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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 811-09913
AIM Counselor Series Trust
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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: 8/31
Date of reporting period: 8/31/05
Item 1. Schedule of Investments.
AIM ADVANTAGE HEALTH
SCIENCES FUND
Annual Report to Shareholders . August 31, 2005
[COVER IMAGE]
[YOUR GOALS. OUR SOLUTIONS.]
- REGISTERED TRADEMARK -
[AIM INVESTMENTS LOGO]
- REGISTERED TRADEMARK -
AIM ADVANTAGE HEALTH SCIENCES FUND SEEKS CAPITAL GROWTH.
.. Unless otherwise stated, information presented in this report is as of August
31, 2005, and is based on total net assets.
ABOUT SHARE CLASSES
.. 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
had existing accounts invested in Class B shares prior to September 30, 2003,
will continue to be allowed to make additional purchases.
PRINCIPAL RISKS OF INVESTING IN THE FUND
.. Investing in smaller companies involves greater risk than investing in more
established companies, such as business risk, significant stock price
fluctuations and illiquidity.
.. Investing in a single-sector or single-region mutual fund involves greater
risk and potential reward than investing in a more diversified fund.
.. The Fund is nondiversified, which increases risks as well as potential
rewards.
.. Portfolio turnover is greater than that of most funds, which may affect
performance.
.. The Fund seeks to participate in the initial public offering (IPO) market, and
a significant portion of the Fund's returns may be attributable to IPO
investments. While IPOs may significantly enhance Fund returns, there is no
guarantee that the market for these securities will continue to be robust. Also,
this type of security may have limited liquidity.
.. The Fund may invest 100% of its assets in the securities of non-U.S. issuers.
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.
.. Leveraging and short-selling, along with other hedging strategies, present
higher risks, but also offer greater potential rewards. Since stock prices can
rise without limit, short sales are riskier because of unlimited exposure to
loss until the position is covered. The Fund, which is not a complete investment
program, may not be appropriate for all investors. There is no guarantee that
the Fund managers' investment strategies will help investors attain their goals.
Please see the prospectus for more information about specific investment
strategies and risks.
.. The Fund may invest up to 15% of its assets in illiquid securities. The Fund's
investments include securities of privately held joint venture capital companies
which are considered to be illiquid. A security is considered to be illiquid if
the Fund is unable to sell such security at a fair price within a reasonable
amount of time. Investments in privately held joint venture capital securities
are inherently risky because the markets for these companies' products may never
materialize and the Fund could ultimately lose its entire investment.
ABOUT INDEXES USED IN THIS REPORT
.. 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 MORGAN STANLEY HEALTH CARE PRODUCT INDEX is an equal-dollar weighted index
of companies involved in the business of pharmaceuticals, including
biotechnology and medical technology.
.. 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.
.. 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.
.. 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.
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. The most recent list of portfolio holdings is
available at AIMinvestments.com. From our home page, click on Products &
Performance, then Mutual Funds, then Fund Overview. Select your Fund from the
drop-down menu and click on Complete Quarterly Holdings. Shareholders can also
look up the Fund's Forms N-Q on the SEC's Web site at sec.gov. And 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 800-732-0330, or by
electronic request at the following e-mail address: publicinfo@sec.gov. The SEC
file numbers for the Fund are 811-09913 and 333-36074.
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FUND NASDAQ SYMBOLS
Class A Shares IAGHX
Class B Shares IGHBX
Class C Shares IGHCX
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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
Continued on Page 3
AIM ADVANTAGE HEALTH SCIENCES FUND
DEAR FELLOW AIM FUNDS SHAREHOLDERS:
The fiscal year ended August 31, 2005, was a good one for
investors as solid economic growth and generally impressive
company earnings offset concerns about rising oil prices and
the Federal Reserve's repeated increases in short-term
interest rates. Most equity indexes, both domestic and
international, ended up producing double-digit returns for
the fiscal year.
[GRAHAM PHOTO] For a discussion of how market conditions affected your
Fund and how the Fund was managed during the fiscal year,
please turn to Page 3.
ADDITIONAL INFORMATION IN THIS REPORT
ROBERT H. GRAHAM We would like to call your attention to two new elements
in this report on your Fund. First, on Page 2, is a letter
from Bruce Crockett, the independent Chair of the Board of
Trustees of the AIM Funds. We first introduced you to Mr.
Crockett in the annual report on your Fund dated September
30, 2004.
Mr. Crockett has been on our Funds' Board since 1992; he
assumed his responsibilities as Chair in October 2004.
[WILLIAMSON PHOTO] Mr. Crockett has expressed an interest in keeping
shareholders informed of the work of the Board regularly via
letters in the Fund reports. We certainly consider this a
valuable addition to the reports. The Board is charged with
looking out for the interests of shareholders, and Mr.
Crockett's letter provides insight into some of the many
issues the Board addresses in governing your Fund.
MARK H. WILLIAMSON One of the most important decisions the Board makes each
year is whether to approve the advisory agreement your Fund
has with AIM. Essentially, this agreement hires AIM to
manage the assets in your Fund. A discussion of the factors
the Board considered in reviewing the agreement is the
second new element in the report, and we encourage you to
read it. It appears on Pages 8 and 9.
Further information about the markets, your Fund, and
investing in general is always available on our widely
acclaimed Web site, AIMinvestments.com. We invite you to
visit it frequently.
We at AIM remain committed 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 happy to be of help.
Sincerely,
/s/ ROBERT H. GRAHAM /s/ MARK H. WILLIAMSON
Robert H. Graham Mark H. Williamson
President & Vice Chair, Director & President,
AIM Funds A I M Advisors, Inc.
October 13, 2005
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.
1
AIM ADVANTAGE HEALTH SCIENCES FUND
DEAR AIM FUNDS SHAREHOLDERS:
As independent Chair of the Board of Trustees of the AIM
Funds, I'm writing to report on the work being done by
your Board.
[CROCKETT PHOTO] At our most recent meeting in June 2005, your Board
approved voluntary fee reductions from A I M Advisors, Inc.
(AIM) that save shareholders approximately $20.8 million
annually, based on asset levels as of March 31, 2005. The
majority of these expense reductions, which took effect July
1, 2005, will be achieved by a permanent reduction to 0.25%
of the Rule 12b-1 fees on Class A and Class A3 shares of
those AIM Funds that previously charged these fees at a
higher rate.
BRUCE L. CROCKETT Our June meeting, which was the culmination of more than
two and one-half months of review and discussions, took
place over a three-day period. The meeting included your
Board's annual comprehensive evaluation of each fund's
advisory agreement with AIM. After this evaluation, in which
questions about fees, performance and operations were
addressed by AIM, your Board approved all advisory
agreements for the year beginning July 1, 2005. You can find
information on the factors considered and conclusions
reached by your Board in its evaluation of each fund's
advisory agreement at AIMinvestments.com. (Go to "Products &
Performance" and click on "Investment Advisory Agreement
Renewals.") The advisory agreement information about your
Fund is also included in this annual report on Pages 8 and
9. I encourage you to review it.
Together with monitoring fund expenses, fund performance
is your Board's priority. Our initial goal is to work
with AIM to bring about improvement in every AIM Fund
that has been underperforming its category.
Your Board has a well-defined process and structure for
monitoring all funds and identifying and assisting AIM in
improving underperforming funds. Our Investments
Committee--which functions along with Audit, Governance,
Valuation and Compliance Committees--is the only one of
these five standing committees to include all 13 independent
Board members. Further, our Investments Committee is divided
into three underlying subcommittees, each responsible for,
among other things, reviewing the performance, fees and
expenses of the funds that have been assigned to it.
At subcommittee meetings, held throughout the year, the
performance of every AIM Fund is evaluated. If a fund has
underperformed its peer group for a meaningful period, we
work closely with AIM to discover the causes and help
develop the right responses. In some cases, AIM may
determine that a change in portfolio management strategy or
portfolio managers is required. In other cases, where a fund
no longer seems viable, it may be merged with a similar
fund, being careful to consider the needs of all
shareholders affected by the decision. Following AIM's
recommendation and your Board's approval, eight funds were
recently merged.
Be assured that your Board is working closely with the
management of AIM to help you reach your investment goals.
Should you or your advisor have questions or comments about
the governance of AIM Funds, I invite you to write to me at
AIM Investments, AIM Investments Tower, 11 Greenway Plaza,
Suite 100, Houston, TX 77046. Your Board looks forward to
keeping you informed about the governance of your funds.
Sincerely,
/s/ BRUCE L. CROCKETT
Bruce L. Crockett
Independent Chair
On Behalf of the Board of Trustees
AIM Funds
October 13, 2005
2
AIM ADVANTAGE HEALTH SCIENCES FUND
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
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PERFORMANCE SUMMARY
We are pleased to report that for the fiscal year ended August 31, 2005, Class A
shares of AIM Advantage Health Sciences Fund returned 18.35% at net asset value,
outperforming the broad market. We believe this outperformance was due to
general strength in the health care sector and particular strength in health
care services stocks and managed care stocks.
Your Fund also outperformed its style-specific index. We attribute its
outperformance to its health care services holdings, which performed well in
advance of the Medicare Modernization Act, which will offer Medicare recipients
insurance coverage for their prescription drugs. The index had no exposure to
health care services stocks.
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FUND VS. INDEXES
TOTAL RETURNS, 8/31/04-8/31/05, EXCLUDING APPLICABLE SALES CHARGES. IF SALES
CHARGES WERE INCLUDED, RETURNS WOULD BE LOWER.
Class A Shares 18.35%
Class B Shares 17.52
Class C Shares 17.49
S&P 500 Index (Broad Market Index) 12.55
Morgan Stanley Health Care
Product Index (Style-specific Index) 13.36
Lipper Health/Biotech Fund Index
(Peer Group Index) 20.89
SOURCE: LIPPER, INC.
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The Fund's long-term performance appears on Pages 6 and 7.
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HOW WE INVEST
We seek health care stocks of all market capitalizations we believe are
attractively priced and have the potential to benefit from long-term earnings
and cash flow growth.
We typically invest in four segments of the health care sector:
pharmaceuticals, bio-technology, medical technology and health care services. We
look for companies that are financially healthy and, in our opinion, likely to
sustain their profitability. We assess the long-term commercial potential of
each company's current and prospective products, especially products that meet
otherwise unfilled market needs.
In addition, we may "short" stocks--borrowing a stock when we believe it is
likely to decline in value, later repurchasing it and replacing it at a lower
price, allowing us to profit from the decline. We may, for example, short stocks
of companies that our research suggests are facing product obsolescence.
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PORTFOLIO COMPOSITION TOP 10 EQUITY LONG POSITIONS*
By industry, based on total investments
Long and short positions
Pharmaceuticals 38.2% 1. Roche Holding A.G. (Switzerland) 7.8%
Health Care Equipment 24.1 2. Protein Design Labs, Inc. 5.3
Biotechnology 16.0 3. Amgen Inc. 5.0
Managed Health Care 7.7 4. Eisai Co., Ltd. (Japan) 4.3
Health Care Services 4.8 5. Dexcom, Inc. 4.1
Health Care Facilities 3.4 6. St. Jude Medical, Inc. 3.8
Health Care Distributors 1.7 7. Pfizer Inc. 3.4
Specialty Stores 0.5 8. Pharmaceutical Product Development, Inc. 3.2
Health Care Supplies 0.2 9. WellPoint, Inc. 2.7
Diversified Chemicals 0.2 10. Medtronic, Inc. 2.6
Money Market Holdings 3.2
TOTAL NET ASSETS $ 154.5 million
NUMBER OF LONG HOLDINGS* 118
NUMBER OF SHORT HOLDINGS 11
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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The Fund's investments also include securities of privately held venture
capital companies considered illiquid.
We seek to manage risk by generally:
.. limiting investments in a single stock
.. diversifying across industries
.. monitoring political trends that could negatively affect a specific industry
We may sell a holding when:
.. we find a more attractive investment
.. we see a deterioration of a company's fundamentals
.. a company fails to capitalize on a market opportunity
.. a change in management occurs
MARKET CONDITIONS AND YOUR FUND
In July, U.S. Federal Reserve Board Chairman Alan Greenspan reported that "our
baseline outlook for the U.S. economy is one of sustained economic growth and
contained inflation pressures." The biggest potential threats to continued
economic expansion were rising short-term interest rates and rising energy
prices. But because most health care spending is not dependent on economic
conditions, the health care sector was less affected by these trends than were
some other sectors.
As a group, health care stocks within the S&P 500 Index provided high
single-digit returns for the fiscal year, underperforming the index as a whole.
Nonetheless, many investors favored health care stocks--both because they are
less sensitive to the economy and because many larger, more established
(continued)
Continued from inside front cover
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, 2005, 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.
3
health care companies pay relatively attractive dividends. We share the view
that regardless of short-term economic conditions, the health care sector is
likely to benefit from an aging population over the long term.
For the fiscal year, health care services and managed health care stocks
were among the sector's strongest performers. Factors contributing to their
positive performance included:
.. aggressive cost cutting
.. continued pricing power
.. growing membership as unemployment declined
Also, investors recognized the likely positive impact of the Medicare
Modernization Act on such companies when that law becomes effective in January
2006. PacifiCare and Community Health Systems were among the health care
services and managed health care holdings that contributed to Fund performance
during the reporting period. PacifiCare, for example, has long been regarded as
a well-managed industry leader, but its stock got an added boost when the
company announced in July that it would merge with UnitedHealth Group (not a
Fund holding).
Biotechnology stocks performed quite well over the year, particularly
stocks of larger and more established biotech companies. Reasons for their
strength included strong revenue and earnings growth, positive clinical trial
data for new drugs designed to treat underserved diseases and conditions, and
heightened merger activity initiated by several large-cap pharmaceutical
companies. Over the year, we increased our biotech holdings.
Because individual biotech stocks can be volatile, as the fiscal year drew
to a close we began increasing our "short" exposure to the biotech industry. We
believe this strategy helps reduce your Fund's volatility. In considering
whether or not to short a stock, we looked for near-term catalysts that we
believed were likely to send a stock's price lower--catalysts including drug
approval timelines, releases of clinical trial data and earnings.
Among the biotech stocks we shorted during the fiscal year were Cephalon
and Onyx Pharmaceuticals. Cephalon, a biopharmaceutical company, faces upcoming
patent expirations for two of its three biggest products: sleep-disorder drug
Provigil and pain-management drug Actiq. Onyx Pharmaceuticals' lead drug
candidate, Sorafenib, is currently in phase III clinical development. We
believed the potential for positive news about the drug was already priced into
the stock. By the end of the fiscal year, we closed out our position in both of
these stocks and no longer held them in the portfolio.
In contrast to biotech stocks, many large-cap pharmaceutical stocks
continued to perform poorly. While pharmaceutical stocks benefited from the
rotation into defensive growth stocks during the reporting period, they were
hindered by concerns about patent expirations, restructuring initiatives and a
dearth of promising new "blockbuster" products in their pipelines. As a result,
pharmaceutical stocks, which accounted for almost 40% of Fund assets at the
close of the fiscal year, had only a marginal negative effect on Fund
performance.
The performance of individual pharmaceutical stocks varied widely because
of company-specific news. Roche Holding and Protein Design Labs benefited from
their collaboration with Genentech (not a Fund holding) on a promising new
cancer drug, Avastin; Roche owns 56% of Genentech. Forest Labs hindered Fund
performance due to increasing generic competition and because its product
pipeline appears to have faltered. As a result, we reduced our exposure to
Forest Labs before the close of the fiscal year.
IN CLOSING
We remain optimistic about the potential of the health care sector, given
demographic trends and people's desire to prolong and improve the quality of
their lives. As always, we thank you for your continued investment in AIM
Advantage 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.
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[YELLEN PHOTO]
MICHEAL YELLEN, senior portfolio manager, is the lead manager of AIM Advantage
Health Sciences Fund. He began his investment industry career in 1991 and joined
AIM in 1998. He received his B.A. from Stanford University.
[ANDERSON PHOTO]
KIRK. L. ANDERSON, portfolio manager, is portfolio manager of AIM Advantage
Health Sciences Fund. Mr. Anderson joined AIM in 1994 and was named a portfolio
manager in 2003. He earned a B.A. in political science from Texas A&M University
and an M.S. in finance from the University of Houston. After the close of the
fiscal year, he left the portfolio management team.
[MURTHY PHOTO]
SUNAINA MURTHY, senior analyst, is a senior analyst with AIM Advantage Health
Sciences Fund. She began her career in cancer research at the University of
Pennsylvania before joining a biotechnology-focused venture capital firm. She
worked as an analyst at the advisor from 2001 to 2004, and rejoined the firm in
2005. She earned a B.S. in molecular genetics from the University of Rochester
and an M.S. in biotechnology from Northwestern University.
[TANER PHOTO]
DEREK M. TANER, Chartered Financial Analyst, portfolio manager, is portfolio
manager of AIM Advantage Health Sciences Fund. He began his investment career in
1993 and assumed his current position with AIM in 2005. He holds a B.S. in
accounting and finance and an M.B.A. from the Haas School of Business at the
University of California at Berkeley.
[UNTERHALTER PHOTO]
BRYAN A. UNTERHALTER, portfolio manager, is portfolio manager of AIM Advantage
Health Sciences Fund. He began his investment career in 1995 and joined AIM in
1997. He was promoted to his current position in 2003. A native of South Africa,
he received a B.A. from The University of Texas at Austin and an M.B.A. from the
University of St. Thomas. After the close of the fiscal year, he left the
portfolio management team.
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[RIGHT ARROW GRAPHIC]
FOR A PRESENTATION OF YOUR FUND'S LONG-TERM PERFORMANCE, PLEASE SEE PAGES 6 AND
7.
4
AIM ADVANTAGE 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 March 1, 2005, through August 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 August 31, 2005, appear in the table
"Cumulative Total Returns" on Page 7.
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. In addition, if
these transactional costs were included, your costs would have been higher.
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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 (3/1/05) (8/31/05)/1/ PERIOD/2/,/3/ (8/31/05) PERIOD/2/,/4/
A $ 1,000.00 $ 1,131.20 $ 14.07 $ 1,012.00 $ 13.29
B 1,000.00 1,127.30 17.69 1,008.57 16.71
C 1,000.00 1,127.10 17.69 1,008.57 16.71
/1/ The actual ending account value is based on the actual total return of the
Fund for the period March 1, 2005, through August 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 August 31, 2005, appear in the table
"Cumulative Total Returns" on Page 7.
/2/ Expenses are equal to the Fund's annualized expense ratio (2.62%, 3.30% and
3.30% for Class A, B and C shares, respectively) multiplied by the average
account value over the period, multiplied by 184/365 (to reflect the one-half
year period). Effective on July 1, 2005, the distributor contractually agreed to
reduce rule 12B-1 plan fees for Class A shares to 0.25%. The annualized expense
ratio restated as if the agreement had been in effect throughout the entire most
recent fiscal half year is 2.55% for Class A shares.
/3/ The actual expenses paid restated as if the change discussed above had been
in effect throughout the most recent fiscal half year are $13.70 for Class A
shares.
/4/ The hypothetical expenses paid restated as if the change discussed above had
been in effect throughout the most recent fiscal half year are $12.93 for Class
A shares.
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[ARROW
BUTTON For More Information Visit
IMAGE] AIM MULTI-SECTOR FUND
5
AIM ADVANTAGE HEALTH SCIENCES FUND
YOUR FUND'S LONG-TERM PERFORMANCE
RESULTS OF A $10,000 INVESTMENT
Fund data from 1/23/92, index data from 1/31/92
[MOUNTAIN CHART]
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AIM Advantage Health Lipper Health/ S&P 500
Sciences Fund- Biotechnology Fund Index
Date Class A Shares Index
1/23/92 $ 9450
1/92 9457 $ 10000 $ 10000
2/92 9294 9549 10129
3/92 8935 8939 9933
4/92 8597 8362 10224
5/92 8793 8588 10274
6/92 8325 8248 10121
7/92 8759 8674 10534
8/92 8454 8384 10319
9/92 8352 8125 10440
10/92 8562 8399 10476
11/92 8969 9013 10832
12/92 8939 9036 10965
1/93 8783 8646 11056
2/93 7720 7514 11207
3/93 7638 7639 11443
4/93 7549 7695 11167
5/93 7720 8127 11465
6/93 7693 8128 11498
7/93 7557 7926 11452
8/93 7741 8104 11886
9/93 8020 8383 11794
10/93 8258 8821 12038
11/93 8135 8802 11923
12/93 8446 9175 12068
1/94 9014 9651 12478
2/94 8896 9371 12139
3/94 8384 8742 11611
4/94 8432 8806 11760
5/94 8383 8882 11952
6/94 7836 8421 11659
7/94 7885 8611 12042
8/94 8467 9522 12534
9/94 8556 9625 12228
10/94 8577 9645 12503
11/94 8514 9501 12048
12/94 8632 9556 12226
1/95 9089 9916 12543
2/95 9443 10183 13031
3/95 9837 10583 13415
4/95 9997 10512 13810
5/95 10025 10530 14361
6/95 10690 10924 14694
7/95 11411 11658 15181
8/95 12027 11902 15219
9/95 12796 12574 15861
10/95 12824 12564 15804
11/95 13225 13238 16497
12/95 14445 14009 16815
1/96 15386 14661 17387
2/96 15851 14805 17548
3/96 15845 14954 17717
4/96 16704 15260 17978
5/96 17265 15536 18441
6/96 16253 15015 18512
7/96 14452 13820 17694
8/96 15422 14639 18068
9/96 16191 15531 19084
10/96 15401 14912 19610
11/96 15971 15336 21091
12/96 15791 15821 20673
1/97 16926 16605 21964
2/97 16884 16660 22137
3/97 15800 15400 21229
4/97 15972 15401 22495
5/97 17073 16948 23870
6/97 18001 17805 24931
7/97 18637 18384 26915
8/97 17597 17891 25408
9/97 18705 19325 26799
10/97 18268 18841 25905
11/97 18987 18981 27103
12/97 18560 19070 27568
1/98 19594 19466 27873
2/98 20190 20558 29882
3/98 21153 21331 31411
4/98 21421 21487 31732
5/98 20933 20862 31188
6/98 22053 21466 32454
7/98 21971 21226 32111
8/98 19607 18127 27471
9/98 21574 20350 29233
10/98 22055 21127 31607
11/98 23069 22219 33522
12/98 24560 24028 35452
1/99 24906 24421 36934
2/99 24639 23787 35786
3/99 25056 24398 37218
4/99 23735 23215 38659
5/99 22952 23091 37747
6/99 22814 24211 39836
7/99 22452 24241 38598
8/99 23370 24906 38407
9/99 21965 23106 37355
10/99 23138 24201 39718
11/99 23863 25221 40525
12/99 24378 26513 42909
1/00 26292 28407 40753
2/00 34153 32345 39983
3/00 26342 29014 43892
4/00 24772 28718 42572
5/00 25079 29238 41699
6/00 32638 34233 42726
7/00 30660 33175 42058
8/00 35443 36149 44669
9/00 37673 37734 42312
10/00 35341 37266 42132
11/00 31160 36122 38813
12/00 32235 38093 39003
1/01 28825 34945 40386
2/01 27308 34592 36706
3/01 24203 30658 34382
4/01 25065 33037 37052
5/01 25789 34285 37301
6/01 25944 34718 36393
7/01 25651 33650 36035
8/01 25133 33193 33781
9/01 24530 31402 31053
10/01 25339 32451 31646
11/01 26824 34084 34073
12/01 26271 34108 34371
1/02 24821 32077 33870
2/02 24218 31041 33217
3/02 24218 31903 34466
4/02 22838 30287 32377
5/02 22940 29405 32140
6/02 21975 27022 29851
7/02 20992 26033 27525
8/02 20423 25700 27705
9/02 20009 24836 24697
10/02 20509 25756 26868
11/02 19594 26200 28448
12/02 19095 25169 26778
1/03 19181 25073 26078
2/03 18956 24521 25686
3/03 19715 25396 25935
4/03 20939 26660 28070
5/03 22128 28936 29547
6/03 22765 29614 29925
7/03 22834 30621 30453
8/03 22231 30228 31045
9/03 22300 30355 30717
10/03 22197 30761 32453
11/03 23130 31590 32739
12/03 24198 32853 34454
1/04 25234 34266 35087
2/04 25355 34701 35574
3/04 24906 34566 35038
4/04 24924 35126 34488
5/04 25200 34982 34961
6/04 25251 35086 35640
7/04 23801 32582 34461
8/04 23870 32827 34599
9/04 23784 33703 34974
10/04 23561 33104 35508
11/04 23733 34409 36944
12/04 26028 36709 38201
1/05 24802 35459 37270
2/05 24975 35297 38054
3/05 24975 34645 37381
4/05 25440 35582 36672
5/05 25801 36587 37838
6/05 25956 37149 37892
7/05 27215 39255 39301
8/05 28253 39684 38942
- --------------------------------------------------------------------------------
SOURCE: LIPPER, INC.
The data shown in the chart include reinvested distributions, applicable sales
charges, Fund expenses and management fees. Index results include reinvested
dividends, but they do not reflect sales charges. 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 table(s) 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 $5,000 and $10,000 is the same size as between $10,000
and $20,000.
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
As of 8/31/05, including applicable sales charges
CLASS A SHARES
Inception (1/23/92) 7.93%
10 Years 8.30
5 Years -5.51
1 Year 11.81
CLASS B SHARES
Inception (5/15/01) 1.77%
1 Year 12.52
CLASS C SHARES
Inception (5/15/01) 1.43%
1 Year 16.49
================================================================================
AVERAGE ANNUAL TOTAL RETURNS
As of 6/30/05, most recent calendar quarter-end, including applicable sales
charges
CLASS A SHARES
Inception (1/23/92) 7.36%
10 Years 8.66
5 Years -5.55
1 Year -2.84
CLASS B SHARES
Inception (5/15/01) -0.23%
1 Year -2.89
CLASS C SHARES
Inception (5/15/01) -0.55%
1 Year 1.11
================================================================================
CUMULATIVE TOTAL RETURNS
6 months ended 8/31/05, excluding applicable sales charges
Class A Shares 13.12%
Class B Shares 12.73
Class C Shares 12.71
- --------------------------------------------------------------------------------
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. 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.
AIM ADVANTAGE HEALTH SCIENCES FUND
APPROVAL OF INVESTMENT ADVISORY AGREEMENT AND
SUMMARY OF INDEPENDENT WRITTEN FEE EVALUATION
The Board of Trustees of AIM Counselor Series Trust (the "Board") oversees the
management of AIM Advantage Health Sciences Fund (the "Fund") and, as required
by law, determines annually whether to approve the continuance of the Fund's
advisory agreement with A I M Advisors, Inc. ("AIM"). Based upon the
recommendation of the Investments Committee of the Board, which is comprised
solely of independent trustees, at a meeting held on June 30, 2005, the Board,
including all of the independent trustees, approved the continuance of the
advisory agreement (the "Advisory Agreement") between the Fund and AIM for
another year, effective July 1, 2005.
The Board considered the factors discussed below in evaluating the fairness and
reasonableness of the Advisory Agreement at the meeting on June 30, 2005 and as
part of the Board's ongoing oversight of the Fund. In their deliberations, the
Board and the independent trustees did not identify any particular factor that
was controlling, and each trustee attributed different weights to the various
factors.
One of the responsibilities of the Senior Officer of the Fund, who is
independent of AIM and AIM's affiliates, is to manage the process by which the
Fund's proposed management fees are negotiated to ensure that they are
negotiated in a manner which is at arm's length and reasonable. To that end, the
Senior Officer must either supervise a competitive bidding process or prepare an
independent written evaluation. The Senior Officer has recommended an
independent written evaluation in lieu of a competitive bidding process and,
upon the direction of the Board, has prepared such an independent written
evaluation. Such written evaluation also considered certain of the factors
discussed below. In addition, as discussed below, the Senior Officer made
certain recommendations to the Board in connection with such written evaluation.
The discussion below serves as a summary of the Senior Officer's independent
written evaluation and recommendations to the Board in connection therewith, as
well as a discussion of the material factors and the conclusions with respect
thereto that formed the basis for the Board's approval of the Advisory
Agreement. After consideration of all of the factors below and based on its
informed business judgment, the Board determined that the Advisory Agreement is
in the best interests of the Fund and its shareholders and that the compensation
to AIM under the Advisory Agreement is fair and reasonable and would have been
obtained through arm's length negotiations.
.. The nature and extent of the advisory services to be provided by AIM. The
Board reviewed the services to be provided by AIM under the Advisory Agreement.
Based on such review, the Board concluded that the range of services to be
provided by AIM under the Advisory Agreement was appropriate and that AIM
currently is providing services in accordance with the terms of the Advisory
Agreement.
.. The quality of services to be provided by AIM. The Board reviewed the
credentials and experience of the officers and employees of AIM who will provide
investment advisory services to the Fund. In reviewing the qualifications of AIM
to provide investment advisory services, the Board reviewed the qualifications
of AIM's investment personnel and considered such issues as AIM's portfolio and
product review process, various back office support functions provided by AIM
and AIM's equity and fixed income trading operations. Based on the review of
these and other factors, the Board concluded that the quality of services to be
provided by AIM was appropriate and that AIM currently is providing satisfactory
services in accordance with the terms of the Advisory Agreement.
.. The performance of the Fund relative to comparable funds. The Board reviewed
the performance of the Fund during the past one, three and five calendar years
against the performance of funds advised by other advisors with investment
strategies comparable to those of the Fund. The Board noted that the Fund's
performance in such periods was below the median performance of such comparable
funds. The Board also noted that AIM began serving as investment advisor to the
Fund in November 2003. The Board noted that AIM has recently made changes to the
Fund's portfolio management team, which appear to be producing encouraging early
results but need more time to be evaluated before a conclusion can be made that
the changes have addressed the Fund's under-performance. Based on this review,
the Board concluded that no changes should be made to the Fund and that it was
not necessary to change the Fund's portfolio management team at this time.
.. The performance of the Fund relative to indices. The Board reviewed the
performance of the Fund during the past one, three and five calendar years
against the performance of the Lipper Health/Biotech Fund Index. The Board noted
that the Fund's performance in such periods was below the performance of such
Index. The Board also noted that AIM began serving as investment advisor to the
Fund in November 2003. The Board noted that AIM has recently made changes to the
Fund's portfolio management team, which appear to be producing encouraging early
results but need more time to be evaluated before a conclusion can be made that
the changes have addressed the Fund's under-performance. Based on this review,
the Board concluded that no changes should be made to the Fund and that it was
not necessary to change the Fund's portfolio management team at this time.
.. Meeting with the Fund's portfolio managers and investment personnel. With
respect to the Fund, the Board is meeting periodically with such Fund's
portfolio managers and/or other investment personnel and believes that such
individuals are competent and able to continue to carry out their
responsibilities under the Advisory Agreement.
.. Overall performance of AIM. The Board considered the overall performance of
AIM in providing investment advisory and portfolio administrative services to
the Fund and concluded that such performance was satisfactory.
.. Fees relative to those of clients of AIM with comparable investment
strategies. The Board noted that AIM does not serve as an advisor to other
mutual funds or other clients with investment strategies comparable to those of
the Fund.
.. Fees relative to those of comparable funds with other advisors. The Board
reviewed the advisory fee rate for the Fund under the Advisory Agreement. The
Board noted that the Fund's advisory fee is structured as a fulcrum fee, with a
base component and a performance adjustment component. The Board compared
effective contractual advisory fee rates at a common asset level and noted that
the Fund's rate was above the median rate of the funds advised by other advisors
with investment strategies comparable to those of the Fund that the Board
reviewed. The Board noted that none of the advisory fees for these other funds
were structured as fulcrum fees. The Board noted that AIM has agreed to waive
advisory fees of the Fund, as discussed below. Based on this review, the Board
concluded that the advisory fee rate for the Fund under the Advisory Agreement
was fair and reasonable.
.. The Board noted that AIM has contractually agreed to waive advisory fees to
the extent necessary such that the advisory fee AIM receives does not exceed an
annual base management fee of 1.25%, subject to a maximum annual performance
adjustment upward or downward of 0.75%, through June 30, 2006. As a result of
this waiver, the Board noted that the net advisory fees are limited to a maximum
of 2.00% and a minimum of 0.50%. The Board considered the contractual nature of
this fee waiver and noted that it remains in effect until June 30, 2006. The
Board considered the effect this fee waiver would have on the Fund's estimated
expenses and concluded that the levels of fee waivers/expense limitations for
the Fund were fair and reasonable.
.. Breakpoints and economies of scale. The Board reviewed the structure of the
Fund's advisory fee under the Advisory Agreement, noting that it does not
include any breakpoints. The Board considered whether it would be appropriate to
add advisory fee breakpoints for the Fund or whether, due to the nature of the
Fund and the advisory fee structures of comparable funds, it was reasonable to
structure the advisory fee without breakpoints. Based on this review, the Board
concluded that it was not necessary to add advisory fee breakpoints to the
Fund's advisory fee schedule. The Board reviewed the level of the Fund's
advisory fees, and noted that such fees, as a percentage of the Fund's net
assets, would remain constant under the Advisory Agreement because the Advisory
Agreement does not include any breakpoints. The Board concluded that the Fund's
fee levels under the Advisory Agreement therefore would not reflect economies of
scale.
AIM ADVANTAGE HEALTH SCIENCES FUND
.. Investments in affiliated money market funds. The Board also took into account
the fact that uninvested cash and cash collateral from securities lending
arrangements (collectively, "cash balances") of the Fund may be invested in
money market funds advised by AIM pursuant to the terms of an SEC exemptive
order. The Board found that the Fund may realize certain benefits upon investing
cash balances in AIM advised money market funds, including a higher net return,
increased liquidity, increased diversification or decreased transaction costs.
The Board also found that the Fund will not receive reduced services if it
invests its cash balances in such money market funds. The Board noted that, to
the extent the Fund invests in affiliated money market funds, AIM has
voluntarily agreed to waive a portion of the advisory fees it receives from the
Fund attributable to such investment. The Board further determined that the
proposed securities lending program and related procedures with respect to the
lending Fund is in the best interests of the lending Fund and its respective
shareholders. The Board therefore concluded that the investment of cash
collateral received in connection with the securities lending program in the
money market funds according to the procedures is in the best interests of the
lending Fund and its respective shareholders.
.. Independent written evaluation and recommendations of the Fund's Senior
Officer. The Board noted that, upon their direction, the Senior Officer of the
Fund, who is independent of AIM and AIM's affiliates, had prepared an
independent written evaluation in order to assist the Board in determining the
reasonableness of the proposed management fees of the AIM Funds, including the
Fund. The Board noted that the Senior Officer's written evaluation had been
relied upon by the Board in this regard in lieu of a competitive bidding
process. In determining whether to continue the Advisory Agreement for the Fund,
the Board considered the Senior Officer's written evaluation and the
recommendation made by the Senior Officer to the Board that the Board consider
implementing a process to assist them in more closely monitoring the performance
of the AIM Funds. The Board concluded that it would be advisable to implement
such a process as soon as reasonably practicable.
.. Profitability of AIM and its affiliates. The Board reviewed information
concerning the profitability of AIM's (and its affiliates') investment advisory
and other activities and its financial condition. The Board considered the
overall profitability of AIM, as well as the profitability of AIM in connection
with managing the Fund. The Board noted that AIM's operations remain profitable,
although increased expenses in recent years have reduced AIM's profitability.
Based on the review of the profitability of AIM's and its affiliates' investment
advisory and other activities and its financial condition, the Board concluded
that the compensation to be paid by the Fund to AIM under its Advisory Agreement
was not excessive.
.. Benefits of soft dollars to AIM. The Board considered the benefits realized by
AIM as a result of brokerage transactions executed through "soft dollar"
arrangements. Under these arrangements, brokerage commissions paid by the Fund
and/or other funds advised by AIM are used to pay for research and execution
services. This research is used by AIM in making investment decisions for the
Fund. The Board concluded that such arrangements were appropriate.
.. AIM's financial soundness in light of the Fund's needs. The Board considered
whether AIM is financially sound and has the resources necessary to perform its
obligations under the Advisory Agreement, and concluded that AIM has the
financial resources necessary to fulfill its obligations under the Advisory
Agreement.
.. Historical relationship between the Fund and AIM. In determining whether to
continue the Advisory Agreement for the Fund, the Board also considered the
prior relationship between AIM and the Fund, as well as the Board's knowledge of
AIM's operations, and concluded that it was beneficial to maintain the current
relationship, in part, because of such knowledge. The Board also reviewed the
general nature of the non-investment advisory services currently performed by
AIM and its affiliates, such as administrative, transfer agency and distribution
services, and the fees received by AIM and its affiliates for performing such
services. In addition to reviewing such services, the trustees also considered
the organizational structure employed by AIM and its affiliates to provide those
services. Based on the review of these and other factors, the Board concluded
that AIM and its affiliates were qualified to continue to provide non-investment
advisory services to the Fund, including administrative, transfer agency and
distribution services, and that AIM and its affiliates currently are providing
satisfactory non-investment advisory services.
.. Other factors and current trends. In determining whether to continue the
Advisory Agreement for the Fund, the Board considered the fact that AIM, along
with others in the mutual fund industry, is subject to regulatory inquiries and
litigation related to a wide range of issues. The Board also considered the
governance and compliance reforms being undertaken by AIM and its affiliates,
including maintaining an internal controls committee and retaining an
independent compliance consultant, and the fact that AIM has undertaken to cause
the Fund to operate in accordance with certain governance policies and
practices. The Board concluded that these actions indicated a good faith effort
on the part of AIM to adhere to the highest ethical standards, and determined
that the current regulatory and litigation environment to which AIM is subject
should not prevent the Board from continuing the Advisory Agreement for the
Fund.
FINANCIALS
SCHEDULE OF INVESTMENTS
August 31, 2005
MARKET
SHARES VALUE
-----------------------------------------------------------------------
DOMESTIC COMMON STOCKS & OTHER
EQUITY INTERESTS-79.86%
BIOTECHNOLOGY-21.62%
Abgenix, Inc./(a)(b)/ 72,000 $ 791,280
-----------------------------------------------------------------------
Affymetrix, Inc./(a)/ 3,500 173,215
-----------------------------------------------------------------------
Amgen Inc./(a)/ 96,800 7,734,320
-----------------------------------------------------------------------
ARIAD Pharmaceuticals, Inc./(a)/ 87,600 727,080
-----------------------------------------------------------------------
Array BioPharma Inc./(a)/ 90,802 599,293
-----------------------------------------------------------------------
Biogen Idec Inc./(a)/ 72,400 3,051,660
-----------------------------------------------------------------------
Coley Pharmaceutical Group, Inc./(a)/ 26,800 435,500
-----------------------------------------------------------------------
Cubist Pharmaceuticals, Inc./(a)/ 94,800 1,713,036
-----------------------------------------------------------------------
DOV Pharmaceutical, Inc./(a)/ 41,881 629,090
-----------------------------------------------------------------------
Evolutionary Genomics
(Acquired 09/15/97-06/25/98;
Cost $408,490)/(a)(c)(d)(e)/ 3,663,120 0
-----------------------------------------------------------------------
Human Genome Sciences, Inc./(a)/ 42,000 542,220
-----------------------------------------------------------------------
Illumina, Inc./(a)/ 69,300 845,460
-----------------------------------------------------------------------
Incyte Corp./(a)/ 31,200 229,632
-----------------------------------------------------------------------
Indevus Pharmaceuticals, Inc./(a)/ 148,000 393,680
-----------------------------------------------------------------------
InterMune, Inc./(a)/ 38,700 620,361
-----------------------------------------------------------------------
Keryx Biopharmaceuticals, Inc./(a)/ 17,400 291,624
-----------------------------------------------------------------------
Ligand Pharmaceuticals Inc. -- Class B/(a)(b)/ 50,000 392,500
-----------------------------------------------------------------------
Martek Biosciences Corp./(a)(b)/ 10,000 510,000
-----------------------------------------------------------------------
MedImmune, Inc./(a)/ 28,500 853,005
-----------------------------------------------------------------------
Nabi Biopharmaceuticals/(a)(b)/ 63,714 858,228
-----------------------------------------------------------------------
OSI Pharmaceuticals, Inc./(a)/ 8,400 275,520
-----------------------------------------------------------------------
Protein Design Labs, Inc./(a)(b)/ 304,400 8,139,656
-----------------------------------------------------------------------
Rigel Pharmaceuticals, Inc./(a)/ 38,900 783,057
-----------------------------------------------------------------------
Savient Pharmaceuticals Inc./(a)/ 10,000 40,400
-----------------------------------------------------------------------
Serologicals Corp./(a)/ 53,300 1,268,007
-----------------------------------------------------------------------
Tercica, Inc./(a)/ 62,092 702,260
-----------------------------------------------------------------------
TorreyPines Therapeutics, Inc.
(Acquired 09/15/97-06/25/98;
Cost $202,031)/(a)(c)(d)(e)/ 67,828 67,828
-----------------------------------------------------------------------
ZymoGenetics, Inc./(a)/ 43,300 729,172
-----------------------------------------------------------------------
33,397,084
-----------------------------------------------------------------------
HEALTH CARE DISTRIBUTORS-1.01%
MWI Veterinary Supply, Inc./(a)/ 73,000 1,569,500
-----------------------------------------------------------------------
HEALTH CARE EQUIPMENT-21.77%
Advanced Medical Optics, Inc./(a)/ 17,700 696,672
-----------------------------------------------------------------------
AtriCure, Inc./(a)/ 31,500 428,400
-----------------------------------------------------------------------
ATS Medical, Inc./(a)/ 81,000 280,260
-----------------------------------------------------------------------
Beckman Coulter, Inc. 27,500 1,534,225
-----------------------------------------------------------------------
MARKET
SHARES VALUE
- -------------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT-(CONTINUED)
Biomet, Inc./(b)/ 20,800 $ 767,312
- -------------------------------------------------------------------------------------
Cytyc Corp./(a)/ 46,100 1,150,195
- -------------------------------------------------------------------------------------
Dexcom, Inc.
(Acquired 12/20/00-06/03/02; Cost $2,000,000)/(a)(c)(d)(f)/ 564,613 6,321,407
- -------------------------------------------------------------------------------------
Dionex Corp./(a)/ 27,000 1,422,900
- -------------------------------------------------------------------------------------
EPIX Pharmaceuticals Inc./(a)(b)/ 22,129 188,760
- -------------------------------------------------------------------------------------
Fisher Scientific International Inc./(a)/ 18,000 1,160,640
- -------------------------------------------------------------------------------------
Guidant Corp. 14,100 996,024
- -------------------------------------------------------------------------------------
Medtronic, Inc. 70,000 3,990,000
- -------------------------------------------------------------------------------------
Sensys Medical, Inc.
(Acquired 04/23/04; Cost $688)/(a)(c)(d)(e)/ 1,449 688
- -------------------------------------------------------------------------------------
Sensys Medical, Inc.-Wts., expiring 08/13/06
(Acquired 10/18/01-04/23/04; Cost $239)/(c)(d)(e)(g)/ 4,057 0
- -------------------------------------------------------------------------------------
Sensys Medical, Inc.-Wts., expiring 09/17/06
(Acquired 10/05/01-04/23/04; Cost $96)/(c)(d)(e)(g)/ 1,622 0
- -------------------------------------------------------------------------------------
Sensys Medical, Inc.-Wts., expiring 10/19/06
(Acquired 11/07/01-04/23/04; Cost $96)/(c)(d)(e)(g)/ 1,622 0
- -------------------------------------------------------------------------------------
SonoSite, Inc./(a)/ 69,000 2,470,200
- -------------------------------------------------------------------------------------
St. Jude Medical, Inc./(a)/ 126,900 5,824,710
- -------------------------------------------------------------------------------------
Thermo Electron Corp./(a)/ 57,500 1,604,250
- -------------------------------------------------------------------------------------
Thoratec Corp./(a)/ 46,500 761,205
- -------------------------------------------------------------------------------------
Varian Inc./(a)/ 42,400 1,509,440
- -------------------------------------------------------------------------------------
Varian Medical Systems, Inc./(a)/ 22,100 880,022
- -------------------------------------------------------------------------------------
Vnus Medical Technologies/(a)(b)/ 31,200 318,240
- -------------------------------------------------------------------------------------
Waters Corp./(a)/ 29,100 1,323,177
- -------------------------------------------------------------------------------------
33,628,727
- -------------------------------------------------------------------------------------
HEALTH CARE FACILITIES-3.80%
Community Health Systems, Inc./(a)/ 84,100 3,097,403
- -------------------------------------------------------------------------------------
HCA Inc./(b)/ 13,800 680,340
- -------------------------------------------------------------------------------------
Kindred Healthcare, Inc./(a)/ 48,805 1,493,433
- -------------------------------------------------------------------------------------
Triad Hospitals, Inc./(a)/ 12,300 592,122
- -------------------------------------------------------------------------------------
5,863,298
- -------------------------------------------------------------------------------------
HEALTH CARE SERVICES-5.36%
Caremark Rx, Inc./(a)/ 10,500 490,665
- -------------------------------------------------------------------------------------
DaVita, Inc./(a)/ 13,100 601,421
- -------------------------------------------------------------------------------------
HMS Holdings Corp./(a)/ 175,000 1,239,000
- -------------------------------------------------------------------------------------
Pharmaceutical Product Development, Inc./(a)/ 87,800 4,940,506
- -------------------------------------------------------------------------------------
SFBC International, Inc./(a)/ 24,800 1,008,616
- -------------------------------------------------------------------------------------
8,280,208
- -------------------------------------------------------------------------------------
HEALTH CARE SUPPLIES-0.21%
Gen-Probe Inc./(a)/ 7,000 318,640
- -------------------------------------------------------------------------------------
F-1
MARKET
SHARES VALUE
-----------------------------------------------------------------------------
MANAGED HEALTH CARE-8.46%
Aetna Inc. 19,800 $ 1,577,466
-----------------------------------------------------------------------------
Coventry Health Care, Inc./(a)/ 13,800 1,104,000
-----------------------------------------------------------------------------
Health Net, Inc./(a)/ 37,100 1,710,681
-----------------------------------------------------------------------------
Humana Inc./(a)/ 12,100 582,736
-----------------------------------------------------------------------------
PacifiCare Health Systems, Inc./(a)/ 52,400 3,949,912
-----------------------------------------------------------------------------
WellPoint, Inc./(a)/ 55,800 4,143,150
-----------------------------------------------------------------------------
13,067,945
-----------------------------------------------------------------------------
PHARMACEUTICALS-17.03%
Adams Respiratory Therapeutics, Inc./(a)/ 36,300 1,228,392
-----------------------------------------------------------------------------
AtheroGenics, Inc./(a)/ 44,200 784,992
-----------------------------------------------------------------------------
Forest Laboratories, Inc./(a)/ 36,000 1,598,400
-----------------------------------------------------------------------------
Impax Laboratories, Inc./(a)/ 53,600 592,816
-----------------------------------------------------------------------------
IVAX Corp./(a)/ 16,100 416,990
-----------------------------------------------------------------------------
Johnson & Johnson 3,200 202,848
-----------------------------------------------------------------------------
K-V Pharmaceutical Co./(a)/ 48,400 825,704
-----------------------------------------------------------------------------
Lilly (Eli) and Co. 65,200 3,587,304
-----------------------------------------------------------------------------
Medicines Co. (The)/(a)(b)/ 50,300 1,112,636
-----------------------------------------------------------------------------
Medicis Pharmaceutical Corp. -- Class A /(b)/ 77,400 2,632,374
-----------------------------------------------------------------------------
MGI Pharma, Inc./(a)/ 41,100 1,108,056
-----------------------------------------------------------------------------
Pfizer Inc. 203,331 5,178,841
-----------------------------------------------------------------------------
Salix Pharmaceuticals, Ltd./(a)/ 39,200 798,896
-----------------------------------------------------------------------------
Sepracor Inc./(a)/ 42,200 2,118,440
-----------------------------------------------------------------------------
SuperGen, Inc./(a)(b)/ 50,000 338,000
-----------------------------------------------------------------------------
Theravance, Inc./(a)/ 21,000 430,710
-----------------------------------------------------------------------------
Wyeth 67,500 3,090,825
-----------------------------------------------------------------------------
XenoPort, Inc./(a)/ 19,700 253,145
-----------------------------------------------------------------------------
26,299,369
-----------------------------------------------------------------------------
SPECIALTY STORES-0.60%
PETCO Animal Supplies, Inc./(a)/ 41,700 922,404
-----------------------------------------------------------------------------
Total Domestic Common Stocks & Other Equity
Interests (Cost $98,863,375) 123,347,175
-----------------------------------------------------------------------------
FOREIGN STOCKS & OTHER EQUITY
INTERESTS-28.70%
CANADA-1.86%
Cardiome Pharma Corp. (Pharmaceuticals)/(a)/ 55,000 407,000
-----------------------------------------------------------------------------
QLT Inc. (Biotechnology)/(a)/ 281,700 2,459,241
-----------------------------------------------------------------------------
2,866,241
-----------------------------------------------------------------------------
CHINA-1.96%
China Medical Technologies, Inc.-ADR
(Health Care Equipment)/(a)/ 149,500 3,027,375
-----------------------------------------------------------------------------
DENMARK-1.58%
Novo Nordisk A.S. -- Class B (Pharmaceuticals)/(h)/ 47,400 2,448,848
-----------------------------------------------------------------------------
FRANCE-2.23%
Sanofi-Aventis-ADR (Pharmaceuticals) 80,500 3,442,180
-----------------------------------------------------------------------------
MARKET
SHARES VALUE
-----------------------------------------------------------------------------
GERMANY-0.53%
Merck KGaA (Pharmaceuticals)/(h)/ 9,571 $ 826,880
-----------------------------------------------------------------------------
ISRAEL-0.64%
Taro Pharmaceutical Industries Ltd.
(Pharmaceuticals)/(a)/ 23,003 627,522
-----------------------------------------------------------------------------
Teva Pharmaceutical Industries Ltd.-ADR
(Pharmaceuticals) 11,300 366,572
-----------------------------------------------------------------------------
994,094
-----------------------------------------------------------------------------
JAPAN-7.33%
Astellas Pharma Inc. (Pharmaceuticals)/(h)/ 110,000 3,933,070
-----------------------------------------------------------------------------
Eisai Co., Ltd. (Pharmaceuticals)/(h)/ 173,200 6,591,617
-----------------------------------------------------------------------------
Shionogi & Co., Ltd. (Pharmaceuticals)/(h)/ 61,000 795,507
-----------------------------------------------------------------------------
11,320,194
-----------------------------------------------------------------------------
NETHERLANDS-0.18%
Akzo Nobel N.V.-ADR (Diversified Chemicals) 6,600 272,382
-----------------------------------------------------------------------------
SWITZERLAND-9.91%
Novartis A.G.-ADR (Pharmaceuticals) 66,400 3,237,000
-----------------------------------------------------------------------------
Roche Holding A.G. (Pharmaceuticals)/(h)/ 87,000 12,071,558
-----------------------------------------------------------------------------
15,308,558
-----------------------------------------------------------------------------
UNITED KINGDOM-2.48%
Shire Pharmaceuticals Group PLC-ADR
(Pharmaceuticals) 100,400 3,827,248
-----------------------------------------------------------------------------
Total Foreign Stocks & Other Equity Interests
(Cost $39,676,288) 44,334,000
-----------------------------------------------------------------------------
PREFERRED STOCKS-4.45%
BIOTECHNOLOGY-0.19%
Athersys Inc. -- Class F, Conv. Pfd.
(Acquired 04/17/00; Cost $5,000,000)/(a)(c)(d)(e)/ 416,667 297,925
-----------------------------------------------------------------------------
Cengent Therapeutics, Inc.-Series D, Pfd.
(Acquired 03/24/00; Cost $4,000,003)/(a)(c)(d)(e)/ 650,407 0
-----------------------------------------------------------------------------
Ingenex, Inc.-Series B, Pfd.
(Acquired 09/27/94; Cost $600,000)/(a)(c)(d)(e)/ 103,055 0
-----------------------------------------------------------------------------
297,925
-----------------------------------------------------------------------------
HEALTH CARE DISTRIBUTORS-0.82%
Locus Pharmaceuticals, Inc.-Series C, Pfd.
(Acquired 11/21/00; Cost $4,500,000)/(a)(c)(d)(e)/ 2,000,000 978,000
-----------------------------------------------------------------------------
Locus Pharmaceuticals, Inc.-Series D, Pfd.
(Acquired 09/06/01; Cost $2,352,940)/(a)(c)(d)(e)/ 588,235 287,647
-----------------------------------------------------------------------------
1,265,647
-----------------------------------------------------------------------------
HEALTH CARE EQUIPMENT-3.04%
Masimo Corp.-Series C, Pfd.
(Acquired 10/07/98; Cost $1,000,000)/(a)(c)(d)(e)/ 125,000 1,000,000
-----------------------------------------------------------------------------
Masimo Corp.-Series F, Conv. Pfd.
(Acquired 09/14/99; Cost $174,999)/(a)(c)(d)(e)/ 15,909 174,999
-----------------------------------------------------------------------------
F-2
MARKET
SHARES VALUE
- ------------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT-(CONTINUED)
Neothermia Corp.-Series C, Pfd.
(Acquired 03/26/01; Cost $2,000,001)/(a)(c)(d)(e)/ 2,439,026 $ 2,219,514
- ------------------------------------------------------------------------------------
Sensys Medical, Inc.-Series A-1, Pfd.
(Acquired 02/25/98-02/04/05;
Cost $7,321,665)/(a)(c)(d)(e)(i)/ 1,759,252 1,301,846
- ------------------------------------------------------------------------------------
4,696,359
- ------------------------------------------------------------------------------------
PHARMACEUTICALS-0.40%
BioImagene, Inc.-Series B-2, Pfd.
(Acquired 05/24/01; Cost $1,350,000)/(a)(c)(d)(e)/ 101,919 102,663
- ------------------------------------------------------------------------------------
Predix Pharmaceuticals Holdings, Inc.-Series AB,
Conv. Pfd. (Acquired 11/07/97-09/21/04;
Cost $1,511,468)/(a)(c)(d)(e)/ 1,471,072 324,180
- ------------------------------------------------------------------------------------
Predix Pharmaceuticals Holdings, Inc.-Series C,
Conv. Pfd. (Acquired 08/05/04;
Cost $187,323)/(a)(c)(d)(e)/ 850,039 187,323
- ------------------------------------------------------------------------------------
614,166
- ------------------------------------------------------------------------------------
Total Preferred Stocks
(Cost $29,998,399) 6,874,097
- ------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT
BONDS & NOTES-0.14%
HEALTH CARE EQUIPMENT-0.14%
Sensys Medical, Inc., Sec. Notes, 8.00%, 12/31/05
(Acquired 03/16/05-06/15/05: Cost $222,563)/(c)(d)(e)/ $ 222,563 222,563
- ------------------------------------------------------------------------------------
SHARES
MONEY MARKET FUNDS-0.85%
Premier Portfolio-Institutional Class
(Cost $1,304,848)/(j)/ 1,304,848 1,304,848
- ------------------------------------------------------------------------------------
TOTAL INVESTMENTS-114.00%
(excluding investments purchased with cash
collateral from securities loaned)
(Cost $170,065,473) 176,082,683
- ------------------------------------------------------------------------------------
MARKET
SHARES VALUE
------------------------------------------------------------------------------
INVESTMENTS PURCHASED WITH CASH
COLLATERAL FROM SECURITIES LOANED
MONEY MARKET FUNDS-2.65%
Premier Portfolio-Institutional Class/(j)(k)/ 4,085,119 $ 4,085,119
------------------------------------------------------------------------------
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $4,085,119) 4,085,119
------------------------------------------------------------------------------
TOTAL INVESTMENTS-116.65% (Cost $174,150,592) 180,167,802
------------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-(16.65%) (25,715,187)
------------------------------------------------------------------------------
NET ASSETS-100.00% $154,452,615
------------------------------------------------------------------------------
SHARES
SOLD SHORT
SECURITIES SOLD SHORT-6.35%/(L)/
COMMON STOCKS-6.35%
BIOTECHNOLOGY-5.81%
Chiron Corp. 10,000 $ 364,400
------------------------------------------------------------------------------
CV Therapeutics, Inc. 29,000 787,930
------------------------------------------------------------------------------
ImClone Systems Inc. 10,000 327,200
------------------------------------------------------------------------------
Momenta Pharmaceutical Inc. 30,000 760,500
------------------------------------------------------------------------------
Neurocrine Biosciences, Inc. 37,700 1,726,660
------------------------------------------------------------------------------
Northfield Laboratories Inc. 30,000 406,200
------------------------------------------------------------------------------
Telik, Inc. 43,000 657,900
------------------------------------------------------------------------------
United Therapeutics Corp. 43,000 3,019,030
------------------------------------------------------------------------------
Vertex Pharmaceuticals Inc. 50,000 920,000
------------------------------------------------------------------------------
8,969,820
------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT-0.29%
FoxHollow Technologies, Inc. 10,000 459,000
------------------------------------------------------------------------------
PHARMACEUTICALS-0.25%
Adolor Corp. 40,000 382,400
------------------------------------------------------------------------------
Total Common Stock Securities Sold Short
(Total Proceeds $8,621,835) $ 9,811,220
------------------------------------------------------------------------------
Investment Abbreviations:
ADR- American Depositary Receipt Sec.- Secured
Conv.- Convertible Wts.- Warrants
Pfd.- Preferred
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 August 31, 2005.
/(c)/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
August 31, 2005 was $13,486,583, which represented 8.73% of the Fund's Net
Assets. These securities are considered to be illiquid. The Fund is
limited to investing 15% of net assets in illiquid securities at the time
of purchase.
/(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 August 31, 2005 was $13,486,583, which represented 7.49% of
the Fund's Total Investments. See Note 1A.
/(e)/Security is considered venture capital. See Note 1M.
/(f)/As a result of an initial public offering, the security is subject to a
lockup period until October 10, 2005.
/(g)/Non-income producing security acquired as part of a unit with or in
exchange for other securities.
/(h)/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 August 31, 2005 was
$26,667,480, which represented 14.80% of the Fund's Total Investments. See
Note 1A./ /
/(i)/Affiliated company. 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 as
of August 31, 2005 represented 0.84% of the Fund's Net Assets. See Note 3.
/(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.
/(l)/Collateral on short sales segregated by the Fund in the amount of
$13,087,042, which represents 133.39% of the market value of securities
sold short.
See accompanying Notes to Financial Statements which are an integral part of
the financial statements.
F-3
STATEMENT OF ASSETS AND LIABILITIES
August 31, 2005
ASSETS:
Investments, at market value (cost $161,438,960)* $173,475,989
- --------------------------------------------------------------------------------
Investments in affiliates (cost $12,711,632) 6,691,813
- --------------------------------------------------------------------------------
Total investments (cost $174,150,592) 180,167,802
- --------------------------------------------------------------------------------
Foreign currencies, at market value (cost $2,628,099) 2,610,191
- --------------------------------------------------------------------------------
Receivables for:
Deposits with brokers for securities sold short 10,475,918
- --------------------------------------------------------------------------------
Investments sold 1,014,753
- --------------------------------------------------------------------------------
Fund shares sold 43,804
- --------------------------------------------------------------------------------
Dividends and interest 130,035
- --------------------------------------------------------------------------------
Short positions covered 88,508
- --------------------------------------------------------------------------------
Short stock rebates 20,070
- --------------------------------------------------------------------------------
Investment for trustee deferred compensation and retirement plans 53,675
- --------------------------------------------------------------------------------
Other assets 20,415
- --------------------------------------------------------------------------------
Total assets 194,625,171
- --------------------------------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 1,651,060
- --------------------------------------------------------------------------------
Fund shares reacquired 325,351
- --------------------------------------------------------------------------------
Trustee deferred compensation and retirement plans 61,003
- --------------------------------------------------------------------------------
Loan outstanding 24,000,000
- --------------------------------------------------------------------------------
Collateral upon return of securities loaned 4,085,119
- --------------------------------------------------------------------------------
Securities sold short, at market value (proceeds $8,621,835) 9,811,220
- --------------------------------------------------------------------------------
Accrued interest expense 90,713
- --------------------------------------------------------------------------------
Accrued distribution fees 31,688
- --------------------------------------------------------------------------------
Accrued trustees' and officer's fees and benefits 2,623
- --------------------------------------------------------------------------------
Accrued transfer agent fees 39,578
- --------------------------------------------------------------------------------
Accrued operating expenses 74,201
- --------------------------------------------------------------------------------
Total liabilities 40,172,556
- --------------------------------------------------------------------------------
Net assets applicable to shares outstanding $154,452,615
- --------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Shares of beneficial interest $156,637,305
- --------------------------------------------------------------------------------
Undistributed net investment income (loss) (19,052)
- --------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment securities,
foreign currencies, option contracts and securities sold short (7,127,390)
- --------------------------------------------------------------------------------
Unrealized appreciation (depreciation) of investment securities,
foreign currencies and securities sold short 4,961,752
- --------------------------------------------------------------------------------
$154,452,615
- --------------------------------------------------------------------------------
NET ASSETS:
Class A $152,274,274
------------------------------------------------------------
Class B $ 1,638,419
------------------------------------------------------------
Class C $ 539,922
------------------------------------------------------------
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Class A 9,296,571
------------------------------------------------------------
Class B 103,957
------------------------------------------------------------
Class C 35,408
------------------------------------------------------------
Class A:
Net asset value per share $ 16.38
------------------------------------------------------------
Offering price per share:
(Net asset value of $16.38 / 94.50%) $ 17.33
------------------------------------------------------------
Class B :
Net asset value and offering price per share $ 15.76
------------------------------------------------------------
Class C :
Net asset value and offering price per share $ 15.25
------------------------------------------------------------
* At August 31, 2005, securities with an aggregate market value of $4,071,724
were on loan to brokers.
See accompanying Notes to Financial Statements which are an integral part of
the financial statements.
F-4
STATEMENT OF OPERATIONS
For the year ended August 31, 2005
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $41,634) $ 1,246,950
- -------------------------------------------------------------------------------
Dividends from affiliates (includes securities lending income of
$6,687, after compensation to counterparties of $44,934) 126,255
- -------------------------------------------------------------------------------
Interest 25,224
- -------------------------------------------------------------------------------
Short stock rebates 117,159
- -------------------------------------------------------------------------------
Total investment income 1,515,588
- -------------------------------------------------------------------------------
EXPENSES:
Advisory fees 2,022,978
- -------------------------------------------------------------------------------
Administrative services fees 50,000
- -------------------------------------------------------------------------------
Custodian fees 48,127
- -------------------------------------------------------------------------------
Distribution fees:
Class A 510,831
- -------------------------------------------------------------------------------
Class B 10,938
- -------------------------------------------------------------------------------
Class C 3,553
- -------------------------------------------------------------------------------
Interest and line of credit 828,192
- -------------------------------------------------------------------------------
Transfer agent fees 296,166
- -------------------------------------------------------------------------------
Trustees' and officer's fees and benefits 22,020
- -------------------------------------------------------------------------------
Dividends on short sales 6,000
- -------------------------------------------------------------------------------
Other 248,702
- -------------------------------------------------------------------------------
Total expenses 4,047,507
- -------------------------------------------------------------------------------
Less:Fees waived, expenses reimbursed and expense offset
arrangement (422,891)
- -------------------------------------------------------------------------------
Net expenses 3,624,616
- -------------------------------------------------------------------------------
Net investment income (loss) (2,109,028)
- -------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES,
FOREIGN CURRENCIES, OPTION CONTRACTS AND SECURITIES SOLD SHORT:
Net realized gain (loss) from:
Investment securities (includes gains from securities sold to
affiliates of $111,104) 18,318,249
- -------------------------------------------------------------------------------
Foreign currencies 18,482
- -------------------------------------------------------------------------------
Option contracts written 17,978
- -------------------------------------------------------------------------------
Securities sold short (103,295)
- -------------------------------------------------------------------------------
18,251,414
- -------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of:
Investment securities 13,544,410
- -------------------------------------------------------------------------------
Foreign currencies (17,089)
- -------------------------------------------------------------------------------
Securities sold short (4,151,259)
- -------------------------------------------------------------------------------
9,376,062
- -------------------------------------------------------------------------------
Net gain from investment securities, foreign currencies, option
contracts and securities sold short 27,627,476
- -------------------------------------------------------------------------------
Net increase in net assets resulting from operations $25,518,448
- -------------------------------------------------------------------------------
See accompanying Notes to Financial Statements which are an integral part of
the financial statements.
F-5
STATEMENT OF CHANGES IN NET ASSETS
For the years ended August 31, 2005 and 2004
2005 2004
------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (2,109,028) $ (1,539,522)
------------------------------------------------------------------------------
Net realized gain from investment securities,
foreign currencies, option contracts and
securities sold short 18,251,414 39,897,514
------------------------------------------------------------------------------
Change in net unrealized appreciation
(depreciation) of investment securities,
foreign currencies and securities sold short 9,376,062 (21,544,976)
------------------------------------------------------------------------------
Net increase in net assets resulting from
operations 25,518,448 16,813,016
------------------------------------------------------------------------------
Share transactions-net:
Class A (45,297,223) (75,394,909)
------------------------------------------------------------------------------
Class B 606,496 28,689
------------------------------------------------------------------------------
Class C 151,035 (5,203)
------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from share transactions (44,539,692) (75,371,423)
------------------------------------------------------------------------------
Net increase (decrease) in net assets (19,021,244) (58,558,407)
------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 173,473,859 232,032,266
------------------------------------------------------------------------------
End of year (including undistributed net
investment income (loss) of $(19,052) and
$(194,052), respectively) $154,452,615 $173,473,859
------------------------------------------------------------------------------
See accompanying Notes to Financial Statements which are an integral part of
the financial statements.
F-6
STATEMENT OF CASH FLOWS
For the year ended August 31, 2005
CASH PROVIDED BY OPERATING ACTIVITIES:
Net increase in net assets resulting from operations $ 25,518,448
- --------------------------------------------------------------------------------
ADJUSTMENTS TO RECONCILE NET INCREASE IN NET ASSETS TO NET CASH
PROVIDED BY OPERATIONS:
Purchases of investments (223,282,395)
- --------------------------------------------------------------------------------
Proceeds from disposition of investments 268,919,659
- --------------------------------------------------------------------------------
Decrease in deposits with brokers for securities sold short 15,574,810
- --------------------------------------------------------------------------------
Increase in cash collateral from securities loaned (3,699,624)
- --------------------------------------------------------------------------------
Decrease in dividends and interest receivable 23,565
- --------------------------------------------------------------------------------
Decrease in other assets 61,364
- --------------------------------------------------------------------------------
Decrease in securities sold short (16,962,094)
- --------------------------------------------------------------------------------
Increase in payable of collateral upon return of securities
loaned 3,699,624
- --------------------------------------------------------------------------------
Decrease in accrued expenses and other payables (5,678)
- --------------------------------------------------------------------------------
Net realized and unrealized gain on investment securities,
foreign currencies, option contracts and securities sold short (27,627,476)
- --------------------------------------------------------------------------------
Net cash provided by operating activities 42,220,203
- --------------------------------------------------------------------------------
CASH USED IN FINANCING ACTIVITIES:
Net increase in borrowings on line of credit 1,000,000
- --------------------------------------------------------------------------------
Proceeds from shares of beneficial interest sold 5,490,885
- --------------------------------------------------------------------------------
Decrease in payable to custodian (407,482)
- --------------------------------------------------------------------------------
Disbursements from shares of beneficial interest reacquired (50,256,373)
- --------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (44,172,970)
- --------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (1,952,767)
- --------------------------------------------------------------------------------
Cash and cash equivalents at beginning of period 3,257,615
- --------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 1,304,848
- --------------------------------------------------------------------------------
Supplemental disclosure of cash flow information:
Cash paid during the year for interest was $778,276.
NOTES TO FINANCIAL STATEMENTS
August 31, 2005
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Advantage Health Sciences Fund, formerly INVESCO Advantage Health Sciences
Fund, (the "Fund") is a series portfolio of AIM Counselor Series Trust (the
"Trust"). The Trust is a Delaware statutory trust registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of two separate portfolios,
each 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.
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 including
estimates and assumptions related to taxation. Actual results could differ from
those estimates. The following is a summary of the significant accounting
policies followed by the Fund in the preparation of its financial statements.
F-7
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. Bond premiums and
discounts are amortized and/or accreted for financial reporting purposes.
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.
Cash and cash equivalents in the Statement of Cash Flows are comprised of
cash and investments in affiliated money market funds for the purpose of
investing daily available cash balances.
C. COUNTRY DETERMINATION -- For the purposes of making investment selection
decisions and presentation in the Schedule of Investments, AIM may determine
the country in which an issuer is located and/or credit risk exposure based
on various factors. These factors include the laws of the country under
which the issuer is organized, where the issuer maintains a principal
office, the country in which the issuer derives 50% or more of its total
revenues and the country that has the primary market for the issuer's
securities, as well as other criteria. Among the other criteria that may be
evaluated for making this determination are the country in which the issuer
maintains 50% or more of its assets, the type of security, financial
guarantees and enhancements, the nature of the collateral and the sponsor
organization. Country of issuer and/or credit risk exposure has been
determined to be United States of America unless otherwise noted.
D. DISTRIBUTIONS -- 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.
F-8
E. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
F. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
G. CASH AND CASH EQUIVALENTS -- Cash and cash equivalents in the Statement of
Cash Flows are comprised of cash and investments in affiliated money market
funds for the purpose of investing daily available cash balances.
H. SECURITIES SOLD SHORT -- The Fund may enter into short sales of securities
which it concurrently holds (against the box) or for which it holds no
corresponding position (naked). Securities sold short represent a liability
of the Fund to acquire specific securities at prevailing market prices at a
future date in order to satisfy the obligation to deliver the securities
sold. The liability is recorded on the books of the Fund at the market value
of the common stock determined each day in accordance with the procedures
for security valuations disclosed in "A" above. The Fund will incur a loss
if the price of the security increases between the date of the short sale
and the date on which the Fund replaces the borrowed security. The Fund
realizes a gain if the price of the security declines between those dates.
The Fund is required to segregate cash or securities as collateral in
margin accounts at a level that is equal to the obligation to the broker who
delivered such securities to the buyer on behalf of the Fund. The short
stock rebate presented in the Statement of Operations represents the net
income earned on short sale proceeds held on deposit with the broker and
margin interest earned or incurred on short sale transactions. The Fund may
also earn or incur margin interest on short sales transactions. Margin
interest is the income earned (or expense incurred) as a result of the
market value of securities sold short being less than (or greater than) the
proceeds received from the short sales.
I. 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.
J. 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.
K. COVERED CALL OPTIONS -- The Fund may write and buy call options, including
securities index options. Options written by the Fund normally will have
expiration dates between three and nine months from the date written. The
exercise price of a call option may be below, equal to, or above the current
market value of the underlying security at the time the option is written.
When the Fund writes a 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.
A call option gives the purchaser of such option the right to buy, and the
writer (the Fund) the obligation to sell, the underlying security at the
stated exercise price during the option period. The purchaser of a call
option has the right to acquire the security which is the subject of the
call option at any time during the option period. During the option period,
in return for the premium paid by the purchaser of the option, the Fund has
given up the opportunity for capital appreciation above the exercise price
should the market price of the underlying security increase, but has
retained the risk of loss should the price of the underlying security
decline. During the option period, the Fund may be required at any time to
deliver the underlying security against payment of the exercise price. This
obligation is terminated upon the expiration of the option period or at such
earlier time at which the Fund effects a closing purchase transaction by
purchasing (at a price which may be higher than that received when the call
option was written) a call option identical to the one originally written.
An option on a securities index gives the holder the right to receive a
cash "exercise settlement amount" equal to the difference between the
exercise price of the option and the value of the underlying stock index on
the exercise date, multiplied by a fixed "index multiplier." A securities
index fluctuates with changes in the market values of the securities
included in the index. In the purchase of securities index options, the
principal risk is that the premium and transaction costs paid by the Fund in
purchasing an option will be lost if the changes in the level of the index
do not exceed the cost of the option. In writing securities index options,
the principal risk is that the Fund could bear a loss on the options that
would be only partially offset (or not offset at all) by the increased value
or reduced cost of hedged securities. Moreover, in the event the Fund was
unable to close an option it had written, it might be unable to sell the
securities used as cover.
F-9
L. 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.
M. 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.
N. COLLATERAL -- To the extent the Fund has pledged or segregated a security as
collateral and that security is subsequently sold, it is the Fund's practice
to replace such collateral no later than the next business day. This
practice does not apply to securities pledged as collateral for securities
lending transactions.
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 a base management fee calculated at the annual rate of 1.50% of
the Fund's average daily net assets. The base management fee will be adjusted
on a monthly basis by a calculated rate ("Fee Adjustment Rate") (i) upward at
the rate of 0.20%, on a pro rata basis, for each percentage point the
investment performance of the Class A shares of the Fund for the previous 12
month period ("Performance Period") exceeds the sum of 2.00% plus the
investment record of the Morgan Stanley Health Care Product Index for the
Performance Period, but shall be capped at 2.50% of the Fund's average daily
net assets for the fiscal period, or (ii) downward at the rate of 0.20%, on a
pro rata basis, for each percentage point the investment record of the Morgan
Stanley Health Care Product Index for the Performance Period less 2.00% exceeds
the investment performance of the Class A shares of the Fund for the
Performance Period, but shall be no less than 0.50% of the average daily net
assets for the fiscal period. After the Fee Adjustment Rate is determined, AIM
will determine the dollar amount of additional fees or fee reductions to be
accrued for each day of a month by multiplying the Fee Adjustment Rate by the
average daily net assets of the Class A shares of the Fund during the
Performance Period and dividing the number by the number of days in the
Performance Period. The management fee, as adjusted, is accrued daily and paid
monthly. AIM has contractually agreed to waive advisory fees to the extent
necessary such that the advisory fee AIM receives does not exceed an annual
base management fee of 1.25%, subject to an annual maximum of 0.75% performance
adjustment upward or downward, through June 30, 2006 calculated in the same
manner as described above. As a result of this waiver, the net advisory fees
are limited to a maximum of 2.00% and a minimum of 0.50%. Under the terms of a
master sub-advisory agreement between AIM and INVESCO Institutional (N.A.),
Inc. ("INVESCO"), AIM paid INVESCO 40% of the fee paid by the Fund to AIM. This
sub-advisory agreement expired on September 30, 2004.
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. Under the terms of the advisory agreement, the
Fund is not permitted to pay management fees on those assets of the Fund that
are invested in other funds advised by AIM.
For the year ended August 31, 2005, AIM waived fees and/or reimbursed
expenses in the amount of $386,451.
At the request of the Trustees of the Trust, AMVESCAP PLC ("AMVESCAP") agreed
to reimburse expenses incurred by the Fund in connection with market timing
matters in the AIM Funds, which may include legal, audit, shareholder
reporting, communications and trustee expenses. These expenses along with the
related expense reimbursement, are included in the Statement of Operations. For
the year ended August 31, 2005, AMVESCAP reimbursed expenses of the Fund in the
amount of $32,412.
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
August 31, 2005, AIM was paid $50,000.
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
August 31, 2005, the Fund paid AISI $296,166.
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
and Class C shares of the Fund. The Trust has adopted plans pursuant to Rule
12b-1 under the 1940 Act with respect to the Fund's Class A, Class B and Class
C 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 and 1.00% of the average daily net assets of Class B and
Class C shares. Prior to July 1, 2005, the Fund paid ADI 0.35% of the average
daily net assets of Class A shares. Of these amounts, up to 0.25% of the
average daily net assets of the Class A, Class B or Class C 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. National Association of
Securities Dealers ("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 August 31, 2005, the
Class A, Class B and Class C shares paid $510,831, $10,938 and $3,553,
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. For the year
ended August 31, 2005, ADI advised the Fund that it retained $5,474 in
front-end sales
F-10
commissions from the sale of Class A shares and $1, $2,203 and $49 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, INVESCO 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 August 31, 2005.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
CHANGE IN
MARKET UNREALIZED MARKET REALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND GAIN
FUND 08/31/04 AT COST FROM SALES (DEPRECIATION) 08/31/05 INCOME (LOSS)
- ------------------------------------------------------------------------------------------------------------------------
Premier Portfolio-Institutional Class $3,257,615 $128,004,201 $(129,956,968) $ -- $1,304,848 $119,568 $ --
- ------------------------------------------------------------------------------------------------------------------------
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
CHANGE IN
MARKET UNREALIZED MARKET REALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND GAIN
FUND 08/31/04 AT COST FROM SALES (DEPRECIATION) 08/31/05 INCOME/(a)/ (LOSS)
- -----------------------------------------------------------------------------------------------------------------------
Premier Portfolio-Institutional Class $385,495 $43,048,612 $(39,348,988) $ -- $4,085,119 $6,687 $ --
- -----------------------------------------------------------------------------------------------------------------------
/(a)/Net of compensation to counterparties.
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
August 31, 2005.
CHANGE IN
MARKET UNREALIZED MARKET
VALUE PURCHASES PROCEEDS APPRECIATION VALUE
08/31/04 AT COST FROM SALES (DEPRECIATION) 08/31/05
- -----------------------------------------------------------------------------------------------------------------------------
Adeza Biomedical Corp.-Series 2, Conv. Pfd. $ 1,929,164 $ -- $ (3,859,202) $ (753,421) $ --
- -----------------------------------------------------------------------------------------------------------------------------
Adeza Biomedical Corp.-Series 5, Conv. Pfd. 449,999 -- (900,202) (175,744) --
- -----------------------------------------------------------------------------------------------------------------------------
BioImagene, Inc.-Series B-2, Pfd./(b)/ 32,082 -- -- 70,581 102,663
- -----------------------------------------------------------------------------------------------------------------------------
DexCom, Inc./(b)(c)/ 2,597,220 -- -- 3,724,187 6,321,407
- -----------------------------------------------------------------------------------------------------------------------------
Evolutionary Genomics/(b)/ 0 -- -- -- 0
- -----------------------------------------------------------------------------------------------------------------------------
Locus Pharmceuticals, Inc.-Series C, Pfd./(b)/ 3,340,000 -- -- (2,362,000) 978,000
- -----------------------------------------------------------------------------------------------------------------------------
Locus Pharmceuticals, Inc.-Series D, Pfd./(b)/ 982,352 -- -- (694,705) 287,647
- -----------------------------------------------------------------------------------------------------------------------------
Neothermia Corp.-Series C, Pfd./(b)/ 2,463,416 -- -- (243,902) 2,219,514
- -----------------------------------------------------------------------------------------------------------------------------
Predix Pharmaceuticals, Inc-Series AB, Conv. Pfd./(b)(d)/ 312,711 -- -- 11,469 324,180
- -----------------------------------------------------------------------------------------------------------------------------
Predix Pharmaceuticals, Inc-Series C, Conv. Pfd./(b)/ 187,323 -- -- -- 187,323
- -----------------------------------------------------------------------------------------------------------------------------
Sensys Medical, Inc./(b)/ 688 -- -- -- 688
- -----------------------------------------------------------------------------------------------------------------------------
Sensys Medical, Inc-Series A-1, Pfd./(e)/ 1,143,595 158,253 -- (2) 1,301,846
- -----------------------------------------------------------------------------------------------------------------------------
Sensys Medical, Inc., Sec. Notes, 8.00%, 12/31/04 113,657 37,886 (151,543) -- --
- -----------------------------------------------------------------------------------------------------------------------------
Torrey Pines Therapeutics, Inc./(b)/ 67,828 -- -- -- 67,828
- -----------------------------------------------------------------------------------------------------------------------------
Subtotal $13,620,035 $ 196,139 $ (4,910,947) $ (423,537) $11,791,096
- -----------------------------------------------------------------------------------------------------------------------------
Total $17,263,145 $171,248,952 $(174,216,903) $ (423,537) $17,181,063
- -----------------------------------------------------------------------------------------------------------------------------
DIVIDEND REALIZED
INCOME GAIN (LOSS)
- ------------------------------------------------------------------------------
Adeza Biomedical Corp.-Series 2, Conv. Pfd. $ -- $2,683,459
- ------------------------------------------------------------------------------
Adeza Biomedical Corp.-Series 5, Conv. Pfd. -- 625,947
- ------------------------------------------------------------------------------
BioImagene, Inc.-Series B-2, Pfd./(b)/ -- --
- ------------------------------------------------------------------------------
DexCom, Inc./(b)(c)/ -- --
- ------------------------------------------------------------------------------
Evolutionary Genomics/(b)/ -- --
- ------------------------------------------------------------------------------
Locus Pharmceuticals, Inc.-Series C, Pfd./(b)/ -- --
- ------------------------------------------------------------------------------
Locus Pharmceuticals, Inc.-Series D, Pfd./(b)/ -- --
- ------------------------------------------------------------------------------
Neothermia Corp.-Series C, Pfd./(b)/ -- --
- ------------------------------------------------------------------------------
Predix Pharmaceuticals, Inc-Series AB, Conv. Pfd./(b)(d)/ -- --
- ------------------------------------------------------------------------------
Predix Pharmaceuticals, Inc-Series C, Conv. Pfd./(b)/ -- --
- ------------------------------------------------------------------------------
Sensys Medical, Inc./(b)/ -- --
- ------------------------------------------------------------------------------
Sensys Medical, Inc-Series A-1, Pfd./(e)/ -- --
- ------------------------------------------------------------------------------
Sensys Medical, Inc., Sec. Notes, 8.00%, 12/31/04 -- --
- ------------------------------------------------------------------------------
Torrey Pines Therapeutics, Inc./(b)/ -- --
- ------------------------------------------------------------------------------
Subtotal $ -- $3,309,406
- ------------------------------------------------------------------------------
Total $126,255 $3,309,406
- ------------------------------------------------------------------------------
/(b)/As of August 31, 2005, the security is no longer considered an affiliate
of the Fund.
/(c)/DexCom, Inc.-Series B, Pfd. shares and DexCom, Inc.-Series C, Pfd. shares
were converted into DexCom, Inc. common shares.
/(d)/Predix Pharmaceuticals, Inc.-Wts. were converted into Predix
Pharmaceuticals, Inc.-Series AB, Conv. Pfd. shares.
/(e)/Sensys Medical, Inc.-Series A-D, Conv. Pfd shares were converted into
Sensys Medical, Inc.-Series A-1, Pfd. shares.
F-11
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 August 31,
2005, the Fund engaged in securities purchases of $3,463,421 and sales of
$510,247, which resulted in net realized gains of $111,104.
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 August 31,
2005, the Fund received credits from this arrangement, which resulted in the
reduction of the Fund's total expenses of $4,028.
NOTE 6--TRUSTEES' AND OFFICER'S FEES AND BENEFITS
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to pay remuneration to each Trustee and Officer of the Fund who is not an
"interested person" of AIM. Trustees have the option to defer compensation
payable by the Fund, and "Trustees' and Officer's Fees and Benefits" also
include amounts accrued by the Fund to fund such deferred compensation amounts.
Those Trustees who defer compensation have the option to select various AIM
Funds in which their deferral accounts shall be deemed to be invested. Finally,
current Trustees are eligible to participate in a retirement plan that provides
for benefits to be paid upon retirement to Trustees over a period of time based
on the number of years of service. The Fund may have certain former Trustees
who also participate in a retirement plan and receive benefits under such plan.
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to fund such retirement benefits. Obligations under the deferred compensation
and retirement plans represent unsecured claims against the general assets of
the Fund.
During the year ended August 31, 2005, the Fund paid legal fees of $4,518 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
Effective November 1, 2004, the Fund entered into a committed line of credit
facility with a syndicate administered by JP Morgan Chase Bank. The Fund may
borrow up to the lesser of (i) $225,000,000 (ii) the limits set by its
prospectus for borrowings. As amended on August 23, 2005, the Fund may borrow
up to the lesser of (i) $255,000,000 or (ii) the limits set by its Prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to
the line of credit may borrow on a first come, first served basis. The funds
which are party to the line of credit are charged a commitment fee of 0.09% on
the unused balance of the committed line. During the year ended August 31,
2005, the Fund had average borrowings for the 304 days the borrowings were
outstanding, in the amount of $24,000,000 with a weighted average interest rate
of 3.54% and interest expense of 707,254.
Prior to November 1, 2004, the Fund was a participant in a committed line of
credit facility with a syndicate administered by Citibank, N.A. The Fund may
borrow up to the lesser of (i) $100,000,000 or (ii) the limits set by its
prospectus for borrowings. The Fund and other funds advised by AIM which are
parties to the line of credit may borrow on a first come, first served basis.
The funds which are party to the line of credit are charged a commitment fee of
0.10% on the unused balance of the committed line. During the year ended
August 31, 2005, the Fund had average borrowings for the 61 days the borrowings
were outstanding, in the amount of $23,852,459 with a weighted average interest
rate of 2.48% and interest expense of $98,893.
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 August 31, 2005, the Fund did not borrow or lend under
the interfund lending 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 as a compensating balance in the account so the custodian can be
compensated by earning the additional interest; or (ii) compensate by paying
the custodian bank at a rate agreed upon by the custodian bank and AIM, not to
exceed the rate contractually agreed upon.
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.
F-12
NOTE 8--PORTFOLIO SECURITIES LOANED-(CONTINUED)
At August 31, 2005, securities with an aggregate value of $4,071,724 were on
loan to brokers. The loans were secured by cash collateral of $4,085,119
received by the Fund and subsequently invested in an affiliated money market
fund. For the year ended August 31, 2005, the Fund received dividends on cash
collateral of $6,687 for securities lending transactions, which are net of
compensation to counterparties.
NOTE 9--OPTION CONTRACTS WRITTEN
TRANSACTIONS DURING THE PERIOD
---------------------------------------
CALL OPTION CONTRACTS
--------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
---------------------------------------
Beginning of year -- $ --
---------------------------------------
Written 158 25,246
---------------------------------------
Closed (79) (9,289)
---------------------------------------
Expired (79) (15,957)
---------------------------------------
End of year -- $ --
---------------------------------------
NOTE 10--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
There were no ordinary income or long-term capital gain distributions paid
during the years ended August 31, 2005 and 2004.
TAX COMPONENTS OF NET ASSETS:
As of August 31, 2005, the components of net assets on a tax basis were as
follows:
2005
------------------------------------------------------------------
Undistributed appreciation (depreciation)-investments 3,097,025
------------------------------------------------------------------
Temporary book/tax differences (19,052)
------------------------------------------------------------------
Capital loss carryforward (5,262,663)
------------------------------------------------------------------
Shares of beneficial interest 156,637,305
------------------------------------------------------------------
Total net assets 154,452,615
------------------------------------------------------------------
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
(depreciation) on investments amount includes appreciation (depreciation) on
foreign currencies of $(16,899), remaining proceeds to be received on security
buyout of $221,807 and an allowance for doubtful receipts of $70,982.
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 $17,835,053 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 August 31, 2005 which expires as
follows:
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
-----------------------------
August 31, 2011 $5,262,663
-----------------------------
*Capital loss carryforward as of the date listed above is reduced for
limitations, if any, to the extent required by the Internal Revenue
Code.
F-13
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
August 31, 2005 was $222,324,657 and $267,596,799, respectively.
The receivable for investments sold is net of an allowance for doubtful
receipts of $70,982 for Norian Corp.-Series D, convertible preferred shares.
At the request of the Trustee, AIM recovered third party research credits,
during the year ended August 31, 2005, in the amount of $37,038. These research
credits were recorded as realized gains.
UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENT SECURITIES ON A TAX BASIS
- ---------------------------------------------------------------------------------
Aggregate unrealized appreciation of:
Investment securities $ 32,959,013
- ---------------------------------------------------------------------------------
Securities sold short 160,360
- ---------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of:
Investment securities (28,699,733)
- ---------------------------------------------------------------------------------
Securities sold short (1,456,541)
- ---------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investment securities (2,963,099)
- ---------------------------------------------------------------------------------
Cost of investments for tax purposes is $175,908,522.
Proceeds from securities sold short for investment purposes are $8,515,039.
NOTE 12--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of foreign currency
transactions, redomestication costs, certain dividends on short sales and net
operating losses, on August 31, 2005, undistributed net investment income
(loss) was increased by $2,284,028, undistributed net realized gain (loss) was
decreased by $19,516 and shares of beneficial interest decreased by $2,264,512.
This reclassification had no effect on the net assets of the Fund.
NOTE 13--SHARE INFORMATION
The Fund currently offers three different classes of shares: Class A shares,
Class B shares and Class C shares. Class A shares are sold with a front-end
sales charge. Class B shares and Class C shares are sold with CDSC. 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
- -------------------------------------------------------------------------------------------------------------
YEAR ENDED AUGUST 31,
--------------------------------------------------
2005/(a)/ 2004
------------------------ ------------------------
SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------------------------------------
Sold:
Class A 270,249 $ 4,138,571 415,823 $ 5,596,301
- -------------------------------------------------------------------------------------------------------------
Class B 70,115 1,013,303 26,168 362,799
- -------------------------------------------------------------------------------------------------------------
Class C 26,724 372,803 9,655 130,158
- -------------------------------------------------------------------------------------------------------------
Automatic conversion of Class B shares to Class A shares:
Class A 610 8,962 1,634 23,919
- -------------------------------------------------------------------------------------------------------------
Class B (631) (8,962) (1,681) (23,919)
- -------------------------------------------------------------------------------------------------------------
Reacquired:
Class A (3,425,230) (49,444,756) (5,877,805) (81,015,129)
- -------------------------------------------------------------------------------------------------------------
Class B (27,455) (397,845) (22,919) (310,191)
- -------------------------------------------------------------------------------------------------------------
Class C (16,408) (221,768) (10,306) (135,361)
- -------------------------------------------------------------------------------------------------------------
(3,102,026) $(44,539,692) (5,459,431) $(75,371,423)
- -------------------------------------------------------------------------------------------------------------
/(a)/There are four entities that are each record owners of more than 5% of the
outstanding shares of the Fund and in the aggregate they own 31% of the
outstanding shares of the Fund. ADI 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.
F-14
NOTE 14--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
CLASS A
---------------------------------------------------------------------------
NOVEMBER 1,
2000 TO
YEAR ENDED AUGUST 31, AUGUST 31,
-------------------------------------------------- 2001
2005 2004 2003 2002 -----------
- --------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 13.84 $ 12.89 $ 11.84 $ 14.57 $ 24.25
- --------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.20)/(a)/ (0.13) (0.00)/(b)/ (0.00)/(b)/ (0.12)/(a)(b)/
- --------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities
(both realized and unrealized) 2.74/(c)/ 1.08 1.05 (2.77) (6.19)
- --------------------------------------------------------------------------------------------------------------------
Total from investment operations 2.54 0.95 1.05 (2.77) (6.31)
- --------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------------
Distributions for net realized gains -- -- -- -- (3.44)
- --------------------------------------------------------------------------------------------------------------------
Total distributions -- -- -- -- (3.44)
- --------------------------------------------------------------------------------------------------------------------
Redemptions fees added to shares of
beneficial interest -- -- -- 0.04 0.07
- --------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 16.38 $ 13.84 $ 12.89 $ 11.84 $ 14.57
- --------------------------------------------------------------------------------------------------------------------
Total return/(d)/ 18.35%/(c)/ 7.37% 8.87% (18.74)% (28.88)%
- --------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $152,274 $172,318 $230,955 $275,037 $478,876
- --------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net
assets (including interest expense
and/or dividends on short sales
expense):
With fee waivers and/or expense
reimbursements 2.34%/(e)/ 1.66% 1.67% 2.35% 1.60%/(f)/
- --------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense
reimbursements 2.61%/(e)/ 1.93% 1.74% 2.35% 1.60%/(f)/
- --------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net
assets (excluding interest expense
and/or dividends on short sales
expense):
With fee waivers and/or expense
reimbursements 1.80%/(e)/ 1.22% 1.65% 2.33% 1.55%/(f)/
- --------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense
reimbursements 2.07%/(e)/ 1.49% 1.72% 2.33% 1.55%/(f)/
- --------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average net assets (1.36)%/(e)/ (0.75)% (0.68)% (1.52)% (0.79)%/(f)/
- --------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate /(g)/ 128% 116% 125% 127% 183%
- --------------------------------------------------------------------------------------------------------------------
----------
YEAR ENDED
OCTOBER 31,
2000
-----------
- ----------------------------------------
Net asset value, beginning of period $ 17.96
- ----------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.13)/(a)(b)/
- ----------------------------------------------------------
Net gains (losses) on securities
(both realized and unrealized) 8.83
- ----------------------------------------------------------
Total from investment operations 8.70
- ----------------------------------------------------------
Less distributions:
Dividends from net investment income (0.07)
- ----------------------------------------------------------
Distributions for net realized gains (2.34)
- ----------------------------------------------------------
Total distributions (2.41)
- ----------------------------------------------------------
Redemptions fees added to shares of
beneficial interest --
- ----------------------------------------------------------
Net asset value, end of period $ 24.25
- ----------------------------------------------------------
Total return/(d)/ 52.72%
- ----------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $938,494
- ----------------------------------------------------------
Ratio of expenses to average net
assets (including interest expense
and/or dividends on short sales
expense):
With fee waivers and/or expense
reimbursements 1.16%
- ----------------------------------------------------------
Without fee waivers and/or expense
reimbursements 1.16%
- ----------------------------------------------------------
Ratio of expenses to average net
assets (excluding interest expense
and/or dividends on short sales
expense):
With fee waivers and/or expense
reimbursements 1.16%
- ----------------------------------------------------------
Without fee waivers and/or expense
reimbursements 1.16%
- ----------------------------------------------------------
Ratio of net investment income (loss)
to average net assets (0.62)%
- ----------------------------------------------------------
Portfolio turnover rate /(g)/ 196%
- ----------------------------------------------------------
/(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 $(0.09),
$(0.26), $(0.12) and $(0.13) for the years ended August 31, 2003, 2002,
the period ended August 31, 2001 and the year ended October 31, 2000,
respectively.
/(c)/Net gains (losses) on securities (both realized and unrealized) per share
and total return include litigation proceeds received from a class action
lawsuit against Oxford Health Plans, Inc. Net gains (losses) on securities
(both realized and unrealized) per share and total return excluding these
proceeds would have been $2.64 and 17.63%, respectively.
/(d)/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.
/(e)/Ratios are based on average net assets of $153,131,449.
/(f)/Annualized.
/(g)/Not annualized for periods less than one year.
F-15
NOTE 14--FINANCIAL HIGHLIGHTS-(CONTINUED)
CLASS B
-------------------------------------------------
YEAR ENDED AUGUST 31,
-------------------------------------------
2005 2004 2003 2002
- ----------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $13.41 $12.61 $11.77 $ 14.68
- ----------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.28)/(a)/ (0.23) (0.22)/(b)/ (0.11)/(b)/
- ----------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 2.63/(c)/ 1.03 1.06 (2.80)
- ----------------------------------------------------------------------------------------------------------------
Total from investment operations 2.35 0.80 0.84 (2.91)
- ----------------------------------------------------------------------------------------------------------------
Net asset value, end of period $15.76 $13.41 $12.61 $ 11.77
- ----------------------------------------------------------------------------------------------------------------
Total return/(d)/ 17.52%/(c)/ 6.34% 7.14% (19.82)%
- ----------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,638 $ 830 $ 761 $ 882
- ----------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (including interest
expense and/or dividends on short sales expense):
With fee waivers and/or expense reimbursements 3.01%/(e)/ 2.57% 3.27% 3.44%
- ----------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 3.28%/(e)/ 3.05% 3.33% 3.44%
- ----------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (excluding interest
expense and/or dividends on short sales expense):
With fee waivers and/or expense reimbursements 2.47%/(e)/ 2.13% 3.25% 3.43%
- ----------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 2.74%/(e)/ 2.61% 3.31% 3.43%
- ----------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (2.03)%/(e)/ (1.66)% (2.27)% (2.54)%
- ----------------------------------------------------------------------------------------------------------------
Portfolio turnover rate/(g)/ 128% 116% 125% 127%
- ----------------------------------------------------------------------------------------------------------------
-----------
MAY 15, 2001
(DATE SALES
COMMENCED) TO
AUGUST 31, 2001
---------------
- --------------------------------------------------------------
Net asset value, beginning of period $14.35
- ---------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.05)/(a)(b)/
- ---------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.38
- ---------------------------------------------------------------------------------
Total from investment operations 0.33
- ---------------------------------------------------------------------------------
Net asset value, end of period $14.68
- ---------------------------------------------------------------------------------
Total return/(d)/ 2.30%
- ---------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 337
- ---------------------------------------------------------------------------------
Ratio of expenses to average net assets (including interest
expense and/or dividends on short sales expense):
With fee waivers and/or expense reimbursements 4.14%/(f)/
- ---------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 4.14%/(f)/
- ---------------------------------------------------------------------------------
Ratio of expenses to average net assets (excluding interest
expense and/or dividends on short sales expense):
With fee waivers and/or expense reimbursements 3.74%/(f)/
- ---------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 3.74%/(f)/
- ---------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (2.68)%/(f)/
- ---------------------------------------------------------------------------------
Portfolio turnover rate/(g)/ 183%
- ---------------------------------------------------------------------------------
/(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 $(0.31),
$(0.37) and $(0.05) for the years ended August 31, 2003, 2002 and the
period ending August 31, 2001, respectively.
/(c)/Net gains (losses) on securities (both realized and unrealized) per share
and total return include litigation proceeds received from a class action
lawsuit against Oxford Health Plans, Inc. Net gains (losses) on securities
(both realized and unrealized) per share and total return excluding these
proceeds would have been $2.54 and 16.85%, respectively.
/(d)/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.
/(e)/Ratios are based on average net assets of $1,093,823.
/(f)/Annualized.
/(g)/Not annualized for periods less than one year.
F-16
NOTE 14--FINANCIAL HIGHLIGHTS-(CONTINUED)
CLASS C
-------------------------------------------------
YEAR ENDED AUGUST 31,
-------------------------------------------
2005 2004 2003 2002
- ----------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $12.97 $12.27 $11.57 $ 14.45
- ----------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.28)/(a)/ (0.28) (0.46)/(b)/ (0.13)/(b)/
- ----------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 2.56 0.98 1.16 (2.75)
- ----------------------------------------------------------------------------------------------------------------
Total from investment operations 2.28/(c)/ 0.70 0.70 (2.88)
- ----------------------------------------------------------------------------------------------------------------
Net asset value, end of period $15.25 $12.97 $12.27 $ 11.57
- ----------------------------------------------------------------------------------------------------------------
Total return/(d)/ 17.58%/(c)/ 5.71% 6.14% (20.00)%
- ----------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 540 $ 325 $ 316 $ 501
- ----------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (including interest
expense and/or dividends on short sales expense):
With fee waivers and/or expense reimbursements 3.01%/(e)/ 3.16% 4.02% 3.54%
- ----------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 3.28%/(e)/ 4.13% 4.07% 3.54%
- ----------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (excluding interest
expense and/or dividends on short sales expense):
With fee waivers and/or expense reimbursements 2.47%/(e)/ 2.72% 4.00% 3.52%
- ----------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 2.74%/(e)/ 3.69% 4.05% 3.52%
- ----------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (2.03)%/(e)/ (2.25)% (3.09)% (2.63)%
- ----------------------------------------------------------------------------------------------------------------
Portfolio turnover rate/(g)/ 128% 116% 125% 127%
- ----------------------------------------------------------------------------------------------------------------
-----------
MAY 15, 2001
(DATE SALES
COMMENCED) TO
AUGUST 31, 2001
---------------
- --------------------------------------------------------------
Net asset value, beginning of period $14.35
- ---------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.04)/(a)(b)/
- ---------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.14
- ---------------------------------------------------------------------------------
Total from investment operations 0.10
- ---------------------------------------------------------------------------------
Net asset value, end of period $14.45
- ---------------------------------------------------------------------------------
Total return/(d)/ 0.70%
- ---------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 312
- ---------------------------------------------------------------------------------
Ratio of expenses to average net assets (including interest
expense and/or dividends on short sales expense):
With fee waivers and/or expense reimbursements 4.51%/(f)/
- ---------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 4.51%/(f)/
- ---------------------------------------------------------------------------------
Ratio of expenses to average net assets (excluding interest
expense and/or dividends on short sales expense):
With fee waivers and/or expense reimbursements 3.93%/(f)/
- ---------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 3.93%/(f)/
- ---------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (2.86)%/(f)/
- ---------------------------------------------------------------------------------
Portfolio turnover rate/(g)/ 183%
- ---------------------------------------------------------------------------------
/(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 $(0.55),
$(0.38) and $(0.04) for the years ended August 31, 2003, 2002 and the
period ended August 31, 2001, respectively.
/(c)/Net gains (losses) on securities (both realized and unrealized) per share
and total return include litigation proceeds received from a class action
lawsuit against Oxford Health Plans, Inc. Net gains (losses) on securities
(both realized and unrealized) per share and total return excluding these
proceeds would have been $2.47 and 16.89%, respectively.
/(d)/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.
/(e)/Ratios are based on average net assets of $355,306.
/(f)/Annualized.
/(g)/Not annualized for periods less than one year.
NOTE 15--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds), AIM and A I M Distributors, Inc. ("ADI") (the
distributor of the retail AIM Funds) reached final settlements with certain
regulators, including the Securities and Exchange Commission ("SEC"), the New
York Attorney General and the Colorado Attorney General, to resolve civil
enforcement actions and/or investigations related to market timing and related
activity in the AIM Funds, including those formerly advised by IFG. As part of
the settlements, a $325 million fair fund ($110 million of which is civil
penalties) has been created to compensate shareholders harmed by market timing
and related activity in funds formerly advised by IFG. Half of this amount has
already been paid to the fair fund pursuant to the terms of the settlement with
the remainder due December 31, 2005. Additionally, AIM and ADI created a $50
million fair fund ($30 million of which is civil penalties) to compensate
shareholders harmed by market timing and related activity in funds advised by
AIM, which was done pursuant to the terms of the settlement. These two fair
funds may increase as a result of contributions from third parties who reach
final settlements with the SEC or other regulators to resolve allegations of
market timing and/or late trading that also may have harmed applicable AIM
Funds. These two fair funds will be distributed in accordance with a
methodology to be determined by AIM's independent distribution consultant, in
consultation with AIM and the independent trustees of the AIM Funds and
acceptable to the staff of the SEC. As the methodology is unknown at the
present time, management of AIM and the Fund are unable to estimate the impact,
if any, that the distribution of these two fair funds may have on the Fund or
whether such distribution will have an impact on the Fund's financial
statements in the future.
At the request of the trustees of the AIM Funds, AMVESCAP PLC ("AMVESCAP"),
the parent company of IFG and AIM, has agreed to reimburse expenses incurred by
the AIM Funds related to market timing matters.
F-17
NOTE 15--LEGAL PROCEEDINGS-(CONTINUED)
REGULATORY INQUIRIES AND PENDING LITIGATION
IFG, AIM, ADI and/or related entities and individuals have received inquiries
from numerous regulators in the form of subpoenas or other oral or written
requests for information and/or documents related to one or more of the
following issues, 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. IFG, AIM and ADI are providing full cooperation with respect
to these inquiries. As described more fully below, the AIM Funds, IFG, AIM, ADI
and/or related entities and individuals are defendants in numerous civil
lawsuits related to one or more of these issues. Regulatory actions and/or
additional civil lawsuits related to these or other issues may be filed against
the AIM Funds, IFG, AIM and/or related entities and individuals in the future.
On April 12, 2005, the Attorney General of the State of West Virginia
("WVAG") filed a civil lawsuit against AIM, IFG and ADI, as well as numerous
unrelated mutual fund complexes and financial institutions. None of the AIM
Funds has been named as a defendant in this lawsuit. The WVAG complaint, filed
in the Circuit Court of Marshall County, West Virginia [Civil Action
No. 05-C-81], alleges, in substance, that AIM, IFG and ADI engaged in unfair
competition and/or unfair or deceptive trade practices by failing to disclose
in the prospectuses for the AIM Funds, including those formerly advised by IFG,
that they had entered into certain arrangements permitting market timing of
such Funds. As a result of the foregoing, the WVAG alleges violations of W. Va.
Code (S) 46A-1-101, et seq. (the West Virginia Consumer Credit and Protection
Act). The WVAG complaint is seeking, among other things, injunctive relief,
civil monetary penalties and a writ of quo warranto against the defendants. If
AIM is unsuccessful in its defense of the WVAG lawsuit, it could be barred from
serving as an investment advisor for any investment company registered under
the Investment Company Act of 1940, as amended (a "registered investment
company"). Such results could affect the ability of AIM or any other investment
advisor directly or indirectly owned by AMVESCAP, from serving as an investment
advisor to any registered investment company, including the Fund. The Fund has
been informed by AIM that, if these results occur, AIM will seek exemptive
relief from the SEC to permit it to continue to serve as the Fund's investment
advisor. There is no assurance that such exemptive relief will be granted. On
July 7, 2005, the Supreme Court of West Virginia ruled in the context of a
separate lawsuit that the WVAG does not have authority pursuant to W. Va. Code
Section 46A-6-104 of the West Virginia Consumer Credit and Protection Act to
bring an action based upon conduct that is ancillary to the purchase or sale of
securities. AIM intends to seek dismissal of the WVAG's lawsuit against it, IFG
and ADI in light of this ruling.
On August 30, 2005, the West Virginia Office of the State Auditor--Securities
Commission ("WVASC") issued a Summary Order to Cease and Desist and Notice of
Right to Hearing to AIM and ADI. The WVASC makes findings of fact that
essentially mirror the WVAG's allegations mentioned above and conclusions of
law to the effect that AIM and ADI violated the West Virginia securities laws.
The WVASC orders AIM and ADI to cease any further violations and seeks to
impose monetary sanctions to be determined by the Commissioner. AIM and ADI
have the right to contest the WVASC's findings and conclusions, which they
intend to do.
Civil lawsuits, including purported class action and shareholder derivative
suits, have been filed against certain of the AIM Funds, IFG, AIM, ADI and/or
related entities and individuals, depending on the lawsuit, alleging:
. that the defendants permitted improper market timing and related
activity in the AIM Funds;
. that certain AIM Funds inadequately employed fair value pricing;
. that the defendants charged excessive advisory and/or distribution
fees and failed to pass on to shareholders the perceived savings
generated by economies of scale and that the defendants adopted
unlawful distribution plans;
. that the defendants breached their fiduciary duties by charging
distribution fees while AIM Funds and/or specific share classes were
closed generally to new investors and/or while other share classes of
the same AIM Fund were not charged the same distribution fees;
. 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; and
. that the defendants breached their fiduciary duties by failing to
ensure that the AIM Funds participated in class action settlements in
which they were eligible to participate (this lawsuit was dismissed by
the Court on August 12, 2005).
These lawsuits allege as theories of recovery, depending on the lawsuit,
violations of various provisions of the Federal and state securities laws and
ERISA, negligence, breach of fiduciary duty and/or breach of contract. These
lawsuits seek remedies that include, depending on the lawsuit, damages,
restitution, injunctive relief, imposition of a constructive trust, removal of
certain directors and/or employees, various corrective measures under ERISA,
rescission of certain AIM Funds' advisory agreements and/or distribution plans
and recovery of all fees paid, an accounting of all fund-related fees,
commissions and soft dollar payments, restitution of all commissions and fees
paid, and prospective relief in the form of reduced fees.
All lawsuits based on allegations of market timing, late trading and related
activity have been transferred to the United States District Court for the
District of Maryland. On August 25, 2005, the Court issued rulings on the
common issues of law presented in defendants' motions to dismiss the
shareholder class and derivative complaints. These rulings were issued in the
context of the Janus lawsuits, but the Court's legal determinations apply at
the omnibus level to all cases within his track, including the AIM and IFG
cases. The Court dismissed for failure to make pre-suit demand on the fund
board all derivative causes of action but one: the excessive fee claim under
Section 36(b) of the Investment Company Act of 1940 (the "1940 Act"), as to
which the demand requirement does not apply. The Court dismissed all claims
asserted in the class complaint but two: (i) the securities fraud claims under
Section 10(b) of the Securities Exchange Act of 1934, and (ii) the excessive
fee claim under Section 36(b) of the 1940 Act. In addition, the Court limited
plaintiffs' potential recovery on the 36(b) claim to fees attributable to
timing assets, as opposed to all fees on funds in which any timing occurred.
The question whether the duplicative Section 36(b) claim properly belongs in
the derivative complaint or in the class action complaint will be decided at a
later date. The Court will subsequently issue an order applying his legal
rulings to the allegations in the AIM and IFG complaints.
F-18
NOTE 15--LEGAL PROCEEDINGS-(CONTINUED)
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 above may have on AIM, ADI or the Fund.
* * * * * * * * * * * * * * * *
As a result of the matters discussed above, investors in the AIM Funds might
react by redeeming their investments. This might require the AIM Funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the AIM Funds.
F-19
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees
and Shareholders of AIM Advantage Health Sciences Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations, of
changes in net assets and of cash flows and the financial highlights present
fairly, in all material respects, the financial position of AIM Advantage
Health Sciences Fund, formerly known as INVESCO Advantage Health Sciences Fund,
(one of the funds constituting AIM Counselor Series Trust, hereafter referred
to as the "Fund") at August 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, the cash flows for 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 August 31, 2005 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
/S/ PRICEWATERHOUSECOOPERS LLP
October 19, 2005
Houston, Texas
F-20
TRUSTEES AND OFFICERS
As of August 31, 2005
The address of each trustee and officer of AIM Counselor Series Trust (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 109 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
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 -- 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 & (2 portfolios))
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 (3 portfolios));
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
- ---------------------------------------------------------------------------------------------------------------------------------
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
(3 portfolios))
- ---------------------------------------------------------------------------------------------------------------------------------
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, YWCA None
Trustee of the USA
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 2003 Partner, law firm of Pennock & Cooper None
Trustee
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2003 Retired None
Trustee
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 1997 Retired None
Trustee
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
Raymond Stickel, Jr./3 /-- 1944 2005 Retired None
Trustee
Formerly: Partner, Deloitte & Touche
- ---------------------------------------------------------------------------------------------------------------------------------
/1/ Mr. Graham is considered an interested person of the Trust because he is a
director of AMVESCAP PLC, parent of the advisor to the Trust.
/2/ Mr. Williamson is considered an interested person of the Trust because he
is an officer and a director of the advisor to, and a director of the
principal underwriter of, the Trust.
/3/ Mr. Stickel was elected as a trustee of the Trust effective October 1, 2005.
TRUSTEES AND OFFICERS-(CONTINUED)
As of August 31, 2005
The address of each trustee and officer of AIM Counselor Series Trust (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 109 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
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
- ----------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- ----------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley -- 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., AIM Investment
Services, Inc. and Fund Management
Company
Formerly: Senior Vice President and
Compliance Director, Delaware
Investments Family of Funds and Chief
Compliance Officer, A I M Distributors,
Inc.
- ----------------------------------------------------------------------------------------------------------------------
Russell C. Burk -- 1958 2005 Formerly: Director of Compliance and N/A
Senior Vice President Assistant General Counsel, ICON
(Senior Officer) Advisers, Inc.; Financial Consultant,
Merrill Lynch; General Counsel and
Director of Compliance, ALPS Mutual
Funds, Inc.
- ----------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, N/A
Senior Vice President, Secretary and 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 AIM Investment
Services, Inc.; 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.; and Director,
Fund Management Company
- ----------------------------------------------------------------------------------------------------------------------
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.
- ----------------------------------------------------------------------------------------------------------------------
M. Kevin Cronin -- 1965 2005 Senior Vice President -- Investments N/A
Vice President and Director of Equity Trading, A I M
Capital Management, Inc.
Formerly: Vice President, Head of
Domestic Equity Trading and Head of
Equity Trading, AIM Capital Management,
Inc.
- ----------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I N/A
Vice President and Treasurer M Advisors, Inc.
Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- ----------------------------------------------------------------------------------------------------------------------
J. Phillip Ferguson -- 1945 2005 Senior Vice President and Chief N/A
Vice President Investment Officer, A I M Advisors
Inc.; Director, Chairman, Chief
Executive Officer, President and Chief
Investment Officer, A I M Capital
Management, Inc.; Executive Vice
President, A I M Management Group Inc.
Formerly: Senior Vice President, AIM
Private Asset Management, Inc.; 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.
- ----------------------------------------------------------------------------------------------------------------------
Michael L. Yellen -- 1968 2005 Senior Vice President -- Investments N/A
Vice President and Senior Portfolio Manager -- Equity,
A I M Capital Management, Inc.
Formerly: Vice
President -- Investments, A I M Capital
Management, Inc.
- ----------------------------------------------------------------------------------------------------------------------
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)
U.S. ESTATE TAX FOR NON-RESIDENT ALIEN SHAREHOLDERS
The percentage of qualifying assets are not subject to the U.S. estate tax for
the fiscal quarters ended February 28, 2005, May 31, 2005 and August 31, 2005
are 23.46%, 27.98%, and 25.62%, respectively.
DOMESTIC EQUITY SECTOR EQUITY
AIM Aggressive Growth Fund AIM Advantage Health Sciences Fund
AIM Basic Balanced Fund* AIM Energy Fund
AIM Basic Value Fund AIM Financial Services Fund
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
AIM Constellation Fund AIM Leisure Fund
AIM Diversified Dividend Fund AIM Multi-Sector Fund
AIM Dynamics Fund AIM Real Estate Fund/6/
AIM Large Cap Basic Value Fund AIM Technology Fund
AIM Large Cap Growth Fund AIM Utilities Fund
AIM Mid Cap Basic Value Fund
AIM Mid Cap Core Equity Fund/1/
AIM Mid Cap Growth Fund FIXED INCOME
AIM Opportunities I Fund
AIM Opportunities II Fund TAXABLE
AIM Opportunities III Fund
AIM Premier Equity Fund AIM Floating Rate Fund
AIM S&P 500 Index Fund AIM High Yield Fund
AIM Select Equity Fund AIM Income Fund
AIM Small Cap Equity Fund/2/ AIM Intermediate Government Fund
AIM Small Cap Growth Fund/3/ AIM Limited Maturity Treasury Fund
AIM Small Company Growth Fund AIM Money Market Fund
AIM Trimark Endeavor Fund AIM Short Term Bond Fund
AIM Trimark Small Companies Fund AIM Total Return Bond Fund
AIM Weingarten Fund Premier Portfolio
Premier U.S. Government Money
* Domestic equity and income fund Portfolio
TAX-FREE
INTERNATIONAL/GLOBAL EQUITY
AIM High Income Municipal Fund/7/
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/4/ 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 AIM Growth Allocation Fund/8/
AIM International Growth Fund AIM Moderate Allocation Fund
AIM International Small Company Fund/5/ AIM Moderate Growth Allocation Fund
AIM Trimark Fund AIM Moderately Conservative
Allocation Fund
/1/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.
/2/Effective December 13, 2004, AIM Small Cap Equity Fund is open to all
investors. /3/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. /4/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. /5/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. /6/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. /7/As of end of business August 5, 2005,
AIM High Income Municipal 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 Dec. 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 $129 billion in assets. AIM is a subsidiary of
AMVESCAP PLC, one of the world's largest independent financial services
companies with $373 billion in assets under management. Data as of June 30,
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-AHS-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 MULTI-SECTOR FUND
Annual Report to Shareholders . August 31, 2005
[COVER IMAGE]
[YOUR GOALS. OUR SOLUTIONS.]
- REGISTERED TRADEMARK -
[AIM INVESTMENTS LOGO]
- REGISTERED TRADEMARK -
AIM MULTI-SECTOR FUND SEEKS CAPITAL GROWTH.
.. Unless otherwise stated, information presented in this report is as of August
31, 2005, and is based on total net assets.
ABOUT SHARE CLASSES
.. 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
had existing accounts invested in Class B shares prior to September 30, 2003,
will continue to be allowed to make additional purchases.
PRINCIPAL RISKS OF INVESTING IN THE FUND
.. Investing in smaller companies involves greater risk than investing in more
established companies, such as 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 Depositary 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.
.. Investing in a mutual fund with a higher concentration of sectors involves
greater risks and potential rewards than investing in a more diversified fund.
ABOUT INDEXES USED IN THIS REPORT
.. The unmanaged Lipper MULTI-CAP CORE FUND INDEX represents an average of the
performance of the 30 largest multi-capitalization core 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.
.. 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.
.. 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.
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 share-holders. For the first and
third quarters, the Fund files the lists with the Securities and Exchange
Commission (SEC) on Form N-Q. The most recent list of portfolio holdings is
available at AIMinvestments.com. From our home page, click on Products &
Performance, then Mutual Funds, then Fund Overview. Select your Fund from the
drop-down menu and click on Complete Quarterly Holdings. Shareholders can also
look up the Fund's Forms N-Q on the SEC's Web site at sec.gov. And 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 800-732-0330, or by
electronic request at the following e-mail address: publicinfo@sec.gov. The SEC
file numbers for the Fund are 811-09913 and 333-36074.
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, 2005, 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.
- --------------------------------
FUND NASDAQ SYMBOLS
Class A Shares IAMSX
Class B Shares IBMSX
Class C Shares ICMSX
- --------------------------------
- --------------------------------------------------------------------------------
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 MULTI-SECTOR FUND
DEAR FELLOW AIM FUNDS SHAREHOLDERS:
[GRAHAM PHOTO] The fiscal year ended August 31, 2005, was a good one for
investors as solid economic growth and generally impressive
company earnings offset concerns about rising oil prices and
the Federal Reserve's repeated increases in short-term
interest rates. Most equity indexes, both domestic and
international, ended up producing double-digit returns for
the fiscal year.
For a discussion of how market conditions affected your
Fund and how the Fund was managed during the fiscal year,
please turn to Page 3.
ADDITIONAL INFORMATION IN THIS REPORT
ROBERT H. GRAHAM We would like to call your attention to two new elements in
this report on your Fund. First, on Page 2, is a letter from
Bruce Crockett, the independent Chair of the Board of
Trustees of the AIM Funds. We first introduced you to Mr.
Crockett in the annual report on your Fund dated September
30, 2004. Mr. Crockett has been on our Funds' Board since
1992; he assumed his responsibilities as Chair in October
2004.
[WILLIAMSON PHOTO] Mr. Crockett has expressed an interest in keeping
shareholders informed of the work of the Board regularly via
letters in the Fund reports. We certainly consider this a
valuable addition to the reports. The Board is charged with
looking out for the interests of shareholders, and Mr.
Crockett's letter provides insight into some of the many
issues the Board addresses in governing your Fund.
MARK H. WILLIAMSON One of the most important decisions the Board makes each
year is whether to approve the advisory agreement your Fund
has with AIM. Essentially, this agreement hires AIM to
manage the assets in your Fund. A discussion of the factors
the Board considered in reviewing the agreement is the
second new element in the report, and we encourage you to
read it. It appears on Pages 9 and 10.
Further information about the markets, your Fund, and
investing in general is always available on our widely
acclaimed Web site, AIMinvestments.com. We invite you to
visit it frequently.
We at AIM remain committed 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 happy to be of help.
Sincerely,
/S/ ROBERT H. GRAHAM /S/ MARK H. WILLIAMSON
Robert H. Graham Mark H. Williamson
President & Vice Chair, Director & President,
AIM Funds A I M Advisors, Inc.
October 13, 2005
AIM INVESTMENTS IS A REGISTERED SERVICE MARK OF AIM
MANAGEMENT GROUP INC. AIM ADVISORS, INC. AND AIM CAPITAL
MANAGEMENT, INC. ARE THE INVESTMENT ADVISORS AND AIM
DISTRIBUTORS, INC. IS THE DISTRIBUTOR FOR THE RETAIL FUNDS
REPRESENTED BY AIM INVESTMENTS.
1
AIM MULTI-SECTOR FUND
DEAR AIM FUNDS SHAREHOLDERS:
As independent Chair of the Board of Trustees of the AIM
Funds, I'm writing to report on the work being done by your
Board.
[CROCKETT PHOTO] At our most recent meeting in June 2005, your Board
approved voluntary fee reductions from A I M Advisors, Inc.
(AIM) that save shareholders approximately $20.8 million
annually, based on asset levels as of March 31, 2005. The
majority of these expense reductions, which took effect July
1, 2005, will be achieved by a permanent reduction to 0.25%
of the Rule 12b-1 fees on Class A and Class A3 shares of
those AIM Funds that previously charged these fees at a
higher rate.
BRUCE L. CROCKETT Our June meeting, which was the culmination of more than
two and one-half months of review and discussions, took
place over a three-day period. The meeting included your
Board's annual comprehensive evaluation of each fund's
advisory agreement with AIM. After this evaluation, in which
questions about fees, performance and operations were
addressed by AIM, your Board approved all advisory
agreements for the year beginning July 1, 2005. You can find
information on the factors considered and conclusions
reached by your Board in its evaluation of each fund's
advisory agreement at AIMinvestments.com. (Go to "Products &
Performance" and click on "Investment Advisory Agreement
Renewals.") The advisory agreement information about your
Fund is also included in this annual report on Pages 9 and
10. I encourage you to review it.
Together with monitoring fund expenses, fund performance
is your Board's priority. Our initial goal is to work with
AIM to bring about improvement in every AIM Fund that has
been underperforming its category.
Your Board has a well-defined process and structure for
monitoring all funds and identifying and assisting AIM in
improving underperforming funds. Our Investments
Committee--which functions along with Audit, Governance,
Valuation and Compliance Committees--is the only one of
these five standing committees to include all 13 independent
Board members. Further, our Investments Committee is divided
into three underlying subcommittees, each responsible for,
among other things, reviewing the performance, fees and
expenses of the funds that have been assigned to it.
At subcommittee meetings, held throughout the year, the
performance of every AIM Fund is evaluated. If a fund has
underperformed its peer group for a meaningful period, we
work closely with AIM to discover the causes and help
develop the right responses. In some cases, AIM may
determine that a change in portfolio management strategy or
portfolio managers is required. In other cases, where a fund
no longer seems viable, it may be merged with a similar
fund, being careful to consider the needs of all
shareholders affected by the decision. Following AIM's
recommendation and your Board's approval, eight funds were
recently merged.
Be assured that your Board is working closely with the
management of AIM to help you reach your investment goals.
Should you or your advisor have questions or comments about
the governance of AIM Funds, I invite you to write to me at
AIM Investments, AIM Investments Tower, 11 Greenway Plaza,
Suite 100, Houston, TX 77046. Your Board looks forward to
keeping you informed about the governance of your funds.
Sincerely,
/s/ BRUCE L. CROCKETT
Bruce L. Crockett
Independent Chair
On Behalf of the Board of Trustees
AIM Funds
October 13, 2005
2
AIM MULTI-SECTOR FUND
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
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PERFORMANCE SUMMARY
We are pleased to report that for the fiscal year ended August 31, 2005, Class A
shares of AIM Multi-Sector Fund returned 28.01% at net asset value.
Your Fund handily outperformed the S&P 500 Index, which returned 12.55%. The
Fund's overweight position in energy stocks was its greatest contributor to its
outperformance relative to the broad market. Solid stock selection allowed your
Fund to significantly outperform the S&P 500 Index in each of the five sectors
in which it invests, as shown in the table on Page 4.
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FUND VS. INDEXES
TOTAL RETURNS, 8/31/04-8/31/05, EXCLUDING APPLICABLE SALES CHARGES. IF SALES
CHARGES WERE INCLUDED, RETURNS WOULD BE LOWER.
Class A Shares 28.01%
Class B Shares 27.15
Class C Shares 27.10
S&P 500 Index (Broad Market
Index / Style-specific Index) 12.55
Lipper Multi-Cap Core Fund Index
(Peer Group Index) 17.50
SOURCE: LIPPER, INC.
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The Fund's long-term performance appears on Pages 6 and 7.
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HOW WE INVEST
Your Fund invests the bulk of its assets in stocks from five market sectors:
energy, financials, health care, information technology and "leisure"
(represented by the consumer discretionary sector). Fund assets are divided
approximately equally among securities of companies in each sector to provide
diversification. Fund managers act independently, creating portfolios for each
sector that are applications of our best ideas in existing AIM sector funds.
Managers use quantitative measures in stock selection combined with
insights from fundamental research to determine if a stock has value and strong
anticipated growth relative to its peers. We focus on companies that exhibit
strong return on capital, cash flow, sustainable growth, and superior business
strategies that make them market leaders.
In the resulting portfolios, each sector has approximately 20 to 25
holdings. Your Fund is rebalanced annually at fiscal year-end to return the
sectors to their approximate equal weightings.
We consider selling a stock when we see:
.. fundamental deterioration in the company
.. more attractive investment opportunities
.. inability of the company to capitalize on market opportunity
.. a questionable change in management's strategic direction
MARKET CONDITIONS AND YOUR FUND
Throughout the fiscal year, the economy expanded, driven largely by sustained,
robust consumer spending. At its close, inflation (excluding energy) remained
modest and payrolls continued to expand. In testimony to Congress in late July,
U.S. Federal Reserve Board (the Fed) Chairman Alan Greenspan suggested such
trends were likely to continue when he reported that "our baseline outlook for
the U.S. economy is one of sustained economic growth and contained inflation
pressures."
Higher short-term interest rates and rising energy prices were the most
significant headwinds for the U.S. economy and the broad stock market. In an
effort to ensure that inflation remained contained, the Fed raised its federal
funds target rate from 1.50% at the start of the fiscal year to 3.50% at its
close. Its actions caused credit card interest rates, for example, to rise for
many consumers. Together, these two factors had the potential to crimp consumer
spending and slow economic growth.
As the fiscal year drew to a close, we began to see signs that historically
high energy prices might finally be causing consumers to reduce
(Continued On Page 4)
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PORTFOLIO COMPOSITION TOP 10 INDUSTRIES* TOP 10 EQUITY HOLDINGS*
By sector
Energy 21.2% 1. Pharmaceuticals 10.4% 1. Harrah's Entertainment, Inc. 1.9%
Health Care 19.0 2. Oil & Gas Equipment & Services 6.5 2. Murphy Oil Corp. 1.9
Financials 18.8 3. Integrated Oil & Gas 6.2 3. Omnicom Group Inc. 1.8
Information Technology 16.9 4. Hotels, Resorts & Cruise Lines 4.4 4. Valero Energy Corp. 1.5
Consumer Discretionary 16.3 5. Oil & Gas Exploration & Production 3.9 5. National-Oilwell Varco Inc. 1.3
Telecommunication Services 1.6 6. Biotechnology 3.6 6. Protein Design Labs,Inc. 1.3
Industrials 0.6 7. Regional Banks 3.6 7. Grant Prideco, Inc. 1.2
Consumer Staples 0.4 8. Semiconductors 3.3 8. Yahoo! Inc. 1.2
Money Market Funds 9. Thrifts & Mortgage Finance 3.1 9. Corning Inc. 1.2
Plus Other Assets Less 5.2 10. Internet Software & Services 2.8 10. Cheniere Energy,Inc. 1.2
Liabilities
TOTAL NET ASSETS $200.3 million
TOTAL NUMBER OF HOLDINGS* 117
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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3
AIM MULTI-SECTOR FUND
their spending. In late August, Hurricane Katrina disrupted offshore oil and gas
production and shut down eight major refineries in the Gulf Coast region,
sending oil and gasoline prices higher. We continue to monitor these trends
closely.
For the fiscal year, all 10 sectors of the S&P 500 Index posted gains. Of
the five sectors in which the Fund primarily invests, performance varied
widely--from the energy sector's 52% return to the financials sector's 4%
return. See the table below for more specific information about the performance
of market sectors in which the Fund invests the bulk of its assets.
Solid stock selection
allowed your Fund to
significantly outperform
the S&P 500 Index in
each of the five sectors
in which it invests...
All 20 of your Fund's energy-sector holdings contributed positively to Fund
performance. Our largest energy holdings were MURPHY OIL and VALERO ENERGY.
Murphy Oil continued to benefit from its contract to supply Wal-Mart's (not a
Fund holding) gas stations. Also, new discoveries in the Congo have the
potential to boost the company's production capacity. Valero is a leading
refiner of grades of oil that are heavier and higher in sulfur. While these
grades cost somewhat more to refine, they cost much less to buy, giving Valero a
cost advantage over its competitors.
Within the financials sector, life insurer PRUDENTIAL contributed to Fund
performance while FANNIE MAE detracted. Prudential's commitment to returning
excess capital to shareholders has been a major driver of its performance for
the last several years. Fannie Mae, a government-sponsored mortgage company,
continued to be hurt by accounting and regulatory probes; nonetheless we
continued to hold it because we believe it represents a compelling long-term
investment.
- --------------------------------------------------------------------------------
RETURNS AND PERFORMANCE SUMMARIES, BY SELECTED SECTORS, FUND VS. S&P 500 INDEX, 8/31/04 - 8/31/05
SECTOR RETURN, SECTOR RETURN, PERFORMANCE
SECTOR FUND INDEX SUMMARY
CONSUMER DISCRETIONARY 17.55% 11.33% For much of the fiscal year, the market worried that
(The Fund's leisure rising short-term interest rates and energy prices might
holdings are largely from crimp consumer spending--but those fears proved to be
the consumer discretionary largely unfounded. A strengthening economy kept
sector.) consumers spending and traveling, and generous
incentives boosted new vehicle sales.
ENERGY 67.69 51.85 As oil prices rose, so did earnings by many companies in
the energy sector. Integrated oil and gas, equipment and
services, and refining and marketing stocks all were
strong. While oil grabbed the headlines, the price of
natural gas, coal and other fuels also rose, benefiting
a host of companies within the sector.
FINANCIALS 10.43 4.29 While short-term interest rates rose, long-term rates
remained historically low, aiding real estate and
mortgage-related stocks. As a group, banks, credit card
issuers and other diversified financial companies lagged
the market as their cost of funds rose in concert with
Fed tightening. Improvements in stock market performance
helped brokerage, asset management and investment firms.
HEALTH CARE 29.46 9.15 Many investors favored health care stocks--both because
they are less sensitive to the economy and because many
of them pay relatively attractive dividends. While
somewhat defensive, the sector is poised to
benefit from an aging population. Biotech stocks lagged
early in the fiscal year but recovered, while health
care services stocks were among the sector's strongest
performers.
INFORMATION TECHNOLOGY 29.82 16.43 Particularly in late 2004, and mid-2005,
information technology stocks exhibited strength.
Declining semiconductor inventories and
stronger-than-expected demand for cell phones and
computers (particularly laptops) were important factors
in this strength. Also, investors viewed many
information technology stocks as reasonably valued.
Source: Lipper, Inc.
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4
AIM MULTI-SECTOR FUND
Within the health care sector, PACIFICARE contributed to Fund performance
while FOREST LABS detracted. PacifiCare has long been regarded as a well-managed
industry leader, but its stock got an added boost when the company announced in
July that it would merge with UnitedHealth Group (not a Fund holding). Forest
Labs has faced increased generic competition and its product pipeline appears to
us to have faltered. As a result, we reduced our exposure to the company.
Of the five sectors in
which the Fund primarily
invests, performance
varied widely...
Within the information technology sector, APPLE COMPUTER helped while AVID
TECHNOLOGY hindered Fund performance. Apple's stock has performed well for
several years, due in large part to the phenomenal success of the company's iPod
- --REGISTERED TRADEMARK-- device and iTunes music store. Avid Technology's
preeminent position in digital editing platforms and professional digital
newsrooms could not overcome poor execution and a questionable acquisition
strategy. We eliminated Avid Technology from the Fund.
Within the leisure sector, HARRAH'S ENTERTAINMENT helped while newspaper
publisher TRIBUNE hindered Fund performance. Harrah's seems not to have been
hurt by rising gasoline prices, as many investors had feared, and the company
continued to report good earnings. Tribune was hurt as some if its employment
and real estate advertising moved to the Internet, and the company found itself
under scrutiny regarding its circulation figures. As a result, we eliminated
Tribune from the portfolio.
IN CLOSING
At the close of the fiscal year, economic data painted a generally positive
picture of the U.S. economy, despite rising short-term interest rates and
historically high energy prices. No one was certain how significant the effects
of Hurricane Katrina would be for the nation's economy or for individual sectors
or companies. That is why we continue to maintain a long-term investment
horizon, and why we encourage shareholders to do the same. As always, we thank
you for your continued investment in AIM Multi-Sector Fund.
THE VIEWS AND OPINIONS EXPRESSED IN MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
ARE THOSE OF AIM 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 AIM 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
co-manager of AIM Multi-Sector Fund. Mr. Greenberg began his career in the
investment industry 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.
[KEITHLER PHOTO]
WILLIAM R. KEITHLER, Chartered Financial Analyst, senior portfolio manager, is
co-manager of AIM Multi-Sector Fund. He began his career in the investment
industry in 1982 and joined the Fund's advisor in 1986, where he managed several
funds for the company until 1993. He rejoined the firm 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.
[SEGNER PHOTO]
JOHN S. SEGNER, senior portfolio manager, is co-manager of AIM Multi-Sector
Fund. He 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.
[SIMON PHOTO]
MICHAEL J. SIMON, Chartered Financial Analyst, senior portfolio manager, is co-
manager of AIM Multi-Sector Fund. He started his investment industry 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.
[YELLEN PHOTO]
MICHAEL YELLEN, senior portfolio manager, is co-manager of AIM Multi-Sector
Fund. He began his investment industry career in 1991 and joined AIM in 1998.
Mr. Yellen received his B.A. from Stanford University.
- --------------------------------------------------------------------------------
[RIGHT ARROW GRAPHIC]
FOR A PRESENTATION OF YOUR FUND'S LONG-TERM PERFORMANCE, PLEASE SEE PAGES 6 AND
7.
5
AIM MULTI-SECTOR FUND
YOUR FUND'S LONG-TERM PERFORMANCE
[MOUNTAIN CHART]
RESULTS OF A $10,000 INVESTMENT
Fund data from 9/3/02, index data from 8/31/02
- --------------------------------------------------------------------------------
AIM MULTI-SECTOR FUND- AIM MULTI-SECTOR FUND- AIM MULTI-SECTOR FUND- LIPPER MULTI-CAP S&P 500
DATE CLASS A SHARES CLASS B SHARES CLASS C SHARES CORE FUND INDEX INDEX
9/3/02 $ 9450 $ 10000 $ 10000 $ 10000 $ 10000
9/02 9160 9687 9687 9080 8914
10/02 9727 10281 10281 9655 9698
11/02 10155 10728 10728 10243 10268
12/02 9701 10247 10247 9655 9665
1/03 9657 10194 10194 9492 9413
2/03 9563 10087 10087 9328 9271
3/03 9638 10167 10167 9358 9361
4/03 10274 10827 10827 10086 10132
5/03 11093 11686 11673 10768 10665
6/03 11143 11733 11727 10929 10801
7/03 11281 11867 11854 11140 10992
8/03 11533 12127 12113 11482 11206
9/03 11300 11867 11860 11330 11087
10/03 11917 12507 12500 12004 11714
11/03 12087 12681 12674 12192 11817
12/03 12665 13279 13272 12678 12436
1/04 12998 13618 13611 12976 12664
2/04 13246 13867 13867 13177 12840
3/04 13128 13742 13735 13028 12647
4/04 12828 13418 13411 12753 12448
5/04 12887 13473 13473 12906 12619
6/04 13245 13839 13832 13192 12864
7/04 12691 13253 13246 12651 12438
8/04 12633 13184 13184 12642 12488
9/04 13167 13736 13729 12912 12624
10/04 13422 13991 13992 13107 12816
11/04 14106 14695 14688 13765 13335
12/04 14511 15110 15104 14249 13788
1/05 14229 14812 14806 13924 13452
2/05 14898 15499 15495 14206 13735
3/05 14536 15116 15112 13983 13492
4/05 14202 14755 14757 13602 13237
5/05 14891 15471 15467 14159 13657
6/05 15226 15805 15801 14315 13677
7/05 15922 16521 16517 14922 14185
8/05 16178 16760 16754 14854 14056
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SOURCE: LIPPER, INC.
The data shown in the chart include reinvested distributions, applicable sales
charges, Fund expenses and management fees. Results for Class B shares are
calculated as if a hypo-thetical shareholder had liquidated his entire
investment in the Fund at the close of the reporting period and paid the
applicable contingent deferred sales charges. Index results include reinvested
dividends, but they do not reflect sales charges. 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 table(s) 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.
6
AIM MULTI-SECTOR FUND
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AVERAGE ANNUAL TOTAL RETURNS
As of 8/31/05, including applicable sales charges
CLASS A SHARES
Inception (9/3/02) 17.44%
1 Year 20.95
CLASS B SHARES
Inception (9/3/02)
1 Year 18.13%
22.15
CLASS C SHARES
Inception (9/3/02)
1 Year 18.83%
26.10
================================================================================
AVERAGE ANNUAL TOTAL RETURNS
As of 6/30/05, most recent calendar quarter-end applicable including sales
charges
CLASS A SHARES
Inception (9/3/02) 16.09%
1 Year 8.65
CLASS B SHARES
Inception (9/3/02) 16.81%
1 Year 9.21
CLASS C SHARES
Inception (9/3/02) 17.59%
1 Year 13.21
================================================================================
CUMULATIVE TOTAL RETURNS
6 months ended 8/31/05, excluding applicable sales charges
Class A Shares 8.54%
Class B Shares 8.14
Class C Shares 8.15
- --------------------------------------------------------------------------------
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.
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 IN THE PAST,
PERFORMANCE WOULD HAVE BEEN LOWER.
7
AIM MULTI-SECTOR 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 March 1, 2005, through August 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 August 31, 2005, appear in the table "Fund vs.
Indexes" on Page 3.
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. In addition, if
these transactional costs were included, your costs would have been higher.
- --------------------------------------------------------------------------------
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES ENDING ACCOUNT EXPENSES
SHARE VALUE VALUE PAID DURING VALUE PAID DURING
CLASS (3/1/05) (8/31/05)/1/ PERIOD/2/,/3/ (8/31/05) PERIOD/2/,/4/
A $ 1,000.00 $ 1,085.40 $ 7.73 $ 1,017.80 $ 7.48
B 1,000.00 1,081.40 11.33 1,014.32 10.97
C 1,000.00 1,081.50 11.33 1,014.32 10.97
/1/The actual ending account value is based on the actual total return of the
Fund for the period March 1, 2005, through August 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 August 31, 2005, appear in the table "Fund vs.
Indexes" on Page 3.
/2/Expenses are equal to the Fund's annualized expense ratio (1.47%, 2.16% and
2.16% for Class A, B and C shares, respectively) multiplied by the average
account value over the period, multiplied by 184/365 (to reflect the one-half
year period). Effective on July 1, 2005, the distributor contractually agreed to
reduce rule 12b-1 plan fees for Class A shares to 0.25%. The annualized expense
ratio restated as if this agreement had been in effect throughout the entire
most recent fiscal half year is 1.41% for the Class A shares.
/3/The actual expenses paid restated as if the changes discussed above had been
in effect throughout the entire most recent fiscal half year are $7.41 for the
Class A shares.
/4/The hypothetical expenses paid restated as if the changes discussed above had
been in effect throughout the entire most recent fiscal half year are $7.17 for
the Class A shares.
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[ARROW
BUTTON For More Information Visit
IMAGE] AIMINVESTMENTS.COM
8
AIM MULTI-SECTOR FUND
APPROVAL OF INVESTMENT ADVISORY AGREEMENT AND SUMMARY OF INDEPENDENT WRITTEN FEE
EVALUATION
The Board of Trustees of AIM Counselor Series Trust (the "Board") oversees the
management of AIM Multi-Sector Fund (the "Fund") and, as required by law,
determines annually whether to approve the continuance of the Fund's advisory
agreement with A I M Advisors, Inc. ("AIM"). Based upon the recommendation of
the Investments Committee of the Board, which is comprised solely of independent
trustees, at a meeting held on June 30,2005, the Board, including all of the
independent trustees, approved the continuance of the advisory agreement (the
"Advisory Agreement") between the Fund and AIM for another year, effective July
1,2005.
The Board considered the factors discussed below in evaluating the fairness
and reasonableness of the Advisory Agreement at the meeting on June 30, 2005 and
as part of the Board's ongoing oversight of the Fund. In their deliberations,
the Board and the independent trustees did not identify any particular factor
that was controlling, and each trustee attributed different weights to the
various factors.
One of the responsibilities of the Senior Officer of the Fund, who is
independent of AIM and AIM's affiliates, is to manage the process by which the
Fund's proposed management fees are negotiated to ensure that they are
negotiated in a manner which is at arm's length and reasonable. To that end, the
Senior Officer must either supervise a competitive bidding process or prepare an
independent written evaluation. The Senior Officer has recommended an
independent written evaluation in lieu of a competitive bidding process and,
upon the direction of the Board, has prepared such an independent written
evaluation. Such written evaluation also considered certain of the factors
discussed below. In addition, as discussed below, the Senior Officer made
certain recommendations to the Board in connection with such written evaluation.
The discussion below serves as a summary of the Senior Officer's
independent written evaluation and recommendations to the Board in connection
therewith, as well as a discussion of the material factors and the conclusions
with respect thereto that formed the basis for the Board's approval of the
Advisory Agreement. After consideration of all of the factors below and based on
its informed business judgment, the Board determined that the Advisory Agreement
is in the best interests of the Fund and its shareholders and that the
compensation to AIM under the Advisory Agreement is fair and reasonable and
would have been obtained through arm's length negotiations.
.. The nature and extent of the advisory services to be provided by AIM. The
Board reviewed the services to be provided by AIM under the Advisory Agreement.
Based on such review, the Board concluded that the range of services to be
provided by AIM under the Advisory Agreement was appropriate and that AIM
currently is providing services in accordance with the terms of the Advisory
Agreement.
.. The quality of services to be provided by AIM. The Board reviewed the
credentials and experience of the officers and employees of AIM who will provide
investment advisory services to the Fund. In reviewing the qualifications of AIM
to provide investment advisory services, the Board reviewed the qualifications
of AIM's investment personnel and considered such issues as AIM's portfolio and
product review process, various back office support functions provided by AIM
and AIM's equity and fixed income trading operations. Based on the review of
these and other factors, the Board concluded that the quality of services to be
provided by AIM was appropriate and that AIM currently is providing satisfactory
services in accordance with the terms of the Advisory Agreement.
.. The performance of the Fund relative to comparable funds. The Board reviewed
the performance of the Fund during the past one and two calendar years against
the performance of funds advised by other advisors with investment strategies
comparable to those of the Fund. The Board noted that the Fund's performance in
such periods was above the median performance of such comparable funds. The
Board also noted that AIM began serving as investment advisor to the Fund in
November 2003. Based on this review, the Board concluded that no changes should
be made to the Fund and that it was not necessary to change the Fund's portfolio
management team at this time.
.. The performance of the Fund relative to indices. The Board reviewed the
performance of the Fund during the past one and two calendar years against the
performance of the Lipper Multi-Cap Core Index. The Board noted that the Fund's
performance for the two year period was comparable to the performance of such
Index and was above the Index performance for the one year period. The Board
also noted that AIM began serving as investment advisor to the Fund in November
2003. Based on this review, the Board concluded that no changes should be made
to the Fund and that it was not necessary to change the Fund's portfolio
management team at this time.
.. Meeting with the Fund's portfolio managers and investment personnel. With
respect to the Fund, the Board is meeting periodically with such Fund's
portfolio managers and/or other investment personnel and believes that such
individuals are competent and able to continue to carry out their
responsibilities under the Advisory Agreement.
.. Overall performance of AIM. The Board considered the overall performance of
AIM in providing investment advisory and portfolio administrative services to
the Fund and concluded that such performance was satisfactory.
.. Fees relative to those of clients of AIM with comparable investment
strategies. The Board noted that AIM does not serve as an advisor to other
mutual funds or other clients with investment strategies comparable to those of
the Fund.
.. Fees relative to those of comparable funds with other advisors. The Board
reviewed the advisory fee rate for the Fund under the Advisory Agreement. The
Board compared effective contractual advisory fee rates at a common asset level
and noted that the Fund's rate was below the median rate of the funds advised by
other advisors with investment strategies comparable to those of the Fund that
the Board reviewed. The Board noted that AIM has agreed to waive advisory fees
of the Fund and to limit the Fund's total operating expenses, as discussed
below. Based on this review, the Board concluded that the advisory fee rate for
the Fund under the Advisory Agreement was fair and reasonable.
.. Expense limitations and fee waivers. The Board noted that AIM has
contractually agreed to waive advisory fees of the Fund through December 31,
2009 to the extent necessary so that the advisory fees payable by the Fund do
not exceed a specified maximum advisory fee rate, which maximum rate includes
breakpoints and is based on net asset levels. The Board considered the
contractual nature of this fee waiver and noted that it remains in effect until
December 31, 2009. The Board noted that AIM has contractually agreed to waive
fees and/or limit expenses of the Fund through August 31, 2005 in an amount
necessary to limit total annual operating expenses to a specified percentage of
average daily net assets for each class of the Fund. The Board considered the
contractual nature of this fee waiver/expense limitation and noted that it
remains in effect until August 31, 2005. The Board considered the effect these
fee waivers/expense limitations would have on the Fund's estimated expenses and
concluded that the levels of fee waivers/expense limitations for the Fund were
fair and reasonable.
.. Breakpoints and economies of scale. The Board reviewed the structure of the
Fund's advisory fee under the Advisory Agreement, noting that it does not
include any breakpoints. The Board considered whether it would be appropriate to
add advisory fee breakpoints for the Fund or whether, due to the nature of the
Fund and the advisory fee structures of comparable funds, it was reasonable to
structure the advisory fee without breakpoints. Based on this review, the Board
concluded that it was not necessary to add advisory fee breakpoints to the
Fund's advisory fee schedule. The Board reviewed the level of the Fund's
advisory fees, and noted that such fees, as a percentage of the Fund's net
assets, would remain constant under the Advisory Agreement because the Advisory
Agreement does not include any breakpoints. The Board noted that AIM has
contractually agreed to waive advisory fees of the Fund through December 31,
2009 to the extent necessary so that the advisory fees payable by the Fund do
not exceed a specified maximum advisory fee rate, which maximum rate includes
breakpoints and is based on net asset levels. The Board concluded that the
Fund's fee levels under the Advisory Agreement therefore would not reflect
economies of scale, although the advisory fee waiver reflects economies of
scale.
(Continued on Page 10)
9
AIM MULTI-SECTOR FUND
.. Investments in affiliated money market funds. The Board also took into account
the fact that uninvested cash and cash collateral from securities lending
arrangements (collectively, "cash balances") of the Fund may be invested in
money market funds advised by AIM pursuant to the terms of an SEC exemptive
order. The Board found that the Fund may realize certain benefits upon investing
cash balances in AIM advised money market funds, including a higher net return,
increased liquidity, increased diversification or decreased transaction costs.
The Board also found that the Fund will not receive reduced services if it
invests its cash balances in such money market funds. The Board noted that, to
the extent the Fund invests in affiliated money market funds, AIM has
voluntarily agreed to waive a portion of the advisory fees it receives from the
Fund attributable to such investment. The Board further determined that the
proposed securities lending program and related procedures with respect to the
lending Fund is in the best interests of the lending Fund and its respective
shareholders. The Board therefore concluded that the investment of cash
collateral received in connection with the securities lending program in the
money market funds according to the procedures is in the best interests of the
lending Fund and its respective shareholders.
.. Independent written evaluation and recommendations of the Fund's Senior
Officer. The Board noted that, upon their direction, the Senior Officer of the
Fund, who is independent of AIM and AIM's affiliates, had prepared an
independent written evaluation in order to assist the Board in determining the
reasonableness of the proposed management fees of the AIM Funds, including the
Fund. The Board noted that the Senior Officer's written evaluation had been
relied upon by the Board in this regard in lieu of a competitive bidding
process. In determining whether to continue the Advisory Agreement for the Fund,
the Board considered the Senior Officer's written evaluation and the
recommendation made by the Senior Officer to the Board that the Board consider
implementing a process to assist them in more closely monitoring the performance
of the AIM Funds. The Board concluded that it would be advisable to implement
such a process as soon as reasonably practicable.
.. Profitability of AIM and its affiliates. The Board reviewed information
concerning the profitability of AIM's (and its affiliates') investment advisory
and other activities and its financial condition. The Board considered the
overall profitability of AIM, as well as the profitability of AIM in connection
with managing the Fund. The Board noted that AIM's operations remain profitable,
although increased expenses in recent years have reduced AIM's profitability.
Based on the review of the profitability of AIM's and its affiliates' investment
advisory and other activities and its financial condition, the Board concluded
that the compensation to be paid by the Fund to AIM under its Advisory Agreement
was not excessive.
.. Benefits of soft dollars to AIM. The Board considered the benefits realized by
AIM as a result of brokerage transactions executed through "soft dollar"
arrangements. Under these arrangements, brokerage commissions paid by the Fund
and/or other funds advised by AIM are used to pay for research and execution
services. This research is used by AIM in making investment decisions for the
Fund. The Board concluded that such arrangements were appropriate.
.. AIM's financial soundness in light of the Fund's needs. The Board considered
whether AIM is financially sound and has the resources necessary to perform its
obligations under the Advisory Agreement, and concluded that AIM has the
financial resources necessary to fulfill its obligations under the Advisory
Agreement.
.. Historical relationship between the Fund and AIM. In determining whether to
continue the Advisory Agreement for the Fund, the Board also considered the
prior relationship between AIM and the Fund, as well as the Board's knowledge of
AIM's operations, and concluded that it was beneficial to maintain the current
relationship, in part, because of such knowledge. The Board also reviewed the
general nature of the non-investment advisory services currently performed by
AIM and its affiliates, such as administrative, transfer agency and distribution
services, and the fees received by AlM and its affiliates for performing such
services. In addition to reviewing such services, the trustees also considered
the organizational structure employed by AIM and its affiliates to provide those
services. Based on the review of these and other factors, the Board concluded
that AIM and its affiliates were qualified to continue to provide non-investment
advisory services to the Fund, including administrative, transfer agency and
distribution services, and that AIM and its affiliates currently are providing
satisfactory non-investment advisory services.
.. Other factors and current trends. In determining whether to continue the
Advisory Agreement for the Fund, the Board considered the fact that AIM, along
with others in the mutual fund industry, is subject to regulatory inquiries and
litigation related to a wide range of issues. The Board also considered the
governance and compliance reforms being undertaken by AIM and its affiliates,
including maintaining an internal controls committee and retaining an
independent compliance consultant, and the fact that AIM has undertaken to cause
the Fund to operate in accordance with certain governance policies and
practices. The Board concluded that these actions indicated a good faith effort
on the part of AIM to adhere to the highest ethical standards, and determined
that the current regulatory and litigation environment to which AIM is subject
should not prevent the Board from continuing the Advisory Agreement for the
Fund.
10
SUPPLEMENT TO ANNUAL REPORT DATED 8/31/05
AIM MULTI-SECTOR 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 8/31/05
Inception (5/3/04) 18.44%
1 Year 28.64
6 Months* 8.81
================================================================================
AVERAGE ANNUAL TOTAL RETURNS
For periods ended 6/30/05, most recent calendar quarter-end
Inception (5/3/04) 15.19%
1 Year 15.61
6 Months* 5.19
* Cumulative total return that has not been annualized
- --------------------------------------------------------------------------------
INSTITUTIONAL CLASS SHARES HAVE NO SALES CHARGE; THEREFORE, PERFORMANCE IS AT
NAV. PERFORMANCE OF INSTITUTIONAL CLASS SHARES WILL DIFFER FROM PERFORMANCE OF
OTHER SHARE CLASSES DUE TO DIFFERING SALES CHARGES AND CLASS EXPENSES.
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.
- --------------------------------------------------------------------------------
NASDAQ SYMBOL IIMSX
- --------------------------------------------------------------------------------
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.
AIMINVESTMENTS.COM l-MSE-INS-l OUR SOLUTIONS.] [AIM INVESTMENTS LOGO]
- REGISTERED TRADEMARK - - REGISTERED TRADEMARK -
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 March 1, 2005, through August 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 August 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 (3/1/05) (8/31/05)/1/ PERIOD/2/ (8/31/05) PERIOD/2/
Institutional $ 1,000.00 $ 1,088.10 $ 5.11 $ 1,020.32 $ 4.94
/1/The actual ending account value is based on the actual total return of the
Fund for the period March 1, 2005, through August 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 August 31, 2005, appears in the table on the front of this
supplement.
/2/ Expenses are equal to the Fund's annualized expense ratio, 0.97% for the
Institutional Class shares, multiplied by the average account value over the
period, multiplied by 184/365 (to reflect the one-half year period).
- --------------------------------------------------------------------------------
FINANCIALS
SCHEDULE OF INVESTMENTS
August 31, 2005
MARKET
SHARES VALUE
------------------------------------------------------------
DOMESTIC COMMON STOCKS-80.39%
ADVERTISING-1.78%
Omnicom Group Inc. 44,320 $ 3,565,101
------------------------------------------------------------
APPAREL, ACCESSORIES & LUXURY
GOODS-0.79%
Polo Ralph Lauren Corp. 32,090 1,590,059
------------------------------------------------------------
APPLICATION SOFTWARE-0.81%
Amdocs Ltd./(a)/ 55,600 1,631,860
------------------------------------------------------------
ASSET MANAGEMENT & CUSTODY
BANKS-2.10%
Bank of New York Co., Inc. (The) 51,300 1,568,241
------------------------------------------------------------
Federated Investors, Inc.-Class B 45,700 1,419,442
------------------------------------------------------------
State Street Corp. 25,200 1,217,916
------------------------------------------------------------
4,205,599
------------------------------------------------------------
BIOTECHNOLOGY-2.62%
Amgen Inc./(a)/ 21,200 1,693,880
------------------------------------------------------------
Cubist Pharmaceuticals, Inc./(a)/ 50,700 916,149
------------------------------------------------------------
Protein Design Labs, Inc./(a)/ 93,400 2,497,516
------------------------------------------------------------
Rigel Pharmaceuticals, Inc./(a)/ 6,700 134,871
------------------------------------------------------------
5,242,416
------------------------------------------------------------
BREWERS-0.41%
Anheuser-Busch Cos., Inc. 18,300 810,873
------------------------------------------------------------
BROADCASTING & CABLE TV-2.21%
Cablevision Systems Corp.-Class A/(a)/ 57,950 1,808,040
------------------------------------------------------------
Comcast Corp.-Class A/(a)/ 32,100 987,075
------------------------------------------------------------
Liberty Media Corp.-Class A/(a)/ 195,060 1,620,949
------------------------------------------------------------
4,416,064
------------------------------------------------------------
CASINOS & GAMING-2.78%
Harrah's Entertainment, Inc. 55,740 3,877,274
------------------------------------------------------------
International Game Technology 60,970 1,690,088
------------------------------------------------------------
5,567,362
------------------------------------------------------------
COMMUNICATIONS EQUIPMENT-2.55%
Cisco Systems, Inc./(a)/ 64,100 1,129,442
------------------------------------------------------------
Corning Inc./(a)/ 118,300 2,361,268
------------------------------------------------------------
Motorola, Inc. 73,500 1,608,180
------------------------------------------------------------
5,098,890
------------------------------------------------------------
COMPUTER HARDWARE-2.25%
Apple Computer, Inc./(a)/ 46,200 2,168,166
------------------------------------------------------------
Hewlett-Packard Co. 84,111 2,334,921
------------------------------------------------------------
4,503,087
------------------------------------------------------------
COMPUTER STORAGE & PERIPHERALS-0.76%
EMC Corp./(a)/ 118,700 1,526,482
------------------------------------------------------------
MARKET
SHARES VALUE
--------------------------------------------------------------------
CONSUMER FINANCE-0.67%
Capital One Financial Corp. 16,400 $ 1,348,736
--------------------------------------------------------------------
DIVERSIFIED BANKS-2.15%
Bank of America Corp. 26,882 1,156,732
--------------------------------------------------------------------
U.S. Bancorp 31,900 932,118
--------------------------------------------------------------------
Wachovia Corp. 32,100 1,592,802
--------------------------------------------------------------------
Wells Fargo & Co. 10,600 631,972
--------------------------------------------------------------------
4,313,624
--------------------------------------------------------------------
DIVERSIFIED COMMERCIAL & PROFESSIONAL
SERVICES-0.62%
Cendant Corp. 60,590 1,232,401
--------------------------------------------------------------------
HEALTH CARE EQUIPMENT-2.71%
Beckman Coulter, Inc. 6,000 334,740
--------------------------------------------------------------------
Medtronic, Inc. 14,700 837,900
--------------------------------------------------------------------
St. Jude Medical, Inc./(a)/ 47,000 2,157,300
--------------------------------------------------------------------
Thermo Electron Corp./(a)/ 74,904 2,089,822
--------------------------------------------------------------------
5,419,762
--------------------------------------------------------------------
HEALTH CARE FACILITIES-0.55%
Community Health Systems, Inc./(a)/ 30,000 1,104,900
--------------------------------------------------------------------
HEALTH CARE SERVICES-1.07%
Caremark Rx, Inc./(a)/ 4,900 228,977
--------------------------------------------------------------------
Pharmaceutical Product Development, Inc./(a)/ 34,100 1,918,807
--------------------------------------------------------------------
2,147,784
--------------------------------------------------------------------
HOME ENTERTAINMENT SOFTWARE-0.91%
Activision, Inc./(a)/ 81,166 1,814,060
--------------------------------------------------------------------
HOTELS, RESORTS & CRUISE LINES-3.36%
Carnival Corp./(b)/ 39,450 1,946,463
--------------------------------------------------------------------
Hilton Hotels Corp. 50,080 1,160,354
--------------------------------------------------------------------
Marriott International, Inc.-Class A 16,450 1,039,805
--------------------------------------------------------------------
Royal Carribbean Cruises Ltd. 19,450 830,904
--------------------------------------------------------------------
Starwood Hotels & Resorts Worldwide, Inc./(c)/ 30,200 1,760,660
--------------------------------------------------------------------
6,738,186
--------------------------------------------------------------------
INTEGRATED OIL & GAS-4.26%
Amerada Hess Corp. 16,000 2,033,600
--------------------------------------------------------------------
ConocoPhillips 33,000 2,176,020
--------------------------------------------------------------------
Exxon Mobil Corp. 10,000 599,000
--------------------------------------------------------------------
Murphy Oil Corp. 68,000 3,716,200
--------------------------------------------------------------------
8,524,820
--------------------------------------------------------------------
INTERNET SOFTWARE & SERVICES-2.84%
Google Inc.-Class A/(a)/ 5,300 1,515,800
--------------------------------------------------------------------
Openwave Systems Inc./(a)/ 104,130 1,792,077
--------------------------------------------------------------------
Yahoo! Inc./(a)/ 71,660 2,389,144
--------------------------------------------------------------------
5,697,021
--------------------------------------------------------------------
F-1
MARKET
SHARES VALUE
-----------------------------------------------------------------------
INVESTMENT BANKING & BROKERAGE-1.73%
Merrill Lynch & Co., Inc. 34,200 $ 1,954,872
-----------------------------------------------------------------------
Morgan Stanley 29,800 1,515,926
-----------------------------------------------------------------------
3,470,798
-----------------------------------------------------------------------
IT CONSULTING & OTHER SERVICES-0.76%
Cognizant Technology Solutions Corp.-Class A/(a)/ 33,600 1,529,808
-----------------------------------------------------------------------
LIFE & HEALTH INSURANCE-0.38%
Prudential Financial, Inc. 11,700 753,129
-----------------------------------------------------------------------
MANAGED HEALTH CARE-0.70%
Aetna Inc. 7,800 621,426
-----------------------------------------------------------------------
PacifiCare Health Systems, Inc./(a)/ 10,300 776,414
-----------------------------------------------------------------------
1,397,840
-----------------------------------------------------------------------
MOVIES & ENTERTAINMENT-2.28%
Disney (Walt) Co. (The) 32,800 826,232
-----------------------------------------------------------------------
News Corp.-Class A 142,850 2,315,599
-----------------------------------------------------------------------
Time Warner Inc. 79,637 1,427,095
-----------------------------------------------------------------------
4,568,926
-----------------------------------------------------------------------
MULTI-LINE INSURANCE-0.77%
American International Group, Inc. 5,200 307,840
-----------------------------------------------------------------------
Hartford Financial Services Group, Inc. (The) 17,000 1,241,850
-----------------------------------------------------------------------
1,549,690
-----------------------------------------------------------------------
OIL & GAS DRILLING-2.00%
Nabors Industries, Ltd./(a)/ 28,000 1,876,000
-----------------------------------------------------------------------
Noble Corp. 30,000 2,139,000
-----------------------------------------------------------------------
4,015,000
-----------------------------------------------------------------------
OIL & GAS EQUIPMENT & SERVICES-6.45%
Cal Dive International, Inc./(a)/ 33,000 2,061,180
-----------------------------------------------------------------------
FMC Technologies, Inc./(a)/ 45,000 1,809,450
-----------------------------------------------------------------------
Grant Prideco, Inc./(a)/ 65,000 2,395,900
-----------------------------------------------------------------------
National-Oilwell Varco Inc./(a)/ 39,000 2,504,190
-----------------------------------------------------------------------
Schlumberger Ltd. 23,000 1,983,290
-----------------------------------------------------------------------
Weatherford International Ltd./(a)/ 32,000 2,166,720
-----------------------------------------------------------------------
12,920,730
-----------------------------------------------------------------------
OIL & GAS EXPLORATION &
PRODUCTION-2.83%
Apache Corp. 28,000 2,005,360
-----------------------------------------------------------------------
Cheniere Energy, Inc./(a)/ 60,000 2,343,000
-----------------------------------------------------------------------
Newfield Exploration Co./(a)/ 28,000 1,322,160
-----------------------------------------------------------------------
5,670,520
-----------------------------------------------------------------------
OIL & GAS REFINING & MARKETING-1.49%
Valero Energy Corp. 28,000 2,982,000
-----------------------------------------------------------------------
OIL & GAS STORAGE &
TRANSPORTATION-1.01%
Williams Cos., Inc. (The) 90,000 2,019,600
-----------------------------------------------------------------------
MARKET
SHARES VALUE
--------------------------------------------------------
OTHER DIVERSIFIED FINANCIAL
SERVICES-1.87%
Citigroup Inc. 50,500 $ 2,210,385
--------------------------------------------------------
JPMorgan Chase & Co. 45,576 1,544,571
--------------------------------------------------------
3,754,956
--------------------------------------------------------
PHARMACEUTICALS-4.23%
Forest Laboratories, Inc./(a)/ 28,200 1,252,080
--------------------------------------------------------
Lilly (Eli) and Co. 40,000 2,200,800
--------------------------------------------------------
Pfizer Inc. 84,000 2,139,480
--------------------------------------------------------
Sepracor Inc./(a)/ 31,000 1,556,200
--------------------------------------------------------
Wyeth 28,800 1,318,752
--------------------------------------------------------
8,467,312
--------------------------------------------------------
PROPERTY & CASUALTY INSURANCE-1.47%
ACE Ltd. 32,700 1,452,207
--------------------------------------------------------
St. Paul Travelers Cos., Inc. (The) 34,600 1,488,146
--------------------------------------------------------
2,940,353
--------------------------------------------------------
PUBLISHING-0.89%
Gannett Co., Inc. 10,640 773,741
--------------------------------------------------------
Knight-Ridder, Inc. 15,830 1,014,386
--------------------------------------------------------
1,788,127
--------------------------------------------------------
REGIONAL BANKS-3.57%
Cullen/Frost Bankers, Inc. 33,600 1,642,032
--------------------------------------------------------
Fifth Third Bancorp 43,700 1,809,617
--------------------------------------------------------
North Fork Bancorp., Inc. 55,100 1,514,699
--------------------------------------------------------
SunTrust Banks, Inc. 18,400 1,293,152
--------------------------------------------------------
Zions Bancorp. 12,600 880,236
--------------------------------------------------------
7,139,736
--------------------------------------------------------
RESTAURANTS-0.43%
CBRL Group, Inc. 23,600 853,376
--------------------------------------------------------
SEMICONDUCTOR EQUIPMENT-0.81%
Applied Materials, Inc. 88,700 1,624,097
--------------------------------------------------------
SEMICONDUCTORS-2.43%
Intel Corp. 67,900 1,746,388
--------------------------------------------------------
National Semiconductor Corp. 54,500 1,358,685
--------------------------------------------------------
Texas Instruments Inc. 54,000 1,764,720
--------------------------------------------------------
4,869,793
--------------------------------------------------------
SPECIALIZED CONSUMER SERVICES-0.39%
H&R Block, Inc. 28,900 778,855
--------------------------------------------------------
SYSTEMS SOFTWARE-1.06%
Microsoft Corp. 77,300 2,118,020
--------------------------------------------------------
THRIFTS & MORTGAGE FINANCE-3.05%
Fannie Mae 34,300 1,750,672
--------------------------------------------------------
Freddie Mac 22,100 1,334,398
--------------------------------------------------------
F-2
MARKET
SHARES VALUE
- -----------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE-(CONTINUED)
Hudson City Bancorp, Inc. 149,300 $ 1,866,250
- -----------------------------------------------------------------------------------
PMI Group, Inc. (The) 28,800 1,165,248
- -----------------------------------------------------------------------------------
6,116,568
- -----------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION
SERVICES-1.59%
Nextel Partners, Inc.-Class A/(a)/ 55,600 1,458,944
- -----------------------------------------------------------------------------------
Sprint Nextel Corp. 66,800 1,732,124
- -----------------------------------------------------------------------------------
3,191,068
- -----------------------------------------------------------------------------------
Total Domestic Common Stocks
(Cost $136,927,321) 161,019,389
- -----------------------------------------------------------------------------------
FOREIGN STOCKS & OTHER EQUITY
INTERESTS--14.37%
BELGIUM-1.02%
Groupe Bruxelles Lambert S.A. (Multi-Sector Holdings)/(d)/ 21,222 2,035,037
- -----------------------------------------------------------------------------------
BERMUDA-0.88%
Marvell Technology Group Ltd. (Semiconductors)/(a)/ 37,500 1,769,625
- -----------------------------------------------------------------------------------
CANADA-2.05%
QLT Inc. (Biotechnology)/(a)/ 218,600 1,908,378
- -----------------------------------------------------------------------------------
Talisman Energy Inc. (Oil & Gas Exploration &
Production) 45,000 2,203,650
- -----------------------------------------------------------------------------------
4,112,028
- -----------------------------------------------------------------------------------
DENMARK-1.04%
Novo Nordisk A.S.-ADR (Pharmaceuticals) 40,000 2,072,800
- -----------------------------------------------------------------------------------
FRANCE-2.42%
Accor S.A. (Hotels, Resorts & Cruise Lines)/(d)/ 17,955 949,727
- -----------------------------------------------------------------------------------
Sanofi-Aventis-ADR (Pharmaceuticals) 45,000 1,924,200
- -----------------------------------------------------------------------------------
Total S.A.-ADR (Integrated Oil & Gas) 15,000 1,977,600
- -----------------------------------------------------------------------------------
4,851,527
- -----------------------------------------------------------------------------------
MARKET
SHARES VALUE
-----------------------------------------------------------------------------
GERMANY-0.87%
SAP A.G.-ADR (Application Software) 40,800 $ 1,740,936
-----------------------------------------------------------------------------
JAPAN-2.10%
Astellas Pharma Inc. (Pharmaceuticals)/(d)/ 54,000 1,930,780
-----------------------------------------------------------------------------
Eisai Co., Ltd. (Pharmaceuticals)/(d)/ 60,000 2,283,470
-----------------------------------------------------------------------------
4,214,250
-----------------------------------------------------------------------------
SWITZERLAND-2.09%
Novartis A.G.-ADR (Pharmaceuticals) 40,400 1,969,500
-----------------------------------------------------------------------------
Roche Holding A.G. (Pharmaceuticals)/(d)/ 16,000 2,220,057
-----------------------------------------------------------------------------
4,189,557
-----------------------------------------------------------------------------
UNITED KINGDOM-1.90%
BP PLC-ADR (Integrated Oil & Gas) 28,000 1,914,640
-----------------------------------------------------------------------------
InterContinental Hotels Group PLC (Hotels, Resorts &
Cruise Lines)/(d)/ 76,450 1,031,319
-----------------------------------------------------------------------------
WPP Group PLC (Advertising)/(d)/ 82,012 850,425
-----------------------------------------------------------------------------
3,796,384
-----------------------------------------------------------------------------
Total Foreign Stocks & Other Equity Interests
(Cost $24,399,799) 28,782,144
-----------------------------------------------------------------------------
MONEY MARKET FUNDS-5.87%
Premier Portfolio-Institutional Class
(Cost $11,751,781)/(e)/ 11,751,781 11,751,781
-----------------------------------------------------------------------------
TOTAL INVESTMENTS-100.63% (Cost $173,078,901) 201,553,314
-----------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-(0.63)% (1,270,578)
-----------------------------------------------------------------------------
NET ASSETS-100.00% $200,282,736
-----------------------------------------------------------------------------
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 trust share.
/(c)/Each unit represents one common share and one Class B share.
/(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 August 31, 2005 was
$11,300,815, which represented 5.61% 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.
See accompanying Notes to Financial Statements which are an integral part of
the financial statements.
F-3
STATEMENT OF ASSETS AND LIABILITIES
August 31, 2005
ASSETS:
Investments, at market value (cost $161,327,120) $189,801,533
- ---------------------------------------------------------------------------------
Investments in affiliated money market funds (cost $11,751,781) 11,751,781
- ---------------------------------------------------------------------------------
Total investments (cost $173,078,901) 201,553,314
- ---------------------------------------------------------------------------------
Receivables for:
Fund shares sold 2,370,540
- ---------------------------------------------------------------------------------
Dividends 220,900
- ---------------------------------------------------------------------------------
Investment for trustee deferred compensation and retirement plans 6,652
- ---------------------------------------------------------------------------------
Other assets 46,742
- ---------------------------------------------------------------------------------
Total assets 204,198,148
- ---------------------------------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 3,554,746
- ---------------------------------------------------------------------------------
Fund shares reacquired 202,300
- ---------------------------------------------------------------------------------
Trustee deferred compensation and retirement plans 8,597
- ---------------------------------------------------------------------------------
Accrued distribution fees 61,357
- ---------------------------------------------------------------------------------
Accrued trustees' and officer's fees and benefits 1,968
- ---------------------------------------------------------------------------------
Accrued transfer agent fees 27,695
- ---------------------------------------------------------------------------------
Accrued operating expenses 58,749
- ---------------------------------------------------------------------------------
Total liabilities 3,915,412
- ---------------------------------------------------------------------------------
Net assets applicable to shares outstanding $200,282,736
- ---------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Shares of beneficial interest $167,814,042
- ---------------------------------------------------------------------------------
Undistributed net investment income (loss) (600,879)
- ---------------------------------------------------------------------------------
Undistributed net realized gain from investment securities, foreign
currencies and option contracts 4,594,572
- ---------------------------------------------------------------------------------
Unrealized appreciation of investment securities and foreign
currencies 28,475,001
- ---------------------------------------------------------------------------------
$200,282,736
- ---------------------------------------------------------------------------------
NET ASSETS:
Class A $99,720,847
----------------------------------------------------------
Class B $24,952,720
----------------------------------------------------------
Class C $29,980,801
----------------------------------------------------------
Institutional Class $45,628,368
----------------------------------------------------------
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Class A 4,127,961
----------------------------------------------------------
Class B 1,055,319
----------------------------------------------------------
Class C 1,268,499
----------------------------------------------------------
Institutional Class 1,875,351
----------------------------------------------------------
Class A :
Net asset value per share $ 24.16
----------------------------------------------------------
Offering price per share:
(Net asset value of $24.16 / 94.50%) $ 25.57
----------------------------------------------------------
Class B :
Net asset value and offering price per share $ 23.64
----------------------------------------------------------
Class C :
Net asset value and offering price per share $ 23.63
----------------------------------------------------------
Institutional Class:
Net asset value and offering price per share $ 24.33
----------------------------------------------------------
See accompanying Notes to Financial Statements which are an integral part of
the financial statements.
F-4
STATEMENT OF OPERATIONS
For the year ended August 31, 2005
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $28,205) $ 1,346,429
- ---------------------------------------------------------------------------------------------------------------------
Dividends from affiliated money market funds 149,465
- ---------------------------------------------------------------------------------------------------------------------
Total investment income 1,495,894
- ---------------------------------------------------------------------------------------------------------------------
EXPENSES:
Advisory fees 874,904
- ---------------------------------------------------------------------------------------------------------------------
Administrative services fees 50,000
- ---------------------------------------------------------------------------------------------------------------------
Custodian fees 41,546
- ---------------------------------------------------------------------------------------------------------------------
Distribution fees:
Class A 176,390
- ---------------------------------------------------------------------------------------------------------------------
Class B 156,282
- ---------------------------------------------------------------------------------------------------------------------
Class C 213,976
- ---------------------------------------------------------------------------------------------------------------------
Transfer agent fees -- Class A, B and C 175,104
- ---------------------------------------------------------------------------------------------------------------------
Transfer agent fees -- Institutional Class 3,379
- ---------------------------------------------------------------------------------------------------------------------
Trustees' and officer's fees and benefits 16,995
- ---------------------------------------------------------------------------------------------------------------------
Registration and filing fees 107,476
- ---------------------------------------------------------------------------------------------------------------------
Other 160,337
- ---------------------------------------------------------------------------------------------------------------------
Total expenses 1,976,389
- ---------------------------------------------------------------------------------------------------------------------
Less:Fees waived, expenses reimbursed and expense offset arrangement (74,633)
- ---------------------------------------------------------------------------------------------------------------------
Net expenses 1,901,756
- ---------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (405,862)
- ---------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES, FOREIGN CURRENCIES AND OPTION CONTRACTS:
Net realized gain (loss) from:
Investment securities (includes gains from securities sold to affiliates of $66,634) 5,117,324
- ---------------------------------------------------------------------------------------------------------------------
Foreign currencies (48,762)
- ---------------------------------------------------------------------------------------------------------------------
Option contracts written 73,767
- ---------------------------------------------------------------------------------------------------------------------
5,142,329
- ---------------------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation of:
Investment securities 23,063,667
- ---------------------------------------------------------------------------------------------------------------------
Foreign currencies 487
- ---------------------------------------------------------------------------------------------------------------------
23,064,154
- ---------------------------------------------------------------------------------------------------------------------
Net gain from investment securities, foreign currencies and option contracts 28,206,483
- ---------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $27,800,621
- ---------------------------------------------------------------------------------------------------------------------
See accompanying Notes to Financial Statements which are an integral part of
the financial statements.
F-5
STATEMENT OF CHANGES IN NET ASSETS
For the years ended August 31, 2005 and 2004
2005
- -------------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (405,862)
- -------------------------------------------------------------------------------------------------------------------------------
Net realized gain from investment securities, foreign currencies and option contracts 5,142,329
- -------------------------------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment securities and foreign currencies 23,064,154
- -------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 27,800,621
- -------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net realized gains:
Class A (1,155,863)
- -------------------------------------------------------------------------------------------------------------------------------
Class B (349,728)
- -------------------------------------------------------------------------------------------------------------------------------
Class C (503,792)
- -------------------------------------------------------------------------------------------------------------------------------
Institutional Class (427,762)
- -------------------------------------------------------------------------------------------------------------------------------
Decrease in net assets resulting from distributions (2,437,145)
- -------------------------------------------------------------------------------------------------------------------------------
Share transactions-net:
Class A 49,177,390
- -------------------------------------------------------------------------------------------------------------------------------
Class B 10,356,674
- -------------------------------------------------------------------------------------------------------------------------------
Class C 9,037,080
- -------------------------------------------------------------------------------------------------------------------------------
Institutional Class 33,090,929
- -------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from share transactions 101,662,073
- -------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets 127,025,549
- -------------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 73,257,187
- -------------------------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment income (loss) of $(600,879) and $(204,843), respectively) $200,282,736
- -------------------------------------------------------------------------------------------------------------------------------
2004
- -----------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (586,298)
- -----------------------------------------------------------------------------------------------------------------------------
Net realized gain from investment securities, foreign currencies and option contracts 3,915,128
- -----------------------------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment securities and foreign currencies 646,340
- -----------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 3,975,170
- -----------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net realized gains:
Class A (1,045,510)
- -----------------------------------------------------------------------------------------------------------------------------
Class B (321,179)
- -----------------------------------------------------------------------------------------------------------------------------
Class C (455,856)
- -----------------------------------------------------------------------------------------------------------------------------
Institutional Class --
- -----------------------------------------------------------------------------------------------------------------------------
Decrease in net assets resulting from distributions (1,822,545)
- -----------------------------------------------------------------------------------------------------------------------------
Share transactions-net:
Class A 11,261,487
- -----------------------------------------------------------------------------------------------------------------------------
Class B 2,595,655
- -----------------------------------------------------------------------------------------------------------------------------
Class C 5,659,710
- -----------------------------------------------------------------------------------------------------------------------------
Institutional Class 7,072,262
- -----------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from share transactions 26,589,114
- -----------------------------------------------------------------------------------------------------------------------------
Net increase in net assets 28,741,739
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 44,515,448
- -----------------------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment income (loss) of $(600,879) and $(204,843), respectively) $73,257,187
- -----------------------------------------------------------------------------------------------------------------------------
See accompanying Notes to Financial Statements which are an integral part of
the financial statements.
F-6
NOTES TO FINANCIAL STATEMENTS
August 31, 2005
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Multi-Sector Fund, formerly INVESCO Multi-Sector Fund, (the "Fund") is a
series portfolio of AIM Counselor Series Trust (the "Trust"). The Trust is a
Delaware statutory trust registered under the Investment Company Act of 1940,
as amended (the "1940 Act"), as an open-end series management investment
company consisting of two separate portfolios, each 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.
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 including
estimates and assumptions related to taxation. Actual results could differ from
those estimates. The following is a summary of the significant accounting
policies followed by the Fund in the preparation of its financial statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy. A security listed or traded on an
exchange (except convertible bonds) is valued at its last sales price as of
the close of the customary trading session on the exchange where the
security is principally traded, or lacking any sales on a particular day,
the security is valued at the closing bid price on that day. Each security
traded in the over-the-counter market (but not securities reported on the
NASDAQ National Market System) is valued on the basis of prices furnished by
independent pricing services, which may be considered fair valued, or market
makers. Each security reported on the NASDAQ National Market System is
valued at the NASDAQ Official Closing Price ("NOCP") as of the close of the
customary trading session on the valuation date or absent a NOCP, at the
closing bid price.
Futures contracts are valued at the final settlement price set by an
exchange on which they are principally traded. Listed options are valued at
the mean between the last bid and the ask prices from the exchange on which
they are principally traded. Options not listed on an exchange are valued 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. COUNTRY DETERMINATION -- For the purposes of making investment selection
decisions and presentation in the Schedule of Investments, AIM may determine
the country in which an issuer is located and/or credit risk exposure based
on various factors. These factors include the laws of the country under
which the issuer is organized, where the issuer maintains a principal
office, the country in which the issuer derives 50% or more of its total
revenues and the country that has the primary market for the issuer's
securities, as well as other criteria. Among the other criteria that may be
evaluated for making this determination are the country in which the issuer
maintains 50% or more of its assets, the type of security, financial
guarantees and enhancements, the nature of the collateral and the sponsor
organization. Country of issuer and/or credit risk exposure has been
determined to be United States of America unless otherwise noted.
D. DISTRIBUTIONS -- 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.
E. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
F. EXPENSES -- 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.
G. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency is valued at the close of
the NYSE based on quotations posted by banks and major currency dealers.
Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollar amounts at date of valuation.
Purchases and sales of portfolio securities (net of foreign taxes withheld
on disposition) and income items denominated in foreign currencies are
translated into U.S. dollar amounts on the respective dates of such
transactions. The Fund does not separately account for the portion of the
results of operations resulting from changes in foreign exchange rates on
investments and the fluctuations arising from changes in market prices of
securities held. The combined results of changes in foreign exchange rates
and the fluctuation of market prices on investments (net of estimated
foreign tax withholding) are included with the net realized and unrealized
gain or loss from investments in the Statement of Operations. Reported net
realized foreign currency gains or losses arise from (i) sales of foreign
currencies, (ii) currency gains or losses realized between the trade and
settlement dates on securities transactions, and (iii) the difference
between the amounts of dividends, interest, and foreign withholding taxes
recorded on the Fund's books and the U.S. dollar equivalent of the amounts
actually received or paid. Net unrealized foreign currency gains and losses
arise from changes in the fair values of assets and liabilities, other than
investments in securities at fiscal period end, resulting from changes in
exchange rates.
H. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a future
date. The Fund may enter into a foreign currency contract to attempt to
minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency contract
for the purchase or sale of a security denominated in a foreign currency in
order to "lock in" the U.S. dollar price of that security. The Fund could be
exposed to risk if counterparties to the contracts are unable to meet the
terms of their contracts or if the value of the foreign currency changes
unfavorably.
I. 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.
J. 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.
K. COLLATERAL -- To the extent the Fund has pledged or segregated a security as
collateral and that security is subsequently sold, it is the Fund's practice
to replace such collateral no later than the next business day.
F-8
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 at the annual rate of 0.75% of the Fund's average
daily net assets. Through December 31, 2009, AIM has contractually agreed to
waive advisory fees to the extent necessary so that the advisory fees payable
by the Fund (based on the Fund's average daily net assets) do not exceed the
annual rate of:
AVERAGE NET ASSETS RATE
----------------------------------------------------
First $250 million 0.695%
----------------------------------------------------
Next $250 million 0.67%
----------------------------------------------------
Next $500 million 0.645%
----------------------------------------------------
Next $1.5 billion 0.62%
----------------------------------------------------
Next $2.5 billion 0.595%
----------------------------------------------------
Next $2.5 billion 0.57%
----------------------------------------------------
Next $2.5 billion 0.545%
----------------------------------------------------
Over $10 billion 0.52%
----------------------------------------------------
Prior to September 30, 2004, under the terms of a master sub-advisory
agreement between AIM and INVESCO Institutional (N.A.), Inc. ("INVESCO"), AIM
paid INVESCO 40% of the fee paid by the Fund to AIM. This sub-advisory
agreement expired on September 30, 2004.
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 Institutional
Class shares to 1.90%, 2.65%, 2.65% and 1.65% of average daily net assets,
respectively, through August 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 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. 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 August 31, 2005, AIM waived fees of $51,656.
At the request of the Trustees of the Trust, AMVESCAP agreed to reimburse
expenses incurred by the Fund in connection with market timing matters in the
AIM Funds, which may include legal, audit, shareholder reporting,
communications and trustee expenses. These expenses along with the related
expense reimbursement, are included in the Statement of Operations. For the
year ended August 31, 2005, AMVESCAP reimbursed expenses of the Fund in the
amount of $19,948.
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
August 31, 2005, AIM was paid $50,000.
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
August 31, 2005, the Fund paid AISI $175,104 for Class A, Class B and Class C
share classes and $3,379 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 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 and Class C shares (collectively the "Plans"). The Fund,
pursuant to the Class A, Class B and Class C Plans, pays ADI compensation at
the annual rate of 0.25% of the Fund's average daily net assets of Class A
shares and 1.00% of the average daily net assets of Class B and Class C shares.
Prior to July 1, 2005, the Fund paid ADI 0.35% of the average daily net assets
of Class A shares. Of these amounts, up to 0.25% of the average daily net
assets of the Class A, Class B or Class C 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. National Association of
Securities Dealers ("NASD") Rules 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 August 31, 2005, the
Class A, Class B and Class C shares paid $176,390, $156,282 and $213,976,
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. For the year
ended August 31, 2005, ADI advised the Fund that it retained $52,345 in
front-end sales commissions from the sale of Class A shares and $221, $13,836
and $2,983 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, INVESCO and/or ADI.
F-9
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 August 31, 2005.
CHANGE IN
MARKET PROCEEDS UNREALIZED MARKET REALIZED
VALUE PURCHASES FROM APPRECIATION VALUE DIVIDEND GAIN
FUND 08/31/04 AT COST SALES (DEPRECIATION) 08/31/05 INCOME (LOSS)
- -------------------------------------------------------------------------------------------------------------------------
Premier Portfolio-Institutional Class $2,605,685 $113,885,415 $(104,739,319) $-- $11,751,781 $149,465 $--
- -------------------------------------------------------------------------------------------------------------------------
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 August 31,
2005, the Fund engaged in securities purchases of $1,277,480 and sales of
$505,622, which resulted in net realized gains of $66,634.
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 August 31,
2005, the Fund received credits from this arrangement, which resulted in the
reduction of the Fund's total expenses of $3,029.
NOTE 6--TRUSTEES' AND OFFICER'S FEES AND BENEFITS
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to pay remuneration to each Trustee and Officer of the Fund who is not an
"interested person" of AIM. Trustees have the option to defer compensation
payable by the Fund, and "Trustees' and Officer's Fees and Benefits" also
include amounts accrued by the Fund to fund such deferred compensation amounts.
Those Trustees who defer compensation have the option to select various AIM
Funds in which their deferral accounts shall be deemed to be invested. Finally,
current Trustees are eligible to participate in a retirement plan that provides
for benefits to be paid upon retirement to Trustees over a period of time based
on the number of years of service. The Fund may have certain former Trustees
who also participate in a retirement plan and receive benefits under such plan.
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to fund such retirement benefits. Obligations under the deferred compensation
and retirement plans represent unsecured claims against the general assets of
the Fund.
During the year ended August 31, 2005, the Fund paid legal fees of $4,253 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 August 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 as a compensating balance in the account so the custodian can be
compensated by earning the additional interest; or (ii) compensate by paying
the custodian bank at a rate agreed upon by the custodian bank and AIM, not to
exceed the rate contractually agreed upon.
F-10
NOTE 8--OPTION CONTRACTS WRITTEN
TRANSACTIONS DURING THE PERIOD
---------------------------------------
CALL OPTION CONTRACTS
--------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
---------------------------------------
Beginning of year -- $ --
---------------------------------------
Written 652 79,779
---------------------------------------
Closed (245) (35,645)
---------------------------------------
Expired (407) (44,134)
---------------------------------------
End of year -- $ --
---------------------------------------
NOTE 9--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
The tax character of distributions paid during the years ended August 31, 2005
and 2004 was as follows:
2005 2004
----------------------------------------------
Distributions paid from:
Ordinary income $1,993,816 $1,700,622
----------------------------------------------
Long-term capital gain 443,329 121,923
----------------------------------------------
Total distributions $2,437,145 $1,822,545
----------------------------------------------
TAX COMPONENTS OF NET ASSETS:
As of August 31, 2005, the components of net assets on a tax basis were as
follows:
2005
---------------------------------------------------
Undistributed ordinary income $ 3,923,654
---------------------------------------------------
Undistributed long-term gain 970,780
---------------------------------------------------
Unrealized appreciation - investments 27,628,491
---------------------------------------------------
Temporary book/tax differences (5,787)
---------------------------------------------------
Post-October currency loss deferral (48,444)
---------------------------------------------------
Shares of beneficial interest 167,814,042
---------------------------------------------------
Total net assets $200,282,736
---------------------------------------------------
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 recognition for tax purposes of
unrealized gains on passive foreign investment companies and the deferral of
losses on certain straddle transactions. The tax-basis unrealized appreciation
(depreciation) on investments amount includes appreciation on foreign
currencies of $588.
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 had no capital loss carryforward as of August 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
August 31, 2005 was $161,873,163 and $70,830,269, respectively.
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $30,159,437
------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (2,531,534)
------------------------------------------------------------------------------
Net unrealized appreciation of investment securities $27,627,903
------------------------------------------------------------------------------
Cost of investments for tax purposes is $173,925,411.
F-11
NOTE 11--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of foreign currency
transactions, passive foreign investment company transactions, and net
operating losses, on August 31, 2005, undistributed net investment income
(loss) was increased by $9,826, undistributed net realized gain (loss) was
decreased by $289,824 and shares of beneficial interest increased by $279,998.
This reclassification had no effect on the net assets of the Fund.
NOTE 12--SHARE INFORMATION
The Fund currently offers four different classes of shares: Class A shares,
Class B shares, Class C 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. Institutional 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
- ----------------------------------------------------------------------------------------------------------
YEAR ENDED AUGUST 31,
-----------------------------------------------
2005/(a)/ 2004
----------------------- ----------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------
Sold:
Class A 2,568,857 $ 58,603,180 1,026,767 $20,058,725
- ----------------------------------------------------------------------------------------------------------
Class B 583,081 12,866,193 257,241 4,941,890
- ----------------------------------------------------------------------------------------------------------
Class C 557,857 12,237,487 517,480 9,942,366
- ----------------------------------------------------------------------------------------------------------
Institutional Class/(b)/ 1,592,889 34,906,396 363,213 7,100,548
- ----------------------------------------------------------------------------------------------------------
Issued as reinvestment of dividends:
Class A 52,557 1,122,610 53,243 1,000,967
- ----------------------------------------------------------------------------------------------------------
Class B 15,617 327,956 16,414 305,626
- ----------------------------------------------------------------------------------------------------------
Class C 22,735 477,202 23,717 441,361
- ----------------------------------------------------------------------------------------------------------
Institutional Class/(b)/ 19,961 427,762 -- --
- ----------------------------------------------------------------------------------------------------------
Automatic conversion of Class B shares to Class A shares:
Class A 7,277 161,392 3,949 78,770
- ----------------------------------------------------------------------------------------------------------
Class B (7,415) (161,392) (3,996) (78,770)
- ----------------------------------------------------------------------------------------------------------
Reacquired:
Class A (492,281) (10,709,792) (508,456) (9,876,975)
- ----------------------------------------------------------------------------------------------------------
Class B (124,322) (2,676,083) (136,418) (2,573,091)
- ----------------------------------------------------------------------------------------------------------
Class C (172,554) (3,677,609) (247,610) (4,724,017)
- ----------------------------------------------------------------------------------------------------------
Institutional Class/(b)/ (99,260) (2,243,229) (1,452) (28,286)
- ----------------------------------------------------------------------------------------------------------
4,524,999 $101,662,073 1,364,092 $26,589,114
- ----------------------------------------------------------------------------------------------------------
(a)21% of the outstanding shares of the Fund are owned by affiliated mutual
funds. Affiliated mutual funds are other mutual funds that are also advised
by AIM.
(b)Institutional Class shares commenced sales on May 3, 2004.
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
----------------------------------------
SEPTEMBER 3, 2002
(DATE OPERATIONS
COMMENCED) TO
YEAR ENDED AUGUST 31, AUGUST 31,
--------------------- 2003
2005 2004 -----------------
- ----------------------------------------------------------------------------------------
Net asset value, beginning of period $ 19.37 $ 18.32 $ 15.00
- -----------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.05)/(a)(b)/ (0.12) (0.13)/(a)/
- -----------------------------------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 5.40 1.84 3.45
- -----------------------------------------------------------------------------------------------------------
Total from investment operations 5.35 1.72 3.32
- -----------------------------------------------------------------------------------------------------------
Less distributions from net realized gains (0.56) (0.67) --
- -----------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 24.16 $ 19.37 $ 18.32
- -----------------------------------------------------------------------------------------------------------
Total return/(c)/ 28.01% 9.47% 22.13%
- -----------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $99,721 $38,578 $25,935
- -----------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.53%/(d)/ 1.85% 1.97%/(e)/
- -----------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.59%/(d)/ 1.88% 1.97%/(e)/
- -----------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (0.25)%/(b)(d)/ (0.73)% (0.85)%/(e)/
- -----------------------------------------------------------------------------------------------------------
Portfolio turnover rate/(f)/ 63% 161% 115%
- -----------------------------------------------------------------------------------------------------------
/(a)/Calculated using average shares outstanding.
/(b)/Net investment income per share and the ratio of net investment income to
average net assets included a special cash dividend received of $3.00 per
share owned of Microsoft Corp. on December 2, 2004. Net investment income
per share and the ratio of net investment income to average net assets
excluding the special dividend are $(0.06) and (0.30)%, 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 the 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 $54,353,170.
/(e)/Annualized.
/(f)/Not annualized for periods less than one year.
CLASS B
---------------------------------------
SEPTEMBER 3, 2002
(DATE OPERATIONS
YEAR ENDED AUGUST 31, COMMENCED) TO
------------------------- AUGUST 31,
2005 2004 2003
- ----------------------------------------------------------------------------------------
Net asset value, beginning of period $ 19.09 $ 18.19 $15.00
- ----------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.20)/(a)(b)/ (0.24) (0.07)/(a)/
- ----------------------------------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 5.31 1.81 3.26
- ----------------------------------------------------------------------------------------------------------
Total from investment operations 5.11 1.57 3.19
- ----------------------------------------------------------------------------------------------------------
Less distributions from net realized gains (0.56) (0.67) --
- ----------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 23.64 $ 19.09 $18.19
- ----------------------------------------------------------------------------------------------------------
Total return/(c)/ 27.15% 8.70% 21.27%
- ----------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $24,953 $11,233 $8,278
- ----------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 2.20%/(d)/ 2.56% 2.76%/(e)/
- ----------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 2.26%/(d)/ 2.59% 2.85%/(e)/
- ----------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (0.92)%/(b)(d)/ (1.44)% (1.63)%/(e)/
- ----------------------------------------------------------------------------------------------------------
Portfolio turnover rate/(f)/ 63% 161% 115%
- ----------------------------------------------------------------------------------------------------------
/(a)/Calculated using average shares outstanding.
/(b)/Net investment income per share and the ratio of net investment income to
average net assets included a special cash dividend received of $3.00 per
share owned of Microsoft Corp. on December 2, 2004. Net investment income
per share and the ratio of net investment income to average net assets
excluding the special dividend are $(0.06) and (0.30)%, 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 the 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 $54,353,170.
/(e)/Annualized.
/(f)/Not annualized for periods less than one year.
F-13
NOTE 13--FINANCIAL HIGHLIGHTS-CONTINUED
CLASS C
----------------------------------------
SEPTEMBER 3, 2002
(DATE OPERATIONS
YEAR ENDED AUGUST 31, COMMENCED) TO
------------------------- AUGUST 31,
2005 2004 2003
- ----------------------------------------------------------------------------------------
Net asset value, beginning of period $ 19.09 $ 18.17 $ 15.00
- -----------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.20)/(a)(b)/ (0.22) (0.04)/(a)/
- -----------------------------------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 5.30 1.81 3.21
- -----------------------------------------------------------------------------------------------------------
Total from investment operations 5.10 1.59 3.17
- -----------------------------------------------------------------------------------------------------------
Less distributions from net realized gains (0.56) (0.67) --
- -----------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 23.63 $ 19.09 $ 18.17
- -----------------------------------------------------------------------------------------------------------
Total return/(c)/ 27.10% 8.82% 21.13%
- -----------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $29,981 $16,424 $10,302
- -----------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 2.20%/(d)/ 2.52% 2.76%/(e)/
- -----------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 2.26%/(d)/ 2.56% 2.84%/(e)/
- -----------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (0.92)%/(b)(d)/ (1.40)% (1.64)%/(e)/
- -----------------------------------------------------------------------------------------------------------
Portfolio turnover rate/(f)/ 63% 161% 115%
- -----------------------------------------------------------------------------------------------------------
/(a)/Calculated using average shares outstanding.
/(b)/Net investment income per share and the ratio of net investment income to
average net assets included a special cash dividend received of $3.00 per
share owned of Microsoft Corp. on December 2, 2004. Net investment income
per share and the ratio of net investment income to average net assets
excluding the special dividend are $(0.21) and (0.97)%, 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 the 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 $21,397,590.
/(e)/Annualized.
/(f)/Not annualized for periods less than one year.
INSTITUTIONAL CLASS
---------------------------
MAY 3, 2004
(DATE SALES
YEAR ENDED COMMENCED) TO
AUGUST 31, AUGUST 31,
2005 2004
- -----------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 19.41 $19.94
- -----------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.06/(a)(b)/ (0.01)
- -----------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) 5.42 (0.52)
- -----------------------------------------------------------------------------------------------------
Total from investment operations 5.48 (0.53)
- -----------------------------------------------------------------------------------------------------
Less distributions from net realized gains (0.56) --
- -----------------------------------------------------------------------------------------------------
Net asset value, end of period $ 24.33 $19.41
- -----------------------------------------------------------------------------------------------------
Total return/(c)/ 28.64% (2.66)%
- -----------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $45,628 $7,023
- -----------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.02%/(d)/ 1.28%/(e)/
- -----------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.08%/(d)/ 1.28%/(e)/
- -----------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets 0.26%/(d)(b)/ (0.16)%/(e)/
- -----------------------------------------------------------------------------------------------------
Portfolio turnover rate/(f)/ 63% 161%
- -----------------------------------------------------------------------------------------------------
/(a)/Calculated using average shares outstanding.
/(b)/Net investment income per share and the ratio of net investment income to
average net assets included a special cash dividend received of $3.00 per
share owned of Microsoft Corp. on December 2, 2004. Net investment income
per share and the ratio of net investment income to average net assets
excluding the special dividend are $(0.21) and (0.97)%, 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 the 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 $21,397,590.
/(e)/Annualized.
/(f)/Not annualized for periods less than one year.
F-14
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), AIM and A I M Distributors, Inc. ("ADI") (the
distributor of the retail AIM Funds) reached final settlements with certain
regulators, including the Securities and Exchange Commission ("SEC"), the New
York Attorney General and the Colorado Attorney General, to resolve civil
enforcement actions and/or investigations related to market timing and related
activity in the AIM Funds, including those formerly advised by IFG. As part of
the settlements, a $325 million fair fund ($110 million of which is civil
penalties) has been created to compensate shareholders harmed by market timing
and related activity in funds formerly advised by IFG. Half of this amount has
already been paid to the fair fund pursuant to the terms of the settlement with
the remainder due December 31, 2005. Additionally, AIM and ADI created a $50
million fair fund ($30 million of which is civil penalties) to compensate
shareholders harmed by market timing and related activity in funds advised by
AIM, which was done pursuant to the terms of the settlement. These two fair
funds may increase as a result of contributions from third parties who reach
final settlements with the SEC or other regulators to resolve allegations of
market timing and/or late trading that also may have harmed applicable AIM
Funds. These two fair funds will be distributed in accordance with a
methodology to be determined by AIM's independent distribution consultant, in
consultation with AIM and the independent trustees of the AIM Funds and
acceptable to the staff of the SEC. As the methodology is unknown at the
present time, management of AIM and the Fund are unable to estimate the impact,
if any, that the distribution of these two fair funds may have on the Fund or
whether such distribution will have an impact on the Fund's financial
statements in the future.
At the request of the trustees of the AIM Funds, AMVESCAP PLC ("AMVESCAP"),
the parent company of IFG and AIM, has agreed to reimburse expenses incurred by
the AIM Funds related to market timing matters.
REGULATORY INQUIRIES AND PENDING LITIGATION
IFG, AIM, ADI and/or related entities and individuals have received inquiries
from numerous regulators in the form of subpoenas or other oral or written
requests for information and/or documents related to one or more of the
following issues, 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. IFG, AIM and ADI are providing full cooperation with respect
to these inquiries. As described more fully below, the AIM Funds, IFG, AIM, ADI
and/or related entities and individuals are defendants in numerous civil
lawsuits related to one or more of these issues. Regulatory actions and/or
additional civil lawsuits related to these or other issues may be filed against
the AIM Funds, IFG, AIM and/or related entities and individuals in the future.
On April 12, 2005, the Attorney General of the State of West Virginia
("WVAG") filed a civil lawsuit against AIM, IFG and ADI, as well as numerous
unrelated mutual fund complexes and financial institutions. None of the AIM
Funds has been named as a defendant in this lawsuit. The WVAG complaint, filed
in the Circuit Court of Marshall County, West Virginia [Civil Action
No. 05-C-81], alleges, in substance, that AIM, IFG and ADI engaged in unfair
competition and/or unfair or deceptive trade practices by failing to disclose
in the prospectuses for the AIM Funds, including those formerly advised by IFG,
that they had entered into certain arrangements permitting market timing of
such Funds. As a result of the foregoing, the WVAG alleges violations of W. Va.
Code (S) 46A-1-101, et seq. (the West Virginia Consumer Credit and Protection
Act). The WVAG complaint is seeking, among other things, injunctive relief,
civil monetary penalties and a writ of quo warranto against the defendants. If
AIM is unsuccessful in its defense of the WVAG lawsuit, it could be barred from
serving as an investment advisor for any investment company registered under
the Investment Company Act of 1940, as amended (a "registered investment
company"). Such results could affect the ability of AIM or any other investment
advisor directly or indirectly owned by AMVESCAP, from serving as an investment
advisor to any registered investment company, including the Fund. The Fund has
been informed by AIM that, if these results occur, AIM will seek exemptive
relief from the SEC to permit it to continue to serve as the Fund's investment
advisor. There is no assurance that such exemptive relief will be granted. On
July 7, 2005, the Supreme Court of West Virginia ruled in the context of a
separate lawsuit that the WVAG does not have authority pursuant to W. Va. Code
Section 46A-6-104 of the West Virginia Consumer Credit and Protection Act to
bring an action based upon conduct that is ancillary to the purchase or sale of
securities. AIM intends to seek dismissal of the WVAG's lawsuit against it, IFG
and ADI in light of this ruling.
On August 30, 2005, the West Virginia Office of the State Auditor--Securities
Commission ("WVASC") issued a Summary Order to Cease and Desist and Notice of
Right to Hearing to AIM and ADI. The WVASC makes findings of fact that
essentially mirror the WVAG's allegations mentioned above and conclusions of
law to the effect that AIM and ADI violated the West Virginia securities laws.
The WVASC orders AIM and ADI to cease any further violations and seeks to
impose monetary sanctions to be determined by the Commissioner. AIM and ADI
have the right to contest the WVASC's findings and conclusions, which they
intend to do.
Civil lawsuits, including purported class action and shareholder derivative
suits, have been filed against certain of the AIM Funds, IFG, AIM, ADI and/or
related entities and individuals, depending on the lawsuit, alleging:
. that the defendants permitted improper market timing and related
activity in the AIM Funds;
. that certain AIM Funds inadequately employed fair value pricing;
. that the defendants charged excessive advisory and/or distribution
fees and failed to pass on to shareholders the perceived savings
generated by economies of scale and that the defendants adopted
unlawful distribution plans;
. that the defendants breached their fiduciary duties by charging
distribution fees while AIM Funds and/or specific share classes were
closed generally to new investors and/or while other share classes of
the same AIM Fund were not charged the same distribution fees;
. 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; and
. that the defendants breached their fiduciary duties by failing to
ensure that the AIM Funds participated in class action settlements in
which they were eligible to participate (this lawsuit was dismissed by
the Court on August 12, 2005).
F-15
NOTE 14--LEGAL PROCEEDINGS-CONTINUED
These lawsuits allege as theories of recovery, depending on the lawsuit,
violations of various provisions of the Federal and state securities laws and
ERISA, negligence, breach of fiduciary duty and/or breach of contract. These
lawsuits seek remedies that include, depending on the lawsuit, damages,
restitution, injunctive relief, imposition of a constructive trust, removal of
certain directors and/or employees, various corrective measures under ERISA,
rescission of certain AIM Funds' advisory agreements and/or distribution plans
and recovery of all fees paid, an accounting of all fund-related fees,
commissions and soft dollar payments, restitution of all commissions and fees
paid, and prospective relief in the form of reduced fees.
All lawsuits based on allegations of market timing, late trading and related
activity have been transferred to the United States District Court for the
District of Maryland. On August 25, 2005, the Court issued rulings on the
common issues of law presented in defendants' motions to dismiss the
shareholder class and derivative complaints. These rulings were issued in the
context of the Janus lawsuits, but the Court's legal determinations apply at
the omnibus level to all cases within his track, including the AIM and IFG
cases. The Court dismissed for failure to make pre-suit demand on the fund
board all derivative causes of action but one: the excessive fee claim under
Section 36(b) of the Investment Company Act of 1940 (the "1940 Act"), as to
which the demand requirement does not apply. The Court dismissed all claims
asserted in the class complaint but two: (i) the securities fraud claims under
Section 10(b) of the Securities Exchange Act of 1934, and (ii) the excessive
fee claim under Section 36(b) of the 1940 Act. In addition, the Court limited
plaintiffs' potential recovery on the 36(b) claim to fees attributable to
timing assets, as opposed to all fees on funds in which any timing occurred.
The question whether the duplicative Section 36(b) claim properly belongs in
the derivative complaint or in the class action complaint will be decided at a
later date. The Court will subsequently issue an order applying his legal
rulings to the allegations in the AIM and IFG complaints.
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 above may have on AIM, ADI or the Fund.
* * * * * * * * * * * * * * * *
As a result of the matters discussed above, investors in the AIM Funds might
react by redeeming their investments. This might require the AIM Funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the AIM Funds.
F-16
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees
and Shareholders of AIM Multi-Sector Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of AIM Multi-Sector Fund, formerly
known as INVESCO Multi-Sector Fund, (one of the funds constituting AIM
Counselor Series Trust, hereafter referred to as the "Fund") at August 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 August 31, 2005 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
/S/ PRICEWATERHOUSECOOPERS LLP
October 19, 2005
Houston, Texas
F-17
TRUSTEES AND OFFICERS
As of August 31, 2005
The address of each trustee and officer of AIM Counselor Series Trust (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 109 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
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 -- 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 & (2 portfolios))
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 (3 portfolios));
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
- ---------------------------------------------------------------------------------------------------------------------------------
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
(3 portfolios))
- ---------------------------------------------------------------------------------------------------------------------------------
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, YWCA None
Trustee of the USA
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 2003 Partner, law firm of Pennock & Cooper None
Trustee
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2003 Retired None
Trustee
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 1997 Retired None
Trustee
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
Raymond Stickel, Jr./3 /-- 1944 2005 Retired None
Trustee
Formerly: Partner, Deloitte & Touche
- ---------------------------------------------------------------------------------------------------------------------------------
/1/ Mr. Graham is considered an interested person of the Trust because he is a
director of AMVESCAP PLC, parent of the advisor to the Trust.
/2/ Mr. Williamson is considered an interested person of the Trust because he
is an officer and a director of the advisor to, and a director of the
principal underwriter of, the Trust.
/3/ Mr. Stickel was elected as a trustee of the Trust effective October 1, 2005.
TRUSTEES AND OFFICERS-(CONTINUED)
As of August 31, 2005
The address of each trustee and officer of AIM Counselor Series Trust (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 109 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
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
- ----------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- ----------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley -- 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., AIM Investment
Services, Inc. and Fund Management
Company
Formerly: Senior Vice President and
Compliance Director, Delaware
Investments Family of Funds and Chief
Compliance Officer, A I M Distributors,
Inc.
- ----------------------------------------------------------------------------------------------------------------------
Russell C. Burk -- 1958 2005 Formerly: Director of Compliance and N/A
Senior Vice President Assistant General Counsel, ICON
(Senior Officer) Advisers, Inc.; Financial Consultant,
Merrill Lynch; General Counsel and
Director of Compliance, ALPS Mutual
Funds, Inc.
- ----------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, N/A
Senior Vice President, Secretary and 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 AIM Investment
Services, Inc.; 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.; and Director,
Fund Management Company
- ----------------------------------------------------------------------------------------------------------------------
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.
- ----------------------------------------------------------------------------------------------------------------------
M. Kevin Cronin -- 1965 2005 Senior Vice President -- Investments N/A
Vice President and Director of Equity Trading, A I M
Capital Management, Inc.
Formerly: Vice President, Head of
Domestic Equity Trading and Head of
Equity Trading, AIM Capital Management,
Inc.
- ----------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I N/A
Vice President and Treasurer M Advisors, Inc.
Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- ----------------------------------------------------------------------------------------------------------------------
J. Phillip Ferguson -- 1945 2005 Senior Vice President and Chief N/A
Vice President Investment Officer, A I M Advisors
Inc.; Director, Chairman, Chief
Executive Officer, President and Chief
Investment Officer, A I M Capital
Management, Inc.; Executive Vice
President, A I M Management Group Inc.
Formerly: Senior Vice President, AIM
Private Asset Management, Inc.; 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.
- ----------------------------------------------------------------------------------------------------------------------
Michael L. Yellen -- 1968 2005 Senior Vice President -- Investments N/A
Vice President and Senior Portfolio Manager -- Equity,
A I M Capital Management, Inc.
Formerly: Vice
President -- Investments, A I M Capital
Management, Inc.
- ----------------------------------------------------------------------------------------------------------------------
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
August 31, 2005, 16.89% is eligible for the dividends received deduction for
corporations. The Fund distributed long-term capital gains of $443,328 for the
Fund's tax year ended August 31, 2005.
For its tax year ended August 31, 2005, the fund designates 20.29%, 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.
U.S. ESTATE TAX FOR NON-RESIDENT ALIEN SHAREHOLDERS (UNAUDITED)
The percentage of qualifying assets are not subject to the U.S. estate tax for
the fiscal quarters ended February 28, 2005, May 31, 2005 and August 31, 2005
are 14.77%, 18.09%, and 19.97%, respectively.
DOMESTIC EQUITY SECTOR EQUITY
AIM Aggressive Growth Fund AIM Advantage Health Sciences Fund
AIM Basic Balanced Fund* AIM Energy Fund
AIM Basic Value Fund AIM Financial Services Fund
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
AIM Constellation Fund AIM Leisure Fund
AIM Diversified Dividend Fund AIM Multi-Sector Fund
AIM Dynamics Fund AIM Real Estate Fund/6/
AIM Large Cap Basic Value Fund AIM Technology Fund
AIM Large Cap Growth Fund AIM Utilities Fund
AIM Mid Cap Basic Value Fund
AIM Mid Cap Core Equity Fund/1/ 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 AIM Income Fund
AIM Select Equity Fund AIM Intermediate Government Fund
AIM Small Cap Equity Fund/2/ AIM Limited Maturity Treasury Fund
AIM Small Cap Growth Fund/3/ AIM Money Market Fund
AIM Small Company Growth Fund 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
* Domestic equity and income fund TAX-FREE
INTERNATIONAL/GLOBAL EQUITY AIM High Income Municipal Fund/7/
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/4/
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 AIM Moderate Allocation Fund
AIM International Growth Fund AIM Moderate Growth Allocation Fund
AIM International Small Company Fund/5/ AIM Moderately Conservative Allocation
AIM Trimark Fund Fund
/1/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.
/2/Effective December 13, 2004, AIM Small Cap Equity Fund is open to all
investors. /3/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. /4/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. /5/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. /6/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. /7/As of end of business August 5, 2005,
AIM High Income Municipal 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 Dec. 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 $129 billion in assets. AIM is a subsidiary of
AMVESCAP PLC, one of the world's largest independent financial services
companies with $373 billion in assets under management. Data as of June 30,
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-MSE-AR-1 A I M Distributors, Inc.
[YOUR GOALS. OUR SOLUTIONS.]
- REGISTERED TRADEMARK -
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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.
On the date of the reporting period, August 31, 2005, the Registrant's audit
committee financial expert was Prema Mathai-Davis. Dr. Mathai-Davis is
"independent" within the meaning of that term as used in Form N-CSR.
On October 27, 2005, the Board of Trustees determined that Raymond Stickel, Jr.
is an audit committee financial expert. Mr. Stickel was appointed to the
Registrant's Audit Committee effective as of October 1, 2005. Mr. Stickel is
"independent" within the meaning of that term as used in Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Fees Billed by 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 Fees Billed for year end 2004
Services Rendered to Pursuant to Waiver of Services Rendered to Pursuant to Waiver of
the Registrant for Pre-Approval the Registrant for Pre-Approval
fiscal year end 2005 Requirement/(1)/ fiscal year end 2004 Requirement/(1)/
-------------------- --------------------- -------------------- ------------------------
Audit Fees $ 71,609 N/A $ 62,290 N/A
Audit-Related Fees $ 0 0% $ 0 0%
Tax Fees/(2)/ $ 15,082 0% $ 15,479 0%
All Other Fees $ 0 0% $ 0 0%
-------------------- --------------------
Total Fees $ 86,691 0% $ 77,769 0%
PWC billed the Registrant aggregate non-audit fees of $15,082 for the fiscal
year ended 2005, and $15,479 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) Tax fees for the fiscal year end August 31, 2005 includes fees billed for
reviewing tax returns. Tax fees for fiscal year end August 31, 2004
includes fees billed for reviewing tax returns and consultation services.
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 Non- Fees Billed for Non-
Audit Services Percentage of Fees 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 year fiscal year end 2004 Provided for fiscal year
That Were Required end 2005 Pursuant to That Were Required end 2004 Pursuant to
to be Pre-Approved Waiver of Pre- to be Pre-Approved Waiver of Pre-
by the Registrant's Approval by the Registrant's Approval
Audit Committee Requirement/(1)/ Audit Committee Requirement/(1)/
-------------------- --------------------- ---------------------- ------------------------
Audit-Related Fees $ 0 0% $ 0 0%
Tax Fees $ 0 0% $ 0 0%
All Other Fees $ 0 0% $ 0 0%
---- ----
Total Fees/(2)/ $ 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) 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.
PRE-APPROVAL OF AUDIT AND NON-AUDIT SERVICES
POLICIES AND PROCEDURES
As adopted by the Audit Committees of
the AIM Funds (the "Funds")
Last Amended September 13, 2005
I. 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 estimated pre
- -approved fee levels provided at the time the service was pre-approved will also
require specific approval by the Audit Committees before payment is made. The
Audit Committees will also consider the impact of additional fees on the
Auditor's independence when determining whether to approve any additional fees
for previously pre-approved services.
The Audit Committees will annually review and generally pre-approve the services
that may be provided by each Auditor without obtaining specific pre-approval
from the Audit Committee. The term of any general pre-approval runs from the
date of such pre-approval through September 30th of the following year, unless
the Audit Committees consider a different period and state otherwise. The Audit
Committees will add to or subtract from the list of general pre-approved
services from time to time, based on subsequent determinations.
The purpose of these policies and procedures is to set forth the guidelines to
assist the Audit Committees in fulfilling their responsibilities.
II. 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.
III. Audit Services
The annual audit services engagement terms will be subject to specific
pre-approval of the Audit Committees. Audit services include the annual
financial statement audit and other procedures such as tax provision work that
is required to be performed by the independent auditor to be able to form an
opinion on the Funds' financial statements. The Audit 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.
IV. 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.
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.
Audit-Related Services
"Audit-related services" are assurance and related services that are reasonably
related to the performance of the audit or review of the Fund's financial
statements or that are traditionally performed by the independent
auditor. Audit-related services include, among others, accounting consultations
related to accounting, financial reporting or disclosure matters not classified
as "Audit services"; assistance with understanding and implementing new
accounting and financial reporting guidance from rulemaking authorities; and
agreed-upon procedures related to mergers, compliance with ratings agency
requirements and interfund lending activities.
Tax Services
"Tax services" include, but are not limited to, the review and signing of the
Funds' federal tax returns, the review of required distributions by the Funds
and consultations regarding tax matters such as the tax treatment of new
investments or the impact of new regulations. The Audit 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 Auditor Services
The Audit Committees may pre-approve non-audit services classified as "All other
services" that are not categorically prohibited by the SEC, as listed in Exhibit
1 to this policy.
V. Pre-Approval Fee Levels or Established Amounts
Pre-approval of estimated fees or established amounts for services to be
provided by the Auditor under general or specific pre-approval policies will be
set periodically by the Audit Committees. Any proposed fees exceeding 110% of
the maximum estimated pre-approved fees or established amounts for pre-approved
audit and non-audit services will be reported to the Audit Committees at the
quarterly Audit Committees meeting and will require specific approval by the
Audit Committees before payment is made. The Audit 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 and in determining whether
to approve any additional fees exceeding 110% of the maximum pre-approved fees
or established amounts for previously pre-approved services.
VI. 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 September 15, 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 September
15, 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
this report that have materially affected, or are reasonably likely to
materially affect, the Registrant's internal control over financial
reporting.
ITEM 12. EXHIBITS.
12(a)(1) Code of Ethics.
12(a)(2) Certifications of principal executive officer and principal financial
officer as required by Rule 30a-2(a) under the Investment Company Act
of 1940.
12(a)(3) Not applicable.
12(b) Certifications of principal executive officer and principal financial
officer as required by Rule 30a-2(b) under the Investment Company Act
of 1940.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Registrant: AIM Counselor Series Trust
By: /s/ ROBERT H. GRAHAM
----------------------------------
Robert H. Graham
Principal Executive Officer
Date: November 3, 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: November 3, 2005
By: /s/ SIDNEY M. DILGREN
----------------------------------
Sidney M. Dilgren
Principal Financial Officer
Date: November 3, 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.