
Excluding applicable sales charges
6 months ended 3/31/05
Class A -3.87%
Class B -4.22
Class C -4.21
Investor Class -3.75
- --------------------------------------------------------------------------------
5
FINANCIALS
SCHEDULE OF INVESTMENTS
March 31, 2005
MARKET
SHARES VALUE
------------------------------------------------------------------------
FOREIGN STOCKS & OTHER
EQUITY INTERESTS-80.49%
CANADA-59.11%
Aber Diamond Corp. (Precious Metals & Minerals) 140,000 $ 4,247,406
------------------------------------------------------------------------
Agnico-Eagle Mines Ltd. (Gold)/(a)/ 200,000 2,910,000
------------------------------------------------------------------------
Apollo Gold Corp. (Gold)/(b)/ 1,200,000 555,671
------------------------------------------------------------------------
Barrick Gold Corp. (Gold) 250,000 5,990,000
------------------------------------------------------------------------
Bema Gold Corp. (Gold)/(b)/ 1,000,000 2,680,000
------------------------------------------------------------------------
Cambior Inc. (Gold)/(b)/ 1,700,000 3,689,000
------------------------------------------------------------------------
Eldorado Gold Corp. (Gold)/(b)/ 1,650,000 4,707,074
------------------------------------------------------------------------
Gabriel Resources Ltd. (Gold)/(b)/ 239,700 356,770
------------------------------------------------------------------------
Gammon Lake Resources Inc.
(Precious Metals & Minerals)/(b)/ 550,000 3,234,000
------------------------------------------------------------------------
Glamis Gold Ltd. (Gold)/(b)/ 250,000 3,902,500
------------------------------------------------------------------------
Goldcorp. Inc. (Gold)/(a)/ 475,000 6,771,406
------------------------------------------------------------------------
IAMGOLD Corp. (Gold) 800,000 4,928,267
------------------------------------------------------------------------
Inco Ltd. (Diversified Metals & Mining)/(b)/ 120,000 4,776,000
------------------------------------------------------------------------
Kinross Gold Corp. (Gold)/(b)/ 550,000 3,347,253
------------------------------------------------------------------------
Meridian Gold Inc. (Gold)/(b)/ 250,000 4,210,000
------------------------------------------------------------------------
Pacific Rim Mining Corp.
(Precious Metals & Minerals)/(b)/ 1,254,900 830,132
------------------------------------------------------------------------
Pan American Silver Corp.
(Precious Metals & Minerals)/(a)(b)/ 320,000 5,073,600
------------------------------------------------------------------------
Placer Dome Inc. (Gold) 255,000 4,136,100
------------------------------------------------------------------------
Rio Narcea Gold Mines Ltd. (Gold)/(b)/ 515,900 874,515
------------------------------------------------------------------------
Southern Platinum Corp.
(Precious Metals & Minerals)/(a)(b)/ 1,025,000 2,152,809
------------------------------------------------------------------------
SouthernEra Diamonds, Inc.-Class A
(Precious Metals & Minerals)/(a)(b)/ 1,025,000 525,489
------------------------------------------------------------------------
Teck Cominco Ltd.-Class B
(Diversified Metals & Mining) 140,000 5,192,045
------------------------------------------------------------------------
75,090,037
------------------------------------------------------------------------
PERU-3.62%
Compania de Minas Buenaventura S.A.A.-ADR
(Precious Metals & Minerals) 202,000 4,601,560
------------------------------------------------------------------------
SOUTH AFRICA-11.32%
AngloGold Ashanti Ltd.-ADR (Gold)/(a)/ 54,000 1,860,300
------------------------------------------------------------------------
Gold Fields Ltd.-ADR (Gold)/(a)/ 410,000 4,710,900
------------------------------------------------------------------------
Investment Abbreviations:
ADR - AmericanDepositary Receipt
MARKET
SHARES VALUE
- -----------------------------------------------------------------------------------
SOUTH AFRICA-(CONTINUED)
Harmony Gold Mining Co. Ltd.-ADR (Gold)/(a)/ 354,000 $ 2,761,200
- -----------------------------------------------------------------------------------
Impala Platinum Holdings Ltd.
(Precious Metals & Minerals)/(c)/ 60,000 5,049,918
- -----------------------------------------------------------------------------------
14,382,318
- -----------------------------------------------------------------------------------
UNITED KINGDOM-6.44%
Randgold Resources Ltd.-ADR (Gold)/(b)/ 400,000 4,944,000
- -----------------------------------------------------------------------------------
Rio Tinto PLC (Diversified Metals & Mining)/(c)/ 100,000 3,232,872
- -----------------------------------------------------------------------------------
8,176,872
- -----------------------------------------------------------------------------------
Total Foreign Stocks & Other Equity Interests
(Cost $95,383,061) 102,250,787
- -----------------------------------------------------------------------------------
DOMESTIC COMMON STOCKS-13.82%
DIVERSIFIED METALS & MINING-9.36%
Freeport-McMoRan Copper & Gold, Inc.-Class B 200,000 7,922,000
- -----------------------------------------------------------------------------------
Phelps Dodge Corp. 39,000 3,967,470
- -----------------------------------------------------------------------------------
11,889,470
- -----------------------------------------------------------------------------------
GOLD-3.76%
Newmont Mining Corp. 113,000 4,774,250
- -----------------------------------------------------------------------------------
PRECIOUS METALS & MINERALS-0.70%
Solitario Resources Corp./(a)(b)/ 631,000 887,005
- -----------------------------------------------------------------------------------
Total Domestic Common Stocks
(Cost $17,679,122) 17,550,725
- -----------------------------------------------------------------------------------
GOLD BULLION-5.05%
Gold Bullion/(d)/ (Cost $4,266,032) 14,974/(e)/ 6,420,103
- -----------------------------------------------------------------------------------
MONEY MARKET FUNDS-0.83%
Premier Portfolio-Institutional Class
(Cost $1,047,383)/(f)/ 1,047,383 1,047,383
- -----------------------------------------------------------------------------------
TOTAL INVESTMENTS-100.19% (excluding
investments purchased with cash collateral
from securities loaned) (Cost $118,375,598) 127,268,998
- -----------------------------------------------------------------------------------
INVESTMENTS PURCHASED WITH CASH
COLLATERAL FROM SECURITIES LOANED
MONEY MARKET FUNDS-7.01%
Premier Portfolio-Institutional Class/(f)(g)/ 8,909,192 8,909,192
- -----------------------------------------------------------------------------------
Total Money Market Funds (purchased with cash
collateral from securities loaned)
(Cost $8,909,192) 8,909,192
- -----------------------------------------------------------------------------------
TOTAL INVESTMENTS-107.20% (Cost $127,284,790) 136,178,190
- -----------------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-(7.20%) (9,145,048)
- -----------------------------------------------------------------------------------
NET ASSETS-100.00% $ 127,033,142
- -----------------------------------------------------------------------------------
Notes to Schedule of Investments:
/(a)/ All or a portion of this security has been pledged as collateral for
securities lending transactions at March 31, 2005.
/(b)/ Non-income producing security.
/(c)/ In accordance with the procedures established by the Board of Trustees,
the foreign security is fair valued using adjusted closing market prices.
The aggregate market value of these securities at March 31, 2005 was
$8,282,790, which represented 6.08% of the Fund's Total Investments. See
Note 1A.
/(d)/ Investment in other than a securities--Gold Bullion. See Note 1H.
/(e)/ Denoted in troy ounces.
/(f)/ The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
/(g)/ The security has been segregated to satisfy the forward commitment to
return the cash collateral received in securities lending transactions
upon the borrower's return of the securities loaned. See Note 7.
See accompanying notes which are an integral part of the financial statements.
F-1
STATEMENT OF ASSETS AND LIABILITIES
March 31, 2005
ASSETS:
Investments, at market value (cost $113,062,183)* $ 119,801,512
- ------------------------------------------------------------------------------------
Investments in affiliated money market funds (cost $9,956,575) 9,956,575
- ------------------------------------------------------------------------------------
Investments in Gold Bullion (cost $4,266,032) 6,420,103
- ------------------------------------------------------------------------------------
Total investments (cost $127,284,790) 136,178,190
- ------------------------------------------------------------------------------------
Foreign currencies, at market value (cost $51,268) 48,026
- ------------------------------------------------------------------------------------
Receivables for:
Fund shares sold 194,239
- ------------------------------------------------------------------------------------
Dividends 41,126
- ------------------------------------------------------------------------------------
Investment for trustee deferred compensation and retirement plans 24,253
- ------------------------------------------------------------------------------------
Other assets 24,096
- ------------------------------------------------------------------------------------
Total assets 136,509,930
- ------------------------------------------------------------------------------------
LIABILITIES:
Payables for:
Fund shares reacquired 326,781
- ------------------------------------------------------------------------------------
Trustee deferred compensation and retirement plans 31,205
- ------------------------------------------------------------------------------------
Collateral upon return of securities loaned 8,909,192
- ------------------------------------------------------------------------------------
Accrued distribution fees 38,699
- ------------------------------------------------------------------------------------
Accrued trustees' fees 3,375
- ------------------------------------------------------------------------------------
Accrued transfer agent fees 92,762
- ------------------------------------------------------------------------------------
Accrued operating expenses 74,774
- ------------------------------------------------------------------------------------
Total liabilities 9,476,788
- ------------------------------------------------------------------------------------
Net assets applicable to shares outstanding $ 127,033,142
- ------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 256,381,370
- ------------------------------------------------------------------------------------
Undistributed net investment income (loss) (5,633,241)
- ------------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment securities and
foreign currencies (132,605,145)
- ------------------------------------------------------------------------------------
Unrealized appreciation of investment securities and foreign
currencies 8,890,158
- ------------------------------------------------------------------------------------
$ 127,033,142
- ------------------------------------------------------------------------------------
NET ASSETS:
Class A $ 10,609,256
------------------------------------------------------------
Class B $ 8,592,913
------------------------------------------------------------
Class C $ 6,992,976
------------------------------------------------------------
Investor Class $100,837,997
------------------------------------------------------------
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Class A 2,988,013
------------------------------------------------------------
Class B 2,428,329
------------------------------------------------------------
Class C 1,864,568
------------------------------------------------------------
Investor Class 28,232,096
------------------------------------------------------------
Class A:
Net asset value per share $ 3.55
------------------------------------------------------------
Offering price per share:
(Net asset value of $3.55 / 94.50%) $ 3.76
------------------------------------------------------------
Class B:
Net asset value and offering price per share $ 3.54
------------------------------------------------------------
Class C:
Net asset value and offering price per share $ 3.75
------------------------------------------------------------
Investor Class:
Net asset value and offering price per share $ 3.57
------------------------------------------------------------
* At March 31, 2005, securities with an aggregate market value of $8,590,617
were on loan to brokers.
See accompanying notes which are an integral part of the financial statements.
F-2
STATEMENT OF OPERATIONS
For the year ended March 31, 2005
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $38,751) $ 986,581
- ----------------------------------------------------------------------------------------------
Dividends from affiliated money market funds (includes securities lending
income of $295,384 less rebates of $189,293) 167,725
- ----------------------------------------------------------------------------------------------
Total investment income 1,154,306
- ----------------------------------------------------------------------------------------------
EXPENSES:
Advisory fees 956,510
- ----------------------------------------------------------------------------------------------
Administrative services fees 53,577
- ----------------------------------------------------------------------------------------------
Custodian fees 62,985
- ----------------------------------------------------------------------------------------------
Distribution fees:
Class A 29,666
- ----------------------------------------------------------------------------------------------
Class B 74,674
- ----------------------------------------------------------------------------------------------
Class C 57,257
- ----------------------------------------------------------------------------------------------
Investor Class 264,664
- ----------------------------------------------------------------------------------------------
Transfer agent fees 460,217
- ----------------------------------------------------------------------------------------------
Trustees' fees and retirement benefits 16,202
- ----------------------------------------------------------------------------------------------
Professional services fees 101,875
- ----------------------------------------------------------------------------------------------
Other 82,971
- ----------------------------------------------------------------------------------------------
Total expenses 2,160,598
- ----------------------------------------------------------------------------------------------
Less:Fees waived, expenses reimbursed and expense offset arrangement (28,443)
- ----------------------------------------------------------------------------------------------
Net expenses 2,132,155
- ----------------------------------------------------------------------------------------------
Net investment income (loss) (977,849)
- ----------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES AND FOREIGN
CURRENCIES:
Net realized gain from:
Investment securities 28,620,733
- ----------------------------------------------------------------------------------------------
Foreign currencies 31,735
- ----------------------------------------------------------------------------------------------
28,652,468
- ----------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of:
Investment securities (37,529,348)
- ----------------------------------------------------------------------------------------------
Foreign currencies (4,081)
- ----------------------------------------------------------------------------------------------
(37,533,429)
- ----------------------------------------------------------------------------------------------
Net gain (loss) from investment securities and foreign currencies (8,880,961)
- ----------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ (9,858,810)
- ----------------------------------------------------------------------------------------------
See accompanying notes which are an integral part of the financial statements.
F-3
STATEMENT OF CHANGES IN NET ASSETS
For the years ended March 31, 2005 and 2004
2005 2004
------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (977,849) $ (1,482,530)
------------------------------------------------------------------------------
Net realized gain from investment securities and
foreign currencies 28,652,468 33,866,103
------------------------------------------------------------------------------
Change in net unrealized appreciation
(depreciation) of investment securities and
foreign currencies (37,533,429) 31,004,625
------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations (9,858,810) 63,388,198
------------------------------------------------------------------------------
Distributions to shareholders from net investment
income:
Class A (93,795) (275,645)
------------------------------------------------------------------------------
Class B (73,836) (186,558)
------------------------------------------------------------------------------
Class C (46,359) (117,790)
------------------------------------------------------------------------------
Investor Class (1,172,562) (4,879,235)
------------------------------------------------------------------------------
Decrease in net assets resulting from
distributions (1,386,552) (5,459,228)
------------------------------------------------------------------------------
Share transactions-net:
Class A 2,697,442 5,196,934
------------------------------------------------------------------------------
Class B 2,105,942 3,070,280
------------------------------------------------------------------------------
Class C 2,395,226 1,162,774
------------------------------------------------------------------------------
Investor Class (15,067,517) (25,887,997)
------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from share transactions (7,868,907) (16,458,009)
------------------------------------------------------------------------------
Net increase (decrease) in net assets (19,114,269) 41,470,961
------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 146,147,411 104,676,450
------------------------------------------------------------------------------
End of year (including undistributed net
investment income (loss) of $(5,633,241) and
$(4,118,693), respectively) $127,033,142 $146,147,411
------------------------------------------------------------------------------
See accompanying notes which are an integral part of the financial statements.
F-4
NOTES TO FINANCIAL STATEMENTS
March 31, 2005
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Gold & Precious Metals Fund, formerly INVESCO Gold & Precious Metals Fund,
(the "Fund") is a series portfolio of AIM Sector Funds (the "Trust"). The Trust
is a Delaware statutory trust registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as an open-end series management investment
company consisting of seven separate portfolios, each authorized to issue an
unlimited number of shares of beneficial interest. The Fund currently offers
multiple classes of shares. Matters affecting each portfolio or class will be
voted on exclusively by the shareholders of such portfolio or class. The
assets, liabilities and operations of each portfolio are accounted for
separately. Information presented in these financial statements pertains only
to the Fund.
The Fund's investment objective is to seek capital growth. Companies are
listed in the Schedule of Investments based on the country in which they are
organized.
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. However, the Fund has not had prior claims or losses pursuant to
these contracts.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates. The following is a summary of the
significant accounting policies followed by the Fund in the preparation of its
financial statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy.
A security listed or traded on an exchange (except convertible bonds) is
valued at its last sales price as of the close of the customary trading
session on the exchange where the security is principally traded, or lacking
any sales on a particular day, the security is valued at the closing bid
price on that day. Each security traded in the over-the-counter market (but
not securities reported on the NASDAQ National Market System) is valued on
the basis of prices furnished by independent pricing services, 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 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 will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
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 market
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 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 and 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.
F-5
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 allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. DISTRIBUTIONS -- Distributions from income and net realized capital gain, if
any, are generally paid annually and recorded on ex-dividend date. The Fund
may elect to use a portion of the proceeds from redemptions as distributions
for federal income tax purposes.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
E. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
F. 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.
G. 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.
H. GOLD BULLION -- The Fund may invest up to 10% at the time of purchase of its
total assets directly in gold bullion. The two largest national producers of
gold bullion are the Republic of South Africa and the former states of the
Soviet Union. International monetary and political developments such as
currency devaluations, central bank movements and social and economic
conditions affecting either country may have a direct impact on the gold
industry. The price of gold can be subject to substantial fluctuations over
short periods of time. Investments directly in gold bullion will earn no
income; appreciation is the sole manner in which the Fund can realize gains
on bullion investments. Gold bullion is valued based upon daily quotes
provided by banks or brokers dealing in such commodities.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee based on the annual rate of the Fund's average
daily net assets as follows:
AVERAGE NET ASSETS RATE
--------------------------------------------------------------
First $350 million 0.75%
--------------------------------------------------------------
Next $350 million 0.65%
--------------------------------------------------------------
Next $1.3 billion 0.55%
--------------------------------------------------------------
Next $2 billion 0.45%
--------------------------------------------------------------
Next $2 billion 0.40%
--------------------------------------------------------------
Next $2 billion 0.375%
--------------------------------------------------------------
Over $8 billion 0.35%
--------------------------------------------------------------
Prior to September 30, 2004, AIM had entered into a sub-advisory agreement
with INVESCO Institutional (N.A.), Inc. ("INVESCO") whereby AIM paid INVESCO
40% of the fee paid by the Fund to AIM. Effective September 30, 2004, the
sub-advisory agreement between AIM and INVESCO was terminated.
AIM has contractually agreed to waive advisory fees and/or reimburse expenses
to the extent necessary to limit total annual operating expenses (excluding
certain items discussed below) of Class A, Class B, Class C and Investor Class
shares to 2.00%, 2.65%, 2.65% and 1.90% of average daily net assets,
respectively, through March 31, 2006. In determining the advisor's obligation
to waive advisory fees and/or reimburse expenses, the following expenses are
not taken into account, and
F-6
could cause the total annual fund operating expenses to exceed the limits
stated above: (i) interest; (ii) taxes; (iii) dividend expense on short sales;
(iv) extraordinary items (these are expenses that are not anticipated to arise
from the Fund's day-to-day operations), or items designated as such by the
Fund's Board of Trustees; (v) expenses related to a merger or reorganization,
as approved by the Fund's Board of Trustees; and (vi) expenses that the Fund
has incurred but did not actually pay because of an expense offset arrangement.
Currently, in addition to the expense reimbursement arrangement with AMVESCAP
PLC ("AMVESCAP") described more fully below, the only expense offset
arrangements from which the Fund may benefit are in the form of credits that
the Fund receives from banks where the Fund or its transfer agent has deposit
accounts in which it holds uninvested cash. Those credits are used to pay
certain expenses incurred by the Fund. AIM did not waive fee and/or reimburse
expenses during the period under this expense limitation.
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
(excluding investments made in affiliated money market funds with cash
collateral from securities loaned by the fund). 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 March 31, 2005, AIM waived fees of $3,699.
For the year ended March 31, 2005, at the request of the Trustees of the
Trust, AMVESCAP agreed to reimburse $22,944 of expenses incurred by the Fund in
connection with market timing matters in the AIM Funds, including legal, audit,
shareholder reporting, communications and trustee expenses. These expenses
along with the related expense reimbursement, are included in the Statement of
Operations.
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
March 31, 2005, AIM was paid $53,577.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AISI for certain expenses
incurred by AISI in the course of providing such services. AISI may make
payments to intermediaries that provide omnibus account services,
sub-accounting services and/or networking services. For the year ended March
31, 2005, the Fund paid AISI $460,217.
The Trust has entered into a master distribution agreement with A I M
Distributors, Inc. ("ADI") to serve as the distributor for the Class A, Class
B, Class C and Investor Class shares of the Fund. The Trust has adopted plans
pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A,
Class B, Class C and Investor Class shares (collectively the "Plans"). The
Fund, pursuant to the Plans, pays ADI compensation at the annual rate of 0.35%
of the Fund's average daily net assets of Class A shares, 1.00% of the average
daily net assets of Class B and Class C shares and 0.25% of the average daily
net assets of Investor Class shares. Of these amounts, up to 0.25% of the
average daily net assets of the Class A, Class B, Class C or Investor Class
shares may be paid to furnish continuing personal shareholder services to
customers who purchase and own shares of such classes. Any amounts not paid as
a service fee under the Plans would constitute an asset-based sales charge.
NASD Rules also impose a cap on the total sales charges, including asset-based
sales charges that may be paid by any class of shares of the Fund. Pursuant to
the Plans, for the year ended March 31, 2005, the Class A, Class B, Class C and
Investor Class shares paid ADI $29,666, $74,674, $57,257 and $264,664,
respectively.
Front-end sales commissions and contingent deferred sales charges ("CDSC")
(collectively the "sales charges") are not recorded as expenses of the Fund.
Front-end sales commissions are deducted from proceeds from the sales of Fund
shares prior to investment in Class A shares of the Fund. CDSC are deducted
from redemption proceeds prior to remittance to the shareholder. During the
year ended March 31, 2005, ADI advised the Fund that it retained $19,236 in
front-end sales commissions from the sale of Class A shares and $0, $35,631 and
$2,704 from Class A, Class B and Class C shares, respectively, for CDSC imposed
upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of AIM,
AISI and/or ADI.
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to an exemptive order from the Securities and
Exchange Commission ("SEC"), to invest daily available cash balances and cash
collateral from securities lending transactions 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 tables below show
the transactions in and earnings from investments in affiliated money market
funds for the year ended March 31, 2005.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
MARKET UNREALIZED MARKET REALIZED
VALUE PURCHASE PROCEEDS APPRECIATION VALUE DIVIDEND GAIN
FUND 03/31/04 AT COST FROM SALES (DEPRECIATION) 03/31/05 INCOME (LOSS)
- --------------------------------------------------------------------------------------------------------------------------
Premier Portfolio -- Institutional Class* $1,440,206 $64,556,326 $(64,949,149) $ -- $1,047,383 $61,634 $ --
- --------------------------------------------------------------------------------------------------------------------------
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
MARKET UNREALIZED MARKET REALIZED
VALUE PURCHASE PROCEEDS APPRECIATION VALUE DIVIDEND GAIN
FUND 03/31/04 AT COST FROM SALES (DEPRECIATION) 03/31/05 INCOME** (LOSS)
- -----------------------------------------------------------------------------------------------------------------------------
Premier Portfolio -- Institutional Class* $23,186,632 $225,320,597 $(239,598,037) $ -- $8,909,192 $106,091 $ --
- -----------------------------------------------------------------------------------------------------------------------------
Total $24,626,838 $289,876,923 $(304,547,186) $ -- $9,956,575 $167,725 $ --
- -----------------------------------------------------------------------------------------------------------------------------
* On February 25, 2005 the Premier Portfolio investments were transferred from
the original share class with no name designation to newly structured share
class designated as Institutional Share Class.
**Net of rebates.
F-7
NOTE 4--EXPENSE OFFSET ARRANGEMENT
The expense offset arrangement is comprised of transfer agency credits which
result from balances in Demand Deposit Accounts (DDA) used by the transfer
agent for clearing shareholder transactions. For the year ended March 31, 2005,
the Fund received credits from this arrangement which resulted in the reduction
of the Fund's total expenses of $1,800.
NOTE 5--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each Trustee of the Trust who is
not an "interested person" of AIM. Trustees have the option to defer
compensation payable by the Trust. Those Trustees who defer compensation have
the option to select various AIM Funds in which their deferral accounts shall
be deemed to be invested.
Current Trustees are eligible to participate in a retirement plan that
provides for benefits to be paid upon retirement to Trustees over a period of
time based on the number of years of service. The Fund may have certain former
Trustees that also participate in a retirement plan and receive benefits under
such plan.
Obligations under the deferred compensation and retirement plans represent
unsecured claims against the general assets of the Fund.
During the year ended March 31, 2005, the Fund paid legal fees of $3,815 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
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate
available on investments in overnight repurchase agreements) is favorable to
both the lending fund and the borrowing fund. A loan will be secured by
collateral if the Fund's aggregate borrowings from all sources exceeds 10% of
the Fund's total assets. To the extent that the loan is required to be secured
by collateral, the collateral is marked to market daily to ensure that the
market value is at least 102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to
the credit facility can borrow on a first come, first served basis. Principal
on each loan outstanding shall bear interest at the bid rate quoted by SSB at
the time of the request for the loan.
During the year ended March 31, 2005, the Fund did not borrow or lend under
the interfund lending facility or borrow under the uncommitted unsecured
revolving credit facility.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, the custodian bank. To compensate
the custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds in the account so the custodian can be compensated by earning the
additional interest; or (ii) compensate by paying the custodian bank. In either
case, the custodian bank will be compensated at an amount equal to the Federal
Funds rate plus 100 basis points.
NOTE 7--PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities having a market value up to one-third of
the Fund's total assets. Such loans are secured by collateral equal to no less
than the market value of the loaned securities determined daily. Such
collateral will be cash or debt securities issued or guaranteed by the U.S.
Government or any of its agencies. Cash collateral received in connection with
these loans is invested in short-term money market instruments or affiliated
money market funds. It is the Fund's policy to obtain additional collateral
from or return excess collateral to the borrower by the end of the next
business day, following the valuation date of the securities loaned. Therefore,
the value of the collateral held may be temporarily less than the value of the
securities on loan. Lending securities entails a risk of loss to the Fund if
and to the extent that the market value of the securities loaned were to
increase and the borrower did not increase the collateral accordingly, and the
borrower fails to return the securities. The Fund could also experience delays
and costs in gaining access to the collateral. The Fund bears the risk of any
deficiency in the amount of the collateral available for return to the borrower
due to a loss on the collateral invested.
At March 31, 2005, securities with an aggregate value of $8,590,617 were on
loan to brokers. The loans were secured by cash collateral of $8,909,192
received by the Fund and subsequently invested in an affiliated money market
fund. For the year ended March 31, 2005, the Fund received dividends on cash
collateral of $106,091 for securities lending transactions, which is net of
rebates.
F-8
NOTE 8--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
The tax character of distributions paid during the years ended March 31, 2005
and 2004 was as follows:
2005 2004
-------------------------------------------------------------
Distributions paid from ordinary income $1,386,552 $5,459,228
-------------------------------------------------------------
TAX COMPONENTS OF NET ASSETS:
As of March 31, 2005, the components of net assets on a tax basis were as
follows:
2005
-----------------------------------------------------
Unrealized appreciation -- investments $ 3,066,727
-----------------------------------------------------
Temporary book/tax differences (22,473)
-----------------------------------------------------
Capital loss carryforward (132,392,482)
-----------------------------------------------------
Shares of beneficial interest 256,381,370
-----------------------------------------------------
Total net assets $ 127,033,142
-----------------------------------------------------
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 (depreciation) difference is attributable primarily to losses on
wash sales. The tax-basis unrealized appreciation on investments amount
includes appreciation (depreciation) on foreign currencies of $(3,242).
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, certain corporation actions and mark to market of
certain passive foreign investment companies.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the
amount of capital loss carryforward actually available for the Fund to utilize.
The ability to utilize capital loss carryforward in the future may be limited
under the Internal Revenue Code and related regulations based on the results of
future transactions.
The Fund utilized $28,089,019 of capital loss carryforward in the current
period to offset net realized capital gain for federal income tax purposes. The
Fund has a capital loss carryforward as of March 31, 2005 which expires as
follows:
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
---------------------------------------------
March 31, 2006 $ 62,921,708
---------------------------------------------
March 31, 2007 30,924,521
---------------------------------------------
March 31, 2009 37,453,344
---------------------------------------------
March 31, 2010 1,092,909
---------------------------------------------
Total capital loss carryforward $132,392,482
---------------------------------------------
* Capital loss carryforward as of the date listed above is reduced for
limitations, if any, to the extent required by the Internal Revenue Code.
NOTE 9--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
March 31, 2005 was $64,018,416 and $73,585,029, respectively.
At the request of the Trustees, AIM recovered third party research credits
during the year ended March 31, 2005, in the amount of $15,226. These research
credits were recorded as realized gains.
UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENT SECURITIES ON A TAX BASIS
- ---------------------------------------------------------------------------------
Aggregate unrealized appreciation of:
Investment securities $ 12,024,483
- ---------------------------------------------------------------------------------
Gold Bullion 2,154,071
- ---------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (11,108,585)
- ---------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investment securities $ 3,069,969
- ---------------------------------------------------------------------------------
Cost of investments for tax purposes is $128,842,189.
Cost of Gold Bullion for tax purposes is $4,266,032.
F-9
NOTE 10--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of passive foreign
investment companies, net operating losses, foreign currency transactions and
expenses related to the plan of reorganization, on March 31, 2005,
undistributed net investment income (loss) was increased by $849,853,
undistributed net realized gain (loss) decreased by $486,916 and shares of
beneficial interest decreased by $362,937. This reclassification had no effect
on the net assets of the Fund.
NOTE 11--SHARE INFORMATION
The Fund currently offers four different classes of shares: Class A shares,
Class B shares, Class C shares and the Investor Class shares. Class A shares
are sold with a front-end sales charge. Class B shares and Class C shares are
sold with CDSC. Investor Class shares are sold at net asset value. Under
certain circumstances, Class A shares are subject to CDSC. Generally, Class B
shares will automatically convert to Class A shares eight years after the end
of the calendar month of purchase.
CHANGES IN SHARES OUTSTANDING/(A)/
- ----------------------------------------------------------------------------------------------------------------
YEAR ENDED MARCH 31,
-----------------------------------------------------
2005 2004
------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------
Sold:
Class A 3,288,755 $ 11,829,894 4,367,454 $ 14,190,104
- ----------------------------------------------------------------------------------------------------------------
Class B 1,946,374 6,878,345 1,695,415 5,884,727
- ----------------------------------------------------------------------------------------------------------------
Class C 1,718,862 6,596,274 3,460,076 11,274,482
- ----------------------------------------------------------------------------------------------------------------
Investor Class 6,331,925 22,395,640 41,101,369 125,772,587
- ----------------------------------------------------------------------------------------------------------------
Issued as reinvestment of dividends:
Class A 24,681 88,604 55,772 209,700
- ----------------------------------------------------------------------------------------------------------------
Class B 17,083 61,330 48,308 182,118
- ----------------------------------------------------------------------------------------------------------------
Class C 11,479 43,618 28,837 115,049
- ----------------------------------------------------------------------------------------------------------------
Investor Class 311,578 1,124,797 1,247,840 4,716,834
- ----------------------------------------------------------------------------------------------------------------
Automatic conversion of Class B shares to Class A shares:
Class A 48,957 173,885 19,727 74,538
- ----------------------------------------------------------------------------------------------------------------
Class B (48,993) (173,885) (19,691) (74,538)
- ----------------------------------------------------------------------------------------------------------------
Reacquired:
Class A (2,693,506) (9,394,941) (2,757,263) (9,277,408)
- ----------------------------------------------------------------------------------------------------------------
Class B (1,328,313) (4,659,848) (850,768) (2,922,027)
- ----------------------------------------------------------------------------------------------------------------
Class C (1,154,957) (4,244,666) (3,176,408) (10,226,757)
- ----------------------------------------------------------------------------------------------------------------
Investor Class (11,007,214) (38,587,954) (50,814,398) (156,377,418)
- ----------------------------------------------------------------------------------------------------------------
(2,533,289) $ (7,868,907) (5,593,730) $ (16,458,009)
- ----------------------------------------------------------------------------------------------------------------
/(a)/There is one entity that is a record owner of more than 5% of the
outstanding shares of the Fund and owns 17% of the outstanding shares of
the Fund. AIM Distributors has an agreement with this entity to sell Fund
shares. The Fund, AIM and/or AIM affiliates may make payments to this
entity, which is considered to be related to the Fund, for providing
services to the Fund, AIM and/or AIM affiliates including but not limited
to services such as, securities brokerage, distribution, third party record
keeping and account servicing. The Trust has no knowledge as to whether all
or any portion of the shares owned of record by this entity are also owned
beneficially.
F-10
NOTE 12--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
CLASS A
------------------------------
YEAR ENDED MARCH 31,
------------------------------
2005 2004 2003
- ----------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 3.81 $ 2.39 $ 2.29
- ----------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.03)/(a)/ (0.01) (0.02)/(a)(b)/
- ----------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) (0.20) 1.56 0.12
- ----------------------------------------------------------------------------------------------------------
Total from investment operations (0.23) 1.55 0.10
- ----------------------------------------------------------------------------------------------------------
Less dividends from net investment income (0.03) (0.13) --
- ----------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 3.55 $ 3.81 $ 2.39
- ----------------------------------------------------------------------------------------------------------
Total return/(c)/ (5.89)% 65.02% 4.37%
- ----------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $10,609 $8,844 $1,514
- ----------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.69%/(d)/ 2.13% 2.09%
- ----------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.71%/(d)/ 2.13% 2.11%
- ----------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (0.78)%/(d)/ (1.29)% (1.09)%
- ----------------------------------------------------------------------------------------------------------
Portfolio turnover rate 51% 48% 84%
- ----------------------------------------------------------------------------------------------------------
/(a)/Calculated using average shares outstanding.
/(b)/The net investment income (loss) per share was calculated after permanent
book tax differences, such as net operating losses, which were reclassified
from accumulated net investment income (loss) to paid in capital. Had net
investment income (loss) per share been calculated using the current
method, which is before reclassification of net operating losses, net
investment income (loss) per share would have been $(0.02) for the year
ended March 31, 2003.
/(c)/Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and returns for shareholder
transactions. Does not include sales charges.
/(d)/Ratios are based on average daily net assets of $8,475,956.
F-11
NOTE 12--FINANCIAL HIGHLIGHTS (CONTINUED)
CLASS B
-------------------------------
YEAR ENDED MARCH 31,
-------------------------------
2005 2004 2003
- -----------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 3.82 $ 2.39 $ 2.29
- -----------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.05)/(a)/ (0.01) (0.02)/(a)(b)/
- -----------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) (0.20) 1.57 0.12
- -----------------------------------------------------------------------------------------------------------
Total from investment operations (0.25) 1.56 0.10
- -----------------------------------------------------------------------------------------------------------
Less dividends from net investment income (0.03) (0.13) --
- -----------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 3.54 $ 3.82 $ 2.39
- -----------------------------------------------------------------------------------------------------------
Total return/(c)/ (6.48)% 65.26% 4.37%
- -----------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $8,593 $7,042 $2,315
- -----------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 2.34%/(d)(e)/ 2.28% 2.18%
- -----------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (1.43)%/(d)/ (1.44)% (1.12)%
- -----------------------------------------------------------------------------------------------------------
Portfolio turnover rate 51% 48% 84%
- -----------------------------------------------------------------------------------------------------------
/(a)/Calculated using average shares outstanding.
/(b)/The net investment income (loss) per share was calculated after permanent
book tax differences, such as net operating losses, which were reclassified
from accumulated net investment income (loss) to paid in capital. Had net
investment income (loss) per share been calculated using the current
method, which is before reclassification of net operating losses, net
investment income (loss) per share would have been $(0.02) for the year
ended March 31, 2003.
/(c)/Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and returns for shareholder
transactions. Does not include sales charges.
/(d)/Ratios are based on average daily net assets of $7,467,379.
/(e)/After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements was
2.36%.
F-12
NOTE 12--FINANCIAL HIGHLIGHTS (CONTINUED)
CLASS C
--------------------------------------------------
YEAR ENDED MARCH 31,
--------------------------------------------------
2005 2004 2003 2002
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 4.04 $ 2.52 $ 2.42 $ 1.53
- ----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.05)/(a)/ (0.04) (0.00)/(b)/ (0.07)/(b)/
- ----------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) (0.22) 1.67 0.10 0.96
- ----------------------------------------------------------------------------------------------------------------------
Total from investment operations (0.27) 1.63 0.10 0.89
- ----------------------------------------------------------------------------------------------------------------------
Less dividends from net investment income (0.02) (0.11) -- --
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 3.75 $ 4.04 $ 2.52 $ 2.42
- ----------------------------------------------------------------------------------------------------------------------
Total return/(c)/ (6.58)% 64.70% 4.13% 58.17%
- ----------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $6,993 $5,208 $2,459 $ 515
- ----------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 2.34%/(d)(e)/ 2.69% 2.65% 3.33%
- ----------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (1.43)%/(d)/ (1.85)% (1.60)% (1.67)%
- ----------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 51% 48% 84% 46%
- ----------------------------------------------------------------------------------------------------------------------
-------
-------
2001
- ----------------------------------------------------------------------------------
Net asset value, beginning of period $ 1.60
- ----------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.01)/(a)(b)/
- ----------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) (0.02)
- ----------------------------------------------------------------------------------
Total from investment operations (0.03)
- ----------------------------------------------------------------------------------
Less dividends from net investment income (0.04)
- ----------------------------------------------------------------------------------
Net asset value, end of period $ 1.53
- ----------------------------------------------------------------------------------
Total return/(c)/ (1.95)%
- ----------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 57
- ----------------------------------------------------------------------------------
Ratio of expenses to average net assets 3.38%
- ----------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (1.41)%
- ----------------------------------------------------------------------------------
Portfolio turnover rate 90%
- ----------------------------------------------------------------------------------
/(a)/Calculated using average shares outstanding.
/(b)/The net investment income (loss) per share was calculated after permanent
book tax differences, such as net operating losses, which were reclassified
from accumulated net investment income (loss) to paid in capital. Had net
investment income (loss) per share been calculated using the current
method, which is before reclassification of net operating losses, net
investment income (loss) per share would have been $(0.04), $(0.07) and
$(0.01) for the years ended March 31, 2003, 2002 and 2001.
/(c)/Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and returns for shareholder
transactions. Does not include sales charges.
/(d)/Ratios are based on average daily net assets of $5,725,666.
/(e)/After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements was
2.36%.
F-13
NOTE 12--FINANCIAL HIGHLIGHTS (CONTINUED)
INVESTOR CLASS
--------------------------------------------------------------------
YEAR ENDED MARCH 31,
--------------------------------------------------------------------
2005 2004 2003 2002 2001
- ------------------------------------------------------------------------------------------------------------
Net asset value, beginning of
period $ 3.84 $ 2.40 $ 2.29 $ 1.43 $ 1.60
- ------------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income (loss) (0.02)/(a)/ (0.05) (0.02)/(a)(b)/ (0.01)/(b)/ (0.01)/(a)(b)/
- ------------------------------------------------------------------------------------------------------------
Net gains (losses) on
securities (both realized
and unrealized) (0.21) 1.63 0.13 0.87 (0.12)
- ------------------------------------------------------------------------------------------------------------
Total from investment
operations (0.23) 1.58 0.11 0.86 (0.13)
- ------------------------------------------------------------------------------------------------------------
Less dividends from net
investment income (0.04) (0.14) -- -- (0.04)
- ------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 3.57 $ 3.84 $ 2.40 $ 2.29 $ 1.43
- ------------------------------------------------------------------------------------------------------------
Total return/(c)/ (6.00)% 65.92% 4.80% 60.14% (8.38)%
- ------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period
(000s omitted) $100,838 $125,053 $98,388 $104,831 $64,429
- ------------------------------------------------------------------------------------------------------------
Ratio of expenses to average
net assets 1.59%/(d)(e)/ 1.93% 1.88% 2.10% 2.34%
- ------------------------------------------------------------------------------------------------------------
Ratio of net investment
income (loss) to average net
assets (0.68)%/(d)/ (1.09)% (0.79)% (0.80)% (0.99)%
- ------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 51% 48% 84% 46% 90%
- ------------------------------------------------------------------------------------------------------------
/(a)/Calculated using average shares outstanding.
/(b)/The net investment income (loss) per share was calculated after permanent
book tax differences, such as net operating losses, which were reclassified
from accumulated net investment income (loss) to paid in capital. Had net
investment income (loss) per share been calculated using the current
method, which is before reclassification of net operating losses, net
investment income (loss) per share would have been $(0.02), $(0.01) and
$(0.01) for the years ended March 31, 2003, 2002 and 2001.
/(c)/Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and returns for shareholder
transactions.
/(d)/Ratios are based on average daily net assets of $105,865,709.
/(e)/After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements was
1.61%.
F-14
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
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds) and A I M Advisors, Inc. ("AIM") (the Fund's
investment advisor) reached final settlements with certain regulators,
including without limitation the Securities and Exchange Commission ("SEC"),
the New York Attorney General ("NYAG") and the Colorado Attorney General
("COAG"), to resolve civil enforcement actions and investigations related to
market timing activity and related issues in the AIM Funds, including those
formerly advised by IFG. These regulators alleged, in substance, that IFG and
AIM failed to disclose in the prospectuses for the AIM Funds that they advised
and to the independent directors/trustees of such Funds that they had entered
into certain arrangements permitting market timing of such Funds, thereby
breaching their fiduciary duties to such Funds. As a result of the foregoing,
the regulators alleged that IFG and AIM breached various Federal and state
securities, business and consumer protection laws. On the same date, A I M
Distributors, Inc. ("ADI") (the distributor of the retail AIM Funds) reached a
final settlement with the SEC to resolve an investigation relating to market
timing activity and related issues in the AIM Funds. The SEC also alleged that
ADI violated various Federal securities laws. The SEC also has settled related
market timing enforcement actions brought against certain former officers and
employees of IFG.
Under the terms of the settlements, IFG agreed to pay a total of $325
million, of which $110 million is civil penalties. Of this $325 million total
payment, half has been paid and the remaining half will be paid on or before
December 31, 2005. AIM and ADI agreed to pay a total of $50 million, of which
$30 million is civil penalties, all of which has been paid. The entire $325
million IFG settlement fund will be made available for distribution to the
shareholders of those AIM Funds that IFG formerly advised that were harmed by
market timing activity, and the entire $50 million settlement fund by AIM and
ADI will be made available for distribution to the shareholders of those AIM
Funds advised by AIM that were harmed by market timing activity, all as to be
determined by an independent distribution consultant. The IFG and AIM
settlement 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. The settlement funds will be
distributed in accordance with a methodology to be determined by the
independent distribution consultant, in consultation with AIM and the
independent trustees of the AIM Funds and acceptable to the staff of the SEC.
Under the settlements with the NYAG and COAG, AIM has agreed to reduce
management fees on certain equity and balanced AIM Funds by $15 million per
year for the next five years, based upon effective fee rates and assets under
management as of July 1, 2004, not to increase certain management fees and to
provide more information to investors regarding fees.
Under the terms of the settlements, AIM is undertaking certain governance and
compliance reforms, including maintaining an internal controls committee and
retaining an independent compliance consultant and a corporate ombudsman. Also,
commencing in 2007 and at least once every other year thereafter, AIM will
undergo a compliance review by an independent third party. In addition, under
the terms of the settlements, AIM has undertaken to cause the AIM Funds to
operate in accordance with certain governance policies and practices, including
retaining a full-time independent senior officer whose duties include
monitoring compliance and managing the process by which proposed management
fees to be charged the AIM Funds are negotiated. Also, commencing in 2008 and
not less than every fifth calendar year thereafter, the AIM Funds will hold
shareholder meetings at which their Boards of Trustees will be elected.
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
such Funds related to market timing matters.
The SEC has also settled market timing enforcement actions against Raymond R.
Cunningham (the former president and chief executive officer of IFG and a
former member of the board of directors of the AIM Funds formerly advised by
IFG), Timothy J. Miller (the former chief investment officer and a former
portfolio manager for IFG), Thomas A. Kolbe (the former national sales manager
of IFG) and Michael D. Legoski (a former assistant vice president in IFG's
sales department). As part of these settlements, the SEC ordered these
individuals to pay restitution and civil penalties in various amounts and
prohibited them from associating with, or serving as an officer or director of,
an investment advisor, broker, dealer and/or investment company, as applicable,
for certain periods of time.
The payments made in connection with the above-referenced settlements by IFG,
AIM and ADI will total approximately $375 million (not including AIM's
agreement to reduce management fees on certain equity and balanced AIM Funds by
$15 million per year for the next five years, based upon effective fee rates
and assets under management as of July 1, 2004). The manner in which the
settlement payments will be distributed is unknown at the present time and will
be determined by an independent distribution consultant appointed under the
settlement agreements. Therefore, management of AIM and the Fund are unable at
the present time to estimate the impact, if any, that the distribution of the
settlement payments may have on the Fund or whether such distribution will have
an impact on the Fund's financial statements 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, ADI or the Fund.
REGULATORY INQUIRIES AND PENDING LITIGATION
The mutual fund industry as a whole is currently subject to regulatory
inquiries and litigation related to a wide range of issues. These issues
include, among others, market timing activity, late trading, fair value
pricing, excessive or improper advisory and/or distribution fees, mutual fund
sales practices, including but not limited to revenue sharing and
directed-brokerage arrangements, investments in securities of other registered
investment companies, contractual plans, issues related to Section 529 college
savings plans, procedures for locating lost security holders and participation
in class action settlements.
As described more fully below, IFG and AIM are the subject of a number of
ongoing regulatory inquiries and civil lawsuits related to one or more of the
issues currently being scrutinized by various Federal and state regulators,
including but not limited to those issues described above. Additional
regulatory actions and/or civil lawsuits related to the above or other issues
may be filed against the AIM Funds, IFG, AIM and/or related entities and
individuals in the future. Additional regulatory inquiries related to the above
or other issues also may be received by the AIM Funds, IFG, AIM and/or related
entities and individuals in the future.
F-15
NOTE 13--LEGAL PROCEEDINGS (CONTINUED)
Ongoing Regulatory Inquiries Concerning IFG and AIM
IFG, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds formerly advised by IFG have received
regulatory inquiries in the form of subpoenas or other oral or written requests
for information and/or documents related to one or more of the following
issues, some of which concern one or more such 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, and investments in securities of other
registered investment companies. These regulators include the SEC, the NASD,
Inc. ("NASD"), the Florida Department of Financial Services, the Attorney
General of the State of West Virginia, the West Virginia Securities Commission
and the Bureau of Securities of the State of New Jersey. IFG and certain of
these other parties also have received more limited inquiries from the United
States Department of Labor ("DOL") and the United States Attorney's Office for
the Southern District of New York, some of which concern one or more of the AIM
Funds formerly advised by IFG. IFG is providing full cooperation with respect
to these inquiries.
AIM, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds have received regulatory inquiries in the form
of subpoenas or other oral or written requests for information and/or documents
related to one or more of the following issues, some of which concern one or
more AIM Funds: market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including revenue sharing and directed-brokerage arrangements,
investments in securities of other registered investment companies, contractual
plans, issues related to Section 529 college savings plans and procedures for
locating lost securityholders. These regulators include the SEC, the NASD, the
Department of Banking for the State of Connecticut, the Attorney General of the
State of West Virginia, the West Virginia Securities Commission and the Bureau
of Securities of the State of New Jersey. AIM and certain of these other
parties also have received more limited inquiries from the SEC, the NASD, the
DOL, the Internal Revenue Service, the United States Attorney's Office for the
Southern District of New York, the United States Attorney's Office for the
Central District of California, the United States Attorney's Office for the
District of Massachusetts, the Massachusetts Securities Division, the U.S.
Postal Inspection Service and the Commodity Futures Trading Commission, some of
which concern one or more AIM Funds. AIM is providing full cooperation with
respect to these inquiries.
Pending Regulatory Civil Action Alleging Market Timing
On April 12, 2005, the Attorney General of the State of West Virginia
("WVAG") filed civil proceedings 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 these proceedings. 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 (S) 46A-1-101, et seq. (the West Virginia Consumer Credit and Protection
Act). The WVAG complaint is seeking injunctive relief; civil monetary
penalties; a writ of quo warranto against the defendants; pre-judgment and
post-judgment interest; costs and expenses, including counsel fees; and other
relief.
If AIM is unsuccessful in its defense of the WVAG proceedings, it could be
barred from serving as an investment adviser 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 your Fund.
Your 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 your Fund's
investment advisor. There is no assurance that such exemptive relief will be
granted.
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, certain
related entities, certain of their current and former officers and/or certain
unrelated third parties) making allegations that are similar in many respects
to those in the settled regulatory actions brought by the SEC, the NYAG and the
COAG concerning market timing 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.
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
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. The plaintiffs in two of the underlying lawsuits
continue to seek remand of their lawsuit to state court.
Private Civil Actions Alleging Improper Use of Fair Value Pricing
Multiple civil class action lawsuits have been filed against various parties
(including, depending on the lawsuit, certain 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. Based on a recent court decision, the state court
action has been removed to Federal court.
F-16
NOTE 13--LEGAL PROCEEDINGS (CONTINUED)
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. All of these lawsuits have been
transferred to the United States District Court for the Southern District of
Texas, Houston Division and subsequently consolidated for pre-trial purposes
into one lawsuit.
Private Civil Actions Alleging Improper Charging of Distribution Fees on
Limited Offering Funds or Share Classes
Multiple civil lawsuits, including shareholder derivative suits, have been
filed against various parties (including, depending on the lawsuit, IFG, AIM,
ADI and/or certain of the trustees of the AIM Funds) alleging that the
defendants breached their fiduciary duties by charging distribution fees while
funds and/or specific share classes were closed generally to new investors
and/or while other share classes of the same fund were not charged the same
distribution fees. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the
Federal securities laws; and (ii) breach of fiduciary duty. These lawsuits have
been filed in Federal courts and seek such remedies as damages; injunctive
relief; and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Mutual Fund Sales Practices and
Directed-Brokerage Arrangements
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, AIM Management, IFG, AIM, AIM Investment Services, Inc. ("AIS")
and/or certain of the trustees of the AIM 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. These actions have been
consolidated for pre-trial purposes.
Private Civil Action Alleging Failure to Ensure Participation in Class Action
Settlements
A civil lawsuit, purporting to be a class action lawsuit, has been filed
against AIM, IINA, A I M Capital Management, Inc. and the trustees of the AIM
Funds alleging that the defendants breached their fiduciary duties by failing
to ensure that the AIM Funds participated in class action settlements in which
the AIM Funds were eligible to participate. This lawsuit alleges as theories of
recovery: (i) violation of various provisions of the Federal securities laws;
(ii) common law breach of fiduciary duty; and (iii) common law negligence. This
lawsuit has been filed in Federal court and seeks such remedies as compensatory
and punitive damages; forfeiture of all commissions and fees paid by the class
of plaintiffs; and costs and attorneys' fees.
* * * * * * * * * * * * * *
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.
F-17
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees
and Shareholders of AIM Gold & Precious Metals 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 the AIM Gold & Precious Metals
Fund, formerly known as INVESCO Gold & Precious Metals Fund (one of the funds
constituting AIM Sector Funds, hereafter referred to as the "Fund") at March
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 investments at March 31, 2005 by
correspondence with the custodian, provide a reasonable basis for our opinion.
/s/ PRICEWATERHOUSECOOPERS LLP
May 20, 2005
Houston, Texas
OTHER INFORMATION
TRUSTEES AND OFFICERS
As of March 31, 2005
The address of each trustee and officer of AIM Sector Funds (the "Trust"), is
11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 114
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.
NAME, YEAR OF BIRTH AND
POSITIONS(S) HELD WITH THE TRUSTEE AND/ PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
TRUST OR OFFICER SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- ---------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- ---------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham/1 /-- 1946 2003 Director and Chairman, A I M Management None
Trustee, Vice Chair and President Group Inc. (financial services holding
company); Director and Vice Chairman,
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 1998 Director, President and Chief Executive None
Trustee and Executive Vice President Officer, A I M Management Group Inc.;
Director, Chairman 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
(parent of AIM and a global investment
management firm)
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
- ---------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- ---------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett/3 /-- 1944 2003 Chairman, Crockett Technology ACE Limited (insurance
Trustee and Chair Associates (technology consulting company); and Captaris, Inc.
company) (unified messaging provider)
- ---------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 1983 Retired None
Trustee
- ---------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2003 Retired Badgley Funds, Inc. (registered
Trustee investment company)
Formerly: Partner, law firm of Baker &
McKenzie
- ---------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2000 Co-President and Founder, Green, None
Trustee Manning & Bunch Ltd., (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 None
Trustee private business corporations,
including the Boss Group Ltd. (private
investment and management); Cortland
Trust, Inc. (Chairman) (registered
investment company); Annuity and Life
Re (Holdings), Ltd. (insurance
company); and CompuDyne Corporation
(provider of products and services to
the public security market)
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 2003 Retired None
Trustee
Formerly: Chairman, Mercantile Mortgage
Corp.; President and Chief Operating
Officer, Mercantile-Sale Deposit &
Trust Co.; and President, Mercantile
Bankshares Corp.
- ---------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 2003 Chief Executive Officer, Twenty First Administaff and Discovery
Trustee Century Group, Inc. (government affairs Global Education Fund (non-
company) (owner) Dos Angelos Ranch, L.P. profit)
Formerly: Chief Executive Officer,
Texana Timber LP (sustainable forestry
company)
- ---------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 2003 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company)
- ---------------------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis -- 1933 2000 Chairman, Lawsuit Resolution Services General Chemical Group, Inc.
Trustee (San Diego, California)
- ---------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 2003 Formerly: Chief Executive Officer, YMCA None
Trustee of the USA
- ---------------------------------------------------------------------------------------------------------------------------------
/(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. Prior to
October 4, 2004, Mr. Graham served as Chairman of the Board of Trustees
of 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.
/(3)/ Mr. Crockett was elected Chair of the Board of Trustees of the Trust
effective October 4, 2004.
Trustees and Officers (continued)
As of March 31, 2005
The address of each trustee and officer of AIM Sector Funds (the "Trust"), is
11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 114
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.
Name, Year of Birth and
Position(s) Held with the Trustee and/ Principal Occupation(s) During Past 5 Other Directorship(s)
Trust or Officer Since Years Held by Trustee
- ----------------------------------------------------------------------------------------------------------------------
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
- ----------------------------------------------------------------------------------------------------------------------
Other Officers
- ----------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley/4 /-- 1959 2004 Senior Vice President, A I M Management N/A
Senior Vice President and Chief Group Inc.; Senior Vice President and
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., A I M
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/5 /-- 1958 2005 Formerly: Director of Compliance and N/A
Senior Vice President Assistant General Counsel, ICON
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 Secretary and General Counsel, A I M
Chief Legal Officer Management Group Inc. and A I M
Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Vice President, A I M Capital
Management, Inc., and A I M Investment
Services, Inc.; Director, Vice
President and General Counsel, Fund
Management Company; and Senior Vice
President, A I M Distributors, Inc.
Formerly: Senior Vice President and
General Counsel, Liberty Financial
Companies, Inc.; and Senior Vice
President and General Counsel, Liberty
Funds Group, LLC.; and Vice President,
A I M Distributors, Inc.
- ----------------------------------------------------------------------------------------------------------------------
Robert G. Alley -- 1948 2003 Managing Director, Chief Fixed Income N/A
Vice President Officer and Senior Investment Officer,
A I M Capital Management, Inc. and Vice
President, A I M Advisors, Inc.
- ----------------------------------------------------------------------------------------------------------------------
Stuart W. Coco -- 1955 2003 Managing Director and Director of Money N/A
Vice President Market Research and Special Projects,
A I M Capital Management, Inc.; and
Vice President, A I M Advisors, Inc.
- ----------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, N/A
Vice President and Treasurer A I M Advisors, Inc.
Formerly: Senior Vice President, A I M
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- ----------------------------------------------------------------------------------------------------------------------
J. Phillip Ferguson/6 /-- 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, A I M
Private Asset Management, Inc.; Chief
Equity Officer, and Senior Investment
Officer, A I M Capital Management,
Inc.; and Managing Partner, Beutel,
Goodman Capital Management
- ----------------------------------------------------------------------------------------------------------------------
Mark D. Greenberg -- 1957 2004 Senior Vice President and Senior N/A
Vice President Portfolio Manager, A I M Capital
Management, Inc.
Formerly: Senior Vice President and
Senior Portfolio Manager, INVESCO
Institutional (N.A.), Inc.
- ----------------------------------------------------------------------------------------------------------------------
William R. Keithler -- 1952 2004 Senior Vice President and Senior N/A
Vice President Portfolio Manager, A I M Capital
Management, Inc.
Formerly: Senior Vice President,
Director of Sector Management and
Senior Portfolio Manager, INVESCO
Institutional (N.A.), Inc.
- ----------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 2003 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.
- ----------------------------------------------------------------------------------------------------------------------
/(4)/ Ms. Brinkley was elected Senior Vice President and Chief Compliance
Officer of the Trust effective September 20, 2004.
/(5)/ Mr. Burk was elected Senior Vice President of the Trust effective
February 15, 2005.
/(6)/ Mr. Ferguson was elected Vice President of the Trust effective February
24, 2005.
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.
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza. A I M Advisors, Inc. A I M Distributors, Inc. PricewaterhouseCoopers LLP
Suite 100 11 Greenway Plaza 11 Greenway Plaza 1201 Louisiana Street
Houston, TX 77046-1173 Suite 100 Suite 100 Suite 2900
Houston, TX 77046-1173 Houston, TX 77046-1173 Houston, Texas 77002-5678
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
Ballard Spahr INDEPENDENT TRUSTEES AIM Investment Services, Inc. State Street Bank and Trust
Andrews & Ingersoll, LLP Kramer, Levin, Naftalis & P.O. Box 4739 Company
1735 Market Street Frankel LLP Houston, TX 77210-4739 225 Franklin Street
Philadelphia, PA 19103-7599 1177 Avenue of the Americas Boston, MA 02110-2801
New York, NY 10036-2714
REQUIRED FEDERAL INCOME TAX INFORMATION (UNAUDITED)
Of ordinary dividends paid to shareholders during the Fund's tax year ended
March 31, 2005, 5.70% is eligible for the dividends received deduction for
corporations.
For its tax year ended March 31, 2005, the Fund designates 22.55% 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.
Domestic Equity Sector Equity
AIM Aggressive Growth Fund AIM Advantage Health Sciences Fund/1/
AIM Basic Balanced Fund* AIM Energy Fund/1/
AIM Basic Value Fund AIM Financial Services Fund/1/
AIM Blue Chip Fund AIM Global Health Care Fund
AIM Capital Development Fund AIM Global Real Estate Fund
AIM Charter Fund AIM Gold & Precious Metals Fund/1/
AIM Constellation Fund AIM Leisure Fund/1/
AIM Diversified Dividend Fund AIM Multi-Sector Fund/1/
AIM Dynamics Fund/1/ AIM Real Estate Fund/7/
AIM Large Cap Basic Value Fund AIM Technology Fund/1/
AIM Large Cap Growth Fund AIM Utilities Fund/1/
AIM Mid Cap Basic Value Fund
AIM Mid Cap Core Equity Fund/2/ Fixed Income
AIM Mid Cap Growth Fund
AIM Opportunities I Fund TAXABLE
AIM Opportunities II Fund
AIM Opportunities III Fund AIM Floating Rate Fund
AIM Premier Equity Fund AIM High Yield Fund
AIM S&P 500 Index Fund/1/ AIM Income Fund
AIM Select Equity Fund AIM Intermediate Government Fund
AIM Small Cap Equity Fund/3/ AIM Limited Maturity Treasury Fund
AIM Small Cap Growth Fund/4/ AIM Money Market Fund
AIM Small Company Growth Fund/1/ AIM Short Term Bond Fund
AIM Trimark Endeavor Fund AIM Total Return Bond Fund
AIM Trimark Small Companies Fund Premier Portfolio
AIM Weingarten Fund Premier U.S. Government Money
Portfolio/1/
* Domestic equity and income fund
TAX-FREE
International/Global Equity
AIM High Income Municipal Fund
AIM Asia Pacific Growth Fund AIM Municipal Bond Fund
AIM Developing Markets Fund AIM Tax-Exempt Cash Fund
AIM European Growth Fund AIM Tax-Free Intermediate Fund
AIM European Small Company Fund/5/ Premier Tax-Exempt Portfolio
AIM Global Aggressive Growth Fund
AIM Global Equity Fund AIM Allocation Solutions
AIM Global Growth Fund
AIM Global Value Fund AIM Conservative Allocation Fund
AIM International Core Equity Fund/1/ AIM Growth Allocation Fund/8/
AIM International Growth Fund AIM Moderate Allocation Fund
AIM International Small Company Fund/6/ AIM Moderate Growth Allocation Fund
AIM Trimark Fund AIM Moderately Conservative
Allocation Fund
/1/The following name changes became effective October 15, 2004: INVESCO
Advantage Health Sciences Fund to AIM Advantage Health Sciences Fund, INVESCO
Dynamics Fund to AIM Dynamics Fund, INVESCO Energy Fund to AIM Energy Fund,
INVESCO Financial Services Fund to AIM Financial Services Fund, INVESCO Gold &
Precious Metals Fund to AIM Gold & Precious Metals Fund, INVESCO International
Core Equity Fund to AIM International Core Equity Fund, INVESCO Leisure Fund to
AIM Leisure Fund, INVESCO Mid-Cap Growth Fund to AIM Mid Cap Stock Fund, INVESCO
Multi-Sector Fund to AIM Multi-Sector Fund, INVESCO S&P 500 Index Fund to AIM
S&P 500 Index Fund, INVESCO Small Company Growth Fund to AIM Small Company
Growth Fund, INVESCO Technology Fund to AIM Technology Fund, INVESCO U.S.
Government Money Fund to Premier U.S. Government Money Portfolio, INVESCO
Utilities Fund to AIM Utilities Fund. /2/As of end of business on February 27,
2004, AIM Mid Cap Core Equity Fund has limited public sales of its shares to
certain investors. For more information on who may continue to invest in the
Fund, please contact your financial advisor. /3/Effective December 13, 2004, AIM
Small Cap Equity Fund is open to all investors. /4/As of end of business on
March 18, 2002, AIM Small Cap Growth Fund has limited public sales of its shares
to certain investors. For more information on who may continue to invest in the
Fund, please contact your financial advisor. /5/As of end of business on March
28, 2005, AIM European Small Company Fund has limited public sales of its shares
to certain investors. For more information on who may continue to invest in the
Fund, please contact your financial advisor. /6/Effective December 30, 2004, AIM
International Emerging Growth Fund was renamed AIM International Small Company
Fund. As of end of business on March 14, 2005, the Fund has limited public sales
of its shares to certain investors. For more information on who may continue to
invest in the Fund, please contact your financial advisor. /7/As of end of
business on April 29, 2005, AIM Real Estate Fund has limited public sales of its
shares to certain investors. For more information on who may continue to invest
in the Fund, please contact your financial advisor. /8/Effective April 29, 2005,
AIM Aggressive Allocation Fund was renamed AIM Growth Allocation Fund.
If used after July 20, 2005, this report must be accompanied by a Fund
Performance & Commentary or by an AIM Quarterly Performance Review for the most
recent quarter-end. Mutual funds distributed by AIM Distributors, Inc.
AIM Management Group Inc. has provided leadership in the investment management
industry since 1976 and manages $131 billion in assets. AIM is a subsidiary of
AMVESCAP PLC, one of the world's largest independent financial services
companies with $375 billion in assets under management. Data as of March 31,
2005.
- --------------------------------------------------------------------------------
CONSIDER THE INVESTMENT OBJECTIVES, RISKS, AND CHARGES AND EXPENSES CAREFULLY.
FOR THIS AND OTHER INFORMATION ABOUT AIM FUNDS, OBTAIN A PROSPECTUS FROM YOUR
FINANCIAL ADVISOR AND READ IT CAREFULLY BEFORE INVESTING.
- --------------------------------------------------------------------------------
AIMinvestments.com I-GPM-AR-1 A I M Distributors, Inc.
[YOUR GOALS. OUR SOLUTIONS.]
- REGISTERED TRADEMARK -
Mutual Retirement Annuities College Separately Offshore Cash
Funds Products Savings Managed Products Management
Plans Accounts
[AIM INVESTMENTS LOGO]
- REGISTERED TRADEMARK -
AIM HEALTH SCIENCES FUND
Annual Report to Shareholders . March 31, 2005
[COVER IMAGE]
FORMERLY INVESCO HEALTH SCIENCES FUND
[YOUR GOALS. OUR SOLUTIONS.]
- REGISTERED TRADEMARK -
[AIM INVESTMENTS LOGO]
- REGISTERED TRADEMARK -
AIM HEALTH SCIENCES FUND SEEKS TO PROVIDE CAPITAL GROWTH.
.. Unless otherwise stated, information presented in this report is as of March
31, 2005, and is based on total net assets.
.. Effective October 15, 2004, INVESCO Health Sciences Fund was renamed AIM
Health Sciences Fund.
ABOUT SHARE CLASSES
.. Effective September 30, 2003, Class B shares are not available as an
investment for retirement plans maintained pursuant to Section 401 of the
Internal Revenue Code, including 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.
.. Class K shares are available only to certain retirement plans. Please see the
prospectus for more information.
.. Investor Class shares are closed to most investors. For more information on
who may continue to invest in the Investor Class shares, please see the
prospectus.
PRINCIPAL RISKS OF INVESTING IN THE FUND
.. Investing in a single-sector or single-region mutual fund involves greater
risk and potential reward than investing in a more diversified fund.
.. Investing in mid-sized companies involves greater risks not associated with
investing in more established companies.
.. The Fund may invest up to 25% of its assets in the securities of non-U.S.
issuers. Securities of Canadian issuers and American Depository Receipts are not
subject to this 25% limitation. International investing presents certain risks
not associated with investing solely in the United States. These include risks
relating to fluctuations in the value of the U.S. dollar relative to the values
of other currencies, the custody arrangements made for the Fund's foreign
holdings, differences in accounting, political risks and the lesser degree of
public information required to be provided by non-U.S. companies.
.. Portfolio turnover is greater than that of most funds, which may affect
performance.
ABOUT INDEXES USED IN THIS REPORT
.. The Goldman Sachs Health Care Index is a modified capitalization-weighted
index designed as a benchmark for U.S. traded securities in the health care
sector. The index includes companies in the following categories: providers of
health care related services, researchers, manufacturers, and distributors of
pharmaceuticals, drugs and related sciences, and medical supplies, instruments
and products.
.. The unmanaged Lipper Health/Biotech Fund Index represents an average of the 30
largest health and biotechnology funds tracked by Lipper, Inc., an independent
mutual fund performance monitor.
.. The unmanaged Standard & Poor's Composite Index of 500 Stocks (the S&P 500
- --REGISTERED TRADEMARK-- Index) is an index of common stocks frequently used as
a general measure of U.S. stock market performance.
.. The Fund is not managed to track the performance of any particular index,
including the indexes defined here, and consequently, the performance of the
Fund may deviate significantly from the performance of the indexes.
.. A direct investment cannot be made in an index. Unless otherwise indicated,
index results include reinvested dividends, and they do not reflect sales
charges. Performance of an index of funds reflects fund expenses; performance of
a market index does not.
OTHER INFORMATION
.. The returns shown in management's discussion of Fund performance are based on
net asset values calculated for shareholder transactions. Generally accepted
accounting principles require adjustments to be made to the net assets of the
Fund at period end for financial reporting purposes, and as such, the net asset
values for shareholder transactions and the returns based on those net asset
values may differ from the net asset values and returns reported in the
Financial Highlights.
.. Industry classifications used in this report are generally according to the
Global Industry Classification Standard, which was developed by and is the
exclusive property and a service mark of Morgan Stanley Capital International
Inc. and Standard & Poor's.
The Fund provides a complete list of its holdings four times in each fiscal
year, at the quarter-ends. For the second and fourth quarters, the lists appear
in the Fund's semiannual and annual reports to shareholders. For the first and
third quarters, the Fund files the lists with the Securities and Exchange
Commission (SEC) on Form N-Q. Shareholders can look up the Fund's Forms N-Q on
the SEC's Web site at sec.gov. Copies of the Fund's Forms N-Q may be reviewed
and copied at the SEC's Public Reference Room at 450 Fifth Street, N.W.,
Washington, D.C. 20549-0102. You can obtain information on the operation of the
Public Reference Room, including information about duplicating fee charges, by
calling 202-942-8090 or by electronic request at the following E-mail address:
publicinfo@sec.gov. The SEC file numbers for the Fund are 811-3826 and
002-85905. The Fund's most recent portfolio holdings, as filed on Form N-Q, are
also available at AIMinvestments.com.
A description of the policies and procedures that the Fund uses to determine how
to vote proxies relating to portfolio securities is available without charge,
upon request, from our Client Services department at 800-959-4246 or on the AIM
Web site, AIMinvestments.com. On the home page, scroll down and click on AIM
Funds Proxy Policy. The information is also available on the SEC's Web site,
sec.gov.
Information regarding how the Fund voted proxies related to its portfolio
securities during the 12 months ended June 30, 2004 is available at our Web
site. Go 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's Web site,
sec.gov.
- -------------------------------------------------------------------------------
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND
PROSPECTUS, WHICH CONTAINS MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES
AND EXPENSES. INVESTORS SHOULD READ IT CAREFULLY BEFORE INVESTING.
- -------------------------------------------------------------------------------
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
- -------------------------------------------------------------------------------
AIMINVESTMENTS.COM
AIM HEALTH SCIENCES FUND
DEAR FELLOW SHAREHOLDERS:
[GRAHAM PHOTO] The fiscal year covered by this report saw both equities and
bonds* produce positive total returns, but it wasn't a very
smooth ride. Markets were at their best during the second
half of 2004--bonds during the third quarter of that year
and equities during the fourth. Returns turned negative for
both asset classes during the first quarter of 2005.
The huge run-up in the price of oil over the course of
the fiscal year goes a long way toward explaining the
markets' loss of confidence early in 2005. The Consumer
Price Index rose more in March 2005 than one month earlier.
Energy costs advanced 4.0% in March; the petroleum-based
subset of energy increased 7.8%.
ROBERT H. GRAHAM Another negative factor has been Federal Reserve policy.
With a view to warding off potential inflation, the Federal
Reserve (the Fed) raised short-term interest rates in March,
the seventh such move since mid-year 2004. The Fed noted
that inflationary pressures have picked up recently and that
businesses' ability to raise prices appeared stronger than
in the recent past. There is a virtually universal
expectation that the Fed will continue to increase
short-term interest rates during 2005, which could
ultimately dampen economic performance. (In early May, after
the close of the reporting period, the Fed raised rates once
again.)
Nevertheless, there was also much good news for investors
as of March 31, 2005:
[WILLIAMSON PHOTO] . The Institute for Supply Management's manufacturing and
non-manufacturing indexes--based on surveys of purchasing
managers in industries that cover more than 80% of the
U.S. economy--both indicated continued healthy growth
during March and April and remained in very strong
territory. April was the 42/nd/ month in a row these
surveys showed the economy as a whole expanding.
MARK H. WILLIAMSON . Job growth during March was weaker than in the recent
past, though the unemployment rate declined over the
course of the fiscal year. In fact, less than robust job
growth during March was good news for bond
investors--there is still enough slack in the job market
to keep wage inflation from becoming an issue.
. Bond yields haven't risen as much as might be expected
given seven increases in short-term rates over the fiscal
year. Evidently, the bond market is not anticipating a
long-term inflationary pattern.
So once again we are seeing a good news/bad news
combination--a situation that is far from unusual. Over the
short term, financial markets are unpredictable. It is over
the long term that they have been rewarding to investors,
and we remain confident in their long-term outlook. Given
the inability to make accurate short-term forecasts, as
always, we urge our shareholders to:
. keep a long-term investment perspective,
. make sure their portfolios are suitably diversified, and
. contact their financial advisors when they have questions
or concerns about their investments or the markets.
YOUR FUND
The following pages present a discussion of your Fund's
approach to investing, an explanation of its performance
over the fiscal year, and a summary of its portfolio as that
year closed. Further information about your Fund and The AIM
Family of Funds --REGISTERED TRADEMARK--, as well as general
information concerning investing, is always available on our
widely praised Web site, AIMinvestments.com. We invite you
to visit frequently.
As always, we at AIM are dedicated to building solutions
to help you meet your investment goals. We thank you for
your continued participation in AIM Investments --REGISTERED
TRADEMARK--. If you have any questions, please contact our
award-winning Client Service representatives at
800-959-4246. We are pleased to be of help.
Sincerely,
/s/ ROBERT H. GRAHAM /s/ MARK H. WILLIAMSON
Robert H. Graham Mark H. Williamson
Trustee, President & Chairman & President,
Vice Chair, AIM Funds A I M Advisors, Inc.
May 20, 2005
* Equities represented by the S&P 500 Index, an index of
common stocks often used as a general measure of U.S.
stock market performance; bonds by the Lehman U.S.
Aggregate Bond Index, an index compiled by Lehman
Brothers, the global investment bank, that represents the
U.S. investment-grade fixed-rate bond market.
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 AND A I M
DISTRIBUTORS, INC. IS THE DISTRIBUTOR FOR THE RETAIL FUNDS
REPRESENTED BY AIM INVESTMENTS.
AIM HEALTH SCIENCES FUND
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
For the fiscal year ended March 31, 2005, AIM Health Sciences Fund lagged its
benchmark indexes. Performance relative to the broad market lagged because the
health care sector was the third-weakest performing sector of the S&P 500 Index.
- --------------------------------------------------------------------------------
FUND VS. INDEXES
TOTAL RETURNS, 3/31/04-3/31/05, EXCLUDING APPLICABLE SALES CHARGES. IF SALES
CHARGES WERE INCLUDED, RETURNS WOULD BE LOWER.
Class A Shares -3.30%
Class B Shares -3.93
Class C Shares -3.93
Class K Shares -3.42
Investor Class Shares -3.21
S&P 500 Index (Broad Market Index) 6.69
Goldman Sachs Health Care Index
(Style-specific Index) 4.48
Lipper Health/Biotech Fund Index
(Peer Group Index) 0.23
SOURCE: LIPPER, INC., FACTSET RESEARCH SYSTEMS
- --------------------------------------------------------------------------------
For the fiscal year as a whole, the Fund underperformed its style-specific
and peer group indexes because of its overweight position in large
pharmaceutical stocks, many of which performed poorly, and its underweight
position in biotechnology and health care services stocks, many of which
performed well. Fund performance since October 1, 2004 (when we assumed
management of the Fund), was hindered by an underweight position in health care
service stocks, which continued to be among the strongest performing groups
within the health care sector. Performance since October also was hindered by
significant exposure to Forest Labs and Pfizer, both of which declined in value,
and by minimal exposure to Johnson & Johnson, which performed strongly.
Since assuming management of the Fund, we have made a number of adjustments
to the portfolio that we believe position the Fund to perform better going
forward. As of the close of the fiscal year, the adjustments we wanted to make
to the portfolio were virtually complete. We discuss those adjustments later in
this report.
HOW WE INVEST
Because we assumed management of the Fund on October 1, 2004, we wanted to share
with you our investment process and philosophy. We believe the health care
sector is largely resistant to macroeconomic changes, making it a classic growth
sector. Companies within the health care sector may benefit from a number of
factors, including:
.. Demographic trends. As members of the baby boom generation age, they demand
treatments to extend and improve their lives.
.. Groundbreaking discoveries. We attempt to identify companies with market
dominance in fast-growing markets, as well as companies on the verge of medical
breakthroughs.
.. Barriers to entry. Many health care companies benefit from patents, which
serve as natural barriers to entry.
.. Defensive positioning. Regardless of economic conditions, people spend money
on health care.
We invest primarily in four industries: pharmaceuticals, biotechnology,
medical technology and health services. To manage risk, we typically limit
investments in a single stock to less than five percent of Fund assets at the
time of purchase, strive to diversify across subsectors to help reduce
volatility, and closely monitor political trends that could negatively affect an
industry.
Before buying a stock we subject it to in-depth fundamental research,
determining whether we consider it attractively valued, assessing the long-term
commercial potential of its current and prospective products, and evaluating
management.
We sell a holding if we identify a more attractive investment, if we see
deterioration of a company's fundamentals, if a company is unable to capitalize
on a market opportunity, or if there is a negative change in management.
MARKET CONDITIONS AND YOUR FUND
The U.S. economy continued to strengthen for much of the fiscal year. Despite
historically high oil and gasoline prices, and rising interest rates, consumer
spending remained
- --------------------------------------------------------------------------------
TOP 10 EQUITY HOLDINGS* PORTFOLIO COMPOSITION TOTAL NET ASSETS $826.4 million
By industry TOTAL NUMBER OF HOLDINGS* 69
1. Sanofi-Aventis ADR (France) 6.5% 1. Pharmaceuticals 49.6%
2. Wyeth 6.4 2. Biotechnology 17.7
3. Amgen Inc. 6.0 3. Health Care Equipment 16.4
4. Pfizer Inc. 5.7 4. Health Care Facilities 3.8
5. Eisai Co., Ltd. (Japan) 4.7 5. Health Care Services 3.3
6. Forest Laboratories, Inc. 4.6 6. Managed Health Care 2.9
7. Astellas Pharma Inc. (Japan) 4.3 7. Health Care Supplies 1.1
8. Roche Holding A.G. (Switzerland) 3.7 8. Diversified Chemicals 0.2
9. Lilly (Eli) & Co. 3.5 Money Market Funds
10. Medtronic, Inc. 3.2 Plus Other Assets Less Liabilities 5.0
The Fund's holdings are subject to change, and there is no assurance that the
Fund will continue to hold any particular security.
*Excluding money market fund holdings.
- --------------------------------------------------------------------------------
2
relatively strong and the broad U.S. stock market delivered positive returns.
For the year, health care stocks were weak relative to other sectors of the S&P
500 Index; pharmaceutical stocks performed particularly poorly as investors
worried about impending patent expirations and weak product pipelines.
As a result, some investors turned negative on the entire sector. Instead,
we sought to identify attractively valued long-term investment opportunities
within the sector.
Since assuming management of the Fund, we reduced the Fund's exposure to
large-cap pharmaceutical stocks. We sold our holdings in Merck and
GlaxoSmithKline, prescription drug makers whose products have come under
scrutiny. In their place, we purchased shares of several Japanese and European
pharmaceutical firms. The Japanese pharmaceutical industry has seen a series of
mergers in recent months, and we believe this consolidation is likely to
continue as companies realize that size is a crucial factor in this highly
competitive industry. In our opinion, the fundamentals and valuations of
European drugmakers generally were superior to those in the United States.
Also, we increased our exposure to biotechnology stocks, which typically
are volatile. To manage this volatility, we emphasized large- and mid-cap
biotech companies that are experiencing strong revenue and earnings growth with
multiple products on the market. We also emphasized smaller companies that have
recently launched their first product or have multiple products in clinical
trials. Our research suggests this part of the market may benefit from an
unprecedented number of new products in late-stage clinical trials.
For the portfolio as a whole, we reduced our exposure to
large-capitalization stocks, adding more mid- and small-cap stocks to the
portfolio. We believed that doing so enhanced diversification and increased the
Fund's exposure to stocks with higher growth potential.
Individual stocks that helped performance included:
.. PacifiCare Health Systems, a managed health care provider serving more than 3
million members primarily in the western United States. PacifiCare has grown by
raising premiums, adding new members (partly by acquiring competitors) and
holding down costs.
.. Johnson & Johnson, one of the world's largest and most diversified health care
companies. For decades, the company has increased its sales and dividends. In
December 2004, J&J announced plans to acquire Guidant, a leading manufacturer of
cardiovascular products.
Stocks that hindered performance included:
.. Forest Labs, a leading manufacturer of drugs to treat depression and social
anxiety disorder. Its patent for its newest antidepressant, Lexapro --REGISTERED
TRADEMARK--, has been challenged by a competitor. Also, media reports about
anti-social behavior caused by antidepressants have caused demand for the drugs
to weaken somewhat. We reduced our position in the stock somewhat.
.. Pfizer, which initially was thought likely to benefit from Merck's withdrawal
of Vioxx --REGISTERED TRADEMARK--. However, questions arose about Pfizer's
Celebrex, a drug chemically similar to Vioxx, and prescriptions for Celebrex
declined substantially. Despite this, we slightly increased our stake in Pfizer.
We considered the stock attractively valued and continued to believe in the
long-term commercial potential of the company's current and prospective
products.
IN CLOSING
We believe the changes we have made since assuming management responsibilities
in October better position the Fund to benefit from demographic changes and new,
innovative technologies. We remain optimistic about the health care sector's
long-term potential. We thank you for your continuing investment in AIM Health
Sciences Fund.
THE VIEWS AND OPINIONS EXPRESSED IN MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
ARE THOSE OF A I M ADVISORS, INC. THESE VIEWS AND OPINIONS ARE SUBJECT TO CHANGE
AT ANY TIME BASED ON FACTORS SUCH AS MARKET AND ECONOMIC CONDITIONS. THESE VIEWS
AND OPINIONS MAY NOT BE RELIED UPON AS INVESTMENT ADVICE OR RECOMMENDATIONS, OR
AS AN OFFER FOR A PARTICULAR SECURITY. THE INFORMATION IS NOT A COMPLETE
ANALYSIS OF EVERY ASPECT OF ANY MARKET, COUNTRY, INDUSTRY, SECURITY OR THE FUND.
STATEMENTS OF FACT ARE FROM SOURCES CONSIDERED RELIABLE, BUT A I M ADVISORS,
INC. MAKES NO REPRESENTATION OR WARRANTY AS TO THEIR COMPLETENESS OR ACCURACY.
ALTHOUGH HISTORICAL PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS, THESE
INSIGHTS MAY HELP YOU UNDERSTAND OUR INVESTMENT MANAGEMENT PHILOSOPHY.
See important Fund and index disclosures inside front cover.
- --------------------------------------------------------------------------------
[YELLEN PHOTO]
MICHAEL YELLEN, senior portfolio manager, is the lead portfolio manager of AIM
Health Sciences Fund. He began his investment career in 1991 and joined AIM in
1998. Mr. Yellen received his B.A. from Stanford University.
[ANDERSON PHOTO]
KIRK L. ANDERSON, portfolio manager, is a portfolio manager of AIM Health
Sciences Fund. Mr. Anderson joined AIM in 1994 in the fund services area. He
moved to portfolio administration in 1995, became an analyst in 1997, and was
named a portfolio manager in 2003. Mr. Anderson earned a B.A. in political
science from Texas A&M University and an M.S. in finance from the University of
Houston.
[UNTERHALTER PHOTO]
BRYAN A. UNTERHALTER, portfolio manager, is a portfolio manager of AIM Health
Sciences Fund. He began his investment career in 1995 as an equity trader. He
joined AIM in 1997 and a year later became an analyst on AIM's International
(Europe/Canada) investment management team. He was promoted to his current
position in 2003. Mr. Unterhalter received a B.A. from The University of Texas
at Austin and an M.B.A. from the University of St. Thomas.
On March 22, 2005, the Board of Trustees of AIM Health Sciences Fund approved a
proposal to reorganize the Fund into AIM Global Health Care Fund and to submit
that proposal to the shareholders of AIM Health Sciences Fund. We currently
intend to send proxy voting materials to shareholders of AIM Health Sciences
Fund during May and hold a shareholder meeting on June 28, 2005, at which
shareholders of AIM Health Sciences Fund will vote on the reorganization
proposal. If approved by shareholders, the reorganization is expected to be
completed by July 18, 2005.
- --------------------------------------------------------------------------------
[RIGHT ARROW GRAPHIC]
FOR A PRESENTATION OF YOUR FUND'S LONG-TERM PERFORMANCE RECORD, PLEASE TURN TO
PAGE 5.
3
AIM HEALTH SCIENCES FUND
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, which may include sales charges (loads) on purchase payments; contingent
deferred sales charges on redemptions; and redemption fees, if any; and (2)
ongoing costs, including management fees; distribution and/or service fees
(12b-1); and other Fund expenses. This example is intended to help you
understand your ongoing costs (in dollars) of investing in the Fund and to
compare these costs with ongoing costs of investing in other mutual funds. The
example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period October 1, 2004, through March 31, 2005.
ACTUAL EXPENSES
The table below provides information about actual account values and actual
expenses. You may use the information in this table, together with the amount
you invested, to estimate the expenses that you paid over the period. Simply
divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number in the table
under the heading entitled "Actual Expenses Paid During Period" to estimate the
expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The table below also provides information about hypothetical account values and
hypothetical expenses based on the Fund's actual expense ratio and an assumed
rate of return of 5% per year before expenses, which is not the Fund's actual
return. The Fund's actual cumulative total returns at net asset value after
expenses for the six months ended March 31, 2005, appear in the table
"Cumulative Total Returns" on page 5. The hypothetical account values and
expenses may not be used to estimate the actual ending account balance or
expenses you paid for the period. You may use this information to compare the
ongoing costs of investing in the Fund and other funds. To do so, compare this
5% hypothetical example with the 5% hypothetical examples that appear in the
shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight
your ongoing costs only and do not reflect any transactional costs, such as
sales charges (loads) on purchase payments, contingent deferred sales charges on
redemptions, and redemption fees, if any. Therefore, the hypothetical
information is useful in comparing ongoing costs only, and will not help you
determine the relative total costs of owning different funds.
- --------------------------------------------------------------------------------
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES ENDING ACCOUNT EXPENSES
SHARE VALUE VALUE PAID DURING VALUE PAID DURING
CLASS (10/1/04) (3/31/05)/1/ PERIOD/2/ (3/31/05) PERIOD/2/
A $ 1,000.00 $ 1,017.30 $ 7.04 $ 1,017.95 $ 7.04
B 1,000.00 1,014.10 10.29 1,014.71 10.30
C 1,000.00 1,014.00 10.31 1,014.69 10.32
K 1,000.00 1,017.30 7.24 1,017.75 7.24
Investor 1,000.00 1,018.10 6.24 1,018.75 6.24
/1/The actual ending account value is based on the actual total return of the
Fund for the period October 1, 2004, to March 31, 2005, after actual expenses
and will differ from the hypothetical ending account value which is based on the
Fund's expense ratio and a hypothetical annual return of 5% before expenses. The
Fund's actual cumulative total returns at net asset value after expenses for the
six months ended March 31, 2005, appear in the table "Cumulative Total Returns"
on page 5.
/2/Expenses are equal to the Fund's annualized expense ratio, 1.40%, 2.05%,
2.05%, 1.44% and 1.24% for Class A, B, C, K and Investor Class shares,
respectively, multiplied by the average account value over the period,
multiplied by 182/365 (to reflect the one-half year period).
- --------------------------------------------------------------------------------
[ARROW
BUTTON For More Information Visit
IMAGE] AIMinvestments.com
4
AIM HEALTH SCIENCES FUND
YOUR FUND'S LONG-TERM PERFORMANCE
Your Fund's total return includes reinvested distributions, maximum applicable
sales charges, Fund expenses and management fees. Performance of an index of
funds reflects fund expenses and management fees; performance of a market index
does not. Performance shown in the chart and tables does not reflect deduction
of taxes a shareholder would pay on Fund distributions or sale of Fund shares.
Performance of the indexes does not reflect the effects of taxes.
This chart, which is a logarithmic chart, presents the fluctuations in the
value of the Fund and its indexes. We believe that a logarithmic chart is more
effective than other types of charts in illustrating changes in value during the
early years shown in the chart. The vertical axis, the one that indicates the
dollar value of an investment, is constructed with each segment representing a
percent change in the value of the investment. In this chart, each segment
represents a doubling, or 100% change, in the value of the investment. In other
words, the space between $10,000 and $20,000 is the same size as the space
between $20,000 and $40,000, the space between $20,000 and $40,000 is the same
as that between $40,000 and $80,000, and so on.
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
As of 3/31/05, including applicable sales charges
CLASS A SHARES
Inception (3/28/02) -1.37%
1 Year -8.63
CLASS B SHARES
Inception (3/28/02) -1.13%
1 Year -8.73
CLASS C SHARES
Inception (2/14/00) -2.93%
5 years -0.82
1 Year -4.89
CLASS K SHARES
Inception (11/30/00) -3.94%
1 Year -3.42
INVESTOR CLASS SHARES
Inception (1/19/84) 15.32%
10 Years 10.62
5 Years 0.23
1 Year -3.21
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
RESULTS OF A $10,000 INVESTMENT
Fund data from 1/19/84 (index data from 1/31/84)
[MOUNTAIN CHART]
AIM Health Sciences Fund AIM Health Sciences Fund
Date Investor Class Shares S&P 500 Index Date Investor Class Shares S&P 500 Index
1/19/84 $ 10000 6/94 58853 39001
1/84 10000 10000 7/94 59323 40280
2/84 9975 9648 8/94 65001 41928
3/84 9650 9815 9/94 66242 40904
4/84 9738 9908 10/94 65957 41821
5/84 9238 9360 11/94 65654 40300
6/84 9363 9563 12/94 66672 40897
7/84 9313 9445 1/95 69265 41957
8/84 10651 10488 2/95 71579 43590
9/84 10313 10490 3/95 75229 44874
10/84 10201 10531 4/95 75101 46195
11/84 9950 10413 5/95 74478 48038
12/84 10213 10687 6/95 79006 49152
1/85 11417 11520 7/95 84513 50781
2/85 11857 11661 8/95 88553 50908
3/85 11932 11668 9/95 94432 53055
4/85 11911 11658 10/95 94867 52866
5/85 12644 12331 11/95 98045 55184
6/85 12783 12524 12/95 105937 56247
7/85 12809 12506 1/96 111181 58159
8/85 12429 12385 2/96 112071 58700
9/85 11382 12011 3/96 113382 59265
10/85 12329 12566 4/96 117305 60138
11/85 13100 13428 5/96 119792 61686
12/85 13518 14078 6/96 113563 61922
1/86 13620 14157 7/96 104137 59187
2/86 14455 15214 8/96 111041 60438
3/86 16415 16063 9/96 118426 63836
4/86 17148 15883 10/96 111936 65596
5/86 18729 16727 11/96 115910 70550
6/86 19222 17010 12/96 118031 69153
7/86 17667 16059 1/97 125054 73471
8/86 18351 17250 2/97 123828 74047
9/86 16479 15823 3/97 115321 71011
10/86 17889 16736 4/97 117397 75246
11/86 17736 17143 5/97 125509 79847
12/86 17498 16705 6/97 134182 83396
1/87 20116 18955 7/97 139294 90030
2/87 23181 19704 8/97 130713 84990
3/87 23265 20272 9/97 139471 89642
4/87 22732 20092 10/97 137630 86652
5/87 23277 20266 11/97 140520 90660
6/87 23194 21290 12/97 139818 92216
7/87 23908 22369 1/98 149228 93235
8/87 24958 23203 2/98 155853 99955
9/87 24286 22694 3/98 163474 105070
10/87 17622 17807 4/98 164929 106146
11/87 15948 16340 5/98 161829 104324
12/87 18731 17582 6/98 173691 108558
1/88 19441 18321 7/98 174056 107411
2/88 20030 19172 8/98 155780 91893
3/88 19577 18580 9/98 173476 97784
4/88 18867 18786 10/98 176998 105726
5/88 19063 18946 11/98 186290 112131
6/88 20376 19815 12/98 200523 118588
7/88 21191 19739 1/99 202869 123546
8/88 20664 19070 2/99 198406 119706
9/88 21434 19882 3/99 201957 124495
10/88 21584 20435 4/99 189900 129316
11/88 20633 20143 5/99 183026 126265
12/88 21734 20494 6/99 190292 133254
1/89 23080 21994 7/99 186486 129111
2/89 23126 21447 8/99 192622 128472
3/89 25166 21947 9/99 180891 124954
4/89 26494 23085 10/99 191962 132858
5/89 27355 24016 11/99 197490 135558
6/89 26236 23881 12/99 201736 143531
7/89 29440 26035 1/00 213538 136321
8/89 31327 26542 2/00 265256 133743
9/89 32731 26434 3/00 204062 146819
10/89 32478 25821 4/00 191349 142403
11/89 34327 26345 5/00 190469 139484
12/89 34659 26977 6/00 234181 142919
1/90 31436 25167 7/00 218327 140687
2/90 32904 25491 8/00 250661 149420
3/90 34273 26166 9/00 265876 141534
4/90 34890 25514 10/00 259921 140933
5/90 39782 27996 11/00 238685 129831
6/90 40768 27808 12/00 253770 130468
7/90 41168 27719 1/01 225145 135094
8/90 37829 25216 2/01 223479 122783
9/90 35960 23991 3/01 195656 115009
10/90 35018 23890 4/01 211249 123940
11/90 40390 25431 5/01 218981 124771
12/90 43597 26139 6/01 219244 121735
1/91 49177 27274 7/01 215056 120537
2/91 54041 29222 8/01 212540 112998
3/91 57937 29929 9/01 204294 103874
4/91 56338 30000 10/01 213180 105856
5/91 60980 31290 11/01 222923 113974
6/91 57681 29858 12/01 216547 114973
7/91 63161 31248 1/02 205049 113296
8/91 66938 31986 2/02 200599 111111
9/91 69368 31451 3/02 203367 115290
10/91 75153 31873 4/02 196392 108303
11/91 71230 30592 5/02 194290 107508
12/91 83617 34085 6/02 183391 99853
1/92 83266 33450 7/02 172406 92071
2/92 79011 33883 8/02 170992 92674
3/92 74175 33225 9/02 170855 82612
4/92 68679 34200 10/02 171795 89876
5/92 69606 34367 11/02 165816 95160
6/92 66202 33856 12/02 161886 89573
7/92 69254 35238 1/03 160429 87231
8/92 66256 34518 2/03 157606 85920
9/92 64407 34924 3/03 164745 86752
10/92 67003 35043 4/03 172950 93894
11/92 71867 36233 5/03 179712 98837
12/92 72133 36678 6/03 188051 100099
1/93 69580 36984 7/03 188483 101865
2/93 56833 37488 8/03 184129 103848
3/93 56287 38279 9/03 185750 102748
4/93 55741 37353 10/03 191136 108558
5/93 59158 38350 11/03 198189 109512
6/93 59477 38462 12/03 206315 115251
7/93 57390 38307 1/04 213660 117366
8/93 59192 39757 2/04 216096 118997
9/93 60660 39453 3/04 213265 117202
10/93 62953 40268 4/04 211943 115364
11/93 62915 39884 5/04 211349 116944
12/93 66054 40367 6/04 212469 119217
1/94 69159 41738 7/04 198744 115272
2/94 67914 40605 8/04 200373 115734
3/94 63649 38838 9/04 202758 116988
4/94 62612 39336 10/04 201055 118775
5/94 62649 39979 11/04 203447 123579
12/04 219275 127783
1/05 211447 124669
2/05 211236 127291
3/05 $ 206441 $ 125039
Source: Lipper, Inc.
- --------------------------------------------------------------------------------
The performance data quoted represent past performance and cannot guarantee
comparable future results; current performance may be lower or higher. Please
visit AIMinvestments.com for the most recent month-end performance. Performance
figures reflect reinvested distributions, changes in net asset value and the
effect of the maximum sales charge unless otherwise stated. Investment return
and principal value will fluctuate so that you may have a gain or loss when you
sell shares.
Class A share performance reflects the maximum 5.50% sales charge, and
Class B and Class C share performance reflects the applicable contingent
deferred sales charge (CDSC) for the period involved. The CDSC on Class B shares
declines from 5% beginning at the time of purchase to 0% at the beginning of the
seventh year. The CDSC on Class C shares is 1% for the first year after
purchase.
Class K shares do not have a front-end sales charge; returns shown are at
net asset value and do not reflect a 0.70% CDSC that may be imposed on a total
redemption of retirement plan assets within the first year.
Investor Class shares do not have a front-end sales charge or a CDSC;
therefore, performance is at net asset value.
The performance of the Fund's share classes will differ due to different
sales charge structures and class expenses.
Had the advisor not waived fees and/or reimbursed expenses for Class A,
Class B and Class C shares, performance would have been lower.
- --------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURNS
Excluding applicable sales charges
6 months ended 3/31/05
Class A Shares 1.73%
Class B Shares 1.41
Class C Shares 1.40
Class K Shares 1.73
Investor Class Shares 1.81
- --------------------------------------------------------------------------------
5
FINANCIALS
SCHEDULE OF INVESTMENTS
March 31, 2005
MARKET
SHARES VALUE
--------------------------------------------------------------------------
DOMESTIC STOCKS & OTHER EQUITY
INTERESTS-65.81%
BIOTECHNOLOGY-15.24%
Amgen Inc./(a)/ 855,700 $ 49,810,297
--------------------------------------------------------------------------
Athersys Inc.-Pfd., Class F, Conv.
(Acquired 04/17/00; Cost $5,000,000)/(a)(b)(c)(d)/ 416,667 595,834
--------------------------------------------------------------------------
Corgentech Inc./(a)(e)/ 177,050 410,756
--------------------------------------------------------------------------
Cubist Pharmaceuticals, Inc./(a)/ 1,333,000 14,156,460
--------------------------------------------------------------------------
Gilead Sciences, Inc./(a)/ 619,434 22,175,737
--------------------------------------------------------------------------
Indevus Pharmaceuticals, Inc./(a)/ 890,000 2,474,200
--------------------------------------------------------------------------
Ingenex, Inc.-Pfd., Series B
(Acquired 09/27/94; Cost $600,000)/(a)(b)(c)(d)/ 103,055 0
--------------------------------------------------------------------------
Isis Pharmaceuticals, Inc./(a)(e)/ 155,300 601,011
--------------------------------------------------------------------------
Nabi Biopharmaceuticals/(a)/ 319,600 3,988,608
--------------------------------------------------------------------------
OSI Pharmaceuticals, Inc./(a)/ 235,427 9,732,552
--------------------------------------------------------------------------
Protein Design Labs, Inc./(a)/ 1,378,200 22,037,418
--------------------------------------------------------------------------
125,982,873
--------------------------------------------------------------------------
HEALTH CARE EQUIPMENT-16.43%
ATS Medical, Inc./(a)(e)/ 504,000 1,839,600
--------------------------------------------------------------------------
Bard (C.R.), Inc. 45,000 3,063,600
--------------------------------------------------------------------------
Baxter International Inc. 81,100 2,755,778
--------------------------------------------------------------------------
Becton, Dickinson & Co. 50,500 2,950,210
--------------------------------------------------------------------------
Boston Scientific Corp./(a)/ 380,000 11,130,200
--------------------------------------------------------------------------
Cytyc Corp./(a)/ 39,500 908,895
--------------------------------------------------------------------------
EPIX Pharmaceuticals Inc./(a)/ 95,000 665,000
--------------------------------------------------------------------------
Fisher Scientific International Inc./(a)/ 118,200 6,727,944
--------------------------------------------------------------------------
Guidant Corp. 308,500 22,798,150
--------------------------------------------------------------------------
IntraLase Corp./(a)/ 138,424 2,317,218
--------------------------------------------------------------------------
Kinetic Concepts, Inc./(a)/ 70,000 4,175,500
--------------------------------------------------------------------------
Medtronic, Inc. 514,200 26,198,490
--------------------------------------------------------------------------
SonoSite, Inc./(a)/ 407,300 10,581,654
--------------------------------------------------------------------------
St. Jude Medical, Inc./(a)/ 726,000 26,136,000
--------------------------------------------------------------------------
Thermo Electron Corp./(a)/ 67,800 1,714,662
--------------------------------------------------------------------------
Varian Inc./(a)/ 167,900 6,361,731
--------------------------------------------------------------------------
Varian Medical Systems, Inc./(a)/ 50,300 1,724,284
--------------------------------------------------------------------------
Vnus Medical Technologies/(a)(e)/ 178,800 2,070,504
--------------------------------------------------------------------------
Waters Corp./(a)/ 46,900 1,678,551
--------------------------------------------------------------------------
135,797,971
--------------------------------------------------------------------------
HEALTH CARE FACILITIES-3.85%
Community Health Systems Inc./(a)/ 700,000 24,437,000
--------------------------------------------------------------------------
HCA Inc. 85,000 4,553,450
--------------------------------------------------------------------------
Triad Hospitals, Inc./(a)/ 12,800 641,280
--------------------------------------------------------------------------
Universal Health Services, Inc.-Class B 41,500 2,174,600
--------------------------------------------------------------------------
31,806,330
--------------------------------------------------------------------------
MARKET
SHARES VALUE
----------------------------------------------------------------------------
HEALTH CARE SERVICES-3.26%
Caremark Rx, Inc./(a)/ 219,200 $ 8,719,776
----------------------------------------------------------------------------
DaVita, Inc./(a)/ 82,600 3,456,810
----------------------------------------------------------------------------
HMS Holdings Corp./(a)/ 520,000 3,848,000
----------------------------------------------------------------------------
Pharmaceutical Product Development, Inc./(a)/ 225,400 10,920,630
----------------------------------------------------------------------------
26,945,216
----------------------------------------------------------------------------
HEALTH CARE SUPPLIES-1.12%
Advanced Medical Optics, Inc./(a)/ 54,800 1,984,308
----------------------------------------------------------------------------
DENTSPLY International Inc. 34,000 1,849,940
----------------------------------------------------------------------------
Gen-Probe Inc./(a)/ 2,600 115,856
----------------------------------------------------------------------------
Symmetry Medical Inc./(a)/ 280,000 5,325,600
----------------------------------------------------------------------------
9,275,704
----------------------------------------------------------------------------
MANAGED HEALTH CARE-2.87%
Aetna Inc. 52,000 3,897,400
----------------------------------------------------------------------------
PacifiCare Health Systems, Inc./(a)/ 340,000 19,352,800
----------------------------------------------------------------------------
WellPoint Inc./(a)/ 3,400 426,190
----------------------------------------------------------------------------
23,676,390
----------------------------------------------------------------------------
PHARMACEUTICALS-23.04%
BioImagene, Inc.-Pfd., Series B-2
(Acquired 05/24/01; Cost $1,350,000)/(a)(b)(c)(d)/ 101,919 102,663
----------------------------------------------------------------------------
Bristol-Myers Squibb Co. 198,900 5,063,994
----------------------------------------------------------------------------
Forest Laboratories, Inc./(a)/ 1,026,100 37,914,395
----------------------------------------------------------------------------
Johnson & Johnson 165,000 11,081,400
----------------------------------------------------------------------------
Lilly (Eli) & Co. 554,900 28,910,290
----------------------------------------------------------------------------
Medicis Pharmaceutical Corp.-Class A 109,900 3,294,802
----------------------------------------------------------------------------
MGI Pharma, Inc./(a)/ 86,000 2,173,220
----------------------------------------------------------------------------
Pfizer Inc. 1,799,000 47,259,730
----------------------------------------------------------------------------
Valeant Pharmaceuticals International 68,600 1,544,872
----------------------------------------------------------------------------
Wyeth 1,257,000 53,020,260
----------------------------------------------------------------------------
190,365,626
----------------------------------------------------------------------------
Total Domestic Stocks & Other Equity Interests
(Cost $541,178,966) 543,850,110
----------------------------------------------------------------------------
FOREIGN STOCKS & OTHER EQUITY INTERESTS-29.19%
CANADA-2.45%
QLT Inc. (Biotechnology)/(a)/ 1,573,900 20,240,354
----------------------------------------------------------------------------
DENMARK-1.59%
Novo Nordisk A.S.-Class B (Pharmaceuticals)/(f)/ 236,600 13,165,950
----------------------------------------------------------------------------
FRANCE-6.48%
Sanofi-Aventis-ADR (Pharmaceuticals)/(e)/ 1,264,200 53,526,228
----------------------------------------------------------------------------
F-1
MARKET
SHARES VALUE
-----------------------------------------------------------------------------
GERMANY-0.40%
Altana A.G. (Pharmaceuticals)/(f)/ 24,000 $ 1,525,384
-----------------------------------------------------------------------------
Merck KGaA (Pharmaceuticals)/(e)(f)/ 25,300 1,804,123
-----------------------------------------------------------------------------
3,329,507
-----------------------------------------------------------------------------
JAPAN-10.26%
Astellas Pharma Inc. (Pharmaceuticals)/(f)/ 1,039,670 35,083,713
-----------------------------------------------------------------------------
Eisai Co., Ltd. (Pharmaceuticals)/(f)/ 1,139,700 38,606,564
-----------------------------------------------------------------------------
Kyorin Pharmaceutical Co., Ltd. (Pharmaceuticals)/(f)/ 381,000 5,390,651
-----------------------------------------------------------------------------
Santen Pharmaceutical Co., Ltd. (Pharmaceuticals)/(f)/ 60,000 1,286,496
-----------------------------------------------------------------------------
Takeda Pharmaceutical Co. Ltd. (Pharmaceuticals)/(f)/ 92,000 4,373,901
-----------------------------------------------------------------------------
84,741,325
-----------------------------------------------------------------------------
NETHERLANDS-0.22%
Akzo Nobel N.V.-ADR (Diversifed Chemicals) 40,000 1,839,200
-----------------------------------------------------------------------------
SWITZERLAND-5.54%
Novartis A.G.-ADR (Pharmaceuticals) 327,400 15,315,772
-----------------------------------------------------------------------------
Roche Holding A.G. (Pharmaceuticals)/(e)(f)/ 284,500 30,493,533
-----------------------------------------------------------------------------
45,809,305
-----------------------------------------------------------------------------
UNITED KINGDOM-2.25%
Shire Pharmaceuticals Group PLC-ADR
(Pharmaceuticals) 541,700 18,569,476
-----------------------------------------------------------------------------
Total Foreign Stocks & Other Equity Interests
(Cost $227,339,134) 241,221,345
-----------------------------------------------------------------------------
MARKET
SHARES VALUE
------------------------------------------------------------------------
MONEY MARKET FUNDS-5.21%
Premier Portfolio-Institutional Class
(Cost $43,095,250)/(g)/ 43,095,250 $ 43,095,250
------------------------------------------------------------------------
TOTAL INVESTMENTS-100.21% (excluding
investments purchased with cash collateral from
securities loaned)
(Cost $811,613,350) 828,166,705
------------------------------------------------------------------------
INVESTMENTS PURCHASED WITH CASH
COLLATERAL FROM SECURITIES LOANED
MONEY MARKET FUNDS-5.33%
Premier Portfolio-Institutional Class/(g)(h)/ 44,030,795 44,030,795
------------------------------------------------------------------------
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $44,030,795) 44,030,795
------------------------------------------------------------------------
TOTAL INVESTMENTS-105.54% (Cost $855,644,145) 872,197,500
-----------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-(5.54%) (45,775,417)
-----------------------------------------------------------
NET ASSETS-100.00% $826,422,083
-----------------------------------------------------------
Investment Abbreviations:
ADR - American Depositary Receipt
Conv.- Convertible
Pfd.- Preferred
Notes to Schedule of Investments:
/(a)/ Non-income producing security.
/(b)/ Security not registered under the Securities Act of 1933, as amended
(e.g., the security was purchased in a Rule 144A transaction or a
Regulation D transaction). The security may be resold only pursuant to an
exemption from registration under the 1933 Act, typically to qualified
institutional buyers. The Fund has no rights to demand registration of
these securities. The aggregate market value of these securities at March
31, 2005 was $698,497, which represented 0.08% of the Fund's Net Assets.
These securities are considered to be illiquid; the portfolio is limited
to investing 15% of net assets in illiquid securities.
/(c)/ Security fair valued in good faith in accordance with the procedures
established by the Board of Trustees. The aggregate market value of these
securities at March 31, 2005 was $698,497, which represented 0.08% of the
Fund's Total Investments. See Note 1A.
/(d)/ Security is considered venture capital. See Note 1I.
/(e)/ All or a portion of this security has been pledged as collateral for
securities lending transactions at March 31, 2005.
/(f)/ In accordance with the procedures established by the Board of Trustees,
the foreign security is fair valued using adjusted closing market prices.
The aggregate market value of these securities at March 31, 2005 was
$131,730,315, which represented 15.10% of the Fund's Total Investments.
See Note 1A.
/(g)/ The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
/(h)/ The security has been segregated to satisfy the forward commitment to
return the cash collateral received in securities lending transactions
upon the borrower's return of the securities loaned. See Note 8.
See accompanying notes which are an integral part of the financial statements.
F-2
STATEMENT OF ASSETS AND LIABILITIES
March 31, 2005
ASSETS:
Investments, at market value (cost $768,518,100)* $785,071,455
- -----------------------------------------------------------------------------------
Investments in affiliated money market funds (cost $87,126,045) 87,126,045
- -----------------------------------------------------------------------------------
Total investments (cost $855,644,145) 872,197,500
- -----------------------------------------------------------------------------------
Foreign currencies, at market value (cost $314,210) 301,448
- -----------------------------------------------------------------------------------
Receivables for:
Investments sold 24,284,725
- -----------------------------------------------------------------------------------
Fund shares sold 216,295
- -----------------------------------------------------------------------------------
Dividends 1,070,071
- -----------------------------------------------------------------------------------
Investment for trustee deferred compensation and retirement plans 167,717
- -----------------------------------------------------------------------------------
Other assets 34,017
- -----------------------------------------------------------------------------------
Total assets 898,271,773
- -----------------------------------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 24,356,449
- -----------------------------------------------------------------------------------
Fund shares reacquired 2,635,458
- -----------------------------------------------------------------------------------
Trustee deferred compensation and retirement plans 219,114
- -----------------------------------------------------------------------------------
Collateral upon return of securities loaned 44,030,795
- -----------------------------------------------------------------------------------
Accrued distribution fees 175,877
- -----------------------------------------------------------------------------------
Accrued trustees' fees 4,710
- -----------------------------------------------------------------------------------
Accrued transfer agent fees 292,130
- -----------------------------------------------------------------------------------
Accrued operating expenses 135,157
- -----------------------------------------------------------------------------------
Total liabilities 71,849,690
- -----------------------------------------------------------------------------------
Net assets applicable to shares outstanding $826,422,083
- -----------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Shares of beneficial interest $814,973,926
- -----------------------------------------------------------------------------------
Undistributed net investment income (loss) (145,878)
- -----------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment securities and
foreign currencies (4,921,709)
- -----------------------------------------------------------------------------------
Unrealized appreciation of investment securities and foreign
currencies 16,515,744
- -----------------------------------------------------------------------------------
$826,422,083
- -----------------------------------------------------------------------------------
NET ASSETS:
Class A $ 5,396,553
----------------------------------------------------------------
Class B $ 2,475,202
----------------------------------------------------------------
Class C $ 4,333,619
----------------------------------------------------------------
Class K $ 3,347,601
----------------------------------------------------------------
Investor Class $810,869,108
----------------------------------------------------------------
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Class A 111,746
----------------------------------------------------------------
Class B 52,235
----------------------------------------------------------------
Class C 94,733
----------------------------------------------------------------
Class K 71,361
----------------------------------------------------------------
Investor Class 16,795,100
----------------------------------------------------------------
Class A :
Net asset value per share $ 48.29
----------------------------------------------------------------
Offering price per share:
(Net asset value of $48.29 / 94.50%) $ 51.10
----------------------------------------------------------------
Class B :
Net asset value and offering price per share $ 47.39
----------------------------------------------------------------
Class C :
Net asset value and offering price per share $ 45.75
----------------------------------------------------------------
Class K :
Net asset value and offering price per share $ 46.91
----------------------------------------------------------------
Investor Class:
Net asset value and offering price per share $ 48.28
----------------------------------------------------------------
* At March 31, 2005, securities with an aggregate market value of $42,461,226
were on loan to brokers.
See accompanying notes which are an integral part of the financial statements.
F-3
STATEMENT OF OPERATIONS
For the year ended March 31, 2005
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $265,863) $ 8,167,453
---------------------------------------------------------------------------
Dividends from affiliated money market funds (including
securities lending income of $174,931 less rebates of
$135,410) 1,062,666
---------------------------------------------------------------------------
Total investment income 9,230,119
---------------------------------------------------------------------------
EXPENSES:
Advisory fees 6,235,071
---------------------------------------------------------------------------
Administrative services fees 306,306
---------------------------------------------------------------------------
Custodian fees 107,800
---------------------------------------------------------------------------
Distribution fees:
Class A 17,685
---------------------------------------------------------------------------
Class B 24,833
---------------------------------------------------------------------------
Class C 55,107
---------------------------------------------------------------------------
Class K 14,622
---------------------------------------------------------------------------
Investor Class 2,316,110
---------------------------------------------------------------------------
Transfer agent fees 2,887,978
---------------------------------------------------------------------------
Trustees' fees and retirement benefits 38,533
---------------------------------------------------------------------------
Other 539,048
---------------------------------------------------------------------------
Total expenses 12,543,093
---------------------------------------------------------------------------
Less:Fees waived, expenses reimbursed and expense offset
arrangements (138,183)
---------------------------------------------------------------------------
Net expenses 12,404,910
---------------------------------------------------------------------------
Net investment income (loss) (3,174,791)
---------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES AND FOREIGN CURRENCIES:
Net realized gain (loss) from:
Investment securities 152,099,215
---------------------------------------------------------------------------
Foreign currencies (502,399)
---------------------------------------------------------------------------
151,596,816
---------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of:
Investment securities (181,448,767)
---------------------------------------------------------------------------
Foreign currencies 50,320
---------------------------------------------------------------------------
(181,398,447)
---------------------------------------------------------------------------
Net gain (loss) from investment securities and foreign
currencies (29,801,631)
---------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations $ (32,976,422)
---------------------------------------------------------------------------
See accompanying notes which are an integral part of the financial statements.
F-4
STATEMENT OF CHANGES IN NET ASSETS
For the years ended March 31, 2005 and 2004
2005 2004
- ----------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (3,174,791) $ (5,792,388)
- ----------------------------------------------------------------------------------
Net realized gain from investment securities and
foreign currencies 151,596,816 207,506,901
- ----------------------------------------------------------------------------------
Change in net unrealized appreciation
(depreciation) of investment securities and
foreign currencies (181,398,447) 66,458,608
- ----------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations (32,976,422) 268,173,121
- ----------------------------------------------------------------------------------
Share transactions-net:
Class A 52,423 1,072,602
- ----------------------------------------------------------------------------------
Class B 650,232 1,101,462
- ----------------------------------------------------------------------------------
Class C (2,055,924) (788,606)
- ----------------------------------------------------------------------------------
Class K 471,699 386,419
- ----------------------------------------------------------------------------------
Investor Class (192,419,047) (184,199,042)
- ----------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from share transactions (193,300,617) (182,427,165)
- ----------------------------------------------------------------------------------
Net increase (decrease) in net assets (226,277,039) 85,745,956
- ----------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 1,052,699,122 966,953,166
- ----------------------------------------------------------------------------------
End of year (including undistributed net
investment income (loss) of $(145,878) and
$(343,640), respectively) $ 826,422,083 $1,052,699,122
- ----------------------------------------------------------------------------------
See accompanying notes which are an integral part of the financial statements.
F-5
Notes to Financial Statements
March 31, 2005
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Health Sciences Fund, formerly INVESCO Health Sciences Fund, (the "Fund")
is a series portfolio of AIM Sector Funds (the "Trust"). The Trust is a
Delaware statutory trust registered under the Investment Company Act of 1940,
as amended (the "1940 Act"), as an open-end series management investment
company consisting of seven separate portfolios, each authorized to issue an
unlimited number of shares of beneficial interest. The Fund currently offers
multiple classes of shares. Matters affecting each portfolio or class will be
voted on exclusively by the shareholders of such portfolio or class. The
assets, liabilities and operations of each portfolio are accounted for
separately. Information presented in these financial statements pertains only
to the Fund.
The Fund's investment objective is to seek capital growth. Each company
listed in the Schedule of Investments is organized in the United States of
America unless otherwise noted.
Under the Trust's organizational documents, 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. However, the Fund has not had prior claims or losses pursuant to
these contracts.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates. The following is a summary of the
significant accounting policies followed by the Fund in the preparation of its
financial statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy. A security listed or traded on an
exchange (except convertible bonds) is valued at its last sales price as of
the close of the customary trading session on the exchange where the
security is principally traded, or lacking any sales on a particular day,
the security is valued at the closing bid price on that day. Each security
traded in the over-the-counter market (but not securities reported on the
NASDAQ National Market System) is valued on the basis of prices furnished by
independent pricing services, 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 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 will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
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 market
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 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 and 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.
F-6
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 allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. DISTRIBUTIONS -- Distributions from income and net realized capital gain, if
any, are generally paid annually and recorded on ex-dividend date. The Fund
may elect to use a portion of the proceeds from redemptions as distributions
for federal income tax purposes.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
E. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
F. 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.
G. 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.
H. PUT OPTIONS -- The Fund may purchase put options. By purchasing a put
option, the Fund obtains the right (but not the obligation) to sell the
option's underlying instrument at a fixed strike price. In return for this
right, the Fund pays an option premium. The option's underlying instrument
may be a security or a futures contract. Put options may be used by the Fund
to hedge securities it owns by locking in a minimum price at which the Fund
can sell. If security prices fall, the put option could be exercised to
offset all or a portion of the Fund's resulting losses. At the same time,
because the maximum the Fund has at risk is the cost of the option,
purchasing put options does not eliminate the potential for the Fund to
profit from an increase in the value of the securities hedged. A risk in
buying an option is that the Fund pays a premium whether or not the option
is exercised. In addition, there can be no assurance that a liquid secondary
market will exist for any option purchased or sold.
I. VENTURE CAPITAL INVESTMENTS -- The Fund has invested in non-publicly traded
companies, some of which are in the startup or development stages. These
investments are inherently risky, as the markets for the technologies or
products these companies are developing are typically in the early stages
and may never materialize. The Fund could lose its entire investment in
these companies. These investments are valued at fair value as determined in
good faith in accordance with procedures approved by the Board of Trustees.
Investments in privately held venture capital securities are illiquid.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee based on the annual rate of the Fund's average
daily net assets as follows:
AVERAGE NET ASSETS RATE
-------------------------
First $350 million 0.75%
-------------------------
Next $350 million 0.65%
-------------------------
Next $1.3 billion 0.55%
-------------------------
Next $2 billion 0.45%
-------------------------
Next $2 billion 0.40%
-------------------------
Next $2 billion 0.375%
-------------------------
Over $8 billion 0.35%
-------------------------
F-7
Prior to September 30, 2004, AIM had entered into a sub-advisory agreement
with INVESCO Institutional (N.A.), Inc. ("INVESCO") whereby AIM paid INVESCO
40% of the fee paid by the Fund to AIM. Effective September 30, 2004, the
sub-advisory agreement between AIM and INVESCO was terminated.
AIM has voluntarily agreed to waive advisory fees and/or reimburse expenses
to the extent necessary to limit total annual operating expenses (excluding
certain items discussed below) of Class A and Class B, Class C, Class K and
Investor Class shares to 1.40%, 2.05%, 2.05%, 1.50% and 1.30% of average daily
net assets, respectively. AIM has contractually agreed to waive advisory fees
and/or reimburse expenses to the extent necessary to limit total annual
operating expenses (excluding certain items discussed below) of Class A, Class
B, Class C, Class K and Investor Class shares to 2.00%, 2.65%, 2.65%, 2.10% and
1.90% of average daily net assets, respectively, through March 31, 2006. In
determining the advisor's obligation to waive advisory fees and/or reimburse
expenses, the following expenses are not taken into account, and could cause
the total annual fund operating expenses to exceed the limits stated above: (i)
interest; (ii) taxes; (iii) dividend expense on short sales; (iv) extraordinary
items (these are expenses that are not anticipated to arise from the Fund's
day-to-day operations), or items designated as such by the Fund's Board of
Trustees; (v) expenses related to a merger or reorganization, as approved by
the Fund's Board of Trustees; and (vi) expenses that the Fund has incurred but
did not actually pay because of an expense offset arrangement. Currently, in
addition to the expense reimbursement arrangement with AMVESCAP PLC
("AMVESCAP") described more fully below, the only expense offset arrangements
from which the Fund may benefit are in the form of credits that the Fund
receives from banks where the Fund or its transfer agent has deposit accounts
in which it holds uninvested cash. Those credits are used to pay certain
expenses incurred by the Fund.
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
(excluding investments made in affiliated money market funds with cash
collateral from securities loaned by the fund). 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 March 31, 2005, AIM waived fees of $24,748.
For the year ended March 31, 2005, at the request of the Trustees of the
Trust, AMVESCAP agreed to reimburse $95,986 of expenses incurred by the Fund in
connection with market timing matters in the AIM Funds, including legal, audit,
shareholder reporting, communications and trustee expenses. These expenses
along with the related expense reimbursement, are included in the Statement of
Operations.
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
March 31, 2005, AIM was paid $306,306.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AISI for certain expenses
incurred by AISI in the course of providing such services. AISI may make
payments to intermediaries that provide omnibus account services,
sub-accounting services and/or networking services. For the year ended March
31, 2005, the Fund paid AISI $2,887,978.
The Trust has entered into a master distribution agreement with A I M
Distributors, Inc. ("ADI") to serve as the distributor for the Class A, Class
B, Class C, Class K and Investor Class shares of the Fund. The Trust has
adopted plans pursuant to Rule 12b-1 under the 1940 Act with respect to the
Fund's Class A, Class B, Class C, Class K and Investor Class shares
(collectively the "Plans"). The Fund, pursuant to the Plans, pays ADI
compensation at the annual rate of 0.35% of the Fund's average daily net assets
of Class A shares, 1.00% of the average daily net assets of Class B and Class C
shares, 0.45% of the average daily net assets of Class K shares and 0.25% of
the average daily net assets of Investor Class shares. Of these amounts, up to
0.25% of the average daily net assets of the Class A, Class B, Class C, Class K
or Investor Class shares may be paid to furnish continuing personal shareholder
services to customers who purchase and own shares of such classes. Any amounts
not paid as a service fee under the Plans would constitute an asset-based sales
charge. NASD Rules also impose a cap on the total sales charges, including
asset-based sales charges that may be paid by any class of shares of the Fund.
Pursuant to the Plans, for the year ended March 31, 2005, the Class A, Class B,
Class C, Class K and Investor Class shares paid ADI $17,685, $24,833, $55,107,
$14,622 and $2,316,110, respectively. Of these amounts, AIM reimbursed Plan
fees of $353, $173, $384, $0 and $0, respectively.
Front-end sales commissions and contingent deferred sales charges ("CDSC")
(collectively the "sales charges") are not recorded as expenses of the Fund.
Front-end sales commissions are deducted from proceeds from the sales of Fund
shares prior to investment in Class A shares of the Fund. CDSC are deducted
from redemption proceeds prior to remittance to the shareholder. During the
year ended March 31, 2005, ADI advised the Fund that it retained $9,458 in
front-end sales commissions from the sale of Class A shares and $0, $3,103,
$1,067 and $0 from Class A, Class B, Class C and Class K shares, respectively,
for CDSC imposed upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of AIM,
AISI and/or ADI.
F-8
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to an exemptive order from the Securities and
Exchange Commission ("SEC"), to invest daily available cash balances and cash
collateral from securities lending transactions 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 tables below show
the transactions in and earnings from investments in an affiliated money market
fund for the year ended March 31, 2005.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND
FUND 03/31/04 AT COST FROM SALES (DEPRECIATION) 03/31/05 INCOME
- -----------------------------------------------------------------------------------------------------------------------
Premier Portfolio-Institutional Class* $88,219,019 $673,959,513 $(719,083,282) $-- $43,095,250 $1,023,145
- -----------------------------------------------------------------------------------------------------------------------
REALIZED
FUND GAIN (LOSS)
- --------------------------------------------------
Premier Portfolio-Institutional Class* $--
- --------------------------------------------------
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 03/31/04 AT COST FROM SALES (DEPRECIATION) 03/31/05 INCOME** GAIN (LOSS)
- -------------------------------------------------------------------------------------------------------------------------
Premier
Portfolio-Institutional
Class* $ 3,774,000 $ 391,704,910 $ (351,448,115) $-- $44,030,795 $ 39,521 $--
- -------------------------------------------------------------------------------------------------------------------------
Total $91,993,019 $1,119,891,554 $(1,124,758,528) $-- $87,126,045 $1,062,666 $--
- -------------------------------------------------------------------------------------------------------------------------
* On February 25, 2005, the Premier Portfolio investments were transferred from
the original share class with no name designation to the newly structured
share class designated as Institutional Class.
**Net of rebates.
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
The Fund is permitted to purchase or sell securities from or to certain other
AIM Funds under specified conditions outlined in procedures adopted by the
Board of Trustees of the Trust. The procedures have been designed to ensure
that any purchase or sale of securities by the Fund from or to another fund or
portfolio that is or could be considered an affiliate by virtue of having a
common investment advisor (or affiliated investment advisors), common Trustees
and/or common officers complies with Rule 17a-7 of the 1940 Act. Further, as
defined under the procedures, each transaction is effected at the current
market price. Pursuant to these procedures, during the year ended March 31,
2005, the Fund engaged in purchases and sales of securities of $615,950 and
$23,214,383, respectively.
NOTE 5--EXPENSE OFFSET ARRANGEMENTS
The expense offset arrangements are comprised of (i) transfer agency credits
which result from balances in Demand Deposit Accounts (DDA) used by the
transfer agent for clearing shareholder transactions and (ii) custodian credits
which result from periodic overnight cash balances at the custodian. For the
year ended March 31, 2005, the Fund received credits from these arrangements
which resulted in the reduction of the Fund's total expenses of $16,539.
NOTE 6--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each Trustee of the Trust who is
not an "interested person" of AIM. Trustees have the option to defer
compensation payable by the Trust. Those Trustees who defer compensation have
the option to select various AIM Funds in which their deferral accounts shall
be deemed to be invested.
Current Trustees are eligible to participate in a retirement plan that
provides for benefits to be paid upon retirement to Trustees over a period of
time based on the number of years of service. The Fund may have certain former
Trustees that also participate in a retirement plan and receive benefits under
such plan.
Obligations under the deferred compensation and retirement plans represent
unsecured claims against the general assets of the Fund.
During the year ended March 31, 2005, the Fund paid legal fees of $6,585 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 7--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate
available on investments in overnight repurchase agreements) is favorable to
both the lending fund and the borrowing fund. A loan will be secured by
collateral if the Fund's aggregate borrowings from all sources exceeds 10% of
the Fund's total assets. To the extent that the loan is required to be secured
by collateral, the collateral is marked to market daily to ensure that the
market value is at least 102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to
the credit facility can borrow on a first come, first served basis. Principal
on each loan outstanding shall bear interest at the bid rate quoted by SSB at
the time of the request for the loan.
During the year ended March 31, 2005, the Fund did not borrow or lend under
the interfund lending facility or borrow under the uncommitted unsecured
revolving credit facility.
F-9
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, the custodian bank. To compensate
the custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds in the account so the custodian can be compensated by earning the
additional interest; or (ii) compensate by paying the custodian bank. In either
case, the custodian bank will be compensated at an amount equal to the Federal
Funds rate plus 100 basis points.
NOTE 8--PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities having a market value up to one-third of
the Fund's total assets. Such loans are secured by collateral equal to no less
than the market value of the loaned securities determined daily. Such
collateral will be cash or debt securities issued or guaranteed by the U.S.
Government or any of its agencies. Cash collateral received in connection with
these loans is invested in short-term money market instruments or affiliated
money market funds. It is the Fund's policy to obtain additional collateral
from or return excess collateral to the borrower by the end of the next
business day, following the valuation date of the securities loaned. Therefore,
the value of the collateral held may be temporarily less than the value of the
securities on loan. Lending securities entails a risk of loss to the Fund if
and to the extent that the market value of the securities loaned were to
increase and the borrower did not increase the collateral accordingly, and the
borrower fails to return the securities. The Fund could also experience delays
and costs in gaining access to the collateral. The Fund bears the risk of any
deficiency in the amount of the collateral available for return to the borrower
due to a loss on the collateral invested.
At March 31, 2005, securities with an aggregate value of $42,461,226 were on
loan to brokers. The loans were secured by cash collateral of $44,030,795
received by the Fund and subsequently invested in an affiliated money market
fund. For the year ended March 31, 2005, the Fund received dividends on cash
collateral of $39,521 for securities lending transactions, which are net of
rebates.
NOTE 9--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
There were no ordinary income or long term capital gain distributions paid
during the years ended March 21, 2005 and 2004.
TAX COMPONENTS OF NET ASSETS:
As of March 31, 2005, the components of net assets on a tax basis were as
follows:
2005
----------------------------------------------------
Undistributed long-term gain $ 6,740,838
----------------------------------------------------
Unrealized appreciation -- investments 4,853,197
----------------------------------------------------
Temporary book/tax differences (145,878)
----------------------------------------------------
Shares of beneficial interest 814,973,926
----------------------------------------------------
Total net assets $826,422,083
----------------------------------------------------
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 (depreciation) difference is attributable primarily to the
deferral of losses on wash sales. The tax-basis unrealized appreciation on
investments amount includes appreciation (depreciation) on foreign currencies
of $(37,611).
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 utilized $138,575,367 of capital loss carryforward in the current
period to offset net realized capital gain for federal income tax purposes. The
Fund does not have a capital loss carryforward as of March 31, 2005.
NOTE 10--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
March 31, 2005 was $1,405,456,394 and $1,565,378,082, respectively.
At the request of the Trustees, AIM recovered third party research credits
during the year ended March 31, 2005, in the amount of $82,121. These research
credits were recorded as realized gains.
UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENT SECURITIES ON A TAX BASIS
--------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $ 63,915,150
--------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (59,024,342)
--------------------------------------------------------------------------
Net unrealized appreciation of investment securities $ 4,890,808
--------------------------------------------------------------------------
Cost of investments for tax purposes is $867,306,692.
F-10
NOTE 11--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of foreign currency
transactions, net operating losses and expenses related to the plan of
reorganization, on March 31, 2005, undistributed net investment income (loss)
was increased by $3,372,553, undistributed net realized gain (loss) increased
by $502,398 and shares of beneficial interest decreased by $3,874,951. This
reclassification had no effect on the net assets of the Fund.
NOTE 12--SHARE INFORMATION
The Fund currently offers five different classes of shares: Class A shares,
Class B shares, Class C shares, Class K shares and Investor Class shares. Class
A shares are sold with a front-end sales charge. Class B shares and Class C
shares are sold with CDSC. Class K shares and Investor Class shares are sold at
net asset value. Under certain circumstances, Class A shares and Class K shares
are subject to CDSC. Generally, Class B shares will automatically convert to
Class A shares eight years after the end of the calendar month of purchase.
CHANGES IN SHARES OUTSTANDING/(A)/
- ----------------------------------------------------------------------------------------------------------------
YEAR ENDED MARCH 31,
-----------------------------------------------------
2005 2004
------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------
Sold:
Class A 84,902 $ 4,163,778 160,803 $ 7,200,295
- ----------------------------------------------------------------------------------------------------------------
Class B 44,108 2,165,548 29,077 1,341,582
- ----------------------------------------------------------------------------------------------------------------
Class C 33,753 1,591,275 1,036,376 41,743,804
- ----------------------------------------------------------------------------------------------------------------
Class K 46,454 2,202,556 111,855 4,864,298
- ----------------------------------------------------------------------------------------------------------------
Investor Class 1,119,520 54,757,501 6,463,367 280,566,456
- ----------------------------------------------------------------------------------------------------------------
Automatic conversion of Class B shares to Class A shares:
Class A 2,059 100,123 48 2,378
- ----------------------------------------------------------------------------------------------------------------
Class B (2,088) (100,123) (49) (2,378)
- ----------------------------------------------------------------------------------------------------------------
Reacquired:
Class A (85,699) (4,211,478) (147,133) (6,130,071)
- ----------------------------------------------------------------------------------------------------------------
Class B (29,981) (1,415,193) (5,026) (237,742)
- ----------------------------------------------------------------------------------------------------------------
Class C (79,464) (3,647,199) (1,052,784) (42,532,410)
- ----------------------------------------------------------------------------------------------------------------
Class K (36,589) (1,730,857) (102,995) (4,477,879)
- ----------------------------------------------------------------------------------------------------------------
Investor Class (5,083,811) (247,176,548) (10,486,495) (464,765,498)
- ----------------------------------------------------------------------------------------------------------------
(3,986,836) $(193,300,617) (3,992,956) $(182,427,165)
- ----------------------------------------------------------------------------------------------------------------
/(a)/There are two entities that are each record owners of more than 5% of the
outstanding shares of the Fund and in the aggregate they own 25% of the
outstanding shares of the Fund. A I M Distributors has an agreement with
these entities to sell Fund shares. The Fund, AIM and/or AIM affiliates
may make payments to these entities, which are considered to be related to
the Fund, for providing services to the Fund, AIM and/or AIM affiliates
including but not limited to services such as, securities brokerage,
distribution, third party record keeping and account servicing. The Trust
has no knowledge as to whether all or any portion of the shares owned of
record by these entities are also owned beneficially.
NOTE 13--SIGNIFICANT EVENT
The Board of Trustees of the Trust ("Seller") unanimously approved, on March
22, 2005, an Agreement and Plan of Reorganization (the "Agreement") pursuant to
which the Fund ("Selling Fund") a series of Seller, would transfer all of its
assets to AIM Global Health Care Fund ("Buying Fund"), a series of AIM
Investment Funds ("the Reorganization"). Upon closing of the transaction,
shareholders of Selling Fund will receive a corresponding class of shares of
Buying Fund in exchange for their shares of Selling Fund, and Selling Fund will
cease operations.
The Agreement requires approval of Selling Fund shareholders. The Fund
currently intends to submit the Agreement to the shareholders for their
consideration at a meeting to be held on or around June 28, 2005. Additional
information regarding the Agreement will be included in proxy materials to be
mailed to shareholders for consideration. If the Agreement is approved by the
shareholders of Selling Fund and certain conditions required by the Agreement
are satisfied, the transaction is expected to become effective shortly
thereafter.
NOTE 14--OTHER MATTERS
The AIM and INVESCO Families of Funds received requests from the SEC for
information concerning the Funds' use of exchange traded funds and other
registered investment companies, as well as compliance with Section 12(d)(1) of
the Investment Company Act of 1940. After reviewing responsive information, the
SEC issued a letter dated September 23, 2004 asserting that the Fund entered
into certain securities transactions during the period June 2, 2002 to May 31,
2004 that may not have been in compliance with the percentage ownership
restriction of certain investment companies and in particular HOLDRs. To the
extent it is determined that these securities transactions were not in
compliance, appropriate amounts will be reimbursed. At this time the effect to
the shareholder is not expected to be material.
F-11
NOTE 15--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
CLASS A
----------------------------------
YEAR ENDED MARCH 31,
----------------------------------
2005 2004 2003
- --------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $49.94 $38.56 $ 47.56
- --------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.21)/(a)/ (0.22)/(a)/ (0.22)/(a)(b)/
- --------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) (1.44) 11.60 (8.78)
- --------------------------------------------------------------------------------------------------------------
Total from investment operations (1.65) 11.38 (9.00)
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of period $48.29 $49.94 $ 38.56
- --------------------------------------------------------------------------------------------------------------
Total return/(c)/ (3.30)% 29.51% (18.92)%
- --------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $5,397 $5,517 $ 3,731
- --------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.40%/(d)/ 1.40% 1.41%
- --------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.42%/(d)/ 2.20% 1.88%
- --------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (0.42)%/(d)/ (0.49)% (0.69)%
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 160% 124% 179%
- --------------------------------------------------------------------------------------------------------------
/(a)/Calculated using average shares outstanding.
/(b)/The net investment income (loss) per share was calculated after permanent
book tax differences, such as net operating losses which were reclassified
from accumulated net investment income (loss) to paid in capital. Had net
investment income (loss) per share been calculated using the current
method, which is before reclassification of net operating losses, net
investment income (loss) per share would have been $(0.22) for the year
ended March 31, 2003.
/(c)/Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net
asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges.
/(d)/Ratios are based on average daily net assets of $5,052,878.
CLASS B
----------------------------------
YEAR ENDED MARCH 31,
----------------------------------
2005 2004 2003
- --------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $49.33 $38.34 $ 47.56
- --------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.51)/(a)/ (0.52)/(a)/ (0.44)/(a)(b)/
- --------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) (1.43) 11.51 (8.78)
- --------------------------------------------------------------------------------------------------------------
Total from investment operations (1.94) 10.99 (9.22)
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of period $47.39 $49.33 $ 38.34
- --------------------------------------------------------------------------------------------------------------
Total return/(c)/ (3.93)% 28.66% (19.39)%
- --------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $2,475 $1,983 $ 621
- --------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 2.05%/(d)/ 2.05% 2.06%
- --------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 2.07%/(d)/ 3.07% 2.51%
- --------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (1.07)%/(d)/ (1.14)% (1.22)%
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 160% 124% 179%
- --------------------------------------------------------------------------------------------------------------
/(a)/Calculated using average shares outstanding.
/(b)/The net investment income (loss) per share was calculated after permanent
book tax differences, such as net operating losses which were reclassified
from accumulated net investment income (loss) to paid in capital. Had net
investment income (loss) per share been calculated using the current
method, which is before reclassification of net operating losses, net
investment income (loss) per share would have been $(0.44) for the year
ended March 31, 2003.
/(c)/Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net
asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges.
/(d)/Ratios are based on average daily net assets of $2,483,256.
F-12
NOTE 15--FINANCIAL HIGHLIGHTS (CONTINUED)
CLASS C
------------------------------------------------------
YEAR ENDED MARCH 31,
------------------------------------------------------
2005 2004 2003 2002
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $47.62 $37.27 $ 46.68 $ 45.40
- --------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.51)/(a)/ (0.79)/(a)/ (1.20)/(b)/ (0.35)/(b)/
- --------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) (1.36) 11.14 (8.21) 1.65
- --------------------------------------------------------------------------------------------------------------------------
Total from investment operations (1.87) 10.35 (9.41) 1.30
- --------------------------------------------------------------------------------------------------------------------------
Less distributions:
Distributions from net realized gains -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------
Returns of capital -- -- -- (0.02)
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $45.75 $47.62 $ 37.27 $ 46.68
- --------------------------------------------------------------------------------------------------------------------------
Total return/(c)/ (3.93)% 27.77% (20.16)% 2.85%
- --------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $4,334 $6,688 $ 5,846 $15,892
- --------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 2.05%/(d)/ 2.75% 2.81% 2.26%
- --------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 2.07%/(d)/ 3.35% 3.27% 2.26%
- --------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (1.07)%/(d)/ (1.84)% (2.04)% (1.70)%
- --------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 160% 124% 179% 160%
- --------------------------------------------------------------------------------------------------------------------------
--------
--------
2001
- --------------------------------------------------------------------------------
Net asset value, beginning of period $ 55.50
- --------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.05)/(b)/
- --------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) (0.94)
- --------------------------------------------------------------------------------
Total from investment operations (0.99)
- --------------------------------------------------------------------------------
Less distributions:
Distributions from net realized gains (9.11)
- --------------------------------------------------------------------------------
Returns of capital --
- --------------------------------------------------------------------------------
Net asset value, end of period $ 45.40
- --------------------------------------------------------------------------------
Total return/(c)/ (4.79)%
- --------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $10,767
- --------------------------------------------------------------------------------
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 2.03%
- --------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 2.03%
- --------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (1.08)%
- --------------------------------------------------------------------------------
Portfolio turnover rate 177%
- --------------------------------------------------------------------------------
/(a)/Calculated using average shares outstanding.
/(b)/The net investment income (loss) per share was calculated after permanent
book tax differences, such as net operating losses which were reclassified
from accumulated net investment income (loss) to paid in capital. Had net
investment income (loss) per share been calculated using the current
method, which is before reclassification of net operating losses, net
investment income (loss) per share would have been $(1.50), $(0.75) and
$(0.10) for the years ended March 31, 2003, 2002 and 2001, respectively.
/(C)/Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net
asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges.
/(d)/Ratios are based on average daily net assets of $5,510,662.
F-13
NOTE 15--FINANCIAL HIGHLIGHTS (CONTINUED)
CLASS K
--------------------------------------------------------
YEAR ENDED MARCH 31,
-----------------------------------------------
2005 2004 2003 2002
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $48.57 $37.81 $ 46.98 $45.43
- ----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.25)/(a)/ (0.57)/(a)/ (0.23)/(b)/ (0.48)/(a)(b)/
- ----------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) (1.41) 11.33 (8.94) 2.05
- ----------------------------------------------------------------------------------------------------------------------------
Total from investment operations (1.66) 10.76 (9.17) 1.57
- ----------------------------------------------------------------------------------------------------------------------------
Return of Capital -- -- -- (0.02)
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $46.91 $48.57 $ 37.81 $46.98
- ----------------------------------------------------------------------------------------------------------------------------
Total return/(c)/ (3.42)% 28.46% (19.50)% 3.42%
- ----------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $3,348 $2,987 $ 1,990 $2,405
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.51%/(d)/ 2.19% 2.07% 1.71%
- ----------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.52%/(d)/ 2.30% 2.07% 1.71%
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (0.53)%/(d)/ (1.28)% (1.29)% (1.09)%
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate/(f)/ 160% 124% 179% 160%
- ----------------------------------------------------------------------------------------------------------------------------
------------
NOVEMBER 30,
2000 (DATE SALES
COMMENCED) TO
MARCH 31,
2001
- -------------------------------------------------------------------
Net asset value, beginning of period $ 55.84
- -------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.22)/(b)/
- -------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) (10.19)
- -------------------------------------------------------------------------------------
Total from investment operations (10.41)
- -------------------------------------------------------------------------------------
Return of Capital --
- -------------------------------------------------------------------------------------
Net asset value, end of period $ 45.43
- -------------------------------------------------------------------------------------
Total return/(c)/ (18.64)%
- -------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 1
- -------------------------------------------------------------------------------------
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 3.62%/(e)/
- -------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 3.62%/(e)/
- -------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (2.75)%/(e)/
- -------------------------------------------------------------------------------------
Portfolio turnover rate/(f)/ 177%
- -------------------------------------------------------------------------------------
/(a)/Calculated using average shares outstanding.
/(b)/The net investment income (loss) per share was calculated after permanent
book tax differences, such as net operating losses which were reclassified
from accumulated net investment income (loss) to paid in capital. Had net
investment income (loss) per share been calculated using the current
method, which is before reclassification of net operating losses, net
investment income (loss) per share would have been $(0.53), $(0.48) and
$(0.51) for the year ended March 31, 2003, 2002 and the period ended March
31, 2001, respectively.
/(C)/Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net
asset values may differ from the net asset value and returns for
shareholder transactions. Not annualized for periods less than one year.
/(d)/Ratios are based on average daily net assets of $3,249,263.
/(e)/Annualized.
/(f)/Not annualized for periods less than one year.
--------------------------------
--------------------------------
2005 2004
- ----------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 49.88 $ 38.53
- ----------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.16)/(a)/ (0.24)/(a)/
- ----------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) (1.44) 11.59
- ----------------------------------------------------------------------------------------------------
Total from investment operations (1.60) 11.35
- ----------------------------------------------------------------------------------------------------
Less distributions:
Distributions from net realized gains -- --
- ----------------------------------------------------------------------------------------------------
Return of Capital -- --
- ----------------------------------------------------------------------------------------------------
Net asset value, end of period $ 48.28 $ 49.88
- ----------------------------------------------------------------------------------------------------
Total return/(c)/ (3.21)% 29.46%
- ----------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $810,869 $1,035,524
- ----------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.31%/(d)/ 1.45%
- ----------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.32%/(d)/ 1.47%
- ----------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (0.33)%/(d)/ (0.54)%
- ----------------------------------------------------------------------------------------------------
Portfolio turnover rate 160% 124%
- ----------------------------------------------------------------------------------------------------
INVESTOR CLASS
-------------------------------------------------
YEAR ENDED MARCH 31,
-------------------------------------------------
2003 2002 2001
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 47.56 $ 45.78 $ 55.52
- ----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.28)/(a)(b)/ (0.38)/(a)(b)/ (0.12)/(a)(b)/
- ----------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) (8.75) 2.18 (0.51)
- ----------------------------------------------------------------------------------------------------------------------------
Total from investment operations (9.03) 1.80 (0.63)
- ----------------------------------------------------------------------------------------------------------------------------
Less distributions:
Distributions from net realized gains -- -- (9.11)
- ----------------------------------------------------------------------------------------------------------------------------
Return of Capital -- (0.02) --
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 38.53 $ 47.56 $ 45.78
- ----------------------------------------------------------------------------------------------------------------------------
Total return/(c)/ (18.99)% 3.95% (4.12)%
- ----------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $954,765 $1,475,313 $1,580,378
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.44% 1.31% 1.23%
- ----------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.44% 1.31% 1.23%
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (0.68)% (0.75)% (0.20)%
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 179% 160% 177%
- ----------------------------------------------------------------------------------------------------------------------------
/(a)/Calculated using average shares outstanding.
/(b)/The net investment income (loss) per share was calculated after permanent
book tax differences, such as net operating losses which were reclassified
from accumulated net investment income (loss) to paid in capital. Had net
investment income (loss) per share been calculated using the current
method, which is before reclassification of net operating losses, net
investment income (loss) per share would have been $(0.28), $(0.38) and
$(0.12) for the years ended March 31, 2003, 2002 and 2001, respectively.
/(c)/Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net
asset values may differ from the net asset value and returns for
shareholder transactions.
/(d)/Ratios are based on average daily net assets of $926,444,166.
F-14
NOTE 16--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
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds) and A I M Advisors, Inc. ("AIM") (the Fund's
investment advisor) reached final settlements with certain regulators,
including without limitation the Securities and Exchange Commission ("SEC"),
the New York Attorney General ("NYAG") and the Colorado Attorney General
("COAG"), to resolve civil enforcement actions and investigations related to
market timing activity and related issues in the AIM Funds, including those
formerly advised by IFG. These regulators alleged, in substance, that IFG and
AIM failed to disclose in the prospectuses for the AIM Funds that they advised
and to the independent directors/trustees of such Funds that they had entered
into certain arrangements permitting market timing of such Funds, thereby
breaching their fiduciary duties to such Funds. As a result of the foregoing,
the regulators alleged that IFG and AIM breached various Federal and state
securities, business and consumer protection laws. On the same date, A I M
Distributors, Inc. ("ADI") (the distributor of the retail AIM Funds) reached a
final settlement with the SEC to resolve an investigation relating to market
timing activity and related issues in the AIM Funds. The SEC also alleged that
ADI violated various Federal securities laws. The SEC also has settled related
market timing enforcement actions brought against certain former officers and
employees of IFG.
Under the terms of the settlements, IFG agreed to pay a total of $325
million, of which $110 million is civil penalties. Of this $325 million total
payment, half has been paid and the remaining half will be paid on or before
December 31, 2005. AIM and ADI agreed to pay a total of $50 million, of which
$30 million is civil penalties, all of which has been paid. The entire $325
million IFG settlement fund will be made available for distribution to the
shareholders of those AIM Funds that IFG formerly advised that were harmed by
market timing activity, and the entire $50 million settlement fund by AIM and
ADI will be made available for distribution to the shareholders of those AIM
Funds advised by AIM that were harmed by market timing activity, all as to be
determined by an independent distribution consultant. The IFG and AIM
settlement 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. The settlement funds will be
distributed in accordance with a methodology to be determined by the
independent distribution consultant, in consultation with AIM and the
independent trustees of the AIM Funds and acceptable to the staff of the SEC.
Under the settlements with the NYAG and COAG, AIM has agreed to reduce
management fees on certain equity and balanced AIM Funds by $15 million per
year for the next five years, based upon effective fee rates and assets under
management as of July 1, 2004, not to increase certain management fees and to
provide more information to investors regarding fees.
Under the terms of the settlements, AIM is undertaking certain governance and
compliance reforms, including maintaining an internal controls committee and
retaining an independent compliance consultant and a corporate ombudsman. Also,
commencing in 2007 and at least once every other year thereafter, AIM will
undergo a compliance review by an independent third party. In addition, under
the terms of the settlements, AIM has undertaken to cause the AIM Funds to
operate in accordance with certain governance policies and practices, including
retaining a full-time independent senior officer whose duties include
monitoring compliance and managing the process by which proposed management
fees to be charged the AIM Funds are negotiated. Also, commencing in 2008 and
not less than every fifth calendar year thereafter, the AIM Funds will hold
shareholder meetings at which their Boards of Trustees will be elected.
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
such Funds related to market timing matters.
The SEC has also settled market timing enforcement actions against Raymond R.
Cunningham (the former president and chief executive officer of IFG and a
former member of the board of directors of the AIM Funds formerly advised by
IFG), Timothy J. Miller (the former chief investment officer and a former
portfolio manager for IFG), Thomas A. Kolbe (the former national sales manager
of IFG) and Michael D. Legoski (a former assistant vice president in IFG's
sales department). As part of these settlements, the SEC ordered these
individuals to pay restitution and civil penalties in various amounts and
prohibited them from associating with, or serving as an officer or director of,
an investment advisor, broker, dealer and/or investment company, as applicable,
for certain periods of time.
The payments made in connection with the above-referenced settlements by IFG,
AIM and ADI will total approximately $375 million (not including AIM's
agreement to reduce management fees on certain equity and balanced AIM Funds by
$15 million per year for the next five years, based upon effective fee rates
and assets under management as of July 1, 2004). The manner in which the
settlement payments will be distributed is unknown at the present time and will
be determined by an independent distribution consultant appointed under the
settlement agreements. Therefore, management of AIM and the Fund are unable at
the present time to estimate the impact, if any, that the distribution of the
settlement payments may have on the Fund or whether such distribution will have
an impact on the Fund's financial statements 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, ADI or the Fund.
REGULATORY INQUIRIES AND PENDING LITIGATION
The mutual fund industry as a whole is currently subject to regulatory
inquiries and litigation related to a wide range of issues. These issues
include, among others, market timing activity, late trading, fair value
pricing, excessive or improper advisory and/or distribution fees, mutual fund
sales practices, including but not limited to revenue sharing and
directed-brokerage arrangements, investments in securities of other registered
investment companies, contractual plans, issues related to Section 529 college
savings plans, procedures for locating lost security holders and participation
in class action settlements.
As described more fully below, IFG and AIM are the subject of a number of
ongoing regulatory inquiries and civil lawsuits related to one or more of the
issues currently being scrutinized by various Federal and state regulators,
including but not limited to those issues described above. Additional
regulatory actions and/or civil lawsuits related to the above or other issues
may be filed against the AIM Funds, IFG, AIM and/or related entities and
individuals in the future. Additional regulatory inquiries related to the above
or other issues also may be received by the AIM Funds, IFG, AIM and/or related
entities and individuals in the future.
F-15
NOTE 16--LEGAL PROCEEDINGS (CONTINUED)
Ongoing Regulatory Inquiries Concerning IFG and AIM
IFG, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds formerly advised by IFG have received
regulatory inquiries in the form of subpoenas or other oral or written requests
for information and/or documents related to one or more of the following
issues, some of which concern one or more such 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, and investments in securities of other
registered investment companies. These regulators include the SEC, the NASD,
Inc. ("NASD"), the Florida Department of Financial Services, the Attorney
General of the State of West Virginia, the West Virginia Securities Commission
and the Bureau of Securities of the State of New Jersey. IFG and certain of
these other parties also have received more limited inquiries from the United
States Department of Labor ("DOL") and the United States Attorney's Office for
the Southern District of New York, some of which concern one or more of the AIM
Funds formerly advised by IFG. IFG is providing full cooperation with respect
to these inquiries.
AIM, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds have received regulatory inquiries in the form
of subpoenas or other oral or written requests for information and/or documents
related to one or more of the following issues, some of which concern one or
more AIM Funds: market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including revenue sharing and directed-brokerage arrangements,
investments in securities of other registered investment companies, contractual
plans, issues related to Section 529 college savings plans and procedures for
locating lost securityholders. These regulators include the SEC, the NASD, the
Department of Banking for the State of Connecticut, the Attorney General of the
State of West Virginia, the West Virginia Securities Commission and the Bureau
of Securities of the State of New Jersey. AIM and certain of these other
parties also have received more limited inquiries from the SEC, the NASD, the
DOL, the Internal Revenue Service, the United States Attorney's Office for the
Southern District of New York, the United States Attorney's Office for the
Central District of California, the United States Attorney's Office for the
District of Massachusetts, the Massachusetts Securities Division, the U.S.
Postal Inspection Service and the Commodity Futures Trading Commission, some of
which concern one or more AIM Funds. AIM is providing full cooperation with
respect to these inquiries.
Pending Regulatory Civil Action Alleging Market Timing
On April 12, 2005, the Attorney General of the State of West Virginia
("WVAG") filed civil proceedings 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 these proceedings. 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 (S) 46A-1-101, et seq. (the West Virginia Consumer Credit and Protection
Act). The WVAG complaint is seeking injunctive relief; civil monetary
penalties; a writ of quo warranto against the defendants; pre-judgment and
post-judgment interest; costs and expenses, including counsel fees; and other
relief.
If AIM is unsuccessful in its defense of the WVAG proceedings, it could be
barred from serving as an investment adviser 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 your Fund.
Your 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 your Fund's
investment advisor. There is no assurance that such exemptive relief will be
granted.
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, certain
related entities, certain of their current and former officers and/or certain
unrelated third parties) making allegations that are similar in many respects
to those in the settled regulatory actions brought by the SEC, the NYAG and the
COAG concerning market timing 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.
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
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. The plaintiffs in two of the underlying lawsuits
continue to seek remand of their lawsuit to state court.
Private Civil Actions Alleging Improper Use of Fair Value Pricing
Multiple civil class action lawsuits have been filed against various parties
(including, depending on the lawsuit, certain 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 beenfiled in both Federal and state courts and
seek such remedies as compensatory and punitive damages; interest; and
attorneys' fees and costs. Based on a recent court decision, the state court
action has been removed to Federal court.
F-16
NOTE 16--LEGAL PROCEEDINGS (CONTINUED)
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. All of these lawsuits have been
transferred to the United States District Court for the Southern District of
Texas, Houston Division and subsequently consolidated for pre-trial purposes
into one lawsuit.
Private Civil Actions Alleging Improper Charging of Distribution Fees on
Limited Offering Funds or Share Classes
Multiple civil lawsuits, including shareholder derivative suits, have been
filed against various parties (including, depending on the lawsuit, IFG, AIM,
ADI and/or certain of the trustees of the AIM Funds) alleging that the
defendants breached their fiduciary duties by charging distribution fees while
funds and/or specific share classes were closed generally to new investors
and/or while other share classes of the same fund were not charged the same
distribution fees. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the
Federal securities laws; and (ii) breach of fiduciary duty. These lawsuits have
been filed in Federal courts and seek such remedies as damages; injunctive
relief; and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Mutual Fund Sales Practices and
Directed-Brokerage Arrangements
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, AIM Management, IFG, AIM, AIM Investment Services, Inc. ("AIS")
and/or certain of the trustees of the AIM 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. These actions have been
consolidated for pre-trial purposes.
Private Civil Action Alleging Failure to Ensure Participation in Class Action
Settlements
A civil lawsuit, purporting to be a class action lawsuit, has been filed
against AIM, IINA, A I M Capital Management, Inc. and the trustees of the AIM
Funds alleging that the defendants breached their fiduciary duties by failing
to ensure that the AIM Funds participated in class action settlements in which
the AIM Funds were eligible to participate. This lawsuit alleges as theories of
recovery: (i) violation of various provisions of the Federal securities laws;
(ii) common law breach of fiduciary duty; and (iii) common law negligence. This
lawsuit has been filed in Federal court and seeks such remedies as compensatory
and punitive damages; forfeiture of all commissions and fees paid by the class
of plaintiffs; and costs and attorneys' fees.
* * * * * * * * * * * * * *
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.
F-17
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees
and Shareholders of AIM Health Sciences 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 the AIM Health Sciences Fund,
formerly known as INVESCO Health Sciences Fund (one of the funds constituting
AIM Sector Funds, hereafter referred to as the "Fund") at March 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 March 31, 2005 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
As described in Note 13, on March 22, 2005, the Board of Trustees of the Fund
approved a plan of merger for the Fund with AIM Global Health Care Fund. This
merger is expected to take place in mid 2005 upon the approval of the Fund's
shareholders.
/s/ PRICEWATERHOUSECOOPERS LLP
May 20, 2005
Houston, Texas
OTHER INFORMATION
Trustees and Officers
As of March 31, 2005
The address of each trustee and officer of AIM Sector Funds (the "Trust"), is
11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 114
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.
Name, Year of Birth and
Positions(s) Held with the Trustee and/ Principal Occupation(s) Other Directorship(s)
Trust or Officer Since During Past 5 Years Held by Trustee
- ---------------------------------------------------------------------------------------------------------------------------------
Interested Persons
- ---------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham/1 /-- 1946 2003 Director and Chairman, A I M Management None
Trustee, Vice Chair and President Group Inc. (financial services holding
company); Director and Vice Chairman,
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 1998 Director, President and Chief Executive None
Trustee and Executive Vice President Officer, A I M Management Group Inc.;
Director, Chairman 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
(parent of AIM and a global investment
management firm)
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
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
Independent Trustees
- ---------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett/3 /-- 1944 2003 Chairman, Crockett Technology ACE Limited (insurance
Trustee and Chair Associates (technology consulting company); and Captaris, Inc.
company) (unified messaging provider)
- ---------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 1983 Retired None
Trustee
- ---------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2003 Retired Badgley Funds, Inc. (registered
Trustee investment company)
Formerly: Partner, law firm of Baker &
McKenzie
- ---------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2000 Co-President and Founder, Green, None
Trustee Manning & Bunch Ltd., (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 None
Trustee private business corporations,
including the Boss Group Ltd. (private
investment and management); Cortland
Trust, Inc. (Chairman) (registered
investment company); Annuity and Life
Re (Holdings), Ltd. (insurance
company); and CompuDyne Corporation
(provider of products and services to
the public security market)
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 2003 Retired None
Trustee
Formerly: Chairman, Mercantile Mortgage
Corp.; President and Chief Operating
Officer, Mercantile-Sale Deposit &
Trust Co.; and President, Mercantile
Bankshares Corp.
- ---------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 2003 Chief Executive Officer, Twenty First Administaff and Discovery
Trustee Century Group, Inc. (government affairs Global Education Fund (non-
company) (owner) Dos Angelos Ranch, L.P. profit)
Formerly: Chief Executive Officer,
Texana Timber LP (sustainable forestry
company)
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 2003 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company)
- ---------------------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis -- 1933 2000 Chairman, Lawsuit Resolution Services General Chemical Group, Inc.
Trustee (San Diego, California)
- ---------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 2003 Formerly: Chief Executive Officer, YMCA None
Trustee of the USA
- ---------------------------------------------------------------------------------------------------------------------------------
/(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. Prior to
October 4, 2004, Mr. Graham served as Chairman of the Board of Trustees
of 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.
/(3)/ Mr. Crockett was elected Chair of the Board of Trustees of the Trust
effective October 4, 2004.
Trustees and Officers (continued)
As of March 31, 2005
The address of each trustee and officer of AIM Sector Funds (the "Trust"), is
11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 114
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.
Name, Year of Birth and
Position(s) Held with the Trustee and/ Principal Occupation(s) During Past 5 Other Directorship(s)
Trust or Officer Since Years Held by Trustee
- ----------------------------------------------------------------------------------------------------------------------
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
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Other Officers
- ----------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley/4 /-- 1959 2004 Senior Vice President, A I M Management N/A
Senior Vice President and Chief Group Inc.; Senior Vice President and
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., A I M
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/5 /-- 1958 2005 Formerly: Director of Compliance and N/A
Senior Vice President Assistant General Counsel, ICON
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 Secretary and General Counsel, A I M
Chief Legal Officer Management Group Inc. and A I M
Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Vice President, A I M Capital
Management, Inc., and A I M Investment
Services, Inc.; Director, Vice
President and General Counsel, Fund
Management Company; and Senior Vice
President, A I M Distributors, Inc.
Formerly: Senior Vice President and
General Counsel, Liberty Financial
Companies, Inc.; and Senior Vice
President and General Counsel, Liberty
Funds Group, LLC.; and Vice President,
A I M Distributors, Inc.
- ----------------------------------------------------------------------------------------------------------------------
Robert G. Alley -- 1948 2003 Managing Director, Chief Fixed Income N/A
Vice President Officer and Senior Investment Officer,
A I M Capital Management, Inc. and Vice
President, A I M Advisors, Inc.
- ----------------------------------------------------------------------------------------------------------------------
Stuart W. Coco -- 1955 2003 Managing Director and Director of Money N/A
Vice President Market Research and Special Projects,
A I M Capital Management, Inc.; and Vice
President, A I M Advisors, Inc.
- ----------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, N/A
Vice President and Treasurer A I M Advisors, Inc.
Formerly: Senior Vice President, A I M
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- ----------------------------------------------------------------------------------------------------------------------
J. Phillip Ferguson/4 /-- 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.; Chief
Equity Officer, and Senior Investment
Officer, A I M Capital Management,
Inc.; and Managing Partner, Beutel,
Goodman Capital Management
- ----------------------------------------------------------------------------------------------------------------------
Mark D. Greenberg -- 1957 2004 Senior Vice President and Senior N/A
Vice President Portfolio Manager, A I M Capital
Management, Inc.
Formerly: Senior Vice President and
Senior Portfolio Manager, INVESCO
Institutional (N.A.), Inc.
- ----------------------------------------------------------------------------------------------------------------------
William R. Keithler -- 1952 2004 Senior Vice President and Senior N/A
Vice President Portfolio Manager, A I M Capital
Management, Inc.
Formerly: Senior Vice President,
Director of Sector Management and
Senior Portfolio Manager, INVESCO
Institutional (N.A.), Inc.
- ----------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 2003 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.
- ----------------------------------------------------------------------------------------------------------------------
/(4)/ Ms. Brinkley was elected Senior Vice President and Chief Compliance
Officer of the Trust effective September 20, 2004.
/(5)/ Mr. Burk was elected Senior Vice President of the Trust effective
February 15, 2005.
/(6)/ Mr. Ferguson was elected Vice President of the Trust effective February
24, 2005.
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.
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza. A I M Advisors, Inc. A I M Distributors, Inc. PricewaterhouseCoopers LLP
Suite 100 11 Greenway Plaza 11 Greenway Plaza 1201 Louisiana Street
Houston, TX 77046-1173 Suite 100 Suite 100 Suite 2900
Houston, TX 77046-1173 Houston, TX 77046-1173 Houston, Texas 77002-5678
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
Ballard Spahr INDEPENDENT TRUSTEES AIM Investment Services, Inc. State Street Bank and Trust
Andrews & Ingersoll, LLP Kramer, Levin, Naftalis & P.O. Box 4739 Company
1735 Market Street Frankel LLP Houston, TX 77210-4739 225 Franklin Street
Philadelphia, PA 19103-7599 1177 Avenue of the Americas Boston, MA 02110-2801
New York, NY 10036-2714
Domestic Equity Sector Equity
AIM Aggressive Growth Fund AIM Advantage Health Sciences Fund/1/
AIM Basic Balanced Fund* AIM Energy Fund/1/
AIM Basic Value Fund AIM Financial Services Fund/1/
AIM Blue Chip Fund AIM Global Health Care Fund
AIM Capital Development Fund AIM Global Real Estate Fund
AIM Charter Fund AIM Gold & Precious Metals Fund/1/
AIM Constellation Fund AIM Leisure Fund/1/
AIM Diversified Dividend Fund AIM Multi-Sector Fund/1/
AIM Dynamics Fund/1/ AIM Real Estate Fund/7/
AIM Large Cap Basic Value Fund AIM Technology Fund/1/
AIM Large Cap Growth Fund AIM Utilities Fund/1/
AIM Mid Cap Basic Value Fund
AIM Mid Cap Core Equity Fund/2/ Fixed Income
AIM Mid Cap Growth Fund
AIM Opportunities I Fund TAXABLE
AIM Opportunities II Fund
AIM Opportunities III Fund AIM Floating Rate Fund
AIM Premier Equity Fund AIM High Yield Fund
AIM S&P 500 Index Fund/1/ AIM Income Fund
AIM Select Equity Fund AIM Intermediate Government Fund
AIM Small Cap Equity Fund/1/ AIM Limited Maturity Treasury Fund
AIM Small Cap Growth Fund/4/ AIM Money Market Fund
AIM Small Company Growth Fund/1/ AIM Short Term Bond Fund
AIM Trimark Endeavor Fund AIM Total Return Bond Fund
AIM Trimark Small Companies Fund Premier Portfolio
AIM Weingarten Fund Premier U.S. Government Money
Portfolio/1/
* Domestic equity and income fund
TAX-FREE
International/Global Equity AIM High Income Municipal Fund
AIM Municipal Bond Fund
AIM Asia Pacific Growth Fund AIM Tax-Exempt Cash Fund
AIM Developing Markets Fund AIM Tax-Free Intermediate Fund
AIM European Growth Fund Premier Tax-Exempt Portfolio
AIM European Small Company Fund/5/
AIM Global Aggressive Growth Fund
AIM Global Equity Fund AIM Allocation Solutions
AIM Global Growth Fund
AIM Global Value Fund AIM Conservative Allocation Fund
AIM International Core Equity Fund/1/ AIM Growth Allocation Fund/8/
AIM International Growth Fund AIM Moderate Allocation Fund
AIM International Small Company Fund/6/ AIM Moderate Growth Allocation Fund
AIM Trimark Fund AIM Moderately Conservative
Allocation Fund
/1/ The following name changes became effective October 15, 2004: INVESCO
Advantage Health Sciences Fund to AIM Advantage Health Sciences Fund, INVESCO
Dynamics Fund to AIM Dynamics Fund, INVESCO Energy Fund to AIM Energy Fund,
INVESCO Financial Services Fund to AIM Financial Services Fund, INVESCO Gold &
Precious Metals Fund to AIM Gold & Precious Metals Fund, INVESCO International
Core Equity Fund to AIM International Core Equity Fund, INVESCO Leisure Fund to
AIM Leisure Fund, INVESCO Mid-Cap Growth Fund to AIM Mid Cap Stock Fund, INVESCO
Multi-Sector Fund to AIM Multi-Sector Fund, INVESCO S&P 500 Index Fund to AIM
S&P 500 Index Fund, INVESCO Small Company Growth Fund to AIM Small Company
Growth Fund, INVESCO Technology Fund to AIM Technology Fund, INVESCO U.S.
Government Money Fund to Premier U.S. Government Money Portfolio, INVESCO
Utilities Fund to AIM Utilities Fund. /2/ As of end of business on February 27,
2004, AIM Mid Cap Core Equity Fund has limited public sales of its shares to
certain investors. For more information on who may continue to invest in the
Fund, please contact your financial advisor. /3/ Effective December 13, 2004,
AIM Small Cap Equity Fund is open to all investors. /4/ As of end of business on
March 18, 2002, AIM Small Cap Growth Fund has limited public sales of its shares
to certain investors. For more information on who may continue to invest in the
Fund, please contact your financial advisor. /5/ As of end of business on March
28, 2005, AIM European Small Company Fund has limited public sales of its shares
to certain investors. For more information on who may continue to invest in the
Fund, please contact your financial advisor. /6/ Effective December 30, 2004,
AIM International Emerging Growth Fund was renamed AIM International Small
Company Fund. As of end of business on March 14, 2005, the Fund has limited
public sales of its shares to certain investors. For more information on who may
continue to invest in the Fund, please contact your financial advisor. /7/ As of
end of business on April 29, 2005, AIM Real Estate Fund has limited public sales
of its shares to certain investors. For more information on who may continue to
invest in the Fund, please contact your financial advisor. /8/ Effective April
29, 2005, AIM Aggressive Allocation Fund was renamed AIM Growth Allocation Fund.
If used after July 20, 2005, this report must be accompanied by a Fund
Performance & Commentary or by an AIM Quarterly Performance Review for the most
recent quarter-end. Mutual funds distributed by A I M Distributors, Inc.
A I M Management Group Inc. has provided leadership in the investment management
industry since 1976 and manages $131 billion in assets. AIM is a subsidiary of
AMVESCAP PLC, one of the world's largest independent financial services
companies with $375 billion in assets under management. Data as of March 31,
2005.
- --------------------------------------------------------------------------------
CONSIDER THE INVESTMENT OBJECTIVES, RISKS, AND CHARGES AND EXPENSES CAREFULLY.
FOR THIS AND OTHER INFORMATION ABOUT AIM FUNDS, OBTAIN A PROSPECTUS FROM YOUR
FINANCIAL ADVISOR AND READ IT CAREFULLY BEFORE INVESTING.
- --------------------------------------------------------------------------------
AIMinvestments.com I-HSC-AR-1 A I M Distributors, Inc.
[YOUR GOALS. OUR SOLUTIONS.]
- REGISTERED TRADEMARK -
Mutual Retirement Annuities College Separately Offshore Cash
Funds Products Savings Managed Products Management
Plans Accounts
[AIM INVESTMENTS LOGO]
- REGISTERED TRADEMARK -
AIM LEISURE FUND
Annual Report to Shareholders . March 31, 2005
[COVER IMAGE]
FORMERLY INVESCO LEISURE FUND
[YOUR GOALS. OUR SOLUTIONS.]
- REGISTERED TRADEMARK -
[AIM INVESTMENTS LOGO]
- REGISTERED TRADEMARK -
AIM LEISURE FUND SEEKS TO PROVIDE CAPITAL GROWTH.
.. Unless otherwise stated, information presented in this report is as of
March 31, 2005, and is based on total net assets.
.. Effective October 15, 2004, INVESCO Leisure Fund was renamed AIM Leisure Fund.
ABOUT SHARE CLASSES
.. Effective September 30, 2003, Class B shares are not available as an
investment for retirement plans maintained pursuant to Section 401 of the
Internal Revenue Code, including 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.
.. Class K shares are available only to certain retirement plans. Please see the
prospectus for more information.
.. Investor Class shares are closed to most investors. For more information on
who may continue to invest in the Investor Class shares, please see the
prospectus.
PRINCIPAL RISKS OF INVESTING IN THE FUND
.. Investing in a single-sector or single-region mutual fund involves greater
risk and potential reward than investing in a more diversified fund.
.. Investing in small and mid-size companies involves risks not associated with
investing in more established companies, including business risk, significant
stock price fluctuations and illiquidity.
.. The Fund may invest up to 25% of its assets in the securities of non-U.S.
issuers. Securities of Canadian issuers and American Depository Receipts are not
subject to this 25% limitation. International investing presents certain risks
not associated with investing solely in the United States. These include risks
relating to fluctuations in the value of the U.S. dollar relative to the values
of other currencies, the custody arrangements made for the Fund's foreign
holdings, differences in accounting, political risks and the lesser degree of
public information required to be provided by non-U.S. companies.
ABOUT INDEXES USED IN THIS REPORT
.. The unmanaged Standard & Poor's Composite Index of 500 Stocks (the S&P 500
- --REGISTERED TRADEMARK-- Index) is an index of common stocks frequently used as
a general measure of U.S. stock market performance.
.. The Fund is not managed to track the performance of any particular index,
including the indexes defined here, and consequently, the performance of the
Fund may deviate significantly from the performance of the indexes.
.. A direct investment cannot be made in an index. Unless otherwise indicated,
index results include reinvested dividends, and they do not reflect sales
charges. Performance of an index of funds reflects fund expenses; performance of
a market index does not.
OTHER INFORMATION
.. The returns shown in management's discussion of Fund performance are based on
net asset values calculated for shareholder transactions. Generally accepted
accounting principles require adjustments to be made to the net assets of the
Fund at period end for financial reporting purposes, and as such, the net asset
values for shareholder transactions and the returns based on those net asset
values may differ from the net asset values and returns reported in the
Financial Highlights.
.. Industry classifications used in this report are generally according to the
Global Industry Classification Standard, which was developed by and is the
exclusive property and a service mark of Morgan Stanley Capital International
Inc. and Standard & Poor's.
The Fund provides a complete list of its holdings four times in each fiscal
year, at the quarter-ends. For the second and fourth quarters, the lists appear
in the Fund's semiannual and annual reports to shareholders. For the first and
third quarters, the Fund files the lists with the Securities and Exchange
Commission (SEC) on Form N-Q. Shareholders can look up the Fund's Forms N-Q on
the SEC's Web site at sec.gov.Copies of the Fund's Forms N-Q may be reviewed and
copied at the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington,
D.C. 20549-0102. You can obtain information on the operation of the Public
Reference Room, including information about duplicating fee charges, by calling
202-942-8090 or by electronic request at the following E-mail address:
publicinfo@sec.gov. The SEC file numbers for the Fund are 811-3826 and
002-85905. The Fund's most recent portfolio holdings, as filed on Form N-Q, are
also available at AIMinvestments.com.
A description of the policies and procedures that the Fund uses to determine how
to vote proxies relating to portfolio securities is available without charge,
upon request, from our Client Services department at 800-959-4246 or on the AIM
Web site, AIMinvestments.com. On the home page, scroll down and click on AIM
Funds Proxy Policy. The information is also available on the SEC's Web site,
sec.gov.
Information regarding how the Fund voted proxies related to its portfolio
securities during the 12 months ended June 30, 2004 is available at our Web
site. Go 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's Web site,
sec.gov.
- --------------------------------------------------------------------------------
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND
PROSPECTUS, WHICH CONTAINS MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES
AND EXPENSES. INVESTORS SHOULD READ IT CAREFULLY BEFORE INVESTING.
- --------------------------------------------------------------------------------
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
AIMINVESTMENTS.COM
AIM LEISURE FUND
DEAR FELLOW SHAREHOLDERS:
The fiscal year covered by this report saw both equities and
bonds* produce positive total returns, but it wasn't a very
smooth ride. Markets were at their best during the second
half of 2004--bonds during the third quarter of that year
and equities during the fourth. Returns turned negative for
both asset classes during the first quarter of 2005.
[GRAHAM PHOTO] The huge run-up in the price of oil over the course of the
fiscal year goes a long way toward explaining the markets'
loss of confidence early in 2005. The Consumer Price Index
rose more in March 2005 than one month earlier. Energy costs
advanced 4.0% in March; the petroleum-based subset of energy
increased 7.8%.
ROBERT H. GRAHAM Another negative factor has been Federal Reserve policy.
With a view to warding off potential inflation, the Federal
Reserve (the Fed) raised short-term interest rates in March,
the seventh such move since mid-year 2004. The Fed noted
that inflationary pressures have picked up recently and that
businesses' ability to raise prices appeared stronger than
in the recent past. There is a virtually universal
expectation that the Fed will continue to increase
short-term interest rates during 2005, which could
ultimately dampen economic performance. (In early May, after
the close of the reporting period, the Fed raised rates once
again.)
[WILLIAMSON PHOTO] Nevertheless, there was also much good news for investors
as of March 31, 2005:
. The Institute for Supply Management's manufacturing and
non-manufacturing indexes--based on surveys of purchasing
managers in industries that cover more than 80% of the
U.S. economy--both indicated continued healthy growth
during March and April and remained in very strong
territory. April was the 42nd month in a row these surveys
showed the economy as a whole expanding.
MARK H. WILLIAMSON . Job growth during March was weaker than in the recent
past, though the unemployment rate declined over the
course of the fiscal year. In fact, less than robust job
growth during March was good news for bond
investors--there is still enough slack in the job market
to keep wage inflation from becoming an issue.
. Bond yields haven't risen as much as might be expected
given seven increases in short-term rates over the fiscal
year. Evidently, the bond market is not anticipating a
long-term inflationary pattern.
So once again we are seeing a good news/bad news
combination--a situation that is far from unusual. Over the
short term, financial markets are unpredictable. It is over
the long term that they have been rewarding to investors,
and we remain confident in their long-term outlook. Given
the inability to make accurate short-term forecasts, as
always, we urge our shareholders to:
. keep a long-term investment perspective,
. make sure their portfolios are suitably diversified, and
. contact their financial advisors when they have questions
or concerns about their investments or the markets.
YOUR FUND
The following pages present a discussion of your Fund's
approach to investing, an explanation of its performance
over the fiscal year, and a summary of its portfolio as that
year closed. Further information about your Fund and The AIM
Family of Funds --REGISTERED TRADEMARK-- , as well as
general information concerning investing, is always
available on our widely praised Web site,
AIMinvestments.com. We invite you to visit frequently.
As always, we at AIM are dedicated to building solutions
to help you meet your investment goals. We thank you for
your continued participation in AIM Investments --REGISTERED
TRADEMARK-- . If you have any questions, please contact our
award-winning Client Service representatives at
800-959-4246. We are pleased to be of help.
Sincerely,
/s/ ROBERT H. GRAHAM /s/ MARK H. WILLIAMSON
Robert H. Graham Mark H. Williamson
Trustee, President & Chairman & President,
Vice Chair, AIM Funds A I M Advisors, Inc.
May 20, 2005
*Equities represented by the S&P 500 Index, an index of
common stocks often used as a general measure of U.S. stock
market performance; bonds by the Lehman U.S. Aggregate Bond
Index, an index compiled by Lehman Brothers, the global
investment bank, that represents the U.S. investment-grade
fixed-rate bond market.
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 AND A I M
DISTRIBUTORS, INC. IS THE DISTRIBUTOR FOR THE RETAIL FUNDS
REPRESENTED BY AIM INVESTMENTS.
AIM LEISURE FUND
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
We are pleased to report that for the fiscal year ended March 31, 2005, Investor
Class shares of AIM Leisure Fund delivered positive returns to shareholders that
exceeded those of the broad U.S. stock market, as represented by the S&P 500
Index. This was the seventh consecutive year in which the Fund's Investor Class
shares outperformed the S&P 500 Index.
- --------------------------------------------------------------------------------
FUND VS. INDEXES
TOTAL RETURNS, 3/31/04-3/31/05, EXCLUDING APPLICABLE SALES CHARGES. IF SALES
CHARGES WERE INCLUDED, RETURNS WOULD BE LOWER.
Class A Shares 7.23%
Class B Shares 6.54
Class C Shares 6.55
Class K Shares 7.13
Investor Class Shares 7.35
S&P 500 Index (Broad Market Index /
Style-specific Index) 6.69
SOURCE: LIPPER, INC.
- --------------------------------------------------------------------------------
AIM Leisure Fund outperformed the S&P 500 Index as a result of strong stock
selection. The Fund also outperformed the consumer discretionary sector of the
S&P 500 Index in which the Fund invests the bulk of its assets. Some consumer
discretionary stocks were hurt by worries about rising interest rates and higher
energy prices, a more detailed discussion of which appears below.
HOW WE INVEST
We manage the Fund using a bottom-up investment approach, focusing on companies
that profit from consumer spending on leisure activities. This bottom-up
approach is intended to identify leisure-related businesses with:
.. Strong fundamentals and promising growth potential.
.. Valuations below those of the broad market.
.. Managements that have long-term visions for their companies, and the skills
needed to grow their market share and earnings at faster rates than their
competitors.
Just as we look for managements with long-term visions, we maintain a
long-term investment horizon. That is why the Fund maintains a relatively low
portfolio turnover rate. We look for long-term growth opportunities because we
are far more confident in our ability to analyze a company's long-term growth
potential than we are in the treacherous practice of trying to time short-term
market cycles. Simply put, we believe we can better serve the needs of our
shareholders by concentrating on the next couple of years, not the next couple
of months. Leisure-related industries encompass such diverse industries as
media, gaming, retailers and travel, among others. While we maintain a higher
concentration of assets in stocks in which we have the most conviction, based on
our fundamental research, we make a conscious effort to diversify the Fund's
holdings across leisure-related industries. The Fund may invest in companies of
all market capitalizations, and its holdings typically number between 70 and
100.
We reduce or eliminate a holding if we see a negative change in the
company's or its industry's fundamentals. We also may sell a Fund holding if it
reaches what we consider to be our target price.
This was the seventh consecutive year in which the Fund's Investor
Class shares outperformed the S&P 500 Index.
MARKET CONDITIONS AND YOUR FUND
For much of the fiscal year ended March 31, 2005, there was concern that rising
interest rates and rising energy prices might crimp discretionary consumer
spending. But for the most part, these concerns were not borne out.
The U.S. economy generally continued to strengthen during the fiscal year,
consumer
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION TOP 10 EQUITY HOLDINGS* TOTAL NET ASSETS $907.0 million
By sector TOTAL NUMBER OF HOLDINGS* 81
[PIE CHART]
Consumer Staples 7.2% 1. Omnicom Group Inc. 6.5%
Financials 4.2% 2. Harrah's Entertainment, Inc. 6.0
Information Technology 1.7% 3. Cablevision Systems Corp.-New York
Industrials 1.5% Group-Class A 3.9
Investment Companies Exchange 4. News Corp.-Class A 3.8
Traded Funds 2.9% 5. Liberty Media Corp.-Class A 3.5
Money Market Funds Plus 6. Groupe Bruxelles Lambert S.A.
Other Assets Less Liabilities 2.4% (Belgium) 3.1
Consumer Discretionary 80.1% 7. International Game Technology 2.9
8. Starwood Hotels & Resorts
Worldwide, Inc. 2.9
9. Time Warner Inc. 2.4
10. Allied Domecq PLC (United Kingdom) 2.1
The Fund's holdings are subject to change, and there is no assurance that the
Fund will continue to hold any particular security.
*Excluding money market fund holdings.
- --------------------------------------------------------------------------------
2
spending generally rose and the broad U.S. stock market delivered positive
returns. The U.S. Federal Reserve raised its federal funds target rate seven
times during the fiscal year. Higher interest rates can force consumers to spend
more on adjustable rate mortgages, auto loans and credit card bills--leaving
them with less money to spend on discretionary items and leisure activities.
Similarly, rising gasoline prices can threaten consumer spending. According
to the U.S. Energy Information Administration, average gasoline prices
nationwide rose by more than 20% in calendar year 2004--and by an additional 20%
during the first quarter of 2005. While we were pleasantly surprised at how
little impact record-high oil and gasoline prices had on consumer spending and
travel-related industries, we continued to pay close attention to energy trends.
What minor changes we made to our holdings stemmed from our bottom-up
investment process:
.. We trimmed some gaming stocks that appreciated since we purchased them.
.. We added retail and restaurant stocks whose valuations we considered more
attractive.
.. We initiated a small position in Yahoo!, a leading Internet portal and search
engine.
.. We added to the Fund's cruise line holdings.
While Yahoo! commands a premium valuation, we believe the growth of
Internet advertising and Yahoo!'s market leadership offers the potential for
long-term stock price appreciation.
Cruise lines generally detracted from Fund performance in the first quarter
of 2005, but we continued to regard them as solid long-term investments. In
particular, we have owned Carnival for some time because its management has
consistently grown market share by segmenting its brands (which include
Princess, Holland America and Cunard, among others) to appeal to passengers with
different demographic and economic characteristics.
Some of the most significant contributors to Fund performance for the year
included hotel and casino stocks. Starwood Hotels is a stock we have held for
several years that continues to benefit Fund performance. Starwood's brand names
include St. Regis --REGISTERED TRADEMARK--, Sheraton --REGISTERED TRADEMARK-- ,
While we were pleasantly surprised at how little impact record-high oil
and gasoline prices had on consumer spending and travel-related
industries, we continued to pay close attention to energy trends.
Westin --REGISTERED TRADEMARK-- and W --REGISTERED TRADEMARK-- . We have been
impressed with Starwood's innovative ability to take a basic product--a hotel
room--and differentiate it from that of its competitors.
Casino operator Harrah's Entertainment was the Fund's top performer and is
a stock that reflects our long-term investment approach. We have owned Harrah's
for more than six years and have been impressed with the company's management,
which has consistently grown its market share. At the close of the year,
Harrah's remained a top holding in the Fund because we believed the company is
uniquely positioned to benefit from liberalized gaming laws and new casino
construction.
NBTY, a leading U.S. manufacturer and distributor of nutritional
supplements worldwide, was a stock that detracted from performance but which we
continued to hold because of its positive long-term growth prospects. In 2004,
Fortune magazine named the company one of the fastest-growing companies in
America following its acquisition of competitor Rexall Sundown. In June 2004,
however, the company reported a 12% decline in sales for April and May, sending
its stock price down sharply.
IN CLOSING
We were pleased that the Fund again outperformed the S&P 500 Index. While rising
interest rates and energy prices appear not to have adversely affected consumer
spending yet, at the close of the reporting period we were vigilant about
monitoring such trends and prepared to react as necessary. Nonetheless, sectors
go in and out of favor, and at times the Fund will underperform the broad
market. During such periods, investors would do well to remember that spending
on leisure-related activities has grown faster than the overall market over the
last 40 years. As always, we thank you for your continuing investment in AIM
Leisure Fund.
THE VIEWS AND OPINIONS EXPRESSED IN MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
ARE THOSE OF A I M ADVISORS, INC. THESE VIEWS AND OPINIONS ARE SUBJECT TO CHANGE
AT ANY TIME BASED ON FACTORS SUCH AS MARKET AND ECONOMIC CONDITIONS. THESE VIEWS
AND OPINIONS MAY NOT BE RELIED UPON AS INVESTMENT ADVICE OR RECOMMENDATIONS, OR
AS AN OFFER FOR A PARTICULAR SECURITY. THE INFORMATION IS NOT A COMPLETE
ANALYSIS OF EVERY ASPECT OF ANY MARKET, COUNTRY, INDUSTRY, SECURITY OR THE FUND.
STATEMENTS OF FACT ARE FROM SOURCES CONSIDERED RELIABLE, BUT A I M ADVISORS,
INC. MAKES NO REPRESENTATION OR WARRANTY AS TO THEIR COMPLETENESS OR ACCURACY.
ALTHOUGH HISTORICAL PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS, THESE
INSIGHTS MAY HELP YOU UNDERSTAND OUR INVESTMENT MANAGEMENT PHILOSOPHY.
See important Fund and index disclosures inside front cover.
- --------------------------------------------------------------------------------
[GREENBERG PHOTO]
MARK D. GREENBERG, Chartered Financial Analyst, senior portfolio manager, is
portfolio manager of AIM Leisure Fund. Mr. Greenberg began his investment career
in 1980, and media and entertainment stocks became his focus in 1983. He joined
the Fund's advisor in 1996. Mr. Greenberg attended City University in London,
England, and received his B.S.B.A. in economics with a specialization in finance
from Marquette University.
- --------------------------------------------------------------------------------
[RIGHT ARROW GRAPHIC]
FOR A PRESENTATION OF YOUR FUND'S LONG-TERM PERFORMANCE RECORD, PLEASE TURN TO
PAGE 5.
3
AIM LEISURE FUND
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, which may include sales charges (loads) on purchase payments; contingent
deferred sales charges on redemptions; and redemption fees, if any; and (2)
ongoing costs, including management fees; distribution and/or service fees
(12b-1); and other Fund expenses. This example is intended to help you
understand your ongoing costs (in dollars) of investing in the Fund and to
compare these costs with ongoing costs of investing in other mutual funds. The
example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period October 1, 2004, through March 31, 2005.
ACTUAL EXPENSES
The table below provides information about actual account values and actual
expenses. You may use the information in this table, together with the amount
you invested, to estimate the expenses that you paid over the period. Simply
divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number in the table
under the heading entitled "Actual Expenses Paid During Period" to estimate the
expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The table below also provides information about hypothetical account values and
hypothetical expenses based on the Fund's actual expense ratio and an assumed
rate of return of 5% per year before expenses, which is not the Fund's actual
return. The Fund's actual cumulative total returns at net asset value after
expenses for the six months ended March 31, 2005, appear in the table
"Cumulative Total Returns" on page 5. The hypothetical account values and
expenses may not be used to estimate the actual ending account balance or
expenses you paid for the period. You may use this information to compare the
ongoing costs of investing in the Fund and other funds. To do so, compare this
5% hypothetical example with the 5% hypothetical examples that appear in the
shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight
your ongoing costs only and do not reflect any transactional costs, such as
sales charges (loads) on purchase payments, contingent deferred sales charges on
redemptions, and redemption fees, if any. Therefore, the hypothetical
information is useful in comparing ongoing costs only, and will not help you
determine the relative total costs of owning different funds.
- --------------------------------------------------------------------------------
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES ENDING ACCOUNT EXPENSES
SHARE VALUE VALUE PAID DURING VALUE PAID DURING
CLASS (10/1/04) (3/31/05)/1/ PERIOD/2/ (3/31/05) PERIOD/2/
A $ 1,000.00 $ 1,112.70 $ 7.16 $ 1,018.15 $ 6.84
B 1,000.00 1,109.00 10.57 1,014.91 10.10
C 1,000.00 1,109.10 10.57 1,014.91 10.10
K 1,000.00 1,112.20 7.69 1,017.65 7.34
Investor 1,000.00 1,113.10 6.64 1,018.65 6.34
/1/The actual ending account value is based on the actual total return of the
Fund for the period, October 1, 2004, to March 31, 2005, after actual expenses
and will differ from the hypothetical ending account value which is based on the
Fund's expense ratio and a hypothetical annual return of 5% before expenses. The
Fund's actual cumulative total returns at net asset value after expenses for the
six months ended March 31, 2005, appear in the table "Cumulative Total Returns"
on page 5.
/2/Expenses are equal to the Fund's annualized expense ratio, 1.36%, 2.01%,
2.01%, 1.46% and 1.26% for Class A, B, C, K and Investor Class shares,
respectively, multiplied by the average account value over the period,
multiplied by 182/365 (to reflect the one-half year period).
- --------------------------------------------------------------------------------
[ARROW
BUTTON For More Information Visit
IMAGE] AIMINVESTMENTS.COM
4
AIM LEISURE FUND
YOUR FUND'S LONG-TERM PERFORMANCE
Your Fund's total return includes reinvested distributions, maximum applicable
sales charges, Fund expenses and management fees. Performance of an index of
funds reflects fund expenses and management fees; performance of a market index
does not. Performance shown in the chart and tables does not reflect deduction
of taxes a shareholder would pay on Fund distributions or sale of Fund shares.
Performance of the indexes does not reflect the effects of taxes.
This chart, which is a logarithmic chart, presents the fluctuations in the
value of the Fund and its indexes. We believe that a logarithmic chart is more
effective than other types of charts in illustrating changes in value during the
early years shown in the chart. The vertical axis, the one that indicates the
dollar value of an investment, is constructed with each segment representing a
percent change in the value of the investment. In this chart, each segment
represents a doubling, or 100% change, in the value of the investment. In other
words, the space between $10,000 and $20,000 is the same size as the space
between $20,000 and $40,000, the space between $20,000 and $40,000 is the same
as that between $40,000 and $80,000, and so on.
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
As of 3/31/05, including applicable sales charges
CLASS A SHARES
Inception (3/28/02) 3.65%
1 Year 1.35
CLASS B SHARES
Inception (3/28/02) 3.98%
1 Year 1.54
CLASS C SHARES
Inception (2/14/00) 3.13%
5 Years 2.50
1 Year 5.55
CLASS K SHARES
Inception (12/14/01) 7.18%
1 Year 7.13
INVESTOR CLASS SHARES
Inception (1/19/84) 16.63%
10 Years 14.14%
5 Years 3.37
1 Year 7.35
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
RESULTS OF A $10,000 INVESTMENT
Fund data from 1/19/84 (index data from 1/31/84)
[MOUNTAIN CHART]
AIM LEISURE FUND AIM LEISURE FUND
INVESTOR CLASS INVESTOR CLASS
DATE SHARES S&P 500 INDEX DATE SHARES S&P 500 INDEX
1/19/84 $ 10000
1/84 10000 10000 10/94 66554 41821
2/84 9975 9648 11/94 65024 40300
3/84 9850 9815 12/94 65056 40897
4/84 9901 9908 1/95 64230 41957
5/84 9601 9360 2/95 67448 43590
6/84 10126 9563 3/95 69505 44874
7/84 9913 9445 4/95 68706 46195
8/84 10700 10488 5/95 69592 48038
9/84 10500 10490 6/95 72598 49152
10/84 10663 10531 7/95 76802 50781
11/84 10424 10413 8/95 77508 50908
12/84 10689 10687 9/95 75733 53055
1/85 11595 11520 10/95 73196 52866
2/85 12262 11661 11/95 75012 55184
3/85 12602 11668 12/95 75334 56247
4/85 12299 11658 1/96 77451 58159
5/85 12703 12331 2/96 79287 58700
6/85 12904 12524 3/96 80381 59265
7/85 12904 12506 4/96 83845 60138
8/85 12917 12385 5/96 84868 61686
9/85 12087 12011 6/96 84308 61922
10/85 12679 12566 7/96 77884 59187
11/85 13348 13428 8/96 79753 60438
12/85 14132 14078 9/96 82752 63836
1/86 14271 14157 10/96 80997 65596
2/86 16027 15214 11/96 83614 70550
3/86 17064 16063 12/96 82167 69153
4/86 17696 15883 1/97 83769 73471
5/86 18794 16727 2/97 83367 74047
6/86 19730 17010 3/97 81108 71011
7/86 17467 16059 4/97 82487 75246
8/86 17771 17250 5/97 86636 79847
9/86 16558 15823 6/97 91514 83396
10/86 17877 16736 7/97 95046 90030
11/86 17546 17143 8/97 93734 84990
12/86 16792 16705 9/97 99227 89642
1/87 18520 18955 10/97 99058 86652
2/87 20405 19704 11/97 100406 90660
3/87 20405 20272 12/97 103900 92216
4/87 19871 20092 1/98 103453 93235
5/87 19588 20266 2/98 110933 99955
6/87 20515 21290 3/98 119963 105070
7/87 22275 22369 4/98 120047 106146
8/87 22558 23203 5/98 117886 104324
9/87 22102 22694 6/98 123650 108558
10/87 16387 17807 7/98 122303 107411
11/87 15312 16340 8/98 102355 91893
12/87 16913 17582 9/98 108036 97784
1/88 17405 18321 10/98 114086 105726
2/88 18662 19172 11/98 121764 112131
3/88 19299 18580 12/98 134841 118588
4/88 19607 18786 1/99 145952 123546
5/88 19262 18946 2/99 142902 119706
6/88 20955 19815 3/99 152362 124495
7/88 20936 19739 4/99 164871 129316
8/88 19990 19070 5/99 164953 126265
9/88 21591 19882 6/99 175329 133254
10/88 21829 20435 7/99 174768 129111
11/88 20956 20143 8/99 169192 128472
12/88 21739 20494 9/99 177787 124954
1/89 23450 21994 10/99 188384 132858
2/89 23851 21447 11/99 198801 135558
3/89 24779 21947 12/99 223293 143531
4/89 26890 23085 1/00 208467 136321
5/89 28111 24016 2/00 207341 133743
6/89 27510 23881 3/00 221046 146819
7/89 29985 26035 4/00 207054 142403
8/89 31077 26542 5/00 198006 139484
9/89 31459 26434 6/00 209827 142919
10/89 30452 25821 7/00 210016 140687
11/89 30620 26345 8/00 220201 149420
12/89 30054 26977 9/00 213309 141534
1/90 26931 25167 10/00 213821 140933
2/90 27330 25491 11/00 196052 129831
3/90 28483 26166 12/00 205502 130468
4/90 28463 25514 1/01 226032 135094
5/90 31315 27996 2/01 219567 122783
6/90 31208 27808 3/01 208874 115009
7/90 29888 27719 4/01 224185 123940
8/90 25803 25216 5/01 231717 124771
9/90 23393 23991 6/01 229702 121735
10/90 22747 23890 7/01 216540 120537
11/90 25101 25431 8/01 209177 112998
12/90 26760 26139 9/01 174454 103874
1/91 28556 27274 10/01 183682 105856
2/91 30958 29222 11/01 203979 113974
3/91 33177 29929 12/01 213934 114973
4/91 33111 30000 1/02 211195 113296
5/91 35488 31290 2/02 214722 111111
6/91 33157 29858 3/02 221422 115290
7/91 34390 31248 4/02 217790 108303
8/91 36344 31986 5/02 217681 107508
9/91 36322 31451 6/02 192953 99853
10/91 38076 31873 7/02 179022 92071
11/91 37155 30592 8/02 183050 92674
12/91 40874 34085 9/02 172597 82612
1/92 41618 33450 10/02 176740 89876
2/92 43079 33883 11/02 190260 95160
3/92 43079 33225 12/02 180938 89573
4/92 41795 34200 1/03 177011 87231
5/92 41924 34367 2/03 170763 85920
6/92 41157 33856 3/03 175203 86752
7/92 42079 35238 4/03 190498 93894
8/92 41721 34518 5/03 201528 98837
9/92 42977 34924 6/03 202999 100099
10/92 44297 35043 7/03 206470 101865
11/92 48890 36233 8/03 211921 103848
12/92 50440 36678 9/03 207195 102748
1/93 52422 36984 10/03 219129 108558
2/93 51604 37488 11/03 224936 109512
3/93 54974 38279 12/03 235778 115251
4/93 53699 37353 1/04 237830 117366
5/93 56556 38350 2/04 242491 118997
6/93 55769 38462 3/04 242952 117202
7/93 56857 38307 4/04 239040 115364
8/93 62543 39757 5/04 238753 116944
9/93 66814 39453 6/04 239732 119217
10/93 69260 40268 7/04 225756 115272
11/93 67224 39884 8/04 224221 115734
12/93 68460 40367 9/04 234333 116988
1/94 67050 41738 10/04 242628 118775
2/94 67198 40605 11/04 254954 123579
3/94 64637 38838 12/04 267880 127783
4/94 64082 39336 1/05 259924 124669
5/94 62967 39979 2/05 263693 127291
6/94 61172 39001 3/05 $ 260819 $ 125039
7/94 63613 40280
8/94 65935 41928
9/94 65935 40904
SOURCE: LIPPER, INC.
- --------------------------------------------------------------------------------
The performance data quoted represent past performance and cannot guarantee
comparable future results; current performance may be lower or higher. Please
visit AIMinvestments.com for the most recent month-end performance. Performance
figures reflect reinvested distributions, changes in net asset value and the
effect of the maximum sales charge unless otherwise stated. Investment return
and principal value will fluctuate so that you may have a gain or loss when you
sell shares.
Class A share performance reflects the maximum 5.50% sales charge, and
Class B and Class C share performance reflects the applicable contingent
deferred sales charge (CDSC) for the period involved. The CDSC on Class B shares
declines from 5% beginning at the time of purchase to 0% at the beginning of the
seventh year. The CDSC on Class C shares is 1% for the first year after
purchase.
Class K shares do not have a front-end sales charge; returns shown are at
net asset value and do not reflect a 0.70% CDSC that may be imposed on a total
redemption of retirement plan assets within the first year.
Investor Class shares do not have a front-end sales charge or a CDSC;
therefore, performance is at net asset value.
The performance of the Fund's share classes will differ due to different
sales charge structures and class expenses.
Had the advisor not waived fees and/or reimbursed expenses for Class K
shares, performance would have been lower.
- --------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURNS
Excluding applicable sales charges
6 months ended 3/31/05
Class A Shares 11.27%
Class B Shares 10.90
Class C Shares 10.91
Class K Shares 11.22
Investor Class Shares 11.31
- --------------------------------------------------------------------------------
5
FINANCIALS
SCHEDULE OF INVESTMENTS
March 31, 2005
MARKET
SHARES VALUE
-----------------------------------------------------------------------------
DOMESTIC COMMON STOCKS & OTHER
EQUITY INTERESTS-77.85%
ADVERTISING-7.32%
Harte-Hanks, Inc. 268,550 $ 7,401,238
-----------------------------------------------------------------------------
Omnicom Group Inc. 666,100 58,963,172
-----------------------------------------------------------------------------
66,364,410
-----------------------------------------------------------------------------
APPAREL, ACCESSORIES & LUXURY
GOODS-2.85%
Carter's, Inc./(a)/ 62,400 2,480,400
-----------------------------------------------------------------------------
Columbia Sportswear Co./(a)/ 94,100 5,008,943
-----------------------------------------------------------------------------
Polo Ralph Lauren Corp. 472,400 18,329,120
-----------------------------------------------------------------------------
25,818,463
-----------------------------------------------------------------------------
BREWERS-1.82%
Anheuser-Busch Cos., Inc. 349,000 16,539,110
-----------------------------------------------------------------------------
BROADCASTING & CABLE TV-16.43%
Cablevision Systems Corp.-New York Group-Class A/(a)/ 1,256,593 35,247,434
-----------------------------------------------------------------------------
Clear Channel Communications, Inc. 294,249 10,142,763
-----------------------------------------------------------------------------
Comcast Corp.-Class A/(a)/ 467,200 15,782,016
-----------------------------------------------------------------------------
DIRECTV Group, Inc. (The)/(a)/ 154,823 2,232,548
-----------------------------------------------------------------------------
EchoStar Communications Corp.-Class A 395,085 11,556,236
-----------------------------------------------------------------------------
Gray Television, Inc. 640,100 9,262,247
-----------------------------------------------------------------------------
Liberty Media Corp.-Class A/(a)/ 3,056,389 31,694,754
-----------------------------------------------------------------------------
Liberty Media Corp.-Class B/(a)/ 179,925 1,905,406
-----------------------------------------------------------------------------
Liberty Media International, Inc.-Class A/(a)/ 153,689 6,722,357
-----------------------------------------------------------------------------
NTL Inc./(a)/ 63,100 4,017,577
-----------------------------------------------------------------------------
Scripps Co. (E.W.) (The)-Class A 168,600 8,219,250
-----------------------------------------------------------------------------
Sinclair Broadcast Group, Inc.-Class A 581,200 4,667,036
-----------------------------------------------------------------------------
Spanish Broadcasting System, Inc.-Class A/(a)/ 271,200 2,782,512
-----------------------------------------------------------------------------
Univision Communications Inc.-Class A/(a)/ 174,300 4,826,367
-----------------------------------------------------------------------------
149,058,503
-----------------------------------------------------------------------------
CASINOS & GAMING-12.01%
Aztar Corp./(a)/ 132,900 3,795,624
-----------------------------------------------------------------------------
Harrah's Entertainment, Inc. 838,500 54,150,330
-----------------------------------------------------------------------------
International Game Technology 1,001,000 26,686,660
-----------------------------------------------------------------------------
Mandalay Resort Group 61,300 4,321,037
-----------------------------------------------------------------------------
MGM MIRAGE/(a)/ 119,816 8,485,369
-----------------------------------------------------------------------------
Wynn Resorts, Ltd./(a)/ 169,200 11,461,608
-----------------------------------------------------------------------------
108,900,628
-----------------------------------------------------------------------------
DIVERSIFIED COMMERCIAL SERVICES-1.45%
Cendant Corp. 642,400 13,194,896
-----------------------------------------------------------------------------
FOOTWEAR-0.69%
NIKE, Inc.-Class B 75,000 6,248,250
-----------------------------------------------------------------------------
MARKET
SHARES VALUE
-------------------------------------------------------------------------
GENERAL MERCHANDISE STORES-0.94%
Target Corp. 169,700 $ 8,488,394
-------------------------------------------------------------------------
HOME ENTERTAINMENT SOFTWARE-0.37%
Electronic Arts Inc./(a)/ 64,000 3,313,920
-------------------------------------------------------------------------
HOTELS, RESORTS & CRUISE LINES-6.38%
Hilton Hotels Corp. 680,750 15,214,763
-------------------------------------------------------------------------
Marriott International, Inc.-Class A 241,000 16,113,260
-------------------------------------------------------------------------
Starwood Hotels & Resorts Worldwide, Inc./(b)/ 442,660 26,572,880
-------------------------------------------------------------------------
57,900,903
-------------------------------------------------------------------------
INTERNET RETAIL-0.70%
IAC/InterActiveCorp/(a)/ 286,700 6,384,809
-------------------------------------------------------------------------
INTERNET SOFTWARE & SERVICES-1.30%
Yahoo! Inc./(a)/ 348,900 11,827,710
-------------------------------------------------------------------------
INVESTMENT COMPANIES-EXCHANGE TRADED
FUNDS-2.88%
iShares Russell 3000 Index Fund 135,100 9,092,230
-------------------------------------------------------------------------
iShares S&P 500 Index Fund 68,100 8,024,904
-------------------------------------------------------------------------
S&P 500 Depositary Receipts Trust-Series 1 76,700 9,050,600
-------------------------------------------------------------------------
26,167,734
-------------------------------------------------------------------------
LEISURE FACILITIES-0.34%
Cedar Fair, L.P./(c)/ 97,800 3,077,766
-------------------------------------------------------------------------
LEISURE PRODUCTS-1.65%
Hasbro, Inc. 352,100 7,200,445
-------------------------------------------------------------------------
Marvel Enterprises, Inc./(a)/ 117,800 2,356,000
-------------------------------------------------------------------------
Mattel, Inc. 252,600 5,393,010
-------------------------------------------------------------------------
14,949,455
-------------------------------------------------------------------------
MOTORCYCLE MANUFACTURERS-0.21%
Harley-Davidson, Inc. 33,100 1,911,856
-------------------------------------------------------------------------
MOVIES & ENTERTAINMENT-9.86%
Metro-Goldwyn-Mayer Inc./(a)/ 365,934 4,372,911
-------------------------------------------------------------------------
News Corp.-Class A 2,030,994 34,364,418
-------------------------------------------------------------------------
Pixar/(a)/ 39,100 3,814,205
-------------------------------------------------------------------------
Regal Entertainment Group-Class A 174,900 3,678,147
-------------------------------------------------------------------------
Time Warner Inc./(a)/ 1,214,800 21,319,740
-------------------------------------------------------------------------
Viacom Inc.-Class A 150,400 5,270,016
-------------------------------------------------------------------------
Viacom Inc.-Class B 153,400 5,342,922
-------------------------------------------------------------------------
Walt Disney Co. (The) 390,999 11,233,401
-------------------------------------------------------------------------
89,395,760
-------------------------------------------------------------------------
PERSONAL PRODUCTS-0.46%
NBTY, Inc./(a)/ 165,300 4,147,377
-------------------------------------------------------------------------
F-1
MARKET
SHARES VALUE
-----------------------------------------------------------------------------
PUBLISHING-7.54%
Belo Corp.-Class A 360,000 $ 8,690,400
-----------------------------------------------------------------------------
Gannett Co., Inc. 151,300 11,964,804
-----------------------------------------------------------------------------
Knight-Ridder, Inc. 232,800 15,655,800
-----------------------------------------------------------------------------
McClatchy Co. (The)-Class A 161,500 11,976,840
-----------------------------------------------------------------------------
McGraw-Hill Cos., Inc. (The) 85,700 7,477,325
-----------------------------------------------------------------------------
Tribune Co. 316,000 12,598,920
-----------------------------------------------------------------------------
68,364,089
-----------------------------------------------------------------------------
RESTAURANTS-2.35%
CBRL Group, Inc. 345,200 14,256,760
-----------------------------------------------------------------------------
Yum! Brands, Inc. 136,900 7,092,789
-----------------------------------------------------------------------------
21,349,549
-----------------------------------------------------------------------------
SPECIALTY STORES-0.30%
PETsMART, Inc. 93,300 2,682,375
-----------------------------------------------------------------------------
Total Domestic Common Stocks & Other
Equity Interests (Cost $469,071,329) 706,085,957
-----------------------------------------------------------------------------
FOREIGN STOCKS & OTHER EQUITY
INTERESTS-19.70%
BELGIUM-3.93%
Compagnie Nationale a Portefeuille (Multi-Sector
Holdings)/(d)/ 10,900 2,460,479
-----------------------------------------------------------------------------
Groupe Bruxelles Lambert S.A. (Multi-Sector
Holdings)/(c)(d)/ 309,400 28,195,826
-----------------------------------------------------------------------------
InBev N.V. (Brewers)/(d)/ 142,235 4,982,665
-----------------------------------------------------------------------------
35,638,970
-----------------------------------------------------------------------------
BRAZIL-0.70%
Companhia de Bebidas das Americas-ADR (Brewers) 219,100 6,329,799
-----------------------------------------------------------------------------
CANADA-0.79%
Intrawest Corp. (Hotels, Resorts & Cruise Lines) 375,280 7,179,106
-----------------------------------------------------------------------------
DENMARK-0.96%
Carlsberg A.S.-Class B (Brewers)/(c)(d)/ 176,400 8,739,016
-----------------------------------------------------------------------------
FRANCE-2.06%
Accor S.A. (Hotels, Resorts & Cruise Lines)/(d)/ 249,000 12,187,698
-----------------------------------------------------------------------------
JC Decaux S.A. (Advertising)/(a)(d)/ 238,000 6,487,983
-----------------------------------------------------------------------------
18,675,681
-----------------------------------------------------------------------------
HONG KONG-0.17%
Television Broadcasts Ltd.-ADR (Broadcasting &
Cable TV)/(e)/ 154,500 1,557,020
-----------------------------------------------------------------------------
JAPAN-0.35%
Jupiter Telecommunications Co., Ltd. (Broadcasting &
Cable TV) (Acquired 03/14/2005; Cost $320,646)/(a)(f)/ 417 332,480
-----------------------------------------------------------------------------
Sony Corp.-ADR (Consumer Electronics) 70,100 2,805,402
-----------------------------------------------------------------------------
3,137,882
-----------------------------------------------------------------------------
MARKET
SHARES VALUE
- -----------------------------------------------------------------------------------
LIBERIA-1.10%
Royal Caribbean Cruises Ltd. (Hotels, Resorts & Cruise
Lines) 223,544 $ 9,990,181
- -----------------------------------------------------------------------------------
NETHERLANDS-1.20%
Jetix Europe N.V. (Broadcasting & Cable TV)/(a)(d)/ 604,143 10,908,432
- -----------------------------------------------------------------------------------
PANAMA-2.00%
Carnival Corp. (Hotels, Resorts & Cruise Lines) 350,000 18,133,500
- -----------------------------------------------------------------------------------
SPAIN-0.59%
NH Hoteles, S.A. (Hotels, Resorts & Cruise Lines)/(c)(d)/ 418,600 5,381,697
- -----------------------------------------------------------------------------------
SWITZERLAND-1.58%
Compagnie Financiere Richemont A.G.-Class A
(Apparel, Accessories & Luxury Goods)/(d)/ 214,700 6,746,839
- -----------------------------------------------------------------------------------
Pargesa Holding A.G.-Class B (Multi-Sector
Holdings)/(d)/ 1,984 7,544,686
- -----------------------------------------------------------------------------------
14,291,525
- -----------------------------------------------------------------------------------
UNITED KINGDOM-4.27%
Allied Domecq PLC (Distillers & Vintners)/(d)/ 1,905,220 19,207,936
- -----------------------------------------------------------------------------------
Diageo PLC (Distillers & Vintners)/(d)/ 399,300 5,633,897
- -----------------------------------------------------------------------------------
WPP Group PLC (Advertising)/(d)/ 1,221,530 13,888,544
- -----------------------------------------------------------------------------------
38,730,377
- -----------------------------------------------------------------------------------
Total Foreign Stocks & Other Equity Interests
(Cost $120,459,684) 178,693,186
- -----------------------------------------------------------------------------------
MONEY MARKET FUNDS-2.72%
Premier Portfolio-Institutional Class
(Cost $24,712,532)/(g)/ 24,712,532 24,712,532
- -----------------------------------------------------------------------------------
TOTAL INVESTMENTS-100.27% (excluding
investments purchased with cash collateral from
securities loaned) (Cost $614,243,545) 909,491,675
- -----------------------------------------------------------------------------------
INVESTMENTS PURCHASED WITH CASH
COLLATERAL FROM SECURITIES LOANED
MONEY MARKET FUNDS-2.91%
Premier Portfolio-Institutional Class/(g)(h)/ 26,348,886 26,348,886
- -----------------------------------------------------------------------------------
Total Money Market Funds (purchased with cash
collateral from securities loaned)
(Cost $26,348,886) 26,348,886
- -----------------------------------------------------------------------------------
TOTAL INVESTMENTS-103.18% (Cost $640,592,431) 935,840,561
- -----------------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-(3.18%) (28,851,007)
- -----------------------------------------------------------------------------------
NET ASSETS-100.00% $ 906,989,554
- -----------------------------------------------------------------------------------
F-2
Investment Abbreviations:
ADR - American Depositary Receipt
Notes to Schedule of Investments:
/(a)/Non-income producing security.
/(b)/Each unit represents one common share and one Class B share.
/(c)/All or a portion of this security has been pledged as collateral for
securities lending transactions at March 31, 2005.
/(d)/In accordance with the procedures established by the Board of Trustees,
the foreign security is fair valued using adjusted closing market prices.
The aggregate market value of these securities at March 31, 2005 was
$132,365,698, which represented 14.14% of the Fund's Total Investments.
See Note 1A.
/(e)/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 market value of this security at March
31, 2005 represented 0.17% of the Fund's Total Investments. See Note 1A.
/(f)/Security not registered under the Securities Act of 1933, as amended
(e.g., the security was purchased in a Rule 144A transaction or a
Regulation D transaction). The security may be resold only pursuant to an
exemption from registration under the 1933 Act, typically to qualified
institutional buyers. The Fund has no rights to demand registration of
this security. The market value of this security at March 31, 2005
represented 0.04% of the Fund's Net Assets. This security is not
considered to be illiquid.
/(g)/The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
/(h)/The security has been segregated to satisfy the forward commitment to
return the cash collateral received in securities lending transactions
upon the borrower's return of the securities loaned. See Note 8.
See accompanying notes which are an integral part of the financial statements.
F-3
STATEMENT OF ASSETS AND LIABILITIES
March 31, 2005
ASSETS:
Investments, at market value (cost $589,531,013)* $884,779,143
- ------------------------------------------------------------------------------------
Investments in affiliated money market funds (cost $51,061,418) 51,061,418
- ------------------------------------------------------------------------------------
Total investments (cost $640,592,431) 935,840,561
- ------------------------------------------------------------------------------------
Foreign currencies, at market value (cost $123,693) 122,075
- ------------------------------------------------------------------------------------
Receivables for:
Fund shares sold 1,891,930
- ------------------------------------------------------------------------------------
Dividends 745,836
- ------------------------------------------------------------------------------------
Collateral for securities lending* 1,023,023
- ------------------------------------------------------------------------------------
Investment for trustee deferred compensation and retirement plans 72,586
- ------------------------------------------------------------------------------------
Other assets 36,291
- ------------------------------------------------------------------------------------
Total assets 939,732,302
- ------------------------------------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 2,714,601
- ------------------------------------------------------------------------------------
Fund shares reacquired 1,894,533
- ------------------------------------------------------------------------------------
Trustee deferred compensation and retirement plans 98,406
- ------------------------------------------------------------------------------------
Collateral upon return of securities loaned 27,371,909
- ------------------------------------------------------------------------------------
Accrued distribution fees 248,756
- ------------------------------------------------------------------------------------
Accrued trustees' fees 4,917
- ------------------------------------------------------------------------------------
Accrued transfer agent fees 314,050
- ------------------------------------------------------------------------------------
Accrued operating expenses 95,576
- ------------------------------------------------------------------------------------
Total liabilities 32,742,748
- ------------------------------------------------------------------------------------
Net assets applicable to shares outstanding $906,989,554
- ------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Shares of beneficial interest $613,608,174
- ------------------------------------------------------------------------------------
Undistributed net investment income (loss) (9,330,263)
- ------------------------------------------------------------------------------------
Undistributed net realized gain from investment securities and foreign
currencies 7,462,130
- ------------------------------------------------------------------------------------
Unrealized appreciation of investment securities and foreign
currencies 295,249,513
- ------------------------------------------------------------------------------------
$906,989,554
- ------------------------------------------------------------------------------------
NET ASSETS:
Class A $ 87,068,297
------------------------------------------------------------
Class B $ 28,776,063
------------------------------------------------------------
Class C $ 29,706,432
------------------------------------------------------------
Class K $101,461,194
------------------------------------------------------------
Investor Class $659,977,568
------------------------------------------------------------
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Class A 1,908,899
------------------------------------------------------------
Class B 641,474
------------------------------------------------------------
Class C 677,963
------------------------------------------------------------
Class K 2,250,142
------------------------------------------------------------
Investor Class 14,491,384
------------------------------------------------------------
Class A :
Net asset value per share $ 45.61
------------------------------------------------------------
Offering price per share:
(Net asset value of $45.61 / 94.50%) $ 48.26
------------------------------------------------------------
Class B :
Net asset value and offering price per share $ 44.86
------------------------------------------------------------
Class C :
Net asset value and offering price per share $ 43.82
------------------------------------------------------------
Class K :
Net asset value and offering price per share $ 45.09
------------------------------------------------------------
Investor Class:
Net asset value and offering price per share $ 45.54
------------------------------------------------------------
* At March 31, 2005, securities with an aggregate market value of $26,380,814
were on loan to brokers.
See accompanying notes which are an integral part of the financial statements.
F-4
STATEMENT OF OPERATIONS
For the year ended March 31, 2005
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $270,363) $11,347,526
- ------------------------------------------------------------------------------------------------------
Dividends from affiliated money market funds 305,201
- ------------------------------------------------------------------------------------------------------
Securities lending (includes $144,637 from investments in affiliated money market funds)* 150,107
- ------------------------------------------------------------------------------------------------------
Total investment income 11,802,834
- ------------------------------------------------------------------------------------------------------
EXPENSES:
Advisory fees 5,986,641
- ------------------------------------------------------------------------------------------------------
Administrative services fees 289,567
- ------------------------------------------------------------------------------------------------------
Custodian fees 190,321
- ------------------------------------------------------------------------------------------------------
Distribution fees:
Class A 251,928
- ------------------------------------------------------------------------------------------------------
Class B 221,073
- ------------------------------------------------------------------------------------------------------
Class C 279,515
- ------------------------------------------------------------------------------------------------------
Class K 501,318
- ------------------------------------------------------------------------------------------------------
Investor Class 1,660,322
- ------------------------------------------------------------------------------------------------------
Transfer agent fees 2,679,680
- ------------------------------------------------------------------------------------------------------
Trustees' fees and retirement benefits 36,321
- ------------------------------------------------------------------------------------------------------
Other 540,167
- ------------------------------------------------------------------------------------------------------
Total expenses 12,636,853
- ------------------------------------------------------------------------------------------------------
Less:Fees waived, expenses reimbursed and expense offset arrangements (117,957)
- ------------------------------------------------------------------------------------------------------
Net expenses 12,518,896
- ------------------------------------------------------------------------------------------------------
Net investment income (loss) (716,062)
- ------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES AND FOREIGN CURRENCIES:
Net realized gain (loss) from:
Investment securities 51,353,025
- ------------------------------------------------------------------------------------------------------
Foreign currencies (69,508)
- ------------------------------------------------------------------------------------------------------
51,283,517
- ------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation of:
Investment securities 9,880,667
- ------------------------------------------------------------------------------------------------------
Foreign currencies 6,912
- ------------------------------------------------------------------------------------------------------
9,887,579
- ------------------------------------------------------------------------------------------------------
Net gain from investment securities and foreign currencies 61,171,096
- ------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $60,455,034
- ------------------------------------------------------------------------------------------------------
* Net of rebates of $490,205.
See accompanying notes which are an integral part of the financial statements.
F-5
STATEMENT OF CHANGES IN NET ASSETS
For the years ended March 31, 2005 and 2004
2005 2004
- ----------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (716,062) $ (4,125,861)
- ----------------------------------------------------------------------------------------------------------------------
Net realized gain from investment securities and foreign currencies 51,283,517 33,634,980
- ----------------------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment securities and foreign currencies 9,887,579 230,311,216
- ----------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 60,455,034 259,820,335
- ----------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class A (527,790) --
- ----------------------------------------------------------------------------------------------------------------------
Class B (65,995) --
- ----------------------------------------------------------------------------------------------------------------------
Class C (81,397) --
- ----------------------------------------------------------------------------------------------------------------------
Class K (741,168) --
- ----------------------------------------------------------------------------------------------------------------------
Investor Class (5,286,809) --
- ----------------------------------------------------------------------------------------------------------------------
Total distributions from net investment income (6,703,159) --
- ----------------------------------------------------------------------------------------------------------------------
Share transactions-net:
Class A 16,189,948 25,316,369
- ----------------------------------------------------------------------------------------------------------------------
Class B 8,541,533 6,541,717
- ----------------------------------------------------------------------------------------------------------------------
Class C (266,170) 3,227,454
- ----------------------------------------------------------------------------------------------------------------------
Class K (22,985,488) 21,337,946
- ----------------------------------------------------------------------------------------------------------------------
Investor Class (82,709,983) (38,559,711)
- ----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from share transactions (81,230,160) 17,863,775
- ----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets (27,478,285) 277,684,110
- ----------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 934,467,839 656,783,729
- ----------------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment income (loss) of $(9,330,263) and
$(2,657,921), respectively) $906,989,554 $934,467,839
- ----------------------------------------------------------------------------------------------------------------------
See accompanying notes which are an integral part of the financial statements.
F-6
NOTES TO FINANCIAL STATEMENTS
March 31, 2005
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Leisure Fund, formerly INVESCO Leisure Fund, (the "Fund") is a series
portfolio of AIM Sector Funds (the "Trust"). The Trust is a Delaware statutory
trust registered under the Investment Company Act of 1940, as amended (the
"1940 Act"), as an open-end series management investment company consisting of
seven separate portfolios, each authorized to issue an unlimited number of
shares of beneficial interest. The Fund currently offers multiple classes of
shares. Matters affecting each portfolio or class will be voted on exclusively
by the shareholders of such portfolio or class. The assets, liabilities and
operations of each portfolio are accounted for separately. Information
presented in these financial statements pertains only to the Fund.
The Fund's investment objective is to seek capital growth. Each company
listed in the Schedule of Investments is organized in the United States of
America unless otherwise noted.
Under the Trust's organizational documents, 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. However, the Fund has not had prior claims or losses pursuant to
these contracts.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates. The following is a summary of the
significant accounting policies followed by the Fund in the preparation of its
financial statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy.
A security listed or traded on an exchange (except convertible bonds) is
valued at its last sales price as of the close of the customary trading
session on the exchange where the security is principally traded, or lacking
any sales on a particular day, the security is valued at the closing bid
price on that day. Each security traded in the over-the-counter market (but
not securities reported on the NASDAQ National Market System) is valued on
the basis of prices furnished by independent pricing services, 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 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 will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
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 market
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 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 and 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.
F-7
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 allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. DISTRIBUTIONS -- Distributions from income and net realized capital gain, if
any, are generally paid annually and recorded on ex-dividend date. The Fund
may elect to use a portion of the proceeds from redemptions as distributions
for federal income tax purposes.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
E. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
F. 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.
G. 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.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee based on the annual rate of the Fund's average
daily net assets as follows:
AVERAGE NET ASSETS RATE
-------------------------
First $350 million 0.75%
-------------------------
Next $350 million 0.65%
-------------------------
Next $1.3 billion 0.55%
-------------------------
Next $2 billion 0.45%
-------------------------
Next $2 billion 0.40%
-------------------------
Next $2 billion 0.375%
-------------------------
Over $8 billion 0.35%
-------------------------
Prior to September 30, 2004, AIM had entered into a sub-advisory agreement
with INVESCO Institutional (N.A.), Inc. ("INVESCO") whereby AIM paid INVESCO
40% of the fee paid by the Fund to AIM. Effective September 30, 2004, the
sub-advisory agreement between AIM and INVESCO was terminated.
AIM has voluntarily agreed to waive advisory fees and/or reimburse expenses
to the extent necessary to limit total annual operating expenses (excluding
certain items discussed below) of Class A, Class B, Class C, Class K and
Investor Class shares to 1.50%, 2.15%, 2.15%, 1.60% and 1.40% of average daily
net assets, respectively. AIM has contractually agreed to waive advisory fees
and/or reimburse expenses to the extent necessary to limit total annual
operating expenses (excluding certain items discussed below) of Class A, Class
B, Class C, Class K and Investor Class shares to 2.00%, 2.65%, 2.65%, 2.10% and
1.90% of average daily net assets, respectively, through March 31, 2006. In
determining the advisor's obligation to waive advisory fees and/or reimburse
expenses, the following expenses are not taken into account, and could cause
the total annual fund operating expenses to exceed the limits stated above: (i)
interest; (ii) taxes; (iii) dividend expense on short sales; (iv) extraordinary
items (these are expenses that are not anticipated to arise from the Fund's
day-to-day operations), or items designated as such by the Fund's Board of
Trustees; (v) expenses related to a merger or reorganization, as approved by
the Fund's Board of Trustees; and (vi) expenses that the Fund has incurred but
did not
F-8
actually pay because of an expense offset arrangement. Currently, in addition
to the expense reimbursement arrangement with AMVESCAP PLC ("AMVESCAP")
described more fully below, the only expense offset arrangements from which the
Fund may benefit are in the form of credits that the Fund receives from banks
where the Fund or its transfer agent has deposit accounts in which it holds
uninvested cash. Those credits are used to pay certain expenses incurred by the
Fund. AIM did not waive fees and/or reimburse expenses during the period under
this expense limitation.
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
(excluding investments made in affiliated money market funds with cash
collateral from securities loaned by the fund). 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 March 31, 2005, AIM waived fees of $11,083.
For the year ended March 31, 2005, at the request of the Trustees of the
Trust, AMVESCAP agreed to reimburse $94,499 of expenses incurred by the Fund in
connection with market timing matters in the AIM Funds, including legal, audit,
shareholder reporting, communications and trustee expenses. These expenses
along with the related expense reimbursement, are included in the Statement of
Operations.
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
March 31, 2005, AIM was paid $289,567.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AISI for certain expenses
incurred by AISI in the course of providing such services. AISI may make
payments to intermediaries that provide omnibus account services,
sub-accounting services and/or networking services. For the year ended March
31, 2005, the Fund paid AISI $2,679,680.
The Trust has entered into a master distribution agreement with A I M
Distributors, Inc. ("ADI") to serve as the distributor for the Class A, Class
B, Class C, Class K and Investor Class shares of the Fund. The Trust has
adopted plans pursuant to Rule 12b-1 under the 1940 Act with respect to the
Fund's Class A, Class B, Class C, Class K and Investor Class shares
(collectively the "Plans"). The Fund, pursuant to the Plans, pays ADI
compensation at the annual rate of 0.35% of the Fund's average daily net assets
of Class A shares, 1.00% of the average daily net assets of Class B and Class C
shares, 0.45% of the average daily net assets of Class K shares and 0.25% of
the average daily net assets of Investor Class shares. Of these amounts, up to
0.25% of the average daily net assets of the Class A, Class B, Class C, Class K
or Investor Class shares may be paid to furnish continuing personal shareholder
services to customers who purchase and own shares of such classes. Any amounts
not paid as a service fee under the Plans would constitute an asset-based sales
charge. NASD Rules also impose a cap on the total sales charges, including
asset-based sales charges that may be paid by any class of shares of the Fund.
Pursuant to the Plans, for the year ended March 31, 2005, the Class A, Class B,
Class C, Class K and Investor Class shares paid ADI $251,928, $221,073,
$279,515, $501,318 and $1,660,322, respectively.
Front-end sales commissions and contingent deferred sales charges ("CDSC")
(collectively the "sales charges") are not recorded as expenses of the Fund.
Front-end sales commissions are deducted from proceeds from the sales of Fund
shares prior to investment in Class A shares of the Fund. CDSC are deducted
from redemption proceeds prior to remittance to the shareholder. During the
year ended March 31, 2005, ADI advised the Fund that it retained $46,679 in
front-end sales commissions from the sale of Class A shares and $49, $13,340,
$4,960 and $0 from Class A, Class B, Class C and Class K shares, respectively,
for CDSC imposed upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of AIM,
AISI and/or ADI.
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to an exemptive order from the Securities and
Exchange Commission ("SEC"), to invest daily available cash balances and cash
collateral from securities lending transactions 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 tables below show
the transactions in and earnings from investments in an affiliated money market
fund for the year ended March 31, 2005.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
PROCEEDS UNREALIZED REALIZED
MARKET VALUE PURCHASES FROM APPRECIATION MARKET VALUE DIVIDEND GAIN
FUND 03/31/04 AT COST SALES (DEPRECIATION) 03/31/05 INCOME (LOSS)
- --------------------------------------------------------------------------------------------------------------------------------
Premier Portfolio -- Institutional Class* $15,887,810 $134,597,209 $(125,772,487) $-- $24,712,532 $305,201 $--
- --------------------------------------------------------------------------------------------------------------------------------
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
PROCEEDS UNREALIZED REALIZED
MARKET VALUE PURCHASES FROM APPRECIATION MARKET VALUE DIVIDEND GAIN
FUND 03/31/04 AT COST SALES (DEPRECIATION) 03/31/05 INCOME** (LOSS)
- --------------------------------------------------------------------------------------------------------------------------------
Premier Portfolio -- Institutional Class* $13,629,807 $364,709,563 $(351,990,484) $-- $26,348,886 $144,637 $--
- --------------------------------------------------------------------------------------------------------------------------------
Total $29,517,617 $516,008,075 $(494,464,274) $-- $51,061,418 $449,838 $--
- --------------------------------------------------------------------------------------------------------------------------------
* On February 25, 2005, the Premier Portfolio investments were transferred from
the original share class with no name designation to the newly structured
share class designated as Institutional Class.
**Net of rebates.
F-9
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
The Fund is permitted to purchase or sell securities from or to certain other
AIM Funds under specified conditions outlined in procedures adopted by the
Board of Trustees of the Trust. The procedures have been designed to ensure
that any purchase or sale of securities by the Fund from or to another fund or
portfolio that is or could be considered an affiliate by virtue of having a
common investment advisor (or affiliated investment advisors), common Trustees
and/or common officers complies with Rule 17a-7 of the 1940 Act. Further, as
defined under the procedures, each transaction is effected at the current
market price. Pursuant to these procedures, during the year ended March 31,
2005, the Fund engaged in purchases and sales of securities of $0 and
$2,196,180, respectively.
NOTE 5--EXPENSE OFFSET ARRANGEMENTS
The expense offset arrangements are comprised of (i) transfer agency credits
which result from balances in Demand Deposit Accounts (DDA) used by the
transfer agent for clearing shareholder transactions and (ii) custodian credits
which result from periodic overnight cash balances at the custodian. For the
year ended March 31, 2005, the Fund received credits from these arrangements
which resulted in the reduction of the Fund's total expenses of $12,375.
NOTE 6--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each Trustee of the Trust who is
not an "interested person" of AIM. Trustees have the option to defer
compensation payable by the Trust. Those Trustees who defer compensation have
the option to select various AIM Funds in which their deferral accounts shall
be deemed to be invested.
Current Trustees are eligible to participate in a retirement plan that
provides for benefits to be paid upon retirement to Trustees over a period of
time based on the number of years of service. The Fund may have certain former
Trustees that also participate in a retirement plan and receive benefits under
such plan.
Obligations under the deferred compensation and retirement plans represent
unsecured claims against the general assets of the Fund.
During the year ended March 31, 2005, the Fund paid legal fees of $6,362 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 7--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate
available on investments in overnight repurchase agreements) is favorable to
both the lending fund and the borrowing fund. A loan will be secured by
collateral if the Fund's aggregate borrowings from all sources exceeds 10% of
the Fund's total assets. To the extent that the loan is required to be secured
by collateral, the collateral is marked to market daily to ensure that the
market value is at least 102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to
the credit facility can borrow on a first come, first served basis. Principal
on each loan outstanding shall bear interest at the bid rate quoted by SSB at
the time of the request for the loan.
During the year ended March 31, 2005, the Fund did not borrow or lend under
the interfund lending facility or borrow under the uncommitted unsecured
revolving credit facility.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, the custodian bank. To compensate
the custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds in the account so the custodian can be compensated by earning the
additional interest; or (ii) compensate by paying the custodian bank. In either
case, the custodian bank will be compensated at an amount equal to the Federal
Funds rate plus 100 basis points.
NOTE 8--PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities having a market value up to one-third of
the Fund's total assets. Such loans are secured by collateral equal to no less
than the market value of the loaned securities determined daily. Such
collateral will be cash or debt securities issued or guaranteed by the U.S.
Government or any of its agencies. Cash collateral received in connection with
these loans is invested in short-term money market instruments or affiliated
money market funds. It is the Fund's policy to obtain additional collateral
from or return excess collateral to the borrower by the end of the next
business day, following the valuation date of the securities loaned. Therefore,
the value of the collateral held may be temporarily less than the value of the
securities on loan. Lending securities entails a risk of loss to the Fund if
and to the extent that the market value of the securities loaned were to
increase and the borrower did not increase the collateral accordingly, and the
borrower fails to return the securities. The Fund could also experience delays
and costs in gaining access to the collateral. The Fund bears the risk of any
deficiency in the amount of the collateral available for return to the borrower
due to a loss on the collateral invested.
At March 31, 2005, securities with an aggregate value of $26,380,814 were on
loan to brokers. The loans were secured by cash collateral of $26,348,886
received by the Fund and subsequently invested in an affiliated money market
fund and by non-cash collateral of $1,023,023 received by the Fund, consisting
of U.S. Treasury Securities. For the year ended March 31, 2005, the Fund
received dividends on cash collateral of $144,637 and non-cash collateral of
$5,470 for securities lending transactions, which are net of rebates.
F-10
NOTE 9--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
The tax character of distributions paid during the years ended March 31, 2005
and 2004 was as follows:
2005 2004
--------------------------------------------------------------
Distributions paid from ordinary income $6,703,159 --
--------------------------------------------------------------
TAX COMPONENTS OF NET ASSETS:
As of March 31, 2005, the components of net assets on a tax basis were as
follows:
2005
----------------------------------------------------
Undistributed ordinary income $ 5,909,167
----------------------------------------------------
Undistributed long-term gain 7,473,574
----------------------------------------------------
Unrealized appreciation -- investments 280,057,311
----------------------------------------------------
Temporary book/tax differences (58,672)
----------------------------------------------------
Shares of beneficial interest 613,608,174
----------------------------------------------------
Total net assets $906,989,554
----------------------------------------------------
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 (depreciation) difference is attributable primarily to losses on
wash sales, the recognition of income on certain foreign passive investment
companies, and partnership basis adjustments. The tax-basis unrealized
appreciation (depreciation) on investments amount includes appreciation on
foreign currencies of $1,383.
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.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the
amount of capital loss carryforward actually available for the Fund to utilize.
The ability to utilize capital loss carryforward in the future may be limited
under the Internal Revenue Code and related regulations based on the results of
future transactions.
The Fund utilized $42,488,737 of capital loss carryforward in the current
period to offset net realized capital gain for federal income tax purposes. The
Fund has no capital loss carryforward as of March 31, 2005.
NOTE 10--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
March 31, 2005 was $73,161,578 and $162,116,083, respectively.
At the request of the Trustees, AIM recovered third party research credits
during the year ended March 31, 2005, in the amount of $11,008. These research
credits were recorded as realized gains.
UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENT SECURITIES ON A TAX BASIS
--------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $286,690,183
--------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (6,634,255)
--------------------------------------------------------------------------
Net unrealized appreciation of investment securities $280,055,928
--------------------------------------------------------------------------
Cost of investments for tax purposes is $655,784,633.
NOTE 11--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of foreign currency
transactions, expenses related to the plan of reorganization, excise taxes,
partnership investments, passive foreign investment companies and net operating
losses, on March 31, 2005, undistributed net investment income was increased by
$746,879, undistributed net realized gain (loss) decreased by $2,099,938 and
shares of beneficial interest increased by $1,353,059. This reclassification
had no effect on the net assets of the Fund.
F-11
NOTE 12--SHARE INFORMATION
The Fund currently offers five different classes of shares: Class A shares,
Class B shares, Class C shares, Class K shares and Investor Class shares. Class
A shares are sold with a front-end sales charge. Class B shares and Class C
shares are sold with CDSC. Class K shares and Investor Class shares are sold at
net asset value. Under certain circumstances, Class A shares and Class K shares
are subject to CDSC. Generally, Class B shares will automatically convert to
Class A shares eight years after the end of the calendar month of purchase.
CHANGES IN SHARES OUTSTANDING/(a)/
- ---------------------------------------------------------------------------------------------------------------
YEAR ENDED MARCH 31,
----------------------------------------------------
2005 2004
------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------------
Sold:
Class A 793,522 $ 34,832,067 1,038,600 $ 39,702,454
- ---------------------------------------------------------------------------------------------------------------
Class B 261,051 11,331,283 205,586 7,697,888
- ---------------------------------------------------------------------------------------------------------------
Class C 173,013 7,308,032 492,448 17,249,269
- ---------------------------------------------------------------------------------------------------------------
Class K 323,100 13,842,382 943,723 34,677,978
- ---------------------------------------------------------------------------------------------------------------
Investor Class 1,793,600 78,195,458 3,598,920 135,515,899
- ---------------------------------------------------------------------------------------------------------------
Issued as reinvestment of dividends:
Class A 10,802 494,402 -- --
- ---------------------------------------------------------------------------------------------------------------
Class B 1,313 59,192 -- --
- ---------------------------------------------------------------------------------------------------------------
Class C 1,538 67,727 -- --
- ---------------------------------------------------------------------------------------------------------------
Class K 16,282 736,909 -- --
- ---------------------------------------------------------------------------------------------------------------
Investor Class 112,325 5,130,605 -- --
- ---------------------------------------------------------------------------------------------------------------
Automatic conversion of Class B shares to Class A shares:
Class A 3,955 172,948 583 23,845
- ---------------------------------------------------------------------------------------------------------------
Class B (4,023) (172,948) (591) (23,845)
- ---------------------------------------------------------------------------------------------------------------
Reacquired:
Class A (452,330) (19,309,469) (366,379) (14,409,930)
- ---------------------------------------------------------------------------------------------------------------
Class B (62,523) (2,675,994) (29,116) (1,132,326)
- ---------------------------------------------------------------------------------------------------------------
Class C (184,864) (7,641,929) (396,440) (14,021,815)
- ---------------------------------------------------------------------------------------------------------------
Class K (870,192) (37,564,779) (357,595) (13,340,032)
- ---------------------------------------------------------------------------------------------------------------
Investor Class (3,857,390) (166,036,046) (4,547,447) (174,075,610)
- ---------------------------------------------------------------------------------------------------------------
(1,940,821) $ (81,230,160) 582,292 $ 17,863,775
- ---------------------------------------------------------------------------------------------------------------
/(a)/There are two entities that are each record owners of more than 5% of the
outstanding shares of the Fund and in the aggregate they own 32% of the
outstanding shares of the Fund. AIM Distributors has an agreement with
these entities to sell Fund share. The Fund, AIM, and/or AIM affiliates
may make payments to these entities, which are considered to be related to
the Fund, for providing services to the Fund, AIM and/or AIM affiliates
including but not limited to services such as, securities brokerage,
distribution, third party record keeping and account servicing. The Trust
has no knowledge as to whether all or any portion of the shares owned of
record by these shareholders are also owned beneficially.
F-12
NOTE 13--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
CLASS A
--------------------------------------
YEAR ENDED MARCH 31,
--------------------------------------
2005 2004 2003
- ------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 42.83 $ 30.88 $ 38.96
- ------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.05)/(a)/ (0.14)/(a)/ (0.17)/(a)(b)/
- ------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) 3.15 12.09 (7.91)
- ------------------------------------------------------------------------------------------------------------------
Total from investment operations 3.10 11.95 (8.08)
- ------------------------------------------------------------------------------------------------------------------
Less dividends from net investment income (0.32) -- --
- ------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 45.61 $ 42.83 $ 30.88
- ------------------------------------------------------------------------------------------------------------------
Total return/(c)/ 7.23% 38.70% (20.74)%
- ------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $87,068 $66,510 $27,175
- ------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 1.42%/(d)(e)/ 1.48% 1.42%
- ------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (0.11)%/(d)/ (0.37)% (0.56)%
- ------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 8% 20% 20%
- ------------------------------------------------------------------------------------------------------------------
/(a)/Calculated using average shares outstanding.
/(b)/The net investment income (loss) per share was calculated after permanent
book tax differences, such as net operating which were reclassified from
accumulated net investment income (loss) to paid in capital. Had net
investment income (loss) per share been calculated using the current
method, which is before reclassification of net operating losses, net
investment income (loss) per share would have been $(0.17) for the year
ended March 31, 2003.
/(c)/Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and returns for shareholder
transactions. Does not include sales charges.
/(d)/Ratios are based on average daily net assets of $71,979,376.
/(e)/After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements was
1.43%
F-13
NOTE 13--FINANCIAL HIGHLIGHTS (CONTINUED)
CLASS B
------------------------------------
YEAR ENDED MARCH 31,
------------------------------------
2005 2004 2003
- ----------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 42.22 $ 30.65 $ 38.96
- ----------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.32)/(a)/ (0.40)/(a)/ (0.38)/(a)(b)/
- ----------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) 3.08 11.97 (7.93)
- ----------------------------------------------------------------------------------------------------------------
Total from investment operations 2.76 11.57 (8.31)
- ----------------------------------------------------------------------------------------------------------------
Less dividends from net investment income (0.12) -- --
- ----------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 44.86 $ 42.22 $ 30.65
- ----------------------------------------------------------------------------------------------------------------
Total return/(c)/ 6.54% 37.75% (21.33)%
- ----------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $28,776 $18,814 $ 8,268
- ----------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 2.07%/(d)/ 2.15% 2.14%
- ----------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 2.08%/(d)/ 2.26% 2.23%
- ----------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (0.76)%/(d)/ (1.04)% (1.29)%
- ----------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 8% 20% 20%
- ----------------------------------------------------------------------------------------------------------------
/(a)/Calculated using average shares outstanding.
/(b)/The net investment income (loss) per share was calculated after permanent
book tax differences, such as net operating which were reclassified from
accumulated net investment income (loss) to paid in capital. Had net
investment income (loss) per share been calculated using the current
method, which is before reclassification of net operating losses, net
investment income (loss) per share would have been $(0.38) for the year
ended March 31, 2003.
/(c)/Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net
asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges.
/(d)/Ratios are based on average daily net assets of $22,107,318.
F-14
NOTE 13--FINANCIAL HIGHLIGHTS (CONTINUED)
CLASS C
-----------------------------------------------------------------
YEAR ENDED MARCH 31,
-----------------------------------------------------------------
2005 2004 2003 2002 2001
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 41.24 $ 30.00 $ 38.29 $ 36.80 $47.09
- ---------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.31)/(a)/ (0.46)/(a)/ (0.18)/(b)/ (0.17)/(b)/ (0.13)/(b)/
- ---------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 3.01 11.70 (8.11) 2.02 (3.22)
- ---------------------------------------------------------------------------------------------------------------------
Total from investment operations 2.70 11.24 (8.29) 1.85 (3.35)
- ---------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.12) -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- -- (0.36) (6.94)
- ---------------------------------------------------------------------------------------------------------------------
Total distributions (0.12) -- -- (0.36) (6.94)
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 43.82 $ 41.24 $ 30.00 $ 38.29 $36.80
- ---------------------------------------------------------------------------------------------------------------------
Total return/(c)/ 6.55% 37.47% (21.65)% 5.10% (6.18)%
- ---------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $29,706 $28,383 $17,768 $16,307 $5,388
- ---------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 2.07%/(d)(e)/ 2.36% 2.44% 2.26% 2.08%
- ---------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to
average net assets (0.76)%/(d)/ (1.25)% (1.62)% (1.48)% (1.08)%
- ---------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 8% 20% 20% 27% 28%
- ---------------------------------------------------------------------------------------------------------------------
/(a)/Calculated using average shares outstanding.
/(b)/The net investment income (loss) per share was calculated after permanent
book tax differences, such as net operating losses which were reclassified
from accumulated net investment income (loss) to paid in capital. Had net
investment income (loss) per share been calculated using the current
method, which is before reclassification of net operating losses, net
investment income (loss) per share would have been $(0.18), $(0.34) and
$(0.16) for the years ended March 31, 2003, 2002 and 2001, respectively.
/(c)/Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and returns for shareholder
transactions. Does not include sales charges.
/(d)/Ratios are based on average daily net assets of $27,951,451.
/(e)/After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements was
2.08%
F-15
NOTE 13--FINANCIAL HIGHLIGHTS (CONTINUED)
CLASS K
---------------------------------------------------------
DECEMBER 14, 2001
(DATE SALES
YEAR ENDED MARCH 31, COMMENCED) TO
-------------------------------------- MARCH 31,
2005 2004 2003 2002
- ------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 42.36 $ 30.74 $ 38.98 $ 36.11
- ---------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.09)/(a)/ (0.39)/(a)/ (0.06)/(b)/ (0.09)/(a)(b)/
- ---------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized
and unrealized) 3.11 12.01 (8.18) 2.96
- ---------------------------------------------------------------------------------------------------------------------
Total from investment operations 3.02 11.62 (8.24) 2.87
- ---------------------------------------------------------------------------------------------------------------------
Less dividends from net investment income (0.29) -- -- --
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 45.09 $ 42.36 $ 30.74 $ 38.98
- ---------------------------------------------------------------------------------------------------------------------
Total return/(c)/ 7.13% 37.80% (21.14)% 7.95%
- ---------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $101,461 $117,792 $67,465 $62,226
- ---------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.52%/(d)/ 2.14% 1.87% 1.23%/(e)/
- ---------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.53%/(d)/ 2.14% 2.21% 1.23%/(e)/
- ---------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average
net assets (0.21)%/(d)/ (1.03)% (1.05)% (0.48)%/(e)/
- ---------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate/(e)/ 8% 20% 20% 27%
- ---------------------------------------------------------------------------------------------------------------------
/(a)/Calculated using average shares outstanding.
/(b)/The net investment income (loss) per share was calculated after permanent
book tax differences, such as net operating which were reclassified from
accumulated net investment income (loss) to paid in capital. Had net
investment income (loss) per share been calculated using the current
method, which is before reclassification of net operating losses, net
investment income (loss) per share would have been $(0.06) and $(0.09) for
the year ended March 31, 2003 and 2002, respectively.
/(c)/Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and returns for shareholder
transactions. Not annualized for periods less than one year.
/(d)/Ratios are based on average daily net assets of $111,404,013.
/(e)/Annualized.
/(f)/Not annualized for periods less than one year.
F-16
NOTE 13--FINANCIAL HIGHLIGHTS (CONTINUED)
INVESTOR CLASS
-----------------------------------------------------------------------
YEAR ENDED MARCH 31,
-----------------------------------------------------------------------
2005 2004 2003 2002 2001
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 42.75 $ 30.83 $ 38.95 $ 37.13 $ 47.12
- --------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.00)/(a)/ (0.14)/(a)/ (0.23)/(b)/ (0.03)/(b)/ (0.00)/(b)/
- --------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized
and unrealized) 3.14 12.06 (7.89) 2.21 (3.05)
- --------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 3.14 11.92 (8.12) 2.18 (3.05)
- --------------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.35) -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- -- (0.36) (6.94)
- --------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.35) -- -- (0.36) (6.94)
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 45.54 $ 42.75 $ 30.83 $ 38.95 $ 37.13
- --------------------------------------------------------------------------------------------------------------------------------
Total return/(c)/ 7.35% 38.66% (20.87)% 6.01% (5.50)%
- --------------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $659,978 $702,969 $536,108 $799,465 $607,428
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 1.32%/(d)(e)/ 1.49% 1.50% 1.40% 1.36%
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average
net assets (0.01)%/(d)/ (0.38)% (0.69)% (0.64)% (0.51)%
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 8% 20% 20% 27% 28%
- --------------------------------------------------------------------------------------------------------------------------------
/(a)/Calculated using average shares outstanding.
/(b)/The net investment income (loss) per share was calculated after permanent
book tax differences, such as net operating losses which were reclassified
from accumulated net investment income (loss) to paid in capital. Had net
investment income (loss) per share been calculated using the current
method, which is before reclassification of net operating losses, net
investment income (loss) per share would have been $(0.23) $(0.22) and
$(0.18) for the years ended March 31, 2003, 2002 and 2001, respectively.
/(c)/Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and returns for shareholder
transactions.
/(d)/Ratios are based on average daily net assets of $664,128,930.
/(e)/After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements was
1.33%
F-17
NOTE 14--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
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds) and A I M Advisors, Inc. ("AIM") (the Fund's
investment advisor) reached final settlements with certain regulators,
including without limitation the Securities and Exchange Commission ("SEC"),
the New York Attorney General ("NYAG") and the Colorado Attorney General
("COAG"), to resolve civil enforcement actions and investigations related to
market timing activity and related issues in the AIM Funds, including those
formerly advised by IFG. These regulators alleged, in substance, that IFG and
AIM failed to disclose in the prospectuses for the AIM Funds that they advised
and to the independent directors/trustees of such Funds that they had entered
into certain arrangements permitting market timing of such Funds, thereby
breaching their fiduciary duties to such Funds. As a result of the foregoing,
the regulators alleged that IFG and AIM breached various Federal and state
securities, business and consumer protection laws. On the same date, A I M
Distributors, Inc. ("ADI") (the distributor of the retail AIM Funds) reached a
final settlement with the SEC to resolve an investigation relating to market
timing activity and related issues in the AIM Funds. The SEC also alleged that
ADI violated various Federal securities laws. The SEC also has settled related
market timing enforcement actions brought against certain former officers and
employees of IFG.
Under the terms of the settlements, IFG agreed to pay a total of $325
million, of which $110 million is civil penalties. Of this $325 million total
payment, half has been paid and the remaining half will be paid on or before
December 31, 2005. AIM and ADI agreed to pay a total of $50 million, of which
$30 million is civil penalties, all of which has been paid. The entire $325
million IFG settlement fund will be made available for distribution to the
shareholders of those AIM Funds that IFG formerly advised that were harmed by
market timing activity, and the entire $50 million settlement fund by AIM and
ADI will be made available for distribution to the shareholders of those AIM
Funds advised by AIM that were harmed by market timing activity, all as to be
determined by an independent distribution consultant. The IFG and AIM
settlement 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. The settlement funds will be
distributed in accordance with a methodology to be determined by the
independent distribution consultant, in consultation with AIM and the
independent trustees of the AIM Funds and acceptable to the staff of the SEC.
Under the settlements with the NYAG and COAG, AIM has agreed to reduce
management fees on certain equity and balanced AIM Funds by $15 million per
year for the next five years, based upon effective fee rates and assets under
management as of July 1, 2004, not to increase certain management fees and to
provide more information to investors regarding fees.
Under the terms of the settlements, AIM is undertaking certain governance and
compliance reforms, including maintaining an internal controls committee and
retaining an independent compliance consultant and a corporate ombudsman. Also,
commencing in 2007 and at least once every other year thereafter, AIM will
undergo a compliance review by an independent third party. In addition, under
the terms of the settlements, AIM has undertaken to cause the AIM Funds to
operate in accordance with certain governance policies and practices, including
retaining a full-time independent senior officer whose duties include
monitoring compliance and managing the process by which proposed management
fees to be charged the AIM Funds are negotiated. Also, commencing in 2008 and
not less than every fifth calendar year thereafter, the AIM Funds will hold
shareholder meetings at which their Boards of Trustees will be elected.
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
such Funds related to market timing matters.
The SEC has also settled market timing enforcement actions against Raymond R.
Cunningham (the former president and chief executive officer of IFG and a
former member of the board of directors of the AIM Funds formerly advised by
IFG), Timothy J. Miller (the former chief investment officer and a former
portfolio manager for IFG), Thomas A. Kolbe (the former national sales manager
of IFG) and Michael D. Legoski (a former assistant vice president in IFG's
sales department). As part of these settlements, the SEC ordered these
individuals to pay restitution and civil penalties in various amounts and
prohibited them from associating with, or serving as an officer or director of,
an investment advisor, broker, dealer and/or investment company, as applicable,
for certain periods of time.
The payments made in connection with the above-referenced settlements by IFG,
AIM and ADI will total approximately $375 million (not including AIM's
agreement to reduce management fees on certain equity and balanced AIM Funds by
$15 million per year for the next five years, based upon effective fee rates
and assets under management as of July 1, 2004). The manner in which the
settlement payments will be distributed is unknown at the present time and will
be determined by an independent distribution consultant appointed under the
settlement agreements. Therefore, management of AIM and the Fund are unable at
the present time to estimate the impact, if any, that the distribution of the
settlement payments may have on the Fund or whether such distribution will have
an impact on the Fund's financial statements 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, ADI or the Fund.
REGULATORY INQUIRIES AND PENDING LITIGATION
The mutual fund industry as a whole is currently subject to regulatory
inquiries and litigation related to a wide range of issues. These issues
include, among others, market timing activity, late trading, fair value
pricing, excessive or improper advisory and/or distribution fees, mutual fund
sales practices, including but not limited to revenue sharing and
directed-brokerage arrangements, investments in securities of other registered
investment companies, contractual plans, issues related to Section 529 college
savings plans, procedures for locating lost security holders and participation
in class action settlements.
As described more fully below, IFG and AIM are the subject of a number of
ongoing regulatory inquiries and civil lawsuits related to one or more of the
issues currently being scrutinized by various Federal and state regulators,
including but not limited to those issues described above. Additional
regulatory actions and/or civil lawsuits related to the above or other issues
may be filed against the AIM Funds, IFG, AIM and/or related entities and
individuals in the future. Additional regulatory inquiries related to the above
or other issues also may be received by the AIM Funds, IFG, AIM and/or related
entities and individuals in the future.
F-18
NOTE 14--LEGAL PROCEEDINGS (CONTINUED)
Ongoing Regulatory Inquiries Concerning IFG and AIM
IFG, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds formerly advised by IFG have received
regulatory inquiries in the form of subpoenas or other oral or written requests
for information and/or documents related to one or more of the following
issues, some of which concern one or more such 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, and investments in securities of other
registered investment companies. These regulators include the SEC, the NASD,
Inc. ("NASD"), the Florida Department of Financial Services, the Attorney
General of the State of West Virginia, the West Virginia Securities Commission
and the Bureau of Securities of the State of New Jersey. IFG and certain of
these other parties also have received more limited inquiries from the United
States Department of Labor ("DOL") and the United States Attorney's Office for
the Southern District of New York, some of which concern one or more of the AIM
Funds formerly advised by IFG. IFG is providing full cooperation with respect
to these inquiries.
AIM, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds have received regulatory inquiries in the form
of subpoenas or other oral or written requests for information and/or documents
related to one or more of the following issues, some of which concern one or
more AIM Funds: market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including revenue sharing and directed-brokerage arrangements,
investments in securities of other registered investment companies, contractual
plans, issues related to Section 529 college savings plans and procedures for
locating lost securityholders. These regulators include the SEC, the NASD, the
Department of Banking for the State of Connecticut, the Attorney General of the
State of West Virginia, the West Virginia Securities Commission and the Bureau
of Securities of the State of New Jersey. AIM and certain of these other
parties also have received more limited inquiries from the SEC, the NASD, the
DOL, the Internal Revenue Service, the United States Attorney's Office for the
Southern District of New York, the United States Attorney's Office for the
Central District of California, the United States Attorney's Office for the
District of Massachusetts, the Massachusetts Securities Division, the U.S.
Postal Inspection Service and the Commodity Futures Trading Commission, some of
which concern one or more AIM Funds. AIM is providing full cooperation with
respect to these inquiries.
Pending Regulatory Civil Action Alleging Market Timing
On April 12, 2005, the Attorney General of the State of West Virginia
("WVAG") filed civil proceedings 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 these proceedings. 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 (S) 46A-1-101, et seq. (the West Virginia Consumer Credit and Protection
Act). The WVAG complaint is seeking injunctive relief; civil monetary
penalties; a writ of quo warranto against the defendants; pre-judgment and
post-judgment interest; costs and expenses, including counsel fees; and other
relief.
If AIM is unsuccessful in its defense of the WVAG proceedings, it could be
barred from serving as an investment adviser 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 your Fund.
Your 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 your Fund's
investment advisor. There is no assurance that such exemptive relief will be
granted.
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, certain
related entities, certain of their current and former officers and/or certain
unrelated third parties) making allegations that are similar in many respects
to those in the settled regulatory actions brought by the SEC, the NYAG and the
COAG concerning market timing 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.
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
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. The plaintiffs in two of the underlying lawsuits
continue to seek remand of their lawsuit to state court.
Private Civil Actions Alleging Improper Use of Fair Value Pricing
Multiple civil class action lawsuits have been filed against various parties
(including, depending on the lawsuit, certain 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. Based on a recent court decision, the state court
action has been removed to Federal court.
F-19
NOTE 14--LEGAL PROCEEDINGS (CONTINUED)
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. All of these lawsuits have been
transferred to the United States District Court for the Southern District of
Texas, Houston Division and subsequently consolidated for pre-trial purposes
into one lawsuit.
Private Civil Actions Alleging Improper Charging of Distribution Fees on
Limited Offering Funds or Share Classes
Multiple civil lawsuits, including shareholder derivative suits, have been
filed against various parties (including, depending on the lawsuit, IFG, AIM,
ADI and/or certain of the trustees of the AIM Funds) alleging that the
defendants breached their fiduciary duties by charging distribution fees while
funds and/or specific share classes were closed generally to new investors
and/or while other share classes of the same fund were not charged the same
distribution fees. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the
Federal securities laws; and (ii) breach of fiduciary duty. These lawsuits have
been filed in Federal courts and seek such remedies as damages; injunctive
relief; and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Mutual Fund Sales Practices and
Directed-Brokerage Arrangements
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, AIM Management, IFG, AIM, AIM Investment Services, Inc. ("AIS")
and/or certain of the trustees of the AIM 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. These actions have been
consolidated for pre-trial purposes.
Private Civil Action Alleging Failure to Ensure Participation in Class Action
Settlements
A civil lawsuit, purporting to be a class action lawsuit, has been filed
against AIM, IINA, A I M Capital Management, Inc. and the trustees of the AIM
Funds alleging that the defendants breached their fiduciary duties by failing
to ensure that the AIM Funds participated in class action settlements in which
the AIM Funds were eligible to participate. This lawsuit alleges as theories of
recovery: (i) violation of various provisions of the Federal securities laws;
(ii) common law breach of fiduciary duty; and (iii) common law negligence. This
lawsuit has been filed in Federal court and seeks such remedies as compensatory
and punitive damages; forfeiture of all commissions and fees paid by the class
of plaintiffs; and costs and attorneys' fees.
* * * * * * * * * * * * * *
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.
F-20
Report of Independent Registered Public Accounting Firm
To the Board of Trustees
and Shareholders of AIM Leisure 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 the AIM Leisure Fund, formerly
known as INVESCO Leisure Fund (one of the funds constituting AIM Sector Funds,
hereafter referred to as the "Fund") at March 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 March 31, 2005 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion.
/s/ PRICEWATERHOUSECOOPERS LLP
May 20, 2005
Houston, Texas
OTHER INFORMATION
TRUSTEES AND OFFICERS
As of March 31, 2005
The address of each trustee and officer of AIM Sector Funds (the "Trust"), is
11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 114
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.
NAME, YEAR OF BIRTH AND
POSITIONS(S) HELD WITH THE TRUSTEE AND/ PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
TRUST OR OFFICER SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- ---------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- ---------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham/1/ -- 1946 2003 Director and Chairman, A I M Management None
Trustee, Vice Chair and President Group Inc. (financial services holding
company); Director and Vice Chairman,
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 1998 Director, President and Chief Executive None
Trustee and Executive Vice President Officer, A I M Management Group Inc.;
Director, Chairman 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
(parent of AIM and a global investment
management firm)
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
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- ---------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett/3/ -- 1944 2003 Chairman, Crockett Technology ACE Limited (insurance
Trustee and Chair Associates (technology consulting company); and Captaris, Inc.
company) (unified messaging provider)
- ---------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 1983 Retired None
Trustee
- ---------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2003 Retired Badgley Funds, Inc. (registered
Trustee investment company)
Formerly: Partner, law firm of Baker &
McKenzie
- ---------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2000 Co-President and Founder, Green, None
Trustee Manning & Bunch Ltd., (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 None
Trustee private business corporations,
including the Boss Group Ltd. (private
investment and management); Cortland
Trust, Inc. (Chairman) (registered
investment company); Annuity and Life
Re (Holdings), Ltd. (insurance
company); and CompuDyne Corporation
(provider of products and services to
the public security market)
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 2003 Retired None
Trustee
Formerly: Chairman, Mercantile Mortgage
Corp.; President and Chief Operating
Officer, Mercantile-Sale Deposit &
Trust Co.; and President, Mercantile
Bankshares Corp.
- ---------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 2003 Chief Executive Officer, Twenty First Administaff and Discovery
Trustee Century Group, Inc. (government affairs Global Education Fund (non-
company) (owner) Dos Angelos Ranch, L.P. profit)
Formerly: Chief Executive Officer,
Texana Timber LP (sustainable forestry
company)
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 2003 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company)
- ---------------------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis -- 1933 2000 Chairman, Lawsuit Resolution Services General Chemical Group, Inc.
Trustee (San Diego, California)
- ---------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 2003 Formerly: Chief Executive Officer, YMCA None
Trustee of the USA
- ---------------------------------------------------------------------------------------------------------------------------------
/(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. Prior to
October 4, 2004, Mr. Graham served as Chairman of the Board of Trustees
of 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.
/(3)/ Mr. Crockett was elected Chair of the Board of Trustees of the Trust
effective October 4, 2004.
Trustees and Officers (continued)
As of March 31, 2005
The address of each trustee and officer of AIM Sector Funds (the "Trust"), is
11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 114
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.
Name, Year of Birth and
Position(s) Held with the Trustee and/ Principal Occupation(s) During Past 5 Other Directorship(s)
Trust or Officer Since Years Held by Trustee
- ----------------------------------------------------------------------------------------------------------------------
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
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Other Officers
- ----------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley/4 /-- 1959 2004 Senior Vice President, A I M Management N/A
Senior Vice President and Chief Group Inc.; Senior Vice President and
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., A I M
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/5 /-- 1958 2005 Formerly: Director of Compliance and N/A
Senior Vice President Assistant General Counsel, ICON
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 Secretary and General Counsel, A I M
Chief Legal Officer Management Group Inc. and A I M
Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Vice President, A I M Capital
Management, Inc., and A I M Investment
Services, Inc.; Director, Vice
President and General Counsel, Fund
Management Company; and Senior Vice
President, A I M Distributors, Inc.
Formerly: Senior Vice President and
General Counsel, Liberty Financial
Companies, Inc.; and Senior Vice
President and General Counsel, Liberty
Funds Group, LLC.; and Vice President,
A I M Distributors, Inc.
- ----------------------------------------------------------------------------------------------------------------------
Robert G. Alley -- 1948 2003 Managing Director, Chief Fixed Income N/A
Vice President Officer and Senior Investment Officer,
A I M Capital Management, Inc. and Vice
President, A I M Advisors, Inc.
- ----------------------------------------------------------------------------------------------------------------------
Stuart W. Coco -- 1955 2003 Managing Director and Director of Money N/A
Vice President Market Research and Special Projects,
A I M Capital Management, Inc.; and
Vice President, A I M Advisors, Inc.
- ----------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, N/A
Vice President and Treasurer A I M Advisors, Inc.
Formerly: Senior Vice President, A I M
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- ----------------------------------------------------------------------------------------------------------------------
J. Phillip Ferguson/6 /-- 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.; Chief
Equity Officer, and Senior Investment
Officer, A I M Capital Management,
Inc.; and Managing Partner, Beutel,
Goodman Capital Management
- ----------------------------------------------------------------------------------------------------------------------
Mark D. Greenberg -- 1957 2004 Senior Vice President and Senior N/A
Vice President Portfolio Manager, A I M Capital
Management, Inc.
Formerly: Senior Vice President and
Senior Portfolio Manager, INVESCO
Institutional (N.A.), Inc.
- ----------------------------------------------------------------------------------------------------------------------
William R. Keithler -- 1952 2004 Senior Vice President and Senior N/A
Vice President Portfolio Manager, A I M Capital
Management, Inc.
Formerly: Senior Vice President,
Director of Sector Management and
Senior Portfolio Manager, INVESCO
Institutional (N.A.), Inc.
- ----------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 2003 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.
- ----------------------------------------------------------------------------------------------------------------------
/(4)/ Ms. Brinkley was elected Senior Vice President and Chief Compliance
Officer of the Trust effective September 20, 2004.
/(5)/ Mr. Burk was elected Senior Vice President of the Trust effective
February 15, 2005.
/(6)/ Mr. Ferguson was elected Vice President of the Trust effective February
24, 2005.
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.
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza. A I M Advisors, Inc. A I M Distributors, Inc. PricewaterhouseCoopers LLP
Suite 100 11 Greenway Plaza 11 Greenway Plaza 1201 Louisiana Street
Houston, TX 77046-1173 Suite 100 Suite 100 Suite 2900
Houston, TX 77046-1173 Houston, TX 77046-1173 Houston, Texas 77002-5678
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
Ballard Spahr INDEPENDENT TRUSTEES AIM Investment Services, Inc. State Street Bank and Trust
Andrews & Ingersoll, LLP Kramer, Levin, Naftalis & P.O. Box 4739 Company
1735 Market Street Frankel LLP Houston, TX 77210-4739 225 Franklin Street
Philadelphia, PA 19103-7599 1177 Avenue of the Americas Boston, MA 02110-2801
New York, NY 10036-2714
REQUIRED FEDERAL INCOME TAX INFORMATION (UNAUDITED)
Of ordinary dividends paid to shareholders during the Fund's tax year ended
March 31, 2005, 63.46% is eligible for the dividends received deduction for
corporations.
For its tax year ended March 31, 2005, the Fund designated 78.03%, or the
maximum allowable, of its dividend distributions as qualified dividend income.
The actual amounts for the calendar year will be designated in the Fund's year
end tax statement.
Domestic Equity Sector Equity
AIM Aggressive Growth Fund AIM Advantage Health Sciences Fund/1/
AIM Basic Balanced Fund* AIM Energy Fund/1/
AIM Basic Value Fund AIM Financial Services Fund/1/
AIM Blue Chip Fund AIM Global Health Care Fund
AIM Capital Development Fund AIM Global Real Estate Fund
AIM Charter Fund AIM Gold & Precious Metals Fund/1/
AIM Constellation Fund AIM Leisure Fund/1/
AIM Diversified Dividend Fund AIM Multi-Sector Fund/1/
AIM Dynamics Fund/1/ AIM Real Estate Fund/7/
AIM Large Cap Basic Value Fund AIM Technology Fund/1/
AIM Large Cap Growth Fund AIM Utilities Fund/1/
AIM Mid Cap Basic Value Fund
AIM Mid Cap Core Equity Fund/2/ Fixed Income
AIM Mid Cap Growth Fund
AIM Opportunities I Fund TAXABLE
AIM Opportunities II Fund
AIM Opportunities III Fund AIM Floating Rate Fund
AIM Premier Equity Fund AIM High Yield Fund
AIM S&P 500 Index Fund/1/ AIM Income Fund
AIM Select Equity Fund AIM Intermediate Government Fund
AIM Small Cap Equity Fund/3/ AIM Limited Maturity Treasury Fund
AIM Small Cap Growth Fund/4/ AIM Money Market Fund
AIM Small Company Growth Fund/1/ AIM Short Term Bond Fund
AIM Trimark Endeavor Fund AIM Total Return Bond Fund
AIM Trimark Small Companies Fund Premier Portfolio
AIM Weingarten Fund Premier U.S. Government Money
Portfolio/1/
* Domestic equity and income fund
TAX-FREE
International/Global Equity
AIM High Income Municipal Fund
AIM Asia Pacific Growth Fund AIM Municipal Bond Fund
AIM Developing Markets Fund AIM Tax-Exempt Cash Fund
AIM European Growth Fund AIM Tax-Free Intermediate Fund
AIM European Small Company Fund/5/ Premier Tax-Exempt Portfolio
AIM Global Aggressive Growth Fund
AIM Global Equity Fund AIM Allocation Solutions
AIM Global Growth Fund
AIM Global Value Fund AIM Conservative Allocation Fund
AIM International Core Equity Fund/1/ AIM Growth Allocation Fund/8/
AIM International Growth Fund AIM Moderate Allocation Fund
AIM International Small Company Fund/6/ AIM Moderate Growth Allocation Fund
AIM Trimark Fund AIM Moderately Conservative
Allocation Fund
/1/The following name changes became effective October 15, 2004: INVESCO
Advantage Health Sciences Fund to AIM Advantage Health Sciences Fund, INVESCO
Dynamics Fund to AIM Dynamics Fund, INVESCO Energy Fund to AIM Energy Fund,
INVESCO Financial Services Fund to AIM Financial Services Fund, INVESCO Gold &
Precious Metals Fund to AIM Gold & Precious Metals Fund, INVESCO International
Core Equity Fund to AIM International Core Equity Fund, INVESCO Leisure Fund to
AIM Leisure Fund, INVESCO Mid-Cap Growth Fund to AIM Mid Cap Stock Fund, INVESCO
Multi-Sector Fund to AIM Multi-Sector Fund, INVESCO S&P 500 Index Fund to AIM
S&P 500 Index Fund, INVESCO Small Company Growth Fund to AIM Small Company
Growth Fund, INVESCO Technology Fund to AIM Technology Fund, INVESCO U.S.
Government Money Fund to Premier U.S. Government Money Portfolio, INVESCO
Utilities Fund to AIM Utilities Fund. /2/As of end of business on February 27,
2004, AIM Mid Cap Core Equity Fund has limited public sales of its shares to
certain investors. For more information on who may continue to invest in the
Fund, please contact your financial advisor. /3/Effective December 13, 2004, AIM
Small Cap Equity Fund is open to all investors. /4/As of end of business on
March 18, 2002, AIM Small Cap Growth Fund has limited public sales of its shares
to certain investors. For more information on who may continue to invest in the
Fund, please contact your financial advisor. /5/As of end of business on March
28, 2005, AIM European Small Company Fund has limited public sales of its shares
to certain investors. For more information on who may continue to invest in the
Fund, please contact your financial advisor. /6/Effective December 30, 2004, AIM
International Emerging Growth Fund was renamed AIM International Small Company
Fund. As of end of business on March 14, 2005, the Fund has limited public sales
of its shares to certain investors. For more information on who may continue to
invest in the Fund, please contact your financial advisor. /7/As of end of
business on April 29, 2005, AIM Real Estate Fund has limited public sales of its
shares to certain investors. For more information on who may continue to invest
in the Fund, please contact your financial advisor. /8/Effective April 29, 2005,
AIM Aggressive Allocation Fund was renamed AIM Growth Allocation Fund.
If used after July 20, 2005, this report must be accompanied by a Fund
Performance & Commentary or by an AIM Quarterly Performance Review for the most
recent quarter-end. Mutual funds distributed by A I M Distributors, Inc.
A I M Management Group Inc. has provided leadership in the investment management
industry since 1976 and manages $131 billion in assets. AIM is a subsidiary of
AMVESCAP PLC, one of the world's largest independent financial services
companies with $375 billion in assets under management. Data as of March 31,
2005.
- --------------------------------------------------------------------------------
CONSIDER THE INVESTMENT OBJECTIVES, RISKS, AND CHARGES AND EXPENSES CAREFULLY.
FOR THIS AND OTHER INFORMATION ABOUT AIM FUNDS, OBTAIN A PROSPECTUS FROM YOUR
FINANCIAL ADVISOR AND READ IT CAREFULLY BEFORE INVESTING.
- --------------------------------------------------------------------------------
AIMinvestments.com I-LEI-AR-1 A I M Distributors, Inc.
[YOUR GOALS. OUR SOLUTIONS.]
- REGISTERED TRADEMARK -
Mutual Retirement Annuities College Separately Offshore Cash
Funds Products Savings Managed Products Management
Plans Accounts
[AIM INVESTMENTS LOGO]
- REGISTERED TRADEMARK -
AIM TECHNOLOGY FUND
ANNUAL REPORT TO SHAREHOLDERS . MARCH 31, 2005
[COVER IMAGE]
FORMERLY INVESCO TECHNOLOGY FUND
[YOUR GOALS. OUR SOLUTIONS.]
- REGISTERED TRADEMARK -
[AIM INVESTMENTS LOGO]
- REGISTERED TRADEMARK -
AIM TECHNOLOGY FUND SEEKS TO PROVIDE CAPITAL GROWTH.
.. Unless otherwise stated, information presented in this report is as of March
31, 2005, and is based on total net assets.
.. Effective October 15, 2004, INVESCO Technology Fund was renamed AIM Technology
Fund.
ABOUT SHARE CLASSES
.. Effective September 30, 2003, Class B shares are not available as an
investment for retirement plans maintained pursuant to Section 401 of the
Internal Revenue Code, including 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.
.. Class K shares are available only to certain retirement plans. Please see the
prospectus for more information.
.. Investor Class shares are closed to most investors. For more information on
who may continue to invest in the Investor Class shares, please see the
prospectus.
PRINCIPAL RISKS OF INVESTING IN THE FUND
.. Investing in a single-sector or single-region mutual fund involves greater
risk and potential reward than investing in a more diversified fund.
.. Investing in mid-sized companies involves greater risks not associated with
investing in more established companies.
.. The Fund may invest up to 25% of its assets in the securities of non-U.S.
issuers. Securities of Canadian issuers and American Depository Receipts are not
subject to this 25% limitation. International investing presents certain risks
not associated with investing solely in the United States. These include risks
relating to fluctuations in the value of the U.S. dollar relative to the values
of other currencies, the custody arrangements made for the Fund's foreign
holdings, differences in accounting, political risks and the lesser degree of
public information required to be provided by non-U.S. companies.
ABOUT INDEXES USED IN THIS REPORT
.. The Goldman Sachs Technology Composite Index is a modified
capitalization-weighted index composed of companies involved in the technology
industry. The index is rebalanced semiannually.
.. The unmanaged Lipper Science and Technology Fund Index represents an average
of the performance of the 30 largest science and technology funds tracked by
Lipper, Inc., an independent mutual fund performance monitor.
.. The unmanaged Standard & Poor's Composite Index of 500 Stocks (the S&P 500
- --registered trademark-- Index) is an index of common stocks frequently used as
a general measure of U.S. stock market performance.
.. The Fund is not managed to track the performance of any particular index,
including the indexes defined here, and consequently, the performance of the
Fund may deviate significantly from the performance of the index.
.. A direct investment cannot be made in an index. Unless otherwise indicated,
index results include reinvested dividends, and they do not reflect sales
charges. Performance of an index of funds reflects fund expenses; performance of
a market index does not.
OTHER INFORMATION
.. The returns shown in management's discussion of Fund performance are based on
net asset values calculated for shareholder transactions. Generally accepted
accounting principles require adjustments to be made to the net assets of the
Fund at period end for financial reporting purposes, and as such, the net asset
values for shareholder transactions and the returns based on those net asset
values may differ from the net asset values and returns reported in the
Financial Highlights.
.. Industry classifications used in this report are generally according to the
Global Industry Classification Standard, which was developed by and is the
exclusive property and a service mark of Morgan Stanley Capital International
Inc. and Standard & Poor's.
The Fund provides a complete list of its holdings four times in each fiscal
year, at the quarter-ends. For the second and fourth quarters, the lists appear
in the Fund's semiannual and annual reports to shareholders. For the first and
third quarters, the Fund files the lists with the Securities and Exchange
Commission (SEC) on Form N-Q. Shareholders can look up the Fund's Forms N-Q on
the SEC's Web site at sec.gov. Copies of the Fund's Forms N-Q may be reviewed
and copied at the SEC's Public Reference Room at 450 Fifth Street, N.W.,
Washington, D.C. 20549- 0102. You can obtain information on the operation of the
Public Reference Room, including information about duplicating fee charges, by
calling 202-942-8090 or by electronic request at the following E-mail address:
publicinfo@sec.gov. The SEC file numbers for the Fund are 811-3826 and
002-85905. The Fund's most recent portfolio holdings, as filed on Form N-Q, are
also available at AIMinvestments.com.
A description of the policies and procedures that the Fund uses to determine how
to vote proxies relating to portfolio securities is available without charge,
upon request, from our Client Services department at 800-959-4246 or on the AIM
Web site, AIMinvestments.com. On the home page, scroll down and click on AIM
Funds Proxy Policy. The information is also available on the SEC's Web site,
sec.gov.
Information regarding how the Fund voted proxies related to its portfolio
securities during the 12 months ended June 30, 2004 is available at our Web
site. Go 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's Web site,
sec.gov.
- --------------------------------------------------------------------------------
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND
PROSPECTUS, WHICH CONTAINS MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES
AND EXPENSES. INVESTORS SHOULD READ IT CAREFULLY BEFORE INVESTING.
- --------------------------------------------------------------------------------
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
AIMINVESTMENTS.COM
AIM TECHNOLOGY FUND
DEAR FELLOW SHAREHOLDERS:
The fiscal year covered by this report saw both equities and
bonds* produce positive total returns, but it wasn't a very
smooth ride. Markets were at their best during the second
half of 2004--bonds during the third quarter of that year
and equities during the fourth. Returns turned negative for
both asset classes during the first quarter of 2005.
[GRAHAM PHOTO] The huge run-up in the price of oil over the course of
the fiscal year goes a long way toward explaining the
markets' loss of confidence early in 2005. The Consumer
Price Index rose more in March 2005 than one month earlier.
Energy costs advanced 4.0% in March; the petroleum-based
subset of energy increased 7.8%.
ROBERT H. GRAHAM Another negative factor has been Federal Reserve
policy. With a view to warding off potential inflation, the
Federal Reserve (the Fed) raised short-term interest rates
in March, the seventh such move since mid-year 2004. The Fed
noted that inflationary pressures have picked up recently
and that businesses' ability to raise prices appeared
stronger than in the recent past. There is a virtually
universal expectation that the Fed will continue to increase
short-term interest rates during 2005, which could
ultimately dampen economic performance. (In early May, after
the close of the reporting period, the Fed raised rates once
again.)
[WILLIAMSON PHOTO] Nevertheless, there was also much good news for
investors as of March 31, 2005:
. The Institute for Supply Management's manufacturing and
non-manufacturing indexes--based on surveys of
purchasing managers in industries that cover more than
80% of the U.S. economy--both indicated continued
healthy growth during March and April and remained in
very strong territory. April was the 42nd month in a
row these surveys showed the economy as a whole
expanding.
MARK H. WILLIAMSON . Job growth during March was weaker than in the recent
past, though the unemployment rate declined over the
course of the fiscal year. In fact, less than robust
job growth during March was good news for bond
investors--there is still enough slack in the job
market to keep wage inflation from becoming an issue.
. Bond yields haven't risen as much as might be expected
given seven increases in short-term rates over the
fiscal year. Evidently, the bond market is not
anticipating a long-term inflationary pattern.
So once again we are seeing a good news/bad news
combination--a situation that is far from unusual. Over the
short term, financial markets are unpredictable. It is over
the long term that they have been rewarding to investors,
and we remain confident in their long-term outlook. Given
the inability to make accurate short-term forecasts, as
always, we urge our shareholders to:
. keep a long-term investment perspective,
. make sure their portfolios are suitably diversified,
and
. contact their financial advisors when they have
questions or concerns about their investments or the
markets.
YOUR FUND
The following pages present a discussion of your Fund's
approach to investing, an explanation of its performance
over the fiscal year, and a summary of its portfolio as that
year closed. Further information about your Fund and The AIM
Family of Funds --registered trademark--, as well as general
information concerning investing, is always available on our
widely praised Web site, AIMinvestments.com. We invite you
to visit frequently.
As always, we at AIM are dedicated to building
solutions to help you meet your investment goals. We thank
you for your continued participation in AIM Investments
--registered trademark--. If you have any questions, please
contact our award-winning Client Service representatives at
800-959-4246. We are pleased to be of help.
Sincerely
/s/ ROBERT H. GRAHAM /s/ MARK H. WILLIAMSON
Robert H. Graham Mark H. Williamson
Trustee, President & Chairman & President,
Vice Chair, AIM Funds A I M Advisors, Inc.
May 20, 2005
* Equities represented by the S&P 500 Index, an index of
common stocks often used as a general measure of U.S.
stock market performance; bonds by the Lehman U.S.
Aggregate Bond Index, an index compiled by Lehman
Brothers, the global investment bank, that represents
the U.S. investment-grade fixed-rate bond market.
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 AND A I M
DISTRIBUTORS, INC. IS THE DISTRIBUTOR FOR THE RETAIL FUNDS
REPRESENTED BY AIM INVESTMENTS.
AIM TECHNOLOGY FUND
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
For the fiscal year ended March 31, 2005, Investor Class shares of AIM
Technology Fund underperformed the broad market, as represented by the S&P 500
Index, but performed somewhat better than the Goldman Sachs Technology Composite
Index and the Lipper Science and Technology Fund Index.
- --------------------------------------------------------------------------------
FUND VS. INDEXES
TOTAL RETURNS, 3/31/04-3/31/05, EXCLUDING APPLICABLE SALES CHARGES. IF SALES
CHARGES WERE INCLUDED, RETURNS WOULD BE LOWER.
Class A Shares -4.53%
Class B Shares -5.15
Class C Shares -5.12
Class K Shares -4.75
Investor Class Shares -4.57
S&P 500 Index (Broad Market
Index) 6.69
Goldman Sachs Technology
Composite Index (Style-
specific Index) -5.39
Lipper Science and Technology
Fund Index (Peer Group Index) -5.51
SOURCE: LIPPER, INC.
- --------------------------------------------------------------------------------
Information technology was the weakest sector of the S&P 500 Index for the
fiscal year, and as a result the Fund underperformed the broad market. The Fund
performed somewhat better than its style-specific and peer group indexes because
we increased our semiconductor holdings in the fourth quarter of 2004 in
response to an improved inventory picture. During the fourth quarter,
semiconductor stocks generally performed better than other technology stocks.
Since the fourth quarter, we reduced our semiconductor holdings somewhat and
increased our exposure to more defensive business services stocks. The Fund's
style-specific index is intended to depict the performance of the types of
securities in which the Fund invests--in this case, technology-related stocks.
The Fund's peer group index is intended to depict the performance of mutual
funds with investment strategies similar to those of the Fund--in this case,
other mutual funds that invest in technology-related stocks.
HOW WE INVEST
In keeping with our investment philosophy and process, we look for attractively
valued, well-managed companies in the information technology sector with the
potential to deliver attractive returns. While we are permitted to invest in
stocks of any market capitalization, we tend to focus on mid- and large-cap
stocks to avoid liquidity problems that can be associated with some small-cap
stocks.
Within our universe of U.S. and international technology stocks, we seek to
identify industries likely to benefit from strong fundamentals over the next 12
to 24 months. Within each of those industries, we look for market-leading
companies with strong managements. Then we apply our proprietary valuation
analysis--allowing us to compare a stock's current valuation to its historical
valuations as well as the valuations of its competitors. Finally, we construct
the fund's portfolio with the goal of holding 80 to 120 individual stocks.
Depending on market conditions, we try to invest 50% to 80% of the fund's
assets in strategic, or core, holdings--market leading companies we expect to
hold for a longer-term investment horizon. We normally invest 20% to 50% of the
fund's assets in tactical, or non-core, holdings--companies that we believe have
compelling near-term appreciation potential.
We may reduce or eliminate exposure to a stock when:
.. A more attractive investment opportunity is identified. Since we found few
such opportunities, portfolio turnover was lower this fiscal year compared to
the previous fiscal year.
.. A company's fundamentals change (product failure, reduced pricing power,
margin compression, etc.)
.. A company's earnings disappoint.
.. Management's strategic direction shifts or unfavorable changes occur.
Market conditions and your Fund
Gross domestic product grew at an annualized rate of 3.3%, 4.0% and 3.8% in the
second, third and fourth quarters of 2004, respectively. It grew by an estimated
3.1% in the first quarter of 2005.
Technology stocks, as a group, fared less well than the broad market and
displayed considerable volatility, as shown in the table on the following page.
While technology stocks led the market in the fourth quarter of 2004, they
couldn't maintain their momentum
- --------------------------------------------------------------------------------
TOP 10 EQUITY HOLDINGS* PORTFOLIO COMPOSITION TOTAL NET ASSETS $1.3 billion
TOTAL NUMBER OF HOLDINGS* 96
1. Intel Corp. 3.4% By industry
2. Yahoo! Inc. 3.3 1. Semiconductors 21.3%
3. Apple Computer, Inc. 3.1 2. Computer Hardware 10.6
4. Oracle Corp. 3.0 3. Communications Equipment 9.8
5. Dell Inc. 2.9 4. Internet Software & Services 8.1
6. Cisco Systems, Inc. 2.9 5. Systems Software 7.6
7. EMC Corp. 2.7 6. Application Software 7.2
8. Amdocs Ltd. (United 2.4 7. Computer Storage &
Kingdom) Peripherals 6.3
9. International Business 8. Wireless Telecommunication Services 5.7
Machines Corp. 2.4 9. Data Processing & Outsourced Services 3.2
10.VeriSign, Inc. 2.1 10.IT Consulting & Other Services 3.1
The Fund's holdings are subject 14 Other Industries, Each Less than 3%
to change, and there is no of Total Net Assets 13.9
assurance that the Fund will Money Market Funds
continue to hold any particular Plus Other Assets Less Liabilities 3.2
security.
*Excluding money market fund holdings.
- --------------------------------------------------------------------------------
2
- --------------------------------------------------------------------------------
BROAD MARKET VS.
INFORMATION TECHNOLOGY SECTOR
Cumulative returns, not annualized, by quarter
GOLDMAN SACHS
S&P TECHNOLOGY
500 COMPOSITE
INDEX INDEX
Second Quarter 2004 1.72% 1.76%
Third Quarter 2004 -1.87 -11.10
Fourth Quarter 2004 9.23 14.68
First Quarter 2005 -2.15 -8.81
Source: Lipper, Inc.
- --------------------------------------------------------------------------------
during the first quarter of 2005, when they trailed all sectors of the market
except for telecommunication services. Single-sector mutual funds often can be
more volatile than more diversified funds.
Strategically, we have skewed our holdings in the portfolio to focus on
technology companies that target business customers because we believe increased
technology-related capital spending by businesses will be among the primary
growth engines in the information technology sector in 2005. The absence of such
spending has hindered technology stocks of late as corporations have held back
technology-related capital spending due to uncertainty about the direction of
the economy.
Despite generally positive economic news, many corporate leaders used their
cash to strengthen their balance sheets by paying down debt or building up their
cash reserves rather than to enhance their technology infrastructures. As a
result, we believe many corporations now have the ability to purchase
technology-related equipment as the need arises. However, there seems to be
little sense of urgency and no so-called "killer application"--a certain
hardware or software solution that companies feel they absolutely must have to
remain competitive.
In recent years, technology spending--and technology companies' stock
prices--have become increasingly seasonal. Information technology-related
capital spending typically peaks in the third and fourth quarters as companies
scramble to spend their annual budgets before the end of the year. Stock prices
of many technology companies also seem to follow this general pattern.
Generally speaking, there are three major purchasers of technology products
and services:
.. Consumers;
.. Businesses, including corporate and small/medium sized businesses (SMB);
.. Telecommunications companies.
We've become concerned about consumers' ability to increase their spending
in 2005. We've already seen auto sales decline, and higher gasoline prices and
rising interest rates could further erode consumer spending. As a result, we
have consciously underweighted technology stocks that depend on consumers for
their sales, and overweighted stocks of companies whose business is driven
chiefly by enterprise and SMB demand. Fund holdings positioned to benefit from
an eventual increase in technology-related capital spending include industry
leaders such as Oracle, IBM, EMC and Cisco Systems.
For much of 2004, we de-emphasized semiconductor stocks due to concerns
about increased inventories and slowing earnings. During the third quarter of
2004, however, we increased our holdings to take advantage of attractive
valuations within the group and an improving inventory picture. This proved
beneficial, as the industry performed well in the fourth quarter of 2004. Since
then, we have trimmed our semiconductor holdings somewhat while adding to our
holdings in the information technology services industry, which we considered to
be a bit more defensive.
Apple Computer continued to be a standout performer. Sales of its
iPod--registered trademark-- digital music player have remained strong. In the
company's fourth quarter earnings announcement we began to see indications of a
"halo effect"--an increase in the sales of the company's computers and
accessories because of the iPod's success in luring customers to the company's
Web site and stores. Apple remains an important holding in the fund, but we sold
some of our holdings and took some profits before the close of the fiscal year.
While we believe Cisco is poised to benefit from an increase in
technology-related capital spending, the stock was the largest drag on Fund
performance for the fiscal year. The company's announcement in February 2004
that business had slowed in January signaled the beginning of an eight-month
decline in the information technology sector. Despite its position as a market
leader with an exceptionally strong balance sheet, Cisco's stock performance was
disappointing, largely, we believed, because investors' expectations for the
company's growth rate were unrealistically high. Despite its poor short-term
performance, we held the stock at the close of the fiscal year because we
believed that Cisco's business is poised to possibly accelerate in 2005.
IN CLOSING
This fiscal year was difficult and disappointing for technology investors.
Despite a reasonably strong economy in 2004, technology stocks, as a group,
underperformed other cyclical stocks. While 2005 began on a weak note, we have
tried to position the Fund in such a way as to benefit when technology-related
capital spending recovers--something that we believe is likely to occur as the
year progresses. As always, we thank you for your continuing investment in AIM
Technology Fund.
The views and opinions expressed in management's discussion of Fund performance
are those of A I M Advisors, Inc. These views and opinions are subject to change
at any time based on factors such as market and economic conditions. These views
and opinions may not be relied upon as investment advice or recommendations, or
as an offer for a particular security. The information is not a complete
analysis of every aspect of any market, country, industry, security or the Fund.
Statements of fact are from sources considered reliable, but A I M Advisors,
Inc. makes no representation or warranty as to their completeness or accuracy.
Although historical performance is no guarantee of future results, these
insights may help you understand our investment management philosophy.
See important Fund and index disclosures inside front cover.
- --------------------------------------------------------------------------------
[KEITHLER PHOTO]
WILLIAM R. KEITHLER, Chartered Financial Analyst, senior portfolio manager, is
lead portfolio manager of AIM Technology Fund. He began his investment career in
1982 and joined the Fund's advisor in 1986, where he managed several funds for
the company until 1993. He rejoined the Fund's advisor in 1998. Mr. Keithler has
a B.A. from Webster College in St. Louis, and an M.A. in finance from the
University of Wisconsin-Madison.
[FENTON PHOTO]
MICHELLE ESPELIEN FENTON, Chartered Financial Analyst, portfolio manager, is a
portfolio manager of AIM Technology Fund. She began her investment career in
1995. Before joining the Fund's advisor in 1998, she worked as an equity analyst
at another investment firm. She assumed her current duties in 2003. Ms. Fenton
received her B.A. in finance from Montana State University.
Assisted by the Technology Team
- --------------------------------------------------------------------------------
[RIGHT ARROW GRAPHIC]
FOR A PRESENTATION OF YOUR FUND'S LONG-TERM PERFORMANCE RECORD, PLEASE TURN
TO PAGE 5.
3
AIM TECHNOLOGY FUND
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, which may include sales charges (loads) on purchase payments; contingent
deferred sales charges on redemptions; and redemption fees, if any; and (2)
ongoing costs, including management fees; distribution and/or service fees
(12b-1); and other Fund expenses. This example is intended to help you
understand your ongoing costs (in dollars) of investing in the Fund and to
compare these costs with ongoing costs of investing in other mutual funds. The
example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period October 1, 2004, through March 31, 2005.
ACTUAL EXPENSES
The table below provides information about actual account values and actual
expenses. You may use the information in this table, together with the amount
you invested, to estimate the expenses that you paid over the period. Simply
divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number in the table
under the heading entitled "Actual Expenses Paid During Period" to estimate the
expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The table below also provides information about hypothetical account values and
hypothetical expenses based on the Fund's actual expense ratio and an assumed
rate of return of 5% per year before expenses, which is not the Fund's actual
return. The Fund's actual cumulative total returns at net asset value after
expenses for the six months ended March 31, 2005, appear in the table
"Cumulative Total Returns" on page 5. The hypothetical account values and
expenses may not be used to estimate the actual ending account balance or
expenses you paid for the period. You may use this information to compare the
ongoing costs of investing in the Fund and other funds. To do so, compare this
5% hypothetical example with the 5% hypothetical examples that appear in the
shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads) on purchase payments, contingent deferred sales charges on
redemptions, and redemption fees, if any. Therefore, the hypothetical
information is useful in comparing ongoing costs only, and will not help you
determine the relative total costs of owning different funds.
- --------------------------------------------------------------------------------
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID ENDING ACCOUNT EXPENSES
SHARE VALUE VALUE DURING VALUE PAID DURING
CLASS (10/1/04) (3/31/05)/1/ PERIOD/2/ (3/31/05) PERIOD/2/
A $ 1,000.00 $ 1,063.60 $ 7.72 $ 1,017.45 $ 7.54
B 1,000.00 1,059.80 11.04 1,014.21 10.80
C 1,000.00 1,060.00 11.04 1,014.21 10.80
K 1,000.00 1,062.70 8.85 1,016.36 8.65
Investor 1,000.00 1,063.20 7.82 1,017.35 7.64
/1/The actual ending account value is based on the actual total return of the
Fund for the period October 1, 2004, to March 31, 2005, after actual expenses
and will differ from the hypothetical ending account value which is based on the
Fund's expense ratio and a hypothetical annual return of 5% before expenses. The
Fund's actual cumulative total returns at net asset value after expenses for the
six months ended March 31, 2005, appear in the table "Cumulative Total Returns"
on page 5.
/2/Expenses are equal to the Fund's annualized expense ratio, 1.50%, 2.15%,
2.15%, 1.72% and 1.52% for Class A, B, C, K and Investor Class shares,
respectively, multiplied by the average account value over the period,
multiplied by 182/365 (to reflect the one-half year period).
- --------------------------------------------------------------------------------
[ARROW
BUTTON For More Information Visit
IMAGE] AIMINVESTMENTS.COM
4
AIM TECHNOLOGY FUND
YOUR FUND'S LONG-TERM PERFORMANCE
Your Fund's total return includes reinvested distributions, maximum applicable
sales charges, Fund expenses and management fees. Performance of an index of
funds reflects fund expenses and management fees; performance of a market index
does not. Performance shown in the chart and tables does not reflect deduction
of taxes a shareholder would pay on Fund distributions or sale of Fund shares.
Performance of the indexes does not reflect the effects of taxes.
This chart, which is a logarithmic chart, presents the fluctuations in the
value of the Fund and its indexes. We believe that a logarithmic chart is more
effective than other types of charts in illustrating changes in value during the
early years shown in the chart. The vertical axis, the one that indicates the
dollar value of an investment, is constructed with each segment representing a
percent change in the value of the investment. In this chart, each segment
represents a doubling, or 100% change, in the value of the investment. In other
words, the space between $10,000 and $20,000 is the same size as the space
between $20,000 and $40,000, the space between $20,000 and $40,000 is the same
as that between $40,000 and $80,000, and so on.
- -------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
As of 3/31/05, including applicable sales charges
CLASS A SHARES
Inception (3/28/02) -9.81%
1 Year -9.79
CLASS B SHARES
Inception (3/28/02) -9.73%
1 Year -9.89
CLASS C SHARES
Inception (2/14/00) -23.98%
5 Years -25.47
1 Year -6.07
CLASS K SHARES
Inception (11/30/00) -19.81%
1 Year -4.75
INVESTOR CLASS SHARES
Inception (1/19/84) 10.99%
10 Years 5.45%
5 Years -24.87
1 Year -4.57
- -------------------------------------------------
RESULTS OF A $10,000 INVESTMENT
Fund data from 1/19/84 (Index data from 1/31/84)
[MOUNTAIN CHART]
- --------------------------------------------------------------------------------
AIM TECHNOLOGY AIM TECHNOLOGY
FUND INVESTOR FUND INVESTOR
DATE CLASS SHARES S&P 500 INDEX DATE CLASS SHARES S&P 500 INDEX
1/19/84 $ 10000 7/94 43410 40280
1/84 10000 $ 10000 8/94 46791 41928
2/84 9975 9648 9/94 47287 40904
3/84 9925 9815 10/94 49302 41821
4/84 9787 9908 11/94 47660 40300
5/84 9412 9360 12/94 49090 40897
6/84 9488 9563 1/95 49006 41957
7/84 8563 9445 2/95 51966 43590
8/84 9762 10488 3/95 53702 44874
9/84 9137 10490 4/95 56274 46195
10/84 8913 10531 5/95 56787 48038
11/84 8123 10413 6/95 61750 49152
12/84 8712 10687 7/95 66566 50781
1/85 10091 11520 8/95 67179 50908
2/85 10580 11661 9/95 69120 53055
3/85 10129 11668 10/95 70101 52866
4/85 9590 11658 11/95 72268 55184
5/85 9903 12331 12/95 71574 56247
6/85 9665 12524 1/96 71767 58159
7/85 10141 12506 2/96 75004 58700
8/85 10078 12385 3/96 73504 59265
9/85 9439 12011 4/96 80148 60138
10/85 9515 12566 5/96 83258 61686
11/85 10706 13428 6/96 77963 61922
12/85 11095 14078 7/96 74361 59187
1/86 11358 14157 8/96 80273 60438
2/86 11634 15214 9/96 86157 63836
3/86 12624 16063 10/96 84106 65596
4/86 13025 15883 11/96 88968 70550
5/86 13602 16727 12/96 87135 69153
6/86 12838 17010 1/97 91945 73471
7/86 11685 16059 2/97 85334 74047
8/86 12625 17250 3/97 80862 71011
9/86 11898 15823 4/97 85698 75246
10/86 12986 16736 5/97 92108 79847
11/86 13265 17143 6/97 94752 83396
12/86 13517 16705 7/97 104511 90030
1/87 16032 18955 8/97 104793 84990
2/87 17724 19704 9/97 108838 89642
3/87 18101 20272 10/97 101514 86652
4/87 19220 20092 11/97 99422 90660
5/87 19583 20266 12/97 94839 92216
6/87 18032 21290 1/98 93255 93235
7/87 17823 22369 2/98 100165 99955
8/87 18383 23203 3/98 106085 105070
9/87 18747 22694 4/98 109045 106146
10/87 11880 17807 5/98 103331 104324
11/87 10788 16340 6/98 109748 108558
12/87 12803 17582 7/98 107981 107411
1/88 12216 18321 8/98 88901 91893
2/88 13573 19172 9/98 98600 97784
3/88 14049 18580 10/98 98984 105726
4/88 14693 18786 11/98 108012 112131
5/88 14427 18946 12/98 123392 118588
6/88 15799 19815 1/99 136793 123546
7/88 15058 19739 2/99 123428 119706
8/88 14330 19070 3/99 141696 124495
9/88 14527 19882 4/99 144969 129316
10/88 14149 20435 5/99 144055 126265
11/88 13869 20143 6/99 164756 133254
12/88 14625 20494 7/99 162104 129111
1/89 15227 21994 8/99 175931 128472
2/89 15031 21447 9/99 181227 124954
3/89 15395 21947 10/99 205130 132858
4/89 16137 23085 11/99 240618 135558
5/89 17355 24016 12/99 302216 143531
6/89 15829 23881 1/00 301038 136321
7/89 17159 26035 2/00 407394 133743
8/89 18041 26542 3/00 381280 146819
9/89 18447 26434 4/00 337776 142403
10/89 17720 25821 5/00 297952 139484
11/89 18154 26345 6/00 349021 142919
12/89 17762 26977 7/00 338062 140687
1/90 17105 25167 8/00 395735 149420
2/90 18574 25491 9/00 366570 141534
3/90 19639 26166 10/00 330096 140933
4/90 19778 25514 11/00 234368 129831
5/90 22620 27996 12/00 233431 130468
6/90 22901 27808 1/01 252292 135094
7/90 21362 27719 2/01 175393 122783
8/90 18450 25216 3/01 139034 115009
9/90 16365 23991 4/01 174307 123940
10/90 16254 23890 5/01 161844 124771
11/90 18214 25431 6/01 158332 121735
12/90 19293 26139 7/01 145127 120537
1/91 22190 27274 8/01 123808 112998
2/91 23520 29222 9/01 92720 103874
3/91 25998 29929 10/01 108770 105856
4/91 25200 30000 11/01 127870 113974
5/91 26279 31290 12/01 127205 114973
6/91 23940 29858 1/02 126467 113296
7/91 26669 31248 2/02 107130 111111
8/91 28867 31986 3/02 118765 115290
9/91 29568 31451 4/02 103064 108303
10/91 31481 31873 5/02 97045 107508
11/91 30090 30592 6/02 83614 99853
12/91 34125 34085 7/02 73145 92071
1/92 36230 33450 8/02 70373 92674
2/92 37415 33883 9/02 58501 82612
3/92 34631 33225 10/02 67598 89876
4/92 32180 34200 11/02 77907 95160
5/92 33135 34367 12/02 67125 89573
6/92 31220 33856 1/03 66541 87231
7/92 32369 35238 2/03 67206 85920
8/92 31136 34518 3/03 65996 86752
9/92 32805 34924 4/03 71969 93894
10/92 35134 35043 5/03 79778 98837
11/92 38907 36233 6/03 79076 100099
12/92 40541 36678 7/03 82555 101865
1/93 40160 36984 8/03 89118 103848
2/93 36787 37488 9/03 85723 102748
3/93 37846 38279 10/03 95169 108558
4/93 36942 37353 11/03 96892 109512
5/93 41201 38350 12/03 96107 115251
6/93 41860 38462 1/04 99894 117366
7/93 42032 38307 2/04 98175 118997
8/93 45268 39757 3/04 95633 117202
9/93 46853 39453 4/04 89503 115364
10/93 46942 40268 5/04 94032 116944
11/93 44923 39884 6/04 95433 119217
12/93 46635 40367 7/04 85517 115272
1/94 47740 41738 8/04 82002 115734
2/94 47821 40605 9/04 85832 116988
3/94 44598 38838 10/04 91454 118775
4/94 45369 39336 11/04 96612 123579
5/94 44993 39979 12/04 99346 127783
6/94 42739 39001 1/05 93683 124669
2/05 94273 127291
3/05 $ 91266 $ 125039
Source: Lipper, Inc.
- --------------------------------------------------------------------------------
The performance data quoted represent past performance and cannot guarantee
comparable future results; current performance may be lower or higher. Please
visit AIMinvestments.com for the most recent month-end performance. Performance
figures reflect reinvested distributions, changes in net asset value and the
effect of the maximum sales charge unless otherwise stated. Investment return
and principal value will fluctuate so that you may have a gain or loss when you
sell shares.
Class A share performance reflects the maximum 5.50% sales charge, and Class B
and Class C share performance reflects the applicable contingent deferred sales
charge (CDSC) for the period involved. The CDSC on Class B shares declines from
5% beginning at the time of purchase to 0% at the beginning of the seventh year.
The CDSC on Class C shares is 1% for the first year after purchase.
Class K shares do not have a front-end sales charge; returns shown are at net
asset value and do not reflect a 0.70% CDSC that may be imposed on a total
redemption of retirement plan assets within the first year.
Investor Class shares do not have a front-end sales charge or a CDSC; therefore,
performance is at net asset value.
The performance of the Fund's share classes will differ due to different sales
charge structures and class expenses.
Had the advisor not waived fees and/or reimbursed expenses for the Fund's Class
A, Class B, Class C and Class K shares, performance for these share classes
would have been lower.
- ---------------------------------------
CUMULATIVE TOTAL RETURNS
Excluding applicable sales
charges 6 months ended 3/31/05
Class A Shares 6.36%
Class B Shares 5.98
Class C Shares 6.00
Class K Shares 6.27
Investor Class Shares 6.32
- ---------------------------------------
5
SUPPLEMENT TO ANNUAL REPORT DATED 3/31/05
AIM TECHNOLOGY FUND
INSTITUTIONAL CLASS SHARES
The following information has been prepared to provide Institutional Class
shareholders with a performance overview specific to their holdings.
Institutional Class shares are offered exclusively to institutional investors,
including defined contribution plans that meet certain criteria.
- --------------------------------
AVERAGE ANNUAL TOTAL RETURNS
For periods ended 3/31/05
Inception (12/21/98) -3.51%
5 Years -24.29
1 Year -3.59
- --------------------------------
- --------------------------------
CUMULATIVE TOTAL RETURN*
6 months ended 3/31/05
6 Months 6.72%
*Return has not been annualized.
- --------------------------------
Institutional Class shares have no sales charge; therefore, performance is
at net asset value. Institutional Class shares would have had different returns
due to differences in the expense structure of the Institutional Class. Please
note that past performance is not indicative of future results. More recent
returns may be more or less than those shown. All returns assume reinvestment of
distributions at net asset value. Investment return and principal value will
fluctuate so your shares, when redeemed, may be worth more or less than their
original cost. See full report for information on comparative benchmarks. Please
consult your fund prospectus for more information. For the most current
month-end performance, please call 800-525-8085 or visit AIMinvestments.com.
Over for information on your fund's expenses.
FOR INSTITUTIONAL INVESTOR USE ONLY
This material is for institutional investor use only and may not be quoted,
reproduced or shown to the public, nor used in written form as sales literature
for public use.
[YOUR GOALS. OUR SOLUTIONS.]
- REGISTERED TRADEMARK -
[AIM INVESTMENTS LOGO]
-REGISTERED TRADEMARK-
AIMinvestments.com I-TEC-INS-1
INFORMATION ABOUT YOUR FUND'S EXPENSES
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE
As a shareholder of the Fund, you incur ongoing costs, including management
fees; and other Fund expenses. This example is intended to help you understand
your ongoing costs (in dollars) of investing in the Fund and to compare these
costs with ongoing costs of investing in other mutual funds. The example is
based on an investment of $1,000 invested at the beginning of the period and
held for the entire period October 1, 2004, through March 31, 2005.
ACTUAL EXPENSES
The table below provides information about actual account values and actual
expenses. You may use the information in this table, together with the amount
you invested, to estimate the expenses that you paid over the period. Simply
divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number in the table
under the heading entitled "Actual Expenses Paid During Period" to estimate the
expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The table below also provides information about hypothetical account values and
hypothetical expenses based on the Fund's actual expense ratio and an assumed
rate of return of 5% per year before expenses, which is not the Fund's actual
return. The Fund's actual cumulative total return after expenses for the six
months ended March 31, 2005, appears in the table on the front of this
supplement. The hypothetical account values and expenses may not be used to
estimate the actual ending account balance or expenses you paid for the period.
You may use this information to compare the ongoing costs of investing in the
Fund and other funds. To do so, compare this 5% hypothetical example with the 5%
hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight
your ongoing costs only. Therefore, the hypothetical information is useful in
comparing ongoing costs only, and will not help you determine the relative total
costs of owning different funds.
- --------------------------------------------------------------------------------
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES ENDING ACCOUNT EXPENSES
SHARE VALUE VALUE PAID DURING VALUE PAID DURING
CLASS (10/1/04) (3/31/05)/1/ PERIOD/2/ (3/31/05) PERIOD/2/
Institutional $ 1,000.00 $ 1,067.20 $ 4.07 $ 1,020.99 $ 3.98
/1/The actual ending account value is based on the actual total return of the
Fund for the period October 1, 2004, to March 31, 2005, after actual expenses
and will differ from the hypothetical ending account value which is based on the
Fund's expense ratio and a hypothetical annual return of 5% before expenses. The
Fund's actual cumulative total return after expenses for the six months ended
March 31, 2005, appears in the table on the front of this supplement.
/2/Expenses are equal to the Fund's annualized expense ratio, 0.79% for the
Institutional Class shares, multiplied by the average account value over the
period, multiplied by 182/365 (to reflect the one-half year period).
- --------------------------------------------------------------------------------
AIMinvestments.com I-TEC-INS-1
FINANCIALS
Schedule of Investments
March 31, 2005
MARKET
SHARES VALUE
----------------------------------------------------------------------------
DOMESTIC COMMON STOCKS & OTHER
EQUITY INTERESTS-84.02%
APPLICATION SOFTWARE-3.40%
Kronos Inc./(a)/ 65,800 $ 3,363,038
----------------------------------------------------------------------------
Macromedia, Inc./(a)/ 406,600 13,621,100
----------------------------------------------------------------------------
Mercury Interactive Corp./(a)/ 228,500 10,826,330
----------------------------------------------------------------------------
NAVTEQ Corp./(a)/ 265,900 11,526,765
----------------------------------------------------------------------------
Siebel Systems, Inc./(a)/ 664,900 6,070,537
----------------------------------------------------------------------------
45,407,770
----------------------------------------------------------------------------
BIOTECHNOLOGY-0.93%
Genzyme Corp./(a)/ 217,800 12,466,872
----------------------------------------------------------------------------
Ingenex, Inc.-Pfd., Series B (Acquired 09/27/94; Cost
$178,316)/(a)(b)(c)(d)(e)/ 30,627 0
----------------------------------------------------------------------------
12,466,872
----------------------------------------------------------------------------
BROADCASTING & CABLE TV-2.22%
Cablevision Systems Corp. New York Group-Class A/(a)/ 130,200 3,652,110
----------------------------------------------------------------------------
Comcast Corp.-Class A/(a)/ 770,700 26,034,246
----------------------------------------------------------------------------
29,686,356
----------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT-8.23%
Avaya Inc./ (a)/ 557,200 6,508,096
----------------------------------------------------------------------------
Cisco Systems, Inc./(a)/ 2,155,160 38,555,812
----------------------------------------------------------------------------
Comverse Technology, Inc./(a)/ 1,076,000 27,136,720
----------------------------------------------------------------------------
F5 Networks, Inc./(a)(f)/ 251,700 12,708,333
----------------------------------------------------------------------------
Juniper Networks, Inc./(a)/ 311,622 6,874,381
----------------------------------------------------------------------------
QUALCOMM Inc. 494,500 18,123,425
----------------------------------------------------------------------------
109,906,767
----------------------------------------------------------------------------
COMPUTER HARDWARE-10.55%
Apple Computer, Inc./(a)/ 982,200 40,928,274
----------------------------------------------------------------------------
Avid Technology, Inc./(a)/ 298,300 16,143,996
----------------------------------------------------------------------------
Dell Inc./(a)/ 1,003,600 38,558,312
----------------------------------------------------------------------------
Hewlett-Packard Co. 604,800 13,269,312
----------------------------------------------------------------------------
International Business Machines Corp. 350,400 32,019,552
----------------------------------------------------------------------------
140,919,446
----------------------------------------------------------------------------
COMPUTER STORAGE & PERIPHERALS-6.25%
Brocade Communications Systems, Inc./(a)/ 821,200 4,861,504
----------------------------------------------------------------------------
EMC Corp./(a)/ 2,914,472 35,906,295
----------------------------------------------------------------------------
Emulex Corp./(a)/ 533,200 10,045,488
----------------------------------------------------------------------------
Network Appliance, Inc./(a)/ 483,500 13,373,610
----------------------------------------------------------------------------
QLogic Corp./(a)/ 190,000 7,695,000
----------------------------------------------------------------------------
Storage Technology Corp./(a)/ 375,400 11,562,320
----------------------------------------------------------------------------
83,444,217
----------------------------------------------------------------------------
MARKET
SHARES VALUE
------------------------------------------------------------------------
CONSTRUCTION & ENGINEERING-0.23%
Dycom Industries, Inc./(a)/ 135,200 $ 3,108,248
------------------------------------------------------------------------
DATA PROCESSING & OUTSOURCED
SERVICES-3.18%
Automatic Data Processing, Inc. 215,300 9,677,735
------------------------------------------------------------------------
CheckFree Corp./(a)/ 167,000 6,806,920
------------------------------------------------------------------------
DST Systems, Inc./(a)/ 334,000 15,424,120
------------------------------------------------------------------------
First Data Corp. 267,800 10,527,218
------------------------------------------------------------------------
42,435,993
------------------------------------------------------------------------
ELECTRONIC EQUIPMENT
MANUFACTURERS-1.00%
Amphenol Corp.-Class A 340,600 12,615,824
------------------------------------------------------------------------
Dolby Laboratories Inc.-Class A/(a)/ 33,800 794,300
------------------------------------------------------------------------
13,410,124
------------------------------------------------------------------------
ELECTRONIC MANUFACTURING
SERVICES-0.62%
Trimble Navigation Ltd./(a)/ 245,450 8,298,665
------------------------------------------------------------------------
HEALTH CARE EQUIPMENT-0.49%
Medtronic, Inc. 128,100 6,526,695
------------------------------------------------------------------------
HEALTH CARE SERVICES-0.54%
Quest Diagnostics Inc. 68,700 7,222,431
------------------------------------------------------------------------
HOME ENTERTAINMENT SOFTWARE-0.69%
Activision, Inc./(a)/ 620,799 9,187,825
------------------------------------------------------------------------
INTEGRATED TELECOMMUNICATION
SERVICES-1.17%
Sprint Corp. 689,600 15,688,400
------------------------------------------------------------------------
INTERNET RETAIL-1.04%
eBay Inc./(a)/ 374,100 13,938,966
------------------------------------------------------------------------
INTERNET SOFTWARE & SERVICES-8.03%
Google Inc.-Class A/(a)/ 94,700 17,094,297
------------------------------------------------------------------------
InfoSpace, Inc./(a)/ 184,900 7,549,467
------------------------------------------------------------------------
Niku Corp./(a)/ 163,200 2,945,760
------------------------------------------------------------------------
Openwave Systems Inc./(a)/ 684,300 8,341,617
------------------------------------------------------------------------
VeriSign, Inc./(a)(f)/ 970,200 27,844,740
------------------------------------------------------------------------
Yahoo! Inc./(a)/ 1,281,400 43,439,460
------------------------------------------------------------------------
107,215,341
------------------------------------------------------------------------
IT CONSULTING & OTHER SERVICES-2.15%
Sapient Corp./(a)/ 105,700 776,367
------------------------------------------------------------------------
Anteon International Corp./(a)/ 150,700 5,866,751
------------------------------------------------------------------------
Cognizant Technology Solutions Corp.-Class A/(a)/ 476,700 22,023,540
------------------------------------------------------------------------
28,666,658
------------------------------------------------------------------------
F-1
MARKET
SHARES VALUE
--------------------------------------------------------------------
MOVIES & ENTERTAINMENT-1.87%
Time Warner Inc./(a)/ 1,420,500 $ 24,929,775
--------------------------------------------------------------------
OFFICE ELECTRONICS-0.53%
Zebra Technologies Corp. -- Class A/(a)/ 148,350 7,045,142
--------------------------------------------------------------------
OTHER DIVERSIFIED FINANCIAL
SERVICES-0.46%
BlueStream Ventures L.P.
(Acquired 08/30/00-01/07/05; Cost
$17,784,281)/(a)(b)(c)(d)(e)(g)(h)/ 18,800,865 6,153,899
--------------------------------------------------------------------
SEMICONDUCTOR EQUIPMENT-2.22%
ATMI, Inc./(a)/ 136,400 3,415,456
--------------------------------------------------------------------
KLA-Tencor Corp./(a)/ 291,000 13,388,910
--------------------------------------------------------------------
Lam Research Corp./(a)/ 168,300 4,857,138
--------------------------------------------------------------------
Novellus Systems, Inc./(a)/ 142,700 3,814,371
--------------------------------------------------------------------
Teradyne, Inc./(a)/ 285,100 4,162,460
--------------------------------------------------------------------
29,638,335
--------------------------------------------------------------------
SEMICONDUCTORS-17.94%
Altera Corp./(a)/ 1,187,000 23,478,860
--------------------------------------------------------------------
Analog Devices, Inc. 382,800 13,834,392
--------------------------------------------------------------------
Broadcom Corp. -- Class A/(a)/ 552,700 16,536,784
--------------------------------------------------------------------
Cypress Semiconductor Corp./(a)/ 551,100 6,943,860
--------------------------------------------------------------------
Freescale Semiconductor Inc. -- Class A/(a)/ 237,600 4,027,320
--------------------------------------------------------------------
Freescale Semiconductor Inc. -- Class B/(a)/ 226,377 3,905,003
--------------------------------------------------------------------
Integrated Device Technology, Inc./(a)/ 274,200 3,298,626
--------------------------------------------------------------------
Intel Corp. 1,960,500 45,542,415
--------------------------------------------------------------------
Linear Technology Corp. 375,000 14,366,250
--------------------------------------------------------------------
Maxim Integrated Products, Inc. 521,000 21,293,270
--------------------------------------------------------------------
Microchip Technology Inc. 512,500 13,330,125
--------------------------------------------------------------------
National Semiconductor Corp. 992,100 20,447,181
--------------------------------------------------------------------
PMC-Sierra, Inc./(a)/ 824,100 7,252,080
--------------------------------------------------------------------
Sigmatel Inc./(a)/ 86,400 3,233,952
--------------------------------------------------------------------
Texas Instruments Inc. 748,100 19,069,069
--------------------------------------------------------------------
Xilinx, Inc. 787,100 23,006,933
--------------------------------------------------------------------
239,566,120
--------------------------------------------------------------------
SYSTEMS SOFTWARE-6.25%
McAfee Inc./(a)/ 293,000 6,610,080
--------------------------------------------------------------------
Microsoft Corp. 1,117,000 26,997,890
--------------------------------------------------------------------
Oracle Corp./(a)/ 3,182,000 39,711,360
--------------------------------------------------------------------
Symantec Corp./(a)/ 162,300 3,461,859
--------------------------------------------------------------------
VERITAS Software Corp./(a)/ 286,900 6,661,818
--------------------------------------------------------------------
83,443,007
--------------------------------------------------------------------
WIRELESS TELECOMMUNICATION
SERVICES-4.03%
American Tower Corp. -- Class A/(a)/ 432,300 7,880,829
--------------------------------------------------------------------
Nextel Communications, Inc. -- Class A/(a)/ 476,900 13,553,498
--------------------------------------------------------------------
Nextel Partners, Inc. -- Class A/(a)/ 715,500 15,712,380
--------------------------------------------------------------------
NII Holdings Inc./(a)/ 189,300 10,884,750
--------------------------------------------------------------------
MARKET
SHARES VALUE
- -------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION
SERVICES-(CONTINUED)
Syniverse Holdings Inc./(a)/ 416,900 $ 5,753,220
- -------------------------------------------------------------------------------
53,784,677
- -------------------------------------------------------------------------------
Total Domestic Common Stocks & Other Equity
Interests (Cost $877,747,454) 1,122,091,729
- -------------------------------------------------------------------------------
FOREIGN STOCKS & OTHER EQUITY
INTERESTS-12.78%
BERMUDA-2.04%
Marvell Technology Group Ltd. (Semiconductors)/(a)(f)/ 710,800 27,252,072
- -------------------------------------------------------------------------------
CANADA-1.90%
ATI Technologies Inc. (Semiconductors)/(a)(f)/ 629,600 10,866,896
- -------------------------------------------------------------------------------
Cognos, Inc. (Application Software)/(a)/ 344,900 14,465,106
- -------------------------------------------------------------------------------
25,332,002
- -------------------------------------------------------------------------------
FINLAND-1.59%
Nokia Oyj-ADR (Communications Equipment) 1,375,800 21,228,594
- -------------------------------------------------------------------------------
GERMANY-0.27%
SAP A.G.-ADR (Application Software) 91,500 3,667,320
- -------------------------------------------------------------------------------
INDIA-0.95%
Infosys Technologies Ltd.-ADR (IT Consulting & Other
Services) 44,200 3,258,866
- -------------------------------------------------------------------------------
Wipro Ltd.-ADR (IT Consulting & Other Services)/(i)/ 462,900 9,447,789
- -------------------------------------------------------------------------------
12,706,655
- -------------------------------------------------------------------------------
ISRAEL-1.37%
Check Point Software Technologies Ltd.
(Systems Software)/(a)/ 838,800 18,235,512
- -------------------------------------------------------------------------------
JAPAN-0.04%
Jupiter Telecommunications Co., Ltd.
(Internet Software & Services)(Acquired 03/14/05;
Cost $528,258)/(a)(b)/ 687 547,755
- -------------------------------------------------------------------------------
MEXICO-0.74%
America Movil S.A. de C.V.-Series L-ADR
(Wireless Telecommunication Services) 191,500 9,881,400
- -------------------------------------------------------------------------------
RUSSIA-0.98%
AO VimpelCom-ADR
(Wireless Telecommunication Services)/(a)/ 379,000 13,045,180
- -------------------------------------------------------------------------------
TAIWAN-0.50%
Taiwan Semiconductor Manufacturing Co. Ltd.-ADR
(Semiconductors) 793,999 6,733,112
- -------------------------------------------------------------------------------
UNITED KINGDOM-2.40%
Amdocs Ltd. (Application Software)/(a)/ 1,128,320 32,044,288
- -------------------------------------------------------------------------------
Total Foreign Stocks & Other Equity Interests (Cost
$142,605,399) 170,673,890
- -------------------------------------------------------------------------------
F-2
NUMBER
OF EXERCISE EXPIRATION MARKET
CONTRACTS PRICE DATE VALUE
------------------------------------------------------------
OPTIONS PURCHASED-
0.00%
PUTS-0.00%
ATI Technologies Inc.
(Canada)
(Semiconductors) (Cost
$84,454) 3,262 $15 Apr-05 $8,155
------------------------------------------------------------
SHARES
MONEY MARKET FUNDS-4.43%
Premier Portfolio-Institutional Class
(Cost $59,112,303)/(j)/ 59,112,303 59,112,303
- ----------------------------------------------------------------------------------
TOTAL INVESTMENTS-101.23% (excluding investments
purchased with cash collateral from securities loaned)
(Cost $1,079,549,610) 1,351,886,077
- ----------------------------------------------------------------------------------
INVESTMENTS PURCHASED WITH CASH
COLLATERAL FROM SECURITIES LOANED
Money Market Funds-0.55%
Premier Portfolio-Institutional Class/(j)(k)/ 7,397,327 7,397,327
- ----------------------------------------------------------------------------------
Total Money Market Funds (purchased with cash
collateral from securities loaned) (Cost $7,397,327) 7,397,327
- ----------------------------------------------------------------------------------
TOTAL INVESTMENTS-101.78% (Cost $1,086,946,937) 1,359,283,404
- ----------------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-(1.78%) (23,825,713)
- ----------------------------------------------------------------------------------
NET ASSETS-100.00% $1,335,457,691
- ----------------------------------------------------------------------------------
Investment Abbreviations:
ADR- American Depositary Receipt
Pfd.- Preferred
Notes to Schedule of Investments:
/(a)/Non-income producing security.
/(b)/Security not registered under the Securities Act of 1933, as amended
(e.g., the security was purchased in a Rule 144A transaction or a
Regulation D transaction). The security may be resold only pursuant to an
exemption from registration under the 1933 Act, typically to qualified
institutional buyers. The Fund has no rights to demand registration of
these securities. The aggregate market value of these securities at March
31, 2005 was $6,701,654, which represented 0.50% of the Fund's Net Assets.
Unless otherwise indicated, these securities are not considered to be
illiquid.
/(c)/Security is considered venture capital. See Note 1J.
/(d)/Security fair valued in good faith in accordance with the procedures
established by the Board of Trustees. The aggregate market value of these
securities at March 31, 2005 was $6,153,899, which represented 0.45% of
the Fund's Total Investments. See Note 1A.
/(e)/Security considered to be illiquid; the Portfolio is limited to investing
15% of net assets in illiquid securities. The aggregate market value of
these securities considered illiquid at March 31, 2005 was $6,153,899,
which represented 0.46% of the Fund's Net Assets.
/(f)/A portion of this security is subject to call options written. See Note 1H
and Note 9.
/(g)/The Fund has a remaining commitment of $8,847,098 to purchase additional
interests in BlueStream Ventures L.P., which is subject to the terms of
the limited partnership agreement.
/(h)/The Investment Company Act of 1940 defines affiliates as those companies
in which a fund holds 5% or more of the outstanding voting securities. The
Fund has not owned enough of the outstanding voting securities of the
issuer to have control (as defined in the Investment Company Act of 1940)
of that issuer. The market value of this security at March 31, 2005
represented 0.46% of the Fund's Net Assets.
/(i)/All or a portion of this security has been pledged as collateral for
securities lending transactions at March 31, 2005.
/(j)/The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
/(k)/The security has been segregated to satisfy the forward commitment to
return the cash collateral received in securities lending transactions
upon the borrower's return of the securities loaned. See Note 8.
See accompanying notes which are an integral part of the financial statements.
F-3
Statement of Assets and Liabilities
March 31, 2005
ASSETS:
Investments, at market value (cost $1,002,653,026)* $1,286,619,875
- ------------------------------------------------------------------------------------
Investments in affiliates (cost $84,293,911) 72,663,529
- ------------------------------------------------------------------------------------
Total investments (cost $1,086,946,937) 1,359,283,404
- ------------------------------------------------------------------------------------
Cash 425,430
- ------------------------------------------------------------------------------------
Receivables for:
Investments sold 13,462,418
- ------------------------------------------------------------------------------------
Fund shares sold 646,114
- ------------------------------------------------------------------------------------
Dividends 210,834
- ------------------------------------------------------------------------------------
Investment for trustee deferred compensation and retirement plans 379,647
- ------------------------------------------------------------------------------------
Other assets 55,755
- ------------------------------------------------------------------------------------
Total assets 1,374,463,602
- ------------------------------------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 23,549,308
- ------------------------------------------------------------------------------------
Fund shares reacquired 4,960,564
- ------------------------------------------------------------------------------------
Options written, at market value (premiums received $624,671) 539,717
- ------------------------------------------------------------------------------------
Trustee deferred compensation and retirement plans 491,229
- ------------------------------------------------------------------------------------
Collateral upon return of securities loaned 7,397,327
- ------------------------------------------------------------------------------------
Accrued distribution fees 499,624
- ------------------------------------------------------------------------------------
Accrued trustees' fees 6,575
- ------------------------------------------------------------------------------------
Accrued transfer agent fees 945,752
- ------------------------------------------------------------------------------------
Accrued operating expenses 615,815
- ------------------------------------------------------------------------------------
Total liabilities 39,005,911
- ------------------------------------------------------------------------------------
Net assets applicable to shares outstanding $1,335,457,691
- ------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Shares of beneficial interest $1,858,492,051
- ------------------------------------------------------------------------------------
Undistributed net investment income (loss) (310,067)
- ------------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment securities,
foreign currencies and option contracts (795,145,714)
- ------------------------------------------------------------------------------------
Unrealized appreciation of investment securities, foreign currencies
and option contracts 272,421,421
- ------------------------------------------------------------------------------------
$1,335,457,691
- ------------------------------------------------------------------------------------
NET ASSETS:
Class A $314,754,836
-----------------------------------------------------------
Class B $ 88,240,210
-----------------------------------------------------------
Class C $ 27,016,346
-----------------------------------------------------------
Class K $ 12,804,922
-----------------------------------------------------------
Investor Class $892,630,304
-----------------------------------------------------------
Institutional Class $ 11,073
-----------------------------------------------------------
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Class A 13,341,796
-----------------------------------------------------------
Class B 3,829,677
-----------------------------------------------------------
Class C 1,204,658
-----------------------------------------------------------
Class K 555,241
-----------------------------------------------------------
Investor Class 38,201,829
-----------------------------------------------------------
Institutional Class 453
-----------------------------------------------------------
Class A:
Net asset value per share $ 23.59
-----------------------------------------------------------
Offering price per share:
(Net asset value of $23.59 / 94.50%) $ 24.96
-----------------------------------------------------------
Class B:
Net asset value and offering price per share $ 23.04
-----------------------------------------------------------
Class C:
Net asset value and offering price per share $ 22.43
-----------------------------------------------------------
Class K:
Net asset value and offering price per share $ 23.06
-----------------------------------------------------------
Investor Class:
Net asset value and offering price per share $ 23.37
-----------------------------------------------------------
Institutional Class:
Net asset value and offering price per share $ 24.44
-----------------------------------------------------------
* At March 31, 2005, securities with an aggregate market value of $7,275,203
were on loan to brokers.
See accompanying notes which are an integral part of the financial statements.
F-4
Statement of Operations
For the year ended March 31, 2005
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $327,940) $ 11,357,970
- -----------------------------------------------------------------------------------------------------------------------
Dividends from affiliated money market funds 535,283
- -----------------------------------------------------------------------------------------------------------------------
Securities lending (includes $185,090 from investments in affiliated money market funds)* 185,700
- -----------------------------------------------------------------------------------------------------------------------
Total investment income 12,078,953
- -----------------------------------------------------------------------------------------------------------------------
EXPENSES:
Advisory fees 10,500,091
- -----------------------------------------------------------------------------------------------------------------------
Administrative services fees 560,226
- -----------------------------------------------------------------------------------------------------------------------
Custodian fees 105,046
- -----------------------------------------------------------------------------------------------------------------------
Distribution fees:
Class A 1,231,620
- -----------------------------------------------------------------------------------------------------------------------
Class B 1,038,119
- -----------------------------------------------------------------------------------------------------------------------
Class C 314,955
- -----------------------------------------------------------------------------------------------------------------------
Class K 71,142
- -----------------------------------------------------------------------------------------------------------------------
Investor Class 2,747,822
- -----------------------------------------------------------------------------------------------------------------------
Transfer agent fees -- Class A, B, C, K and Investor Class 10,163,342
- -----------------------------------------------------------------------------------------------------------------------
Transfer agent fees -- Institutional Class 131,472
- -----------------------------------------------------------------------------------------------------------------------
Trustees' fees and retirement benefits 69,178
- -----------------------------------------------------------------------------------------------------------------------
Other 766,960
- -----------------------------------------------------------------------------------------------------------------------
Total expenses 27,699,973
- -----------------------------------------------------------------------------------------------------------------------
Less:Fees waived, expenses reimbursed and expense offset arrangement (1,180,972)
- -----------------------------------------------------------------------------------------------------------------------
Net expenses 26,519,001
- -----------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (14,440,048)
- -----------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES, FOREIGN CURRENCIES AND OPTION CONTRACTS:
Net realized gain (loss) from:
Investment securities 267,108,601
- -----------------------------------------------------------------------------------------------------------------------
Foreign currencies (388,854)
- -----------------------------------------------------------------------------------------------------------------------
Option contracts written 145,675
- -----------------------------------------------------------------------------------------------------------------------
266,865,422
- -----------------------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of:
Investment securities (422,628,576)
- -----------------------------------------------------------------------------------------------------------------------
Foreign currencies (284)
- -----------------------------------------------------------------------------------------------------------------------
Option contracts written (534,516)
- -----------------------------------------------------------------------------------------------------------------------
(423,163,376)
- -----------------------------------------------------------------------------------------------------------------------
Net gain (loss) from investment securities, foreign currencies and option contracts (156,297,954)
- -----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $(170,738,002)
- -----------------------------------------------------------------------------------------------------------------------
* Net of rebates of $389,897
See accompanying notes which are an integral part of the financial statements.
F-5
STATEMENT OF CHANGES IN NET ASSETS
For the years ended March 31, 2005 and 2004
2005 2004
------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (14,440,048) $ (30,592,087)
------------------------------------------------------------------------------
Net realized gain from investment
securities, foreign currencies and option
contracts 266,865,422 55,136,996
------------------------------------------------------------------------------
Change in net unrealized appreciation
(depreciation) of investment securities,
foreign currencies and option contracts (423,163,376) 770,934,326
------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations (170,738,002) 795,479,235
------------------------------------------------------------------------------
Share transactions-net:
Class A (77,627,447) 373,143,307
------------------------------------------------------------------------------
Class B (31,117,750) 116,125,985
------------------------------------------------------------------------------
Class C (8,376,194) 27,197,490
------------------------------------------------------------------------------
Class K (6,196,692) (11,012,370)
------------------------------------------------------------------------------
Investor Class (393,625,584) 122,403,961
------------------------------------------------------------------------------
Institutional Class (1,227,237,773) 233,563,587
------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from share transactions (1,744,181,440) 861,421,960
------------------------------------------------------------------------------
Net increase (decrease) in net assets (1,914,919,442) 1,656,901,195
------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 3,250,377,133 1,593,475,938
------------------------------------------------------------------------------
End of year (including undistributed net
investment income (loss) of $(310,067)
and $(322,064), respectively) $ 1,335,457,691 $3,250,377,133
------------------------------------------------------------------------------
See accompanying notes which are an integral part of the financial statements.
F-6
Notes to Financial Statements
March 31, 2005
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Technology Fund, formerly INVESCO Technology Fund, (the "Fund") is a series
portfolio of AIM Sector Funds (the "Trust"). The Trust is a Delaware statutory
trust registered under the Investment Company Act of 1940, as amended (the
"1940 Act"), as an open-end series management investment company consisting of
seven separate portfolios, each authorized to issue an unlimited number of
shares of beneficial interest. The Fund currently offers multiple classes of
shares. Matters affecting each portfolio or class will be voted on exclusively
by the shareholders of such portfolio or class. The assets, liabilities and
operations of each portfolio are accounted for separately. Information
presented in these financial statements pertains only to the Fund.
The Fund's investment objective is to seek capital growth. Each company
listed in the Schedule of Investments is organized in the United States of
America unless otherwise noted.
Under the Trust's organizational documents, 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. However, the Fund has not had prior claims or losses pursuant to
these contracts.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates. The following is a summary of the
significant accounting policies followed by the Fund in the preparation of its
financial statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy.
A security listed or traded on an exchange (except convertible bonds) is
valued at its last sales price as of the close of the customary trading
session on the exchange where the security is principally traded, or lacking
any sales on a particular day, the security is valued at the closing bid
price on that day. Each security traded in the over-the-counter market (but
not securities reported on the NASDAQ National Market System) is valued on
the basis of prices furnished by independent pricing services, 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 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 will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
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 market
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 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 and 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.
F-7
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 allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. DISTRIBUTIONS -- Distributions from income and net realized capital gain, if
any, are generally paid annually and recorded on ex-dividend date. The Fund
may elect to use a portion of the proceeds from redemptions as distributions
for federal income tax purposes.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
E. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund are charged to the operations of such class. Transfer
agency fees and expenses and other shareholder recordkeeping fees and
expenses attributable to the Institutional Class are charged to such class.
Transfer agency fees and expenses and other shareholder recordkeeping fees
and expenses relating to all other classes are allocated among those classes
based on relative net assets. All other expenses are allocated among the
classes based on relative net assets.
F. 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.
G. 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.
H. COVERED CALL OPTIONS -- The Fund may write call options, on a covered basis;
that is, the Fund will own the underlying security. When the Fund writes a
covered call option, an amount equal to the premium received by the Fund is
recorded as an asset and an equivalent liability. The amount of the
liability is subsequently "marked-to-market" to reflect the current market
value of the option written. The current market value of a written option is
the mean between the last bid and asked prices on that day. If a written
call option expires on the stipulated expiration date, or if the Fund enters
into a closing purchase transaction, the Fund realizes a gain (or a loss if
the closing purchase transaction exceeds the premium received when the
option was written) without regard to any unrealized gain or loss on the
underlying security, and the liability related to such option is
extinguished. If a written option is exercised, the Fund realizes a gain or
a loss from the sale of the underlying security and the proceeds of the sale
are increased by the premium originally received. A risk in writing a call
option is that the Fund gives up the opportunity for profit if the market
price of the security increases and the option is exercised.
I. PUT OPTIONS -- The Fund may purchase put options. By purchasing a put
option, the Fund obtains the right (but not the obligation) to sell the
option's underlying instrument at a fixed strike price. In return for this
right, the Fund pays an option premium. The option's underlying instrument
may be a security or a futures contract. Put options may be used by the Fund
to hedge securities it owns by locking in a minimum price at which the Fund
can sell. If security prices fall, the put option could be exercised to
offset all or a portion of the Fund's resulting losses. At the same time,
because the maximum the Fund has at risk is the cost of the option,
purchasing put options does not eliminate the potential for the Fund to
profit from an increase in the value of the securities hedged. A risk in
buying an option is that the Fund pays a premium whether or not the option
is exercised. In addition, there can be no assurance that a liquid secondary
market will exist for any option purchased or sold.
J. VENTURE CAPITAL INVESTMENTS -- The Fund has invested in non-publicly traded
companies, some of which are in the startup or development stages. These
investments are inherently risky, as the markets for the technologies or
products these companies are developing are typically in the early stages
and may never materialize. The Fund could lose its entire investment in
these companies. These investments are valued at fair value as determined in
good faith in accordance with procedures approved by the Board of Trustees.
Investments in privately held venture capital securities are illiquid.
F-8
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee based on the annual rate of the Fund's average
daily net assets as follows:
AVERAGE NET ASSETS RATE
-------------------------
First $350 million 0.75%
-------------------------
Next $350 million 0.65%
-------------------------
Next $1.3 billion 0.55%
-------------------------
Next $2 billion 0.45%
-------------------------
Next $2 billion 0.40%
-------------------------
Next $2 billion 0.375%
-------------------------
Over $8 billion 0.35%
-------------------------
Prior to September 30, 2004, AIM had entered into a sub-advisory agreement
with INVESCO Institutional (N.A.), Inc. ("INVESCO") whereby AIM paid INVESCO
40% of the fee paid by the Fund to AIM. Effective September 30, 2004, the
sub-advisory agreement between AIM and INVESCO was terminated.
AIM has voluntarily agreed to waive advisory fees and/or reimburse expenses
to the extent necessary to limit total annual operating expenses (excluding
certain items discussed below) of Class A and Class B, Class C and
Institutional Class shares to 1.50%, 2.15%, 2.15% and 1.15% of average daily
net assets, respectively. Additionally, the advisor had agreed to further limit
the total annual operating expenses of Class K and Investor Class shares to
1.95% and 1.77% of average daily net assets, respectively, through November 23,
2004. Effective April 1, 2005, AIM has voluntarily agreed to waive advisory
fees and/or reimburse expenses to the extent necessary to limit total annual
operating expenses (excluding certain items discussed below) of Class A, Class
B, Class C, Class K, Investor Class and Institutional Class shares to 1.65%,
2.30%, 2.30%, 1.75%, 1.65% and 1.30% of average daily net assets, respectively.
AIM has contractually agreed to waive advisory fees and/or reimburse expenses
to the extent necessary to limit total annual operating expenses (excluding
certain items discussed below) of Class A, Class B, Class C, Class K and
Investor Class shares to 2.00%, 2.65%, 2.65%, 2.10% and 1.90% of average daily
net assets, respectively, through March 31, 2006. In determining the advisor's
obligation to waive advisory fees and/or reimburse expenses, the following
expenses are not taken into account, and could cause the total annual fund
operating expenses to exceed the limits stated above: (i) interest; (ii) taxes;
(iii) dividend expense on short sales; (iv) extraordinary items (these are
expenses that are not anticipated to arise from the Fund's day-to-day
operations), or items designated as such by the Fund's Board of Trustees; (v)
expenses related to a merger or reorganization, as approved by the Fund's Board
of Trustees; and (vi) expenses that the Fund has incurred but did not actually
pay because of an expense offset arrangement. Currently, in addition to the
expense reimbursement arrangement with AMVESCAP PLC ("AMVESCAP") described more
fully below, the only expense offset arrangements from which the Fund may
benefit are in the form of credits that the Fund receives from banks where the
Fund or its transfer agent has deposit accounts in which it holds uninvested
cash. Those credits are used to pay certain expenses incurred by the Fund. AIM
did not waive fees and/or reimburse expenses during the period under this
expense limitation.
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
(excluding investments made in affiliated money market funds with cash
collateral from securities loaned by the fund). 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 March 31, 2005, AIM waived fees of $22,884.
For the year ended March 31, 2005, at the request of the Trustees of the
Trust, AMVESCAP agreed to reimburse $281,312 of expenses incurred by the Fund
in connection with market timing matters in the AIM Funds, including legal,
audit, shareholder reporting, communications and trustee expenses. These
expenses along with the related expense reimbursement, are included in the
Statement of Operations.
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
March 31, 2005, AIM was paid $560,226.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AISI for certain expenses
incurred by AISI in the course of providing such services. AISI may make
payments to intermediaries that provide omnibus account services,
sub-accounting services and/or networking services. For the year ended March
31, 2005, the Fund paid AISI $10,163,342 for Class A, Class B, Class C, Class K
and Investor Class share classes and $131,472 for Institutional Class shares.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("ADI") to serve as the distributor for the Class A, Class
B, Class C, Class K, Investor Class and Institutional Class shares of the Fund.
The Trust has adopted plans pursuant to Rule 12b-1 under the 1940 Act with
respect to the Fund's Class A, Class B, Class C, Class K and Investor Class
shares (collectively the "Plans"). The Fund, pursuant to the Class A, Class B,
Class C and Class K Plans, pays ADI compensation at the annual rate of 0.35% of
the Fund's average daily net assets of Class A shares, 1.00% of the average
daily net assets of Class B and Class C shares and 0.45% of the average daily
net assets of Class K shares. The Fund, pursuant to the Investor Class Plan,
pays ADI for its allocated share of expenses incurred pursuant to the Investor
Class Plan for the period, up to a maximum annual rate of 0.25% of the average
daily net assets of the Investor Class shares. Of these amounts, up to 0.25% of
the average daily net assets of the Class A, Class B, Class C, Class K or
Investor Class shares may be paid to furnish continuing personal shareholder
services to customers who purchase and own shares of such classes. Any amounts
not paid as a service fee under the Plans would constitute an asset- based
sales charge. NASD Rules also impose a cap on the total sales charges,
including asset-based sales charges that may be paid by any class of shares of
the Fund.
F-9
Pursuant to the Plans, for the year ended March 31, 2005, the Class A, Class B,
Class C, Class K and Investor Class shares paid ADI $1,231,620, $1,038,119,
$314,955, $71,142 and $2,747,822, respectively. Of these amounts, AIM
reimbursed Plan fees of $573,334, $169,789, $51,300, $0 and $61,111,
respectively.
Front-end sales commissions and contingent deferred sales charges ("CDSC")
(collectively the "sales charges") are not recorded as expenses of the Fund.
Front-end sales commissions are deducted from proceeds from the sales of Fund
shares prior to investment in Class A shares of the Fund. CDSC are deducted
from redemption proceeds prior to remittance to the shareholder. During the
year ended March 31, 2005, ADI advised the Fund that it retained $48,237 in
front-end sales commissions from the sale of Class A shares and $106, $40,365,
$5,029 and $0 from Class A, Class B, Class C and Class K shares, respectively,
for CDSC imposed upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of AIM,
AISI and/or ADI.
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to an exemptive order from the Securities and
Exchange Commission ("SEC"), to invest daily available cash balances and cash
collateral from securities lending transactions in affiliated money market
funds. The Fund and the money market fund below have the same investment
advisor and therefore, are considered to be affiliated. The tables below show
the transactions in and earnings from investments in an affiliated money market
fund for the year ended March 31, 2005.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
MARKET UNREALIZED MARKET
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 03/31/04 AT COST FROM SALES (DEPRECIATION) 03/31/05 INCOME GAIN (LOSS)
- ---------------------------------------------------------------------------------------------------------------------------
Premier Portfolio-Institutional Class* $-- $837,591,667 $(778,479,364) $-- $59,112,303 $535,283 $--
- ---------------------------------------------------------------------------------------------------------------------------
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
MARKET UNREALIZED MARKET
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 03/31/04 AT COST FROM SALES (DEPRECIATION) 03/31/05 INCOME** GAIN (LOSS)
- -----------------------------------------------------------------------------------------------------------------------------
Premier Portfolio-Institutional Class* $45,272,646 $640,470,151 $(678,345,470) $-- $7,397,327 $185,090 $--
- -----------------------------------------------------------------------------------------------------------------------------
* On February 25, 2005, the Premier Portfolio investments were transferred from
the original share class with no name designation to the newly structured
share class designated as Institutional Class.
**Net of rebates.
INVESTMENTS IN OTHER AFFILIATES:
The Investment Company Act of 1940 defines affiliates as those companies in
which a fund holds 5% or more of the outstanding voting securities. The Fund
has not owned enough of the outstanding voting securities of the issuer to have
control (as defined in the Investment Company Act of 1940) of that issuer. The
following is a summary of the transactions with affiliates for the year ended
March 31, 2005.
INVESTMENTS IN OTHER AFFILIATES:
MARKET UNREALIZED MARKET
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 03/31/04 AT COST FROM SALES (DEPRECIATION) 03/31/05 INCOME GAIN (LOSS)
- ---------------------------------------------------------------------------------------------------------------------
BlueStream Ventures L.P. $ 9,480,168 $ 3,160,665 $ (3,622,731) $(2,864,203) $ 6,153,899 $ -- $(8,181,572)
- ---------------------------------------------------------------------------------------------------------------------
Total $54,752,814 $1,508,813,463 $(1,488,038,545) $(2,864,203) $72,663,529 $720,373 $(8,181,572)
- ---------------------------------------------------------------------------------------------------------------------
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
The Fund is permitted to purchase or sell securities from or to certain other
AIM Funds under specified conditions outlined in procedures adopted by the
Board of Trustees of the Trust. The procedures have been designed to ensure
that any purchase or sale of securities by the Fund from or to another fund or
portfolio that is or could be considered an affiliate by virtue of having a
common investment advisor (or affiliated investment advisors), common Trustees
and/or common officers complies with Rule 17a-7 of the 1940 Act. Further, as
defined under the procedures, each transaction is effected at the current
market price. Pursuant to these procedures, during the year ended March 31,
2005, the Fund engaged in purchases and sales of securities of $6,985,866 and
$4,484,025, respectively.
F-10
NOTE 5--EXPENSE OFFSET ARRANGEMENT
The expense offset arrangement is comprised of transfer agency credits which
result from balances in Demand Deposit Accounts (DDA) used by the transfer
agent for clearing shareholder transactions. For the year ended March 31, 2005,
the Fund received credits from this arrangement which resulted in the reduction
of the Fund's total expenses of $21,242.
NOTE 6--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each Trustee of the Trust who is
not an "interested person" of AIM. Trustees have the option to defer
compensation payable by the Trust. Those Trustees who defer compensation have
the option to select various AIM Funds in which their deferral accounts shall
be deemed to be invested.
Current Trustees are eligible to participate in a retirement plan that
provides for benefits to be paid upon retirement to Trustees over a period of
time based on the number of years of service. The Fund may have certain former
Trustees that also participate in a retirement plan and receive benefits under
such plan.
Obligations under the deferred compensation and retirement plans represent
unsecured claims against the general assets of the Fund.
During the year ended March 31, 2005, the Fund paid legal fees of $10,687 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 7--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate
available on investments in overnight repurchase agreements) is favorable to
both the lending fund and the borrowing fund. A loan will be secured by
collateral if the Fund's aggregate borrowings from all sources exceeds 10% of
the Fund's total assets. To the extent that the loan is required to be secured
by collateral, the collateral is marked to market daily to ensure that the
market value is at least 102% of the outstanding principal value of the loan.
During the year ended March 31, 2005, the average interfund borrowings for the
number of days the borrowings were outstanding was $11,952,833 with a weighted
average interest rate of 2.44% and interest expense of $4,778.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to
the credit facility can borrow on a first come, first served basis. Principal
on each loan outstanding shall bear interest at the bid rate quoted by SSB at
the time of the request for the loan. The Fund did not borrow under the
facility during the year ended March 31, 2005.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, the custodian bank. To compensate
the custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds in the account so the custodian can be compensated by earning the
additional interest; or (ii) compensate by paying the custodian bank. In either
case, the custodian bank will be compensated at an amount equal to the Federal
Funds rate plus 100 basis points.
NOTE 8--PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities having a market value up to one-third of
the Fund's total assets. Such loans are secured by collateral equal to no less
than the market value of the loaned securities determined daily. Such
collateral will be cash or debt securities issued or guaranteed by the U.S.
Government or any of its agencies. Cash collateral received in connection with
these loans is invested in short-term money market instruments or affiliated
money market funds. It is the Fund's policy to obtain additional collateral
from or return excess collateral to the borrower by the end of the next
business day, following the valuation date of the securities loaned. Therefore,
the value of the collateral held may be temporarily less than the value of the
securities on loan. Lending securities entails a risk of loss to the Fund if
and to the extent that the market value of the securities loaned were to
increase and the borrower did not increase the collateral accordingly, and the
borrower fails to return the securities. The Fund could also experience delays
and costs in gaining access to the collateral. The Fund bears the risk of any
deficiency in the amount of the collateral available for return to the borrower
due to a loss on the collateral invested.
At March 31, 2005, securities with an aggregate value of $7,275,203 were on
loan to brokers. The loans were secured by cash collateral of $7,397,327
received by the Fund and subsequently invested in an affiliated money market
fund. For the year ended March 31, 2005, the Fund received dividends on cash
collateral of $185,090 and non-cash collateral of $610 for securities lending
transactions, which are net of rebates.
F-11
NOTE 9--OPTION CONTRACTS WRITTEN
TRANSACTIONS DURING THE PERIOD
----------------------------------------
CALL OPTION CONTRACTS
---------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
----------------------------------------
Beginning of year 10,869 $ 1,325,954
----------------------------------------
Written 10,040 624,671
----------------------------------------
Closed (10,869) (1,325,954)
----------------------------------------
End of year 10,040 $ 624,671
----------------------------------------
OPEN CALL OPTIONS WRITTEN AT PERIOD END
- --------------------------------------------------------------------------------------------
MARCH 31, UNREALIZED
CONTRACT STRIKE NUMBER OF PREMIUMS 2005 APPRECIATION
MONTH PRICE CONTRACTS RECEIVED MARKET VALUE (DEPRECIATION)
- --------------------------------------------------------------------------------------------
ATI Technologies Inc. May-05 $20.0 3,262 $ 56,414 $ 57,085 $ (671)
- --------------------------------------------------------------------------------------------
F5 Networks, Inc. Apr-05 60.0 1,933 187,495 19,330 168,165
- --------------------------------------------------------------------------------------------
Marvell Technology Group Ltd. May-05 40.0 1,777 133,936 270,992 (137,056)
- --------------------------------------------------------------------------------------------
Marvell Technology Group Ltd. May-05 42.5 1,562 121,832 113,245 8,587
- --------------------------------------------------------------------------------------------
VeriSign, Inc. Apr-05 30.0 1,506 124,994 79,065 45,929
- --------------------------------------------------------------------------------------------
10,040 $624,671 $539,717 $ 84,954
- --------------------------------------------------------------------------------------------
NOTE 10--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
There were no ordinary income or long-term capital gain distributions paid
during the years ended March 31, 2005 and 2004.
TAX COMPONENTS OF NET ASSETS:
As of March 31, 2005, the components of net assets on a tax basis were as
follows:
2005
---------------------------------------------------
Unrealized appreciation-investments $ 261,420,529
---------------------------------------------------
Temporary book/tax differences (310,067)
---------------------------------------------------
Capital loss carryforward (784,144,822)
---------------------------------------------------
Shares of beneficial interest 1,858,492,051
---------------------------------------------------
Total net assets $1,335,457,691
---------------------------------------------------
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 (depreciation) difference is attributable primarily to the
deferral of losses on wash sales, the treatment of certain corporation actions,
the treatment of partnerships and the deferral of losses on certain straddle
transactions. The tax-basis unrealized appreciation (depreciation) on
investments amount includes appreciation on options written of $84,954.
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.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the
amount of capital loss carryforward actually available for the Fund to utilize.
The ability to utilize capital loss carryforward in the future may be limited
under the Internal Revenue Code and related regulations based on the results of
future transactions. Under these limitation rules, the Fund is limited as of
March 31, 2005 to utilizing $114,716,266 of capital loss carryforward in the
fiscal year ending March 31, 2006.
F-12
The Fund utilized $35,492,825 of capital loss carryforward in the current
period to offset net realized capital gain for federal income tax purposes. The
Fund has a capital loss carryforward as of March 31, 2005 which expires as
follows:
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
---------------------------------------------
March 31, 2010 416,234,709
---------------------------------------------
March 31, 2011 367,910,113
---------------------------------------------
Total capital loss carryforward $784,144,822
---------------------------------------------
* Capital loss carryforward as of the date listed above is reduced for
limitations, if any, to the extent required by the Internal Revenue Code. To
the extent that unrealized gains as of November 24, 2003, the date of the
reorganization of AIM New Technology Fund, AIM Global Science & Technology
Fund and INVESCO Telecommunications Fund into the Fund, are realized on
securities held in each fund at such date, the capital loss carryforward may
be further limited for up to five years from the date of the reorganization.
On April 30, 2004, 51,524,128 Institutional Class shares valued at
$1,223,182,804 were redeemed by an institutional investor and settled through
a redemption-in-kind transaction, which resulted in a realized gain of
$195,057,973 to the Fund for book purposes. From a federal income tax
perspective, this redemption triggers limitations under the Internal Revenue
Code and related regulations regarding the amount of the capital loss
carryforward available for future utilization by the Fund. The actual amount
of future capital loss carryforward reduction may fluctuate based on future
transactions of the Fund.
NOTE 11--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
March 31, 2005 was $1,554,304,057 and 3,325,133,432, respectively.
At the request of the Trustees, AIM recovered third party research credits
during the year ended March 31, 2005, in the amount of $397,646. These research
credits were recorded as realized gains.
UNREALIZED APPRECIATION (DEPRECIATION)
OF INVESTMENT SECURITIES ON A TAX BASIS
--------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $279,385,299
--------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (18,049,724)
--------------------------------------------------------------------------
Net unrealized appreciation of investment securities $261,335,575
--------------------------------------------------------------------------
Cost of investments for tax purposes is $1,097,947,829.
NOTE 12--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of a shareholder
redemption-in-kind, limitations on capital loss carryforward, net operating
losses and foreign currency transactions on March 31, 2005, undistributed net
investment income (loss) was increased by $14,452,045, undistributed net
realized gain (loss) increased by $3,558,681,541 and shares of beneficial
interest decreased by $3,573,133,586. This reclassification had no effect on
the net assets of the Fund and is excluded from the financial highlights.
F-13
NOTE 13--SHARE INFORMATION
The Fund currently offers six different classes of shares: Class A shares,
Class B shares, Class C shares, Class K shares, Investor Class shares and
Institutional Class shares. Class A shares are sold with a front-end sales
charge. Class B shares and Class C shares are sold with CDSC. Class K shares,
Investor Class shares and Institutional Class shares are sold at net asset
value. Under certain circumstances, Class A shares and Class K shares are
subject to CDSC. Generally, Class B shares will automatically convert to Class
A shares eight years after the end of the calendar month of purchase.
CHANGES IN SHARES OUTSTANDING/(a)/
- ---------------------------------------------------------------------------------------------------------------------
YEAR ENDED MARCH 31,
----------------------------------------------------------
2005 2004
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------------------
Sold:
Class A 1,091,737 $ 26,091,564 4,501,507 $ 81,641,531
- ---------------------------------------------------------------------------------------------------------------------
Class B 324,767 7,546,468 474,807 6,943,163
- ---------------------------------------------------------------------------------------------------------------------
Class C 199,704 4,490,729 675,589 13,469,521
- ---------------------------------------------------------------------------------------------------------------------
Class K 348,095 8,080,397 1,213,180 26,751,397
- ---------------------------------------------------------------------------------------------------------------------
Investor Class 7,578,874 177,927,956 38,943,355 851,155,627
- ---------------------------------------------------------------------------------------------------------------------
Institutional Class 1,199,210 30,689,266 28,076,536 647,568,629
- ---------------------------------------------------------------------------------------------------------------------
Issued in connection with acquisitions/(b)/
Class A -- -- 15,964,467 382,265,796
- ---------------------------------------------------------------------------------------------------------------------
Class B -- -- 5,443,226 128,396,678
- ---------------------------------------------------------------------------------------------------------------------
Class C -- -- 1,400,217 32,149,290
- ---------------------------------------------------------------------------------------------------------------------
Class K -- -- 36,756 863,988
- ---------------------------------------------------------------------------------------------------------------------
Investor Class -- -- 12,528,049 297,424,087
- ---------------------------------------------------------------------------------------------------------------------
Automatic conversion of Class B shares to Class A shares:
Class A 314,887 7,493,236 208,272 5,264,914
- ---------------------------------------------------------------------------------------------------------------------
Class B (321,273) (7,493,236) (211,644) (5,264,914)
- ---------------------------------------------------------------------------------------------------------------------
Reacquired:
Class A (4,673,472) (111,212,247) (4,328,243) (96,028,934)
- ---------------------------------------------------------------------------------------------------------------------
Class B (1,344,399) (31,170,982) (567,393) (13,948,942)
- ---------------------------------------------------------------------------------------------------------------------
Class C (568,055) (12,866,923) (854,206) (18,421,321)
- ---------------------------------------------------------------------------------------------------------------------
Class K (628,117) (14,277,089) (1,735,383) (38,627,755)
- ---------------------------------------------------------------------------------------------------------------------
Investor Class (24,400,287) (571,553,540) (46,959,085) (1,026,175,753)
- ---------------------------------------------------------------------------------------------------------------------
Institutional Class (52,868,543) (1,257,927,039) (17,177,406) (414,005,042)
- ---------------------------------------------------------------------------------------------------------------------
(73,746,872) $(1,744,181,440) 37,632,601 $ 861,421,960
- ---------------------------------------------------------------------------------------------------------------------
/(a)/There is one entity that is a record owner of more than 5% of the
outstanding shares of the Fund and it owns 14% of the outstanding shares
of the Fund. AIM Distributors has an agreement with this entity to sell
Fund shares. The Fund AIM and/or AIM affiliates may make payments to this
entity, which is considered to be related to the Fund, for providing
services to the Fund, AIM and/or AIM affiliates including but not limited
to services such as, securities brokerage, distribution, third party
record keeping and account servicing. The Trust has no knowledge as to
whether all or any portion of the shares owned of record by this entity
are also owned beneficially.
/(b)/As of the opening of business on November 24, 2003, the Fund acquired all
of the net assets of AIM New Technology Fund, AIM Global Science &
Technology Fund and INVESCO Telecommunications Fund pursuant to a plan of
reorganization approved by the Board of Trustees of the Funds on June 11,
2003 and the shareholders of the above named funds on October 28, 2003.
The acquisition was accomplished by a tax-free exchange of 35,372,715
shares of the Fund for 17,601,164, 72,879,085 and 29,260,118 shares of AIM
New Technology Fund, AIM Global Science & Technology Fund and INVESCO
Telecommunications Fund, respectively, outstanding as of the close of
business November 21, 2003. AIM New Technology Fund's net assets at that
date of $52,643,435, including unrealized appreciation of $14,317,910; AIM
Global Science & Technology Fund's net assets at that date of
$487,006,166, including unrealized appreciation of $136,895,768 and
INVESCO Telecommunications Fund's net assets at that date of $301,450,238,
including unrealized appreciation of $49,952,398, were combined with those
of the Fund. The aggregate net assets of the Fund immediately before the
acquisition were $2,660,061,291.
NOTE 14--OTHER MATTERS
The AIM and INVESCO Families of Funds received requests from the SEC for
information concerning the Funds' use of exchange traded funds and other
registered investment companies, as well as compliance with Section 12(d)(1) of
the Investment Company Act of 1940. After reviewing responsive information, the
SEC issued a letter dated September 23, 2004 asserting that the Fund entered
into certain securities transactions during the period June 2, 2002 to May 31,
2004 that may not have been in compliance with the percentage ownership
restriction of certain investment companies and in particular HOLDRs. To the
extent it is determined that these securities transactions were not in
compliance, appropriate amounts will be reimbursed. At this time, the effect to
the Shareholder is not expected to be material.
F-14
NOTE 15--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
CLASS A
--------------------------------------
YEAR ENDED MARCH 31,
--------------------------------------
2005 2004 2003
- ------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 24.71 $ 16.98 $ 30.41
- ------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.19)/(a)/ (0.33)/(a)/ (0.20)/(a)(b)/
- ------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) (0.93) 8.06 (13.23)
- ------------------------------------------------------------------------------------------------------------------
Total from investment operations (1.12) 7.73 (13.43)
- ------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 23.59 $ 24.71 $ 16.98
- ------------------------------------------------------------------------------------------------------------------
Total return/(c)/ (4.53)% 45.52% (44.16)%
- ------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $314,755 $410,407 $ 4,460
- ------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.50%/(d)/ 1.50% 1.47%
- ------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.68%/(d)/ 1.93% 1.51%
- ------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (0.80)%/(d)/ (1.31)% (1.12)%
- ------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 92% 141% 107%
- ------------------------------------------------------------------------------------------------------------------
/(a)/Calculated using average shares outstanding.
/(b)/The net investment income (loss) per share was calculated after permanent
book tax differences, such as net operating losses which were reclassified
from accumulated net investment income (loss) to paid in capital. Had net
investment income (loss) been calculated using the current method, which is
before reclassification of net operating losses, net investment income
(loss) per share would have been $(0.20) for the year ended March 31, 2003.
/(c)/Includes adjustments in accordance with accounting principles generally
accepted in the United States of America as such, the net asset value for
financial reporting purposes and the returns based upon those net asset
value may differ from the net asset value and returns for shareholder
transactions. Does not include sales charges.
/(d)/Ratios are based on average daily net assets of $351,891,329.
CLASS B
-------------------------------------
YEAR ENDED MARCH 31,
-------------------------------------
2005 2004 2003
- -----------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 24.29 $ 16.84 $ 30.41
- -----------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.34)/(a)/ (0.48)/(a)/ (0.27)/(a)(b)/
- -----------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) (0.91) 7.93 (13.30)
- -----------------------------------------------------------------------------------------------------------------
Total from investment operations (1.25) 7.45 (13.57)
- -----------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 23.04 $ 24.29 $ 16.84
- -----------------------------------------------------------------------------------------------------------------
Total return/(c)/ (5.15)% 44.24% (44.62)%
- -----------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $88,240 $125,597 $ 532
- -----------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 2.15%/(d)/ 2.15% 2.15%
- -----------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 2.33%/(d)/ 3.16% 2.74%
- -----------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (1.45)%/(d)/ (1.96)% (1.71)%
- -----------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 92% 141% 107%
- -----------------------------------------------------------------------------------------------------------------
/(a)/Calculated using average shares outstanding.
/(b)/The net investment income (loss) per share was calculated after permanent
book tax differences, such as net operating losses which were reclassified
from accumulated net investment income (loss) to paid in capital. Had net
investment income (loss) been calculated using the current method, which is
before reclassification of net operating losses, net investment income
(loss) per share would have been $(0.27) for the year ended March 31, 2003.
/(c)/Includes adjustments in accordance with accounting principles generally
accepted in the United States of America as such, the net asset value for
financial reporting purposes and the returns based upon those net asset
value may differ from the net asset value and returns for shareholder
transactions. Does not include sales charges.
/(d)/Ratios are based on average daily net assets of $103,811,919.
F-15
NOTE 15--FINANCIAL HIGHLIGHTS (continued)
CLASS C
----------------------------------------------------------------
YEAR ENDED MARCH 31,
----------------------------------------------------------------
2005 2004 2003 2002 2001
- -----------------------------------------------------------------------------------------------------------
Net asset value, beginning of
period $ 23.64 $ 16.39 $ 29.73 $ 35.22 $101.85
- -----------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.33)/(a)/ (0.45)/(a)/ (0.62)/(b)/ (0.22)/(b)/ (0.18)/(b)/
- -----------------------------------------------------------------------------------------------------------
Net gains (losses) on securities
(both realized and unrealized) (0.88) 7.70 (12.72) (5.27) (63.81)
- -----------------------------------------------------------------------------------------------------------
Total from investment operations (1.21) 7.25 (13.34) (5.49) (63.99)
- -----------------------------------------------------------------------------------------------------------
Less distributions from net
realized gains -- -- -- -- (2.64)
- -----------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 22.43 $ 23.64 $ 16.39 $ 29.73 $ 35.22
- -----------------------------------------------------------------------------------------------------------
Total return/(c)/ (5.12)% 44.23% (44.87)% (15.59)% (63.89)%
- -----------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $27,016 $37,191 $ 5,759 $18,910 $15,919
- -----------------------------------------------------------------------------------------------------------
Ratio of expenses to average net
assets:
With fee waivers and/or expense
reimbursements 2.15%/(d)/ 2.15% 2.69% 2.54% 1.86%
- -----------------------------------------------------------------------------------------------------------
Without fee waivers and/or
expense reimbursements 2.33%/(d)/ 3.20% 3.95% 2.54% 1.86%
- -----------------------------------------------------------------------------------------------------------
Ratio of net investment income
(loss) to average net assets (1.45)%/(d)/ (1.96)% (2.39)% (2.26)% (1.30)%
- -----------------------------------------------------------------------------------------------------------
Portfolio turnover rate 92% 141% 107% 79% 85%
- -----------------------------------------------------------------------------------------------------------
/(a)/Calculated using average shares outstanding.
/(b)/The net investment income (loss) per share was calculated after permanent
book tax differences, such as net operating losses which were reclassified
from accumulated net investment income (loss) to paid in capital. Had net
investment income (loss) per share been calculated using the current
method, which is before reclassification of net operating losses, net
investment income (loss) per share would have been $(0.84),$(0.54) and
$(0.36) for the years ended March 31, 2003, 2002 and 2001, respectively.
/(c)/Includes adjustments in accordance with accounting principles generally
accepted in the United States of America as such, the net asset value for
financial reporting purposes and the returns based upon those net asset
value may differ from the net asset value and returns for shareholder
transactions. Does not include sales charges.
/(d)/Ratios are based on average daily net assets of $31,495,472.
CLASS K
---------------------------------------------------------------------
NOVEMBER 30,
2000
(DATE SALES
COMMENCED)
YEAR ENDED MARCH 31, TO MARCH 31,
-------------------------------------------------- 2001
2005 2004 2003 2002 ------------
- -------------------------------------------------------------------------------------------
Net asset value, beginning of
period $ 24.21 $ 16.78 $ 30.22 $ 35.09 $ 60.01
- -----------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income (loss) (0.25)/(a)/ (0.42)/(a)/ (0.07)/(b)/ (0.27)/(a)(b)/ (0.82)/(b)/
- -----------------------------------------------------------------------------------------------------------
Net gains (losses) on
securities (both realized
and unrealized) (0.90) 7.85 (13.37) (4.60) (24.10)
- -----------------------------------------------------------------------------------------------------------
Total from investment
operations (1.15) 7.43 (13.44) (4.87) (24.92)
- -----------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 23.06 $ 24.21 $ 16.78 $ 30.22 $ 35.09
- -----------------------------------------------------------------------------------------------------------
Total return/(c)/ (4.75)% 44.28% (44.47)% (13.85)% (41.54)%
- -----------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period
(000s omitted) $12,805 $20,224 $22,156 $27,147 $ 1
- -----------------------------------------------------------------------------------------------------------
Ratio of expenses to average
net assets:
With fee waivers and/or
expense reimbursements 1.76%/(d)/ 2.12% 1.88% 1.28% 5.18%/(e)/
- -----------------------------------------------------------------------------------------------------------
Without fee waivers and/or
expense reimbursements 1.78%/(d)/ 2.74% 2.49% 1.28% 5.18%/(e)/
- -----------------------------------------------------------------------------------------------------------
Ratio of net investment
income (loss) to average net
assets (1.06)%/(d)/ (1.93)% (1.55)% (1.15)% (4.67)%/(e)/
- -----------------------------------------------------------------------------------------------------------
Portfolio turnover rate/(f)/ 92% 141% 107% 79% 85%
- -----------------------------------------------------------------------------------------------------------
/(a)/Calculated using average shares outstanding.
/(b)/The net investment income (loss) per share was calculated after permanent
book tax differences, such as net operating losses which were reclassified
from accumulated net investment income (loss) to paid in capital. Had net
investment income (loss) per share been calculated using the current
method, which is before reclassification of net operating losses, net
investment income (loss) per share would have been $(0.30), $(0.27) and
$(0.86) for the years ended March 31, 2003 and 2002 and the period ended
March 31, 2001.
/(c)/Includes adjustments in accordance with accounting principles generally
accepted in the United States of America as such, the net asset value for
financial reporting purposes and the returns based upon those net asset
value may differ from the net asset value and returns for shareholder
transactions. Not annualized for periods less than one year.
/(d)/Ratios are based on average daily net assets of $15,809,387.
/(e)/Annualized.
/(f)/Not annualized for periods less than one year.
F-16
NOTE 15--FINANCIAL HIGHLIGHTS (continued)
INVESTOR CLASS
-----------------------------------------------------------------------------
YEAR ENDED MARCH 31,
-----------------------------------------------------------------------------
2005 2004 2003 2002 2001
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of
period $ 24.49 $ 16.90 $ 30.41 $ 35.60 $ 101.92
- ------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.20)/(a)/ (0.35)/(a)/ (0.14)/(b)/ (0.08)/(b)/ (0.10)/(b)/
- ------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities
(both realized and unrealized) (0.92) 7.94 (13.37) (5.11) (63.58)
- ------------------------------------------------------------------------------------------------------------------------
Total from investment operations (1.12) 7.59 (13.51) (5.19) (63.68)
- ------------------------------------------------------------------------------------------------------------------------
Less distributions from net
realized gains -- -- -- -- (2.64)
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 23.37 $ 24.49 $ 16.90 $ 30.41 $ 35.60
- ------------------------------------------------------------------------------------------------------------------------
Total return/(c)/ (4.57)% 44.91% (44.43)% (14.58)% (63.54)%
- ------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $892,630 $1,347,335 $853,530 $1,865,251 $2,181,879
- ------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net
assets 1.56%/(d)(e)/ 1.72%/(e)/ 1.77% 1.37% 0.98%
- ------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
(loss) to average net assets (0.86)%/(d)/ (1.53)% (1.46)% (1.08)% (0.47)%
- ------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 92% 141% 107% 79% 85%
- ------------------------------------------------------------------------------------------------------------------------
/(a)/Calculated using average shares outstanding.
/(b)/The net investment income (loss) per share was calculated after permanent
book tax differences, such as net operating losses which were reclassified
from accumulated net investment income (loss) to paid in capital. Had net
investment income (loss) per share been calculated using the current
method, which is before reclassification of net operating losses, net
investment income (loss) per share would have been $(0.29), $(0.37) and
$(0.33) for the years ended March 31, 2003, 2002 and 2001.
/(c)/Includes adjustments in accordance with accounting principles generally
accepted in the United States of America as such, the net asset value for
financial reporting purposes and the returns based upon those net asset
value may differ from the net asset value and returns for shareholder
transactions.
/(d)/Ratios are based on average daily net assets of $1,099,128,961.
/(e)/After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements was
1.58 and 1.75% for the years ended March 31, 2005 and March 31, 2004,
respectively.
INSTITUTIONAL CLASS
---------------------------------------------------------------------------------
YEAR ENDED MARCH 31,
---------------------------------------------------------------------------------
2005 2004 2003 2002 2001
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of
period $25.35 $ 17.34 $ 30.93 $ 35.98 $ 102.55
- ----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.02)/(a)/ (0.16)/(a)/ (0.12)/(a)(b)/ (0.16)/(a)(b)/ (0.06)/(b)/
- ----------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities
(both realized and unrealized) (0.89) 8.17 (13.47) (4.89) (63.87)
- ----------------------------------------------------------------------------------------------------------------------------
Total from investment operations (0.91) 8.01 (13.59) (5.05) (63.93)
- ----------------------------------------------------------------------------------------------------------------------------
Less distributions from net
realized gains -- -- -- -- (2.64)
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $24.44 $ 25.35 $ 17.34 $ 30.93 $ 35.98
- ----------------------------------------------------------------------------------------------------------------------------
Total return/(c)/ (3.59)% 46.19% (43.94)% (14.04)% (63.39)%
- ----------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $ 11 $1,309,623 $707,040 $1,360,738 $1,396,788
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net
assets 0.79%/(d)(e)/ 0.86% 0.90% 0.74% 0.58%
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
(loss) to average net assets (0.09)%/(d)/ (0.67)% (0.59)% (0.46)% (0.08)%
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 92% 141% 107% 79% 85%
- ----------------------------------------------------------------------------------------------------------------------------
/(a)/Calculated using average shares outstanding.
/(b)/The net investment income (loss) per share was calculated after permanent
book tax differences, such as net operating losses which were reclassified
from accumulated net investment income (loss) to paid in capital. Had net
investment income (loss) per share been calculated using the current
method, which is before reclassification of net operating losses, net
investment income (loss) per share would have been $(0.12), $(0.16) and
$(0.06) for the years ended March 31, 2003, 2002 and 2001.
/(c)/Includes adjustments in accordance with accounting principles generally
accepted in the United States of America as such, the net asset value for
financial reporting purposes and the returns based upon those net asset
value may differ from the net asset value and returns for shareholder
transactions.
/(d)/Ratios are based on average daily net assets of $116,061,224.
/(e)/After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements for
the year ended March 31, 2005 was 0.81%.
F-17
NOTE 16--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
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds) and A I M Advisors, Inc. ("AIM") (the Fund's
investment advisor) reached final settlements with certain regulators,
including without limitation the Securities and Exchange Commission ("SEC"),
the New York Attorney General ("NYAG") and the Colorado Attorney General
("COAG"), to resolve civil enforcement actions and investigations related to
market timing activity and related issues in the AIM Funds, including those
formerly advised by IFG. These regulators alleged, in substance, that IFG and
AIM failed to disclose in the prospectuses for the AIM Funds that they advised
and to the independent directors/trustees of such Funds that they had entered
into certain arrangements permitting market timing of such Funds, thereby
breaching their fiduciary duties to such Funds. As a result of the foregoing,
the regulators alleged that IFG and AIM breached various Federal and state
securities, business and consumer protection laws. On the same date, A I M
Distributors, Inc. ("ADI") (the distributor of the retail AIM Funds) reached a
final settlement with the SEC to resolve an investigation relating to market
timing activity and related issues in the AIM Funds. The SEC also alleged that
ADI violated various Federal securities laws. The SEC also has settled related
market timing enforcement actions brought against certain former officers and
employees of IFG.
Under the terms of the settlements, IFG agreed to pay a total of $325
million, of which $110 million is civil penalties. Of this $325 million total
payment, half has been paid and the remaining half will be paid on or before
December 31, 2005. AIM and ADI agreed to pay a total of $50 million, of which
$30 million is civil penalties, all of which has been paid. The entire $325
million IFG settlement fund will be made available for distribution to the
shareholders of those AIM Funds that IFG formerly advised that were harmed by
market timing activity, and the entire $50 million settlement fund by AIM and
ADI will be made available for distribution to the shareholders of those AIM
Funds advised by AIM that were harmed by market timing activity, all as to be
determined by an independent distribution consultant. The IFG and AIM
settlement 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. The settlement funds will be
distributed in accordance with a methodology to be determined by the
independent distribution consultant, in consultation with AIM and the
independent trustees of the AIM Funds and acceptable to the staff of the SEC.
Under the settlements with the NYAG and COAG, AIM has agreed to reduce
management fees on certain equity and balanced AIM Funds by $15 million per
year for the next five years, based upon effective fee rates and assets under
management as of July 1, 2004, not to increase certain management fees and to
provide more information to investors regarding fees.
Under the terms of the settlements, AIM is undertaking certain governance and
compliance reforms, including maintaining an internal controls committee and
retaining an independent compliance consultant and a corporate ombudsman. Also,
commencing in 2007 and at least once every other year thereafter, AIM will
undergo a compliance review by an independent third party. In addition, under
the terms of the settlements, AIM has undertaken to cause the AIM Funds to
operate in accordance with certain governance policies and practices, including
retaining a full-time independent senior officer whose duties include
monitoring compliance and managing the process by which proposed management
fees to be charged the AIM Funds are negotiated. Also, commencing in 2008 and
not less than every fifth calendar year thereafter, the AIM Funds will hold
shareholder meetings at which their Boards of Trustees will be elected.
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
such Funds related to market timing matters.
The SEC has also settled market timing enforcement actions against Raymond R.
Cunningham (the former president and chief executive officer of IFG and a
former member of the board of directors of the AIM Funds formerly advised by
IFG), Timothy J. Miller (the former chief investment officer and a former
portfolio manager for IFG), Thomas A. Kolbe (the former national sales manager
of IFG) and Michael D. Legoski (a former assistant vice president in IFG's
sales department). As part of these settlements, the SEC ordered these
individuals to pay restitution and civil penalties in various amounts and
prohibited them from associating with, or serving as an officer or director of,
an investment advisor, broker, dealer and/or investment company, as applicable,
for certain periods of time.
The payments made in connection with the above-referenced settlements by IFG,
AIM and ADI will total approximately $375 million (not including AIM's
agreement to reduce management fees on certain equity and balanced AIM Funds by
$15 million per year for the next five years, based upon effective fee rates
and assets under management as of July 1, 2004). The manner in which the
settlement payments will be distributed is unknown at the present time and will
be determined by an independent distribution consultant appointed under the
settlement agreements. Therefore, management of AIM and the Fund are unable at
the present time to estimate the impact, if any, that the distribution of the
settlement payments may have on the Fund or whether such distribution will have
an impact on the Fund's financial statements 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, ADI or the Fund.
REGULATORY INQUIRIES AND PENDING LITIGATION
The mutual fund industry as a whole is currently subject to regulatory
inquiries and litigation related to a wide range of issues. These issues
include, among others, market timing activity, late trading, fair value
pricing, excessive or improper advisory and/or distribution fees, mutual fund
sales practices, including but not limited to revenue sharing and
directed-brokerage arrangements, investments in securities of other registered
investment companies, contractual plans, issues related to Section 529 college
savings plans, procedures for locating lost security holders and participation
in class action settlements.
As described more fully below, IFG and AIM are the subject of a number of
ongoing regulatory inquiries and civil lawsuits related to one or more of the
issues currently being scrutinized by various Federal and state regulators,
including but not limited to those issues described above. Additional
regulatory actions and/or civil lawsuits related to the above or other issues
may be filed against the AIM Funds, IFG, AIM and/or related entities and
individuals in the future. Additional regulatory inquiries related to the above
or other issues also may be received by the AIM Funds, IFG, AIM and/or related
entities and individuals in the future.
F-18
NOTE 16--LEGAL PROCEEDINGS (continued)
Ongoing Regulatory Inquiries Concerning IFG and AIM
IFG, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds formerly advised by IFG have received
regulatory inquiries in the form of subpoenas or other oral or written requests
for information and/or documents related to one or more of the following
issues, some of which concern one or more such 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, and investments in securities of other
registered investment companies. These regulators include the SEC, the NASD,
Inc. ("NASD"), the Florida Department of Financial Services, the Attorney
General of the State of West Virginia, the West Virginia Securities Commission
and the Bureau of Securities of the State of New Jersey. IFG and certain of
these other parties also have received more limited inquiries from the United
States Department of Labor ("DOL") and the United States Attorney's Office for
the Southern District of New York, some of which concern one or more of the AIM
Funds formerly advised by IFG. IFG is providing full cooperation with respect
to these inquiries.
AIM, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds have received regulatory inquiries in the form
of subpoenas or other oral or written requests for information and/or documents
related to one or more of the following issues, some of which concern one or
more AIM Funds: market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including revenue sharing and directed-brokerage arrangements,
investments in securities of other registered investment companies, contractual
plans, issues related to Section 529 college savings plans and procedures for
locating lost securityholders. These regulators include the SEC, the NASD, the
Department of Banking for the State of Connecticut, the Attorney General of the
State of West Virginia, the West Virginia Securities Commission and the Bureau
of Securities of the State of New Jersey. AIM and certain of these other
parties also have received more limited inquiries from the SEC, the NASD, the
DOL, the Internal Revenue Service, the United States Attorney's Office for the
Southern District of New York, the United States Attorney's Office for the
Central District of California, the United States Attorney's Office for the
District of Massachusetts, the Massachusetts Securities Division, the U.S.
Postal Inspection Service and the Commodity Futures Trading Commission, some of
which concern one or more AIM Funds. AIM is providing full cooperation with
respect to these inquiries.
On April 12, 2005, the Attorney General of the State of West Virginia
("WVAG") filed civil proceedings 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 these proceedings. 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 (S) 46A-1-101, et seq. (the West Virginia Consumer Credit and Protection
Act). The WVAG complaint is seeking injunctive relief; civil monetary
penalties; a writ of quo warranto against the defendants; pre-judgment and
post-judgment interest; costs and expenses, including counsel fees; and other
relief.
If AIM is unsuccessful in its defense of the WVAG proceedings, it could be
barred from serving as an investment adviser 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 your Fund.
Your 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 your Fund's
investment advisor. There is no assurance that such exemptive relief will be
granted.
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, certain
related entities, certain of their current and former officers and/or certain
unrelated third parties) making allegations that are similar in many respects
to those in the settled regulatory actions brought by the SEC, the NYAG and the
COAG concerning market timing 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.
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
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. The plaintiffs in two of the underlying lawsuits
continue to seek remand of their lawsuit to state court.
Private Civil Actions Alleging Improper Use of Fair Value Pricing
Multiple civil class action lawsuits have been filed against various parties
(including, depending on the lawsuit, certain 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. Based on a recent court decision, the state court
action has been removed to Federal court.
F-19
NOTE 16--LEGAL PROCEEDINGS (continued)
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. All of these lawsuits have been
transferred to the United States District Court for the Southern District of
Texas, Houston Division and subsequently consolidated for pre-trial purposes
into one lawsuit.
Private Civil Actions Alleging Improper Charging of Distribution Fees on
Limited Offering Funds or Share Classes
Multiple civil lawsuits, including shareholder derivative suits, have been
filed against various parties (including, depending on the lawsuit, IFG, AIM,
ADI and/or certain of the trustees of the AIM Funds) alleging that the
defendants breached their fiduciary duties by charging distribution fees while
funds and/or specific share classes were closed generally to new investors
and/or while other share classes of the same fund were not charged the same
distribution fees. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the
Federal securities laws; and (ii) breach of fiduciary duty. These lawsuits have
been filed in Federal courts and seek such remedies as damages; injunctive
relief; and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Mutual Fund Sales Practices and
Directed-Brokerage Arrangements
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, AIM Management, IFG, AIM, AIM Investment Services, Inc. ("AIS")
and/or certain of the trustees of the AIM 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. These actions have been
consolidated for pre-trial purposes.
Private Civil Action Alleging Failure to Ensure Participation in Class Action
Settlements
A civil lawsuit, purporting to be a class action lawsuit, has been filed
against AIM, IINA, A I M Capital Management, Inc. and the trustees of the AIM
Funds alleging that the defendants breached their fiduciary duties by failing
to ensure that the AIM Funds participated in class action settlements in which
the AIM Funds were eligible to participate. This lawsuit alleges as theories of
recovery: (i) violation of various provisions of the Federal securities laws;
(ii) common law breach of fiduciary duty; and (iii) common law negligence. This
lawsuit has been filed in Federal court and seeks such remedies as compensatory
and punitive damages; forfeiture of all commissions and fees paid by the class
of plaintiffs; and costs and attorneys' fees.
* * * * * * * * * * * * * *
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.
F-20
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees
and Shareholders of AIM Technology 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 the AIM Technology Fund, formerly
known as INVESCO Technology Fund (one of the funds constituting AIM Sector
Funds, hereafter referred to as the "Fund") at March 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 March 31, 2005 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion.
/s/ PRICEWATERHOUSECOOPERS LLP
May 20, 2005
Houston, Texas
OTHER INFORMATION
TRUSTEES AND OFFICERS
As of March 31, 2005
The address of each trustee and officer of AIM Sector Funds (the "Trust"), is
11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 114
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.
Name, Year of Birth and
Positions(s) Held with the Trustee and/ Principal Occupation(s) Other Directorship(s)
Trust or Officer Since During Past 5 Years Held by Trustee
- ---------------------------------------------------------------------------------------------------------------------------------
Interested Persons
- ---------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham/1 /-- 1946 2003 Director and Chairman, A I M Management None
Trustee, Vice Chair and President Group Inc. (financial services holding
company); Director and Vice Chairman,
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 1998 Director, President and Chief Executive None
Trustee and Executive Vice President Officer, A I M Management Group Inc.;
Director, Chairman 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
(parent of AIM and a global investment
management firm)
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
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
Independent Trustees
- ---------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett/3 /-- 1944 2003 Chairman, Crockett Technology ACE Limited (insurance
Trustee and Chair Associates (technology consulting company); and Captaris, Inc.
company) (unified messaging provider)
- ---------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 1983 Retired None
Trustee
- ---------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2003 Retired Badgley Funds, Inc. (registered
Trustee investment company)
Formerly: Partner, law firm of Baker &
McKenzie
- ---------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2000 Co-President and Founder, Green, None
Trustee Manning & Bunch Ltd., (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 None
Trustee private business corporations,
including the Boss Group Ltd. (private
investment and management); Cortland
Trust, Inc. (Chairman) (registered
investment company); Annuity and Life
Re (Holdings), Ltd. (insurance
company); and CompuDyne Corporation
(provider of products and services to
the public security market)
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 2003 Retired None
Trustee
Formerly: Chairman, Mercantile Mortgage
Corp.; President and Chief Operating
Officer, Mercantile-Sale Deposit &
Trust Co.; and President, Mercantile
Bankshares Corp.
- ---------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 2003 Chief Executive Officer, Twenty First Administaff and Discovery
Trustee Century Group, Inc. (government affairs Global Education Fund (non-
company) (owner) Dos Angelos Ranch, L.P. profit)
Formerly: Chief Executive Officer,
Texana Timber LP (sustainable forestry
company)
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 2003 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company)
- ---------------------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis -- 1933 2000 Chairman, Lawsuit Resolution Services General Chemical Group, Inc.
Trustee (San Diego, California)
- ---------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 2003 Formerly: Chief Executive Officer, YMCA None
Trustee of the USA
- ---------------------------------------------------------------------------------------------------------------------------------
/(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. Prior to
October 4, 2004, Mr. Graham served as Chairman of the Board of Trustees
of 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.
/(3)/ Mr. Crockett was elected Chair of the Board of Trustees of the Trust
effective October 4, 2004.
TRUSTEES AND OFFICERS (CONTINUED)
As of March 31, 2005
The address of each trustee and officer of AIM Sector Funds (the "Trust"), is
11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 114
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.
Name, Year of Birth and
Position(s) Held with the Trustee and/ Principal Occupation(s) During Past 5 Other Directorship(s)
Trust or Officer Since Years Held by Trustee
- ----------------------------------------------------------------------------------------------------------------------
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
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Other Officers
- ----------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley/4 /-- 1959 2004 Senior Vice President, A I M Management N/A
Senior Vice President and Chief Group Inc.; Senior Vice President and
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., A I M
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/5 /-- 1958 2005 Formerly: Director of Compliance and N/A
Senior Vice President Assistant General Counsel, ICON
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 Secretary and General Counsel, A I M
Chief Legal Officer Management Group Inc. and A I M
Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Vice President, A I M Capital
Management, Inc., and A I M Investment
Services, Inc.; Director, Vice
President and General Counsel, Fund
Management Company; and Senior Vice
President, A I M Distributors, Inc.
Formerly: Senior Vice President and
General Counsel, Liberty Financial
Companies, Inc.; and Senior Vice
President and General Counsel, Liberty
Funds Group, LLC.; and Vice President,
A I M Distributors, Inc.
- ----------------------------------------------------------------------------------------------------------------------
Robert G. Alley -- 1948 2003 Managing Director, Chief Fixed Income N/A
Vice President Officer and Senior Investment Officer,
A I M Capital Management, Inc. and Vice
President, A I M Advisors, Inc.
- ----------------------------------------------------------------------------------------------------------------------
Stuart W. Coco -- 1955 2003 Managing Director and Director of Money N/A
Vice President Market Research and Special Projects,
A I M Capital Management, Inc.; and Vice
President, A I M Advisors, Inc.
- ----------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, N/A
Vice President and Treasurer A I M Advisors, Inc.
Formerly: Senior Vice President, A I M
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- ----------------------------------------------------------------------------------------------------------------------
J. Phillip Ferguson/6 /-- 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.; Chief
Equity Officer, and Senior Investment
Officer, A I M Capital Management,
Inc.; and Managing Partner, Beutel,
Goodman Capital Management
- ----------------------------------------------------------------------------------------------------------------------
Mark D. Greenberg -- 1957 2004 Senior Vice President and Senior N/A
Vice President Portfolio Manager, A I M Capital
Management, Inc.
Formerly: Senior Vice President and
Senior Portfolio Manager, INVESCO
Institutional (N.A.), Inc.
- ----------------------------------------------------------------------------------------------------------------------
William R. Keithler -- 1952 2004 Senior Vice President and Senior N/A
Vice President Portfolio Manager, A I M Capital
Management, Inc.
Formerly: Senior Vice President,
Director of Sector Management and
Senior Portfolio Manager, INVESCO
Institutional (N.A.), Inc.
- ----------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 2003 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.
- ----------------------------------------------------------------------------------------------------------------------
/(4)/ Ms. Brinkley was elected Senior Vice President and Chief Compliance
Officer of the Trust effective September 20, 2004.
/(5)/ Mr. Burk was elected Senior Vice President of the Trust effective
February 15, 2005.
/(6)/ Mr. Ferguson was elected Vice President of the Trust effective February
24, 2005.
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.
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza. A I M Advisors, Inc. A I M Distributors, Inc. PricewaterhouseCoopers LLP
Suite 100 11 Greenway Plaza 11 Greenway Plaza 1201 Louisiana Street
Houston, TX 77046-1173 Suite 100 Suite 100 Suite 2900
Houston, TX 77046-1173 Houston, TX 77046-1173 Houston, Texas 77002-5678
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
Ballard Spahr INDEPENDENT TRUSTEES AIM Investment Services, Inc. State Street Bank and Trust
Andrews & Ingersoll, LLP Kramer, Levin, Naftalis & P.O. Box 4739 Company
1735 Market Street Frankel LLP Houston, TX 77210-4739 225 Franklin Street
Philadelphia, PA 19103-7599 1177 Avenue of the Americas Boston, MA 02110-2801
New York, NY 10036-2714
Domestic Equity Sector Equity
AIM Aggressive Growth Fund AIM Advantage Health Sciences Fund/1/
AIM Basic Balanced Fund* AIM Energy Fund/1/
AIM Basic Value Fund AIM Financial Services Fund/1/
AIM Blue Chip Fund AIM Global Health Care Fund
AIM Capital Development Fund AIM Global Real Estate Fund
AIM Charter Fund AIM Gold & Precious Metals Fund/1/
AIM Constellation Fund AIM Leisure Fund/1/
AIM Diversified Dividend Fund AIM Multi-Sector Fund/1/
AIM Dynamics Fund/1/ AIM Real Estate Fund/7/
AIM Large Cap Basic Value Fund AIM Technology Fund/1/
AIM Large Cap Growth Fund AIM Utilities Fund/1/
AIM Mid Cap Basic Value Fund
AIM Mid Cap Core Equity Fund/2/ Fixed Income
AIM Mid Cap Growth Fund
AIM Opportunities I Fund TAXABLE
AIM Opportunities II Fund
AIM Opportunities III Fund AIM Floating Rate Fund
AIM Premier Equity Fund AIM High Yield Fund
AIM S&P 500 Index Fund/1/ AIM Income Fund
AIM Select Equity Fund AIM Intermediate Government Fund
AIM Small Cap Equity Fund/3/ AIM Limited Maturity Treasury Fund
AIM Small Cap Growth Fund/4/ AIM Money Market Fund
AIM Small Company Growth Fund/1/ AIM Short Term Bond Fund
AIM Trimark Endeavor Fund AIM Total Return Bond Fund
AIM Trimark Small Companies Fund Premier Portfolio
AIM Weingarten Fund Premier U.S. Government Money Portfolio/1/
*Domestic equity and income fund TAX-FREE
International/Global Equity AIM High Income Municipal Fund
AIM Municipal Bond Fund
AIM Asia Pacific Growth Fund AIM Tax-Exempt Cash Fund
AIM Developing Markets Fund AIM Tax-Free Intermediate Fund
AIM European Growth Fund Premier Tax-Exempt Portfolio
AIM European Small Company Fund/5/
AIM Global Aggressive Growth Fund AIM Allocation Solutions
AIM Global Equity Fund
AIM Global Growth Fund AIM Conservative Allocation Fund
AIM Global Value Fund AIM Growth Allocation Fund/8/
AIM International Core Equity Fund/1/ AIM Moderate Allocation Fund
AIM International Growth Fund AIM Moderate Growth Allocation Fund
AIM International Small Company Fund/6/ AIM Moderately Conservative Allocation Fund
AIM Trimark Fund
/1/The following name changes became effective October 15, 2004: INVESCO
Advantage Health Sciences Fund to AIM Advantage Health Sciences Fund, INVESCO
Dynamics Fund to AIM Dynamics Fund, INVESCO Energy Fund to AIM Energy Fund,
INVESCO Financial Services Fund to AIM Financial Services Fund, INVESCO Gold &
Precious Metals Fund to AIM Gold & Precious Metals Fund, INVESCO International
Core Equity Fund to AIM International Core Equity Fund, INVESCO Leisure Fund to
AIM Leisure Fund, INVESCO Mid-Cap Growth Fund to AIM Mid Cap Stock Fund, INVESCO
Multi-Sector Fund to AIM Multi-Sector Fund, INVESCO S&P 500 Index Fund to AIM
S&P 500 Index Fund, INVESCO Small Company Growth Fund to AIM Small Company
Growth Fund, INVESCO Technology Fund to AIM Technology Fund, INVESCO U.S.
Government Money Fund to Premier U.S. Government Money Portfolio, INVESCO
Utilities Fund to AIM Utilities Fund. /2/As of end of business on February 27,
2004, AIM Mid Cap Core Equity Fund has limited public sales of its shares to
certain investors. For more information on who may continue to invest in the
Fund, please contact your financial advisor. /3/Effective December 13, 2004,
AIM Small Cap Equity Fund is open to all investors. /4/As of end of business on
March 18, 2002, AIM Small Cap Growth Fund has limited public sales of its shares
to certain investors. For more information on who may continue to invest in the
Fund, please contact your financial advisor. /5/As of end of business on March
28, 2005, AIM European Small Company Fund has limited public sales of its shares
to certain investors. For more information on who may continue to invest in the
Fund, please contact your financial advisor. /6/Effective December 30, 2004,
AIM International Emerging Growth Fund was renamed AIM International Small
Company Fund. As of end of business on March 14, 2005, the Fund has limited
public sales of its shares to certain investors. For more information on who may
continue to invest in the Fund, please contact your financial advisor. /7/As of
end of business on April 29, 2005, AIM Real Estate Fund has limited public sales
of its shares to certain investors. For more information on who may continue to
invest in the Fund, please contact your financial advisor. /8/Effective April
29, 2005, AIM Aggressive Allocation Fund was renamed AIM Growth Allocation Fund.
If used after July 20, 2005, this report must be accompanied by a Fund
Performance & Commentary or by an AIM Quarterly Performance Review for the most
recent quarter-end. Mutual funds distributed by A I M Distributors, Inc.
A I M Management Group Inc. has provided leadership in the investment management
industry since 1976 and manages $131 billion in assets. AIM is a subsidiary of
AMVESCAP PLC, one of the world's largest independent financial services
companies with $375 billion in assets under management. Data as of March 31,
2005.
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CONSIDER THE INVESTMENT OBJECTIVES, RISKS, AND CHARGES AND EXPENSES
CAREFULLY. FOR THIS AND OTHER INFORMATION ABOUT AIM FUNDS, OBTAIN A
PROSPECTUS FROM YOUR FINANCIAL ADVISOR AND READ IT CAREFULLY BEFORE
INVESTING.
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AIMinvestments.com I-TEC-AR-1 A I M Distributors, Inc.
[YOUR GOALS. OUR SOLUTIONS.]
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AIM UTILITIES FUND
Annual Report to Shareholders . March 31, 2005
[COVER IMAGE]
FORMERLY INVESCO UTILITIES FUND
[YOUR GOALS. OUR SOLUTIONS.]
- REGISTERED TRADEMARK -
[AIM INVESTMENTS LOGO]
- REGISTERED TRADEMARK -
AIM UTILITIES FUND SEEKS CAPITAL GROWTH AND INCOME.
.. Unless otherwise stated, information presented in this report is as of
March 31, 2005, and is based on total net assets.
.. Effective October 15, 2004, INVESCO Utilities Fund was renamed AIM Utilities
Fund.
ABOUT SHARE CLASSES
.. Effective September 30, 2003, Class B shares are not available as an
investment for retirement plans maintained pursuant to Section 401 of the
Internal Revenue Code, including 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.
.. Investor Class shares are closed to most investors. For more information on
who may continue to invest in the Investor Class shares, please see the
prospectus.
PRINCIPAL RISKS OF INVESTING IN THE FUND
.. Investing in a single-sector or single-region mutual fund involves greater
risk and potential reward than investing in a more diversified fund.
.. International investing presents certain risks not associated with investing
solely in the United States. These include risks relating to fluctuations in the
value of the U.S. dollar relative to the values of other currencies, the custody
arrangements made for the Fund's foreign holdings, differences in accounting,
political risks and the lesser degree of public information required to be
provided by non-U.S. companies. The Fund may invest up to 25% of its assets in
the securities of non-U.S. issuers. Securities of Canadian issuers and American
Depositary Receipts are not subject to this 25% limitation.
.. Investing in small and mid-size companies involves risks not associated with
investing in more established companies, including business risk, significant
stock price fluctuations and illiquidity.
.. By concentrating on a small number of holdings, the Fund carries greater risk
because each investment has a greater effect on the Fund's overall performance.
ABOUT INDEXES USED IN THIS REPORT
.. The unmanaged Lipper Utility Fund Index represents an average of the 30
largest utility funds tracked by Lipper, Inc., an independent mutual fund
performance monitor.
.. The unmanaged Standard & Poor's Composite Index of 500 Stocks (the S&P 500
- --REGISTERED TRADEMARK-- Index) is an index of common stocks frequently used as
a general measure of U.S. stock market performance.
.. The Fund is not managed to track the performance of any particular index,
including the indexes defined here, and consequently, the performance of the
Fund may deviate significantly from the performance of the indexes.
.. A direct investment cannot be made in an index. Unless otherwise indicated,
index results include reinvested dividends, and they do not reflect sales
charges. Performance of an index of funds reflects fund expenses; performance of
a market index does not.
OTHER INFORMATION
.. The returns shown in management's discussion of fund performance are based on
net asset values calculated for shareholder transactions. Generally accepted
accounting principles require adjustments to be made to the net assets of the
fund at period end for financial reporting purposes, and as such, the net asset
values for shareholder transactions and the returns based on those net asset
values may differ from the net asset values and returns reported in the
Financial Highlights.
.. Industry classifications used in this report are generally according to the
Global Industry Classification Standard, which was developed by and is the
exclusive property and a service mark of Morgan Stanley Capital International
Inc. and Standard & Poor's.
The Fund provides a complete list of its holdings four times in each fiscal
year, at the quarter-ends. For the second and fourth quarters, the lists appear
in the Fund's semiannual and annual reports to shareholders. For the first and
third quarters, the Fund files the lists with the Securities and Exchange
Commission (SEC) on Form N-Q. Shareholders can look up the Fund's Forms N-Q on
the SEC's Web site at sec.gov. Copies of the Fund's Forms N-Q may be reviewed
and copied at the SEC's Public Reference Room at 450 Fifth Street, N.W.,
Washington, D.C. 20549-0102. You can obtain information on the operation of the
Public Reference Room, including information about duplicating fee charges, by
calling 1-202-942-8090 or by electronic request at the following E-mail address:
publicinfo@sec.gov. The SEC file numbers for the Fund are 811-3826 and
002-85905. The Fund's most recent portfolio holdings, as filed on Form N-Q, are
also available at AIMinvestments.com.
A description of the policies and procedures that the Fund uses to determine how
to vote proxies relating to portfolio securities is available without charge,
upon request, from our Client Services department at 800-959-4246 or on the AIM
Web site, AIMinvestments.com. On the home page, scroll down and click on AIM
Funds Proxy Policy. The information is also available on the SEC Web site,
sec.gov.
Information regarding how the Fund voted proxies related to its portfolio
securities during the 12 months ended June 30, 2004, is available at our Web
site. Go 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.
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THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND
PROSPECTUS, WHICH CONTAINS MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES
AND EXPENSES. INVESTORS SHOULD READ IT CAREFULLY BEFORE INVESTING.
- --------------------------------------------------------------------------------
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
AIMINVESTMENTS.COM
AIM UTILITIES FUND
DEAR FELLOW SHAREHOLDERS:
The fiscal year covered by this report saw both equities and
bonds* produce positive total returns, but it wasn't a very
smooth ride. Markets were at their best during the second
half of 2004--bonds during the third quarter of that year
and equities during the fourth. Returns turned negative for
both asset classes during the first quarter of 2005.
[GRAHAM PHOTO] The huge run-up in the price of oil over the course of the
fiscal year goes a long way toward explaining the markets'
loss of confidence early in 2005. The Consumer Price Index
rose more in March 2005 than one month earlier. Energy costs
advanced 4.0% in March; the petroleum-based subset of energy
increased 7.8%.
ROBERT H. GRAHAM Another negative factor has been Federal Reserve policy.
With a view to warding off potential inflation, the Federal
Reserve (the Fed) raised short-term interest rates in March,
the seventh such move since mid-year 2004. The Fed noted
that inflationary pressures have picked up recently and that
businesses' ability to raise prices appeared stronger than
in the recent past. There is a virtually universal
expectation that the Fed will continue to increase
short-term interest rates during 2005, which could
ultimately dampen economic performance. (In early May, after
the close of the reporting period, the Fed raised rates once
again.)
[WILLIAMSON PHOTO] Nevertheless, there was also much good news for investors
as of March 31, 2005:
. The Institute for Supply Management's manufacturing and
non-manufacturing indexes--based on surveys of purchasing
managers in industries that cover more than 80% of the
U.S. economy--both indicated continued healthy growth
during March and April and remained in very strong
territory. April was the 42nd month in a row these surveys
showed the economy as a whole expanding.
MARK H. WILLIAMSON . Job growth during March was weaker than in the recent
past, though the unemployment rate declined over the
course of the fiscal year. In fact, less than robust job
growth during March was good news for bond
investors--there is still enough slack in the job market
to keep wage inflation from becoming an issue.
. Bond yields haven't risen as much as might be expected
given seven increases in short-term rates over the fiscal
year. Evidently, the bond market is not anticipating a
long-term inflationary pattern.
So once again we are seeing a good news/bad news
combination--a situation that is far from unusual. Over the
short term, financial markets are unpredictable. It is over
the long term that they have been rewarding to investors,
and we remain confident in their long-term outlook. Given
the inability to make accurate short-term forecasts, as
always, we urge our shareholders to:
. keep a long-term investment perspective,
. make sure their portfolios are suitably diversified, and
. contact their financial advisors when they have
questions or concerns about their investments or the
markets.
YOUR FUND
The following pages present a discussion of your Fund's
approach to investing, an explanation of its performance
over the fiscal year, and a summary of its portfolio as that
year closed. Further information about your Fund and The AIM
Family of Funds --REGISTERED TRADEMARK--, as well as
general information concerning investing, is always
available on our widely praised Web site,
AIMinvestments.com. We invite you to visit frequently.
As always, we at AIM are dedicated to building solutions
to help you meet your investment goals. We thank you for
your continued participation in AIM Investments --REGISTERED
TRADEMARK--. If you have any questions, please contact our
award-winning Client Service representatives at
800-959-4246. We are pleased to be of help.
Sincerely,
/s/ ROBERT H. GRAHAM /s/ MARK H. WILLIAMSON
Robert H. Graham Mark H. Williamson
Trustee, President & Chairman & President,
Vice Chair, AIM Funds A I M Advisors, Inc.
May 20, 2005
*Equities represented by the S&P 500 Index, an index of
common stocks often used as a general measure of U.S. stock
market performance; bonds by the Lehman U.S. Aggregate Bond
Index, an index compiled by Lehman Brothers, the global
investment bank, that represents the U.S. investment-grade
fixed-rate bond market.
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 AND A I M
DISTRIBUTORS, INC. IS THE DISTRIBUTOR FOR THE RETAIL FUNDS
REPRESENTED BY AIM INVESTMENTS.
AIM UTILITIES FUND
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
An investor preference for dividend-paying stocks, prompted by tax-law changes,
generally benefited the utilities sector during the year ended March 31,
2005. Indeed, utilities was the second-best performing sector in the S&P 500
Index for the reporting period--a trend that had a positive effect on the
performance of the Fund.
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FUND VS. INDEXES
TOTAL RETURNS, 3/31/04-3/31/05, EXCLUDING APPLICABLE SALES CHARGES. IF SALES
CHARGES WERE INCLUDED, RETURNS WOULD BE LOWER.
Class A Shares 24.95%
Class B Shares 24.17
Class C Shares 24.08
Investor Class Shares 25.08
S&P 500 Index (Broad Market Index) 6.69
Lipper Utility Fund Index
(Peer Group Index) 22.07
SOURCE: LIPPER, INC.
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Stocks, as measured by the performance of the S&P 500 Index, struggled for
most of the year amid concerns about rising energy prices and interest rates and
geopolitical uncertainties. Investors favored utilities stocks because of their
generally more defensive character and their tendency to pay dividends, enabling
the Fund to outperform the S&P 500 Index. Careful stock selection helped the
Fund outperform the Lipper Utility Fund Index.
HOW WE INVEST
The Fund invests primarily in the stocks of natural gas, electricity and
telecommunication services companies. It can invest in large, mid or small
capitalization stocks. We use a bottom-up approach to investing, selecting
stocks based on an analysis of individual companies. We seek to own the stocks
of companies with:
.. Positive cash flows;
.. Predictable earnings;
.. Strong balance sheets;
.. Sustainable dividends and distributions.
We also look for the stocks of companies that could potentially benefit
from certain trends within the utilities sector, such as increased demand for
certain products. Portfolio weightings are continually monitored and may be
adjusted according to prevailing economic trends. We also seek to own stocks
that are attractively valued relative to the rest of the market.
A decision to sell a stock may be prompted by any of the following reasons:
.. Earnings growth may be threatened because of a deterioration in the firm's
fundamentals or a change in the operating environment;
.. Valuation becomes too high;
.. Corporate strategy changes.
MARKET CONDITIONS AND YOUR FUND
Stocks, as measured by the performance of the S&P 500 Index, rose modestly over
the fiscal year as major economic indicators were generally favorable. Gross
domestic product, the broadest measure of overall economic activity, rose at
annualized rates of 3.3%, 4.0% and 3.8%, respectively, for the second, third and
fourth quarters of 2004, and 3.1% in the first quarter of 2005.
Most of the S&P 500 Index's gains were recorded in the fourth quarter of
2004. The index rose after the price of oil peaked in October and the U.S.
presidential campaign drew to a close. The S&P 500 Index declined in the first
quarter of 2005, as oil prices again increased and the Federal Reserve (The Fed)
continued raising interest rates to slow economic growth and curb potential
inflation. Utilities stocks tend to be adversely affected by rising inflation,
but inflation remained subdued during the reporting period.
The utilities sector also tends to be sensitive to interest rate movements
because utilities generally pay dividends and are particularly attractive when
interest rates are low. The Fed began to raise interest rates in June 2004, and
the short-term federal funds rate stood at 2.75% at the close of the reporting
period. Despite the short-term rate increases, long-term
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PORTFOLIO COMPOSITION TOP 10 EQUITY HOLDINGS* TOTAL NET ASSETS $235.1 million
By Industry TOTAL NUMBER OF HOLDINGS* 45
[PIE CHART]
Oil & Gas Refining, Marketing 1. TXU Corp. 6.1%
& Transportation 8.2% 2. Exelon Corp. 4.7
Integrated Telecommunication 3. Dominion Resources, Inc. 4.4
Services 6.9% 4. PG&E Corp. 4.4
Gas Utilities 4.9% 5. Entergy Corp. 4.4
Diversified Metals & Mining 2.7% 6. Williams Cos., Inc. (The) 4.3
Wireless Telecommunication 7. Questar Corp. 4.0
Services 2.5% 8. Kinder Morgan, Inc. 3.9
Water Utilities 1.6% 9. FPL Group, Inc. 3.7
Money Market Funds plus 10. FirstEnergy Corp. 3.2
Other Assets Less Liabilities 0.4%
Electric Utilities 49.8%
Multi-Utilities & Unregulated
Power 23.0%
The Fund's holdings are subject to change, and there is no assurance that the
Fund will continue to hold any particular security.
*Excluding money market fund holdings.
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2
interest rates remained relatively steady, as many investors apparently believed
inflation would remain subdued. Moreover, any interest rate concerns were more
than offset by the attractiveness of dividend-paying utility stocks, especially
because qualified dividends are now subject to a reduced 15% tax rate.
Mid-cap stocks outperformed large- and small-cap stocks over the reporting
period. The Fund had about 40% of its assets in mid-cap stocks and this was a
plus for performance. Our focus on favorably priced stocks also was beneficial
as value stocks outperformed growth stocks. The Fund's largest weighting was in
electric utilities, the best-performing industry in the sector.
During the reporting period, we increased the Fund's exposure to oil and
gas refining, marketing and transportation companies to take advantage of rising
fuel costs, and this strategy had a positive impact on performance. We continued
to limit the Fund's exposure to telecommunication services because of weak
fundamentals of companies in this industry group. Many companies within the
industry are saddled with debt and lack pricing power.
Stocks that contributed positively to Fund performance were TXU, a
Texas-based power producer and marketer, and Williams Cos., which produces and
transports natural gas.
.. TXU has benefited from a management restructuring of the company's balance
sheet to reduce interest payments and increase profits. Moreover, the company
has gained market share in Texas following the state's deregulation of the
electric industry. The stock's value more than doubled over the past 12 months.
.. Williams Cos. benefited from the preference of power plants for natural gas
for use as a fuel source.
Detracting from performance was Calpine, an independent, California-based
power producer and marketer.
.. Calpine is saddled with an enormous debt load and has seen the independent
power market all but collapse in the wake of the California troubles two years
ago. Still, with a relatively dry winter in the Pacific Northwest--which depends
on water to run hydroelectric power plants--we believe the potential exists for
the company to make significant gains in capacity.
IN CLOSING
The Fund continued to pursue its objectives of capital growth and income through
the strategies of investing in the stocks of companies engaged in producing,
generating, transmitting or distributing electricity or natural gas, as well as
firms that provide telecommunications services. Because utilities tend to
underperform when interest rates and inflation are rising, we maintained our
focus on holding the favorably priced stocks of strong companies with reasonable
growth prospects and attractive dividend yields. We thank you for your continued
investment in AIM Utilities Fund.
THE VIEWS AND OPINIONS EXPRESSED IN MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
ARE THOSE OF A I M ADVISORS, INC. THESE VIEWS AND OPINIONS ARE SUBJECT TO CHANGE
AT ANY TIME BASED ON FACTORS SUCH AS MARKET AND ECONOMIC CONDITIONS. THESE VIEWS
AND OPINIONS MAY NOT BE RELIED UPON AS INVESTMENT ADVICE OR RECOMMENDATIONS, OR
AS AN OFFER FOR A PARTICULAR SECURITY. THE INFORMATION IS NOT A COMPLETE
ANALYSIS OF EVERY ASPECT OF ANY MARKET, COUNTRY, INDUSTRY, SECURITY OR THE FUND.
STATEMENTS OF FACT ARE FROM SOURCES CONSIDERED RELIABLE, BUT A I M ADVISORS,
INC. MAKES NO REPRESENTATION OR WARRANTY AS TO THEIR COMPLETENESS OR ACCURACY.
ALTHOUGH HISTORICAL PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS, THESE
INSIGHTS MAY HELP YOU UNDERSTAND OUR INVESTMENT MANAGEMENT PHILOSOPHY.
See important Fund and index disclosures inside front cover.
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[SEGNER PHOTO]
JOHN S. SEGNER, Mr. Segner, the lead portfolio manager of AIM Utilities Fund,
has more than 20 years of experience in the energy and investment industries.
Before joining the Fund's advisor in 1997, he was managing director and
principal with an investment management company that focused exclusively on
publicly-traded energy stocks. Prior to that, he held positions with several
energy companies. Mr. Segner holds a B.S. in civil engineering from the
University of Alabama and an M.B.A. with a concentration in finance from The
University of Texas at Austin.
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[RIGHT ARROW GRAPHIC]
FOR A PRESENTATION OF YOUR FUND'S LONG-TERM PERFORMANCE RECORD, PLEASE TURN TO
PAGE 5.
3
AIM UTILITIES FUND
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, which may include sales charges (loads) on purchase payments; contingent
deferred sales charges on redemptions; and redemption fees, if any; and (2)
ongoing costs, including management fees; distribution and/or service fees
(12b-1); and other Fund expenses. This example is intended to help you
understand your ongoing costs (in dollars) of investing in the Fund and to
compare these costs with ongoing costs of investing in other mutual funds. The
example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period October 1, 2004, through March 31, 2005.
ACTUAL EXPENSES
The table below provides information about actual account values and actual
expenses. You may use the information in this table, together with the amount
you invested, to estimate the expenses that you paid over the period. Simply
divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number in the table
under the heading entitled "Actual Expenses Paid During Period" to estimate the
expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The table below also provides information about hypothetical account values and
hypothetical expenses based on the Fund's actual expense ratio and an assumed
rate of return of 5% per year before expenses, which is not the Fund's actual
return. The Fund's actual cumulative total returns at net asset value after
expenses for the six months ended March 31, 2005, appear in the table
"Cumulative Total Returns" on page 5.
The hypothetical account values and expenses may not be used to estimate the
actual ending account balance or expenses you paid for the period. You may use
this information to compare the ongoing costs of investing in the Fund and other
funds. To do so, compare this 5% hypothetical example with the 5% hypothetical
examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight
your ongoing costs only and do not reflect any transactional costs, such as
sales charges (loads) on purchase payments, contingent deferred sales charges on
redemptions, and redemption fees, if any. Therefore, the hypothetical
information is useful in comparing ongoing costs only, and will not help you
determine the relative total costs of owning different funds.
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ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES ENDING ACCOUNT EXPENSES
SHARE VALUE VALUE PAID DURING VALUE PAID DURING
CLASS (10/01/04) (3/31/05)/1/ PERIOD/2/ (3/31/05) PERIOD/2/
A $ 1,000.00 $ 1,168.80 $ 7.57 $ 1,017.95 $ 7.04
B 1,000.00 1,165.50 11.07 1,014.71 10.30
C 1,000.00 1,165.20 11.07 1,014.71 10.30
Investor 1,000.00 1,170.10 7.03 1,018.45 6.54
/1/The actual ending account value is based on the actual total return of the
Fund for the period, October 1, 2004, to March 31, 2005, after actual expenses
and will differ from the hypothetical ending account value which is based on the
Fund's expense ratio and a hypothetical annual return of 5% before expenses. The
Fund's actual cumulative total returns at net asset value after expenses for the
six months ended March 31, 2005, appear in the table "Cumulative Total Returns"
on page 5.
/2/Expenses are equal to the Fund's annualized expense ratio, 1.40%, 2.05%,
2.05% and 1.30% for Class A, B, C and Investor Class shares, respectively,
multiplied by the average account value over the period, multiplied by 182/365
(to reflect the one-half year period).
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IMAGE] AIMINVESTMENTS.COM
4
YOUR FUND'S LONG-TERM PERFORMANCE
Your Fund's total return includes reinvested distributions, Fund expenses and
management fees. Index results include reinvested dividends. Performance of an
index of funds reflects fund expenses and management fees; performance of a
market index does not. Performance shown in the chart and tables does not
reflect deduction of taxes a shareholder would pay on Fund distributions or sale
of Fund shares. Performance of the indexes does not reflect the effects of
taxes.
This chart, which is a logarithmic chart, presents the fluctuations in the
value of the Fund and its indexes. We believe that a logarithmic chart is more
effective than other types of charts in illustrating changes in value during the
early years shown in the chart. The vertical axis, the one that indicates the
dollar value of an investment, is constructed with each segment representing a
percent change in the value of the investment. In this chart, each segment
represents a doubling, or 100% change, in the value of the investment. In other
words, the space between $10,000 and $20,000 is the same size as the space
between $ 20,000 and $40,000, the space between $20,000 and $40,000 is the same
as that between $ 40,000 and $80,000, and so on.
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AVERAGE ANNUAL TOTAL RETURNS
As of 3/31/05, including applicable sales charges
CLASS A SHARES
Inception (3/28/02) 5.87%
1 Year 18.05
CLASS B SHARES
Inception (3/28/02) 6.25%
1 Year 19.17
CLASS C SHARES
Inception (2/14/00) -6.76%
5 Years -7.40
1 Year 23.08
INVESTOR CLASS SHARES
Inception (6/2/86) 8.45%
10 Years 7.48
5 Years -6.56
1 Year 25.08
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
RESULTS OF A $10,000 INVESTMENT
Fund and index data from 3/31/95
[MOUNTAIN CHART]
AIM UTILITIES FUND S&P 500 LIPPER UTILITY
DATE INVESTOR CLASS SHARES INDEX FUND INDEX
3/31/95 $ 10000 $ 10000 $ 10000
4/95 10199 10294 10219
5/95 10526 10705 10626
6/95 10590 10953 10654
7/95 10717 11316 10791
8/95 11025 11345 10916
9/95 11419 11823 11391
10/95 11429 11781 11484
11/95 11721 12297 11708
12/95 12134 12534 12167
1/96 12240 12960 12382
2/96 12360 13081 12181
3/96 12436 13207 12120
4/96 12986 13401 12145
5/96 12954 13747 12212
6/96 13162 13799 12561
7/96 12621 13190 11990
8/96 12842 13468 12162
9/96 12974 14226 12278
10/96 13395 14618 12701
11/96 13739 15722 13186
12/96 13683 15410 13302
1/97 13806 16373 13555
2/97 13770 16501 13581
3/97 13178 15824 13172
4/97 13275 16768 13292
5/97 13956 17793 13917
6/97 14589 18584 14342
7/97 14784 20063 14702
8/97 14293 18940 14243
9/97 15322 19976 15065
10/97 15316 19310 14936
11/97 16303 20203 15906
12/97 17017 20550 16723
1/98 17069 20777 16639
2/98 17754 22275 17127
3/98 19199 23414 18380
4/98 18669 23654 17997
5/98 18479 23248 17748
6/98 18898 24192 18097
7/98 18758 23936 17852
8/98 16890 20478 16690
9/98 18182 21791 17911
10/98 18906 23560 18332
11/98 19586 24988 18797
12/98 21151 26427 19799
1/99 21456 27531 19709
2/99 21050 26676 19082
3/99 21259 27743 19062
4/99 22500 28817 20331
5/99 23209 28138 20851
6/99 23550 29695 21140
7/99 23510 28772 21083
8/99 22262 28629 20465
9/99 22433 27845 20422
10/99 23295 29607 21499
11/99 23900 30208 21646
12/99 25353 31985 22676
1/00 26778 30378 23094
2/00 28037 29804 23162
3/00 28884 32718 24286
4/00 26891 31734 23316
5/00 25845 31083 23074
6/00 26183 31849 23048
7/00 25644 31351 22943
8/00 27203 33298 24561
9/00 27837 31540 25351
10/00 26899 31406 24687
11/00 24483 28932 23394
12/00 26405 29074 24621
1/01 25954 30105 23995
2/01 25230 27362 23497
3/01 24503 25629 22996
4/01 25924 27619 24267
5/01 24426 27805 23737
6/01 21954 27128 22254
7/01 20575 26861 21558
8/01 19242 25181 20790
9/01 16758 23148 19519
10/01 17198 23589 19074
11/01 17350 25399 18975
12/01 17435 25621 19365
1/02 15895 25247 18334
2/02 15317 24760 17822
3/02 16335 25692 18945
4/02 15891 24135 18210
5/02 15231 23958 17629
6/02 14509 22252 16496
7/02 13183 20518 14732
8/02 13384 20652 15054
9/02 12440 18410 13683
10/02 13047 20028 14282
11/02 13265 21206 14832
12/02 13549 19961 14969
1/03 13064 19439 14519
2/03 12688 19147 14031
3/03 12906 19332 14342
4/03 13553 20924 15319
5/03 14751 22025 16586
6/03 14817 22307 16811
7/03 14103 22700 16210
8/03 14245 23142 16272
9/03 14631 22897 16597
10/03 14807 24191 16995
11/03 14990 24404 17174
12/03 15939 25683 18198
1/04 16148 26154 18582
2/04 16502 26518 18972
3/04 16456 26118 18970
4/04 16003 25708 18522
5/04 16165 26060 18591
6/04 16462 26567 18969
7/04 16739 25688 19138
8/04 17177 25791 19639
9/04 17589 26070 20083
10/04 18328 26468 20898
11/04 19510 27539 21874
12/04 19977 28476 22547
1/05 19961 27782 22551
2/05 20574 28366 23121
3/05 $ 20586 $ 27864 $ 23157
SOURCE: LIPPER, INC.
- --------------------------------------------------------------------------------
The performance data quoted represent past performance and cannot guarantee
comparable future results; current performance may be lower or higher. Please
visit AIMinvestments.com for the most recent month-end performance. Performance
figures reflect reinvested distributions, changes in net asset value and the
effect of the maximum sales charge unless otherwise stated. Investment return
and principal value will fluctuate so that you may have a gain or loss when you
sell shares.
Class A share performance reflects the maximum 5.50% sales charge, and
Class B and Class C share performance reflects the applicable contingent
deferred sales charge (CDSC) for the period involved. The CDSC on Class B shares
declines from 5% beginning at the time of purchase to 0% at the beginning of the
seventh year. The CDSC on Class C shares is 1% for the first year after
purchase. Investor Class shares do not have a front-end sales charge or a CDSC;
therefore, performance is at net asset value.
The performance of the Fund's share classes will differ due to different
sales charge structures and class expenses.
Had the advisor not waived fees and/or reimbursed expenses, performance
would have been lower.
- --------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURNS
Excluding applicable sales charges
6 months ended 3/31/05
Class A 16.88%
Class B 16.55
Class C 16.52
Investor Class 17.01
- --------------------------------------------------------------------------------
5
FINANCIALS
SCHEDULE OF INVESTMENTS
March 31, 2005
MARKET
SHARES VALUE
---------------------------------------------------------
DOMESTIC COMMON STOCKS-82.95%
DIVERSIFIED METALS & MINING-2.74%
Peabody Energy Corp. 138,800 $ 6,434,768
---------------------------------------------------------
ELECTRIC UTILITIES-42.54%
Ameren Corp. 120,000 5,881,200
---------------------------------------------------------
American Electric Power Co., Inc. 100,000 3,406,000
---------------------------------------------------------
CenterPoint Energy, Inc. 310,000 3,729,300
---------------------------------------------------------
Cinergy Corp. 100,000 4,052,000
---------------------------------------------------------
DTE Energy Co. 50,000 2,274,000
---------------------------------------------------------
Edison International 190,000 6,596,800
---------------------------------------------------------
Entergy Corp. 145,000 10,245,700
---------------------------------------------------------
Exelon Corp. 239,950 11,011,305
---------------------------------------------------------
FirstEnergy Corp. 180,000 7,551,000
---------------------------------------------------------
FPL Group, Inc. 215,000 8,632,250
---------------------------------------------------------
OGE Energy Corp. 100,000 2,695,000
---------------------------------------------------------
PG&E Corp. 305,000 10,400,500
---------------------------------------------------------
PPL Corp. 120,000 6,478,800
---------------------------------------------------------
TXU Corp. 180,000 14,333,400
---------------------------------------------------------
Westar Energy, Inc. 125,000 2,705,000
---------------------------------------------------------
99,992,255
---------------------------------------------------------
GAS UTILITIES-3.38%
KeySpan Corp. 145,000 5,650,650
---------------------------------------------------------
Peoples Energy Corp. 55,000 2,305,600
---------------------------------------------------------
7,956,250
---------------------------------------------------------
INTEGRATED TELECOMMUNICATION
SERVICES-4.92%
Citizens Communications Co. 420,000 5,434,800
---------------------------------------------------------
Sprint Corp. 270,000 6,142,500
---------------------------------------------------------
11,577,300
---------------------------------------------------------
MULTI-UTILITIES & UNREGULATED
POWER-19.62%
Calpine Corp./(a)(b)/ 1,400,000 3,920,000
---------------------------------------------------------
Dominion Resources, Inc. 140,000 10,420,200
---------------------------------------------------------
Duke Energy Corp. 90,000 2,520,900
---------------------------------------------------------
Equitable Resources, Inc. 100,000 5,744,000
---------------------------------------------------------
ONEOK, Inc. 140,000 4,314,800
---------------------------------------------------------
Questar Corp. 160,000 9,480,000
---------------------------------------------------------
SCANA Corp. 76,900 2,939,118
---------------------------------------------------------
Sempra Energy 170,000 6,772,800
---------------------------------------------------------
46,111,818
---------------------------------------------------------
MARKET
SHARES VALUE
----------------------------------------------------------------------------
OIL & GAS REFINING, MARKETING &
TRANSPORTATION-8.18%
Kinder Morgan, Inc. 120,000 $ 9,084,000
----------------------------------------------------------------------------
Williams Cos., Inc. (The) 540,000 10,157,400
----------------------------------------------------------------------------
19,241,400
----------------------------------------------------------------------------
WATER UTILITIES-1.57%
Aqua America Inc. 151,250 3,682,938
----------------------------------------------------------------------------
Total Domestic Common Stocks
(Cost $143,049,375) 194,996,729
----------------------------------------------------------------------------
FOREIGN STOCKS & OTHER
EQUITY INTERESTS-15.69%
FRANCE-1.80%
Veolia Environnement (Multi-Utilities & Unregulated
Power)/(b)(c)/ 119,400 4,231,506
----------------------------------------------------------------------------
GERMANY-2.35%
E.ON A.G. (Electric Utilities)/(c)/ 64,255 5,529,341
----------------------------------------------------------------------------
ITALY-3.86%
Enel S.p.A. (Electric Utilities)/(b)(c)/ 505,000 4,832,055
----------------------------------------------------------------------------
Telecom Italia S.p.A.-Savings Shares (Integrated
Telecommunication Services)/(c)/ 448,368 1,401,354
----------------------------------------------------------------------------
Terna S.p.A. (Electric Utilities)/(b)(c)/ 1,073,100 2,849,842
----------------------------------------------------------------------------
9,083,251
----------------------------------------------------------------------------
SPAIN-2.10%
Endesa, S.A. (Electric Utilities)/(b)(c)/ 110,938 2,496,768
----------------------------------------------------------------------------
Telefonica, S.A. (Integrated Telecommunication
Services)/(b)(c)/ 140,143 2,432,764
----------------------------------------------------------------------------
4,929,532
----------------------------------------------------------------------------
UNITED KINGDOM--5.58%
Centrica PLC (Gas Utilities)/(c)/ 809,820 3,533,485
----------------------------------------------------------------------------
National Grid Transco PLC (Multi-Utilities &
Unregulated Power)/(c)/ 400,000 3,708,663
----------------------------------------------------------------------------
Vodafone Group PLC (Wireless Telecommunication
Services)/(c)/ 1,468,018 3,898,729
----------------------------------------------------------------------------
Vodafone Group PLC-ADR (Wireless Telecommunication
Services) 74,100 1,968,096
----------------------------------------------------------------------------
13,108,973
----------------------------------------------------------------------------
Total Foreign Stocks & Other Equity Interests
(Cost $29,850,440) 36,882,603
----------------------------------------------------------------------------
F-1
PRINCIPAL MARKET
AMOUNT VALUE
------------------------------------------------------------------------
NOTES-0.87%
ELECTRIC UTILITIES-0.54%
AmerenEnergy Generating Co.-Series C, Sr. Unsec.
Global Notes, 7.75%, 11/01/05/(d)/ $750,000 $ 766,912
------------------------------------------------------------------------
Kansas City Power & Light Co., Sr. Unsec. Notes,
7.13%, 12/15/05/(d)/ 500,000 511,195
------------------------------------------------------------------------
1,278,107
------------------------------------------------------------------------
INTEGRATED TELECOMMUNICATION SERVICES-
0.33%
British Telecommunications PLC (United Kingdom),
Global Notes, 7.88%, 12/15/05/(d)/ 750,000 771,915
------------------------------------------------------------------------
Notes (Cost $2,249,652) 2,050,022
------------------------------------------------------------------------
MARKET
SHARES VALUE
-----------------------------------------------------------------------------
MONEY MARKET FUNDS-0.44%
Premier Portfolio-Institutional Class
(Cost $1,026,579)/(e)/ 1,026,579 $ 1,026,579
-----------------------------------------------------------------------------
TOTAL INVESTMENTS-99.95% (excluding investments
purchased with cash collateral from securities
loaned) (Cost $176,176,046) 234,955,933
-----------------------------------------------------------------------------
INVESTMENTS PURCHASED WITH CASH
COLLATERAL FROM SECURITIES LOANED
MONEY MARKET FUNDS-4.91%
Premier Portfolio-Institutional Class/(e)(f)/ 11,544,702 11,544,702
-----------------------------------------------------------------------------
Total Money Market Funds (purchased with cash
collateral from securities loaned)
(Cost $11,544,702) 11,544,702
-----------------------------------------------------------------------------
TOTAL INVESTMENTS-104.86% (Cost $187,720,748) 246,500,635
-----------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-(4.86%) (11,435,748)
-----------------------------------------------------------------------------
NET ASSETS-100.00% $235,064,887
-----------------------------------------------------------------------------
Investment Abbreviations:
ADR - AmericanDepositary Receipt
Sr. - Senior
Unsec. - Unsecured
Notes to Schedule of Investments:
/(a)/ Non-income producing security.
/(b)/ All or a portion of this security has been pledged as collateral for
securities lending transactions at March 31, 2005.
/(c)/ In accordance with the procedures established by the Board of Trustees,
the foreign security is fair valued using adjusted closing market prices.
The aggregate market value of these securities at March 31, 2005 was
$34,914,507, which represented 14.16% of the Fund's Total Investments.
See Note 1A.
/(d)/ 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 market value of these
securities at March 31, 2005 was $2,050,022, which represented 0.83% of
the Fund's Total Investments. See Note 1A.
/(e)/ The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
/(f)/ The security has been segregated to satisfy the forward commitment to
return the cash collateral received in securities lending transactions
upon the borrower's return of the securities loaned. See Note 7.
See accompanying notes which are an integral part of the financial statements.
F-2
STATEMENT OF ASSETS AND LIABILITIES
March 31, 2005
ASSETS:
Investments, at market value (cost $175,149,467)* $233,929,354
- -----------------------------------------------------------------------------------
Investments in affiliated money market funds (cost $12,571,281) 12,571,281
- -----------------------------------------------------------------------------------
Total investments (cost $187,720,748) 246,500,635
- -----------------------------------------------------------------------------------
Foreign currencies, at market value (cost $61) 60
- -----------------------------------------------------------------------------------
Receivables for:
Fund shares sold 343,680
- -----------------------------------------------------------------------------------
Dividends and interest 533,338
- -----------------------------------------------------------------------------------
Collateral for securities loaned 749,230
- -----------------------------------------------------------------------------------
Amount due from advisor 25,756
- -----------------------------------------------------------------------------------
Investments matured (Note 9) 298,772
- -----------------------------------------------------------------------------------
Investment for trustee deferred compensation and retirement plans 67,566
- -----------------------------------------------------------------------------------
Other assets 31,044
- -----------------------------------------------------------------------------------
Total assets 248,550,081
- -----------------------------------------------------------------------------------
LIABILITIES:
Payables for:
Fund shares reacquired 880,984
- -----------------------------------------------------------------------------------
Trustee deferred compensation and retirement plans 87,460
- -----------------------------------------------------------------------------------
Collateral upon return of securities loaned 12,293,932
- -----------------------------------------------------------------------------------
Accrued distribution fees 65,369
- -----------------------------------------------------------------------------------
Accrued trustees' fees 3,308
- -----------------------------------------------------------------------------------
Accrued transfer agent fees 81,187
- -----------------------------------------------------------------------------------
Accrued operating expenses 72,954
- -----------------------------------------------------------------------------------
Total liabilities 13,485,194
- -----------------------------------------------------------------------------------
Net assets applicable to shares outstanding $235,064,887
- -----------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Shares of beneficial interest $273,823,790
- -----------------------------------------------------------------------------------
Undistributed net investment income (15,543)
- -----------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment securities and
foreign currencies (93,224,947)
- -----------------------------------------------------------------------------------
Unrealized appreciation of investment securities and foreign
currencies 54,481,587
- -----------------------------------------------------------------------------------
$235,064,887
- -----------------------------------------------------------------------------------
NET ASSETS:
Class A $113,324,815
------------------------------------------------------------
Class B $ 35,303,124
------------------------------------------------------------
Class C $ 6,900,457
------------------------------------------------------------
Investor Class $ 79,536,491
------------------------------------------------------------
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Class A 9,231,675
------------------------------------------------------------
Class B 2,865,959
------------------------------------------------------------
Class C 555,922
------------------------------------------------------------
Investor Class 6,425,115
------------------------------------------------------------
Class A:
Net asset value per share $ 12.28
------------------------------------------------------------
Offering price per share:
(Net asset value of $12.28 / 94.50%) $ 12.99
------------------------------------------------------------
Class B:
Net asset value and offering price per share $ 12.32
------------------------------------------------------------
Class C:
Net asset value and offering price per share $ 12.41
------------------------------------------------------------
Investor Class:
Net asset value and offering price per share $ 12.38
------------------------------------------------------------
* At March 31, 2005, securities with an aggregate market value of $11,866,206
were on loan to brokers.
See accompanying notes which are an integral part of the financial statements.
F-3
STATEMENT OF OPERATIONS
For the year ended March 31, 2005
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $132,920) $ 8,730,411
- -----------------------------------------------------------------------------------
Dividends from affiliated money market funds (including securities
lending income of $178,974 less rebates of $101,509) 119,541
- -----------------------------------------------------------------------------------
Interest 153,889
- -----------------------------------------------------------------------------------
Total investment income 9,003,841
- -----------------------------------------------------------------------------------
EXPENSES:
Advisory fees 1,624,156
- -----------------------------------------------------------------------------------
Administrative services fees 85,884
- -----------------------------------------------------------------------------------
Custodian fees 28,556
- -----------------------------------------------------------------------------------
Distribution fees:
Class A 263,126
- -----------------------------------------------------------------------------------
Class B 329,726
- -----------------------------------------------------------------------------------
Class C 62,893
- -----------------------------------------------------------------------------------
Investor Class 180,105
- -----------------------------------------------------------------------------------
Transfer agent fees 794,855
- -----------------------------------------------------------------------------------
Trustees' fees and retirement benefits 18,073
- -----------------------------------------------------------------------------------
Other 63,530
- -----------------------------------------------------------------------------------
Total expenses 3,450,904
- -----------------------------------------------------------------------------------
Less:Fees waived, expenses reimbursed and expense offset arrangements (234,210)
- -----------------------------------------------------------------------------------
Net expenses 3,216,694
- -----------------------------------------------------------------------------------
Net investment income 5,787,147
- -----------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN FROM INVESTMENT SECURITIES AND FOREIGN
CURRENCIES:
Net realized gain from:
Investment securities 7,917,518
- -----------------------------------------------------------------------------------
Foreign currencies 11,687
- -----------------------------------------------------------------------------------
7,929,205
- -----------------------------------------------------------------------------------
Change in net unrealized appreciation of:
Investment securities 34,628,048
- -----------------------------------------------------------------------------------
Foreign currencies 1,962
- -----------------------------------------------------------------------------------
34,630,010
- -----------------------------------------------------------------------------------
Net gain from investment securities and foreign currencies 42,559,215
- -----------------------------------------------------------------------------------
Net increase in net assets resulting from operations $48,346,362
- -----------------------------------------------------------------------------------
See accompanying notes which are an integral part of the financial statements.
F-4
STATEMENT OF CHANGES IN NET ASSETS
For the years ended March 31, 2005 and 2004
2005
- ----------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 5,787,147
- ----------------------------------------------------------------------------------------------------------------------
Net realized gain from investment securities and foreign currencies 7,929,205
- ----------------------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment securities and foreign currencies 34,630,010
- ----------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 48,346,362
- ----------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class A (2,901,177)
- ----------------------------------------------------------------------------------------------------------------------
Class B (685,445)
- ----------------------------------------------------------------------------------------------------------------------
Class C (129,399)
- ----------------------------------------------------------------------------------------------------------------------
Investor Class (2,058,141)
- ----------------------------------------------------------------------------------------------------------------------
Decrease in net assets resulting from distributions (5,774,162)
- ----------------------------------------------------------------------------------------------------------------------
Share transactions-net:
Class A (9,390,014)
- ----------------------------------------------------------------------------------------------------------------------
Class B (5,658,456)
- ----------------------------------------------------------------------------------------------------------------------
Class C (751,072)
- ----------------------------------------------------------------------------------------------------------------------
Investor Class (3,714,283)
- ----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from share transactions (19,513,825)
- ----------------------------------------------------------------------------------------------------------------------
Net increase in net assets 23,058,375
- ----------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 212,006,512
- ----------------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment income of $(15,543) and $(40,215), respectively) $235,064,887
- ----------------------------------------------------------------------------------------------------------------------
2004
- ---------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 2,850,802
- ---------------------------------------------------------------------------------------------------------------------
Net realized gain from investment securities and foreign currencies 16,033,275
- ---------------------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment securities and foreign currencies 15,852,281
- ---------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 34,736,358
- ---------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class A (685,258)
- ---------------------------------------------------------------------------------------------------------------------
Class B (122,921)
- ---------------------------------------------------------------------------------------------------------------------
Class C (31,061)
- ---------------------------------------------------------------------------------------------------------------------
Investor Class (1,882,805)
- ---------------------------------------------------------------------------------------------------------------------
Decrease in net assets resulting from distributions (2,722,045)
- ---------------------------------------------------------------------------------------------------------------------
Share transactions-net:
Class A 90,205,591
- ---------------------------------------------------------------------------------------------------------------------
Class B 30,514,206
- ---------------------------------------------------------------------------------------------------------------------
Class C 4,962,878
- ---------------------------------------------------------------------------------------------------------------------
Investor Class (19,748,567)
- ---------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from share transactions 105,934,108
- ---------------------------------------------------------------------------------------------------------------------
Net increase in net assets 137,948,421
- ---------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 74,058,091
- ---------------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment income of $(15,543) and $(40,215), respectively) $212,006,512
- ---------------------------------------------------------------------------------------------------------------------
See accompanying notes which are an integral part of the financial statements.
F-5
NOTES TO FINANCIAL STATEMENTS
March 31, 2005
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Utilities Fund, formerly INVESCO Utilities Fund, (the "Fund") is a series
portfolio of AIM Sector Funds (the "Trust"). The Trust is a Delaware statutory
trust registered under the Investment Company Act of 1940, as amended (the
"1940 Act"), as an open-end series management investment company consisting of
seven separate portfolios, each authorized to issue an unlimited number of
shares of beneficial interest. The Fund currently offers multiple classes of
shares. Matters affecting each portfolio or class will be voted on exclusively
by the shareholders of such portfolio or class. The assets, liabilities and
operations of each portfolio are accounted for separately. Information
presented in these financial statements pertains only to the Fund.
The Fund's investment objective is to achieve capital growth and current
income. Each company listed in the Schedule of Investments is organized in the
United States of America unless otherwise noted.
Under the Trust's organizational documents, 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. However, the Fund has not had prior claims or losses pursuant to
these contracts.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates. The following is a summary of the
significant accounting policies followed by the Fund in the preparation of its
financial statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy.
A security listed or traded on an exchange (except convertible bonds) is
valued at its last sales price as of the close of the customary trading
session on the exchange where the security is principally traded, or lacking
any sales on a particular day, the security is valued at the closing bid
price on that day. Each security traded in the over-the-counter market (but
not securities reported on the NASDAQ National Market System) is valued on
the basis of prices furnished by independent pricing services, 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 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 will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
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 market
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 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 and 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.
F-6
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 allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. DISTRIBUTIONS -- Distributions from income are declared and paid quarterly
and are recorded on ex-dividend date. Distributions from net realized
capital gain, if any, are generally paid annually and recorded on
ex-dividend date. The Fund may elect to use a portion of the proceeds from
redemptions as distributions for federal income tax purposes.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
E. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
F. 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.
G. 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.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee based on the annual rate of the Fund's average
daily net assets as follows:
AVERAGE NET ASSETS RATE
- --------------------------------------------------------------------------------
First $350 million 0.75%
- --------------------------------------------------------------------------------
Next $350 million 0.65%
- --------------------------------------------------------------------------------
Next $1.3 billion 0.55%
- --------------------------------------------------------------------------------
Next $2 billion 0.45%
- --------------------------------------------------------------------------------
Next $2 billion 0.40%
- --------------------------------------------------------------------------------
Next $2 billion 0.375%
- --------------------------------------------------------------------------------
Over $8 billion 0.35%
- --------------------------------------------------------------------------------
Prior to September 30, 2004, AIM had entered into a sub-advisory agreement
with INVESCO Institutional (N.A.), Inc. ("INVESCO") whereby AIM paid INVESCO
40% of the fee paid by the Fund to AIM. Effective September 30, 2004, the
sub-advisory agreement between AIM and INVESCO was terminated.
AIM has voluntarily agreed to waive advisory fees and/or reimburse expenses
to the extent necessary to limit total annual operating expenses (excluding
certain items discussed below) of Class A, Class B, Class C and Investor Class
shares to 1.40%, 2.05%, 2.05% and 1.30% of average daily net assets,
respectively. In addition, effective April 1, 2005, AIM has voluntarily agreed
to waive advisory fees and/or reimburse expenses to the extent necessary to
limit total annual operating expenses (excluding certain items discussed below)
of Class A to 1.30% average daily net assets. AIM has contractually agreed to
waive advisory fees and/or reimburse expenses to the extent necessary to limit
total annual operating expenses (excluding certain items discussed below) of
Class A, Class B, Class C and Investor Class shares to 1.90%, 2.65%, 2.65% and
1.90% of average daily net assets, respectively, through March 31, 2006. In
determining the advisor's obligation to waive advisory fees and/or reimburse
expenses, the following expenses are not taken into account, and could cause
the total annual fund operating expenses to exceed the limits stated above:
F-7
(i) interest; (ii) taxes; (iii) dividend expense on short sales; (iv)
extraordinary items (these are expenses that are not anticipated to arise from
the Fund's day-to-day operations), or items designated as such by the Fund's
Board of Trustees; (v) expenses related to a merger or reorganization, as
approved by the Fund's Board of Trustees; and (vi) expenses that the Fund has
incurred but did not actually pay because of an expense offset arrangement.
Currently, in addition to the expense reimbursement arrangement with AMVESCAP
PLC ("AMVESCAP") described more fully below, the only expense offset
arrangements from which the Fund may benefit are in the form of credits that
the Fund receives from banks where the Fund or its transfer agent has deposit
accounts in which it holds uninvested cash. Those credits are used to pay
certain expenses incurred by the Fund.
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
(excluding investments made in affiliated money market funds with cash
collateral from securities loaned by the fund). 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 March 31, 2005, AIM waived fees of $88,199.
For the year ended March 31, 2005, at the request of the Trustees of the
Trust, AMVESCAP agreed to reimburse $30,770 of expenses incurred by the Fund in
connection with market timing matters in the AIM Funds, including legal, audit,
shareholder reporting, communications and trustee expenses. These expenses
along with the related expense reimbursement, are included in the Statement of
Operations.
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
March 31, 2005, AIM was paid $85,884.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AISI for certain expenses
incurred by AISI in the course of providing such services. AISI may make
payments to intermediaries that provide omnibus account services,
sub-accounting services and/or networking services. For the year ended March
31, 2005, the Fund paid AISI $794,855.
The Trust has entered into a master distribution agreement with A I M
Distributors, Inc. ("ADI") to serve as the distributor for the Class A, Class
B, Class C and Investor Class shares of the Fund. The Trust has adopted plans
pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A,
Class B, Class C and Investor Class shares (collectively the "Plans"). The
Fund, pursuant to the Plans, pays ADI compensation at the annual rate of 0.25%
of the Fund's average daily net assets of Class A shares, 1.00% of the average
daily net assets of Class B and Class C shares and 0.25% of the average daily
net assets of Investor Class shares. Of these amounts, up to 0.25% of the
average daily net assets of the Class A, Class B, Class C or Investor Class
shares may be paid to furnish continuing personal shareholder services to
customers who purchase and own shares of such classes. Any amounts not paid as
a service fee under the Plans would constitute an asset-based sales charge.
NASD Rules also impose a cap on the total sales charges, including asset-based
sales charges that may be paid by any class of shares of the Fund. Pursuant to
the Plans, for the year ended March 31, 2005, the Class A, Class B, Class C and
Investor Class shares paid ADI $263,126, $329,726, $62,893 and $180,105,
respectively. Of these amounts, AIM reimbursed Plan fees of $0, $32,973, $6,289
and $72,042, respectively.
Front-end sales commissions and contingent deferred sales charges ("CDSC")
(collectively the "sales charges") are not recorded as expenses of the Fund.
Front-end sales commissions are deducted from proceeds from the sales of Fund
shares prior to investment in Class A shares of the Fund. CDSC are deducted
from redemption proceeds prior to remittance to the shareholder. During the
year ended March 31, 2005, ADI advised the Fund that it retained $18,371 in
front-end sales commissions from the sale of Class A shares and $35, $14,053
and $752 from Class A, Class B and Class C shares, respectively, for CDSC
imposed upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of AIM,
AISI, and/or ADI.
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to an exemptive order from the Securities and
Exchange Commission ("SEC"), to invest daily available cash balances and cash
collateral from securities lending transactions 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 tables below show
the transactions in and earnings from investments in an affiliated money market
fund for the year ended March 31, 2005.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS FROM APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 03/31/04 AT COST SALES (DEPRECIATION) 03/31/05 INCOME GAIN (LOSS)
- ---------------------------------------------------------------------------------------------------------------------------------
Premier Portfolio -- Institutional Class* $4,862,426 $51,426,822 $(55,262,669) $-- $1,026,579 $42,076 $--
- ---------------------------------------------------------------------------------------------------------------------------------
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
UNREALIZED MARKET
MARKET VALUE PURCHASES PROCEEDS FROM APPRECIATION VALUE DIVIDEND REALIZED
FUND 03/31/04 AT COST SALES (DEPRECIATION) 03/31/05 INCOME** GAIN (LOSS)
- --------------------------------------------------------------------------------------------------------------------------------
Premier Portfolio -- Institutional Class* $ -- $15,441,748 $ (3,897,046) $-- $11,544,702 $ 77,465 $--
- --------------------------------------------------------------------------------------------------------------------------------
Total $4,862,426 $66,868,570 $(59,159,715) $-- $12,571,281 $119,541 $--
- --------------------------------------------------------------------------------------------------------------------------------
* On February 25, 2005, the Premier Portfolio investments were transferred from
the original share class with no name designation to the newly structured
share class designated as Institutional Class.
**Net of rebates.
F-8
NOTE 4--EXPENSE OFFSET ARRANGEMENTS
The expense offset arrangements are comprised of (i) transfer agency credits
which result from balances in Demand Deposit Accounts (DDA) used by the
transfer agent for clearing shareholder transactions and (ii) custodian credits
which result from periodic overnight cash balances at the custodian. For the
year ended March 31, 2005, the Fund received credits from these arrangements
which resulted in the reduction of the Fund's total expenses of $3,937.
NOTE 5--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each Trustee of the Trust who is
not an "interested person" of AIM. Trustees have the option to defer
compensation payable by the Trust. Those Trustees who defer compensation have
the option to select various AIM Funds in which their deferral accounts shall
be deemed to be invested.
Current Trustees are eligible to participate in a retirement plan that
provides for benefits to be paid upon retirement to Trustees over a period of
time based on the number of years of service. The Fund may have certain former
Trustees that also participate in a retirement plan and receive benefits under
such plan.
Obligations under the deferred compensation and retirement plans represent
unsecured claims against the general assets of the Fund.
During the year ended March 31, 2005, the Fund paid legal fees of $4,201 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
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate
available on investments in overnight repurchase agreements) is favorable to
both the lending fund and the borrowing fund. A loan will be secured by
collateral if the Fund's aggregate borrowings from all sources exceeds 10% of
the Fund's total assets. To the extent that the loan is required to be secured
by collateral, the collateral is marked to market daily to ensure that the
market value is at least 102% of the outstanding principal value of the loan.
During the year ended March 31, 2005, the Fund had average interfund borrowings
for the number of days the borrowings were outstanding in the amount of
$3,144,000 with a weighted average interest rate of 2.20% and interest expense
of $189.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to
the credit facility can borrow on a first come, first served basis. Principal
on each loan outstanding shall bear interest at the bid rate quoted by SSB at
the time of the request for the loan. The Fund did not borrow under the
facility during the year ended March 31, 2005.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, the custodian bank. To compensate
the custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds in the account so the custodian can be compensated by earning the
additional interest; or (ii) compensate by paying the custodian bank. In either
case, the custodian bank will be compensated at an amount equal to the Federal
Funds rate plus 100 basis points.
NOTE 7--PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities having a market value up to one-third of
the Fund's total assets. Such loans are secured by collateral equal to no less
than the market value of the loaned securities determined daily. Such
collateral will be cash or debt securities issued or guaranteed by the U.S.
Government or any of its agencies. Cash collateral received in connection with
these loans is invested in short-term money market instruments or affiliated
money market funds. It is the Fund's policy to obtain additional collateral
from or return excess collateral to the borrower by the end of the next
business day, following the valuation date of the securities loaned. Therefore,
the value of the collateral held may be temporarily less than the value of the
securities on loan. Lending securities entails a risk of loss to the Fund if
and to the extent that the market value of the securities loaned were to
increase and the borrower did not increase the collateral accordingly, and the
borrower fails to return the securities. The Fund could also experience delays
and costs in gaining access to the collateral. The Fund bears the risk of any
deficiency in the amount of the collateral available for return to the borrower
due to a loss on the collateral invested.
At March 31, 2005, securities with an aggregate value of $11,866,206 were on
loan to brokers. The loans were secured by cash collateral of $11,544,702
received by the Fund and subsequently invested in an affiliated money market
fund and a receivable of $749,230 for cash collateral held by the agent. For
the year ended March 31, 2005, the Fund received dividends on cash collateral
of $77,465 for securities lending transactions, which are net of rebates.
F-9
NOTE 8--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
The tax character of distributions paid during the years ended March 31, 2005
and 2004 was as follows:
2005 2004
- ----------------------------------------------------------------------------------
Distributions paid from ordinary income $5,774,162 $2,722,045
- ----------------------------------------------------------------------------------
TAX COMPONENTS OF NET ASSETS:
As of March 31, 2005, the components of net assets on a tax basis was as
follows:
2005
- ------------------------------------------------------------------------------------
Undistributed ordinary income $ 87,029
- ------------------------------------------------------------------------------------
Unrealized appreciation -- investments 53,318,279
- ------------------------------------------------------------------------------------
Temporary book/tax differences (76,022)
- ------------------------------------------------------------------------------------
Capital loss carryforward (92,088,189)
- ------------------------------------------------------------------------------------
Shares of beneficial interest 273,823,790
- ------------------------------------------------------------------------------------
Total net assets $235,064,887
- ------------------------------------------------------------------------------------
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 (depreciation) difference is attributable primarily to the
deferral of losses on wash sales, corporate actions and defaulted bonds. The
tax-basis unrealized appreciation on investments amount includes appreciation
on foreign currencies of $5,275.
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.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the
amount of capital loss carryforward actually available for the Fund to utilize.
The ability to utilize capital loss carryforward in the future may be limited
under the Internal Revenue Code and related regulations based on the results of
future transactions. Under these limitation rules, the Fund is limited as of
March 31, 2005 to utilizing $74,376,234 of capital loss carryforward in the
fiscal year ended March 31, 2006.
The Fund utilized $8,612,509 of capital loss carryforward in the current
period to offset net realized capital gain for federal income tax purposes. The
Fund has a capital loss carryforward as of March 31, 2005 which expires as
follows:
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
--------------------------------------------------------------------------
March 31, 2010 $68,055,133
--------------------------------------------------------------------------
March 31, 2011 23,729,348
--------------------------------------------------------------------------
March 31, 2013 303,708
--------------------------------------------------------------------------
Total capital loss carryforward $92,088,189
--------------------------------------------------------------------------
* Capital loss carryforward as of the date listed above is reduced for
limitations, if any, to the extent required by the Internal Revenue Code. To
the extent that unrealized gains (losses) as of November 24, 2003, the date
of the reorganization of AIM Global Utilities Fund into the Fund, are
realized on securities held in each fund at such day, the capital loss
carryforward may be further limited for up to five years from the date of the
reorganization.
NOTE 9--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
March 31, 2005 was $70,248,856 and $88,612,389, respectively.
At the request of the Trustees, AIM recovered third party research credits
during the year ended March 31, 2005, in the amount of $13,881. These research
credits were recorded as realized gains.
Receivable for investments matured represents the estimated proceeds to the
Fund by Candescent Technologies Corp., which is in default with respect to the
principal payments on $4,866,000 par value, Senior Unsecured Guaranteed
Subordinated Debentures, 8.00%, which were due May 1, 2003. This estimate was
determined in accordance with the fair valuation procedures authorized by the
Board of Trustees. Unrealized appreciation (depreciation) at March 31, 2005 was
$(4,303,575).
UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENT SECURITIES ON A TAX BASIS
-------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $60,836,793
-------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (7,523,789)
-------------------------------------------------------------------------
Net unrealized appreciation of investment securities $53,313,004
-------------------------------------------------------------------------
Cost of investments for tax purposes is $193,486,403.
F-10
NOTE 10--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of foreign currency
transactions on March 31, 2005, undistributed net investment income was
increased by $11,687 and undistributed net realized gain (loss) decreased by
$11,687. This reclassification had no effect on the net assets of the Fund.
NOTE 11--SHARE INFORMATION
The Fund currently offers four different classes of shares: Class A shares,
Class B shares, Class C shares and Investor Class shares. Class A shares are
sold with a front-end sales charge. Class B shares and Class C shares are sold
with CDSC. Investor Class shares are sold at net asset value. Under certain
circumstances, Class A shares are subject to CDSC. Generally, Class B shares
will automatically convert to Class A shares eight years after the end of the
calendar month of purchase.
CHANGES IN SHARES OUTSTANDING/(a)/
- -------------------------------------------------------------------------------------------------------------
YEAR ENDED MARCH 31,
--------------------------------------------------
2005 2004
------------------------ ------------------------
SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------------------------------------
Sold:
Class A 1,349,057 $ 15,037,912 369,607 $ 3,431,799
- -------------------------------------------------------------------------------------------------------------
Class B 686,957 7,827,572 176,285 1,853,321
- -------------------------------------------------------------------------------------------------------------
Class C 218,268 2,494,228 807,064 7,343,248
- -------------------------------------------------------------------------------------------------------------
Investor Class 1,519,629 17,110,449 3,818,233 34,835,240
- -------------------------------------------------------------------------------------------------------------
Issued as reinvestment of dividends:
Class A 229,550 2,550,083 62,226 612,670
- -------------------------------------------------------------------------------------------------------------
Class B 53,977 599,076 10,830 108,358
- -------------------------------------------------------------------------------------------------------------
Class C 9,938 111,371 2,821 27,715
- -------------------------------------------------------------------------------------------------------------
Investor Class 172,440 1,934,858 188,941 1,774,589
- -------------------------------------------------------------------------------------------------------------
Issued in connection with acquisitions:/(b)/
Class A -- -- 10,626,480 96,253,467
- -------------------------------------------------------------------------------------------------------------
Class B -- -- 3,885,472 35,282,815
- -------------------------------------------------------------------------------------------------------------
Class C -- -- 583,619 5,339,132
- -------------------------------------------------------------------------------------------------------------
Automatic conversion of Class B shares to Class A shares:
Class A 388,776 4,257,299 352,095 3,459,012
- -------------------------------------------------------------------------------------------------------------
Class B (387,695) (4,257,299) (351,068) (3,459,012)
- -------------------------------------------------------------------------------------------------------------
Reacquired:
Class A (2,825,080) (31,235,308) (1,376,346) (13,551,357)
- -------------------------------------------------------------------------------------------------------------
Class B (901,951) (9,827,805) (330,477) (3,271,276)
- -------------------------------------------------------------------------------------------------------------
Class C (302,675) (3,356,671) (844,282) (7,747,217)
- -------------------------------------------------------------------------------------------------------------
Investor Class (2,049,799) (22,759,590) (6,105,643) (56,358,396)
- -------------------------------------------------------------------------------------------------------------
(1,838,608) $(19,513,825) 11,875,857 $105,934,108
- -------------------------------------------------------------------------------------------------------------
/(a)/There is one entity that is a record owner of more than 5% of the
outstanding shares of the Fund and owns 12% of the outstanding shares of
the Fund. AIM Distributors has an agreement with this entity to sell Fund
shares. The Fund, AIM and/or AIM affiliates may make payments to this
entity, which is considered to be related to the Fund, for providing
services to the Fund, AIM and/or AIM affiliates including but not limited
to services such as, securities brokerage, distribution, third party
record keeping and account servicing. The Trust has no knowledge as to
whether all or any portion of the shares owned of record by this
shareholder are also owned beneficially.
/(b)/As of the opening of business on November 24, 2003, the Fund acquired all
of the net assets of AIM Global Utilities Fund pursuant to a plan of
reorganization approved by the Trustees of the Fund on June 9, 2003 and
AIM Global Utilities Fund shareholders on October 28, 2003. The
acquisition was accomplished by a tax-free exchange of 15,095,571 shares
of the Fund for 11,435,567 shares of AIM Global Utilities Fund outstanding
as of the close of business on November 21, 2003. AIM Global Utilities
Fund's net assets at that date of $136,875,414, including $5,828,940 of
unrealized appreciation, were combined with those of the Fund. The
aggregate net assets of the Fund immediately before the acquisition were
$73,189,229.
F-11
NOTE 12--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
CLASS A
------------------------------------
YEAR ENDED MARCH 31,
------------------------------------
2005 2004 2003
- ---------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.10 $ 8.13 $ 10.66
- ---------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.30/(a)/ 0.22/(a)/ 0.16
- ---------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) 2.18 1.98 (2.40)
- ---------------------------------------------------------------------------------------------------------
Total from investment operations 2.48 2.20 (2.24)
- ---------------------------------------------------------------------------------------------------------
Less dividends from net investment income (0.30) (0.23) (0.29)
- ---------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 12.28 $ 10.10 $ 8.13
- ---------------------------------------------------------------------------------------------------------
Total return/(b)/ 24.95% 27.33% (21.05)%
- ---------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $113,325 $101,899 $ 450
- ---------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.40%/(c)/ 1.40% 1.41%
- ---------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.46%/(c)/ 1.77% 1.74%
- ---------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 2.76%/(c)/ 2.27% 2.79%
- ---------------------------------------------------------------------------------------------------------
Portfolio turnover rate 33% 101% 64%
- ---------------------------------------------------------------------------------------------------------
/(a)/Calculated using average shares outstanding.
/(b)/Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net
asset values may differ from the net asset value and the returns for
shareholder transactions. Does not include sales charges.
/(c)/Ratios are based on average daily net assets of $105,250,221.
F-12
NOTE 12--FINANCIAL HIGHLIGHTS (CONTINUED)
CLASS B
----------------------------------
YEAR ENDED MARCH 31,
----------------------------------
2005 2004 2003
- -------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.13 $ 8.15 $ 10.66
- -------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.23/(a)/ 0.16/(a)/ 0.13
- -------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) 2.19 1.98 (2.43)
- -------------------------------------------------------------------------------------------------------
Total from investment operations 2.42 2.14 (2.30)
- -------------------------------------------------------------------------------------------------------
Less dividends from net investment income (0.23) (0.16) (0.21)
- -------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 12.32 $ 10.13 $ 8.15
- -------------------------------------------------------------------------------------------------------
Total return/(b)/ 24.17% 26.47% (21.67)%
- -------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $35,303 $34,606 $ 193
- -------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 2.05%/(c)/ 2.05% 2.14%
- -------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 2.21%/(c)/ 2.79% 2.69%
- -------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 2.11%/(c)/ 1.62% 1.84%
- -------------------------------------------------------------------------------------------------------
Portfolio turnover rate 33% 101% 64%
- -------------------------------------------------------------------------------------------------------
/(a)/Calculated using average shares outstanding.
/(b)/Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net
asset values may differ from the net asset value and the returns for
shareholder transactions. Does not include sales charges.
/(c)/Ratios are based on average daily net assets of $32,972,575.
F-13
NOTE 12--FINANCIAL HIGHLIGHTS (CONTINUED)
CLASS C
----------------------------------------------------
YEAR ENDED MARCH 31,
----------------------------------------------------
2005 2004 2003 2002 2001
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $10.21 $ 8.22 $ 10.63 $ 16.08 $ 20.40
- -----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.23/(a)/ 0.16/(a)/ 0.15 0.03 (0.00)/(a)/
- -----------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) 2.20 1.98 (2.47) (5.48) (3.22)
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations 2.43 2.14 (2.32) (5.45) (3.22)
- -----------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.23) (0.15) (0.09) (0.00) (0.10)
- -----------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- -- -- (1.00)
- -----------------------------------------------------------------------------------------------------------------------------
Total distributions (0.23) (0.15) (0.09) (0.00) (1.10)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $12.41 $10.21 $ 8.22 $ 10.63 $ 16.08
- -----------------------------------------------------------------------------------------------------------------------------
Total return/(b)/ 24.08% 26.17% (21.85)% (33.87)% (15.83)%
- -----------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $6,900 $6,437 $ 667 $ 1,799 $ 3,579
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 2.05%/(c)/ 2.05% 2.05% 2.04% 2.07%
- -----------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 2.21%/(c)/ 3.14% 3.70% 2.45% 2.11%
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets 2.11%/(c)/ 1.62% 1.75% 0.32% (0.02)%
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 33% 101% 64% 56% 49%
- -----------------------------------------------------------------------------------------------------------------------------
/(a)/Calculated using average shares outstanding.
/(b)/Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net
asset values may differ from the net asset value and the returns for
shareholder transactions. Does not include sales charges.
/(c)/Ratios are based on average daily net assets of $6,289,328.
INVESTOR CLASS
--------------------------------------------------------
YEAR ENDED MARCH 31,
--------------------------------------------------------
2005 2004 2003 2002 2001
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.18 $ 8.19 $ 10.66 $ 16.20 $ 20.42
- -----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.31/(a)/ 0.22/(a)/ 0.23 0.15 0.13
- -----------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) 2.21 2.01 (2.46) (5.54) (3.22)
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations 2.52 2.23 (2.23) (5.39) (3.09)
- -----------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.32) (0.24) (0.24) (0.15) (0.13)
- -----------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- -- -- (1.00)
- -----------------------------------------------------------------------------------------------------------------------------
Total distributions (0.32) (0.24) (0.24) (0.15) (1.13)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 12.38 $ 10.18 $ 8.19 $ 10.66 $ 16.20
- -----------------------------------------------------------------------------------------------------------------------------
Total return/(b)/ 25.08% 27.50% (20.99)% (33.34)% (15.18)%
- -----------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $79,536 $69,065 $72,749 $124,578 $232,877
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.30%/(c)/ 1.30% 1.30% 1.30% 1.30%
- -----------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.46%/(c)/ 2.01% 1.90% 1.57% 1.40%
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 2.86%/(c)/ 2.37% 2.63% 1.09% 0.74%
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 33% 101% 64% 56% 49%
- -----------------------------------------------------------------------------------------------------------------------------
/(a)/Calculated using average shares outstanding.
/(b)/Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net
asset values may differ from the net asset value and the returns for
shareholder transactions.
/(c)/Ratios are based on average daily net assets of $72,041,996.
F-14
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
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds) and A I M Advisors, Inc. ("AIM") (the Fund's
investment advisor) reached final settlements with certain regulators,
including without limitation the Securities and Exchange Commission ("SEC"),
the New York Attorney General ("NYAG") and the Colorado Attorney General
("COAG"), to resolve civil enforcement actions and investigations related to
market timing activity and related issues in the AIM Funds, including those
formerly advised by IFG. These regulators alleged, in substance, that IFG and
AIM failed to disclose in the prospectuses for the AIM Funds that they advised
and to the independent directors/trustees of such Funds that they had entered
into certain arrangements permitting market timing of such Funds, thereby
breaching their fiduciary duties to such Funds. As a result of the foregoing,
the regulators alleged that IFG and AIM breached various Federal and state
securities, business and consumer protection laws. On the same date, A I M
Distributors, Inc. ("ADI") (the distributor of the retail AIM Funds) reached a
final settlement with the SEC to resolve an investigation relating to market
timing activity and related issues in the AIM Funds. The SEC also alleged that
ADI violated various Federal securities laws. The SEC also has settled related
market timing enforcement actions brought against certain former officers and
employees of IFG.
Under the terms of the settlements, IFG agreed to pay a total of $325
million, of which $110 million is civil penalties. Of this $325 million total
payment, half has been paid and the remaining half will be paid on or before
December 31, 2005. AIM and ADI agreed to pay a total of $50 million, of which
$30 million is civil penalties, all of which has been paid. The entire $325
million IFG settlement fund will be made available for distribution to the
shareholders of those AIM Funds that IFG formerly advised that were harmed by
market timing activity, and the entire $50 million settlement fund by AIM and
ADI will be made available for distribution to the shareholders of those AIM
Funds advised by AIM that were harmed by market timing activity, all as to be
determined by an independent distribution consultant. The IFG and AIM
settlement 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. The settlement funds will be
distributed in accordance with a methodology to be determined by the
independent distribution consultant, in consultation with AIM and the
independent trustees of the AIM Funds and acceptable to the staff of the SEC.
Under the settlements with the NYAG and COAG, AIM has agreed to reduce
management fees on certain equity and balanced AIM Funds by $15 million per
year for the next five years, based upon effective fee rates and assets under
management as of July 1, 2004, not to increase certain management fees and to
provide more information to investors regarding fees.
Under the terms of the settlements, AIM is undertaking certain governance and
compliance reforms, including maintaining an internal controls committee and
retaining an independent compliance consultant and a corporate ombudsman. Also,
commencing in 2007 and at least once every other year thereafter, AIM will
undergo a compliance review by an independent third party. In addition, under
the terms of the settlements, AIM has undertaken to cause the AIM Funds to
operate in accordance with certain governance policies and practices, including
retaining a full-time independent senior officer whose duties include
monitoring compliance and managing the process by which proposed management
fees to be charged the AIM Funds are negotiated. Also, commencing in 2008 and
not less than every fifth calendar year thereafter, the AIM Funds will hold
shareholder meetings at which their Boards of Trustees will be elected.
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
such Funds related to market timing matters.
The SEC has also settled market timing enforcement actions against Raymond R.
Cunningham (the former president and chief executive officer of IFG and a
former member of the board of directors of the AIM Funds formerly advised by
IFG), Timothy J. Miller (the former chief investment officer and a former
portfolio manager for IFG), Thomas A. Kolbe (the former national sales manager
of IFG) and Michael D. Legoski (a former assistant vice president in IFG's
sales department). As part of these settlements, the SEC ordered these
individuals to pay restitution and civil penalties in various amounts and
prohibited them from associating with, or serving as an officer or director of,
an investment advisor, broker, dealer and/or investment company, as applicable,
for certain periods of time.
The payments made in connection with the above-referenced settlements by IFG,
AIM and ADI will total approximately $375 million (not including AIM's
agreement to reduce management fees on certain equity and balanced AIM Funds by
$15 million per year for the next five years, based upon effective fee rates
and assets under management as of July 1, 2004). The manner in which the
settlement payments will be distributed is unknown at the present time and will
be determined by an independent distribution consultant appointed under the
settlement agreements. Therefore, management of AIM and the Fund are unable at
the present time to estimate the impact, if any, that the distribution of the
settlement payments may have on the Fund or whether such distribution will have
an impact on the Fund's financial statements 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, ADI or the Fund.
REGULATORY INQUIRIES AND PENDING LITIGATION
The mutual fund industry as a whole is currently subject to regulatory
inquiries and litigation related to a wide range of issues. These issues
include, among others, market timing activity, late trading, fair value
pricing, excessive or improper advisory and/or distribution fees, mutual fund
sales practices, including but not limited to revenue sharing and
directed-brokerage arrangements, investments in securities of other registered
investment companies, contractual plans, issues related to Section 529 college
savings plans, procedures for locating lost security holders and participation
in class action settlements.
As described more fully below, IFG and AIM are the subject of a number of
ongoing regulatory inquiries and civil lawsuits related to one or more of the
issues currently being scrutinized by various Federal and state regulators,
including but not limited to those issues described above. Additional
regulatory actions and/or civil lawsuits related to the above or other issues
may be filed against the AIM Funds, IFG, AIM and/or related entities and
individuals in the future. Additional regulatory inquiries related to the above
or other issues also may be received by the AIM Funds, IFG, AIM and/or related
entities and individuals in the future.
F-15
NOTE 13--LEGAL PROCEEDINGS (CONTINUED)
Ongoing Regulatory Inquiries Concerning IFG and AIM
IFG, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds formerly advised by IFG have received
regulatory inquiries in the form of subpoenas or other oral or written requests
for information and/or documents related to one or more of the following
issues, some of which concern one or more such 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, and investments in securities of other
registered investment companies. These regulators include the SEC, the NASD,
Inc. ("NASD"), the Florida Department of Financial Services, the Attorney
General of the State of West Virginia, the West Virginia Securities Commission
and the Bureau of Securities of the State of New Jersey. IFG and certain of
these other parties also have received more limited inquiries from the United
States Department of Labor ("DOL") and the United States Attorney's Office for
the Southern District of New York, some of which concern one or more of the AIM
Funds formerly advised by IFG. IFG is providing full cooperation with respect
to these inquiries.
AIM, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds have received regulatory inquiries in the form
of subpoenas or other oral or written requests for information and/or documents
related to one or more of the following issues, some of which concern one or
more AIM Funds: market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including revenue sharing and directed-brokerage arrangements,
investments in securities of other registered investment companies, contractual
plans, issues related to Section 529 college savings plans and procedures for
locating lost securityholders. These regulators include the SEC, the NASD, the
Department of Banking for the State of Connecticut, the Attorney General of the
State of West Virginia, the West Virginia Securities Commission and the Bureau
of Securities of the State of New Jersey. AIM and certain of these other
parties also have received more limited inquiries from the SEC, the NASD, the
DOL, the Internal Revenue Service, the United States Attorney's Office for the
Southern District of New York, the United States Attorney's Office for the
Central District of California, the United States Attorney's Office for the
District of Massachusetts, the Massachusetts Securities Division, the U.S.
Postal Inspection Service and the Commodity Futures Trading Commission, some of
which concern one or more AIM Funds. AIM is providing full cooperation with
respect to these inquiries.
Pending Regulatory Civil Action Alleging Market Timing
On April 12, 2005, the Attorney General of the State of West Virginia
("WVAG") filed civil proceedings 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 these proceedings. 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 (S) 46A-1-101, et seq. (the West Virginia Consumer Credit and Protection
Act). The WVAG complaint is seeking injunctive relief; civil monetary
penalties; a writ of quo warranto against the defendants; pre-judgment and
post-judgment interest; costs and expenses, including counsel fees; and other
relief.
If AIM is unsuccessful in its defense of the WVAG proceedings, it could be
barred from serving as an investment adviser 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 your Fund.
Your 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 your Fund's
investment advisor. There is no assurance that such exemptive relief will be
granted.
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, certain
related entities, certain of their current and former officers and/or certain
unrelated third parties) making allegations that are similar in many respects
to those in the settled regulatory actions brought by the SEC, the NYAG and the
COAG concerning market timing 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.
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
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. The plaintiffs in two of the underlying lawsuits
continue to seek remand of their lawsuit to state court.
Private Civil Actions Alleging Improper Use of Fair Value Pricing
Multiple civil class action lawsuits have been filed against various parties
(including, depending on the lawsuit, certain 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. Based on a recent court decision, the state court
action has been removed to Federal court.
F-16
NOTE 13--LEGAL PROCEEDINGS (CONTINUED)
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. All of these lawsuits have been
transferred to the United States District Court for the Southern District of
Texas, Houston Division and subsequently consolidated for pre-trial purposes
into one lawsuit.
Private Civil Actions Alleging Improper Charging of Distribution Fees on
Limited Offering Funds or Share Classes
Multiple civil lawsuits, including shareholder derivative suits, have been
filed against various parties (including, depending on the lawsuit, IFG, AIM,
ADI and/or certain of the trustees of the AIM Funds) alleging that the
defendants breached their fiduciary duties by charging distribution fees while
funds and/or specific share classes were closed generally to new investors
and/or while other share classes of the same fund were not charged the same
distribution fees. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the
Federal securities laws; and (ii) breach of fiduciary duty. These lawsuits have
been filed in Federal courts and seek such remedies as damages; injunctive
relief; and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Mutual Fund Sales Practices and
Directed-Brokerage Arrangements
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, AIM Management, IFG, AIM, AIM Investment Services, Inc. ("AIS")
and/or certain of the trustees of the AIM 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. These actions have been
consolidated for pre-trial purposes.
Private Civil Action Alleging Failure to Ensure Participation in Class Action
Settlements
A civil lawsuit, purporting to be a class action lawsuit, has been filed
against AIM, IINA, A I M Capital Management, Inc. and the trustees of the AIM
Funds alleging that the defendants breached their fiduciary duties by failing
to ensure that the AIM Funds participated in class action settlements in which
the AIM Funds were eligible to participate. This lawsuit alleges as theories of
recovery: (i) violation of various provisions of the Federal securities laws;
(ii) common law breach of fiduciary duty; and (iii) common law negligence. This
lawsuit has been filed in Federal court and seeks such remedies as compensatory
and punitive damages; forfeiture of all commissions and fees paid by the class
of plaintiffs; and costs and attorneys' fees.
* * * * * * * * * * * * * *
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.
F-17
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees
and Shareholders of AIM Utilities 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 the AIM Utilities Fund, formerly
known as INVESCO Utilities Fund (one of the funds constituting AIM Sector
Funds, hereafter referred to as the "Fund") at March 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 March 31, 2005 by correspondence with the
custodian, provide a reasonable basis for our opinion.
/s/ PRICEWATERHOUSECOOPERS LLP
May 20, 2005
Houston, Texas
OTHER INFORMATION
TRUSTEES AND OFFICERS
As of March 31, 2005
The address of each trustee and officer of AIM Sector Funds (the "Trust"), is
11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 114
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.
NAME, YEAR OF BIRTH AND
POSITIONS(S) HELD WITH THE TRUSTEE AND/ PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
TRUST OR OFFICER SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- ---------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- ---------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham/1 /-- 1946 2003 Director and Chairman, A I M Management None
Trustee, Vice Chair and President Group Inc. (financial services holding
company); Director and Vice Chairman,
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 1998 Director, President and Chief Executive None
Trustee and Executive Vice President Officer, A I M Management Group Inc.;
Director, Chairman 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
(parent of AIM and a global investment
management firm)
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
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- ---------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett/3 /-- 1944 2003 Chairman, Crockett Technology ACE Limited (insurance
Trustee and Chair Associates (technology consulting company); and Captaris, Inc.
company) (unified messaging provider)
- ---------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 1983 Retired None
Trustee
- ---------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2003 Retired Badgley Funds, Inc. (registered
Trustee investment company)
Formerly: Partner, law firm of Baker &
McKenzie
- ---------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2000 Co-President and Founder, Green, None
Trustee Manning & Bunch Ltd., (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 None
Trustee private business corporations,
including the Boss Group Ltd. (private
investment and management); Cortland
Trust, Inc. (Chairman) (registered
investment company); Annuity and Life
Re (Holdings), Ltd. (insurance
company); and CompuDyne Corporation
(provider of products and services to
the public security market)
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 2003 Retired None
Trustee
Formerly: Chairman, Mercantile Mortgage
Corp.; President and Chief Operating
Officer, Mercantile-Sale Deposit &
Trust Co.; and President, Mercantile
Bankshares Corp.
- ---------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 2003 Chief Executive Officer, Twenty First Administaff and Discovery
Trustee Century Group, Inc. (government affairs Global Education Fund (non-
company) (owner) Dos Angelos Ranch, L.P. profit)
Formerly: Chief Executive Officer,
Texana Timber LP (sustainable forestry
company)
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 2003 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company)
- ---------------------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis -- 1933 2000 Chairman, Lawsuit Resolution Services General Chemical Group, Inc.
Trustee (San Diego, California)
- ---------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 2003 Formerly: Chief Executive Officer, YMCA None
Trustee of the USA
- ---------------------------------------------------------------------------------------------------------------------------------
/(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. Prior to
October 4, 2004, Mr. Graham served as Chairman of the Board of Trustees
of 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.
/(3)/ Mr. Crockett was elected Chair of the Board of Trustees of the Trust
effective October 4, 2004.
TRUSTEES AND OFFICERS (CONTINUED)
As of March 31, 2005
The address of each trustee and officer of AIM Sector Funds (the "Trust"), is
11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 114
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.
NAME, YEAR OF BIRTH AND
POSITION(S) HELD WITH THE TRUSTEE AND/ PRINCIPAL OCCUPATION(S) DURING PAST 5 OTHER DIRECTORSHIP(S)
TRUST OR OFFICER SINCE YEARS HELD BY TRUSTEE
- ----------------------------------------------------------------------------------------------------------------------
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
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- ----------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley/4 /-- 1959 2004 Senior Vice President, A I M Management N/A
Senior Vice President and Chief Group Inc.; Senior Vice President and
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., A I M
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/5 /-- 1958 2005 Formerly: Director of Compliance and N/A
Senior Vice President Assistant General Counsel, ICON
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 Secretary and General Counsel, A I M
Chief Legal Officer Management Group Inc. and A I M
Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Vice President, A I M Capital
Management, Inc., and A I M Investment
Services, Inc.; Director, Vice
President and General Counsel, Fund
Management Company; and Senior Vice
President, A I M Distributors, Inc.
Formerly: Senior Vice President and
General Counsel, Liberty Financial
Companies, Inc.; and Senior Vice
President and General Counsel, Liberty
Funds Group, LLC.; and Vice President,
A I M Distributors, Inc.
- ----------------------------------------------------------------------------------------------------------------------
Robert G. Alley -- 1948 2003 Managing Director, Chief Fixed Income N/A
Vice President Officer and Senior Investment Officer,
A I M Capital Management, Inc. and Vice
President, A I M Advisors, Inc.
- ----------------------------------------------------------------------------------------------------------------------
Stuart W. Coco -- 1955 2003 Managing Director and Director of Money N/A
Vice President Market Research and Special Projects,
A I M Capital Management, Inc.; and Vice
President, A I M Advisors, Inc.
- ----------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, N/A
Vice President and Treasurer A I M Advisors, Inc.
Formerly: Senior Vice President, A I M
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- ----------------------------------------------------------------------------------------------------------------------
J. Phillip Ferguson/4 /-- 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.; Chief
Equity Officer, and Senior Investment
Officer, A I M Capital Management,
Inc.; and Managing Partner, Beutel,
Goodman Capital Management
- ----------------------------------------------------------------------------------------------------------------------
Mark D. Greenberg -- 1957 2004 Senior Vice President and Senior N/A
Vice President Portfolio Manager, A I M Capital
Management, Inc.
Formerly: Senior Vice President and
Senior Portfolio Manager, INVESCO
Institutional (N.A.), Inc.
- ----------------------------------------------------------------------------------------------------------------------
William R. Keithler -- 1952 2004 Senior Vice President and Senior N/A
Vice President Portfolio Manager, A I M Capital
Management, Inc.
Formerly: Senior Vice President,
Director of Sector Management and
Senior Portfolio Manager, INVESCO
Institutional (N.A.), Inc.
- ----------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 2003 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.
- ----------------------------------------------------------------------------------------------------------------------
/(4)/ Ms. Brinkley was elected Senior Vice President and Chief Compliance
Officer of the Trust effective September 20, 2004.
/(5)/ Mr. Burk was elected Senior Vice President of the Trust effective
February 15, 2005.
/(6)/ Mr. Ferguson was elected Vice President of the Trust effective February
24, 2005.
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.
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza. A I M Advisors, Inc. A I M Distributors, Inc. PricewaterhouseCoopers LLP
Suite 100 11 Greenway Plaza 11 Greenway Plaza 1201 Louisiana Street
Houston, TX 77046-1173 Suite 100 Suite 100 Suite 2900
Houston, TX 77046-1173 Houston, TX 77046-1173 Houston, Texas 77002-5678
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
Ballard Spahr INDEPENDENT TRUSTEES AIM Investment Services, Inc. State Street Bank and Trust
Andrews & Ingersoll, LLP Kramer, Levin, Naftalis & P.O. Box 4739 Company
1735 Market Street Frankel LLP Houston, TX 77210-4739 225 Franklin Street
Philadelphia, PA 19103-7599 1177 Avenue of the Americas Boston, MA 02110-2801
New York, NY 10036-2714
REQUIRED FEDERAL INCOME TAX INFORMATION (UNAUDITED)
Of ordinary dividends paid to shareholders during the Fund's tax year ended
March 31, 2005, 100% is eligible for the dividends received deduction for
corporations.
For its tax year ended March 31, 2005, the Fund designated 100% or 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 these amounts.
Domestic Equity Sector Equity
AIM Aggressive Growth Fund AIM Advantage Health Sciences Fund/1/
AIM Basic Balanced Fund* AIM Energy Fund/1/
AIM Basic Value Fund AIM Financial Services Fund/1/
AIM Blue Chip Fund AIM Global Health Care Fund
AIM Capital Development Fund AIM Global Real Estate Fund
AIM Charter Fund AIM Gold & Precious Metals Fund/1/
AIM Constellation Fund AIM Leisure Fund/1/
AIM Diversified Dividend Fund AIM Multi-Sector Fund/1/
AIM Dynamics Fund/1/ AIM Real Estate Fund/7/
AIM Large Cap Basic Value Fund AIM Technology Fund/1/
AIM Large Cap Growth Fund AIM Utilities Fund/1/
AIM Mid Cap Basic Value Fund
AIM Mid Cap Core Equity Fund/2/ Fixed Income
AIM Mid Cap Growth Fund
AIM Opportunities I Fund TAXABLE
AIM Opportunities II Fund
AIM Opportunities III Fund AIM Floating Rate Fund
AIM Premier Equity Fund AIM High Yield Fund
AIM S&P 500 Index Fund/1/ AIM Income Fund
AIM Select Equity Fund AIM Intermediate Government Fund
AIM Small Cap Equity Fund/3/ AIM Limited Maturity Treasury Fund
AIM Small Cap Growth Fund/4/ AIM Money Market Fund
AIM Small Company Growth Fund/1/ AIM Short Term Bond Fund
AIM Trimark Endeavor Fund AIM Total Return Bond Fund
AIM Trimark Small Companies Fund Premier Portfolio
AIM Weingarten Fund Premier U.S. Government Money
Portfolio/1/
* Domestic equity and income fund
TAX-FREE
International/Global Equity AIM High Income Municipal Fund
AIM Municipal Bond Fund
AIM Asia Pacific Growth Fund AIM Tax-Exempt Cash Fund
AIM Developing Markets Fund AIM Tax-Free Intermediate Fund
AIM European Growth Fund Premier Tax-Exempt Portfolio
AIM European Small Company Fund/5/
AIM Global Aggressive Growth Fund AIM Allocation Solutions
AIM Global Equity Fund
AIM Global Growth Fund AIM Conservative Allocation Fund
AIM Global Value Fund AIM Growth Allocation Fund/8/
AIM International Core Equity Fund/1/ AIM Moderate Allocation Fund
AIM International Growth Fund AIM Moderate Growth Allocation Fund
AIM International Small Company Fund/6/ AIM Moderately Conservative
AIM Trimark Fund Allocation Fund
/1/The following name changes became effective October 15, 2004: INVESCO
Advantage Health Sciences Fund to AIM Advantage Health Sciences Fund, INVESCO
Dynamics Fund to AIM Dynamics Fund, INVESCO Energy Fund to AIM Energy Fund,
INVESCO Financial Services Fund to AIM Financial Services Fund, INVESCO Gold &
Precious Metals Fund to AIM Gold & Precious Metals Fund, INVESCO International
Core Equity Fund to AIM International Core Equity Fund, INVESCO Leisure Fund to
AIM Leisure Fund, INVESCO Mid-Cap Growth Fund to AIM Mid Cap Stock Fund, INVESCO
Multi-Sector Fund to AIM Multi-Sector Fund, INVESCO S&P 500 Index Fund to AIM
S&P 500 Index Fund, INVESCO Small Company Growth Fund to AIM Small Company
Growth Fund, INVESCO Technology Fund to AIM Technology Fund, INVESCO U.S.
Government Money Fund to Premier U.S. Government Money Portfolio, INVESCO
Utilities Fund to AIM Utilities Fund. /2/As of end of business on February 27,
2004, AIM Mid Cap Core Equity Fund has limited public sales of its shares to
certain investors. For more information on who may continue to invest in the
Fund, please contact your financial advisor. /3/Effective December 13, 2004, AIM
Small Cap Equity Fund is open to all investors. /4/As of end of business on
March 18, 2002, AIM Small Cap Growth Fund has limited public sales of its shares
to certain investors. For more information on who may continue to invest in the
Fund, please contact your financial advisor. /5/As of end of business on March
28, 2005, AIM European Small Company Fund has limited public sales of its shares
to certain investors. For more information on who may continue to invest in the
Fund, please contact your financial advisor. /6/Effective December 30, 2004, AIM
International Emerging Growth Fund was renamed AIM International Small Company
Fund. As of end of business on March 14, 2005, the Fund has limited public sales
of its shares to certain investors. For more information on who may continue to
invest in the Fund, please contact your financial advisor. /7/As of end of
business on April 29, 2005, AIM Real Estate Fund has limited public sales of its
shares to certain investors. For more information on who may continue to invest
in the Fund, please contact your financial advisor. /8/Effective April 29, 2005,
AIM Aggressive Allocation Fund was renamed AIM Growth Allocation Fund.
If used after July 20, 2005, this report must be accompanied by a Fund
Performance & Commentary or by an AIM Quarterly Performance Review for the most
recent quarter-end. Mutual funds distributed by A I M Distributors, Inc.
A I M Management Group Inc. has provided leadership in the investment management
industry since 1976 and manages $131 billion in assets. AIM is a subsidiary of
AMVESCAP PLC, one of the world's largest independent financial services
companies with $375 billion in assets under management. Data as of March 31,
2005.
- --------------------------------------------------------------------------------
CONSIDER THE INVESTMENT OBJECTIVES, RISKS, AND CHARGES AND EXPENSES CAREFULLY.
FOR THIS AND OTHER INFORMATION ABOUT AIM FUNDS, OBTAIN A PROSPECTUS FROM YOUR
FINANCIAL ADVISOR AND READ IT CAREFULLY BEFORE INVESTING.
- --------------------------------------------------------------------------------
AIMinvestments.com I-UTI-AR-1 A I M Distributors, Inc.
[YOUR GOALS. OUR SOLUTIONS.]
- REGISTERED TRADEMARK -
Mutual Retirement Annuities College Separately Offshore Cash
Funds Products Savings Managed Products Management
Plans Accounts
[AIM INVESTMENTS LOGO]
- REGISTERED TRADEMARK -
ITEM 2. CODE OF ETHICS.
As of the end of the period covered by this report, the Registrant had
adopted a code of ethics (the "Code") that applies to the Registrant's
principal executive officer ("PEO") and principal financial officer
("PFO"). There were no amendments to the Code during the period covered by
the report. The Registrant did not grant any waivers, including implicit
waivers, from any provisions of the Code to the PEO or PFO during the
period covered by this report.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The Board of Trustees has determined that the Registrant has at least one
audit committee financial expert serving on its Audit Committee. The Audit
Committee financial expert is Prema Mathai-Davis. Dr. Mathai-Davis is
"independent" within the meaning of that term as used in Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
FEES BILLED BY PWC RELATED TO THE REGISTRANT
PWC billed the Registrant aggregate fees for services rendered to the
Registrant for the last two fiscal years as follows:
Percentage of Fees Percentage of Fees
Billed Applicable to Billed Applicable to
Non-Audit Services Non-Audit Services
Provided for fiscal Provided for fiscal
Fees Billed for year end 2005 Pursuant Fees Billed for Services year end 2004 Pursuant
Services Rendered to to Waiver of Rendered to the to Waiver of
the Registrant for Pre-Approval Registrant for fiscal Pre-Approval
fiscal year end 2005 Requirement/(1)/ year end 2004 Requirement/(1)(2)/
-------------------- ---------------------- ------------------------ ----------------------
Audit Fees $257,253 N/A $249,057 N/A
Audit-Related Fees $ 0 0% $ 0 0%
Tax Fees/(3)/ $ 84,955 0% $ 70,715 0%
All Other Fees $ 0 0% $ 0 0%
-------- --------
Total Fees $342,208 0% $319,772 0%
PWC billed the Registrant aggregate non-audit fees of $84,955 for the fiscal
year ended 2005, and $70,715 for the fiscal year ended 2004, for non-audit
services rendered to the Registrant.
- ----------
/(1)/ With respect to the provision of non-audit services, the pre-approval
requirement is waived pursuant to a de minimis exception if (i) such
services were not recognized as non-audit services by the Registrant at the
time of engagement, (ii) the aggregate amount of all such services provided
is no more than 5% of the aggregate audit and non-audit fees paid by the
Registrant to PWC during a fiscal year; and (iii) such services are
promptly approved by the Registrant's Audit Committee prior to the
completion of the audit by the Audit Committee.
/(2)/ Prior to May 6, 2003, the Registrant's Audit Committee was not required to
pre-approve non-audit services. Therefore, the percentage of fees shown in
this column only represents fees billed for non-audit services rendered
after May 6, 2003, pursuant to a waiver of the pre-approval requirement.
/(3)/ Tax fees for the fiscal year end March 31, 2005 includes fees billed for
reviewing tax returns and consultation services. Tax fees for fiscal year
end March 31, 2004 includes fees billed for reviewing tax returns.
FEES BILLED BY PWC RELATED TO AIM AND AIM AFFILIATES
PWC billed AIM Advisors, Inc. ("AIM"), the Registrant's adviser, and any
entity controlling, controlled by or under common control with AIM that provides
ongoing services to the Registrant ("AIM Affiliates") aggregate fees for
pre-approved non-audit services rendered to AIM and AIM Affiliates for the last
two fiscal years as follows:
Fees Billed for Fees Billed for
Non-Audit Services Percentage of Fees Non-Audit Services Percentage of Fees
Rendered to AIM and Billed Applicable to Rendered to AIM and Billed Applicable to
AIM Affiliates for Non-Audit Services AIM Affiliates for Non-Audit Services
fiscal year end 2005 Provided for fiscal fiscal year end 2004 Provided for fiscal
That Were Required year end 2005 That Were Required year end 2004
to be Pre-Approved Pursuant to Waiver to be Pre-Approved Pursuant to Waiver of
by the Registrant's of Pre-Approval by the Registrant's Pre-Approval
Audit Committee Requirement/(1)/ Audit Committee/(2)/ Requirement/(1)(3)/
-------------------- -------------------- -------------------- ---------------------
Audit-Related Fees $0 0% $0 0%
Tax Fees $0 0% $0 0%
All Other Fees $0 0% $0 0%
--- ---
Total Fees/(4)/ $0 0% $0 0%
- ----------
/(1)/ With respect to the provision of non-audit services, the pre-approval
requirement is waived pursuant to a de minimis exception if (i) such
services were not recognized as non-audit services by the Registrant at the
time of engagement, (ii) the aggregate amount of all such services provided
is no more than 5% of the aggregate audit and non-audit fees paid by the
Registrant, AIM and AIM Affiliates to PWC during a fiscal year; and (iii)
such services are promptly approved by the Registrant's Audit Committee
prior to the completion of the audit by the Audit Committee.
/(2)/ Prior to May 6, 2003, the Registrant's Audit Committee was not required to
pre-approve non-audit services. Therefore, the fees billed for non-audit
services shown in this column only represents fees for pre-approved
non-audit services rendered after May 6, 2003, to AIM and AIM Affiliates.
/(3)/ Prior to May 6, 2003, the Registrant's Audit Committee was not required to
pre-approve non-audit services. Therefore, the percentage of fees shown in
this column only represents fees billed for non-audit services rendered
after May 6, 2003, pursuant to a waiver of the pre-approval requirement.
/(4)/ Including the fees for services not required to be pre-approved by the
registrant's audit committee, PWC billed AIM and AIM Affiliates aggregate
non-audit fees of $0 for the fiscal year ended 2005, and $0 for the fiscal
year ended 2004, for non-audit services rendered to AIM and AIM Affiliates.
The Audit Committee also has considered whether the provision of non-audit
services that were rendered to AIM and AIM Affiliates that were not
required to be pre-approved pursuant to SEC regulations, if any, is
compatible with maintaining PWC's independence. To the extent that such
services were provided, the Audit Committee determined that the provision
of such services is compatible with PWC maintaining independence with
respect to the Registrant.
PRE-APPROVAL OF AUDIT AND NON-AUDIT SERVICES
POLICIES AND PROCEDURES
As adopted by the Audit Committees of
the AIM Funds and the INVESCO Funds (the "Funds")
Last Amended September 14, 2004
STATEMENT OF PRINCIPLES
Under the Sarbanes-Oxley Act of 2002 and rules adopted by the Securities and
Exchange Commission ("SEC") ("Rules"), the Audit Committees of the Funds' (the
"Audit Committee") Board of Directors/Trustees (the "Board") are responsible for
the appointment, compensation and oversight of the work of independent
accountants (an "Auditor"). As part of this responsibility and to assure that
the Auditor's independence is not impaired, the Audit Committees pre-approve the
audit and non-audit services provided to the Funds by each Auditor, as well as
all non-audit services provided by the Auditor to the Funds' investment adviser
and to affiliates of the adviser that provide ongoing services to the Funds
("Service Affiliates") if the services directly impact the Funds' operations or
financial reporting. The SEC Rules also specify the types of services that an
Auditor may not provide to its audit client. The following policies and
procedures comply with the requirements for pre-approval and provide a mechanism
by which management of the Funds may request and secure pre-approval of audit
and non-audit services in an orderly manner with minimal disruption to normal
business operations.
Proposed services either may be pre-approved without consideration of specific
case-by-case services by the Audit Committees ("general pre-approval") or
require the specific pre-approval of the Audit Committees ("specific
pre-approval"). As set forth in these policies and procedures, unless a type of
service has received general pre-approval, it will require specific pre-approval
by the Audit Committees. Additionally, any fees exceeding 110% of general
pre-approved fee levels will also require specific pre-approval by the Audit
Committees.
The Audit Committees will annually review and generally pre-approve the services
that may be provided by each Auditor without obtaining specific pre-approval
from the Audit Committee. The term of any general pre-approval runs from the
date of such pre-approval through September 30th of the following year, unless
the Audit Committees consider a different period and states otherwise. The Audit
Committees will add to or subtract from the list of general pre-approved
services from time to time, based on subsequent determinations.
The purpose of these policies and procedures is to set forth the guidelines to
assist the Audit Committees in fulfilling their responsibilities.
DELEGATION
The Audit Committees may from time to time delegate pre-approval authority to
one or more of its members who are Independent Directors. All decisions to
pre-approve a service by a delegated member shall be reported to the Audit
Committee at its next quarterly meeting.
AUDIT SERVICES
The annual audit services engagement terms (including fees) will be subject to
specific pre-approval of the Audit Committees. Audit services include the annual
financial statement audit and other procedures such as tax provision work that
is required to be performed by the independent auditor to be able to form an
opinion on the Funds' financial statements. The Audit Committee will obtain,
review and consider sufficient information concerning the proposed Auditor to
make a reasonable evaluation of the Auditor's qualifications and independence.
In addition to the annual Audit services engagement, the Audit Committees may
grant general pre-approval for other audit services, which are those services
that only the independent auditor reasonably can provide. Other Audit services
may include services such as issuing consents for the inclusion of audited
financial
statements with SEC registration statements, periodic reports and other
documents filed with the SEC or other documents issued in connection with
securities offerings.
GENERAL PRE-APPROVAL OF NON-AUDIT SERVICES
The Audit Committees may provide general pre-approval of types of non-audit
services described in this Section IV to the Funds and its Service Affiliates if
the Audit Committees believe that the provision of the service will not impair
the independence of the Auditor, is consistent with the SEC's Rules on auditor
independence, and otherwise conforms to the Audit Committee's general principles
and policies as set forth herein.
AUDIT-RELATED SERVICES
"Audit-related services" are assurance and related services that are reasonably
related to the performance of the audit or review of the Fund's financial
statements or that are traditionally performed by the independent auditor.
Audit-related services include, among others, accounting consultations related
to accounting, financial reporting or disclosure matters not classified as
"Audit services"; assistance with understanding and implementing new accounting
and financial reporting guidance from rulemaking authorities; and agreed-upon
procedures related to mergers.
TAX SERVICES
"Tax services" include, but are not limited to, the review and signing of the
Funds' federal tax returns, the review of required distributions by the Funds
and consultations regarding tax matters such as the tax treatment of new
investments or the impact of new regulations. The Audit Committee will
scrutinize carefully the retention of the Auditor in connection with a
transaction initially recommended by the Auditor, the major business purpose of
which may be tax avoidance or the tax treatment of which may not be supported in
the Internal Revenue Code and related regulations. The Audit Committee will
consult with the Funds' Treasurer (or his or her designee) and may consult with
outside counsel or advisors as necessary to ensure the consistency of Tax
services rendered by the Auditor with the foregoing policy.
No Auditor shall represent any Fund or any Service Provider before a tax court,
district court or federal court of claims.
ALL OTHER SERVICES
The Audit Committees may pre-approve non-audit services classified as "All other
services" that are not categorically prohibited by the SEC, as listed in Exhibit
1 to this policy.
SPECIFIC PRE-APPROVAL OF NON-AUDIT SERVICES
The Audit Committees may provide specific pre-approval of any non-audit services
to the Funds and its Service Affiliates if the Audit Committees believe that the
provision of the service will not impair the independence of the auditor, is
consistent with the SEC Rules on auditor independence, and otherwise conforms to
the Audit Committees' general principles and policies as set forth herein.
PRE-APPROVAL FEE LEVELS OR ESTABLISHED AMOUNTS
Pre-approval of fees or established amounts for services to be provided by the
Auditor under general pre-approval policies will be set periodically by the
Audit Committees. Any proposed fees exceeding 110% of the maximum such amounts
will be reported to the Audit Committees at the quarterly Audit Committees
meeting and will require specific pre-approval by the Audit Committees. The
Audit Committee will always factor in the overall relationship of fees for audit
and non-audit services in determining whether to pre-approve any such services.
PROCEDURES
On an annual basis, A I M Advisors, Inc. ("AIM") will submit to the Audit
Committees for general pre-approval, a list of non-audit services that the Funds
or Service Affiliates of the Funds may request from the
Auditor. The list will describe the non-audit services in reasonable detail and
will include an estimated range of fees and such other information as the Audit
Committee may request.
Each request for services to be provided by the Auditor under the general
pre-approval of the Audit Committees will be submitted to the Funds' Treasurer
(or his or her designee) and must include a detailed description of the services
to be rendered. The Treasurer or his or her designee will ensure that such
services are included within the list of services that have received the general
pre-approval of the Audit Committees. The Audit Committees will be informed at
the next quarterly scheduled Audit Committees meeting of any such services for
which the Auditor rendered an invoice and whether such services and fees had
been pre-approved and if so, by what means.
Each request to provide services that require specific approval by the Audit
Committees shall be submitted to the Audit Committees jointly by the Fund's
Treasurer or his or her designee and the Auditor, and must include a joint
statement that, in their view, such request is consistent with the policies and
procedures and the SEC Rules.
Non-audit services pursuant to the de minimis exception provided by the SEC
Rules will be promptly brought to the attention of the Audit Committees for
approval, including documentation that each of the conditions for this
exception, as set forth in the SEC Rules, has been satisfied.
On at least an annual basis, the Auditor will prepare a summary of all the
services provided to any entity in the investment company complex as defined in
section 2-01(f)(14) of Regulation S-X in sufficient detail as to the nature of
the engagement and the fees associated with those services.
The Audit Committees have designated the Funds' Treasurer to monitor the
performance of all services provided by the Auditor and to ensure such services
are in compliance with these policies and procedures. The Funds' Treasurer will
report to the Audit Committee on a periodic basis as to the results of such
monitoring. Both the Funds' Treasurer and management of AIM will immediately
report to the chairman of the Audit Committee any breach of these policies and
procedures that comes to the attention of the Funds' Treasurer or senior
management of AIM.
EXHIBIT 1 TO PRE-APPROVAL OF AUDIT AND NON-AUDIT SERVICES POLICIES AND
PROCEDURES
Conditionally Prohibited Non-Audit Services (not prohibited if the Fund can
reasonably conclude that the results of the service would not be subject to
audit procedures in connection with the audit of the Fund's financial
statements)
. Bookkeeping or other services related to the accounting records or
financial statements of the audit client
. Financial information systems design and implementation Appraisal or
valuation services, fairness opinions, or contribution-in-kind reports
. Actuarial services
. Internal audit outsourcing services
Categorically Prohibited Non-Audit Services
. Management functions
. Human resources
. Broker-dealer, investment adviser, or investment banking services
. Legal services
. Expert services unrelated to the audit
. Any other service that the Public Company Oversight Board determines
by regulation is impermissible
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
Investments in securities of unaffiliated issuers is included as part of
the reports to stockholders filed under Item 1 of this Form.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT COMPANIES.
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
ITEM 11. CONTROLS AND PROCEDURES.
(a) As of March 16, 2005, an evaluation was performed under the supervision and
with the participation of the officers of the Registrant, including the PEO
and PFO, to assess the effectiveness of the Registrant's disclosure
controls and procedures, as that term is defined in Rule 30a-3(c) under the
Investment Company Act of 1940 (the "Act"), as amended. Based on that
evaluation, the Registrant's officers, including the PEO and PFO, concluded
that, as of March 16, 2005, the Registrant's disclosure controls and
procedures were reasonably designed to ensure: (1) that information
required to be
disclosed by the Registrant on Form N-CSR is recorded, processed,
summarized and reported within the time periods specified by the rules and
forms of the Securities and Exchange Commission; and (2) that material
information relating to the Registrant is made known to the PEO and PFO as
appropriate to allow timely decisions regarding required disclosure.
(b) There have been no changes in the Registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the Act) that
occurred during the second fiscal quarter of the period covered by the
report that have materially affected, or are reasonably likely to
materially affect, the Registrant's internal control over financial
reporting.
ITEM 12. EXHIBITS.
12(a) (1) Code of Ethics.
12(a) (2) Certifications of principal executive officer and principal financial
officer as required by Rule 30a-2(a) under the Investment Company Act
of 1940.
12(a) (3) Not applicable.
12(b) Certifications of principal executive officer and principal financial
officer as required by Rule 30a-2(b) under the Investment Company Act
of 1940.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Registrant: AIM Sector Funds
By: /s/ ROBERT H. GRAHAM
---------------------------------
Robert H. Graham
Principal Executive Officer
Date: June 6, 2005
Pursuant to the requirements of the Securities and Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
By: /s/ ROBERT H. GRAHAM
-------------------------------------
Robert H. Graham
Principal Executive Officer
Date: June 6, 2005
By: /s/ SIDNEY M. DILGREN
-----------------------------------------------------------
Sidney M. Dilgren
Principal Financial Officer
Date: June 6, 2005
EXHIBIT INDEX
12(a) (1) Code of Ethics.
12(a) (2) Certifications of principal executive officer and principal financial
officer as required by Rule 30a-2(a) under the Investment Company Act
of 1940.
12(a) (3) Not applicable.
12(b) Certifications of principal executive officer and principal financial
officer as required by Rule 30a-2(b) under the Investment Company Act
of 1940.