-------------------------------
OMB APPROVAL
--------------------------------
OMB Number: 3235-0570
--------------------------------
Expires: September 30, 2007
--------------------------------
Estimated average burden
hours per response: 19.4
--------------------------------
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 811-03826
AIM Sector Funds
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
11 Greenway Plaza, Suite 100 Houston, Texas 77046
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Robert H. Graham 11 Greenway Plaza, Suite 100 Houston, Texas 77046
- --------------------------------------------------------------------------------
(Name and address of agent for service)
Registrant's telephone number, including area code: (713) 626-1919
Date of fiscal year end: 3/31
Date of reporting period: 3/31/06
Item 1. Reports to Stockholders.
AIM ENERGY FUND
Annual Report to Shareholders o March 31, 2006
[COVER IMAGE]
[YOUR GOALS. OUR SOLUTIONS.]
- REGISTERED TRADEMARK -
[AIM INVESTMENTS LOGO]
- REGISTERED TRADEMARK -
AIM ENERGY FUND SEEKS CAPITAL GROWTH.
.. Unless otherwise stated, information presented in this report is as of March
31, 2006, 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.
.. Investor Class shares are closed to most investors. For more information on
who may continue to invest in Investor Class shares, please see the prospectus.
.. Effective October 21, 2005, Class K shares were converted to Class A shares.
PRINCIPAL RISKS OF INVESTING IN THE FUND
.. Investing in a single-sector or single-region mutual fund involves greater
risk and potential reward than investing in a more diversified fund.
.. 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 smaller companies involves greater risk than investing in more
established companies, such as business risk, significant stock price
fluctuations and illiquidity.
.. By concentrating on a small number of holdings, the Fund carries greater risk
because each investment has a greater effect on the Fund's overall performance.
.. Short-term fluctuations in commodity prices may influence Fund returns and
increase price fluctuations of Fund shares.
.. The businesses in which the Fund invests may be adversely affected by foreign
governments and federal or state regulation of energy production, distribution
and sale.
ABOUT INDEXES USED IN THIS REPORT
.. The DOW JONES U.S. OIL & GAS INDEX measures the performance of energy
companies within the United States. The index maintains an approximate weighting
of 95% in U.S. coal, oil and drilling, and pipeline companies.
.. The unmanaged LEHMAN BROTHERS U.S. AGGREGATE BOND INDEX (the Lehman
Aggregate), which represents the U.S. investment-grade fixed-rate bond market
(including government and corporate securities, mortgage pass-through securities
and asset-backed securities), is compiled by Lehman Brothers, a global
investment bank.
.. The unmanaged LIPPER NATURAL RESOURCES FUND INDEX represents an average of the
10 largest natural resources funds tracked by Lipper Inc., an independent mutual
fund performance monitor, and is considered representative of natural resources
stocks.
.. The unmanaged MSCI WORLD INDEX is a group of global securities tracked by
Morgan Stanley Capital International.
.. The unmanaged STANDARD & POOR'S COMPOSITE INDEX OF 500 STOCKS (the S&P 500
- --REGISTERED TRADEMARK-- Index) is an index of common stocks frequently used as
a general measure of U.S. stock market performance.
.. The Fund is not managed to track the performance of any particular index,
including the indexes defined here, and consequently, the performance of the
Fund may deviate significantly from the performance of the index.
.. A direct investment cannot be made in an index. Unless otherwise indicated,
index results include reinvested dividends, and they do not reflect sales
charges. Performance of an index of funds reflects fund expenses; performance of
a market index does not.
OTHER INFORMATION
.. The returns shown in the management's discussion of Fund performance are based
on net asset values calculated for shareholder transactions. Generally accepted
accounting principles require adjustments to be made to the net assets of the
Fund at period end for financial reporting purposes, and as such, the net asset
values for shareholder transactions and the returns based on those net asset
values may differ from the net asset values and returns reported in the
Financial Highlights.
.. Industry classifications used in this report are generally according to the
Global Industry Classification Standard, which was developed by and is the
exclusive property and a service mark of Morgan Stanley Capital International
Inc. and Standard & Poor's.
The Fund provides a complete list of its holdings four times in each fiscal
year, at the quarter-ends. For the second and fourth quarters, the lists appear
in the Fund's semiannual and annual reports to shareholders. For the first and
third quarters, the Fund files the lists with the Securities and Exchange
Commission (SEC) on Form N-Q. 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. Copies of the
Fund's Forms N-Q may be reviewed and copied at the SEC's Public
Continued on page 7
- --------------------------------------------------------------------------------
FUND NASDAQ SYMBOLS
Class A Shares IENAX
Class B Shares IENBX
Class C Shares IEFCX
Investor Class Shares FSTEX
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 ENERGY FUND
DEAR FELLOW AIM FUNDS SHAREHOLDERS:
Although many concerns, including rising fuel costs, weighed
on investors' minds during the fiscal year covered by this
report, stocks posted gains for the period. The S&P 500
[GRAHAM PHOTO] Index, frequently cited as a benchmark for U.S. stock market
performance, returned 11.72%. Results for international
stocks were more impressive, with the MSCI World Index
gaining 18.02%. Bonds posted more modest gains, as the
Lehman Brothers U.S. Aggregate Bond Index returned 2.26%.
Domestically, small- and mid-cap stocks generally
outperformed their large-cap counterparts. Within the S&P
500 Index, energy, financials and telecommunication services
were the best-performing sectors. Internationally, emerging
markets produced more attractive results than developed
markets.
ROBERT H. GRAHAM Bond performance also varied, with high yield bonds and
emerging market debt among the better-performing segments of
the fixed-income market. Municipal bonds also posted
above-average returns for the fiscal year.
Among the developments that affected markets and the
economy during the fiscal year were:
. Hurricane Katrina, which devastated several Gulf Coast
states in August, dealt a short-term setback to consumer
confidence. However, consumer confidence rebounded toward
the end of the period, with analysts crediting the
resiliency of the economy and job growth for this trend.
[TAYLOR PHOTO] . The Federal Reserve (the Fed) continued its tightening
policy, raising the key federal funds target rate to 4.75%
by the end of the reporting period. Many analysts believed
that the central bank was near the end of its tightening
policy as Ben Bernanke succeeded the retiring Alan
Greenspan as Fed chairman early in 2006.
PHILIP TAYLOR For a discussion of the specific market conditions that
affected your Fund and how your Fund was managed during the
reporting period, please see the management discussion of
Fund performance in this report.
PHILIP TAYLOR HEADS NORTH AMERICAN RETAIL DISTRIBUTION
Effective April 17, 2006, Philip Taylor assumed the
leadership of North American Retail Distribution for
AMVESCAP PLC, the parent company of AIM Investments
--REGISTERED TRADEMARK-- and AIM Trimark Investments in
Canada. As president and vice chair of AIM Funds, I would
personally like to congratulate Phil on his new role with
our organization. Phil has been chief executive officer of
AIM Trimark, one of Canada's largest and most successful
investment management firms, since January 2002. He will be
relocating to AIM's offices in Houston, Texas. All of us at
AIM are looking forward to working with Phil.
Mark Williamson, former chief executive officer and
president of AIM Investments, will continue to serve AIM and
AMVESCAP in various capacities for the remainder of 2006. We
want to take this opportunity to thank Mark for his many
contributions to fund shareholders and our company. He
joined AIM during a very challenging period. Mark has been
instrumental in enhancing our investment process, improving
our company's departmental structure and deepening
relationships with our clients.
YOUR FUND
Further information about the markets, your Fund and
investing in general is always available on our
comprehensive 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. Phil and I thank you for
your continued participation in AIM Investments. If you have
any questions, please contact our award-winning Client
Service representatives at 800-959-4246. We are pleased to
be of help.
Sincerely,
/S/ ROBERT H. GRAHAM /S/ PHILIP TAYLOR
Robert H. Graham Philip Taylor
President & Vice Chair - AIM Funds CEO, AIM Investments
Chair, AIM Investments
May 17, 2006
AIM INVESTMENTS IS A REGISTERED SERVICE MARK OF A I M
MANAGEMENT GROUP INC. A I M ADVISORS, INC. AND A I M CAPITAL
MANAGEMENT, INC. ARE THE INVESTMENT ADVISORS. A I M
DISTRIBUTORS, INC. IS THE DISTRIBUTOR FOR THE RETAIL FUNDS
REPRESENTED BY AIM INVESTMENTS.
1
AIM ENERGY FUND
DEAR FELLOW AIM FUND SHAREHOLDERS:
Having completed a year of transition and change at AIM
Funds--as well as my first full year as your board's
independent chair--I can assure you that shareholder
[CROCKETT PHOTO] interests are at the forefront of every decision your board
makes. While regulators and fund companies debate the value
of an independent board chair, this structure is working for
you. Our new structure has enabled the board to work more
effectively with management to achieve benefits for the
shareholders, as shown in the highlights of 2005 listed
below:
. During 2005, management proposed, and your board approved,
voluntary advisory fee reductions, which are saving
BRUCE L. CROCKETT shareholders more than $20 million annually, based on
asset levels of March 31, 2005.
. Also during 2005, management proposed to your board the
merger of 14 funds into other AIM funds with similar
objectives. In each case, the goal was for the resulting
merged fund to benefit from strengthened management and
greater efficiency. Your board carefully analyzed and
discussed with management the rationale and proposed terms
of each merger to ensure that the mergers were beneficial
to the shareholders of all affected funds before approving
them. Eight of these mergers were subsequently approved by
shareholders of the target funds during 2005. The
remaining six fund mergers were approved by shareholders
in early 2006.
. Your board, through its Investments Committee and
Subcommittees, continued to closely monitor the portfolio
performance of the funds. During the year, your board
reviewed portfolio management changes made by the advisor
at 11 funds with the objective of organizing management
teams around common processes and shared investment views.
Management believes these changes will lead to improved
investment performance.
In 2006, your board will continue to focus on fund
expenses and investment performance. Although many funds
have good performance, we are working with management to
seek improvements for those funds currently performing below
expectations. Eight in-person board meetings and several
additional telephone and committee meetings are scheduled to
take place this year. I'll inform you of our progress in my
next semiannual letter to shareholders.
The AIM Funds board is pleased to welcome our newest
independent member, Raymond Stickel, Jr., a former partner
with the international auditing firm of Deloitte & Touche.
We also send our thanks and best wishes to Gerald J. Lewis,
who retired from your board in December 2005, and to Edward
K. Dunn, Jr., who retired in 2006.
Your board welcomes your views. Please mail them to me at
AIM Investments, AIM Investments Tower, 11 Greenway Plaza,
Suite 100, Houston TX 77046.
Sincerely,
/S/ BRUCE L. CROCKETT
Bruce L. Crockett
Independent Chair
AIM Funds Board
May 17, 2006
2
AIM ENERGY FUND
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
- --------------------------------------------------------------------------------
PERFORMANCE SUMMARY
Energy was the best-performing sector of the S&P 500 Index for the fiscal year
ended March 31, 2006. Most energy stocks benefited from rising oil prices--a
trend that had a positive effect on the performance of the Fund. The Fund's
focus on the energy sector enabled it to post much better returns than the S&P
500 Index. The Fund's underweight position in more-defensive, less-leveraged
integrated oil companies such as CHEVRON and EXXONMOBIL relative to the Dow
Jones U.S. Oil & Gas Index helped the Fund's performance versus the index.
Integrated oil stocks, which made up nearly 40% of the index, posted lackluster
returns for the year.
- --------------------------------------------------------------------------------
FUND VS. INDEXES
TOTAL RETURNS, 3/31/05-3/31/06, EXCLUDING APPLICABLE SALES CHARGES. IF SALES
CHARGES WERE INCLUDED, RETURNS WOULD BE LOWER.
Class A Shares 38.90%
Class B Shares 37.92
Class C Shares 37.91
Investor Class Shares 38.94
S&P 500 Index (Broad Market 11.72
Index)
Dow Jones U.S. Oil & Gas Index
(Style-specific Index) 24.18
Lipper Natural Resources Fund
Index
(Peer Group Index) 41.90
SOURCE: LIPPER INC.
- --------------------------------------------------------------------------------
Your Fund's long-term performance appears on pages 6 and 7.
- --------------------------------------------------------------------------------
HOW WE INVEST
Your Fund invests in companies involved in the exploration, production,
transportation, refining and marketing of oil, natural gas and other forms of
energy. We seek to own firms that have the potential to increase production
through exploration or innovation. We believe companies with an increasing
production profile that can control costs may earn a high rate of return,
enabling them to grow earnings independent of oil and natural gas prices.
We select stocks based on quantitative and fundamental analysis of
individual companies. Quantitative analysis focuses on free cash flow, return on
capital and output. Fundamental analysis focuses on reviewing the management
team and the competitive environment.
Typically, we hold 30 to 40 stocks. The limited number of positions allows
us to get to know company management, the business structure and how the
company's products and services fit into the energy value chain--the process
that moves oil and natural gas from the ground to the consumer. We control risk
by diversifying across most industries and sub-industries within the energy
sector.
We may sell or reduce our position in a stock when:
.. Its valuation, in our opinion, becomes excessive in comparison to similar
investment opportunities
.. A company reports disappointing earnings or its fundamentals deteriorate
.. We identify a more attractive opportunity
MARKET CONDITIONS AND YOUR FUND
Despite widespread concern about the potential impact of rising short-term
interest rates, historically high energy prices, ongoing fear of a housing
bubble and the long-term economic effects of two devastating Gulf Coast
hurricanes, the U.S. economy showed signs of strength for the fiscal year. The
economy expanded, inflation remained contained and corporate profits generally
rose. During the fiscal year, the U.S. Federal Reserve (the Fed) continued its
tightening policy, raising the key federal funds target rate to 4.75%.
Against this backdrop, energy, financials and telecommunication services
were the best-performing sectors of the S&P 500 Index.
In the United States, the average retail price for a gallon of regular
gasoline stood at $2.50 at the close of the reporting period, according to the
Energy Informational Administration (EIA). The EIA cited high worldwide oil
(continued)
PORTFOLIO COMPOSITION TOP 10 EQUITY HOLDINGS*
By industry
Integrated Oil & Gas 24.4% 1. Occidental Petroleum Corp. 4.3%
Oil & Gas Exploration & Production 22.5 2. Valero Energy Corp. 4.2
Oil & Gas Equipment & Services 18.3 3. Murphy Oil Corp. 4.0
Oil & Gas Drilling 12.2 4. National-Oilwell Varco Inc. 3.6
Oil & Gas Storage & Transportation 6.5 5. BP PLC-ADR (United Kingdom) 3.5
Oil & Gas Refining & Marketing 4.7 6. Kinder Morgan, Inc. 3.4
Four Other Industries, Each With 7. ConocoPhillips 3.4
Less Than 3% of Total Net Assets 6.7 8. Halliburton Co. 3.4
Money Market Funds Plus Other Assets 9. Chevron Corp. 3.4
Less Liabilities 4.7 10. Weatherford International Ltd. 3.3
TOTAL NET ASSETS $1.4 BILLION
TOTAL NUMBER OF HOLDINGS* 40
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.
- --------------------------------------------------------------------------------
3
AIM ENERGY FUND
demand, sparked by robust economic growth, as the primary reason for high crude
oil and gasoline prices.
In recent years, demand for petroleum products has been driven by the
rapidly expanding economies of China and India, as well as by the improving U.S.
economy. In addition, some market watchers have argued that geopolitical
uncertainty in the Middle East, Nigeria and Venezuela is partly to blame for
historically high oil prices, while others have pointed to limited refining
capacity. Regardless of the reasons, supply has been unable to keep pace with
demand, causing oil prices to rise.
In recent years, demand
for petroleum products
has been
driven by the rapidly
expanding economies of
China and India,
as well as by the
improving U.S. economy.
During the fiscal year, the Fund's oil and gas equipment and services
holdings and its oil and gas exploration and production stocks contributed most
to Fund performance. Top contributors to Fund performance included SCHLUMBERGER
and GRANT PRIDECO, oil and gas equipment and service companies, and NEXEN, an
oil and gas exploration and production company. Shares of the stocks increased
as they reported financial results that exceeded analysts' estimates. In
addition, while these companies service different areas of the industry, all of
them share the same characteristics we seek in stocks:
.. They are implementing new technologies to control costs
.. They have strong pricing power
.. They generate high returns on the capital they invest
Fund holdings CHEVRON and QUESTAR detracted from Fund performance for the
fiscal year. Chevron, an integrated oil and gas company, struggled as it
reported lower than expected earnings. Nonetheless, we continued to own the
stock at the close of the reporting period.
Questar, a large natural gas distributor with local distribution to Utah,
also underperformed during the year. Questar, however, is making progress in a
region that has been challenging for oil and gas development. Unlike some of its
competitors, Questar benefits from operational efficiencies made possible by
year-round drilling, which allows it to avoid annual startup drilling costs. We
still owned the stock at the close of the reporting period as we believed the
federal government's recent decision to allow reduced spacing between wells may
help the company further reduce costs and accelerate the pace of development in
Pinedale, WY. The company believes the decision will increase natural gas
production at the site by 8 billion cubic feet in 2006.
IN CLOSING
Over the fiscal year, the Fund has experienced strong double-digit returns. It
would be imprudent for us to suggest that such performance is sustainable over
the long term. However, we remain committed to our disciplined strategy of
selecting holdings in the energy sector based on the strengths of individual
companies regardless of market fluctuations.
At the close of the fiscal year, and despite strength in the energy sector,
we continued to believe that valuations for most energy stocks remained
compelling as oil and gas prices hovered near record highs. We also continued to
believe that the energy sector offers the potential for long-term appreciation
for the following reasons:
.. Oil supplies remained constrained and global economies continued to expand
.. The world is likely to derive most of its energy from oil and gas for the
foreseeable future
.. Global development and industrialization driven by fast growing developing
nations such as India and China are trends that are likely to continue,
resulting in a growing need for crude oil and natural gas
.. Virtually all new sources of supply merely replace what's being lost to
natural depletion
We thank you for your investment in AIM Energy Fund.
THE VIEWS AND OPINIONS EXPRESSED IN MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
ARE THOSE OF A I M ADVISORS, INC. THESE VIEWS AND OPINIONS ARE SUBJECT TO CHANGE
AT ANY TIME BASED ON FACTORS SUCH AS MARKET AND ECONOMIC CONDITIONS. THESE VIEWS
AND OPINIONS MAY NOT BE RELIED UPON AS INVESTMENT ADVICE OR RECOMMENDATIONS, OR
AS AN OFFER FOR A PARTICULAR SECURITY. THE INFORMATION IS NOT A COMPLETE
ANALYSIS OF EVERY ASPECT OF ANY MARKET, COUNTRY, INDUSTRY, SECURITY OR THE FUND.
STATEMENTS OF FACT ARE FROM SOURCES CONSIDERED RELIABLE, BUT A I M ADVISORS,
INC. MAKES NO REPRESENTATION OR WARRANTY AS TO THEIR COMPLETENESS OR ACCURACY.
ALTHOUGH HISTORICAL PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS, THESE
INSIGHTS MAY HELP YOU UNDERSTAND OUR INVESTMENT MANAGEMENT PHILOSOPHY.
See important Fund and index disclosures inside front cover.
- --------------------------------------------------------------------------------
[SEGNER PHOTO]
JOHN S. SEGNER, senior portfolio manager, is lead portfolio manager of AIM
Energy 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 a
managing director and principal with an investment management company that
focused exclusively on publicly traded energy stocks. Prior to that, he held
positions with several energy companies. Mr. Segner earned a B.S. in civil
engineering from the University of Alabama and an M.B.A. with a concentration in
finance from The University of Texas at Austin.
- --------------------------------------------------------------------------------
[RIGHT ARROW GRAPHIC]
FOR A PRESENTATION OF YOUR FUND'S LONG-TERM PERFORMANCE, PLEASE SEE PAGES 6 AND
7.
4
AIM ENERGY FUND
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, which may include sales charges (loads) on purchase payments; contingent
deferred sales charges on redemptions; and redemption fees, if any; and (2)
ongoing costs, including management fees; distribution and/or service fees
(12b-1); and other Fund expenses. This example is intended to help you
understand your ongoing costs (in dollars) of investing in the Fund and to
compare these costs with ongoing costs of investing in other mutual funds. The
example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period October 1, 2005, through March 31, 2006.
ACTUAL EXPENSES
The table below provides information about actual account values and actual
expenses. You may use the information in this table, together with the amount
you invested, to estimate the expenses that you paid over the period. Simply
divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number in the table
under the heading entitled "Actual Expenses Paid During Period" to estimate the
expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The table below also provides information about hypothetical account values and
hypothetical expenses based on the Fund's actual expense ratio and an assumed
rate of return of 5% per year before expenses, which is not the Fund's actual
return. The Fund's actual cumulative total returns at net asset value after
expenses for the six months ended March 31, 2006, 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.
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES ENDING ACCOUNT EXPENSES ANNUALIZED
SHARE VALUE VALUE PAID DURING VALUE PAID DURING EXPENSE
CLASS (10/1/05) (3/31/06)/1/ PERIOD/2/ (3/31/06) PERIOD/2/ RATIO
A $ 1,000.00 $ 1,054.10 $ 5.94 $ 1,019.15 $ 5.84 1.16%
B 1,000.00 1,050.80 9.76 1,015.41 9.60 1.91
C 1,000.00 1,050.30 9.76 1,015.41 8.60 1.91
Investor 1,000.00 1,054.50 5.94 1,019.15 5.84 1.16
/1/ The actual ending account value is based on the actual total return of the
Fund for the period October 1, 2005, through March 31, 2006, after actual
expenses and will differ from the hypothetical ending account value which is
based on the Fund's expense ratio and a hypothetical annual return of 5% before
expenses. The Fund's actual cumulative total returns at net asset value after
expenses for the six months ended March 31, 2006, appear in the table
"Cumulative Total Returns" on page 7.
/2/ Expenses are equal to the Fund's annualized expense ratio as indicated above
multiplied by the average account value over the period, multiplied by 182/365
to reflect the most recent fiscal half year.
- --------------------------------------------------------------------------------
[ARROW
BUTTON For More Information Visit
IMAGE] AIMINVESTMENTS.COM
5
AIM ENERGY FUND
YOUR FUND'S LONG-TERM PERFORMANCE
RESULTS OF A $10,000 INVESTMENT
FUND AND INDEX DATA FROM 3/31/96
- --------------------------------------------------------------------------------
[MOUNTAIN CHART]
AIM ENERGY FUND- S&P 500 DOW JONES LIPPER NATURAL RESOURCES
DATE INVESTOR CLASS SHARES INDEX U.S. .OIL & GAS INDEX FUND INDEX
03/31/96 $ 10000 $ 10000 $ 10000 $ 10000
04/96 10917 10147 10416 10476
05/96 10867 10408 10431 10489
06/96 10992 10447 10539 10462
07/96 10525 9986 10029 10024
08/96 11224 10196 10336 10508
09/96 11782 10769 10704 10854
10/96 12555 11067 11426 11379
11/96 13257 11902 12039 11917
12/96 13143 11666 12075 11916
01/97 13543 12394 12647 12205
02/97 12152 12492 11914 11342
03/97 12770 11980 12530 11459
04/97 12634 12694 12565 11425
05/97 14070 13470 13502 12454
06/97 14162 14069 13696 12637
07/97 15688 15188 14788 13560
08/97 16833 14337 14794 13885
09/97 18160 15121 15702 14756
10/97 17659 14616 15472 14348
11/97 15928 15293 14902 13557
12/97 15653 15556 14789 13672
01/98 14022 15727 13891 12842
02/98 14636 16861 14858 13501
03/98 15731 17724 15469 14188
04/98 16278 17905 16152 14566
05/98 15251 17597 15426 13801
06/98 14982 18312 15080 13266
07/98 12759 18118 13957 11698
08/98 10267 15500 12247 9438
09/98 12233 16493 14003 11115
10/98 12625 17832 14227 11510
11/98 11552 18913 14160 10735
12/98 11296 20002 14019 10510
01/99 10468 20838 13344 9877
02/99 10010 20190 13039 9531
03/99 12706 20998 14969 11474
04/99 14797 21811 17239 13420
05/99 14797 21296 16844 13015
06/99 15591 22474 16861 13624
07/99 15994 21775 17153 13914
08/99 16854 21666 17464 14269
09/99 16251 21072 16753 13761
10/99 15300 22406 16461 13244
11/99 15199 22861 16795 13109
12/99 16027 24205 16847 14031
01/00 16072 22990 16923 13434
02/00 16273 22555 16405 13631
03/00 19461 24761 18409 15689
04/00 19562 24016 18237 15536
05/00 22315 23524 20056 17038
06/00 21822 24102 18977 16290
07/00 21128 23726 18510 15686
08/00 24618 25200 20348 17482
09/00 25110 23869 21038 17457
10/00 22572 23769 20329 16546
11/00 20351 21896 19414 15647
12/00 25353 22003 21324 18135
01/01 24395 22784 20554 17726
02/01 24321 20709 20489 17809
03/01 23957 19398 20192 17241
04/01 26580 20903 22283 18992
05/01 26580 21043 22096 18797
06/01 22561 20532 20079 16733
07/01 21979 20331 19619 16432
08/01 20983 19060 18793 15756
09/01 18748 17522 17415 14138
10/01 20145 17857 18440 15141
11/01 19527 19226 17691 14851
12/01 21093 19395 18835 15854
01/02 19903 19112 18108 15369
02/02 20644 18743 18923 16063
03/02 23389 19448 20490 17440
04/02 24058 18269 19564 17470
05/02 23536 18136 19114 17354
06/02 21896 16845 18642 16370
07/02 19467 15533 16407 14452
08/02 19820 15634 16505 14764
09/02 18763 13936 15127 13676
10/02 19176 15161 15646 14023
11/02 19686 16052 16223 14501
12/02 20184 15110 16290 14709
01/03 19758 14716 15834 14268
02/03 20549 14495 16252 14728
03/03 20415 14635 16373 14532
04/03 20135 15840 16373 14591
05/03 22795 16673 17940 16290
06/03 22212 16886 17677 15970
07/03 20828 17184 17106 15304
08/03 22188 17519 18230 16340
09/03 21593 17333 17779 15949
10/03 21801 18312 17961 16354
11/03 22213 18474 18033 16618
12/03 24738 19442 20480 18568
01/04 25055 19799 20766 18702
02/04 26561 20074 21732 19751
03/04 26949 19771 21615 19824
04/04 27229 19461 22014 19571
05/04 26987 19728 22032 19447
06/04 29259 20110 23347 20828
07/04 30242 19445 24125 21361
08/04 29320 19522 23802 21090
09/04 32416 19733 25891 23326
10/04 32390 20035 25964 23414
11/04 34890 20845 27690 25482
12/04 33798 21553 27125 25112
01/05 35302 21027 27923 25552
02/05 40389 21469 32994 29131
03/05 39808 21089 31895 28572
04/05 37025 20688 30128 26735
05/05 38858 21346 30788 27719
06/05 42172 21376 32706 29870
07/05 46373 22171 34753 32465
08/05 50222 21969 36686 34787
09/05 52467 22147 39008 37065
10/05 48474 21778 35423 34352
11/05 50200 22601 36025 35499
12/05 52032 22610 36371 36756
01/06 59519 23209 41514 42402
02/06 53061 23272 37940 38378
03/06 55294 23571 39604 40547
- --------------------------------------------------------------------------------
SOURCE: LIPPER, INC.
Past performance cannot guarantee comparable future results.
The data shown in the chart include reinvested distributions, 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 the space
between $10,000 and $20,000, the space between $10,000 and $20,000 is the same
as that between $20,000 and $40,000, and so on.
6
AIM ENERGY FUND
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
As of 3/31/06, including applicable sales charges
CLASS A SHARES
Inception (3/28/02) 22.28%
1 Year 31.27
CLASS B SHARES
Inception (3/28/02) 22.88%
1 Years 32.92
CLASS C SHARES
Inception (2/14/00) 21.56%
5 Years 17.41
1 Year 36.91
INVESTOR CLASS SHARES
Inception (1/19/84) 11.22%
10 Years 18.65
5 Years 18.21
1 Year 38.94
================================================================================
CUMULATIVE TOTAL RETURNS
6 months ended 3/31/06, excluding applicable sales charges
Class A Shares 5.41%
Class B Shares 5.04
Class C Shares 5.05
Investor Class Shares 5.40
- --------------------------------------------------------------------------------
THE PERFORMANCE DATA QUOTED REPRESENT PAST PERFORMANCE AND CANNOT GUARANTEE
COMPARABLE FUTURE RESULTS; CURRENT PERFORMANCE MAY BE LOWER OR HIGHER. PLEASE
VISIT AIMINVESTMENTS.COM FOR THE MOST RECENT MONTH-END PERFORMANCE. PERFORMANCE
FIGURES REFLECT REINVESTED DISTRIBUTIONS, CHANGES IN NET ASSET VALUE AND THE
EFFECT OF THE MAXIMUM SALES CHARGE UNLESS OTHERWISE STATED. INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT YOU MAY HAVE A GAIN OR LOSS WHEN YOU
SELL SHARES.
CLASS A SHARE PERFORMANCE REFLECTS THE MAXIMUM 5.50% SALES CHARGE, AND
CLASS B AND CLASS C SHARE PERFORMANCE REFLECTS THE APPLICABLE CONTINGENT
DEFERRED SALES CHARGE (CDSC) FOR THE PERIOD INVOLVED. THE CDSC ON CLASS B SHARES
DECLINES FROM 5% BEGINNING AT THE TIME OF PURCHASE TO 0% AT THE BEGINNING OF THE
SEVENTH YEAR. THE CDSC ON CLASS C SHARES IS 1% FOR THE FIRST YEAR AFTER
PURCHASE.
INVESTOR CLASS SHARES DO NOT HAVE A FRONT-END SALES CHARGE OR A CDSC;
THEREFORE, PERFORMANCE IS AT NET ASSET VALUE.
THE PERFORMANCE OF THE FUND'S SHARE CLASSES WILL DIFFER DUE TO DIFFERENT
SALES CHARGE STRUCTURES AND CLASS EXPENSES.
HAD THE ADVISOR NOT WAIVED FEES AND/OR REIMBURSED EXPENSES FOR CLASS B AND
CLASS C SHARES IN THE PAST, PERFORMANCE COULD HAVE BEEN LOWER.
Continued from inside front cover
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 811-03826 and
333-85905.
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.
7
AIM ENERGY FUND
APPROVAL OF INVESTMENT ADVISORY AGREEMENT AND
SUMMARY OF INDEPENDENT WRITTEN FEE EVALUATION
The Board of Trustees of AIM Sector Funds (the "Board") oversees the management
of AIM Energy 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, 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 for the one and five year periods was at or above the median
performance of such comparable funds and below such median performance for the
three 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.
.. The performance of the Fund relative to indices. The Board reviewed the
performance of the Fund during the past one, three and five calendar year
against the performance of the Lipper Natural Resources Fund Index. The Board
noted that the Fund's performance for the one and three year periods was
comparable to the performance of such Index and above such Index for the five
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 reviewed the advisory fee rate for the Fund under the
Advisory Agreement. The Board noted that this rate was lower than the advisory
fee rate for an offshore fund for which an AIM affiliate serves as investment
advisor with investment strategies comparable to those of the Fund. 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.
.. 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 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 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 June 30, 2006 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 through June 30, 2006. The Board noted that AIM has
contractually agreed to waive fees and/or limit expenses of the Fund through
March 31, 2006 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 also noted that AIM has voluntarily agreed to waive fees and/or
limit expenses of the Fund 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 that is lower than the contractual agreement. The Board
considered the contractual and voluntary nature of these fee waivers/expense
limitations and noted that the contractual agreement remains in effect through
March 31, 2006 and the voluntary agreement can be terminated at any time by AIM
without further notice to investors. 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.
(continued)
8
AIM ENERGY FUND
.. Breakpoints and economies of scale. The Board reviewed the structure of the
Fund's advisory fee under the Advisory Agreement, noting that it includes six
breakpoints. The Board reviewed the level of the Fund's advisory fees, and noted
that such fees, as a percentage of the Fund's net assets, would decrease as net
assets increase because the Advisory Agreement includes breakpoints. The Board
noted that, due to the Fund's current asset levels and the way in which the
advisory fee breakpoints have been structured, the Fund has yet to benefit from
the breakpoints. The Board noted that AIM has contractually agreed to waive
advisory fees of the Fund through June 30, 2006 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 reflect economies of scale at higher asset levels and
that it was not necessary to change the advisory fee breakpoints in the Fund's
advisory fee schedule.
.. 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 share-holders.
.. 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.
9
SUPPLEMENT TO ANNUAL REPORT DATED 3/31/06
AIM ENERGY 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.
- --------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURNS
For periods ended 3/31/06
Inception (1/31/06) -7.02%
================================================================================
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 800-451-4246 OR VISIT
AIMINVESTMENTS.COM.
- --------------------------------------------------------------------------------
NASDAQ SYMBOL IENIX
- --------------------------------------------------------------------------------
Over for information on your Fund's expenses.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
FOR INSTITUTIONAL INVESTOR USE ONLY
This material is for institutional investor use only and may not be quoted,
reproduced or shown to the public, nor used in written form as sales literature
for public use.
[YOUR GOALS.
OUR SOLUTIONS.] [AIM INVESTMENTS LOGO]
- REGISTERED TRADEMARK - - REGISTERED TRADEMARK -
AIMINVESTMENTS.COM I-ENE-INS-1 A I M Distributors, Inc.
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 actual ending account
value and expenses in the below example are based on an investment of $1,000
invested on January 31, 2006 (the date the share class commenced sales) and held
through March 31, 2006. The hypothetical ending account value and expenses in
the below example are based on an investment of $1,000 invested at the beginning
of the period and held for the entire six month period October 1, 2005, through
March 31, 2006.
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 the period, January 31, 2006, through
March 31, 2006. Because the actual ending account value and expense information
in the example is not based upon a six month period, the ending account value
and expense information may not provide a meaningful comparison to mutual funds
that provide such information for a full six month 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 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 ANNUALIZED
SHARE VALUE VALUE PAID DURING VALUE PAID DURING EXPENSE
CLASS (10/01/05) (3/31/06)/1/ PERIOD/2/ (3/31/06) PERIOD/3/ RATIO
Institutional/4/ $ 1,000.00 $ 929.80 $ 1.27 $ 1020.94 $ 4.03 0.80%
/1/ The actual ending account value is based on the actual total return of the
Fund for the period January 31, 2006, through March 31, 2006, 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 over the six month period October 1, 2005, through March 31, 2006.
/2/ Actual expenses are equal to the annualized expense ratio as indicated above
multiplied by the average account value over the period, multiplied by 60
(January 31, 2006, through March 31, 2006)/365. Because the share class has not
been in existence for a full six month period, the actual ending account value
and expense information shown may not provide a meaningful comparison to fund
expense information of classes that show such data for a full six month period
and, because the actual ending account value and expense information in the
expense example covers a short time period, return and expense data may not be
indicative of return and expense data for longer time periods.
/3/ Hypothetical expenses are equal to the annualized as indicated above
multiplied by the average account value over the period, multiplied by 182/365
to reflect a one-half year period. The hypothetical ending account value and
expenses may be used to compare ongoing costs of investing the Institutional
Class shares of the Fund and other funds because such data is based on a full
six month period.
/4/ Institutional Class shares commenced sales January 31, 2006.
- --------------------------------------------------------------------------------
AIMINVESTMENTS.COM I-ENE-INS-1 A I M Distributors, Inc.
AIM ENERGY FUND
SCHEDULE OF INVESTMENTS
March 31, 2006
SHARES VALUE
-----------------------------------------------------------------------------
DOMESTIC COMMON STOCKS & OTHER
EQUITY INTERESTS-81.46%
COAL & CONSUMABLE FUELS-2.85%
Peabody Energy Corp. 800,000 $ 40,328,000
-----------------------------------------------------------------------------
COMMODITY CHEMICALS-0.08%
Tronox, Inc.-Class B/(a)/ 63,920 1,085,999
-----------------------------------------------------------------------------
CONSTRUCTION & ENGINEERING-2.04%
Chicago Bridge & Iron Co. N.V.-New York Shares/(b)/ 1,200,000 28,800,000
-----------------------------------------------------------------------------
GAS UTILITIES-1.74%
Questar Corp. 350,000 24,517,500
-----------------------------------------------------------------------------
INTEGRATED OIL & GAS-17.96%
Chevron Corp. 824,000 47,767,280
-----------------------------------------------------------------------------
ConocoPhillips 764,000 48,246,600
-----------------------------------------------------------------------------
Exxon Mobil Corp. 675,000 41,080,500
-----------------------------------------------------------------------------
Murphy Oil Corp. 1,125,000 56,047,500
-----------------------------------------------------------------------------
Occidental Petroleum Corp. 655,000 60,685,750
-----------------------------------------------------------------------------
253,827,630
-----------------------------------------------------------------------------
OIL & GAS DRILLING-12.17%
GlobalSantaFe Corp. 710,000 43,132,500
-----------------------------------------------------------------------------
Hercules Offshore, Inc./(a)/ 850,000 28,908,500
-----------------------------------------------------------------------------
Nabors Industries Ltd./(a)/ 200,000 14,316,000
-----------------------------------------------------------------------------
Noble Corp. 450,000 36,495,000
-----------------------------------------------------------------------------
Todco-Class A 350,000 13,793,500
-----------------------------------------------------------------------------
Transocean Inc./(a)/ 440,000 35,332,000
-----------------------------------------------------------------------------
171,977,500
-----------------------------------------------------------------------------
OIL & GAS EQUIPMENT &
SERVICES-18.32%
Baker Hughes Inc. 210,000 14,364,000
-----------------------------------------------------------------------------
Cooper Cameron Corp./(a)/ 783,138 34,520,723
-----------------------------------------------------------------------------
FMC Technologies, Inc./(a)/ 250,000 12,805,000
-----------------------------------------------------------------------------
Grant Prideco, Inc./(a)/ 510,000 21,848,400
-----------------------------------------------------------------------------
Halliburton Co. 660,000 48,193,200
-----------------------------------------------------------------------------
National-Oilwell Varco Inc./(a)/ 800,000 51,296,000
-----------------------------------------------------------------------------
Schlumberger Ltd. 115,000 14,555,550
-----------------------------------------------------------------------------
Smith International, Inc. 400,000 15,584,000
-----------------------------------------------------------------------------
Weatherford International Ltd./(a)/ 1,000,000 45,750,000
-----------------------------------------------------------------------------
258,916,873
-----------------------------------------------------------------------------
OIL & GAS EXPLORATION &
PRODUCTION-15.07%
Apache Corp. 632,000 41,402,320
-----------------------------------------------------------------------------
Bill Barrett Corp./(a)(b)/ 1,291,101 42,076,981
-----------------------------------------------------------------------------
Cheniere Energy, Inc./(a)(b)/ 824,000 33,429,680
-----------------------------------------------------------------------------
EOG Resources, Inc. 590,000 42,480,000
-----------------------------------------------------------------------------
SHARES VALUE
- ----------------------------------------------------------------------------------
OIL & GAS EXPLORATION &
PRODUCTION-(CONTINUED)
Kerr-McGee Corp. 317,000 $ 30,267,160
- ----------------------------------------------------------------------------------
Pioneer Natural Resources Co. 525,000 23,231,250
- ----------------------------------------------------------------------------------
212,887,391
- ----------------------------------------------------------------------------------
OIL & GAS REFINING & MARKETING-4.69%
Valero Energy Corp. 1,000,000 59,780,000
- ----------------------------------------------------------------------------------
Western Refining, Inc. 300,000 6,486,000
- ----------------------------------------------------------------------------------
66,266,000
- ----------------------------------------------------------------------------------
OIL & GAS STORAGE &
TRANSPORTATION-6.54%
Kinder Morgan, Inc. 528,000 48,570,720
- ----------------------------------------------------------------------------------
Williams Cos., Inc. (The) 2,050,000 43,849,500
- ----------------------------------------------------------------------------------
92,420,220
- ----------------------------------------------------------------------------------
Total Domestic Common Stocks & Other Equity
Interests (Cost $894,021,581) 1,151,027,113
- ----------------------------------------------------------------------------------
FOREIGN STOCKS & OTHER EQUITY
INTERESTS-13.86%
CANADA-7.41%
Canadian Natural Resources Ltd. (Oil & Gas
Exploration & Production) 575,000 31,849,250
- ----------------------------------------------------------------------------------
Nexen Inc. (Oil & Gas Exploration & Production) 550,000 30,272,000
- ----------------------------------------------------------------------------------
Talisman Energy Inc. (Oil & Gas Exploration &
Production) 800,000 42,544,000
- ----------------------------------------------------------------------------------
104,665,250
- ----------------------------------------------------------------------------------
FRANCE-1.97%
Total S.A. -ADR (Integrated Oil & Gas)/(b)/ 212,000 27,926,760
- ----------------------------------------------------------------------------------
UNITED KINGDOM-4.48%
BP PLC -ADR (Integrated Oil & Gas) 715,000 49,292,100
- ----------------------------------------------------------------------------------
Royal Dutch Shell PLC -Class A -ADR (Integrated
Oil & Gas) 225,000 14,008,500
- ----------------------------------------------------------------------------------
63,300,600
- ----------------------------------------------------------------------------------
Total Foreign Stocks & Other Equity Interests
(Cost $133,228,846) 195,892,610
- ----------------------------------------------------------------------------------
MONEY MARKET FUNDS-4.43%
Premier Portfolio-Institutional Class/(c)/ 62,590,664 62,590,664
- ----------------------------------------------------------------------------------
Total Money Market Funds (Cost $62,590,664) 62,590,664
- ----------------------------------------------------------------------------------
TOTAL INVESTMENTS (excluding investments
purchased with cash collateral from securities
loaned)-99.75% (Cost $1,089,841,091) 1,409,510,387
- ----------------------------------------------------------------------------------
F-1
AIM ENERGY FUND
SHARES VALUE
- --------------------------------------------------------------------------------
INVESTMENTS PURCHASED WITH CASH
COLLATERAL FROM SECURITIES
LOANED-1.70%
MONEY MARKET FUNDS-1.70%
Premier Portfolio-Institutional Class/(c)(d)/ 24,025,815 $ 24,025,815
- --------------------------------------------------------------------------------
Total Money Market Funds (purchased with
cash collateral from securities loaned) (Cost
$24,025,815) 24,025,815
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS-101.45%
(Cost $1,113,866,906) 1,433,536,202
- --------------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-(1.45)% (20,501,077)
- --------------------------------------------------------------------------------
NET ASSETS-100.00% $1,413,035,125
- --------------------------------------------------------------------------------
Investment Abbreviations:
ADR -AmericanDepositary Receipt
Notes to Schedule of Investments:
/(a)/Non-income producing security.
/(b)/All or a portion of this security is out on loan at March 31, 2006.
/(c)/The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
/(d)/The security has been segregated to satisfy the commitment to return the
cash collateral received in securities lending transactions upon the
borrower's return of the securities loaned. See Note 8.
See accompanying Notes to Financial Statements which are an integral part of
the financial statements.
F-2
AIM ENERGY FUND
STATEMENT OF ASSETS AND LIABILITIES
March 31, 2006
ASSETS:
Investments, at value (cost $1,027,250,427)* $1,346,919,723
- ---------------------------------------------------------------------------------
Investments in affiliated money market funds (cost $86,616,479) 86,616,479
- ---------------------------------------------------------------------------------
Total investments (cost $1,113,866,906) 1,433,536,202
- ---------------------------------------------------------------------------------
Foreign currencies, at value (cost $380) 366
- ---------------------------------------------------------------------------------
Receivables for:
Investments sold 13,908,594
- ---------------------------------------------------------------------------------
Fund shares sold 5,850,545
- ---------------------------------------------------------------------------------
Dividends 1,077,398
- ---------------------------------------------------------------------------------
Investment for trustee deferred compensation and retirement plans 60,696
- ---------------------------------------------------------------------------------
Other assets 113,470
- ---------------------------------------------------------------------------------
Total assets 1,454,547,271
- ---------------------------------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 13,651,795
- ---------------------------------------------------------------------------------
Fund shares reacquired 2,779,736
- ---------------------------------------------------------------------------------
Trustee deferred compensation and retirement plans 83,273
- ---------------------------------------------------------------------------------
Collateral upon return of securities loaned 24,025,815
- ---------------------------------------------------------------------------------
Accrued distribution fees 483,615
- ---------------------------------------------------------------------------------
Accrued trustees' and officer's fees and benefits 6,841
- ---------------------------------------------------------------------------------
Accrued transfer agent fees 378,580
- ---------------------------------------------------------------------------------
Accrued operating expenses 102,491
- ---------------------------------------------------------------------------------
Total liabilities 41,512,146
- ---------------------------------------------------------------------------------
Net assets applicable to shares outstanding $1,413,035,125
- ---------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 971,085,623
- ---------------------------------------------------------------------------------
Undistributed net investment income (loss) (50,914)
- ---------------------------------------------------------------------------------
Undistributed net realized gain from investment securities and
foreign currencies 122,331,134
- ---------------------------------------------------------------------------------
Unrealized appreciation from investment securities and foreign
currencies 319,669,282
- ---------------------------------------------------------------------------------
$1,413,035,125
- ---------------------------------------------------------------------------------
NET ASSETS:
Class A $525,618,593
-----------------------------------------------------------
Class B $147,270,281
-----------------------------------------------------------
Class C $171,499,747
-----------------------------------------------------------
Investor Class $568,579,434
-----------------------------------------------------------
Institutional Class $ 67,070
-----------------------------------------------------------
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Class A 12,174,239
-----------------------------------------------------------
Class B 3,514,862
-----------------------------------------------------------
Class C: 4,160,808
-----------------------------------------------------------
Investor Class 13,199,979
-----------------------------------------------------------
Institutional Class 1,552.7
-----------------------------------------------------------
Class A:
Net asset value per share $ 43.17
-----------------------------------------------------------
Offering price per share:
(Net asset value of $43.17 / 94.50%) $ 45.68
-----------------------------------------------------------
Class B:
Net asset value and offering price per share $ 41.90
-----------------------------------------------------------
Class C:
Net asset value and offering price per share $ 41.22
-----------------------------------------------------------
Investor Class:
Net asset value and offering price per share $ 43.07
-----------------------------------------------------------
Institutional Class :
Net asset value and offering price per share $ 43.20
-----------------------------------------------------------
* At March 31, 2006, securities with an aggregate value of $23,215,990 were on
loan to brokers.
See accompanying Notes to Financial Statements which are an integral part of
the financial statements.
F-3
AIM ENERGY FUND
STATEMENT OF OPERATIONS
For the year ended March 31, 2006
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $384,338) $ 9,340,188
- ---------------------------------------------------------------------------------------------------------------------------------
Dividends from affiliated money market funds (includes securities lending income of $69,427, after compensation to
counterparties of $507,424) 1,566,734
- ---------------------------------------------------------------------------------------------------------------------------------
Total investment income 10,906,922
- ---------------------------------------------------------------------------------------------------------------------------------
EXPENSES:
Advisory fees 6,876,548
- ---------------------------------------------------------------------------------------------------------------------------------
Administrative services fees 280,889
- ---------------------------------------------------------------------------------------------------------------------------------
Custodian fees 84,797
- ---------------------------------------------------------------------------------------------------------------------------------
Distribution fees:
Class A 928,455
- ---------------------------------------------------------------------------------------------------------------------------------
Class B 1,045,714
- ---------------------------------------------------------------------------------------------------------------------------------
Class C 1,175,563
- ---------------------------------------------------------------------------------------------------------------------------------
Class K 15,278
- ---------------------------------------------------------------------------------------------------------------------------------
Investor Class 1,202,160
- ---------------------------------------------------------------------------------------------------------------------------------
Transfer agent fees-A, B, C and Investor 2,073,319
- ---------------------------------------------------------------------------------------------------------------------------------
Transfer agent fees-Institutional 4
- ---------------------------------------------------------------------------------------------------------------------------------
Trustees' and officer's fees and benefits 42,448
- ---------------------------------------------------------------------------------------------------------------------------------
Other 492,788
- ---------------------------------------------------------------------------------------------------------------------------------
Total expenses 14,217,963
- ---------------------------------------------------------------------------------------------------------------------------------
Less:Fees waived, expenses reimbursed and expense offset arrangements (50,683)
- ---------------------------------------------------------------------------------------------------------------------------------
Net expenses 14,167,280
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (3,260,358)
- ---------------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES, AND FOREIGN CURRENCIES
Net realized gain (loss) from:
Investment securities (includes gains from securities sold to affiliates of $61,630) 194,755,248
- ---------------------------------------------------------------------------------------------------------------------------------
Foreign currencies (57,301)
- ---------------------------------------------------------------------------------------------------------------------------------
194,697,947
- ---------------------------------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of:
Investment securities 123,957,567
- ---------------------------------------------------------------------------------------------------------------------------------
Foreign currencies (14)
- ---------------------------------------------------------------------------------------------------------------------------------
123,957,553
- ---------------------------------------------------------------------------------------------------------------------------------
Net gain from investment securities, and foreign currencies 318,655,500
- ---------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $315,395,142
- ---------------------------------------------------------------------------------------------------------------------------------
See accompanying Notes to Financial Statements which are an integral part of
the financial statements.
F-4
AIM ENERGY FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended March 31, 2006 and 2005
2006
- -------------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (3,260,358)
- -------------------------------------------------------------------------------------------------------------------------------
Net realized gain on investment securities and foreign currencies 194,697,947
- -------------------------------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment securities and foreign currencies 123,957,553
- -------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 315,395,142
- -------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net realized gains:
Class A (24,689,490)
- -------------------------------------------------------------------------------------------------------------------------------
Class B (7,145,820)
- -------------------------------------------------------------------------------------------------------------------------------
Class C (8,319,692)
- -------------------------------------------------------------------------------------------------------------------------------
Investor Class (28,931,461)
- -------------------------------------------------------------------------------------------------------------------------------
Decrease in net assets resulting from distributions (69,086,463)
- -------------------------------------------------------------------------------------------------------------------------------
Share transactions-net:
Class A 287,836,340
- -------------------------------------------------------------------------------------------------------------------------------
Class B 68,595,281
- -------------------------------------------------------------------------------------------------------------------------------
Class C 88,393,139
- -------------------------------------------------------------------------------------------------------------------------------
Class K (3,496,411)
- -------------------------------------------------------------------------------------------------------------------------------
Investor Class 67,743,047
- -------------------------------------------------------------------------------------------------------------------------------
Institutional Class 67,000
- -------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from share transactions 509,138,396
- -------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets 755,447,075
- -------------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 657,588,050
- -------------------------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment income (loss) of $(50,914) and $(37,209), respectively) $1,413,035,125
- -------------------------------------------------------------------------------------------------------------------------------
2005
- ----------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (1,440,973)
- ----------------------------------------------------------------------------------------------------------------------------
Net realized gain on investment securities and foreign currencies 36,043,860
- ----------------------------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment securities and foreign currencies 132,139,532
- ----------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 166,742,419
- ----------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net realized gains:
Class A --
- ----------------------------------------------------------------------------------------------------------------------------
Class B --
- ----------------------------------------------------------------------------------------------------------------------------
Class C --
- ----------------------------------------------------------------------------------------------------------------------------
Investor Class --
- ----------------------------------------------------------------------------------------------------------------------------
Decrease in net assets resulting from distributions --
- ----------------------------------------------------------------------------------------------------------------------------
Share transactions-net:
Class A 90,854,796
- ----------------------------------------------------------------------------------------------------------------------------
Class B 22,905,878
- ----------------------------------------------------------------------------------------------------------------------------
Class C 31,055,665
- ----------------------------------------------------------------------------------------------------------------------------
Class K 1,543,733
- ----------------------------------------------------------------------------------------------------------------------------
Investor Class 36,044,906
- ----------------------------------------------------------------------------------------------------------------------------
Institutional Class --
- ----------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from share transactions 182,404,978
- ----------------------------------------------------------------------------------------------------------------------------
Net increase in net assets 349,147,397
- ----------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 308,440,653
- ----------------------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment income (loss) of $(50,914) and $(37,209), respectively) $657,588,050
- ----------------------------------------------------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
March 31, 2006
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Energy Fund (the "Fund") is a series portfolio of AIM Sector Funds (the
"Trust"). The Trust is a Delaware statutory trust registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of six separate portfolios,
each authorized to issue an unlimited number of shares of beneficial interest.
The Fund currently consists of 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. The risk of material loss as a result of such indemnification claims
is considered remote.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period including
estimates and assumptions related to taxation. Actual results could differ from
those estimates. The following is a summary of the significant accounting
policies followed by the Fund in the preparation of its financial statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy.
A security listed or traded on an exchange (except convertible bonds) is
valued at its last sales price as of the close of the customary trading
session on the exchange where the security is principally traded, or lacking
any sales on a particular day, the security is valued at the closing bid
price on that day. Securities
F-5
AIM ENERGY FUND
traded in the over-the-counter market (but not securities reported on the
NASDAQ National Market System) are valued based on the prices furnished by
independent pricing services, in which case the securities may be considered
fair valued, or by market makers. Each security reported on the NASDAQ
National Market System is valued at the NASDAQ Official Closing Price
("NOCP") as of the close of the customary trading session on the valuation
date or absent a NOCP, at the closing bid price.
Futures contracts are valued at the final settlement price set by an
exchange on which they are principally traded. Listed options are valued at
the mean between the last bid and the ask prices from the exchange on which
they are principally traded. Options not listed on an exchange are valued by
an independent source at the mean between the last bid and ask prices. For
purposes of determining net asset value per share, futures and option
contracts generally are valued 15 minutes after the close of the customary
trading session of the New York Stock Exchange ("NYSE").
Investments in open-end registered investment companies and closed-end
registered investment companies that do not trade on an exchange are valued
at the end of day net asset value per share. Investments in closed-end
registered investment companies that trade on an exchange are valued at the
last sales price as of the close of the customary trading session on the
exchange where the security is principally traded.
Debt obligations (including convertible bonds) are fair valued using an
evaluated quote provided by an independent pricing service. Evaluated quotes
provided by the pricing service may be determined without exclusive reliance
on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, developments
related to specific securities, dividend rate, yield, quality, type of
issue, coupon rate, maturity, individual trading characteristics and other
market data. Short-term obligations having 60 days or less to maturity and
commercial paper are recorded at amortized cost which approximates value.
Securities for which market prices are not provided by any of the above
methods are valued based upon quotes furnished by independent sources and
are valued at the last bid price in the case of equity securities and in the
case of debt obligations, the mean between the last bid and asked prices.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the close
of the NYSE. Generally, trading in foreign securities is substantially
completed each day at various times prior to the close of the NYSE. The
values of such securities used in computing the net asset value of the
Fund's shares are determined as of the close of the respective markets.
Events affecting the values of such foreign securities may occur between the
times at which the particular foreign market closes and the close of the
customary trading session of the NYSE which would not ordinarily be
reflected in the computation of the Fund's net asset value. If the event is
likely to have affected the closing price of the security, the security will
be valued at fair value in good faith using procedures approved by the Board
of Trustees. Adjustments to closing prices to reflect fair value may also be
based on a screening process of an independent pricing service to indicate
the degree of certainty, based on historical data, that the closing price in
the principal market where a foreign security trades is not the current
value as of the close of the NYSE. Foreign securities meeting the approved
degree of certainty that the price is not reflective of current value will
be priced at the indication of fair value from the independent pricing
service. Multiple factors may be considered by the independent pricing
service in determining adjustments to reflect fair value and may include
information relating to sector indices, ADRs 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.
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
F-6
AIM ENERGY FUND
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. Realized and
unrealized gains and losses on these contracts are included in the Statement
of Operations. The Fund could be exposed to risk if counterparties to the
contracts are unable to meet the terms of their contracts or if the value of
the foreign currency changes unfavorably.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM based on the annual rate of the Fund's
average daily net assets as follows:
AVERAGE NET ASSETS RATE
----------------------------------------------------
First $350 million 0.75%
----------------------------------------------------
Next $350 million 0.65%
----------------------------------------------------
Next $1.3 billion 0.55%
----------------------------------------------------
Next $2 billion 0.45%
----------------------------------------------------
Next $2 billion 0.40%
----------------------------------------------------
Next $2 billion 0.375%
----------------------------------------------------
Over $8 billion 0.35%
----------------------------------------------------
AIM has voluntarily agreed to waive advisory fees of the Fund in the amount
of 25% of the advisory fee AIM receives from the affiliated money market funds
on investments by the Fund in such affiliated money market funds (excluding
investments made in affiliated money market funds with cash collateral from
securities loaned by the fund). AIM is also voluntarily waiving a portion of
the advisory fee payable by the Fund equal to the difference between the income
earned from investing in the affiliated money market fund and the hypothetical
income earned from investing in an appropriate comparative benchmark. Voluntary
fee waivers or reimbursements may be modified or discontinued at any time upon
consultation with the Board of Trustees without further notice to investors.
For the year ended March 31, 2006, AIM waived fees of $5,956.
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 March 31, 2006, AMVESCAP reimbursed expenses of the Fund in the
amount of $3,148.
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. Pursuant to such agreement, for the year ended
March 31, 2006, AIM was paid $280,889.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AISI for certain expenses
incurred by AISI in the course of providing such services. AISI may make
payments to intermediaries that provide omnibus account services,
sub-accounting services and/or networking services. For the year ended
March 31, 2006, the Fund paid AISI $2,073,319 for Class A, Class B, Class C,
Class K and Investor Class shares and $4 for Institutional Class shares.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("ADI") to serve as the distributor for the Class A, Class
B, Class C, Class K, Investor Class and Institutional Class shares of the Fund.
The Trust has adopted plans pursuant to Rule 12b-1 under the 1940 Act with
respect to the Fund's Class A, Class B, Class C, Class K and Investor Class
shares (collectively the "Plans"). The Fund, pursuant to the Plans, pays ADI
compensation at the annual rate of 0.25% of the Fund's average daily net assets
of Class A shares, 1.00% of the average daily net assets of Class B and Class C
shares, 0.45% of the average daily net assets of Class K and 0.25% of the
average daily net assets of Investor Class shares. Prior to July 1, 2005, the
Fund paid ADI 0.35% of the average daily assets of Class A shares. Of the Rule
12b-1 payments, up to 0.25% of the average daily net assets of the Class A,
Class B, Class C, Class K or Investor Class shares may be paid to furnish
continuing personal shareholder services to customers who purchase and own
shares of such classes. Any amounts not paid as a service fee under the Plans
would constitute an asset-based sales charge. National Association of
Securities Dealers ("NASD") Rules impose a cap on the total sales charges,
including asset-based sales charges that
F-7
AIM ENERGY FUND
may be paid by any class of shares of the Fund. Pursuant to the Plans, for the
year ended March 31, 2006, the Class A, Class B, Class C and Investor Class
shares paid $928,455, $1,045,714, $1,175,563 and $1,202,160, respectively. For
the period April 1, 2005 through October 21, 2005 (date of conversion), Class K
shares paid $15,278.
Front-end sales commissions and contingent deferred sales charges ("CDSC")
(collectively the "sales charges") are not recorded as expenses of the Fund.
Front-end sales commissions are deducted from proceeds from the sales of Fund
shares prior to investment in Class A shares of the Fund. CDSC are deducted
from redemption proceeds prior to remittance to the shareholder. During the
year ended March 31, 2006, ADI advised the Fund that it retained $926,259 in
front-end sales commissions from the sale of Class A shares and $67,341,
$257,986 and $100,049 from Class A, Class B and Class C shares, respectively,
for CDSC imposed upon redemptions by shareholders. For the period April 1, 2005
through October 21, 2005 (date of conversion), ADI advised the Fund it retained
$0 from Class K shares for CDSC imposed upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of AIM,
AISI and/or ADI.
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to an exemptive order from the Securities and
Exchange Commission ("SEC") and approved procedures by the Board of Trustees,
to invest daily available cash balances and cash collateral from securities
lending transactions in an affiliated money market fund. The Fund and the money
market fund below have the same investment advisor and therefore, are
considered to be affiliated. The tables below show the transactions in and
earnings from investments in an affiliated money market fund for the year ended
March 31, 2006.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
CHANGE IN
UNREALIZED REALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND GAIN
FUND 03/31/05 AT COST FROM SALES (DEPRECIATION) 03/31/06 INCOME (LOSS)
- --------------------------------------------------------------------------------------------------------------------------------
Premier Portfolio-Institutional Class $26,315,584 $ 688,852,822 $ (652,577,742) $ -- $62,590,664 $1,497,307 $ --
- --------------------------------------------------------------------------------------------------------------------------------
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
CHANGE IN
UNREALIZED REALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND GAIN
FUND 03/31/05 AT COST FROM SALES (DEPRECIATION) 03/31/06 INCOME* (LOSS)
- --------------------------------------------------------------------------------------------------------------------------------
Premier Portfolio-Institutional Class $ -- $ 537,004,571 $ (512,978,756) $ -- $24,025,815 $ 69,427 $ --
- --------------------------------------------------------------------------------------------------------------------------------
Total $26,315,584 $1,225,857,393 $(1,165,556,498) $ -- $86,616,479 $1,566,734 $ --
- --------------------------------------------------------------------------------------------------------------------------------
* Net of compensation to counterparties.
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, for the year ended March 31, 2006,
the Fund engaged in securities sales of $165,138, which resulted in net
realized gains of $61,630 and securities purchases of $0.
NOTE 5--EXPENSE OFFSET ARRANGEMENTS
The expense offset arrangements are comprised of (i) transfer agency credits
which result from balances in Demand Deposit Accounts (DDA) used by the
transfer agent for clearing shareholder transactions and (ii) custodian credits
which result from periodic overnight cash balances at the custodian. For the
year ended March 31, 2006, the Fund received credits from these arrangements,
which resulted in the reduction of the Fund's total expenses of $41,579.
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.
F-8
AIM ENERGY FUND
During the year ended March 31, 2006, the Fund paid legal fees of $7,011 for
services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 7--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate
available on investments in overnight repurchase agreements) is favorable to
both the lending fund and the borrowing fund. A loan will be secured by
collateral if the Fund's aggregate borrowings from all sources exceeds 10% of
the Fund's total assets. To the extent that the loan is required to be secured
by collateral, the collateral is marked to market daily to ensure that the
market value is at least 102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to
the credit facility can borrow on a first come, first served basis. Principal
on each loan outstanding shall bear interest at the bid rate quoted by SSB at
the time of the request for the loan.
During the year ended March 31, 2006, 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.
NOTE 8--PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities having a market value up to one-third of
the Fund's total assets. Such loans are secured by collateral equal to no less
than the market value of the loaned securities determined daily. Such
collateral will be cash or debt securities issued or guaranteed by the U.S.
Government or any of its agencies. Cash collateral received in connection with
these loans is invested in short-term money market instruments or affiliated
money market funds. It is the Fund's policy to obtain additional collateral
from or return excess collateral to the borrower by the end of the next
business day, following the valuation date of the securities loaned. Therefore,
the value of the collateral held may be temporarily less than the value of the
securities on loan. Lending securities entails a risk of loss to the Fund if
and to the extent that the market value of the securities loaned were to
increase and the borrower did not increase the collateral accordingly, and the
borrower fails to return the securities. The Fund could also experience delays
and costs in gaining access to the collateral. The Fund bears the risk of any
deficiency in the amount of the collateral available for return to the borrower
due to a loss on the collateral invested.
At March 31, 2006, securities with an aggregate value of $23,215,990 were on
loan to brokers. The loans were secured by cash collateral of $24,025,815
received by the Fund and subsequently invested in an affiliated money market
fund. For the year ended March 31, 2006, the Fund received dividends on cash
collateral investments of $69,427 for securities lending transactions, which
are net of compensation to counterparties.
NOTE 9--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
The tax character of distributions paid during the years ended March 31, 2006
and 2005 was as follows:
2006 2005
-----------------------------------------
Distributions paid from:
Ordinary income $ 4,803,204 $ --
-----------------------------------------
Long-term capital gain 64,283,259 --
-----------------------------------------
Total distributions $69,086,463 $ --
-----------------------------------------
TAX COMPONENTS OF NET ASSETS:
As of March 31, 2006, the components of net assets on a tax basis were as
follows:
2006
------------------------------------------------------
Undistributed ordinary income $ 46,291,276
------------------------------------------------------
Undistributed long-term gain 84,488,622
------------------------------------------------------
Unrealized appreciation -- investments 315,612,607
------------------------------------------------------
Temporary book/tax differences (50,914)
------------------------------------------------------
Capital loss carryover (4,392,089)
------------------------------------------------------
Shares of beneficial interest 971,085,623
------------------------------------------------------
Total net assets $1,413,035,125
------------------------------------------------------
F-9
AIM ENERGY FUND
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation (depreciation) difference is attributable primarily to losses on
wash sales. The tax-basis unrealized appreciation on investments amount
includes appreciation (depreciation) on foreign currencies of $(14).
The temporary book/tax differences are a result of timing differences between
book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan expenses.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the
amount of capital loss carryforward actually available for the Fund to utilize.
The ability to utilize capital loss carryforward in the future may be limited
under the Internal Revenue Code and related regulations based on the results of
future transactions. Under these limitation rules, the Fund is limited as of
March 31, 2006 to utilizing $1,577,866 of capital loss carryforward in the
fiscal year ended March 31, 2007.
The Fund utilized $1,577,866 of capital loss carryforward in the current
period to offset net realized capital gain for federal income tax purposes. The
Fund has a capital loss carryforward as of March 31, 2006 which expires as
follows:
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
---------------------------------------------
March 31, 2007 $ 211,135
---------------------------------------------
March 31, 2009 4,180,954
---------------------------------------------
Total capital loss carryforward $4,392,089
---------------------------------------------
* Capital loss carryforward as of the date listed above is reduced for
limitations, if any, to the extent required by the Internal Revenue Code. To
the extent that unrealized gains as of November 24, 2003, the date of the
reorganization of AIM Global Energy Fund into the Fund, are realized on
securities held in each fund at such date, the capital loss carryforward may
be further limited for up to five years from the date of the reorganization.
NOTE 10--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the year ended
March 31, 2006 was $1,137,838,992 and $740,203,244, respectively.
At the request of the Trustee, AIM recovered third party research credits
during the year ended March 31, 2006, in the amount of $4,084. These research
credits were recorded as realized gains.
UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENT SECURITIES ON A TAX BASIS
--------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $329,626,648
--------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (14,014,027)
--------------------------------------------------------------------------
Net unrealized appreciation of investment securities $315,612,621
--------------------------------------------------------------------------
Cost of investments for tax purposes is $1,117,923,581.
NOTE 11--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of foreign currency
transactions and net operating losses, on March 31, 2006, undistributed net
investment income (loss) was increased by $3,246,653, undistributed net
realized gain was decreased by $3,246,653. This reclassification had no effect
on the net assets of the Fund.
F-10
AIM ENERGY FUND
NOTE 12--SHARE INFORMATION
The Fund currently consists of five different classes of shares: Class A
shares, Class B shares, Class C shares, Investor Class shares and Institutional
Class shares. The Fund formerly offered Class K shares; however, as of the
close of business October 21, 2005, the Class K shares were converted to
Class A shares. Investor Class shares of the Fund are offered only to certain
grandfathered investors.
Class A shares are sold with a front-end sales charge. Class B shares and
Class C shares are sold with CDSC. Investor Class and 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 MARCH 31,
----------------------------------------------------
2006/(A)/ 2005
------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------------
Sold:
Class A 10,675,411 $ 420,923,874 4,287,940 $ 122,706,107
- ---------------------------------------------------------------------------------------------------------------
Class B 2,808,969 106,378,368 1,461,350 40,038,277
- ---------------------------------------------------------------------------------------------------------------
Class C 3,253,143 123,432,977 1,555,291 42,670,079
- ---------------------------------------------------------------------------------------------------------------
Class K/(b)/ 205,037 6,909,826 102,116 2,738,142
- ---------------------------------------------------------------------------------------------------------------
Investor Class 6,101,345 238,432,579 5,562,598 152,006,788
- ---------------------------------------------------------------------------------------------------------------
Institutional Class/(c)/ 1,553 67,000 -- --
- ---------------------------------------------------------------------------------------------------------------
Issued as reinvestment of dividends:
Class A 551,786 22,761,178 -- --
- ---------------------------------------------------------------------------------------------------------------
Class B 166,321 6,672,814 -- --
- ---------------------------------------------------------------------------------------------------------------
Class C 197,609 7,799,607 -- --
- ---------------------------------------------------------------------------------------------------------------
Investor Class 686,106 28,240,142 -- --
- ---------------------------------------------------------------------------------------------------------------
Conversion of Class K shares to Class A shares:/(d)/
Class A 209,627 7,810,718 -- --
- ---------------------------------------------------------------------------------------------------------------
Class K (227,851) (7,810,718) -- --
- ---------------------------------------------------------------------------------------------------------------
Automatic conversion of Class B shares to Class A shares:
Class A 118,767 4,630,254 144,941 3,897,072
- ---------------------------------------------------------------------------------------------------------------
Class B (121,850) (4,630,254) (147,616) (3,897,072)
- ---------------------------------------------------------------------------------------------------------------
Reacquired:
Class A (4,296,793) (168,289,684) (1,351,995) (35,748,383)
- ---------------------------------------------------------------------------------------------------------------
Class B (1,065,740) (39,825,647) (505,655) (13,235,327)
- ---------------------------------------------------------------------------------------------------------------
Class C (1,140,790) (42,839,445) (462,765) (11,614,414)
- ---------------------------------------------------------------------------------------------------------------
Class K/(b)/ (74,961) (2,595,519) (48,136) (1,194,409)
- ---------------------------------------------------------------------------------------------------------------
Investor Class (5,145,565) (198,929,674) (4,375,872) (115,961,882)
- ---------------------------------------------------------------------------------------------------------------
12,902,124 $ 509,138,396 6,222,197 $ 182,404,978
- ---------------------------------------------------------------------------------------------------------------
/(a)/There are two entities that are record owners of more than 5% of the
outstanding shares of the Fund and owns 16% of the outstanding shares of
the Fund. AIM Distributors has an agreement with these entities to sell
Fund shares. The Fund, AIM and/or AIM affiliates may make payments to
these entities, which are considered to be related to the Fund, for
providing 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 is also owned beneficially.
/(b)/Class K shares activity for the period April 1, 2005 through October 21,
2005 (date of conversion).
/(c)/Institutional Class shares commenced operations on January 31, 2006.
/(d)/Effective as of close of business October 21, 2005, all outstanding Class
K shares were converted to Class A shares of the Fund.
F-11
AIM ENERGY FUND
NOTE 13--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
CLASS A
----------------------------------------------------
YEAR ENDED MARCH 31,
- - ----------------------------------------------------
2006 2005 2004 2003/(A)/
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 32.86 $ 22.27 $ 16.85 $ 19.26
- -----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.06)/(b)/ (0.09)/(b)/ (0.05)/(b)/ (0.05)/(b)/
- -----------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) 12.73 10.68 5.47 (2.36)
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations 12.67 10.59 5.42 (2.41)
- -----------------------------------------------------------------------------------------------------------------------------
Less distributions from net realized gains (2.36) -- -- --
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 43.17 $ 32.86 $ 22.27 $ 16.85
- -----------------------------------------------------------------------------------------------------------------------------
Total return/(c)/ 38.90% 47.55% 32.17% (12.51)%
- -----------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $525,619 $161,529 $40,847 $ 9,131
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.19%/(d)/ 1.47% 1.66% 1.46%
- -----------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.19%/(d)/ 1.48% 1.74% 1.46%
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (0.16)%/(d)/ (0.32)% (0.25)% (0.33)%
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 72% 45% 123% 144%
- -----------------------------------------------------------------------------------------------------------------------------
/(a)/Class commenced sales on March 28, 2002.
/(b)/Calculated using average shares outstanding.
/(c)/Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net
asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges.
/(d)/Ratios are based on average daily net assets of $352,981,150.
CLASS B
---------------------------------------------------
YEAR ENDED MARCH 31,
---------------------------------------------------
2006 2005 2004 2003/(A)/
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 32.17 $ 21.94 $ 16.71 $ 19.26
- ----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.35)/(b)/ (0.25)/(b)/ (0.18)/(b)/ (0.17)/(b)/
- ----------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) 12.44 10.48 5.41 (2.38)
- ----------------------------------------------------------------------------------------------------------------------------
Total from investment operations 12.09 10.23 5.23 (2.55)
- ----------------------------------------------------------------------------------------------------------------------------
Less distributions from net realized gains (2.36) -- -- --
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 41.90 $ 32.17 $ 21.94 $ 16.71
- ----------------------------------------------------------------------------------------------------------------------------
Total return/(c)/ 37.92% 46.63% 31.30% (13.24)%
- ----------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $147,270 $55,559 $20,164 $ 1,502
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.93%/(d)/ 2.12% 2.31% 2.33%
- ----------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.93%/(d)/ 2.13% 2.59% 2.41%
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (0.90)%/(d)/ (0.97)% (0.90)% (1.16)%
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 72% 45% 123% 144%
- ----------------------------------------------------------------------------------------------------------------------------
/(a)/Class commenced sales on March 28, 2002.
/(b)/Calculated using average shares outstanding.
/(c)/Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and returns for shareholder
transactions. Does not include sales charges.
/(d)/Ratios are based on average daily net assets of $104,571,366.
F-12
AIM ENERGY FUND
NOTE 13--FINANCIAL HIGHLIGHTS-(CONTINUED)
CLASS C
---------------------------------------------------------
YEAR ENDED MARCH 31,
---------------------------------------------------------
2006 2005 2004 2003
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 31.68 $ 21.60 $ 16.45 $ 18.98
- -----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.35)/(a)/ (0.25)/(a)/ (0.17)/(a)/ (0.11)/(a)/
- -----------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) 12.25 10.33 5.32 (2.42)
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations 11.90 10.08 5.15 (2.53)
- -----------------------------------------------------------------------------------------------------------------------------
Less distributions from net realized gains (2.36) -- -- --
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 41.22 $ 31.68 $ 21.60 $ 16.45
- -----------------------------------------------------------------------------------------------------------------------------
Total return/(c)/ 37.91% 46.67% 31.31% (13.33)%
- -----------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $171,500 $58,626 $16,383 $ 9,566
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.93%/(d)/ 2.12% 2.31% 2.33%
- -----------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.93%/(d)/ 2.13% 2.59% 2.53%
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (0.90)%/(d)/ (0.97)% (0.90)% (1.22)%
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 72% 45% 123% 144%
- -----------------------------------------------------------------------------------------------------------------------------
--------
--------
2002
- --------------------------------------------------------------------------------
Net asset value, beginning of period $ 19.58
- --------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.07)/(b)/
- --------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) (0.53)
- --------------------------------------------------------------------------------
Total from investment operations (0.60)
- --------------------------------------------------------------------------------
Less distributions from net realized gains --
- --------------------------------------------------------------------------------
Net asset value, end of period $ 18.98
- --------------------------------------------------------------------------------
Total return/(c)/ (3.06)%
- --------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $12,324
- --------------------------------------------------------------------------------
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 2.27%
- --------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 2.27%
- --------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (1.08)%
- --------------------------------------------------------------------------------
Portfolio turnover rate 144%
- --------------------------------------------------------------------------------
/(a)/ Calculated using average shares outstanding.
/(b)/ The net investment income (loss) per share was calculated after permanent
book tax differences, such as net operating losses, which were
reclassified from accumulated net investment income (loss) to paid in
capital. Had net investment income (loss) per share been calculated using
the current method, which is before reclassification of net operating
losses, net investment income (loss) per share would have been $(0.16)
for the year ended March 31, 2002.
/(c)/ Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net
asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges.
/(d)/ Ratios are based on average daily net assets of $117,556,261.
CLASS K
-------------------------------------------------------
APRIL 1,
2005
THROUGH
OCTOBER 21,
2005 (DATE
SHARES YEAR ENDED MARCH 31,
CONVERTED) ---------------------------------------
----------- 2005 2004 2003
- -------------------------------------------------------------------- ----------------------------------------
Net asset value, beginning of period $30.26 $20.53 $15.55 $ 17.98
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.07)/(a)/ (0.10)/(a)/ (0.06)/(a)/ (0.14)/(a)/
- ---------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) 4.09 9.83 5.04 (2.29)
- ---------------------------------------------------------------------------------------------------------------------------
Total from investment operations 4.02 9.73 4.98 (2.43)
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $34.28 $30.26 $20.53 $ 15.55
- ---------------------------------------------------------------------------------------------------------------------------
Total return/(c)/ 13.29% 47.39% 32.03% (13.52)%
- ---------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) -- $2,959 $ 899 $ 289
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.39%/(d)/ 1.57% 1.76% 2.07%
- ---------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.39%/(d)/ 1.58% 3.70% 5.36%
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (0.36)%/(d)/ (0.42)% (0.35)% (0.90)%
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate/(f)/ 72% 45% 123% 144%
- ---------------------------------------------------------------------------------------------------------------------------
--------------------------
NOVEMBER 30, 2000
(DATE SALES
COMMENCED) TO
MARCH 31,
-------------- 2001
2002 -----------------
- ---------------------------------------------------------------------------------
Net asset value, beginning of period $ 19.62 $16.76
- ---------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.05)/(b)/ (0.15)
- ---------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) (1.59) 3.01
- ---------------------------------------------------------------------------------------------------
Total from investment operations (1.64) 2.86
- ---------------------------------------------------------------------------------------------------
Net asset value, end of period $ 17.98 $19.62
- ---------------------------------------------------------------------------------------------------
Total return/(c)/ (8.36)% 17.06%
- ---------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 37 $ 1
- ---------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 11.62% 3.11%/(e)/
- ---------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 11.62% 3.11%/(e)/
- ---------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (10.45)% (2.34)%/(e)/
- ---------------------------------------------------------------------------------------------------
Portfolio turnover rate/(f)/ 144% 166%
- ---------------------------------------------------------------------------------------------------
/(a)/Calculated using average shares outstanding.
/(b)/The net investment income (loss) per share was calculated after permanent
book tax differences, such as net operating losses, which were
reclassified from accumulated net investment income (loss) to paid in
capital. Had net investment income (loss) per share been calculated using
the current method, which is before reclassification of net operating
losses, net investment income (loss) per share would have been $(0.27) for
the year ended March 31, 2002.
/(c)/Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net
asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges and is not
annualized for periods less than one year.
/(d)/Ratios are annualized and based on average daily net assets of $6,074,737.
/(e)/Annualized.
/(f)/Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
F-13
AIM ENERGY FUND
NOTE 13--FINANCIAL HIGHLIGHTS-(CONTINUED)
INVESTOR CLASS
------------------------------------------------------------
YEAR ENDED MARCH 31,
------------------------------------------------------------
2006 2005 2004 2003
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 32.78 $ 22.19 $ 16.81 $ 19.26
- --------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.06)/(a)/ (0.06)/(a)/ (0.07)/(a)/ (0.10)/(a)/
- --------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) 12.71 10.65 5.45 (2.35)
- --------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 12.65 10.59 5.38 (2.45)
- --------------------------------------------------------------------------------------------------------------------------------
Less distributions from net realized gains (2.36) -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 43.07 $ 32.78 $ 22.19 $ 16.81
- --------------------------------------------------------------------------------------------------------------------------------
Total return/(b)/ 38.94% 47.72% 32.00% (12.72)%
- --------------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $568,579 $378,915 $230,148 $231,023
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 1.18%/(c)/ 1.37%/(d)/ 1.76% 1.69%
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (0.15)%/(c)/ (0.22)% (0.35)% (0.57)%
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 72% 45% 123% 144%
- --------------------------------------------------------------------------------------------------------------------------------
---------
---------
2002
- ---------------------------------------------------------------------------------
Net asset value, beginning of period $ 19.73
- ---------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.07)/(a)/
- ---------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) (0.40)
- ---------------------------------------------------------------------------------
Total from investment operations (0.47)
- ---------------------------------------------------------------------------------
Less distributions from net realized gains --
- ---------------------------------------------------------------------------------
Net asset value, end of period $ 19.26
- ---------------------------------------------------------------------------------
Total return/(b)/ (2.38)%
- ---------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $358,439
- ---------------------------------------------------------------------------------
Ratio of expenses to average net assets 1.53%
- ---------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (0.34)%
- ---------------------------------------------------------------------------------
Portfolio turnover rate 144%
- ---------------------------------------------------------------------------------
/(a)/Calculated using average shares outstanding.
/(b)/Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net
asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges.
/(c)/Ratios are based on average daily net assets of $480,864,031.
/(d)/After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements was
1.38% for the year ended March 31, 2005.
INSTITUTIONAL CLASS
-------------------
JANUARY 31, 2006
(DATE SALES
COMMENCED) TO
MARCH 31,
2006
- --------------------------------------------------------------------------------------
Net asset value, beginning of period $46.46
- --------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.02/(a)/
- --------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) (3.28)
- --------------------------------------------------------------------------------------
Total from investment operations (3.26)
- --------------------------------------------------------------------------------------
Net asset value, end of period $43.20
- --------------------------------------------------------------------------------------
Total return/(b)/ (7.02)%
- --------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 67
- --------------------------------------------------------------------------------------
Ratio of expenses to average net assets 0.80%/(c)/
- --------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 0.23%/(c)/
- --------------------------------------------------------------------------------------
Portfolio turnover rate/(d)/ 72%
- --------------------------------------------------------------------------------------
/(a)/Calculated using average shares outstanding.
/(b)/Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net
asset values may differ from the net asset value and returns for
shareholder transactions. Not annualized for periods less than one year.
/(c)/Ratios are annualized and based on average daily net assets of $26,259.
/(d)/Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
F-14
AIM ENERGY FUND
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. 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.
PENDING LITIGATION AND REGULATORY INQUIRIES
On August 30, 2005, the West Virginia Office of the State Auditor -- Securities
Commission ("WVASC") issued a Summary Order to Cease and Desist and Notice of
Right to Hearing to AIM and ADI (Order No. 05-1318). The WVASC makes findings
of fact that AIM and ADI entered into certain arrangements permitting market
timing of the AIM Funds, including those formerly advised by IFG, and failed to
disclose these arrangements in the prospectuses for such Funds, and conclusions
of law to the effect that AIM and ADI violated the West Virginia securities
laws. The WVASC orders AIM and ADI to cease any further violations and seeks to
impose monetary sanctions, including restitution to affected investors,
disgorgement of fees, reimbursement of investigatory, administrative and legal
costs and an "administrative assessment," to be determined by the Commissioner.
Initial research indicates that these damages could be limited or capped by
statute.
Civil lawsuits, including purported class action and shareholder derivative
suits, have been filed against certain of the AIM Funds, IFG, AIM, ADI and/or
related entities and individuals, depending on the lawsuit, alleging:
. that the defendants permitted improper market timing and related
activity in the AIM Funds;
. that certain AIM Funds inadequately employed fair value pricing;
. that the defendants charged excessive advisory and/or distribution
fees and failed to pass on to shareholders the perceived savings
generated by economies of scale and that the defendants adopted
unlawful distribution plans; and
. that the defendants improperly used the assets of the AIM Funds to pay
brokers to aggressively promote the sale of the AIM Funds over other
mutual funds and that the defendants concealed such payments from
investors by disguising them as brokerage commissions.
These lawsuits allege as theories of recovery, depending on the lawsuit,
violations of various provisions of the Federal and state securities laws and
ERISA, negligence, breach of fiduciary duty and/or breach of contract. These
lawsuits seek remedies that include, depending on the lawsuit, damages,
restitution, injunctive relief, imposition of a constructive trust, removal of
certain directors and/or employees, various corrective measures under ERISA,
rescission of certain AIM Funds' advisory agreements and/or distribution plans
and recovery of all fees paid, an accounting of all fund-related fees,
commissions and soft dollar payments, restitution of all commissions and fees
paid, and prospective relief in the form of reduced fees.
All lawsuits based on allegations of market timing, late trading and related
issues have been transferred or conditionally transferred to the United States
District Court for the District of Maryland (the "MDL Court"). Pursuant to an
Order of the MDL Court, plaintiffs in these lawsuits consolidated their claims
for pre-trial purposes into three amended complaints against various AIM- and
IFG-related parties: (i) a Consolidated Amended Class Action Complaint
purportedly brought on behalf of shareholders of the AIM Funds; (ii) a
Consolidated Amended Fund Derivative Complaint purportedly brought on behalf of
the AIM Funds and fund registrants; and (iii) an Amended Class Action Complaint
for Violations of the Employee Retirement Income Securities Act ("ERISA")
purportedly brought on behalf of participants in AMVESCAP's 401(k) plan.
On March 1, 2006, the MDL Court entered orders on Defendants' Motions to
dismiss in the derivative and class action lawsuits. The MDL Court dismissed
all derivative causes of action in the derivative lawsuit but two: (i) the
excessive fee claim under Section 36(b) of the Investment Company Act of 1940
(the "1940 Act"); and (ii) the "control person liability" claim under
Section 48 of the 1940 Act. The MDL Court dismissed all claims asserted in the
class action lawsuit but three: (i) the securities fraud claims under
Section 10(b) of the Securities Exchange Act of 1934; (ii) the excessive fee
claim under Section 36(b) of the 1940 Act (which survived only insofar as
plaintiffs seek recovery of fees associated with the assets involved in market
timing); and (iii) the "control person liability" claim under Section 48 of the
1940 Act. Based on the MDL Court's March 1, 2006 orders, all claims asserted
against the Funds that have been transferred to the MDL Court have been
dismissed, although certain Funds remain nominal defendants in the derivative
lawsuit. Defendants filed their Original Answer in the class action lawsuit on
March 31, 2006. The MDL Court has indefinitely deferred Defendants' obligation
to answer the derivative lawsuit.
F-15
AIM ENERGY FUND
NOTE 14--LEGAL PROCEEDINGS-(CONTINUED)
On February 27, 2006, Judge Motz for the MDL Court issued a memorandum
opinion on the AMVESCAP defendants' motion to dismiss the ERISA lawsuit. Judge
Motz granted the motion in part and denied the motion in part, holding that:
(i) plaintiff has both constitutional and statutory standing to pursue her
claims under ERISA (S) 502(a)(2); (ii) plaintiff lacks standing under ERISA (S)
502(a)(3) to obtain equitable relief; (iii) the motion is granted as to the
claims alleged under ERISA (S) 404 for failure to prudently and loyally manage
plan assets against certain AMVESCAP defendants; (iv) the motion is denied as
to the claims alleged under ERISA (S) 404 for failure to prudently and loyally
manage plan assets against AMVESCAP and certain other AMVESCAP defendants. The
opinion also: (i) confirmed plaintiff's abandonment of her claims that
defendants engaged in prohibited transactions and/or misrepresentation;
(ii) postponed consideration of the duty to monitor and co-fiduciary duty
claims until after any possible amendments to the complaints; (iii) stated that
plaintiff may seek leave to amend her complaint within 40 days of the date of
filing of the memorandum opinion. On April 4, 2006, Judge Motz entered an order
implementing these rulings in the ERISA (Calderon) lawsuit against the AMVESCAP
defendants. Plaintiffs indicated that they intend to amend their complaint in
light of this order. Defendants will have 30 days after such amendment to
answer or otherwise respond.
IFG, AIM, ADI and/or related entities and individuals have received inquiries
from numerous regulators in the form of subpoenas or other oral or written
requests for information and/or documents related to one or more of the
following issues, among others, some of which concern one or more AIM Funds:
market timing activity, late trading, fair value pricing, excessive or improper
advisory and/or distribution fees, mutual fund sales practices, including
revenue sharing and directed-brokerage arrangements, investments in securities
of other registered investment companies, contractual plans, issues related to
Section 529 college savings plans and procedures for locating lost security
holders. IFG, AIM and ADI have advised the Fund that they are providing full
cooperation with respect to these inquiries. Regulatory actions and/or
additional civil lawsuits related to these or other issues may be filed against
the AIM Funds, IFG, AIM and/or related entities and individuals in the future.
At the present time, management of AIM and the Fund are unable to estimate
the impact, if any, that the outcome of the Pending Litigation and Regulatory
Inquiries described above may have on AIM, 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
AIM ENERGY FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees of AIM Sector Funds
and Shareholders of AIM Energy Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of AIM Energy Fund (one of the funds
constituting AIM Sector Funds, hereafter referred to as the "Fund") at March
31, 2006, the results of its operations for the year then ended, the changes in
its net assets for each of the two years in the period then ended and the
financial highlights for each of the periods indicated, in conformity with
accounting principles generally accepted in the United States of America. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits, which included confirmation of securities at March 31, 2006 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
/s/ PRICEWATERHOUSECOOPERS LLP
May 19, 2006
Houston, Texas
AIM ENERGY FUND
TAX DISCLOSURES
REQUIRED FEDERAL TAX INFORMATION OF ORDINARY DIVIDENDS PAID
Of ordinary dividends paid to shareholders during the Fund's tax year ended
March 31, 2006, 9.89% is eligible for the dividends received deduction for
corporations. The Fund distributed long-term capital gains of $64,283,259 for
the Fund's tax year ended March 31, 2006.
For its tax year ended March 31, 2006, the Fund designates 15.95%, 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 in your Form 1099-DIV. You should consult your tax advisor
regarding treatment of the amounts.
TAX INFORMATION FOR NON-RESIDENT ALIEN SHAREHOLDERS
For its tax year ended March 31, 2006, the Fund designates 0%, or the maximum
amount allowable, of its dividend distributions as qualified interest income
exempt from U.S. income tax for non-resident alien shareholders. Your actual
amount of qualified interest income for the calendar year will be reported in
your Form 1042-S mailing. You should consult your tax advisor regarding
treatment of the amounts.
The Fund designates qualified short-term capital gain distributions exempt
from U.S. tax for non-resident alien shareholders of $4,803,204 for the Fund's
tax year ended March 31, 2006.
The percentage of qualifying assets not subject to the U.S. estate tax for
the fiscal quarters ended June 30, 2005, September 30, 2005, December 31, 2005
and March 31, 2006 are 16.51%, 16.08%, 17.39% and 18.11%, respectively.
AIM ENERGY FUND
TRUSTEES AND OFFICERS
As of March 31, 2006
The address of each trustee and officer of AIM Sector Funds (the "Trust"), is
11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 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)
TRUST OR OFFICER SINCE DURING PAST 5 YEARS
- ----------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- ----------------------------------------------------------------------------------------------------
Robert H. Graham/1 /-- 1946 2003 Director and Chairman, A I M Management
Trustee, Vice Chair, President and Group Inc. (financial services holding
Principal Executive Officer company); Director and Vice Chairman,
AMVESCAP PLC; Chairman of AMVESCAP
PLC -- AIM Division (parent of AIM and
a global investment management firm);
and Trustee, Vice Chair, President and
Principal Executive Officer of the AIM
Family of Funds
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 Trustee and Executive Vice President of
Trustee and Executive Vice President the AIM Family of Funds
Formerly: Director, Chairman, President
and Chief Executive Officer, INVESCO
Funds Group, Inc.; President and Chief
Executive Officer, INVESCO
Distributors, Inc.; and Chief Executive
Officer, AMVESCAP PLC -- Managed
Products; and Chairman, A I M Advisors,
Inc.; Director, President and Chief
Executive Officer, A I M Management
Group Inc.; Director and President,
A I M Advisors, Inc.; Director, A I M
Capital Management, Inc. and A I M
Distributors,
Inc.; Director and Chairman, AIM Investment
Services, Inc., Fund Management Company
and INVESCO Distributors, Inc.
(registered broker dealer); Chief
Executive Officer, AMVESCAP PLC -- AIM
Division
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- ----------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 2003 Chairman, Crockett Technology
Trustee and Chair Associates (technology consulting
company)
- ----------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 1983 Retired
Trustee
- ----------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2003 Retired
Trustee
Formerly: Partner, law firm of Baker &
McKenzie
- ----------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2000 Founder, Green, Manning & Bunch, Ltd.
Trustee (investment banking firm); and
Director, Policy Studies, Inc. and Van
Gilder Insurance Corporation
- ----------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2003 Director of a number of public and
Trustee private business corporations,
including the Boss Group, Ltd. (private
investment and management); Cortland
Trust, Inc. (Chairman) (registered
investment company (3 portfolios));
Annuity and Life Re (Holdings), Ltd.
(insurance company; CompuDyne
Corporation (provider of products and
services to the public security market)
and Homeowners of American Holding
Corporation
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President,
AB Volvo; and director of various
affiliated Volvo companies
- ----------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 2003 Chief Executive Officer, Twenty First
Trustee Century Group, Inc. (government affairs
company); and Owner, Dos Angelos Ranch,
L.P.
Formerly: Chief Executive Officer,
Texana Timber LP (sustainable forestry
company)
- ----------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 2003 Partner, law firm of Kramer Levin
Trustee Naftalis and Frankel LLP
- ----------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 2003 Formerly: Chief Executive Officer, YWCA
Trustee of the USA
- ----------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 2003 Partner, law firm of Pennock & Cooper
Trustee
- ----------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2003 Retired
Trustee
- ----------------------------------------------------------------------------------------------------
Larry Soll -- 1942 1997 Retired
Trustee
- ----------------------------------------------------------------------------------------------------
Raymond Stickel, Jr. -- 1944 2005 Retired
Trustee
Formerly: Partner, Deloitte & Touche
- ----------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
DURING PAST 5 YEARS HELD BY TRUSTEE
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
Director and Chairman, A I M Management None
Group Inc. (financial services holding
company); Director and Vice Chairman,
AMVESCAP PLC; Chairman of AMVESCAP
PLC -- AIM Division (parent of AIM and
a global investment management firm);
and Trustee, Vice Chair, President and
Principal Executive Officer of the AIM
Family of Funds
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
- ----------------------------------------------------------------------------
Trustee and Executive Vice President of None
the AIM Family of Funds
Formerly: Director, Chairman, President
and Chief Executive Officer, INVESCO
Funds Group, Inc.; President and Chief
Executive Officer, INVESCO
Distributors, Inc.; and Chief Executive
Officer, AMVESCAP PLC -- Managed
Products; and Chairman, A I M Advisors,
Inc.; Director, President and Chief
Executive Officer, A I M Management
Group Inc.; Director and President,
A I M Advisors, Inc.; Director, A I M
Capital Management, Inc. and A I M
Distributors,
Inc.; Director and Chairman, AIM Investment
Services, Inc., Fund Management Company
and INVESCO Distributors, Inc.
(registered broker dealer); Chief
Executive Officer, AMVESCAP PLC -- AIM
Division
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
Chairman, Crockett Technology ACE Limited (insurance
Associates (technology consulting company); and Captaris, Inc.
company) (unified messaging provider)
- ----------------------------------------------------------------------------
Retired None
- ----------------------------------------------------------------------------
Retired Badgley Funds, Inc. (registered
investment company
Formerly: Partner, law firm of Baker & (2 portfolios))
McKenzie
- ----------------------------------------------------------------------------
Founder, Green, Manning & Bunch, Ltd. None
(investment banking firm); and
Director, Policy Studies, Inc. and Van
Gilder Insurance Corporation
- ----------------------------------------------------------------------------
Director of a number of public and None
private business corporations,
including the Boss Group, Ltd. (private
investment and management); Cortland
Trust, Inc. (Chairman) (registered
investment company (3 portfolios));
Annuity and Life Re (Holdings), Ltd.
(insurance company; CompuDyne
Corporation (provider of products and
services to the public security market)
and Homeowners of American Holding
Corporation
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President,
AB Volvo; and director of various
affiliated Volvo companies
- ----------------------------------------------------------------------------
Chief Executive Officer, Twenty First Administaff, and Discovery
Century Group, Inc. (government affairs Global Education Fund
company); and Owner, Dos Angelos Ranch, (non-profit)
L.P.
Formerly: Chief Executive Officer,
Texana Timber LP (sustainable forestry
company)
- ----------------------------------------------------------------------------
Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Naftalis and Frankel LLP investment company
(3 portfolios))
- ----------------------------------------------------------------------------
Formerly: Chief Executive Officer, YWCA None
of the USA
- ----------------------------------------------------------------------------
Partner, law firm of Pennock & Cooper None
- ----------------------------------------------------------------------------
Retired None
- ----------------------------------------------------------------------------
Retired None
- ----------------------------------------------------------------------------
Retired Director, Mainstay VP Series
Funds, Inc. (21 portfolios)
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.
AIM ENERGY FUND
TRUSTEES AND OFFICERS-(CONTINUED)
As of March 31, 2006
The address of each trustee and officer of AIM Sector Funds (the "Trust"), is
11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 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
- --------------------------------------------------------------------------------------------------------------------
Russell C. Burk -- 1958 2005 Senior Vice President and Senior N/A
Senior Vice President and Officer of the AIM Family of Funds
Senior Officer
Formerly: Director of Compliance and
Assistant General Counsel, ICON
Advisers, Inc.; Financial Consultant,
Merrill Lynch; General Counsel and
Director of Compliance, ALPS Mutual
Funds, Inc.
- --------------------------------------------------------------------------------------------------------------------
John M. Zerr -- 1962/3/ 2006 Director, Senior Vice President, N/A
Senior Vice President, Chief Legal Secretary and General Counsel, A I M
Officer and Secretary Management Group Inc. (financial
services holding company) and A I M
Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Vice President, A I M Capital
Management, Inc., AIM Investment
Services, Inc., and Fund Management
Company; and Senior Vice President, A I
M Distributors, Inc.; and Senior Vice
President, Chief Legal Officer and
Secretary of the AIM Family of Funds
Formerly: Chief Operating Officer,
Senior Vice President, General Counsel,
and Secretary, Liberty Ridge Capital,
Inc. (an investment adviser); Vice
President and Secretary, PBHG Funds (an
investment company); Vice President and
Secretary, PBHG Insurance Series Fund
(an investment company); General
Counsel and Secretary, Pilgrim Baxter
Value Investors (an investment
adviser); Chief Operating Officer,
General Counsel and Secretary, Old
Mutual Investment Partners (a
broker-dealer); General Counsel and
Secretary, Old Mutual Fund Services (an
administrator); General Counsel and
Secretary, Old Mutual Shareholder
Services (a shareholder servicing
center); Executive Vice President,
General Counsel and Secretary, Old
Mutual Capital, Inc. (an investment
adviser); and Vice President and
Secretary, Old Mutual Advisors Funds
(an investment company)
- --------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley -- 1959 2004 Global Compliance Director, AMVESCAP N/A
Vice President PLC; and Vice President of the AIM
Family of Funds
Formerly: Senior Vice President, A I M
Management Group Inc. (financial
services holding company); Senior Vice
President and Chief Compliance Officer,
A I M Advisors, Inc. and the AIM Family
of Funds; Vice President and Chief
Compliance Officer, A I M Capital
Management, Inc. and A I M
Distributors, Inc.; Vice President, AIM
Investment Services, Inc. and Fund
Management Company; and Senior Vice
President and Compliance Director,
Delaware Investments Family of Funds
- --------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Senior Vice President and General N/A
Vice President Counsel, AMVESCAP PLC; and Vice
President of the AIM Family of Funds
Formerly: Director, General Counsel,
and Vice President Fund Management
Company; Director, Senior Vice
President, Secretary and General
Counsel, A I M Management Group Inc.
(financial services holding company)
and A I M Advisors, Inc.; Director and
Vice President, INVESCO Distributors,
Inc.; Senior Vice President,
A I M Distributors, Inc.; Vice
President, A I M Capital Management,
Inc. and AIM Investment Services, Inc.;
Senior Vice President, Chief Legal
Officer and Secretary of the AIM Family
of Funds; and Senior Vice President,
Chief Legal Officer and General
Counsel, Liberty Financial Companies,
Inc. and Liberty Funds Group, LLC
- --------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, N/A
Vice President, Treasurer and A I M Advisors, Inc.; and Vice
Principal Financial Officer President, Treasurer and Principal
Financial Officer of the AIM Family of
Funds
Formerly: Vice President,
A I M Distributors, Inc.; and Senior
Vice President, AIM Investment
Services, 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.;
and Vice President of the AIM Family of
Funds
Formerly: Senior Vice President, AIM
Private Asset Management, Inc.; and
Chief Equity Officer and Senior
Investment Officer, A I M Capital
Management, Inc.
- --------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 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. and the AIM Family
of Fund
- --------------------------------------------------------------------------------------------------------------------
Todd L. Spillane/4 /-- 1958 2006 Senior Vice President, A I M Management N/A
Chief Compliance Officer Group Inc.; Senior Vice President and
Chief Compliance Officer, A I M
Advisors, Inc.; Chief Compliance
Officer of the AIM Family of Funds;
Vice President and Chief Compliance
Officer, A I M Capital Management,
Inc.; and Vice President, A I M
Distributors, Inc., AIM Investment
Services, Inc. and Fund Management
Company
Formerly: Global Head of Product
Development, AIG-Global Investment
Group, Inc.; Chief Compliance Officer
and Deputy General Counsel,
AIG-SunAmerica Asset Management; and
Chief Compliance Officer, Chief
Operating Officer and Deputy General
Counsel, American General Investment
Management
- --------------------------------------------------------------------------------------------------------------------
/3/ Mr. Zerr was elected Senior Vice President, Chief Legal Officer and
Secretary effective March 29, 2006.
/4/ Mr. Spillane was elected Chief Compliance Officer effective March 29, 2006.
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, 51st Floor Frankel LLP Houston, TX 77210-4739 225 Franklin Street
Philadelphia, PA 19103-7599 1177 Avenue of the Americas Boston, MA 02110-2801
New York, NY 10036-2714
DOMESTIC EQUITY SECTOR EQUITY AIM ALLOCATION SOLUTIONS
AIM Basic Balanced Fund* AIM Advantage Health Sciences Fund AIM Conservative Allocation Fund
AIM Basic Value Fund AIM Energy Fund AIM Growth Allocation Fund/2/
AIM Capital Development Fund AIM Financial Services Fund AIM Moderate Allocation Fund
AIM Charter Fund AIM Global Health Care Fund AIM Moderate Growth Allocation Fund
AIM Constellation Fund AIM Global Real Estate Fund AIM Moderately Conservative
AIM Diversified Dividend Fund AIM Gold & Precious Metals Fund Allocation Fund
AIM Dynamics Fund AIM Leisure Fund
AIM Large Cap Basic Value Fund AIM Multi-Sector Fund DIVERSIFIED PORTFOLIOS
AIM Large Cap Growth Fund AIM Real Estate Fund/1/
AIM Mid Cap Basic Value Fund AIM Technology Fund AIM Income Allocation Fund
AIM Mid Cap Core Equity Fund/1/ AIM Utilities Fund AIM International Allocation Fund
AIM Opportunities I Fund
AIM Opportunities II Fund FIXED INCOME
AIM Opportunities III Fund TAXABLE
AIM S&P 500 Index Fund
AIM Select Equity Fund AIM Enhanced Short Bond Fund
AIM Small Cap Equity Fund AIM Floating Rate Fund
AIM Small Cap Growth Fund AIM High Yield Fund
AIM Structured Core Fund AIM Income Fund
AIM Structured Growth Fund AIM Intermediate Government Fund
AIM Structured Value Fund AIM International Bond Fund
AIM Summit Fund AIM Limited Maturity Treasury Fund
AIM Trimark Endeavor Fund AIM Money Market Fund
AIM Trimark Small Companies Fund AIM Short Term Bond Fund
AIM Total Return Bond Fund
* Domestic equity and income fund Premier Portfolio
Premier U.S. Government Money
Portfolio
INTERNATIONAL/GLOBAL EQUITY
TAX-FREE
AIM Asia Pacific Growth Fund
AIM China Fund AIM High Income Municipal Fund/1/
AIM Developing Markets Fund AIM Municipal Bond Fund
AIM European Growth Fund AIM Tax-Exempt Cash Fund
AIM European Small Company Fund/1/ AIM Tax-Free Intermediate Fund
AIM Global Aggressive Growth Fund Premier Tax-Exempt Portfolio
AIM Global Equity Fund
AIM Global Growth Fund
AIM Global Value Fund
AIM Japan Fund
AIM International Core Equity Fund
AIM International Growth Fund
AIM International Small Company Fund/1/
AIM Trimark Fund
/1/ This Fund has limited public sales of its shares to certain investors. For
more information on who may continue to invest in the Fund, please see the
appropriate prospectus.
/2/ Effective April 29, 2005, AIM Aggressive Allocation Fund was renamed AIM
Growth Allocation Fund.
Shareholders approved the reorganization of the following funds to be
effective on or about April 10, 2006: AIM Mid Cap Growth Fund into AIM Dynamics
Fund, AIM Small Company Growth Fund into AIM Small Cap Growth Fund and AIM
Premier Equity Fund into AIM Charter Fund.
If used after July 20, 2006, 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. AIM is a subsidiary of AMVESCAP PLC, one of the
world's largest independent financial services companies with $411 billion in
assets under management. Data as of March 31, 2006.
- --------------------------------------------------------------------------------
CONSIDER THE INVESTMENT OBJECTIVES, RISKS, AND CHARGES AND EXPENSES CAREFULLY.
FOR THIS AND OTHER INFORMATION ABOUT AIM FUNDS, OBTAIN A PROSPECTUS FROM YOUR
FINANCIAL ADVISOR AND READ IT CAREFULLY BEFORE INVESTING.
- --------------------------------------------------------------------------------
AIMinvestments.com I-ENE-AR-1 A I M Distributors, Inc.
[YOUR GOALS. OUR SOLUTIONS.]
- REGISTERED TRADEMARK -
Mutual Retirement Annuities College Separately Offshore Cash
Funds Products Savings Managed Products Management
Plans Accounts
[AIM INVESTMENTS LOGO]
- REGISTERED TRADEMARK -
AIM FINANCIAL SERVICES FUND
Annual Report to Shareholders . March 31, 2006
[COVER IMAGE]
[YOUR GOALS. OUR SOLUTIONS.]
- REGISTERED TRADEMARK -
[AIM INVESTMENTS LOGO]
- REGISTERED TRADEMARK -
AIM FINANCIAL SERVICES FUND SEEKS TO PROVIDE CAPITAL GROWTH.
.. Unless otherwise stated, information presented in this report is as of March
31, 2006, 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.
.. Investor Class shares are closed to most investors. For more information on
who may continue to invest in the Investor Class shares, please see the
prospectus.
.. Effective October 21, 2005, Class K shares were converted to Class A shares.
PRINCIPAL RISKS OF INVESTING IN THE FUND
.. Investing in a single-sector or single-region mutual fund involves greater
risk and potential reward than investing in a more diversified fund.
.. 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 smaller companies involves greater risk than investing in more
established companies, such as business risk, significant stock price
fluctuations and illiquidity.
.. By concentrating on a small number of holdings, the Fund carries greater
risk because each investment has a greater effect on the Fund's overall
performance.
ABOUT INDEXES USED IN THIS REPORT
.. The unmanaged STANDARD & POOR'S COMPOSITE INDEX OF 500 STOCKS (the S&P 500
- --REGISTERED TRADEMARK-- Index) is an index of common stocks frequently used as
a general measure of U.S. stock market performance.
.. The S&P 500 FINANCIALS INDEX is a market capitalization weighted index of
companies involved in activities such as banking, consumer finance, investment
banking and brokerage, asset management, insurance and investment, and real
estate, including REITs.
.. The unmanaged LIPPER FINANCIAL SERVICES FUND INDEX represents an average of
the 10 largest financial-services funds tracked by Lipper Inc., an independent
mutual fund performance monitor.
.. The unmanaged LEHMAN BROTHERS U.S. AGGREGATE BOND INDEX (the Lehman
Aggregate), which represents the U.S. investment-grade fixed-rate bond market
(including government and corporate securities, mortgage pass-through securities
and asset-backed securities), is compiled by Lehman Brothers, a global
investment bank.
.. The unmanaged MSCI WORLD INDEX is a group of global securities tracked by
Morgan Stanley Capital International.
.. The Fund is not managed to track the performance of any particular index,
including the indexes defined here, and consequently, the performance of the
Fund may deviate significantly from the performance of the index.
.. A direct investment cannot be made in an index. Unless otherwise indicated,
index results include reinvested dividends, and they do not reflect sales
charges. Performance of an index of funds reflects fund expenses; performance of
a market index does not.
OTHER INFORMATION
.. The returns shown in management's discussion of Fund performance are based on
net asset values calculated for shareholder transactions. Generally accepted
accounting principles require adjustments to be made to the net assets of the
Fund at period end for financial reporting purposes, and as such, the net asset
values for shareholder transactions and the returns based on those net asset
values may differ from the net asset values and returns reported in the
Financial Highlights.
.. Industry classifications used in this report are generally according to the
Global Industry Classification Standard, which was developed by and is the
exclusive property and a service mark of Morgan Stanley Capital International
Inc. and Standard & Poor's.
The Fund provides a complete list of its holdings four times in each fiscal
year, at the quarterends. 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. 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 811-03826 and 002-85905.
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
Continued on page 7
- --------------------------------------------------------------------------------
FUND NASDAQ SYMBOLS
Class A Shares IFSAX
Class B Shares IFSBX
Class C Shares IFSCX
Investor Class Shares FSFSX
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND
PROSPECTUS, WHICH CONTAINS MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES
AND EXPENSES. INVESTORS SHOULD READ IT CAREFULLY BEFORE INVESTING.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
- --------------------------------------------------------------------------------
AIMINVESTMENTS.COM
AIM FINANCIAL SERVICES FUND
DEAR FELLOW AIM FUNDS SHAREHOLDERS:
Although many concerns, including rising fuel costs, weighed
on investors' minds during the fiscal year covered by this
report, stocks posted gains for the period. The S&P 500
[GRAHAM PHOTO] Index, frequently cited as a benchmark for U.S. stock market
performance, returned 11.72%. Results for international
stocks were more impressive, with the MSCI World Index
gaining 18.02%. Bonds posted more modest gains, as the
Lehman Brothers U.S. Aggregate Bond Index returned 2.26%.
Domestically, small- and mid-cap stocks generally
outperformed their large-cap counterparts. Within the S&P
500 Index, energy, financials and telecommunication services
were the best-performing sectors. Internationally, emerging
markets produced more attractive results than developed
markets.
ROBERT H. GRAHAM Bond performance also varied, with high yield bonds and
emerging market debt among the better-performing segments of
the fixed-income market. Municipal bonds also posted
above-average returns for the fiscal year.
Among the developments that affected markets and the
economy during the fiscal year were:
. Hurricane Katrina, which devastated several Gulf Coast
states in August, dealt a short-term setback to consumer
confidence. However, consumer confidence rebounded toward
the end of the period, with analysts crediting the
resiliency of the economy and job growth for this trend.
[TAYLOR PHOTO] . The Federal Reserve (the Fed) continued its tightening
policy, raising the key federal funds target rate to 4.75%
by the end of the reporting period. Many analysts believed
that the central bank was near the end of its tightening
policy as Ben Bernanke succeeded the retiring Alan
Greenspan as Fed chairman early in 2006.
PHILIP TAYLOR For a discussion of the specific market conditions that
affected your Fund and how your Fund was managed during the
reporting period, please see the management discussion of
Fund performance in this report.
PHILIP TAYLOR HEADS NORTH AMERICAN RETAIL DISTRIBUTION
Effective April 17, 2006, Philip Taylor assumed the
leadership of North American Retail Distribution for
AMVESCAP PLC, the parent company of AIM Investments
--REGISTERED TRADEMARK--and AIM Trimark Investments in
Canada. As president and vice chair of AIM Funds, I would
personally like to congratulate Phil on his new role with
our organization. Phil has been chief executive officer of
AIM Trimark, one of Canada's largest and most successful
investment management firms, since January 2002. He will be
relocating to AIM's offices in Houston, Texas. All of us at
AIM are looking forward to working with Phil.
Mark Williamson, former chief executive officer and
president of AIM Investments, will continue to serve AIM and
AMVESCAP in various capacities for the remainder of 2006. We
want to take this opportunity to thank Mark for his many
contributions to fund shareholders and our company. He
joined AIM during a very challenging period. Mark has been
instrumental in enhancing our investment process, improving
our company's departmental structure and deepening
relationships with our clients.
YOUR FUND
Further information about the markets, your Fund and
investing in general is always available on our
comprehensive 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. Phil and I thank you for
your continued participation in AIM Investments. If you have
any questions, please contact our award-winning Client
Service representatives at 800-959-4246. We are pleased to
be of help.
Sincerely,
/s/ ROBERT H. GRAHAM /s/ PHILIP TAYLOR
Robert H. Graham Philip Taylor
President & Vice Chair - AIM Funds CEO, AIM Investments
Chair, AIM Investments
May 17, 2006
AIM INVESTMENTS IS A REGISTERED SERVICE MARK OF A I M
MANAGEMENT GROUP INC. A I M ADVISORS, INC. AND A I M CAPITAL
MANAGEMENT, INC. ARE THE INVESTMENT ADVISORS. A I M
DISTRIBUTORS, INC. IS THE DISTRIBUTOR FOR THE RETAIL FUNDS
REPRESENTED BY AIM INVESTMENTS.
1
AIM FINANCIAL SERVICES FUND
DEAR FELLOW AIM FUND SHAREHOLDERS:
Having completed a year of transition and change at AIM
Funds--as well as my first full year as your board's
independent chair--I can assure you that shareholder
interests are at the forefront of every decision your board
[CROCKETT PHOTO] makes. While regulators and fund companies debate the value
of an independent board chair, this structure is working for
you. Our new structure has enabled the board to work more
effectively with management to achieve benefits for the
shareholders, as shown in the highlights of 2005 listed
below:
. During 2005, management proposed, and your board
approved, voluntary advisory fee reductions, which are
saving shareholders more than $20 million annually, based
on asset levels of March 31, 2005.
BRUCE L. CROCKETT . Also during 2005, management proposed to your board the
merger of 14 funds into other AIM funds with similar
objectives. In each case, the goal was for the resulting
merged fund to benefit from strengthened management and
greater efficiency. Your board carefully analyzed and
discussed with management the rationale and proposed terms
of each merger to ensure that the mergers were beneficial
to the shareholders of all affected funds before approving
them. Eight of these mergers were subsequently approved by
shareholders of the target funds during 2005. The
remaining six fund mergers were approved by shareholders
in early 2006.
. Your board, through its Investments Committee and
Subcommittees, continued to closely monitor the portfolio
performance of the funds. During the year, your board
reviewed portfolio management changes made by the advisor
at 11 funds with the objective of organizing management
teams around common processes and shared investment views.
Management believes these changes will lead to improved
investment performance.
In 2006, your board will continue to focus on fund
expenses and investment performance. Although many funds
have good performance, we are working with management to
seek improvements for those funds currently performing below
expectations. Eight in-person board meetings and several
additional telephone and committee meetings are scheduled to
take place this year. I'll inform you of our progress in my
next semiannual letter to shareholders.
The AIM Funds board is pleased to welcome our newest
independent member, Raymond Stickel, Jr., a former partner
with the international auditing firm of Deloitte & Touche.
We also send our thanks and best wishes to Gerald J. Lewis,
who retired from your board in December 2005, and to Edward
K. Dunn, Jr., who retired in 2006.
Your board welcomes your views. Please mail them to me at
AIM Investments, AIM Investments Tower, 11 Greenway Plaza,
Suite 100, Houston TX 77046.
Sincerely,
/s/ BRUCE L. CROCKETT
Bruce L. Crockett
Independent Chair
AIM Funds Board
May 17, 2006
2
AIM FINANCIAL SERVICES FUND
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
- --------------------------------------------------------------------------------
PERFORMANCE SUMMARY
For the year ended March 31, 2006, AIM Financial Services Fund produced a
positive return, outperformed its broad market index and underperformed its
style-specific index. The Fund outperformed the broad market largely because the
financial services sector was one of the stronger performing sectors of the S&P
500 Index. The Fund slightly underperformed its style-specific index due
primarily to not owning any REITs, underweight exposure to regional banks and
our position in two government-sponsored mortgage companies, Fannie Mae and
Freddie Mac, which were meaningful detractors from Fund performance during the
period. Fund holdings in insurance and capital market stocks were the largest
contributors to performance.
- --------------------------------------------------------------------------------
FUND VS. INDEXES
TOTAL RETURNS, 3/31/05-3/31/06, EXCLUDING APPLICABLE SALES CHARGES. IF SALES
CHARGES WERE INCLUDED, RETURNS WOULD BE LOWER.
Class A Shares 16.36%
Class B Shares 15.51
Class C Shares 15.51
Investor Class Shares 16.36
S&P 500 Index
(Broad Market Index) 11.72
S&P 500 Financials Index
(Style-specific Index) 17.42
Lipper Financial Services Fund Index
(Peer Group Index) 17.56
SOURCE: LIPPER INC.
- --------------------------------------------------------------------------------
For long-term performance, please see pages 6 and 7.
- --------------------------------------------------------------------------------
HOW WE INVEST
Our goal is to create wealth for shareholders. We maintain a long-term
investment horizon and invest in the two primary opportunities we believe have
historically resulted in superior investment returns within the financial
sector:
.. Financial companies trading at a significant discount to our determination of
intrinsic value because of excessive short-term investor pessimism. Intrinsic
value is a measure based primarily on the estimated future cash flows generated
by the businesses.
.. Reasonably valued financial companies that demonstrate superior capital
discipline by returning excess capital to shareholders in the form of dividends
and share repurchases.
We maintain a proprietary database of intrinsic value estimates and screen
financial companies for those of acceptable quality. Purchase candidates are
subject to exhaustive fundamental analysis. We focus on the drivers of intrinsic
value such as normalized earnings power, marginal returns on economic equity
that adjusts for distortions present in accounting numbers, and sustainable
growth. Additionally, we strive to understand a company's ability and
willingness to grow capital returned to shareholders in the future. Finally, we
focus on "quality" including competitive position, management and financial
strength.
The result is normally a 35- to 50-stock portfolio with investments we
believe are attractive from both a valuation and capital discipline perspective
representing top holdings. In constructing a portfolio, we attempt to mitigate
risk in multiple ways, including by diversifying holdings across industries and
businesses that generally react in different ways to changes in interest rates
and economic cycles.
We believe a diversified portfolio of undervalued and capital-disciplined
quality financial companies that profitably grow cash flows over time provides
the best opportunity for superior long-term investment results.
MARKET CONDITIONS AND YOUR FUND
Despite widespread concern about the potential impact of rising short-term
interest rates, historically high energy prices, ongoing concern
(continued)
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION TOP 10 EQUITY HOLDINGS*
By industry 1. Citigroup Inc. 7.9%
Other Diversified Financial Services 15.7% 2. JPMorgan Chase & Co. 7.8
Diversified Banks 14.2 3. Fannie Mae 6.0
Thrifts & Mortgage Finance 13.3 4. Hartford Financial Services Group, Inc. (The) 5.3
Investment Banking & Brokerage 9.7 5. Bank of America Corp. 5.3
Asset Management & Custody Banks 9.1 6. Bank of New York Co., Inc. (The) 5.2
Property & Casualty Insurance 8.2 7. Merrill Lynch & Co., Inc. 5.0
Regional Banks 7.8 8. ACE Ltd. 4.1
Multi-Line Insurance 7.5 9. Morgan Stanley 3.6
Insurance Brokers 5.3 10. Freddie Mac 3.4
Consumer Finance 3.0
Three Other Industries, Each TOTAL NET ASSETS $706.2 MILLION
Less than 3% of Total Net Assets 4.1 TOTAL NUMBER OF HOLDINGS* 34
Money Market Fund Plus Other Assets Less Liabilities 2.1
The Fund's holdings are subject to change, and there is no assurance that the
Fund will continue to hold any particular security.
*Excluding money market fund holdings.
- --------------------------------------------------------------------------------
3
AIM FINANCIAL SERVICES FUND
about a housing bubble, and the long-term economic effects of two devastating
Gulf Coast hurricanes, the U.S. economy showed signs of strength for the fiscal
year. During the reporting period, the Federal Reserve (the Fed) continued its
tightening policy, raising the key federal funds rate to 4.75%, and ushered in
Ben Bernanke as the new Fed Chairman. Early in the reporting period, financial
investors were concerned about the impact that rising interest rates and a
flattening yield curve could have on financial company profits and worried about
overheating home prices. After a sharp decline early in 2005, financial stocks
recovered as the Fed appeared to be almost finished pushing short-term interest
rates higher.
Fund performance benefited during the period from investments in insurance
and capital-markets-sensitive stocks. The portfolio had an overweight exposure
to property-casualty and life insurance stocks during the entire period. While
property-casualty insurance benefited from a more optimistic outlook for higher
insurance prices in the wake of Hurricane Katrina, the specific insurance
investments in the portfolio reflected our investment process and consisted of
companies we believe are able to return growing excess capital to shareholders
as well as stocks that we considered to be significantly undervalued.
PRUDENTIAL FINANCIAL, a life insurance giant, added to Fund performance as
the company's capital discipline became evident to investors with the
considerable improvement in return on equity. ACE LIMITED, a Bermuda domiciled
writer of property and casualty insurance risks, was another strong contributor
to performance as investors re-valued the shares upward amid evidence of strong
risk management and the ability to take advantage of firmer insurance prices.
Investment bank and retail brokerage firm MERRILL LYNCH was among holdings
of capital-markets-sensitive companies that added to performance during the
period. JPMORGAN CHASE & CO., one of the top three bank holding companies in the
U.S. with sizable capital markets businesses, was also a notable contributor to
performance. The company has been focused on improving financial performance
since merging with Bank One in mid-2004.
Fund performance was negatively affected by declines in two large holdings,
FANNIE MAE and FREDDIE MAC, both of which are government-sponsored mortgage
companies that operate attractive businesses vital to the U.S. housing market.
Both stocks fell amid uncertainty over the potential for far-reaching regulatory
changes. We have considered the potential outcomes of regulatory reform,
especially on the important issue of capital requirements. We believe Fannie Mae
and Freddie Mac are undervalued even with onerous capital requirements and that
they have considerable upside potential. We also continue to believe that the
companies' underlying business economics are understandable despite controversy
surrounding application of accounting standards. We continued to hold both
stocks at the close of the period.
Over the course of the year, we took profits in insurance stocks as higher
stock prices resulted in less compelling valuations. We reduced our position in
PRUDENTIAL and sold CHUBB and SAFECO. We established a new position in SUN TRUST
BANKS, a banking company with a strong presence from Maryland through Florida
down the Atlantic coast. We also added HUDSON CITY BANCORP, a New Jersey-based
savings bank, to the portfolio as part of a secondary offering by the company.
We believe Hudson City has an attractive market presence and substantial excess
capital.
The impact of changes on the overall portfolio was to increase exposure to
regional banks and to decrease exposure to property-casualty insurance. Relative
to the S&P 500 Financials Index, the Fund continued to be overweight
property-casualty insurance and mortgage companies, while the underweight
exposure to regional banks was reduced modestly. Overall the portfolio contained
a broad representation of financial companies with a greater emphasis on the
very large diversified companies in the sector, which we believe represent among
the most compelling investment opportunities.
IN CLOSING
Given the sharp rise in financial stocks in the fourth quarter of last
year, we believe investors anticipated an end to Fed tightening. As a result,
our attention turned to what might cause the Fed to tighten longer than
expected. We also began to keep an eye on credit risk as the economic cycle
ages. At the fiscal year-end, the financial services sector appeared reasonably
valued with pockets of opportunity. Many companies continue to exhibit financial
discipline and returned large amounts of capital to shareholders through both
ongoing dividends and substantial share repurchases. As always, we remain
focused on uncovering the most attractive investment opportunities in the
sector.
Thank you for your continued investment in AIM Financial Services Fund.
THE VIEWS AND OPINIONS EXPRESSED IN MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
ARE THOSE OF A I M ADVISORS, INC. THESE VIEWS AND OPINIONS ARE SUBJECT TO CHANGE
AT ANY TIME BASED ON FACTORS SUCH AS MARKET AND ECONOMIC CONDITIONS. THESE VIEWS
AND OPINIONS MAY NOT BE RELIED UPON AS INVESTMENT ADVICE OR RECOMMENDATIONS, OR
AS AN OFFER FOR A PARTICULAR SECURITY. THE INFORMATION IS NOT A COMPLETE
ANALYSIS OF EVERY ASPECT OF ANY MARKET, COUNTRY, INDUSTRY, SECURITY OR THE FUND.
STATEMENTS OF FACT ARE FROM SOURCES CONSIDERED RELIABLE, BUT A I M ADVISORS,
INC. MAKES NO REPRESENTATION OR WARRANTY AS TO THEIR COMPLETENESS OR ACCURACY.
ALTHOUGH HISTORICAL PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS, THESE
INSIGHTS MAY HELP YOU UNDERSTAND OUR INVESTMENT MANAGEMENT PHILOSOPHY.
See important Fund and index disclosures inside front cover.
- --------------------------------------------------------------------------------
[SIMON PHOTO]
MICHAEL J. SIMON, Chartered Financial Analyst, senior portfolio manager, is the
lead portfolio manager of AIM Financial Services Fund. He started his investment
career in 1989 and joined AIM in 2001. Mr. Simon received his B.B.A. in finance
from Texas Christian University and his M.B.A from the University of Chicago. He
has served as Occasional Faculty in the Finance and Decision Sciences Department
of Texas Christian University's M.J. Neeley School of Business.
[WALSH PHOTO]
MEGGAN M. WALSH, Chartered Financial Analyst, senior portfolio manager, is a
portfolio manager of AIM Financial Services Fund. She has worked in the
investment industry since 1987. She joined AIM in 1991 as a trader of short-term
taxable fixed income securities. In 1998, Ms. Walsh assumed portfolio management
duties in AIM's equities department. Ms. Walsh received her bachelor's degree
in finance from the University of Maryland and her M.B.A from Loyola College.
Assisted by the Basic Value Team and the Diversified Dividend Team
- --------------------------------------------------------------------------------
[RIGHT ARROW GRAPHIC]
FOR A PRESENTATION OF YOUR FUND'S LONG-TERM PERFORMANCE, PLEASE SEE PAGES 6
AND 7.
4
AIM FINANCIAL SERVICES FUND
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, which may include sales charges (loads) on purchase payments; contingent
deferred sales charges on redemptions; and redemption fees, if any; and (2)
ongoing costs, including management fees; distribution and/or service fees
(12b-1); and other Fund expenses. This example is intended to help you
understand your ongoing costs (in dollars) of investing in the Fund and to
compare these costs with ongoing costs of investing in other mutual funds. The
example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period October 1, 2005, through March 31, 2006.
ACTUAL EXPENSES
The table below provides information about actual account values and actual
expenses. You may use the information in this table, together with the amount
you invested, to estimate the expenses that you paid over the period. Simply
divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number in the table
under the heading entitled "Actual Expenses Paid During Period" to estimate the
expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The table below also provides information about hypothetical account values and
hypothetical expenses based on the Fund's actual expense ratio and an assumed
rate of return of 5% per year before expenses, which is not the Fund's actual
return. The Fund's actual cumulative total returns at net asset value after
expenses for the six months ended March 31, 2006, 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.
- --------------------------------------------------------------------------------
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES ENDING ACCOUNT EXPENSES ANNUALIZED
SHARE VALUE VALUE PAID DURING VALUE PAID DURING EXPENSE
CLASS (10/1/05) (3/31/06)/1/ PERIOD/2/ (3/31/06) PERIOD/2/ RATIO
A $ 1,000.00 $ 1,126.70 $ 6.89 $ 1,018.45 $ 6.54 1.30%
B 1,000.00 1,122.70 10.85 1,014.71 10.30 2.05
C 1,000.00 1,122.90 10.85 1,014.71 10.30 2.05
Investor 1,000.00 1,126.80 6.89 1,018.45 6.54 1.30
/1/ The actual ending account value is based on the actual total return of the
Fund for the period October 1, 2005, through March 31, 2006, after actual
expenses and will differ from the hypothetical ending account value which is
based on the Fund's expense ratio and a hypothetical annual return of 5% before
expenses. The Fund's actual cumulative total returns at net asset value after
expenses for the six months ended March 31, 2006, appear in the table
"Cumulative Total Returns" on page 7.
/2/ Expenses are equal to the Fund's annualized expense ratio as indicated above
multiplied by the average account value over the period, multiplied by 182/365
to reflect the most recent fiscal half year.
- --------------------------------------------------------------------------------
[ARROW
BUTTON For More Information Visit
IMAGE] AIMINVESTMENTS.COM
5
AIM FINANCIAL SERVICES FUND
YOUR FUND'S LONG-TERM PERFORMANCE
RESULTS OF A $10,000 INVESTMENT
FUND AND INDEX DATA FROM 3/31/96
- --------------------------------------------------------------------------------
[MOUNTAIN CHART]
Date AIM Financial Services Fund S&P 500 S&P 500 Lipper Financial Services
- Investor Class Shares Index Financials Index Fund Index
03/31/96 $ 10000 $ 10000 $ 10000 $ 10000
04/96 9851 10147 9824 9928
05/96 9914 10408 10037 10084
06/96 9832 10447 10148 10121
07/96 9615 9986 9942 10010
08/96 9991 10196 10278 10433
09/96 10584 10769 10980 10962
10/96 11289 11067 11801 11566
11/96 12146 11902 12933 12461
12/96 11933 11666 12466 12287
01/97 12674 12394 13497 12955
02/97 13200 12492 14027 13506
03/97 12174 11980 13030 12623
04/97 12958 12694 13968 13346
05/97 13619 13470 14620 14056
06/97 14462 14069 15432 14857
07/97 15826 15188 17274 16288
08/97 14881 14337 15985 15609
09/97 16090 15121 17277 16865
10/97 15782 14616 16918 16585
11/97 16340 15293 17586 17143
12/97 17277 15556 18467 18157
01/98 16823 15727 17941 17531
02/98 18194 16861 19629 18949
03/98 19184 17724 20748 19940
04/98 19619 17905 21090 20317
05/98 19311 17597 20582 19828
06/98 19993 18312 21444 20286
07/98 19981 18118 21446 20111
08/98 16005 15500 16501 15632
09/98 16355 16493 16832 16139
10/98 17639 17832 18874 17507
11/98 18749 18913 20161 18542
12/98 19602 20002 20575 19230
01/99 19574 20838 21011 19182
02/99 19392 20190 21290 18982
03/99 20313 20998 22106 19474
04/99 21685 21811 23605 20822
05/99 19945 21296 22292 19970
06/99 20576 22474 23215 20359
07/99 19193 21775 21771 19321
08/99 17850 21666 20772 18268
09/99 17453 21072 19692 17548
10/99 20026 22406 22978 19724
11/99 19405 22861 21850 18888
12/99 19747 24205 21417 18388
01/00 19227 22990 20738 17547
02/00 17203 22555 18492 15847
03/00 20146 24761 21923 18424
04/00 19493 24016 21232 17747
05/00 20376 23524 22657 18791
06/00 19804 24102 21284 18103
07/00 21578 23726 23485 19510
08/00 23279 25200 25739 21293
09/00 24310 23869 26352 21979
10/00 24400 23769 26236 22102
11/00 22702 21896 24691 21178
12/00 25017 22003 26920 23300
01/01 24319 22784 26845 23051
02/01 23072 20709 25081 21983
03/01 22412 19398 24326 21238
04/01 23017 20903 25231 21916
05/01 24096 21043 26248 22792
06/01 23949 20532 26237 22788
07/01 23468 20331 25812 22519
08/01 22149 19060 24240 21418
09/01 20924 17522 22810 20306
10/01 20435 17857 22386 19740
11/01 22035 19226 23984 21098
12/01 22475 19395 24510 21722
01/02 22219 19112 24125 21677
02/02 21939 18743 23775 21601
03/02 23269 19448 25356 22743
04/02 22543 18269 24679 22536
05/02 22543 18136 24637 22590
06/02 21528 16845 23467 21531
07/02 19862 15533 21606 19987
08/02 20168 15634 22049 20507
09/02 18139 13936 19471 18306
10/02 19409 15161 21233 19275
11/02 19904 16052 22106 19988
12/02 18976 15110 20921 19115
01/03 18663 14716 20572 18763
02/03 18053 14495 19928 18271
03/03 18058 14635 19850 18163
04/03 19925 15840 22282 19907
05/03 20987 16673 23458 21181
06/03 21071 16886 23517 21344
07/03 22159 17184 24596 22215
08/03 21893 17519 24348 22331
09/03 21958 17333 24511 22440
10/03 23476 18312 26200 24094
11/03 23354 18474 26129 24323
12/03 24577 19442 27412 25225
01/04 25460 19799 28287 26015
02/04 26142 20074 29036 26741
03/04 25776 19771 28749 26468
04/04 24518 19461 27421 25057
05/04 24800 19728 27925 25531
06/04 24959 20110 28062 25740
07/04 24252 19445 27487 25166
08/04 24936 19522 28410 25815
09/04 24869 19733 28166 26094
10/04 24752 20035 28309 26483
11/04 25534 20845 29147 27611
12/04 26676 21553 30395 28746
01/05 25910 21027 29738 28010
02/05 25856 21469 29581 27982
03/05 24889 21089 28457 27145
04/05 24762 20688 28488 26716
05/05 25492 21346 29269 27561
06/05 25839 21376 29687 28241
07/05 26286 22171 30156 29097
08/05 25629 21969 29628 28527
09/05 25703 22147 29901 28621
10/05 26762 21778 30846 28987
11/05 28012 22601 32293 30329
12/05 28087 22610 32364 30457
01/06 28638 23209 32655 31191
02/06 29036 23272 33315 31556
03/06 28950 23571 33428 31915
- --------------------------------------------------------------------------------
SOURCE: LIPPER, INC.
Past performance cannot guarantee comparable future results.
The data shown in the chart include reinvested distributions, Fund expenses
and management fees. Index results include reinvested dividends. Performance of
an index of funds reflects fund expenses and management fees; performance of a
market index does not. Performance shown in the chart and tables does not
reflect deduction of taxes a shareholder would pay on Fund distributions or sale
of Fund shares. Performance of the indexes does not reflect the effects of
taxes.
This chart, which is a logarithmic chart, presents the fluctuations in the
value of the Fund and its indexes. We believe that a logarithmic chart is more
effective than other types of charts in illustrating changes in value during the
early years shown in the chart. The vertical axis, the one that indicates the
dollar value of an investment, is constructed with each segment representing a
percent change in the value of the investment. In this chart, each segment
represents a doubling, or 100% change, in the value of the investment. In other
words, the space between $5,000 and $10,000 is the same size as the space
between $10,000 and $20,000, as is the space between $20,000 and $40,000.
6
AIM FINANCIAL SERVICES FUND
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
As of 3/31/06, including applicable sales charges
CLASS A SHARES
Inception (3/28/02) 4.12%
1 Year 9.96
CLASS B SHARES
Inception (3/28/02) 4.58%
1 Year 10.51
CLASS C SHARES
Inception (2/14/00) 7.67%
5 Years 4.33
1 Year 14.51
INVESTOR CLASS SHARES
Inception (6/2/86) 13.98%
10 Years 11.22
5 Years 5.26
1 Year 16.36
================================================================================
CUMULATIVE TOTAL RETURNS
6 months ended 3/31/06, excluding applicable sales charges
Class A Shares 12.67%
Class B Shares 12.27
Class C Shares 12.29
Investor Class Shares 12.68
- --------------------------------------------------------------------------------
THE PERFORMANCE DATA QUOTED REPRESENT PAST PERFORMANCE AND CANNOT GUARANTEE
COMPARABLE FUTURE RESULTS; CURRENT PERFORMANCE MAY BE LOWER OR HIGHER. PLEASE
VISIT AIMINVESTMENTS.COM FOR THE MOST RECENT MONTH-END PERFORMANCE. PERFORMANCE
FIGURES REFLECT REINVESTED DISTRIBUTIONS, CHANGES IN NET ASSET VALUE AND THE
EFFECT OF THE MAXIMUM SALES CHARGE UNLESS OTHERWISE STATED. INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT YOU MAY HAVE A GAIN OR LOSS WHEN YOU
SELL SHARES.
CLASS A SHARE PERFORMANCE REFLECTS THE MAXIMUM 5.50% SALES CHARGE, AND
CLASS B AND CLASS C SHARE PERFORMANCE REFLECTS THE APPLICABLE CONTINGENT
DEFERRED SALES CHARGE (CDSC) FOR THE PERIOD INVOLVED. THE CDSC ON CLASS B SHARES
DECLINES FROM 5% BEGINNING AT THE TIME OF PURCHASE TO 0% AT THE BEGINNING OF THE
SEVENTH YEAR. THE CDSC ON CLASS C SHARES IS 1% FOR THE FIRST YEAR AFTER
PURCHASE.
INVESTOR CLASS SHARES DO NOT HAVE A FRONT-END SALES CHARGE OR A CDSC;
THEREFORE, PERFORMANCE IS AT NET ASSET VALUE.
THE PERFORMANCE OF THE FUND'S SHARE CLASSES WILL DIFFER DUE TO DIFFERENT
SALES CHARGE STRUCTURES AND CLASS EXPENSES.
HAD THE ADVISOR NOT WAIVED FEES AND/OR REIMBURSED EXPENSES FOR THE FUND'S
CLASS A AND B SHARES IN THE PAST, PERFORMANCE WOULD HAVE BEEN LOWER.
Continued from inside front cover
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.
7
AIM FINANCIAL SERVICES FUND
APPROVAL OF INVESTMENT ADVISORY AGREEMENT AND
SUMMARY OF INDEPENDENT WRITTEN FEE EVALUATION
The Board of Trustees of AIM Sector Funds (the "Board") oversees the management
of AIM Financial Services 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, 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 Financial Services 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 reviewed the advisory fee rate for the Fund under the
Advisory Agreement. The Board noted that this rate (i) was the same as the
initial advisory fee rate for a variable insurance fund advised by AIM and
offered to insurance company separate accounts with investment strategies
comparable to those of the Fund, although there were no breakpoints in the
advisory fee schedule applicable to the variable insurance fund; and (ii) was
higher than the sub-advisory fee rates for an unaffiliated mutual fund for which
an AIM affiliate serves as sub-advisor, although the total management fees paid
by such unaffiliated mutual fund were higher than the advisory fee rate for the
Fund. 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.
.. 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 comparable to 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 June 30, 2006 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 through June 30, 2006. The
Board noted that AIM has contractually agreed to waive fees and/or limit
expenses of the Fund through March 31, 2006 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 also noted that AIM has voluntarily
agreed to waive fees and/or limit expenses of the Fund 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 that is lower than the contractual
agreement. The Board considered the contractual and voluntary nature of these
fee waivers/expense limitations and noted that the contractual agreement remains
in
(continued)
8
AIM FINANCIAL SERVICES FUND
effect through March 31, 2006 and the voluntary agreement can be terminated at
any time by AIM without further notice to investors. 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 includes six
breakpoints. The Board reviewed the level of the Fund's advisory fees, and noted
that such fees, as a percentage of the Fund's net assets, have decreased as net
assets increased because the Advisory Agreement includes breakpoints. The Board
noted that, due to the Fund's current asset levels and the way in which the
advisory fee breakpoints have been structured, the Fund has yet to fully benefit
from the breakpoints. The Board noted that AIM has contractually agreed to waive
advisory fees of the Fund through June 30, 2006 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 reflect economies of scale and that it was not necessary to
change the advisory fee breakpoints in the Fund's advisory fee schedule.
.. Investments in 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. 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. The Board also considered the Senior Officer's recommendation
that the Board consider an additional advisory fee waiver for the Fund due to
the Fund's under-performance. The Board concluded that such a fee waiver was not
appropriate for the Fund at this time and that, rather than requesting such a
fee waiver from AIM, the Board should closely monitor the Fund's performance
under the new portfolio management team.
.. 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.
9
AIM FINANCIAL SERVICES FUND
SCHEDULE OF INVESTMENTS
March 31, 2006
SHARES VALUE
---------------------------------------------------------------------
COMMON STOCKS-97.86%
ASSET MANAGEMENT & CUSTODY
BANKS-9.06%
Bank of New York Co., Inc. (The) 1,018,400 $ 36,703,136
---------------------------------------------------------------------
Federated Investors, Inc.-Class B 454,050 17,730,652
---------------------------------------------------------------------
State Street Corp. 158,500 9,578,155
---------------------------------------------------------------------
64,011,943
---------------------------------------------------------------------
CONSUMER FINANCE-3.06%
Capital One Financial Corp. 268,100 21,587,412
---------------------------------------------------------------------
DIVERSIFIED BANKS-14.16%
Anglo Irish Bank Corp. PLC (Ireland) 468,600 7,722,116
---------------------------------------------------------------------
Bank of America Corp. 828,212 37,716,775
---------------------------------------------------------------------
U.S. Bancorp 506,700 15,454,350
---------------------------------------------------------------------
Wachovia Corp. 371,200 20,805,760
---------------------------------------------------------------------
Wells Fargo & Co. 286,900 18,324,303
---------------------------------------------------------------------
100,023,304
---------------------------------------------------------------------
DIVERSIFIED CAPITAL MARKETS-1.85%
UBS A.G. (Switzerland) 119,000 13,086,430
---------------------------------------------------------------------
INSURANCE BROKERS-5.29%
Aon Corp. 388,400 16,122,484
---------------------------------------------------------------------
Marsh & McLennan Cos., Inc. 722,000 21,197,920
---------------------------------------------------------------------
37,320,404
---------------------------------------------------------------------
INVESTMENT BANKING & BROKERAGE-9.70%
Lehman Brothers Holdings Inc. 52,700 7,616,731
---------------------------------------------------------------------
Merrill Lynch & Co., Inc. 450,400 35,473,504
---------------------------------------------------------------------
Morgan Stanley 404,900 25,435,818
---------------------------------------------------------------------
68,526,053
---------------------------------------------------------------------
LIFE & HEALTH INSURANCE-1.17%
Prudential Financial, Inc. 109,000 8,263,290
---------------------------------------------------------------------
MULTI-LINE INSURANCE-7.52%
American International Group, Inc. 112,352 7,425,344
---------------------------------------------------------------------
Genworth Financial Inc.-Class A 237,000 7,922,910
---------------------------------------------------------------------
Hartford Financial Services Group, Inc. (The) 468,400 37,729,620
---------------------------------------------------------------------
53,077,874
---------------------------------------------------------------------
OTHER DIVERSIFIED FINANCIAL
SERVICES-15.67%
Citigroup Inc. 1,179,801 55,733,799
---------------------------------------------------------------------
JPMorgan Chase & Co. 1,319,672 54,951,142
---------------------------------------------------------------------
110,684,941
---------------------------------------------------------------------
SHARES VALUE
---------------------------------------------------------------
PROPERTY & CASUALTY INSURANCE-8.19%
ACE Ltd. 561,000 $ 29,177,610
---------------------------------------------------------------
MBIA Inc. 252,000 15,152,760
---------------------------------------------------------------
St. Paul Travelers Cos., Inc. (The) 323,467 13,517,686
---------------------------------------------------------------
57,848,056
---------------------------------------------------------------
REGIONAL BANKS-7.84%
Cullen/Frost Bankers, Inc. 63,200 3,397,000
---------------------------------------------------------------
Fifth Third Bancorp 608,050 23,932,848
---------------------------------------------------------------
North Fork Bancorp., Inc. 438,500 12,641,955
---------------------------------------------------------------
SunTrust Banks, Inc. 120,500 8,767,580
---------------------------------------------------------------
Zions Bancorp. 80,200 6,634,946
---------------------------------------------------------------
55,374,329
---------------------------------------------------------------
SPECIALIZED CONSUMER SERVICES-1.06%
H&R Block, Inc. 344,000 7,447,600
---------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE-13.29%
Fannie Mae 825,700 42,440,980
---------------------------------------------------------------
Freddie Mac 392,800 23,960,800
---------------------------------------------------------------
Hudson City Bancorp, Inc. 596,700 7,930,143
---------------------------------------------------------------
PMI Group, Inc. (The) 425,600 19,543,552
---------------------------------------------------------------
93,875,475
---------------------------------------------------------------
Total Common Stocks
(Cost $503,142,719) 691,127,111
---------------------------------------------------------------
MONEY MARKET FUND-2.21%
Premier Portfolio-Institutional Class
(Cost $15,636,790)/(a)/ 15,636,790 15,636,790
---------------------------------------------------------------
TOTAL INVESTMENTS-100.07%
(Cost $518,779,509) 706,763,901
---------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-(0.07)% (527,356)
---------------------------------------------------------------
NET ASSETS-100.00% $ 706,236,545
---------------------------------------------------------------
Notes to Schedule of Investments:
/(a)/The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
F-1
See accompanying Notes to Financial Statements which are an integral part of
the financial statements.
AIM FINANCIAL SERVICES FUND
STATEMENT OF ASSETS AND LIABILITIES
March 31, 2006
ASSETS:
Investments, at value (cost $503,142,719) $691,127,111
------------------------------------------------------------------------------
Investments in affiliated money market funds (cost $15,636,790) 15,636,790
------------------------------------------------------------------------------
Total investments (cost $518,779,509) 706,763,901
------------------------------------------------------------------------------
Receivables for:
Fund shares sold 250,739
------------------------------------------------------------------------------
Dividends 930,878
------------------------------------------------------------------------------
Investment for trustee deferred compensation and retirement plans 153,995
------------------------------------------------------------------------------
Other assets 24,849
------------------------------------------------------------------------------
Total assets 708,124,362
------------------------------------------------------------------------------
LIABILITIES:
Payables for:
Fund shares reacquired 1,100,775
------------------------------------------------------------------------------
Trustee deferred compensation and retirement plans 202,179
------------------------------------------------------------------------------
Accrued distribution fees 189,052
------------------------------------------------------------------------------
Accrued trustees' and officer's fees and benefits 5,474
------------------------------------------------------------------------------
Accrued transfer agent fees 295,380
------------------------------------------------------------------------------
Accrued operating expenses 94,957
------------------------------------------------------------------------------
Total liabilities 1,887,817
------------------------------------------------------------------------------
Net assets applicable to shares outstanding $706,236,545
------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Shares of beneficial interest $481,513,689
------------------------------------------------------------------------------
Undistributed net investment income 1,888,265
------------------------------------------------------------------------------
Undistributed net realized gain from investment
securities and foreign currencies 34,850,199
------------------------------------------------------------------------------
Unrealized appreciation from investment securities 187,984,392
------------------------------------------------------------------------------
$706,236,545
------------------------------------------------------------------------------
NET ASSETS:
Class A $ 71,297,403
------------------------------------------------------------
Class B $ 52,773,380
------------------------------------------------------------
Class C $ 18,872,085
------------------------------------------------------------
Investor Class $563,293,677
------------------------------------------------------------
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Class A 2,526,317
------------------------------------------------------------
Class B 1,874,793
------------------------------------------------------------
Class C 687,097
------------------------------------------------------------
Investor Class 19,853,934
------------------------------------------------------------
Class A:
Net asset value per share $ 28.22
------------------------------------------------------------
Offering price per share:
(Net asset value of $28.22 / 94.50%) $ 29.86
------------------------------------------------------------
Class B:
Net asset value and offering price per share $ 28.15
------------------------------------------------------------
Class C:
Net asset value and offering price per share $ 27.47
------------------------------------------------------------
Investor Class:
Net asset value and offering price per share $ 28.37
------------------------------------------------------------
See accompanying Notes to Financial Statements which are an integral part of
the financial statements.
F-2
AIM FINANCIAL SERVICES FUND
STATEMENT OF OPERATIONS
For the year ended March 31, 2006
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $105,684) $ 17,915,317
- --------------------------------------------------------------------------------------------
Dividends from affiliated money market funds 426,918
- --------------------------------------------------------------------------------------------
Total investment income 18,342,235
- --------------------------------------------------------------------------------------------
EXPENSES:
Advisory fees 5,184,645
- --------------------------------------------------------------------------------------------
Administrative services fees 208,492
- --------------------------------------------------------------------------------------------
Custodian fees 67,508
- --------------------------------------------------------------------------------------------
Distribution fees:
Class A 212,442
- --------------------------------------------------------------------------------------------
Class B 586,546
- --------------------------------------------------------------------------------------------
Class C 213,339
- --------------------------------------------------------------------------------------------
Class K 2,751
- --------------------------------------------------------------------------------------------
Investor Class 1,485,678
- --------------------------------------------------------------------------------------------
Transfer agent fees 1,991,438
- --------------------------------------------------------------------------------------------
Trustees' and officer's fees and benefits 32,109
- --------------------------------------------------------------------------------------------
Other 376,675
- --------------------------------------------------------------------------------------------
Total expenses 10,361,623
- --------------------------------------------------------------------------------------------
Less:Fees waived, expenses reimbursed and expense offset arrangements (34,472)
- --------------------------------------------------------------------------------------------
Net expenses 10,327,151
- --------------------------------------------------------------------------------------------
Net investment income 8,015,084
- --------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN FROM INVESTMENT SECURITIES AND FOREIGN CURRENCIES
Net realized gain from:
Investment securities 56,562,958
- --------------------------------------------------------------------------------------------
Foreign currencies 2,272
- --------------------------------------------------------------------------------------------
56,565,230
- --------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment securities 48,823,021
- --------------------------------------------------------------------------------------------
Net gain from investment securities and foreign currencies 105,388,251
- --------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $113,403,335
- --------------------------------------------------------------------------------------------
See accompanying Notes to Financial Statements which are an integral part of
the financial statements.
F-3
AIM FINANCIAL SERVICES FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended March 31, 2006 and 2005
2006
- -------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 8,015,084
- -------------------------------------------------------------------------------------------------------------------------
Net realized gain on investment securities and foreign currencies 56,565,230
- -------------------------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of investment securities and foreign currencies 48,823,021
- -------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations 113,403,335
- -------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class A (1,022,752)
- -------------------------------------------------------------------------------------------------------------------------
Class B (319,663)
- -------------------------------------------------------------------------------------------------------------------------
Class C (124,637)
- -------------------------------------------------------------------------------------------------------------------------
Class K --
- -------------------------------------------------------------------------------------------------------------------------
Investor Class (7,756,438)
- -------------------------------------------------------------------------------------------------------------------------
Total distributions from net investment income (9,223,490)
- -------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net realized gains:
Class A (7,683,669)
- -------------------------------------------------------------------------------------------------------------------------
Class B (5,527,000)
- -------------------------------------------------------------------------------------------------------------------------
Class C (2,154,934)
- -------------------------------------------------------------------------------------------------------------------------
Class K --
- -------------------------------------------------------------------------------------------------------------------------
Investor Class (56,498,589)
- -------------------------------------------------------------------------------------------------------------------------
Total distributions from net realized gains (71,864,192)
- -------------------------------------------------------------------------------------------------------------------------
Decrease in net assets resulting from distributions (81,087,682)
- -------------------------------------------------------------------------------------------------------------------------
Share transactions-net:
Class A (13,572,042)
- -------------------------------------------------------------------------------------------------------------------------
Class B (15,144,190)
- -------------------------------------------------------------------------------------------------------------------------
Class C (5,844,666)
- -------------------------------------------------------------------------------------------------------------------------
Class K (1,167,127)
- -------------------------------------------------------------------------------------------------------------------------
Investor Class (95,012,942)
- -------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from share transactions (130,740,967)
- -------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets (98,425,314)
- -------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 804,661,859
- -------------------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment income of $1,888,265 and $3,092,198, respectively) $ 706,236,545
- -------------------------------------------------------------------------------------------------------------------------
2005
- -------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 7,549,010
- -------------------------------------------------------------------------------------------------------------------------
Net realized gain on investment securities and foreign currencies 92,919,090
- -------------------------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of investment securities and foreign currencies (135,106,035)
- -------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations (34,637,935)
- -------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class A (609,121)
- -------------------------------------------------------------------------------------------------------------------------
Class B (140,374)
- -------------------------------------------------------------------------------------------------------------------------
Class C (54,592)
- -------------------------------------------------------------------------------------------------------------------------
Class K (7,095)
- -------------------------------------------------------------------------------------------------------------------------
Investor Class (5,291,880)
- -------------------------------------------------------------------------------------------------------------------------
Total distributions from net investment income (6,103,062)
- -------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net realized gains:
Class A (7,597,576)
- -------------------------------------------------------------------------------------------------------------------------
Class B (6,185,077)
- -------------------------------------------------------------------------------------------------------------------------
Class C (2,405,416)
- -------------------------------------------------------------------------------------------------------------------------
Class K (101,359)
- -------------------------------------------------------------------------------------------------------------------------
Investor Class (58,366,582)
- -------------------------------------------------------------------------------------------------------------------------
Total distributions from net realized gains (74,656,010)
- -------------------------------------------------------------------------------------------------------------------------
Decrease in net assets resulting from distributions (80,759,072)
- -------------------------------------------------------------------------------------------------------------------------
Share transactions-net:
Class A (18,261,084)
- -------------------------------------------------------------------------------------------------------------------------
Class B (16,948,631)
- -------------------------------------------------------------------------------------------------------------------------
Class C (10,921,389)
- -------------------------------------------------------------------------------------------------------------------------
Class K (332,292)
- -------------------------------------------------------------------------------------------------------------------------
Investor Class (124,630,423)
- -------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from share transactions (171,093,819)
- -------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets (286,490,826)
- -------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 1,091,152,685
- -------------------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment income of $1,888,265 and $3,092,198, respectively) $ 804,661,859
- -------------------------------------------------------------------------------------------------------------------------
See accompanying Notes to Financial Statements which are an integral part of
the financial statements.
F-4
AIM FINANCIAL SERVICES FUND
NOTES TO FINANCIAL STATEMENTS
March 31, 2006
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Financial Services Fund (the "Fund") is a series portfolio of AIM Sector
Funds (the "Trust"). The Trust is a Delaware statutory trust registered under
the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of six separate portfolios,
each authorized to issue an unlimited number of shares of beneficial interest.
The Fund currently consists of 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. The risk of material loss as a result of such indemnification claims
is considered remote.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period including
estimates and assumptions related to taxation. Actual results could differ from
those estimates. The following is a summary of the significant accounting
policies followed by the Fund in the preparation of its financial statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy.
A security listed or traded on an exchange (except convertible bonds) is
valued at its last sales price as of the close of the customary trading
session on the exchange where the security is principally traded, or lacking
any sales on a particular day, the security is valued at the closing bid
price on that day. Securities traded in the over-the-counter market (but not
securities reported on the NASDAQ National Market System) are valued based
on the prices furnished by independent pricing services, in which case the
securities may be considered fair valued, or by market makers. Each security
reported on the NASDAQ National Market System is valued at the NASDAQ
Official Closing Price ("NOCP") as of the close of the customary trading
session on the valuation date or absent a NOCP, at the closing bid price.
Futures contracts are valued at the final settlement price set by an
exchange on which they are principally traded. Listed options are valued at
the mean between the last bid and the ask prices from the exchange on which
they are principally traded. Options not listed on an exchange are valued by
an independent source at the mean between the last bid and ask prices. For
purposes of determining net asset value per share, futures and option
contracts generally are valued 15 minutes after the close of the customary
trading session of the New York Stock Exchange ("NYSE").
Investments in open-end registered investment companies and closed-end
registered investment companies that do not trade on an exchange are valued
at the end of day net asset value per share. Investments in closed-end
registered investment companies that trade on an exchange are valued at the
last sales price as of the close of the customary trading session on the
exchange where the security is principally traded.
Debt obligations (including convertible bonds) are fair valued using an
evaluated quote provided by an independent pricing service. Evaluated quotes
provided by the pricing service may be determined without exclusive reliance
on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, developments
related to specific securities, dividend rate, yield, quality, type of
issue, coupon rate, maturity, individual trading characteristics and other
market data. Short-term obligations having 60 days or less to maturity and
commercial paper are recorded at amortized cost which approximates value.
Securities for which market prices are not provided by any of the above
methods are valued based upon quotes furnished by independent sources and
are valued at the last bid price in the case of equity securities and in the
case of debt obligations, the mean between the last bid and asked prices.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the close
of the NYSE. Generally, trading in foreign securities is substantially
completed each day at various times prior to the close of the NYSE. The
values of such securities used in computing the net asset value of the
Fund's shares are determined as of the close of the respective markets.
Events affecting the values of such foreign securities may occur between the
times at which the particular foreign market closes and the close of the
customary trading session of the NYSE which would not ordinarily be
reflected in the computation of the Fund's net asset value. If the event is
likely to have affected the closing price of the security, the security will
be valued at fair value in good faith using procedures approved by the Board
of Trustees. Adjustments to closing prices to reflect fair value may also be
based on a screening process of an independent pricing service to indicate
the degree of certainty, based on historical data, that the closing price in
the principal market where a foreign security trades is not the current
value as of the close of the NYSE. Foreign securities meeting the approved
degree of certainty that the price is not reflective of current value will
be priced at the indication of fair value from the independent pricing
service. Multiple factors may be considered by the independent pricing
service in determining adjustments to reflect fair value and may include
information relating to sector indices, ADRs and domestic and foreign index
futures.
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by the
Board of Trustees. Issuer specific events, market trends, bid/ask quotes of
brokers and information providers and other market data may be reviewed in
the course of making a good faith determination of a security's fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions are
accounted for on a trade date basis. Realized gains or losses on sales are
computed on the basis of specific identification of the securities sold.
Interest income is recorded on the accrual basis from settlement date.
Dividend income is recorded on the ex-dividend date.
F-5
AIM FINANCIAL SERVICES FUND
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 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. 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. Realized and
unrealized gains and losses on these contracts are included in the Statement
of Operations. The Fund could be exposed to risk if counterparties to the
contracts are unable to meet the terms of their contracts or if the value of
the foreign currency changes unfavorably.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM based on the annual rate of the Fund's
average daily net assets as follows:
AVERAGE NET ASSETS RATE
----------------------------------------------------
First $350 million 0.75%
----------------------------------------------------
Next $350 million 0.65%
----------------------------------------------------
Next $1.3 billion 0.55%
----------------------------------------------------
Next $2 billion 0.45%
----------------------------------------------------
Next $2 billion 0.40%
----------------------------------------------------
Next $2 billion 0.375%
----------------------------------------------------
Over $8 billion 0.35%
----------------------------------------------------
AIM has voluntarily agreed to waive advisory fees and/or reimburse expenses
to the extent necessary to limit total annual operating expenses (excluding
certain items discussed below) of Class A, Class B, Class C, Class K and
Investor Class shares to 1.30%, 2.05%, 2.05%, 1.50% and 1.30% of average daily
net assets, respectively. 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 net
F-6
AIM FINANCIAL SERVICES FUND
annual operating expenses to exceed the numbers reflected above: (i) interest;
(ii) taxes; (iii) dividend expense on short sales; (iv) extraordinary items;
(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. AIM did not waive fees and/or reimburse expenses during the period under
this expense limitation.
AIM has voluntarily agreed to waive advisory fees of the Fund in the amount
of 25% of the advisory fee AIM receives from the affiliated money market funds
on investments by the Fund in such affiliated money market funds. AIM is also
voluntarily waiving a portion of the advisory fee payable by the Fund equal to
the difference between the income earned from investing in the affiliated money
market fund and the hypothetical income earned from investing in an appropriate
comparative benchmark. Voluntary fee waivers or reimbursements may be modified
or discontinued at any time upon consultation with the Board of Trustees
without further notice to investors.
For the year ended March 31, 2006, AIM waived fees of $2,395.
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 March 31, 2006, AMVESCAP reimbursed expenses of the Fund in the amount of
$3,987.
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. Pursuant to such agreement, for the year ended
March 31, 2006, AIM was paid $208,492.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AISI for certain expenses
incurred by AISI in the course of providing such services. AISI may make
payments to intermediaries that provide omnibus account services,
sub-accounting services and/or networking services. For the year ended
March 31, 2006, the Fund paid AISI $1,991,438.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("ADI") to serve as the distributor for the Class A, Class
B, Class C, Class K and Investor Class shares of the Fund. The Trust has
adopted plans pursuant to Rule 12b-1 under the 1940 Act with respect to the
Fund's Class A, Class B, Class C, Class K and Investor Class shares
(collectively the "Plans"). The Fund, pursuant to the Plans, pays ADI
compensation at the annual rate of 0.25% of the Fund's average daily net assets
of Class A shares, 1.00% of the average daily net assets of Class B and Class C
shares, 0.45% of the average daily net assets of Class K and 0.25% of the
average daily net assets of Investor Class shares. Prior to July 1, 2005, the
Fund paid ADI 0.35% of the average daily assets of Class A shares. Of the Rule
12b-1 payments, up to 0.25% of the average daily net assets of the Class A,
Class B, Class C, Class K or Investor Class shares may be paid to furnish
continuing personal shareholder services to customers who purchase and own
shares of such classes. Any amounts not paid as a service fee under the Plans
would constitute an asset-based sales charge. 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 March 31, 2006, the
Class A, Class B, Class C and Investor Class shares paid $212,442, $586,546,
$213,339 and $1,485,678, respectively. For the period April 1, 2005 through
October 21, 2005 (date of conversion), Class K shares paid $2,751.
Front-end sales commissions and contingent deferred sales charges ("CDSC")
(collectively the "sales charges") are not recorded as expenses of the Fund.
Front-end sales commissions are deducted from proceeds from the sales of Fund
shares prior to investment in Class A shares of the Fund. CDSC are deducted
from redemption proceeds prior to remittance to the shareholder. During the
year ended March 31, 2006, ADI advised the Fund that it retained $16,783 in
front-end sales commissions from the sale of Class A shares and $161, $23,101
and $1,929 from Class A, Class B and Class C shares, respectively, for CDSC
imposed upon redemptions by shareholders. For the period April 1, 2005 through
October 21, 2005 (date of conversion), ADI advised the Fund it retained $0 from
Class K shares for CDSC imposed upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of AIM,
AISI and/or ADI.
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to an exemptive order from the Securities and
Exchange Commission ("SEC") and approved procedures by the Board of Trustees,
to invest daily available cash balances in an affiliated money market fund. The
Fund and the money market fund below have the same investment advisor and
therefore, are considered to be affiliated. The table below shows the
transactions in and earnings from investments in an affiliated money market
fund for the year ended March 31, 2006.
CHANGE IN
UNREALIZED REALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND GAIN
FUND 03/31/05 AT COST FROM SALES (DEPRECIATION) 03/31/06 INCOME (LOSS)
- --------------------------------------------------------------------------------------------------------------------------
Premier Portfolio-Institutional Class $25,338,683 $196,888,999 $(206,590,892) $-- $15,636,790 $426,918 $--
- --------------------------------------------------------------------------------------------------------------------------
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, for the year ended March 31, 2006,
the Fund engaged in securities purchases of $1,045,440.
F-7
AIM FINANCIAL SERVICES FUND
NOTE 5--EXPENSE OFFSET ARRANGEMENTS
The expense offset arrangements are comprised of (i) transfer agency credits
which result from balances in Demand Deposit Accounts (DDA) used by the
transfer agent for clearing shareholder transactions and (ii) custodian credits
which result from periodic overnight cash balances at the custodian. For the
year ended March 31, 2006, the Fund received credits from these arrangements,
which resulted in the reduction of the Fund's total expenses of $28,090.
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 March 31, 2006, the Fund paid legal fees of $6,624 for
services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 7--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate
available on investments in overnight repurchase agreements) is favorable to
both the lending fund and the borrowing fund. A loan will be secured by
collateral if the Fund's aggregate borrowings from all sources exceeds 10% of
the Fund's total assets. To the extent that the loan is required to be secured
by collateral, the collateral is marked to market daily to ensure that the
market value is at least 102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to
the credit facility can borrow on a first come, first served basis. Principal
on each loan outstanding shall bear interest at the bid rate quoted by SSB at
the time of the request for the loan.
During the year ended March 31, 2006, 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.
NOTE 8--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
The tax character of distributions paid during the years ended March 31, 2006
and 2005 was as follows:
2006 2005
------------------------------------------------
Distributions paid from:
Ordinary income $ 9,223,490 $16,719,790
------------------------------------------------
Long-term capital gain 71,864,192 64,039,282
------------------------------------------------
Total distributions $81,087,682 $80,759,072
------------------------------------------------
TAX COMPONENTS OF NET ASSETS:
As of March 31, 2006, the components of net assets on a tax basis were as
follows:
2006
----------------------------------------------------
Undistributed ordinary income $ 2,224,191
----------------------------------------------------
Undistributed long-term gain 35,203,375
----------------------------------------------------
Unrealized appreciation -- investments 187,425,520
----------------------------------------------------
Temporary book/tax differences (130,230)
----------------------------------------------------
Shares of beneficial interest 481,513,689
----------------------------------------------------
Total net assets $706,236,545
----------------------------------------------------
F-8
AIM FINANCIAL SERVICES FUND
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation (depreciation) difference is attributable primarily to the
deferral of losses on wash sales.
The temporary book/tax differences are a result of timing differences between
book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan expenses.
The Fund did not have a capital loss carryforward for the year ended
March 31, 2006.
NOTE 9--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the year ended
March 31, 2006 was $25,342,659 and $218,690,249, respectively.
At the request of the Trustee, AIM recovered third party research credits
during the year ended March 31, 2006, in the amount of $7,425. These research
credits were recorded as realized gains.
UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENT SECURITIES ON A TAX BASIS
--------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $213,909,949
--------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (26,484,429)
--------------------------------------------------------------------------
Net unrealized appreciation of investment securities $187,425,520
--------------------------------------------------------------------------
Cost of investments for tax purposes is $519,338,381.
NOTE 10--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of foreign currency
transactions, the use of a portion of proceeds from redemption as distributions
in prior years and organizational expenses, on March 31, 2006, undistributed
net investment income was increased by $4,473, undistributed net realized gain
was increased by $4,152,727 and shares of beneficial interest decreased by
$4,157,200. This reclassification had no effect on the net assets of the Fund.
F-9
AIM FINANCIAL SERVICES FUND
NOTE 11--SHARE INFORMATION
The Fund currently consists of four different classes of shares: Class A
shares, Class B shares, Class C shares and Investor Class shares. The Fund
formerly offered Class K shares; however, as of the close of business
October 21, 2005, the Class K shares were converted to Class A shares. Investor
Class shares of the Fund are offered only to certain grandfathered investors.
Class A shares are sold with a front-end sales charge. Class B shares and
Class C shares are sold with CDSC. Investor Class shares are sold at net asset
value. Under certain circumstances, Class A shares are subject to CDSC.
Generally, Class B shares will automatically convert to Class A shares eight
years after the end of the calendar month of purchase.
CHANGES IN SHARES OUTSTANDING
- ---------------------------------------------------------------------------------------------------------------
YEAR ENDED MARCH 31,
----------------------------------------------------
2006/(a)/ 2005
------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------------
Sold:
Class A 716,557 $ 20,378,029 266,900 $ 7,830,418
- ---------------------------------------------------------------------------------------------------------------
Class B 115,738 3,288,138 101,606 2,984,407
- ---------------------------------------------------------------------------------------------------------------
Class C 135,095 3,802,796 70,133 2,026,953
- ---------------------------------------------------------------------------------------------------------------
Class K/(b)/ 4,938 134,706 18,153 527,485
- ---------------------------------------------------------------------------------------------------------------
Investor Class 1,347,245 38,588,249 1,488,790 43,945,228
- ---------------------------------------------------------------------------------------------------------------
Issued as reinvestment of dividends:
Class A 293,912 8,111,992 266,982 7,643,700
- ---------------------------------------------------------------------------------------------------------------
Class B 199,024 5,491,059 206,921 5,922,067
- ---------------------------------------------------------------------------------------------------------------
Class C 79,642 2,143,962 82,697 2,314,688
- ---------------------------------------------------------------------------------------------------------------
Class K/(b)/ -- -- 3,869 108,455
- ---------------------------------------------------------------------------------------------------------------
Investor Class 2,249,021 62,410,343 2,145,370 61,722,150
- ---------------------------------------------------------------------------------------------------------------
Conversion of Class K shares to Class A shares:/(c)/
Class A 35,449 994,706 -- --
- ---------------------------------------------------------------------------------------------------------------
Class K/(b)/ (36,250) (994,706) -- --
- ---------------------------------------------------------------------------------------------------------------
Automatic conversion of Class B shares to Class A shares:
Class A 114,476 3,199,620 158,966 4,634,274
- ---------------------------------------------------------------------------------------------------------------
Class B (114,907) (3,199,620) (159,324) (4,634,274)
- ---------------------------------------------------------------------------------------------------------------
Reacquired:
Class A (1,644,381) (46,256,389) (1,308,010) (38,369,476)
- ---------------------------------------------------------------------------------------------------------------
Class B (738,274) (20,723,767) (725,853) (21,220,831)
- ---------------------------------------------------------------------------------------------------------------
Class C (430,546) (11,791,424) (531,289) (15,263,030)
- ---------------------------------------------------------------------------------------------------------------
Class K/(b)/ (11,150) (307,127) (33,160) (968,232)
- ---------------------------------------------------------------------------------------------------------------
Investor Class (6,912,773) (196,011,534) (7,815,338) (230,297,801)
- ---------------------------------------------------------------------------------------------------------------
(4,597,184) $(130,740,967) (5,762,587) $(171,093,819)
- ---------------------------------------------------------------------------------------------------------------
/(a)/There is one entity that is a record owner of more than 5% of the
outstanding shares of the Fund and it owns 21% of the outstanding shares
of the Fund. ADI has an agreement with this entity to sell Fund shares.
The Fund, AIM and/or AIM affiliates may make payments to this entity,
which is considered to be related to the Fund, for providing services to
the Fund, AIM and/or AIM affiliates including but not limited to services
such as, securities brokerage, distribution, third party record keeping
and account servicing. The Trust has no knowledge as to whether all or any
portion of the shares owned of record by this entity are also owned
beneficially.
/(b)/Class K shares activity for the period April 1, 2005 through October 21,
2005 (date of conversion).
/(c)/Effective as of close of business October 21, 2005, all outstanding Class
K shares were converted to Class A shares of the Fund.
F-10
AIM FINANCIAL SERVICES FUND
NOTE 12--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
CLASS A
------------------------------------------------
YEAR ENDED MARCH 31,
------------------------------------------------
2006 2005 2004 2003/(a)/
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 27.16 $ 30.83 $ 21.68 $ 28.22
- ---------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.32/(b)/ 0.23/(b)/ 0.16/(b)/ 0.06
- ---------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) 4.05 (1.19) 9.10 (6.37)
- ---------------------------------------------------------------------------------------------------------------------
Total from investment operations 4.37 (0.96) 9.26 (6.31)
- ---------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.39) (0.20) (0.11) (0.20)
- ---------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (2.92) (2.51) -- (0.03)
- ---------------------------------------------------------------------------------------------------------------------
Total distributions (3.31) (2.71) (0.11) (0.23)
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 28.22 $ 27.16 $ 30.83 $ 21.68
- ---------------------------------------------------------------------------------------------------------------------
Total return/(c)/ 16.36% (3.57)% 42.78% (22.36)%
- ---------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $71,297 $81,761 $111,766 $ 5,311
- ---------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.32%/(d)/ 1.38% 1.41% 1.38%
- ---------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.32%/(d)/ 1.39% 1.66% 1.51%
- ---------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 1.12%/(d)/ 0.79% 0.55% 0.49%
- ---------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 3% 53% 57% 60%
- ---------------------------------------------------------------------------------------------------------------------
/(a)/Class commenced sales on March 28, 2002.
/(b)/Calculated using average shares outstanding.
/(c)/Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net
asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges.
/(d)/Ratios are based on average daily net assets of $76,882,545.
F-11
AIM FINANCIAL SERVICES FUND
NOTE 12--FINANCIAL HIGHLIGHTS-(CONTINUED)
CLASS B
------------------------------------------------
YEAR ENDED MARCH 31,
------------------------------------------------
2006 2005 2004 2003/(a)/
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 27.10 $ 30.82 $ 21.74 $ 28.22
- ---------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.11/(b)/ 0.04/(b)/ (0.03)/(b)/ (0.03)
- ---------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) 4.03 (1.19) 9.11 (6.30)
- ---------------------------------------------------------------------------------------------------------------------
Total from investment operations 4.14 (1.15) 9.08 (6.33)
- ---------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.17) (0.06) (0.00) (0.11)
- ---------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (2.92) (2.51) -- (0.04)
- ---------------------------------------------------------------------------------------------------------------------
Total distributions (3.09) (2.57) (0.00) (0.15)
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 28.15 $ 27.10 $ 30.82 $ 21.74
- ---------------------------------------------------------------------------------------------------------------------
Total return/(c)/ 15.51% (4.19)% 41.78% (22.48)%
- ---------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $52,773 $65,390 $92,137 $ 990
- ---------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 2.04%/(d)/ 2.03% 2.06% 2.09%
- ---------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 2.04%/(d)/ 2.04% 2.34% 2.40%
- ---------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets 0.40%/(d)/ 0.14% (0.10)% (0.20)%
- ---------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 3% 53% 57% 60%
- ---------------------------------------------------------------------------------------------------------------------
/(a)/Class commenced sales on March 28, 2002.
/(b)/Calculated using average shares outstanding.
/(c)/Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net
asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges.
/(d)/Ratios are based on average daily net assets of $58,654,636.
F-12
AIM FINANCIAL SERVICES FUND
NOTE 12--FINANCIAL HIGHLIGHTS-(CONTINUED)
CLASS C
-----------------------------------------------------------
YEAR ENDED MARCH 31,
-----------------------------------------------------------
2006 2005 2004 2003 2002
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 26.51 $ 30.20 $ 21.38 $ 27.89 $ 28.72
- --------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.11/(a)/ 0.04/(a)/ (0.12)/(a)/ (0.25) (0.10)
- --------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) 3.94 (1.16) 8.94 (6.22) 0.87
- --------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 4.05 (1.12) 8.82 (6.47) 0.77
- --------------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.17) (0.06) (0.00) -- --
- --------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (2.92) (2.51) -- (0.04) (1.60)
- --------------------------------------------------------------------------------------------------------------------------------
Total distributions (3.09) (2.57) (0.00) (0.04) (1.60)
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 27.47 $ 26.51 $ 30.20 $ 21.38 $ 27.89
- --------------------------------------------------------------------------------------------------------------------------------
Total return/(b)/ 15.51% (4.18)% 41.27% (23.22)% 2.98%
- --------------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $18,872 $23,932 $38,696 $10,026 $16,880
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 2.04%/(c)/ 2.03%/(d)/ 2.38% 2.45% 2.07%
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets 0.40%/(c)/ 0.14% (0.42)% (0.68)% (0.57)%
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 3% 53% 57% 60% 81%
- --------------------------------------------------------------------------------------------------------------------------------
/(a)/Calculated using average shares outstanding.
/(b)/Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net
asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges.
/(c)/Ratios are based on average daily net assets of $21,333,879.
/(d)/After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements was
2.04%.
F-13
AIM FINANCIAL SERVICES FUND
NOTE 12--FINANCIAL HIGHLIGHTS-(CONTINUED)
CLASS K
---------------------------------------------------
APRIL 1, 2005 TO
OCTOBER 21, 2005
(DATE SHARES YEAR ENDED MARCH 31,
CONVERTED) ---------------------------------
---------------- 2005 2004 2003
- -------------------------------------------------------------------- ----------------------------------
Net asset value, beginning of period $26.58 $30.23 $21.27 $ 27.69
- -----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.14/(a)/ 0.20/(a)/ 0.12/(a)/ 0.15
- -----------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) 0.72 (1.16) 8.93 (6.41)
- -----------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.86 (0.96) 9.05 (6.26)
- -----------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income -- (0.18) (0.09) (0.12)
- -----------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- (2.51) -- (0.04)
- -----------------------------------------------------------------------------------------------------------------------
Total distributions -- (2.69) (0.09) (0.16)
- -----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $27.44 $26.58 $30.23 $ 21.27
- -----------------------------------------------------------------------------------------------------------------------
Total return/(b)/ 3.23% (3.66)% 42.61% (22.62)%
- -----------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ -- $1,129 $1,621 $ 1,348
- -----------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.49%/(c)/ 1.48% 1.51% 1.78%
- -----------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.49%/(c)/ 1.49% 2.24% 2.13%
- -----------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets 0.95%/(c)/ 0.69% 0.45% 0.18%
- -----------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate/(e)/ 3% 53% 57% 60%
- -----------------------------------------------------------------------------------------------------------------------
-------------------------
NOVEMBER 30, 2000
(DATE SALES
COMMENCED) TO
------- MARCH 31, 2001
2002 -----------------
- --------------------------------------------------------------------------------
Net asset value, beginning of period $28.67 $29.35
- --------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.03)/(a)/ (0.17)
- --------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) 0.90 (0.38)
- --------------------------------------------------------------------------------------------------
Total from investment operations 0.87 (0.55)
- --------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.25) (0.13)
- --------------------------------------------------------------------------------------------------
Distributions from net realized gains (1.60) --
- --------------------------------------------------------------------------------------------------
Total distributions (1.85) (0.13)
- --------------------------------------------------------------------------------------------------
Net asset value, end of period $27.69 $28.67
- --------------------------------------------------------------------------------------------------
Total return/(b)/ 3.38% (1.97)%
- --------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,033 $ 1
- --------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.63% 3.35%/(d)/
- --------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.63% 3.35%/(d)/
- --------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (0.12)% (1.80)%/(d)/
- --------------------------------------------------------------------------------------------------
Portfolio turnover rate/(e)/ 81% 99%
- --------------------------------------------------------------------------------------------------
/(a)/Calculated using average shares outstanding.
/(b)/Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net
asset values may differ from the net asset value and returns for
shareholder transactions. Not annualized for periods less than one year.
/(c)/Ratios are annualized and based on average daily net assets of $1,088,566.
/(d)/Annualized.
/(e)/Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
INVESTOR CLASS
------------------------------------------------------
YEAR ENDED MARCH 31,
------------------------------------------------------
2006 2005 2004 2003
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 27.30 $ 30.96 $ 21.77 $ 28.22
- --------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.33/(a)/ 0.27/(a)/ 0.15/(a)/ 0.10
- --------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) 4.06 (1.19) 9.14 (6.42)
- --------------------------------------------------------------------------------------------------------------------------
Total from investment operations 4.39 (0.92) 9.29 (6.32)
- --------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.40) (0.23) (0.10) (0.10)
- --------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (2.92) (2.51) -- (0.03)
- --------------------------------------------------------------------------------------------------------------------------
Total distributions (3.32) (2.74) (0.10) (0.13)
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 28.37 $ 27.30 $ 30.96 $ 21.77
- --------------------------------------------------------------------------------------------------------------------------
Total return/(b)/ 16.36% (3.44)% 42.73% (22.39)%
- --------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $563,294 $632,450 $846,933 $734,440
- --------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 1.30%/(c)/ 1.28%/(d)/ 1.42% 1.40%
- --------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 1.14%/(c)/ 0.89% 0.54% 0.38%
- --------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 3% 53% 57% 60%
- --------------------------------------------------------------------------------------------------------------------------
-----------
-----------
2002
- ------------------------------------------------------------------------------
Net asset value, beginning of period $ 28.88
- ------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.07
- ------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) 0.94
- ------------------------------------------------------------------------------
Total from investment operations 1.01
- ------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.07)
- ------------------------------------------------------------------------------
Distributions from net realized gains (1.60)
- ------------------------------------------------------------------------------
Total distributions (1.67)
- ------------------------------------------------------------------------------
Net asset value, end of period $ 28.22
- ------------------------------------------------------------------------------
Total return/(b)/ 3.82%
- ------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,234,230
- ------------------------------------------------------------------------------
Ratio of expenses to average net assets 1.27%
- ------------------------------------------------------------------------------
Ratio of net investment income to average net assets 0.24%
- ------------------------------------------------------------------------------
Portfolio turnover rate 81%
- ------------------------------------------------------------------------------
/(a)/Calculated using average shares outstanding.
/(b)/Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net
asset values may differ from the net asset value and returns for
shareholder transactions.
/(c)/Ratios are based on average daily net assets of $594,271,129.
/(d)/After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements was
1.29%.
F-14
AIM FINANCIAL SERVICES FUND
NOTE 13--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds), AIM and A I M Distributors, Inc. ("ADI") (the
distributor of the retail AIM Funds) reached final settlements with certain
regulators, including the Securities and Exchange Commission ("SEC"), the New
York Attorney General and the Colorado Attorney General, to resolve civil
enforcement actions and/or investigations related to market timing and related
activity in the AIM Funds, including those formerly advised by IFG. As part of
the settlements, a $325 million fair fund ($110 million of which is civil
penalties) has been created to compensate shareholders harmed by market timing
and related activity in funds formerly advised by IFG. Additionally, AIM and
ADI created a $50 million fair fund ($30 million of which is civil penalties)
to compensate shareholders harmed by market timing and related activity in
funds advised by AIM, which was done pursuant to the terms of the settlement.
These two fair funds may increase as a result of contributions from third
parties who reach final settlements with the SEC or other regulators to resolve
allegations of market timing and/or late trading that also may have harmed
applicable AIM Funds. These two fair funds will be distributed in accordance
with a methodology to be determined by AIM's independent distribution
consultant, in consultation with AIM and the independent trustees of the AIM
Funds and acceptable to the staff of the SEC. 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.
PENDING LITIGATION AND REGULATORY INQUIRIES
On August 30, 2005, the West Virginia Office of the State Auditor -- Securities
Commission ("WVASC") issued a Summary Order to Cease and Desist and Notice of
Right to Hearing to AIM and ADI (Order No. 05-1318). The WVASC makes findings
of fact that AIM and ADI entered into certain arrangements permitting market
timing of the AIM Funds, including those formerly advised by IFG, and failed to
disclose these arrangements in the prospectuses for such Funds, and conclusions
of law to the effect that AIM and ADI violated the West Virginia securities
laws. The WVASC orders AIM and ADI to cease any further violations and seeks to
impose monetary sanctions, including restitution to affected investors,
disgorgement of fees, reimbursement of investigatory, administrative and legal
costs and an "administrative assessment," to be determined by the Commissioner.
Initial research indicates that these damages could be limited or capped by
statute.
Civil lawsuits, including purported class action and shareholder derivative
suits, have been filed against certain of the AIM Funds, IFG, AIM, ADI and/or
related entities and individuals, depending on the lawsuit, alleging:
. that the defendants permitted improper market timing and related
activity in the AIM Funds;
. that certain AIM Funds inadequately employed fair value pricing;
. that the defendants charged excessive advisory and/or distribution
fees and failed to pass on to shareholders the perceived savings
generated by economies of scale and that the defendants adopted
unlawful distribution plans; and
. that the defendants improperly used the assets of the AIM Funds to pay
brokers to aggressively promote the sale of the AIM Funds over other
mutual funds and that the defendants concealed such payments from
investors by disguising them as brokerage commissions.
These lawsuits allege as theories of recovery, depending on the lawsuit,
violations of various provisions of the Federal and state securities laws and
ERISA, negligence, breach of fiduciary duty and/or breach of contract. These
lawsuits seek remedies that include, depending on the lawsuit, damages,
restitution, injunctive relief, imposition of a constructive trust, removal of
certain directors and/or employees, various corrective measures under ERISA,
rescission of certain AIM Funds' advisory agreements and/or distribution plans
and recovery of all fees paid, an accounting of all fund-related fees,
commissions and soft dollar payments, restitution of all commissions and fees
paid, and prospective relief in the form of reduced fees.
All lawsuits based on allegations of market timing, late trading and related
issues have been transferred or conditionally transferred to the United States
District Court for the District of Maryland (the "MDL Court"). Pursuant to an
Order of the MDL Court, plaintiffs in these lawsuits consolidated their claims
for pre-trial purposes into three amended complaints against various AIM- and
IFG-related parties: (i) a Consolidated Amended Class Action Complaint
purportedly brought on behalf of shareholders of the AIM Funds; (ii) a
Consolidated Amended Fund Derivative Complaint purportedly brought on behalf of
the AIM Funds and fund registrants; and (iii) an Amended Class Action Complaint
for Violations of the Employee Retirement Income Securities Act ("ERISA")
purportedly brought on behalf of participants in AMVESCAP's 401(k) plan.
On March 1, 2006, the MDL Court entered orders on Defendants' Motions to
dismiss in the derivative and class action lawsuits. The MDL Court dismissed
all derivative causes of action in the derivative lawsuit but two: (i) the
excessive fee claim under Section 36(b) of the Investment Company Act of 1940
(the "1940 Act"); and (ii) the "control person liability" claim under
Section 48 of the 1940 Act. The MDL Court dismissed all claims asserted in the
class action lawsuit but three: (i) the securities fraud claims under
Section 10(b) of the Securities Exchange Act of 1934; (ii) the excessive fee
claim under Section 36(b) of the 1940 Act (which survived only insofar as
plaintiffs seek recovery of fees associated with the assets involved in market
timing); and (iii) the "control person liability" claim under Section 48 of the
1940 Act. Based on the MDL Court's March 1, 2006 orders, all claims asserted
against the Funds that have been transferred to the MDL Court have been
dismissed, although certain Funds remain nominal defendants in the derivative
lawsuit. Defendants filed their Original Answer in the class action lawsuit on
March 31, 2006. The MDL Court has indefinitely deferred Defendants' obligation
to answer the derivative lawsuit.
On February 27, 2006, Judge Motz for the MDL Court issued a memorandum
opinion on the AMVESCAP defendants' motion to dismiss the ERISA lawsuit. Judge
Motz granted the motion in part and denied the motion in part, holding that:
(i) plaintiff has both constitutional and statutory standing to pursue her
claims under
F-15
AIM FINANCIAL SERVICES FUND
NOTE 13--LEGAL PROCEEDINGS-(CONTINUED)
ERISA (S) 502(a)(2); (ii) plaintiff lacks standing under ERISA (S) 502(a)(3) to
obtain equitable relief; (iii) the motion is granted as to the claims alleged
under ERISA (S) 404 for failure to prudently and loyally manage plan assets
against certain AMVESCAP defendants; (iv) the motion is denied as to the claims
alleged under ERISA (S) 404 for failure to prudently and loyally manage plan
assets against AMVESCAP and certain other AMVESCAP defendants. The opinion
also: (i) confirmed plaintiff's abandonment of her claims that defendants
engaged in prohibited transactions and/or misrepresentation; (ii) postponed
consideration of the duty to monitor and co-fiduciary duty claims until after
any possible amendments to the complaints; (iii) stated that plaintiff may seek
leave to amend her complaint within 40 days of the date of filing of the
memorandum opinion. On April 4, 2006, Judge Motz entered an order implementing
these rulings in the ERISA (Calderon) lawsuit against the AMVESCAP defendants.
Plaintiffs indicated that they intend to amend their complaint in light of this
order. Defendants will have 30 days after such amendment to answer or otherwise
respond.
IFG, AIM, ADI and/or related entities and individuals have received inquiries
from numerous regulators in the form of subpoenas or other oral or written
requests for information and/or documents related to one or more of the
following issues, among others, some of which concern one or more AIM Funds:
market timing activity, late trading, fair value pricing, excessive or improper
advisory and/or distribution fees, mutual fund sales practices, including
revenue sharing and directed-brokerage arrangements, investments in securities
of other registered investment companies, contractual plans, issues related to
Section 529 college savings plans and procedures for locating lost security
holders. IFG, AIM and ADI have advised the Fund that they are providing full
cooperation with respect to these inquiries. Regulatory actions and/or
additional civil lawsuits related to these or other issues may be filed against
the AIM Funds, IFG, AIM and/or related entities and individuals in the future.
At the present time, management of AIM and the Fund are unable to estimate
the impact, if any, that the outcome of the Pending Litigation and Regulatory
Inquiries described above may have on AIM, 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
AIM FINANCIAL SERVICES FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees of AIM Sector Funds
and Shareholders of AIM Financial Services Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of AIM Financial Services Fund (one
of the funds constituting AIM Sector Funds, hereafter referred to as the
"Fund") at March 31, 2006, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended and the financial highlights for each of the periods indicated, in
conformity with accounting principles generally accepted in the United States
of America. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits, which included confirmation of
securities at March 31, 2006 by correspondence with the custodian and brokers,
provide a reasonable basis for our opinion.
/s/ PRICEWATERHOUSECOOPERS LLP
May 19, 2006
Houston, Texas
F-17
AIM FINANCIAL SERVICES FUND
TAX DISCLOSURES
REQUIRED FEDERAL INCOME TAX INFORMATION
Of ordinary dividends paid to shareholders during the Fund's tax year ended
March 31, 2006, 100% is eligible for the dividends received deduction for
corporations. The Fund distributed long-term capital gains of $71,864,192 for
the Fund's tax year ended March 31, 2006.
For its tax year ended March 31, 2006, the Fund designated 100%, or the
maximum amount allowable, of its dividend distributions as qualified dividend
income. Your actual amount of qualified dividend income for the calendar year
will be reported in Form 1099-DIV. You should consult your tax advisor
regarding treatment of these amounts.
TAX INFORMATION FOR NON-RESIDENT ALIEN SHAREHOLDERS
For its tax year ended March 31, 2006, the Fund designates 1.49%, or the
maximum amount allowable, of its dividend distributions as qualified interest
income exempt from U.S. income tax for non-resident alien shareholders. Your
actual amount of qualified interest income for the calendar year will be
reported in your Form 1042-S mailing. You should consult your tax advisor
regarding treatment of the amounts.
The percentage of qualifying assets not subject to the U.S. estate tax for
the fiscal quarters ended June 30, 2005, September 30, 2005, December 31, 2005
and March 31, 2006 are 3.08%, 3.23%, 3.10% and 5.15%.
F-18
AIM FINANCIAL SERVICES FUND
TRUSTEES AND OFFICERS
As of March 31, 2006
The address of each trustee and officer of AIM Sector Funds (the "Trust"), is
11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 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)
TRUST OR OFFICER SINCE DURING PAST 5 YEARS
- ----------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- ----------------------------------------------------------------------------------------------------
Robert H. Graham/1 /-- 1946 2003 Director and Chairman, A I M Management
Trustee, Vice Chair, President and Group Inc. (financial services holding
Principal Executive Officer company); Director and Vice Chairman,
AMVESCAP PLC; Chairman of AMVESCAP
PLC -- AIM Division (parent of AIM and
a global investment management firm);
and Trustee, Vice Chair, President and
Principal Executive Officer of the AIM
Family of Funds
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 Trustee and Executive Vice President of
Trustee and Executive Vice President the AIM Family of Funds
Formerly: Director, Chairman, President
and Chief Executive Officer, INVESCO
Funds Group, Inc.; President and Chief
Executive Officer, INVESCO
Distributors, Inc.; and Chief Executive
Officer, AMVESCAP PLC --Managed
Products; and Chairman, A I M Advisors,
Inc.; Director, President and Chief
Executive Officer, A I M Management
Group Inc.; Director and President,
A I M Advisors, Inc.; Director, A I M
Capital Management, Inc. and A I M
Distributors,
Inc.; Director and Chairman, AIM Investment
Services, Inc., Fund Management Company
and INVESCO Distributors, Inc.
(registered broker dealer); Chief
Executive Officer, AMVESCAP PLC -- AIM
Division
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- ----------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 2003 Chairman, Crockett Technology
Trustee and Chair Associates (technology consulting
company)
- ----------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 1983 Retired
Trustee
- ----------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2003 Retired
Trustee
Formerly: Partner, law firm of Baker &
McKenzie
- ----------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2000 Founder, Green, Manning & Bunch, Ltd.
Trustee (investment banking firm); and
Director, Policy Studies, Inc. and Van
Gilder Insurance Corporation
- ----------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2003 Director of a number of public and
Trustee private business corporations,
including the Boss Group, Ltd. (private
investment and management); Cortland
Trust, Inc. (Chairman) (registered
investment company (3 portfolios));
Annuity and Life Re (Holdings), Ltd.
(insurance company; CompuDyne
Corporation (provider of products and
services to the public security market)
and Homeowners of American Holding
Corporation
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President,
AB Volvo; and director of various
affiliated Volvo companies
- ----------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 2003 Chief Executive Officer, Twenty First
Trustee Century Group, Inc. (government affairs
company); and Owner, Dos Angelos Ranch,
L.P.
Formerly: Chief Executive Officer,
Texana Timber LP (sustainable forestry
company)
- ----------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 2003 Partner, law firm of Kramer Levin
Trustee Naftalis and Frankel LLP
- ----------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 2003 Formerly: Chief Executive Officer, YWCA
Trustee of the USA
- ----------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 2003 Partner, law firm of Pennock & Cooper
Trustee
- ----------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2003 Retired
Trustee
- ----------------------------------------------------------------------------------------------------
Larry Soll -- 1942 1997 Retired
Trustee
- ----------------------------------------------------------------------------------------------------
Raymond Stickel, Jr. -- 1944 2005 Retired
Trustee
Formerly: Partner, Deloitte & Touche
- ----------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
DURING PAST 5 YEARS HELD BY TRUSTEE
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
Director and Chairman, A I M Management None
Group Inc. (financial services holding
company); Director and Vice Chairman,
AMVESCAP PLC; Chairman of AMVESCAP
PLC -- AIM Division (parent of AIM and
a global investment management firm);
and Trustee, Vice Chair, President and
Principal Executive Officer of the AIM
Family of Funds
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
- ----------------------------------------------------------------------------
Trustee and Executive Vice President of None
the AIM Family of Funds
Formerly: Director, Chairman, President
and Chief Executive Officer, INVESCO
Funds Group, Inc.; President and Chief
Executive Officer, INVESCO
Distributors, Inc.; and Chief Executive
Officer, AMVESCAP PLC --Managed
Products; and Chairman, A I M Advisors,
Inc.; Director, President and Chief
Executive Officer, A I M Management
Group Inc.; Director and President,
A I M Advisors, Inc.; Director, A I M
Capital Management, Inc. and A I M
Distributors,
Inc.; Director and Chairman, AIM Investment
Services, Inc., Fund Management Company
and INVESCO Distributors, Inc.
(registered broker dealer); Chief
Executive Officer, AMVESCAP PLC -- AIM
Division
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
Chairman, Crockett Technology ACE Limited (insurance
Associates (technology consulting company); and Captaris, Inc.
company) (unified messaging provider)
- ----------------------------------------------------------------------------
Retired None
- ----------------------------------------------------------------------------
Retired Badgley Funds, Inc. (registered
investment company
Formerly: Partner, law firm of Baker & (2 portfolios))
McKenzie
- ----------------------------------------------------------------------------
Founder, Green, Manning & Bunch, Ltd. None
(investment banking firm); and
Director, Policy Studies, Inc. and Van
Gilder Insurance Corporation
- ----------------------------------------------------------------------------
Director of a number of public and None
private business corporations,
including the Boss Group, Ltd. (private
investment and management); Cortland
Trust, Inc. (Chairman) (registered
investment company (3 portfolios));
Annuity and Life Re (Holdings), Ltd.
(insurance company; CompuDyne
Corporation (provider of products and
services to the public security market)
and Homeowners of American Holding
Corporation
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President,
AB Volvo; and director of various
affiliated Volvo companies
- ----------------------------------------------------------------------------
Chief Executive Officer, Twenty First Administaff, and Discovery
Century Group, Inc. (government affairs Global Education Fund
company); and Owner, Dos Angelos Ranch, (non-profit)
L.P.
Formerly: Chief Executive Officer,
Texana Timber LP (sustainable forestry
company)
- ----------------------------------------------------------------------------
Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Naftalis and Frankel LLP investment company
(3 portfolios))
- ----------------------------------------------------------------------------
Formerly: Chief Executive Officer, YWCA None
of the USA
- ----------------------------------------------------------------------------
Partner, law firm of Pennock & Cooper None
- ----------------------------------------------------------------------------
Retired None
- ----------------------------------------------------------------------------
Retired None
- ----------------------------------------------------------------------------
Retired Director, Mainstay VP Series
Funds, Inc. (21 portfolios)
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.
AIM FINANCIAL SERVICES FUND
TRUSTEES AND OFFICERS-(CONTINUED)
As of March 31, 2006
The address of each trustee and officer of AIM Sector Funds (the "Trust"), is
11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 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
- --------------------------------------------------------------------------------------------------------------------
Russell C. Burk -- 1958 2005 Senior Vice President and Senior N/A
Senior Vice President and Officer of the AIM Family of Funds
Senior Officer
Formerly: Director of Compliance and
Assistant General Counsel, ICON
Advisers, Inc.; Financial Consultant,
Merrill Lynch; General Counsel and
Director of Compliance, ALPS Mutual
Funds, Inc.
- --------------------------------------------------------------------------------------------------------------------
John M. Zerr -- 1962/3/ 2006 Director, Senior Vice President, N/A
Senior Vice President, Chief Legal Secretary and General Counsel, A I M
Officer and Secretary Management Group Inc. (financial
services holding company) and A I M
Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Vice President, A I M Capital
Management, Inc., AIM Investment
Services, Inc., and Fund Management
Company; and Senior Vice President, A I
M Distributors, Inc.; and Senior Vice
President, Chief Legal Officer and
Secretary of the AIM Family of Funds
Formerly: Chief Operating Officer,
Senior Vice President, General Counsel,
and Secretary, Liberty Ridge Capital,
Inc. (an investment adviser); Vice
President and Secretary, PBHG Funds (an
investment company); Vice President and
Secretary, PBHG Insurance Series Fund
(an investment company); General
Counsel and Secretary, Pilgrim Baxter
Value Investors (an investment
adviser); Chief Operating Officer,
General Counsel and Secretary, Old
Mutual Investment Partners (a
broker-dealer); General Counsel and
Secretary, Old Mutual Fund Services (an
administrator); General Counsel and
Secretary, Old Mutual Shareholder
Services (a shareholder servicing
center); Executive Vice President,
General Counsel and Secretary, Old
Mutual Capital, Inc. (an investment
adviser); and Vice President and
Secretary, Old Mutual Advisors Funds
(an investment company)
- --------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley -- 1959 2004 Global Compliance Director, AMVESCAP N/A
Vice President PLC; and Vice President of the AIM
Family of Funds
Formerly: Senior Vice President, A I M
Management Group Inc. (financial
services holding company); Senior Vice
President and Chief Compliance Officer,
A I M Advisors, Inc. and the AIM Family
of Funds; Vice President and Chief
Compliance Officer, A I M Capital
Management, Inc. and A I M
Distributors, Inc.; Vice President, AIM
Investment Services, Inc. and Fund
Management Company; and Senior Vice
President and Compliance Director,
Delaware Investments Family of Funds
- --------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Senior Vice President and General N/A
Vice President Counsel, AMVESCAP PLC; and Vice
President of the AIM Family of Funds
Formerly: Director, General Counsel,
and Vice President Fund Management
Company; Director, Senior Vice
President, Secretary and General
Counsel, A I M Management Group Inc.
(financial services holding company)
and A I M Advisors, Inc.; Director and
Vice President, INVESCO Distributors,
Inc.; Senior Vice President,
A I M Distributors, Inc.; Vice
President, A I M Capital Management,
Inc. and AIM Investment Services, Inc.;
Senior Vice President, Chief Legal
Officer and Secretary of the AIM Family
of Funds; and Senior Vice President,
Chief Legal Officer and General
Counsel, Liberty Financial Companies,
Inc. and Liberty Funds Group, LLC
- --------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, N/A
Vice President, Treasurer and A I M Advisors, Inc.; and Vice
Principal Financial Officer President, Treasurer and Principal
Financial Officer of the AIM Family of
Funds
Formerly: Vice President,
A I M Distributors, Inc.; and Senior
Vice President, AIM Investment
Services, 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.;
and Vice President of the AIM Family of
Funds
Formerly: Senior Vice President, AIM
Private Asset Management, Inc.; and
Chief Equity Officer and Senior
Investment Officer, A I M Capital
Management, Inc.
- --------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 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. and the AIM Family
of Fund
- --------------------------------------------------------------------------------------------------------------------
Todd L. Spillane/4 /-- 1958 2006 Senior Vice President, A I M Management N/A
Chief Compliance Officer Group Inc.; Senior Vice President and
Chief Compliance Officer, A I M
Advisors, Inc.; Chief Compliance
Officer of the AIM Family of Funds;
Vice President and Chief Compliance
Officer, A I M Capital Management,
Inc.; and Vice President, A I M
Distributors, Inc., AIM Investment
Services, Inc. and Fund Management
Company
Formerly: Global Head of Product
Development, AIG-Global Investment
Group, Inc.; Chief Compliance Officer
and Deputy General Counsel,
AIG-SunAmerica Asset Management; and
Chief Compliance Officer, Chief
Operating Officer and Deputy General
Counsel, American General Investment
Management
- --------------------------------------------------------------------------------------------------------------------
/3/ Mr. Zerr was elected Senior Vice President, Chief Legal Officer and
Secretary effective March 29, 2006.
/4/ Mr. Spillane was elected Chief Compliance Officer effective March 29, 2006.
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, 51st Floor Frankel LLP Houston, TX 77210-4739 225 Franklin Street
Philadelphia, PA 19103-7599 1177 Avenue of the Americas Boston, MA 02110-2801
New York, NY 10036-2714
DOMESTIC EQUITY SECTOR EQUITY AIM ALLOCATION SOLUTIONS
AIM Basic Balanced Fund* AIM Advantage Health Sciences Fund AIM Conservative Allocation Fund
AIM Basic Value Fund AIM Energy Fund AIM Growth Allocation Fund/2/
AIM Capital Development Fund AIM Financial Services Fund AIM Moderate Allocation Fund
AIM Charter Fund AIM Global Health Care Fund AIM Moderate Growth Allocation Fund
AIM Constellation Fund AIM Global Real Estate Fund AIM Moderately Conservative Allocation Fund
AIM Diversified Dividend Fund AIM Gold & Precious Metals Fund
AIM Dynamics Fund AIM Leisure Fund DIVERSIFIED PORTFOLIOS
AIM Large Cap Basic Value Fund AIM Multi-Sector Fund
AIM Large Cap Growth Fund AIM Real Estate Fund/1/ AIM Income Allocation Fund
AIM Mid Cap Basic Value Fund AIM Technology Fund AIM International Allocation Fund
AIM Mid Cap Core Equity Fund/1/ AIM Utilities Fund
AIM Opportunities I Fund
AIM Opportunities II Fund FIXED INCOME
AIM Opportunities III Fund
AIM S&P 500 Index Fund TAXABLE
AIM Select Equity Fund
AIM Small Cap Equity Fund AIM Enhanced Short Bond Fund
AIM Small Cap Growth Fund AIM Floating Rate Fund
AIM Structured Core Fund AIM High Yield Fund
AIM Structured Growth Fund AIM Income Fund
AIM Structured Value Fund AIM Intermediate Government Fund
AIM Summit Fund AIM International Bond Fund
AIM Trimark Endeavor Fund AIM Limited Maturity Treasury Fund
AIM Trimark Small Companies Fund AIM Money Market Fund
AIM Short Term Bond Fund
*Domestic equity and income fund AIM Total Return Bond Fund
Premier Portfolio
INTERNATIONAL/GLOBAL EQUITY Premier U.S. Government Money Portfolio
AIM Asia Pacific Growth Fund TAX-FREE
AIM China Fund
AIM Developing Markets Fund AIM High Income Municipal Fund/1/
AIM European Growth Fund AIM Municipal Bond Fund
AIM European Small Company Fund/1/ AIM Tax-Exempt Cash Fund
AIM Global Aggressive Growth Fund AIM Tax-Free Intermediate Fund
AIM Global Equity Fund Premier Tax-Exempt Portfolio
AIM Global Growth Fund
AIM Global Value Fund
AIM Japan Fund
AIM International Core Equity Fund
AIM International Growth Fund
AIM International Small Company Fund/1/
AIM Trimark Fund
/1/ This Fund has limited public sales of its shares to certain investors. For
more information on who may continue to invest in the Fund, please see the
appropriate prospectus.
/2/ Effective April 29, 2005, AIM Aggressive Allocation Fund was renamed AIM
Growth Allocation Fund.
Shareholders approved the reorganization of the following funds to be
effective on or about April 10, 2006: AIM Mid Cap Growth Fund into AIM Dynamics
Fund, AIM Small Company Growth Fund into AIM Small Cap Growth Fund and AIM
Premier Equity Fund into AIM Charter Fund.
If used after July 20, 2006, 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. AIM is a subsidiary of AMVESCAP PLC, one of the world's
largest independent financial services companies with $411 billion in assets
under management. Data as of March 31, 2006.
- --------------------------------------------------------------------------------
CONSIDER THE INVESTMENT OBJECTIVES, RISKS, AND CHARGES AND EXPENSES CAREFULLY.
FOR THIS AND OTHER INFORMATION ABOUT AIM FUNDS, OBTAIN A PROSPECTUS FROM YOUR
FINANCIAL ADVISOR AND READ IT CAREFULLY BEFORE INVESTING.
- --------------------------------------------------------------------------------
AIMinvestments.com I-FSE-AR-1 A I M Distributors, Inc.
[YOUR GOALS. OUR SOLUTIONS.]
-- REGISTERED TRADEMARK --
Mutual Retirement Annuities College Separately Offshore Cash
Funds Products Savings Managed Products Management
Plans Accounts
[AIM INVESTMENTS LOGO]
- REGISTERED TRADEMARK -
AIM GOLD & PRECIOUS METALS FUND
Annual Report to Shareholders . March 31, 2006
[COVER IMAGE]
[YOUR GOALS. OUR SOLUTIONS.]
- REGISTERED TRADEMARK -
[AIM INVESTMENTS LOGO]
- REGISTERED TRADEMARK -
AIM GOLD & PRECIOUS METALS FUND SEEKS CAPITAL GROWTH.
.. Unless otherwise stated, information presented in this report is as of
March 31, 2006, 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.
.. Investor Class shares are closed to most investors. For more information on
who may continue to invest in the Investor Class shares, please see the
prospectus.
PRINCIPAL RISKS OF INVESTING IN THE FUND
.. Investing in a single-sector or single-region mutual fund involves greater
risk and potential reward than investing in a more diversified fund.
.. 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.
.. The securities of companies involved in exploring for, mining, processing or
dealing and investing in gold, gold bullion and other precious metals as well as
diamonds are highly dependent on the price of precious metals at any given time.
.. Fluctuations in the price of gold directly--and often dramatically--affect the
profitability and market value of companies in this sector. Changes in political
or economic climate for the two largest gold producers--South Africa and the
former Soviet Union--may have a direct impact on the price of gold worldwide. Up
to 10% of the Fund's assets at the time of purchase may be invested in gold
bullion. The Fund's investments directly in gold bullion will earn no income
return; appreciation in the market price of gold is the sole manner in which the
Fund can realize gains on bullion investments. The Fund may have higher storage
and custody costs in connection with its ownership of bullion than those
associated with the purchase, holding and sale of more traditional types of
investments.
.. Investing in smaller companies involves greater risk than investing in more
established companies, such as business risk, significant stock price
fluctuations and illiquidity.
.. By concentrating on a small number of holdings, the Fund carries greater risk
because each investment has a greater effect on the Fund's overall performance.
.. Portfolio turnover is greater than that of most funds, which may affect
performance.
ABOUT INDEXES USED IN THIS REPORT
.. The unmanaged STANDARD & POOR'S COMPOSITE INDEX OF 500 STOCKS (the S&P 500
- --REGISTERED TRADEMARK-- Index) is an index of common stocks frequently used as
a general measure of U.S. stock market performance.
.. The PHILADELPHIA GOLD & SILVER INDEX is a capitalization-weighted index on
the Philadelphia Stock Exchange that includes the leading companies involved in
the mining of gold and silver. Returns for this index are price only.
.. The unmanaged LIPPER GOLD FUND INDEX represents an average of the 30 largest
gold funds tracked by Lipper Inc., an independent mutual fund performance
monitor.
.. The unmanaged LEHMAN BROTHERS U.S. AGGREGATE BOND INDEX (the Lehman
Aggregate), which represents the U.S. investment-grade fixed-rate bond market
(including government and corporate securities, mortgage pass-through securities
and asset-backed securities), is compiled by Lehman Brothers, a global
investment bank.
.. The unmanaged MSCI WORLD INDEX is a group of global securities tracked by
Morgan Stanley Capital International.
.. The Fund is not managed to track the performance of any particular index,
including the indexes defined here, and consequently, the performance of the
Fund may deviate significantly from the performance of the index.
.. A direct investment cannot be made in an index. Unless otherwise indicated,
index results include reinvested dividends, and they do not reflect sales
charges. Performance of an index of funds reflects fund expenses; performance of
a market index does not.
OTHER INFORMATION
.. The returns shown in management's discussion of Fund performance are based on
net asset values calculated for shareholder transactions. Generally accepted
accounting principles require adjustments to be made to the net assets of the
Fund at period end for financial reporting purposes, and as such, the net asset
values for shareholder transactions and the returns based on those net asset
values may differ from the net asset values and returns reported in the
Financial Highlights.
.. Industry classifications used in this report are generally according to the
Global Industry Classification Standard, which was developed by and is the
exclusive property and a service mark of Morgan Stanley Capital International
Inc. and Standard & Poor's.
Continued on page 7
- --------------------------------------------------------------------------------
FUND NASDAQ SYMBOLS
Class A Shares IGDAX
Class B Shares IGDBX
Class C Shares IGDCX
Investor Class Shares FGLDX
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND
PROSPECTUS, WHICH CONTAINS MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES
AND EXPENSES. INVESTORS SHOULD READ IT CAREFULLY BEFORE INVESTING.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
- --------------------------------------------------------------------------------
AIMINVESTMENTS.COM
AIM GOLD & PRECIOUS METALS FUND
DEAR FELLOW AIM FUNDS SHAREHOLDERS:
Although many concerns, including rising fuel costs, weighed
on investors' minds during the fiscal year covered by this
report, stocks posted gains for the period. The S&P 500
Index, frequently cited as a benchmark for U.S. stock market
[GRAHAM PHOTO] performance, returned 11.72%. Results for international
stocks were more impressive, with the MSCI World Index
gaining 18.02%. Bonds posted more modest gains, as the
Lehman Brothers U.S. Aggregate Bond Index returned 2.26%.
Domestically, small- and mid-cap stocks generally
outperformed their large-cap counterparts. Within the S&P
500 Index, energy, financials and telecommunication services
were the best-performing sectors. Internationally, emerging
markets produced more attractive results than developed
markets.
ROBERT H. GRAHAM Bond performance also varied, with high yield bonds and
emerging market debt among the better-performing segments of
the fixed-income market. Municipal bonds also posted
above-average returns for the fiscal year.
Among the developments that affected markets and the
economy during the fiscal year were:
. Hurricane Katrina, which devastated several Gulf Coast
states in August, dealt a short-term setback to consumer
confidence. However, consumer confidence rebounded toward
the end of the period, with analysts crediting the
resiliency of the economy and job growth for this trend.
[TAYLOR PHOTO] . The Federal Reserve (the Fed) continued its tightening
policy, raising the key federal funds target rate to 4.75%
by the end of the reporting period. Many analysts believed
that the central bank was near the end of its tightening
policy as Ben Bernanke succeeded the retiring Alan
Greenspan as Fed chairman early in 2006.
For a discussion of the specific market conditions that
affected your Fund and how your Fund was managed during the
reporting period, please see the management discussion of
Fund performance in this report.
PHILIP TAYLOR PHILIP TAYLOR HEADS NORTH AMERICAN RETAIL DISTRIBUTION
Effective April 17, 2006, Philip Taylor assumed the
leadership of North American Retail Distribution for
AMVESCAP PLC, the parent company of AIM Investments
--REGISTERED TRADEMARK-- and AIM Trimark Investments in
Canada. As president and vice chair of AIM Funds, I would
personally like to congratulate Phil on his new role with
our organization. Phil has been chief executive officer of
AIM Trimark, one of Canada's largest and most successful
investment management firms, since January 2002. He will be
relocating to AIM's offices in Houston, Texas. All of us at
AIM are looking forward to working with Phil.
Mark Williamson, former chief executive officer and
president of AIM Investments, will continue to serve AIM and
AMVESCAP in various capacities for the remainder of 2006. We
want to take this opportunity to thank Mark for his many
contributions to fund shareholders and our company. He
joined AIM during a very challenging period. Mark has been
instrumental in enhancing our investment process, improving
our company's departmental structure and deepening
relationships with our clients.
YOUR FUND
Further information about the markets, your Fund and
investing in general is always available on our
comprehensive 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. Phil and I thank you for
your continued participation in AIM Investments. If you have
any questions, please contact our award-winning Client
Service representatives at 800-959-4246. We are pleased to
be of help.
Sincerely,
/s/ ROBERT H. GRAHAM /s/ PHILIP TAYLOR
Robert H. Graham Philip Taylor
President & Vice Chair - AIM Funds CEO, AIM Investments
Chair, AIM Investments
May 17, 2006
AIM INVESTMENTS IS A REGISTERED SERVICE MARK OF A I M
MANAGEMENT GROUP INC. A I M ADVISORS, INC. AND A I M CAPITAL
MANAGEMENT, INC. ARE THE INVESTMENT ADVISORS. A I M
DISTRIBUTORS, INC. IS THE DISTRIBUTOR FOR THE RETAIL FUNDS
REPRESENTED BY AIM INVESTMENTS.
1
AIM GOLD & PRECIOUS METALS FUND
DEAR FELLOW AIM FUND SHAREHOLDERS:
Having completed a year of transition and change at AIM
Funds--as well as my first full year as your board's
independent chair--I can assure you that shareholder
interests are at the forefront of every decision your board
[CROCKETT PHOTO] makes. While regulators and fund companies debate the value
of an independent board chair, this structure is working for
you. Our new structure has enabled the board to work more
effectively with management to achieve benefits for the
shareholders, as shown in the highlights of 2005 listed
below:
. During 2005, management proposed, and your board approved,
voluntary advisory fee reductions, which are saving
shareholders more than $20 million annually, based on
asset levels of March 31, 2005.
BRUCE L. CROCKETT . Also during 2005, management proposed to your board the
merger of 14 funds into other AIM funds with similar
objectives. In each case, the goal was for the resulting
merged fund to benefit from strengthened management and
greater efficiency. Your board carefully analyzed and
discussed with management the rationale and proposed terms
of each merger to ensure that the mergers were beneficial
to the shareholders of all affected funds before approving
them. Eight of these mergers were subsequently approved by
shareholders of the target funds during 2005. The
remaining six fund mergers were approved by shareholders
in early 2006.
. Your board, through its Investments Committee and
Subcommittees, continued to closely monitor the portfolio
performance of the funds. During the year, your board
reviewed portfolio management changes made by the advisor
at 11 funds with the objective of organizing management
teams around common processes and shared investment views.
Management believes these changes will lead to improved
investment performance.
In 2006, your board will continue to focus on fund
expenses and investment performance. Although many funds
have good performance, we are working with management to
seek improvements for those funds currently performing below
expectations. Eight in-person board meetings and several
additional telephone and committee meetings are scheduled to
take place this year. I'll inform you of our progress in my
next semiannual letter to shareholders.
The AIM Funds board is pleased to welcome our newest
independent member, Raymond Stickel, Jr., a former partner
with the international auditing firm of Deloitte & Touche.
We also send our thanks and best wishes to Gerald J. Lewis,
who retired from your board in December 2005, and to Edward
K. Dunn, Jr., who retired in 2006.
Your board welcomes your views. Please mail them to me at
AIM Investments, AIM Investments Tower, 11 Greenway Plaza,
Suite 100, Houston TX 77046.
Sincerely,
/s/ BRUCE L. CROCKETT
Bruce L. Crockett
Independent Chair
AIM Funds Board
May 17, 2006
2
AIM GOLD & PRECIOUS METALS FUND
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
- --------------------------------------------------------------------------------
PERFORMANCE SUMMARY
Most gold and precious metal and mineral stocks rallied during the period as
concerns about inflation and political tensions in the Middle East made it an
attractive asset class to many investors. The Fund's focus on this market
segment enabled it to post much better returns than the S&P 500 Index fiscal
year ended March 31, 2006. Relative to the Philadelphia Gold & Silver Index, the
Fund outperformed mostly due to better stock selection.
For long-term performance, please see pages 6 and 7.
- --------------------------------------------------------------------------------
FUND VS. INDEXES
TOTAL RETURNS, 3/31/05-3/31/06, EXCLUDING APPLICABLE SALES CHARGES. IF SALES
CHARGES WERE INCLUDED, RETURNS WOULD BE LOWER.
Class A Shares 59.72%
Cass B Shares 58.19
Class C Shares 58.40
Investor Class Shares 59.66
S&P 500 Index
(Broad Market Index) 11.72
Philadelphia Gold & Silver Index
(Style-specific Index) 51.09
Lipper Gold Fund Index
(Peer Group Index) 68.19
SOURCE: LIPPER INC.
- --------------------------------------------------------------------------------
HOW WE INVEST
We invest in companies involved in the discovery, mining, processing and
exchange of gold and other precious metals. We select stocks based on analysis
of individual companies, focusing on companies we believe have the ability to:
.. Increase production capacity at a low cost
.. Make major gold discoveries on a global basis
.. Benefit from rising gold prices
The portfolio will typically include "core companies," which are major gold
and precious metal firms with proven production reserves, and "emerging
companies," which are mid- to small-sized exploration companies we believe can
make significant precious metal discoveries.
We control risk by diversifying among large and small companies in the
industry. We may also maintain a small position in gold bullion to provide
exposure to the commodity price.
We may sell a stock for any of the following reasons:
.. A better investment option becomes available
.. Valuation becomes too high
.. Corporate management changes the company's strategic direction to the
detriment of shareholders
.. A company is adversely affected by a geopolitical or economic event
MARKET CONDITIONS AND YOUR FUND
Despite widespread concern about the potential impact of rising short-term
interest rates, historically high energy prices, ongoing concerns about a
housing bubble, and the long-term economic effects of two devastating Gulf Coast
hurricanes, the U.S. economy showed signs of strength for the fiscal year.
During the reporting period, the Federal Reserve (the Fed) continued its
tightening policy, raising the key federal funds target rate to 4.75%, and
ushered in Ben Bernanke as the new Fed chairman. Despite the Fed's rate
increases, the price of gold hit its highest level in nearly 25 years--almost
$600 an ounce--near the end of the reporting period. Inflation concerns
increased when the consumer price index (CPI) hit 4.7% for the six-month period
ending in October 2005. After hitting this short-term peak, the CPI subsequently
eased but gold prices continued to rally, mainly due to concerns about rising
energy costs.
(continued)
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION TOP 10 EQUITY HOLDINGS*
By industry
Gold 54.6% 1. Agnico-Eagle Mines Ltd. 5.2%
Diversified Metals & Mining 22.0 2. Barrick Gold Corp. 5.0
Precious Metals & Minerals 16.4 3. Freeport-McMoRan Copper & Gold, Inc.-Class B 4.5
Asset Management & Custody Banks 3.4 4. Eldorado Gold Corp. 4.5
Coal & Consumable Fuels 2.6 5. BHP Billiton Ltd.-ADR 4.4
Money Market Funds Plus Other Assets Less Liabilities 1.0 6. Newmont Mining Corp. 4.3
7. Rio Tinto PLC 4.1
8. Coeur d'Alene Mines Corp. 4.1
9. Gold Fields Ltd.-ADR 3.9
10. Goldcorp Inc. 3.9
TOTAL NET ASSETS $224.2 MILLION
TOTAL NUMBER OF HOLDINGS* 37
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.
- --------------------------------------------------------------------------------
3
AIM GOLD & PRECIOUS METALS FUND
During the reporting period, your Fund was able to outperform the
Philadelphia Gold & Silver Index (its style-specific index) due to stock
selection. Keep in mind that the Fund's style-specific index is market-cap
weighted. Consequently, three stocks (Barrick Gold, Newmont Mining and
AngloGold) account for almost 50% of the index. Additionally, these three stocks
posted lackluster returns during the period. In contrast, the top 10 holdings of
your Fund account for approximately 45% of its assets.
Demand from China and India was another catalyst that drove the rising
price of gold and copper. Copper demand continued to grow as these countries
continued to build out their infrastructure. The Fund was in a favorable
position to take advantage of this trend as we continued to increase the
portfolio's exposure to diversified metals and mining companies other than gold.
FREEPORT-MCMORAN was one of the top contributors to Fund performance for the
period. Our focus is on companies we believe have the ability to increase
production at a relatively low cost, and we believed Freeport-McMoRan possessed
this capability. Rising energy prices can increase the cost of extracting gold
and other metals, but Freeport-McMoRan owns one of the lowest cost gold and
copper mines in the world and has been increasing production to meet heightened
demand, which has helped improve earnings.
GAMMON LAKE RESOURCES was another notable contributor to Fund performance
during the period. The company specializes in the purchase, exploration and
development of gold and silver deposits in Canada and Mexico. Its portfolio of
properties includes 44 mining locations in Mexico. The company has demonstrated
an ability to increase production while controlling costs. The stock rose in
anticipation of the commercial start up of the company's Ocampo Gold-Silver
project in Chihuahua, Mexico.
Detracting from Fund performance was TECK COMINCO, a diversified mining and
refining company based in Vancouver, British Columbia, Canada. Although the
company reported strong earnings, it subsequently became involved in a labor
dispute. We sold the stock during the period. NEWCREST MINING was another
detractor during the period. The company lowered its guidance for 2006 due to
arsenic problems at the Telfer mine in northwestern Australia. Despite the
underperformance during the period, we maintained our position in the stock
based on what we believe are strong growth prospects.
IN CLOSING
Over the fiscal year, the Fund experienced strong double-digit returns. It would
be imprudent for us to suggest that such performance is sustainable over the
long term. However, we remain committed to our disciplined strategy of selecting
stocks of precious metals companies based on their strengths, regardless of
market fluctuations.
During the reporting period, we observed several trends that were favorable
to gold and precious metals stocks largely because investors tend to view gold
and gold stocks as a "store of value" for their assets during periods of rising
inflation and geopolitical and economic uncertainty. The trends included:
.. Concerns about the strength of the U.S. dollar
.. We believed inflation was understated due to rising energy costs
.. We observed strong demand for gold and other precious metals with favorable
underlying demographic trends
As always, we thank you for your continued investment in the AIM Gold &
Precious Metals Fund.
THE VIEWS AND OPINIONS EXPRESSED IN MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
ARE THOSE OF A I M ADVISORS, INC. THESE VIEWS AND OPINIONS ARE SUBJECT TO CHANGE
AT ANY TIME BASED ON FACTORS SUCH AS MARKET AND ECONOMIC CONDITIONS. THESE VIEWS
AND OPINIONS MAY NOT BE RELIED UPON AS INVESTMENT ADVICE OR RECOMMENDATIONS, OR
AS AN OFFER FOR A PARTICULAR SECURITY. THE INFORMATION IS NOT A COMPLETE
ANALYSIS OF EVERY ASPECT OF ANY MARKET, COUNTRY, INDUSTRY, SECURITY OR THE FUND.
STATEMENTS OF FACT ARE FROM SOURCES CONSIDERED RELIABLE, BUT A I M ADVISORS,
INC. MAKES NO REPRESENTATION OR WARRANTY AS TO THEIR COMPLETENESS OR ACCURACY.
ALTHOUGH HISTORICAL PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS, THESE
INSIGHTS MAY HELP YOU UNDERSTAND OUR INVESTMENT MANAGEMENT PHILOSOPHY.
See important Fund and index disclosures inside front cover.
- --------------------------------------------------------------------------------
[SEGNER PHOTO]
JOHN S. SEGNER, senior portfolio manager, is lead portfolio manager of AIM Gold
& Precious Metals 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 a
managing director and principal with an investment management company that
focused exclusively on publicly traded energy stocks. Prior to that, he held
positions with several energy companies. Mr. Segner earned 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.
Assisted by the Energy/Gold/Utilities Team
- --------------------------------------------------------------------------------
[RIGHT ARROW GRAPHIC]
FOR A PRESENTATION OF YOUR FUND'S LONG-TERM PERFORMANCE, PLEASE SEE PAGES 6
AND 7.
4
AIM GOLD & PRECIOUS METALS FUND
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, which may include sales charges (loads) on purchase payments; contingent
deferred sales charges on redemptions; and redemption fees, if any; and (2)
ongoing costs, including management fees; distribution and/or service fees
(12b-1); and other Fund expenses. This example is intended to help you
understand your ongoing costs (in dollars) of investing in the Fund and to
compare these costs with ongoing costs of investing in other mutual funds. The
example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period October 1, 2005, through March 31, 2006.
ACTUAL EXPENSES
The table below provides information about actual account values and actual
expenses. You may use the information in this table, together with the amount
you invested, to estimate the expenses that you paid over the period. Simply
divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number in the table
under the heading entitled "Actual Expenses Paid During Period" to estimate the
expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The table below also provides information about hypothetical account values and
hypothetical expenses based on the Fund's actual expense ratio and an assumed
rate of return of 5% per year before expenses, which is not the Fund's actual
return. The Fund's actual cumulative total returns at net asset value after
expenses for the six months ended March 31, 2006, 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.
- --------------------------------------------------------------------------------
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES ENDING ACCOUNT EXPENSES ANNUALIZED
SHARE VALUE VALUE PAID DURING VALUE PAID DURING EXPENSE
CLASS (10/1/05) (3/31/06)/1/ PERIOD/2/ (3/31/06) PERIOD/2/ RATIO
A $ 1,000.00 $ 1,327.90 $ 8.24 $ 1,017.85 $ 7.14 1.42%
B 1,000.00 1,320.80 12.56 1,014.11 10.90 2.17
C 1,000.00 1,320.00 12.55 1,014.11 10.90 2.17
Investor 1,000.00 1,325.60 8.23 1,017.85 7.14 1.42
/1/ The actual ending account value is based on the actual total return of the
Fund for the period October 1, 2005, through March 31, 2006, after actual
expenses and will differ from the hypothetical ending account value which is
based on the Fund's expense ratio and a hypothetical annual return of 5% before
expenses. The Fund's actual cumulative total returns at net asset value after
expenses for the six months ended March 31, 2006, appear in the table
"Cumulative Total Returns" on page 7.
/2/ Expenses are equal to the Fund's annualized expense ratio as indicated above
multiplied by the average account value over the period, multiplied by 182/365
to reflect the most recent fiscal half year.
- --------------------------------------------------------------------------------
[ARROW
BUTTON For More Information Visit
IMAGE] AIMINVESTMENTS.COM
5
AIM GOLD & PRECIOUS METALS FUND
YOUR FUND'S LONG-TERM PERFORMANCE
RESULTS OF A $10,000 INVESTMENT
Fund and index data from 3/31/96
- --------------------------------------------------------------------------------
[MOUNTAIN CHART]
AIM GOLD & PRECIOUS
METALS FUND- S&P 500 PHILADELPHIA GOLD & LIPPER GOLD
DATE INVESTOR CLASS SHARES INDEX SILVER INDEX FUND INDEX
- -------- --------------------- ------- ------------------- -----------
03/31/96 $ 10000 $ 10000 $ 10000 $ 10000
04/96 10712 10147 10147 10210
05/96 12035 10408 10408 10856
06/96 9851 10447 10447 9317
07/96 9751 9986 9986 9124
08/96 10775 10196 10196 9631
09/96 10313 10769 10769 9131
10/96 9988 11067 11067 9039
11/96 9700 11902 11902 8742
12/96 9622 11666 11666 8577
01/97 9137 12394 12394 8089
02/97 10331 12492 12492 9117
03/97 8375 11980 11980 7840
04/97 7942 12694 12694 7303
05/97 8115 13470 13470 7582
06/97 7233 14069 14069 6908
07/97 6610 15188 15188 6637
08/97 6593 14337 14337 6665
09/97 6853 15121 15121 6982
10/97 5555 14616 14616 5837
11/97 4084 15293 15293 4600
12/97 4282 15556 15556 4808
01/98 4423 15727 15727 5087
02/98 4265 16861 16861 4932
03/98 4528 17724 17724 5218
04/98 4668 17905 17905 5582
05/98 3949 17597 17597 4757
06/98 3458 18312 18312 4256
07/98 3212 18118 18118 3998
08/98 2387 15500 15500 3072
09/98 3510 16493 16493 4427
10/98 3335 17832 17832 4361
11/98 3177 18913 18913 4215
12/98 3317 20002 20002 4193
01/99 3229 20838 20838 4096
02/99 3264 20190 20190 3995
03/99 3247 20998 20998 4014
04/99 3615 21811 21811 4592
05/99 3194 21296 21296 3932
06/99 3264 22474 22474 4092
07/99 2966 21775 21775 3884
08/99 3054 21666 21666 4025
09/99 3686 21072 21072 4915
10/99 3212 22406 22406 4429
11/99 3054 22861 22861 4308
12/99 3019 24205 24205 4378
01/00 2825 22990 22990 3945
02/00 2895 22555 22555 3939
03/00 2808 24761 24761 3720
04/00 2773 24016 24016 3521
05/00 2773 23524 23524 3566
06/00 2931 24102 24102 3765
07/00 2720 23726 23726 3504
08/00 2825 25200 25200 3735
09/00 2597 23869 23869 3482
10/00 2334 23769 23769 3172
11/00 2351 21896 21896 3310
12/00 2626 22003 22003 3619
01/01 2608 22784 22784 3614
02/01 2680 20709 20709 3762
03/01 2572 19398 19398 3419
04/01 2878 20903 20903 3925
05/01 2950 21043 21043 4106
06/01 2932 20532 20532 4133
07/01 2824 20331 20331 3913
08/01 2968 19060 19060 4136
09/01 3094 17522 17522 4271
10/01 3022 17857 17857 4182
11/01 2968 19226 19226 4183
12/01 3076 19395 19395 4387
01/02 3436 19112 19112 4883
02/02 3760 18743 18743 5376
03/02 4119 19448 19448 5896
04/02 4389 18269 18269 6250
05/02 5217 18136 18136 7409
06/02 4533 16845 16845 6503
07/02 3868 15533 15533 5391
08/02 4461 15634 15634 6260
09/02 4479 13936 13936 6311
10/02 4065 15161 15161 5785
11/02 4065 16052 16052 5795
12/02 4911 15110 15110 7052
01/03 4965 14716 14716 7120
02/03 4677 14495 14495 6687
03/03 4317 14635 14635 6195
04/03 4281 15840 15840 6177
05/03 4785 16673 16673 6884
06/03 4929 16886 16886 7089
07/03 5145 17184 17184 7483
08/03 5739 17519 17519 8555
09/03 5829 17333 17333 8860
10/03 6476 18312 18312 9915
11/03 7286 18474 18474 10750
12/03 7238 19442 19442 10886
01/04 6604 19799 19799 9867
02/04 6884 20074 20074 10059
03/04 7165 19771 19771 10660
04/04 5747 19461 19461 8439
05/04 6213 19728 19728 9074
06/04 6139 20110 20110 8794
07/04 6045 19445 19445 8634
08/04 6456 19522 19522 9199
09/04 6997 19733 19733 10055
10/04 6997 20035 20035 10254
11/04 7370 20845 20845 10807
12/04 6886 21553 21553 10214
01/05 6546 21027 21027 9679
02/05 7113 21469 21469 10432
03/05 6735 21089 21089 9884
04/05 6075 20688 20688 8941
05/05 6225 21346 21346 9067
06/05 6753 21376 21376 9826
07/05 6753 22171 22171 9829
08/05 7112 21969 21969 10284
09/05 8112 22147 22147 11922
10/05 7584 21778 21778 11149
11/05 8282 22601 22601 12282
12/05 9130 22610 22610 13627
01/06 10659 23209 23209 16188
02/06 9867 23272 23272 15126
03/06 10752 23571 23560 16623
- --------------------------------------------------------------------------------
SOURCE: LIPPER, INC.
Past performance cannot guarantee comparable future results.
The data shown in the chart include reinvested distributions, Fund expenses
and management fees. Index results include reinvested dividends. Performance of
an index of funds reflects fund expenses and management fees; performance of a
market index does not. Performance shown in the chart and tables does not
reflect deduction of taxes a shareholder would pay on Fund distributions or sale
of Fund shares. Performance of the indexes does not reflect the effects of
taxes.
This chart, which is a logarithmic chart, presents the fluctuations in the
value of the Fund and its indexes. We believe that a logarithmic chart is more
effective than other types of charts in illustrating changes in value during the
early years shown in the chart. The vertical axis, the one that indicates the
dollar value of an investment, is constructed with each segment representing a
percent change in the value of the investment. In this chart, each segment
represents a doubling, or 100% change, in the value of the investment. In other
words, the space between $2,000 and $4,000 is the same size as the space between
$4,000 and $8,000, as is the space between $8,000 and $16,000 and so on.
6
AIM GOLD & PRECIOUS METALS FUND
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
As of 3/31/06, including applicable sales charges
CLASS A SHARES
Inception (3/28/02) 25.05%
1 Year 50.80
CLASS B SHARES
Inception (3/28/02) 26.08%
1 Year 53.19
CLASS C SHARES
Inception (2/14/00) 23.25%
5 Years 32.05
1 Year 57.40
INVESTOR CLASS SHARES
Inception (1/19/84) 0.79%
10 Years 0.73
5 Years 33.11
1 Year 59.66
================================================================================
CUMULATIVE TOTAL RETURNS
6 months ended 3/31/06, excluding applicable sales charges
Class A Shares 32.79%
Class B Shares 32.08
Class C Shares 32.00
Investor Class Shares 32.56
- --------------------------------------------------------------------------------
THE PERFORMANCE DATA QUOTED REPRESENT PAST PERFORMANCE AND CANNOT GUARANTEE
COMPARABLE FUTURE RESULTS; CURRENT PERFORMANCE MAY BE LOWER OR HIGHER. PLEASE
VISIT AIMINVESTMENTS.COM FOR THE MOST RECENT MONTH-END PERFORMANCE. PERFORMANCE
FIGURES REFLECT REINVESTED DISTRIBUTIONS, CHANGES IN NET ASSET VALUE AND THE
EFFECT OF THE MAXIMUM SALES CHARGE UNLESS OTHERWISE STATED. INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT YOU MAY HAVE A GAIN OR LOSS WHEN YOU
SELL SHARES.
CLASS A SHARE PERFORMANCE REFLECTS THE MAXIMUM 5.50% SALES CHARGE, AND
CLASS B AND CLASS C SHARE PERFORMANCE REFLECTS THE APPLICABLE CONTINGENT
DEFERRED SALES CHARGE (CDSC) FOR THE PERIOD INVOLVED. THE CDSC ON CLASS B SHARES
DECLINES FROM 5% BEGINNING AT THE TIME OF PURCHASE TO 0% AT THE BEGINNING OF THE
SEVENTH YEAR. THE CDSC ON CLASS C SHARES IS 1% FOR THE FIRST YEAR AFTER
PURCHASE.
INVESTOR CLASS SHARES DO NOT HAVE A FRONT-END SALES CHARGE OR A CDSC;
THEREFORE, PERFORMANCE IS AT NET ASSET VALUE.
THE PERFORMANCE OF THE FUND'S SHARE CLASSES WILL DIFFER DUE TO DIFFERENT
SALES CHARGE STRUCTURES AND CLASS EXPENSES.
Continued from inside front cover
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.
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 811-03826 and
002-85905.
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.
7
AIM GOLD & PRECIOUS METALS FUND
APPROVAL OF INVESTMENT ADVISORY AGREEMENT AND
SUMMARY OF INDEPENDENT WRITTEN FEE EVALUATION
The Board of Trustees of AIM Sector Funds (the "Board") oversees the management
of AIM Gold & Precious Metals 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, 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 for the three and five year periods was below the median performance
of such comparable funds and above such median performance for the one year
period. The Board also noted 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, three and five calendar years
against the performance of the Lipper Gold Fund Index. The Board noted that the
Fund's performance for the three and five year periods was comparable to the
performance of such Index and above such Index 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 reviewed the advisory fee rate for the Fund under the
Advisory Agreement. The Board noted that this rate was lower than the advisory
fee rate for an offshore fund for which an AIM affiliate serves as advisor with
investment strategies comparable to those of the Fund. 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.
.. 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 June 30, 2006 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 through June 30, 2006. The
Board noted that AIM has contractually agreed to waive fees and/or limit
expenses of the Fund through March 31, 2006 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
through March 31, 2006. 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 includes six
breakpoints. The Board reviewed the level of the Fund's advisory fees, and noted
that such fees, as a percentage of the Fund's net assets, would decrease as net
assets increase because the Advisory Agreement includes breakpoints. The Board
noted that, due to the Fund's current asset levels and the way in which the
advisory fee breakpoints have been structured, the Fund has yet to benefit from
the breakpoints. The Board noted that AIM has contractually agreed to waive
advisory fees of the Fund through June 30, 2006
(continued)
8
AIM GOLD & PRECIOUS METALS FUND
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 reflect economies
of scale at higher asset levels and that it was not necessary to change the
advisory fee breakpoints in the Fund's advisory fee schedule.
.. 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.
9
AIM GOLD & PRECIOUS METALS FUND
SCHEDULE OF INVESTMENTS
March 31, 2006
SHARES VALUE
- -----------------------------------------------------------------------------------
FOREIGN STOCKS & OTHER EQUITY
INTERESTS-81.62%
AUSTRALIA-7.35%
BHP Billiton Ltd.-ADR (Diversified Metals & Mining) 250,000 $ 9,962,500
- -----------------------------------------------------------------------------------
Newcrest Mining Ltd. (Gold) 390,000 6,528,175
- -----------------------------------------------------------------------------------
16,490,675
- -----------------------------------------------------------------------------------
CANADA-58.80%
Aber Diamond Corp. (Precious Metals & Minerals) 140,000 5,636,208
- -----------------------------------------------------------------------------------
Agnico-Eagle Mines Ltd. (Gold) 385,000 11,723,250
- -----------------------------------------------------------------------------------
Barrick Gold Corp. (Gold) 412,000 11,222,880
- -----------------------------------------------------------------------------------
Bema Gold Corp. (Gold)/(a)/ 1,000,000 4,430,000
- -----------------------------------------------------------------------------------
Cambior Inc. (Gold)/(a)/ 1,700,000 5,559,000
- -----------------------------------------------------------------------------------
Cameco Corp. (Coal & Consumable Fuels)/(b)/ 160,000 5,760,000
- -----------------------------------------------------------------------------------
Eldorado Gold Corp. (Gold)/(a)/ 2,100,000 10,143,016
- -----------------------------------------------------------------------------------
Gabriel Resources Ltd. (Gold)/(a)/ 239,700 513,188
- -----------------------------------------------------------------------------------
Gammon Lake Resources Inc. (Precious Metals &
Minerals)/(a)/ 400,000 7,240,000
- -----------------------------------------------------------------------------------
Glamis Gold Ltd. (Gold)/(a)(b)/ 200,000 6,536,000
- -----------------------------------------------------------------------------------
Goldcorp Inc. (Gold) 300,000 8,775,000
- -----------------------------------------------------------------------------------
IAMGOLD Corp. (Gold) 1,000,000 8,606,662
- -----------------------------------------------------------------------------------
Inco Ltd. (Diversified Metals & Mining)/(b)/ 82,000 4,090,980
- -----------------------------------------------------------------------------------
Ivanhoe Mines Ltd. (Diversified Metals & Mining)/(a)(b)/ 550,000 5,296,500
- -----------------------------------------------------------------------------------
Kinross Gold Corp. (Gold)/(a)/ 770,000 8,394,365
- -----------------------------------------------------------------------------------
Meridian Gold Inc. (Gold)/(a)/ 108,000 3,202,200
- -----------------------------------------------------------------------------------
Pacific Rim Mining Corp. (Precious Metals &
Minerals)/(a)/ 1,254,900 977,956
- -----------------------------------------------------------------------------------
Pan American Silver Corp. (Precious Metals &
Minerals)/(a)(b)/ 225,000 5,715,000
- -----------------------------------------------------------------------------------
Rio Narcea Gold Mines Ltd. (Gold)/(a)/ 515,900 1,002,906
- -----------------------------------------------------------------------------------
Solitario Resources Corp. (Precious Metals & Minerals)/(a)/ 631,000 1,215,852
- -----------------------------------------------------------------------------------
SouthernEra Diamonds, Inc.-Class A (Precious Metals &
Minerals)/(a)/ 1,025,000 403,785
- -----------------------------------------------------------------------------------
Tahera Diamond Corp. (Precious Metals & Minerals)/(a)/ 4,500,000 2,581,999
- -----------------------------------------------------------------------------------
Western Silver Corp. (Diversified Metals & Mining)/(a)/ 350,000 8,176,758
- -----------------------------------------------------------------------------------
Yamana Gold Inc. (Gold)/(a)(b)/ 500,000 4,630,000
- -----------------------------------------------------------------------------------
131,833,505
- -----------------------------------------------------------------------------------
SOUTH AFRICA-11.33%
AngloGold Ashanti Ltd.-ADR (Gold)/(b)/ 100,000 5,412,000
- -----------------------------------------------------------------------------------
Gold Fields Ltd. (Gold) 70,000 1,525,797
- -----------------------------------------------------------------------------------
Gold Fields Ltd. -ADR (Gold)/(b)/ 400,000 8,792,000
- -----------------------------------------------------------------------------------
Impala Platinum Holdings Ltd. (Precious Metals &
Minerals)/(c)/ 20,000 3,763,074
- -----------------------------------------------------------------------------------
Randgold Resources Ltd.-ADR (Gold)/(a)/ 325,000 5,905,250
- -----------------------------------------------------------------------------------
25,398,121
- -----------------------------------------------------------------------------------
SHARES VALUE
- -------------------------------------------------------------------------------
UNITED KINGDOM-4.14%
Rio Tinto PLC (Diversified Metals & Mining)/(c)/ 180,000 $ 9,278,791
- -------------------------------------------------------------------------------
Total Foreign Stocks & Other Equity Interests
(Cost $172,152,827) 183,001,092
- -------------------------------------------------------------------------------
DOMESTIC COMMON STOCKS & OTHER
EQUITY INTERESTS-17.35%
ASSET MANAGEMENT & CUSTODY
BANKS-3.37%
streetTRACKS Gold Trust/(a)(b)/ 130,000 7,553,000
- -------------------------------------------------------------------------------
DIVERSIFIED METALS & MINING-5.61%
Freeport-McMoRan Copper & Gold, Inc.-Class B 170,000 10,160,900
- -------------------------------------------------------------------------------
Phelps Dodge Corp. 30,000 2,415,900
- -------------------------------------------------------------------------------
12,576,800
- -------------------------------------------------------------------------------
GOLD-4.28%
Newmont Mining Corp. 185,000 9,599,650
- -------------------------------------------------------------------------------
PRECIOUS METALS & MINERALS-4.09%
Coeur d'Alene Mines Corp./(a)(b)/ 1,400,000 9,184,000
- -------------------------------------------------------------------------------
Total Domestic Common Stocks & Other Equity
Interests (Cost $35,229,436) 38,913,450
- -------------------------------------------------------------------------------
MONEY MARKET FUNDS-0.80%
Premier Portfolio-Institutional Class
(Cost $1,801,215)/(d)/ 1,801,215 1,801,215
- -------------------------------------------------------------------------------
TOTAL INVESTMENTS (excluding investments
purchased with cash collateral from securities
loaned)-99.77% (Cost $209,183,478) 223,715,757
- -------------------------------------------------------------------------------
INVESTMENTS PURCHASED WITH CASH
COLLATERAL FROM SECURITIES
LOANED-14.83%
MONEY MARKET FUNDS-14.83%
Premier Portfolio -Instituional Class/(d)(e)/ 33,241,072 33,241,072
- -------------------------------------------------------------------------------
Total Money Market Funds ( purchased with cash
collateral from Securities Loaned)
(Cost $33,241,072) 33,241,072
- -------------------------------------------------------------------------------
TOTAL INVESTMENTS-114.60% (Cost $242,424,550) $ 256,956,829
- -------------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-(14.60)% (32,735,422)
- -------------------------------------------------------------------------------
NET ASSETS-100.00% $ 224,221,407
- -------------------------------------------------------------------------------
Investment Abbreviations:
ADR - AmericanDepositary Receipt
Notes to Schedule of Investments:
/(a)/Non-income producing security.
/(b)/All or a portion of this security is out on loan at March 31, 2006.
/(c)/In accordance with the procedures established by the Board of Trustees,
the foreign security is fair valued using adjusted closing market prices.
The aggregate value of these securities at March 31, 2006 was $13,041,865,
which represented 5.82% of the Fund's Net Assets. See Note 1A.
/(d)/The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
/(e)/The security has been segregated to satisfy the commitment to return the
cash collateral received in securities lending transactions upon the
borrower's return of the securities loaned. See Note 7.
F-1
See accompanying Notes to Financial Statements which are an integral part of
the financial statements.
AIM GOLD & PRECIOUS METALS FUND
STATEMENT OF ASSETS AND LIABILITIES
March 31, 2006
ASSETS:
Investments, at value (cost $207,382,263)* $221,914,542
- -------------------------------------------------------------------------------------
Investments in affiliated money market funds (cost $35,042,287) 35,042,287
- -------------------------------------------------------------------------------------
Total investments (cost $242,424,550) 256,956,829
- -------------------------------------------------------------------------------------
Foreign currencies, at value (cost $2,332,280) 2,329,441
- -------------------------------------------------------------------------------------
Receivables for:
Fund shares sold 1,404,510
- -------------------------------------------------------------------------------------
Dividends 300,410
- -------------------------------------------------------------------------------------
Investment for trustee deferred compensation and retirement plans 28,981
- -------------------------------------------------------------------------------------
Other assets 21,530
- -------------------------------------------------------------------------------------
Total assets 261,041,701
- -------------------------------------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 2,622,677
- -------------------------------------------------------------------------------------
Fund shares reacquired 719,057
- -------------------------------------------------------------------------------------
Trustee deferred compensation and retirement plans 35,982
- -------------------------------------------------------------------------------------
Collateral upon return of securities loaned 33,241,072
- -------------------------------------------------------------------------------------
Accrued distribution fees 61,934
- -------------------------------------------------------------------------------------
Accrued trustees' and officer's fees and benefits 3,755
- -------------------------------------------------------------------------------------
Accrued transfer agent fees 65,716
- -------------------------------------------------------------------------------------
Accrued operating expenses 70,101
- -------------------------------------------------------------------------------------
Total liabilities 36,820,294
- -------------------------------------------------------------------------------------
Net assets applicable to shares outstanding $224,221,407
- -------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Shares of beneficial interest $277,652,970
- -------------------------------------------------------------------------------------
Undistributed net investment income (loss) (654,484)
- -------------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment securities, gold
bullion and foreign currencies (67,309,538)
- -------------------------------------------------------------------------------------
Unrealized appreciation from investment securities and foreign
currencies 14,532,459
- -------------------------------------------------------------------------------------
$224,221,407
- -------------------------------------------------------------------------------------
NET ASSETS:
Class A $ 41,200,377
------------------------------------------------------------
Class B $ 19,102,783
------------------------------------------------------------
Class C $ 14,758,003
------------------------------------------------------------
Investor Class $149,160,244
------------------------------------------------------------
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Class A 7,270,722
------------------------------------------------------------
Class B 3,408,810
------------------------------------------------------------
Class C 2,483,017
------------------------------------------------------------
Investor Class 26,163,002
------------------------------------------------------------
Class A:
Net asset value per share $ 5.67
------------------------------------------------------------
Offering price per share:
(Net asset value of $5.67 / 94.50%) $ 6.00
------------------------------------------------------------
Class B:
Net asset value and offering price per share $ 5.60
------------------------------------------------------------
Class C:
Net asset value and offering price per share $ 5.94
------------------------------------------------------------
Investor Class:
Net asset value and offering price per share $ 5.70
------------------------------------------------------------
* At March 31, 2006, securities with an aggregate value of $31,987,969 were on
loan to brokers.
See accompanying Notes to Financial Statements which are an integral part of
the financial statements.
F-2
AIM GOLD & PRECIOUS METALS FUND
STATEMENT OF OPERATIONS
For the year ended March 31, 2006
INVESTMENT INCOME:
Dividends (net of foreign withholding
tax of $48,126) $ 1,741,613
-----------------------------------------------------
Dividends from affiliated money market
funds (includes securities lending
income of $44,547, after compensation
to counterparties of $451,093) 276,356
-----------------------------------------------------
Total investment income 2,017,969
-----------------------------------------------------
EXPENSES:
Advisory fees 1,125,486
-----------------------------------------------------
Administrative services fees 50,000
-----------------------------------------------------
Custodian fees 46,388
-----------------------------------------------------
Distribution fees:
Class A 50,989
-----------------------------------------------------
Class B 114,198
-----------------------------------------------------
Class C 82,411
-----------------------------------------------------
Investor Class 277,585
-----------------------------------------------------
Transfer agent fees 382,346
-----------------------------------------------------
Trustees' and officer's fees and
benefits 18,238
-----------------------------------------------------
Other 161,927
-----------------------------------------------------
Total expenses 2,309,568
-----------------------------------------------------
Less:Fees waived, expenses reimbursed
and expense offset arrangement (9,252)
-----------------------------------------------------
Net expenses 2,300,316
-----------------------------------------------------
Net investment income (loss) (282,347)
-----------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
FROM INVESTMENT SECURITIES, GOLD
BULLION AND FOREIGN CURRENCIES:
Net realized gain (loss) from:
Investment securities 66,601,301
-----------------------------------------------------
Gold Bullion 4,035,554
-----------------------------------------------------
Foreign currencies (80,144)
-----------------------------------------------------
70,556,711
-----------------------------------------------------
Change in net unrealized appreciation
of:
Investment securities 5,638,879
-----------------------------------------------------
Foreign currencies 3,422
-----------------------------------------------------
5,642,301
-----------------------------------------------------
Net gain from investment securities,
gold bullion and foreign currencies 76,199,012
-----------------------------------------------------
Net increase in net assets resulting
from operations $75,916,665
-----------------------------------------------------
See accompanying Notes to Financial Statements which are an integral part of
the financial statements.
F-3
AIM GOLD & PRECIOUS METALS FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended March 31, 2006 and 2005
2006
- ---------------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (282,347)
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized gain on investment securities, gold bullion and foreign currencies 70,556,711
- ---------------------------------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of investment securities and foreign currencies 5,642,301
- ---------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations 75,916,665
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class A --
- ---------------------------------------------------------------------------------------------------------------------------------
Class B --
- ---------------------------------------------------------------------------------------------------------------------------------
Class C --
- ---------------------------------------------------------------------------------------------------------------------------------
Investor Class --
- ---------------------------------------------------------------------------------------------------------------------------------
Decrease in net assets resulting from distributions --
- ---------------------------------------------------------------------------------------------------------------------------------
Share transactions-net:
Class A 19,718,830
- ---------------------------------------------------------------------------------------------------------------------------------
Class B 4,681,909
- ---------------------------------------------------------------------------------------------------------------------------------
Class C 3,815,917
- ---------------------------------------------------------------------------------------------------------------------------------
Investor Class (6,945,056)
- ---------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from share transactions 21,271,600
- ---------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets 97,188,265
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 127,033,142
- ---------------------------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment income (loss) of $(654,484) and $(5,633,241), respectively) $224,221,407
- ---------------------------------------------------------------------------------------------------------------------------------
2005
- --------------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (977,849)
- --------------------------------------------------------------------------------------------------------------------------------
Net realized gain on investment securities, gold bullion and foreign currencies 28,652,468
- --------------------------------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of investment securities and foreign currencies (37,533,429)
- --------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations (9,858,810)
- --------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class A (93,795)
- --------------------------------------------------------------------------------------------------------------------------------
Class B (73,836)
- --------------------------------------------------------------------------------------------------------------------------------
Class C (46,359)
- --------------------------------------------------------------------------------------------------------------------------------
Investor Class (1,172,562)
- --------------------------------------------------------------------------------------------------------------------------------
Decrease in net assets resulting from distributions (1,386,552)
- --------------------------------------------------------------------------------------------------------------------------------
Share transactions-net:
Class A 2,697,442
- --------------------------------------------------------------------------------------------------------------------------------
Class B 2,105,942
- --------------------------------------------------------------------------------------------------------------------------------
Class C 2,395,226
- --------------------------------------------------------------------------------------------------------------------------------
Investor Class (15,067,517)
- --------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from share transactions (7,868,907)
- --------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets (19,114,269)
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 146,147,411
- --------------------------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment income (loss) of $(654,484) and $(5,633,241), respectively) $127,033,142
- --------------------------------------------------------------------------------------------------------------------------------
See accompanying Notes to Financial Statements which are an integral part of
the financial statements.
F-4
AIM GOLD & PRECIOUS METALS FUND
NOTES TO FINANCIAL STATEMENTS
March 31, 2006
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Gold & Precious Metals Fund (the "Fund") is a series portfolio of AIM
Sector Funds (the "Trust"). The Trust is a Delaware statutory trust registered
under the Investment Company Act of 1940, as amended (the "1940 Act"), as an
open-end series management investment company consisting of six separate
portfolios, each authorized to issue an unlimited number of shares of
beneficial interest. The Fund currently consists of 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. The risk of material loss as a result of such indemnification claims
is considered remote.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period including
estimates and assumptions related to taxation. Actual results could differ from
those estimates. The following is a summary of the significant accounting
policies followed by the Fund in the preparation of its financial statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy.
A security listed or traded on an exchange (except convertible bonds) is
valued at its last sales price as of the close of the customary trading
session on the exchange where the security is principally traded, or lacking
any sales on a particular day, the security is valued at the closing bid
price on that day. Securities traded in the over-the-counter market (but not
securities reported on the NASDAQ National Market System) are valued based
on the prices furnished by independent pricing services, in which case the
securities may be considered fair valued, or by market makers. Each security
reported on the NASDAQ National Market System is valued at the NASDAQ
Official Closing Price ("NOCP") as of the close of the customary trading
session on the valuation date or absent a NOCP, at the closing bid price.
Futures contracts are valued at the final settlement price set by an
exchange on which they are principally traded. Listed options are valued at
the mean between the last bid and the ask prices from the exchange on which
they are principally traded. Options not listed on an exchange are valued by
an independent source at the mean between the last bid and ask prices. For
purposes of determining net asset value per share, futures and option
contracts generally are valued 15 minutes after the close of the customary
trading session of the New York Stock Exchange ("NYSE").
Investments in open-end registered investment companies and closed-end
registered investment companies that do not trade on an exchange are valued
at the end of day net asset value per share. Investments in closed-end
registered investment companies that trade on an exchange are valued at the
last sales price as of the close of the customary trading session on the
exchange where the security is principally traded.
Debt obligations (including convertible bonds) are fair valued using an
evaluated quote provided by an independent pricing service. Evaluated quotes
provided by the pricing service may be determined without exclusive reliance
on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, developments
related to specific securities, dividend rate, yield, quality, type of
issue, coupon rate, maturity, individual trading characteristics and other
market data. Short-term obligations having 60 days or less to maturity and
commercial paper are recorded at amortized cost which approximates value.
Securities for which market prices are not provided by any of the above
methods are valued based upon quotes furnished by independent sources and
are valued at the last bid price in the case of equity securities and in the
case of debt obligations, the mean between the last bid and asked prices.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the close
of the NYSE. Generally, trading in foreign securities is substantially
completed each day at various times prior to the close of the NYSE. The
values of such securities used in computing the net asset value of the
Fund's shares are determined as of the close of the respective markets.
Events affecting the values of such foreign securities may occur between the
times at which the particular foreign market closes and the close of the
customary trading session of the NYSE which would not ordinarily be
reflected in the computation of the Fund's net asset value. If the event is
likely to have affected the closing price of the security, the security will
be valued at fair value in good faith using procedures approved by the Board
of Trustees. Adjustments to closing prices to reflect fair value may also be
based on a screening process of an independent pricing service to indicate
the degree of certainty, based on historical data, that the closing price in
the principal market where a foreign security trades is not the current
value as of the close of the NYSE. Foreign securities meeting the approved
degree of certainty that the price is not reflective of current value will
be priced at the indication of fair value from the independent pricing
service. Multiple factors may be considered by the independent pricing
service in determining adjustments to reflect fair value and may include
information relating to sector indices, ADRs and domestic and foreign index
futures.
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by the
Board of Trustees. Issuer specific events, market trends, bid/ask quotes of
brokers and information providers and other market data may be reviewed in
the course of making a good faith determination of a security's fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions are
accounted for on a trade date basis. Realized gains or losses on sales are
computed on the basis of specific identification of the securities sold.
Interest income is recorded on the accrual basis from settlement date.
Dividend income is recorded on the ex-dividend date.
F-5
AIM GOLD & PRECIOUS METALS FUND
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 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. 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. Realized and
unrealized gains and losses on these contracts are included in the Statement
of Operations. 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. GOLD BULLION -- The Fund may invest up to 10% of its total assets, at the
time of purchase, directly in gold bullion. The two largest national
producers of gold bullion are the Republic of South Africa and the former
states of the Soviet Union. International monetary and political
developments such as currency devaluations, central bank movements and
social and economic conditions affecting either country may have a direct
impact on the gold industry. The price of gold can be subject to substantial
fluctuations over short periods of time. Investments directly in gold
bullion will earn no income; appreciation is the sole manner in which the
Fund can realize gains on bullion investments. Gold bullion is valued based
upon daily quotes provided by banks or brokers dealing in such commodities.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM based on the annual rate of the Fund's
average daily net assets as follows:
AVERAGE NET ASSETS RATE
----------------------------------------------------
First $350 million 0.75%
----------------------------------------------------
Next $350 million 0.65%
----------------------------------------------------
Next $1.3 billion 0.55%
----------------------------------------------------
Next $2 billion 0.45%
----------------------------------------------------
Next $2 billion 0.40%
----------------------------------------------------
Next $2 billion 0.375%
----------------------------------------------------
Over $8 billion 0.35%
----------------------------------------------------
F-6
AIM GOLD & PRECIOUS METALS FUND
AIM has voluntarily agreed to waive advisory fees of the Fund in the amount
of 25% of the advisory fee AIM receives from the affiliated money market funds
on investments by the Fund in such affiliated money market funds (excluding
investments made in affiliated money market funds with cash collateral from
securities loaned by the fund). AIM is also voluntarily waiving a portion of
the advisory fee payable by the Fund equal to the difference between the income
earned from investing in the affiliated money market fund and the hypothetical
income earned from investing in an appropriate comparative benchmark. Voluntary
fee waivers or reimbursements may be modified or discontinued at any time upon
consultation with the Board of Trustees without further notice to investors.
For the year ended March 31, 2006, AIM waived fees of $1,676.
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 March 31, 2006, AMVESCAP reimbursed expenses of the Fund in the amount of
$2,033.
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. Pursuant to such agreement, for the year ended
March 31, 2006, 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
March 31, 2006, the Fund paid AISI $382,346.
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 Investor Class shares of the Fund. The Trust has adopted plans
pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A,
Class B, Class C and Investor Class shares (collectively the "Plans"). The
Fund, pursuant to the Plans, pays ADI compensation at the annual rate of 0.25%
of the Fund's average daily net assets of Class A shares, 1.00% of the average
daily net assets of Class B and Class C shares and 0.25% of the average daily
net assets of Investor Class shares. Prior to July 1, 2005, the Fund paid ADI
0.35% of the average daily assets of Class A shares. Of the Rule 12b-1
payments, up to 0.25% of the average daily net assets of the Class A, Class B,
Class C or Investor Class shares may be paid to furnish continuing personal
shareholder services to customers who purchase and own shares of such classes.
Any amounts not paid as a service fee under the Plans would constitute an
asset-based sales charge. 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 March 31, 2006, the Class A, Class B, Class C and
Investor Class shares paid $50,989, $114,198, $82,411 and $277,585,
respectively.
Front-end sales commissions and contingent deferred sales charges ("CDSC")
(collectively the "sales charges") are not recorded as expenses of the Fund.
Front-end sales commissions are deducted from proceeds from the sales of Fund
shares prior to investment in Class A shares of the Fund. CDSC are deducted
from redemption proceeds prior to remittance to the shareholder. During the
year ended March 31, 2006, ADI advised the Fund that it retained $51,513 in
front-end sales commissions from the sale of Class A shares and $0, $13,938 and
$4,183 from Class A, Class B and Class C shares, respectively, for CDSC imposed
upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of AIM,
AISI and/or ADI.
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to an exemptive order from the Securities and
Exchange Commission ("SEC") and approved procedures by the Board of Trustees,
to invest daily available cash balances and cash collateral from securities
lending transactions in an affiliated money market fund. The Fund and the money
market fund below have the same investment advisor and therefore, are
considered to be affiliated. The tables below show the transactions in and
earnings from investments in an affiliated money market fund for the year ended
March 31, 2006.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
CHANGE IN
UNREALIZED REALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND GAIN
FUND 3/31/05 AT COST FROM SALES (DEPRECIATION) 3/31/06 INCOME (LOSS)
- ------------------------------------------------------------------------------------------------------------------------
Premier Portfolio-Institutional Class $1,047,383 $144,150,350 $(143,396,518) $-- $1,801,215 $231,809 $--
- ------------------------------------------------------------------------------------------------------------------------
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
CHANGE IN
UNREALIZED REALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND GAIN
FUND 3/31/05 AT COST FROM SALES (DEPRECIATION) 3/31/06 INCOME* (LOSS)
- -------------------------------------------------------------------------------------------------------------------------
Premier Portfolio-Institutional Class $8,909,192 $272,154,990 $(247,823,110) $-- $33,241,072 $ 44,547 $--
- -------------------------------------------------------------------------------------------------------------------------
Total $9,956,575 $416,305,340 $(391,219,628) $-- $35,042,287 $276,356 $--
- -------------------------------------------------------------------------------------------------------------------------
* Net of compensation to counterparties.
F-7
AIM GOLD & PRECIOUS METALS FUND
NOTE 4--EXPENSE OFFSET ARRANGEMENT
The expense offset arrangement is comprised of transfer agency credits which
result from balances in Demand Deposit Accounts (DDA) used by the transfer
agent for clearing shareholder transactions. For the year ended March 31, 2006,
the Fund received credits from this arrangement, which resulted in the
reduction of the Fund's total expenses of $5,543.
NOTE 5--TRUSTEES' AND OFFICER'S FEES AND BENEFITS
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to pay remuneration to each Trustee and Officer of the Fund who is not an
"interested person" of AIM. Trustees have the option to defer compensation
payable by the Fund, and "Trustees' and Officer's Fees and Benefits" also
include amounts accrued by the Fund to fund such deferred compensation amounts.
Those Trustees who defer compensation have the option to select various AIM
Funds in which their deferral accounts shall be deemed to be invested. Finally,
current Trustees are eligible to participate in a retirement plan that provides
for benefits to be paid upon retirement to Trustees over a period of time based
on the number of years of service. The Fund may have certain former Trustees
who also participate in a retirement plan and receive benefits under such plan.
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to fund such retirement benefits. Obligations under the deferred compensation
and retirement plans represent unsecured claims against the general assets of
the Fund.
During the year ended March 31, 2006, the Fund paid legal fees of $4,261 for
services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 6--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate
available on investments in overnight repurchase agreements) is favorable to
both the lending fund and the borrowing fund. A loan will be secured by
collateral if the Fund's aggregate borrowings from all sources exceeds 10% of
the Fund's total assets. To the extent that the loan is required to be secured
by collateral, the collateral is marked to market daily to ensure that the
market value is at least 102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to
the credit facility can borrow on a first come, first served basis. Principal
on each loan outstanding shall bear interest at the bid rate quoted by SSB at
the time of the request for the loan.
During the year ended March 31, 2006, 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.
NOTE 7--PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities having a market value up to one-third of
the Fund's total assets. Such loans are secured by collateral equal to no less
than the market value of the loaned securities determined daily. Such
collateral will be cash or debt securities issued or guaranteed by the U.S.
Government or any of its agencies. Cash collateral received in connection with
these loans is invested in short-term money market instruments or affiliated
money market funds. It is the Fund's policy to obtain additional collateral
from or return excess collateral to the borrower by the end of the next
business day, following the valuation date of the securities loaned. Therefore,
the value of the collateral held may be temporarily less than the value of the
securities on loan. Lending securities entails a risk of loss to the Fund if
and to the extent that the market value of the securities loaned were to
increase and the borrower did not increase the collateral accordingly, and the
borrower fails to return the securities. The Fund could also experience delays
and costs in gaining access to the collateral. The Fund bears the risk of any
deficiency in the amount of the collateral available for return to the borrower
due to a loss on the collateral invested.
At March 31, 2006, securities with an aggregate value of $31,987,969 were on
loan to brokers. The loans were secured by cash collateral of $33,241,072
received by the Fund and subsequently invested in an affiliated money market
fund. For the year ended March 31, 2006, the Fund received dividends on cash
collateral investments of $44,547 for securities lending transactions, which
are net of compensation to counterparties.
NOTE 8--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
The tax character of distributions paid during the years ended March 31, 2006
and 2005 was as follows:
2006 2005
-------------------------------------------------------
Distributions paid from ordinary income $-- $1,386,552
-------------------------------------------------------
F-8
AIM GOLD & PRECIOUS METALS FUND
TAX COMPONENTS OF NET ASSETS:
As of March 31, 2006, the components of net assets on a tax basis were as
follows:
2006
----------------------------------------------------
Undistributed ordinary income $ 5,503,174
----------------------------------------------------
Unrealized appreciation -- investments 8,438,697
----------------------------------------------------
Temporary book/tax differences (24,480)
----------------------------------------------------
Capital loss carryover (67,240,044)
----------------------------------------------------
Post October currency loss deferral (108,911)
----------------------------------------------------
Shares of beneficial interest 277,652,971
----------------------------------------------------
Total net assets $224,221,407
----------------------------------------------------
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation (depreciation) difference is attributable primarily to losses on
wash sales and the recognition of unrealized gain on passive foreign investment
companies. The tax-basis unrealized appreciation on investments amount includes
appreciation on foreign currencies of $180.
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 $65,152,438 of capital loss carryforward in the current
period to offset net realized capital gain for federal income tax purposes. The
Fund has a capital loss carryforward as of March 31, 2006 which expires as
follows:
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
---------------------------------------------
March 31, 2007 $28,693,791
---------------------------------------------
March 31, 2009 37,453,344
---------------------------------------------
March 31, 2010 1,092,909
---------------------------------------------
Total capital loss carryforward $67,240,044
---------------------------------------------
* Capital loss carryforward as of the date listed above is reduced for
limitations, if any, to the extent required by the Internal Revenue Code.
NOTE 9--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the year ended
March 31, 2006 was $245,404,563 and $225,987,370, respectively.
UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENT SECURITIES ON A TAX BASIS
-------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $17,721,111
-------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (9,287,594)
-------------------------------------------------------------------------
Net unrealized appreciation of investment securities $ 8,438,517
-------------------------------------------------------------------------
Cost of investments for tax purposes is $248,518,312.
NOTE 10--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of foreign investment
companies proceeds from the sale of securities acquired through corporate
actions and foreign currency transactions, on March 31, 2006, undistributed net
investment income (loss) was increased by $5,261,104 and undistributed net
realized gain (loss) was decreased by $5,261,104. This reclassification had no
effect on the net assets of the Fund.
F-9
AIM GOLD & PRECIOUS METALS FUND
NOTE 11--SHARE INFORMATION
The Fund currently consists of four different classes of shares: Class A
shares, Class B shares, Class C shares and Investor Class shares. Investor
Class shares of the Fund are offered only to certain grandfathered investors.
Class A shares are sold with a front-end sales charge. Class B shares and
Class C shares are sold with CDSC. Investor Class shares are sold at net asset
value. Under certain circumstances, Class A shares are subject to CDSC.
Generally, Class B shares will automatically convert to Class A shares eight
years after the end of the calendar month of purchase.
CHANGES IN SHARES OUTSTANDING
- --------------------------------------------------------------------------------------------------------
YEAR ENDED MARCH 31,
----------------------------------------------------
2006/(a)/ 2005
------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------
Sold:
Class A 7,531,059 $ 34,273,073 3,288,755 $ 11,829,894
- --------------------------------------------------------------------------------------------------------
Class B 2,233,171 9,831,499 1,946,374 6,878,345
- --------------------------------------------------------------------------------------------------------
Class C 2,254,429 11,248,429 1,718,862 6,596,274
- --------------------------------------------------------------------------------------------------------
Investor Class 8,301,400 37,940,685 6,331,925 22,395,640
- --------------------------------------------------------------------------------------------------------
Issued as reinvestment of dividends:
Class A -- -- 24,681 88,604
- --------------------------------------------------------------------------------------------------------
Class B -- -- 17,083 61,330
- --------------------------------------------------------------------------------------------------------
Class C -- -- 11,479 43,618
- --------------------------------------------------------------------------------------------------------
Investor Class -- -- 311,578 1,124,797
- --------------------------------------------------------------------------------------------------------
Automatic conversion of Class B shares to Class A
shares:
Class A 67,062 286,923 48,957 173,885
- --------------------------------------------------------------------------------------------------------
Class B (67,562) (286,923) (48,993) (173,885)
- --------------------------------------------------------------------------------------------------------
Reacquired:
Class A (3,315,412) (14,841,166) (2,693,506) (9,394,941)
- --------------------------------------------------------------------------------------------------------
Class B (1,185,128) (4,862,667) (1,328,313) (4,659,848)
- --------------------------------------------------------------------------------------------------------
Class C (1,635,980) (7,432,512) (1,154,957) (4,244,666)
- --------------------------------------------------------------------------------------------------------
Investor Class (10,370,494) (44,885,741) (11,007,214) (38,587,954)
- --------------------------------------------------------------------------------------------------------
3,812,545 $ 21,271,600 (2,533,289) $ (7,868,907)
- --------------------------------------------------------------------------------------------------------
/(a)/There are two entities that are each record owners of more than 5% of the
outstanding shares of the Fund and in the aggregate they own 17% 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-10
AIM GOLD & PRECIOUS METALS FUND
NOTE 12--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
CLASS A
---------------------------------------------
YEAR ENDED MARCH 31,
---------------------------------------------
2006 2005 2004 2003/(A)/
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 3.55 $ 3.81 $ 2.39 $ 2.29
- ----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.00)/(b)/ (0.03)/(b)/ (0.01) (0.02)/(b)/
- ----------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) 2.12 (0.20) 1.56 0.12
- ----------------------------------------------------------------------------------------------------------------------
Total from investment operations 2.12 (0.23) 1.55 0.10
- ----------------------------------------------------------------------------------------------------------------------
Less dividends from net investment income -- (0.03) (0.13) --
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 5.67 $ 3.55 $ 3.81 $ 2.39
- ----------------------------------------------------------------------------------------------------------------------
Total return/(c)/ 59.72% (5.89)% 65.02% 4.37%
- ----------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $41,200 $10,609 $8,844 $1,514
- ----------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets:
- ----------------------------------------------------------------------------------------------------------------------
With fee waivers and/or expense reimbursements 1.45%/(d)/ 1.69% 2.13% 2.09%
- ----------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.45%/(d)/ 1.71% 2.13% 2.11%
- ----------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (0.10)%/(d)/ (0.78)% (1.29)% (1.09)%
- ----------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 155% 51% 48% 84%
- ----------------------------------------------------------------------------------------------------------------------
/(a)/Class commenced sales on March 28, 2002.
/(b)/Calculated using average shares outstanding.
/(c)/Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net
asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges.
/(d)/Ratios are based on average daily net assets of $19,369,625.
F-11
AIM GOLD & PRECIOUS METALS FUND
NOTE 12--FINANCIAL HIGHLIGHTS-(CONTINUED)
CLASS B
--------------------------------------------
YEAR ENDED MARCH 31,
--------------------------------------------
2006 2005 2004 2003/(A)/
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 3.54 $ 3.82 $ 2.39 $ 2.29
- ---------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.04)/(b)/ (0.05)/(b)/ (0.01) (0.02)/(b)/
- ---------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) 2.10 (0.20) 1.57 0.12
- ---------------------------------------------------------------------------------------------------------------------
Total from investment operations 2.06 (0.25) 1.56 0.10
- ---------------------------------------------------------------------------------------------------------------------
Less dividends from net investment income -- (0.03) (0.13) --
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 5.60 $ 3.54 $ 3.82 $ 2.39
- ---------------------------------------------------------------------------------------------------------------------
Total return/(c)/ 58.19% (6.48)% 65.26% 4.37%
- ---------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $19,103 $8,593 $7,042 $2,315
- ---------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 2.19%/(d)/ 2.34%/(e)/ 2.28% 2.18%
- ---------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (0.84)%/(d)/ (1.43)% (1.44)% (1.12)%
- ---------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 155% 51% 48% 84%
- ---------------------------------------------------------------------------------------------------------------------
/(a)/Class commenced sales on March 28, 2002.
/(b)/Calculated using average shares outstanding.
/(c)/Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net
asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges.
/(d)/Ratios are based on average daily net assets of $11,419,847.
/(e)/After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements was
2.36%.
F-12
AIM GOLD & PRECIOUS METALS FUND
NOTE 12--FINANCIAL HIGHLIGHTS-(CONTINUED)
CLASS C
--------------------------------------------------------
YEAR ENDED MARCH 31,
--------------------------------------------------------
2006 2005 2004 2003 2002
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 3.75 $ 4.04 $ 2.52 $ 2.42 $ 1.53
- -----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.04)/(a)/ (0.05)/(a)/ (0.04) (0.00)/(b)/ (0.07)
- -----------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) 2.23 (0.22) 1.67 0.10 0.96
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations 2.19 (0.27) 1.63 0.10 0.89
- -----------------------------------------------------------------------------------------------------------------------------
Less dividends from net investment income -- (0.02) (0.11) -- --
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 5.94 $ 3.75 $ 4.04 $ 2.52 $ 2.42
- -----------------------------------------------------------------------------------------------------------------------------
Total return/(c)/ 58.40% (6.58)% 64.70% 4.13% 58.17%
- -----------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $14,758 $6,993 $5,208 $2,459 $ 515
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 2.19%/(d)/ 2.34%/(e)/ 2.69% 2.65% 3.33%
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (0.84)%/(d)/ (1.43)% (1.85)% (1.60)% (1.67)%
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 155% 51% 48% 84% 46%
- -----------------------------------------------------------------------------------------------------------------------------
/(a)/Calculated using average shares outstanding.
/(b)/The net investment income (loss) per share was calculated after permanent
book tax differences, such as net operating losses, which were
reclassified from accumulated net investment income (loss) to paid in
capital. Had net investment income (loss) per share been calculated using
the current method, which is before reclassification of net operating
losses, net investment income (loss) per share would have been $(0.04),
for the year ended March 31, 2003.
/(c)/Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net
asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges.
/(d)/Ratios are based on average daily net assets of $8,241,150.
/(e)/After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements was
2.36%.
F-13
AIM GOLD & PRECIOUS METALS FUND
NOTE 12--FINANCIAL HIGHLIGHTS-(CONTINUED)
INVESTOR CLASS
--------------------------------------------------------
YEAR ENDED MARCH 31,
--------------------------------------------------------
2006 2005 2004 2003
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 3.57 $ 3.84 $ 2.40 $ 2.29
- ----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.00)/(a)/ (0.02)/(a)/ (0.05) (0.02)/(a)/
- ----------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) 2.13 (0.21) 1.63 0.13
- ----------------------------------------------------------------------------------------------------------------------------
Total from investment operations 2.13 (0.23) 1.58 0.11
- ----------------------------------------------------------------------------------------------------------------------------
Less dividends from net investment income -- (0.04) (0.14) --
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 5.70 $ 3.57 $ 3.84 $ 2.40
- ----------------------------------------------------------------------------------------------------------------------------
Total return/(b)/ 59.66% (6.00)% 65.92% 4.80%
- ----------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $149,160 $100,838 $125,053 $98,388
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 1.44%/(c)/ 1.59%/(d)/ 1.93% 1.88%
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (0.09)%/(c)/ (0.68)% (1.09)% (0.79)%
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 155% 51% 48% 84%
- ----------------------------------------------------------------------------------------------------------------------------
---------
---------
2002
- -----------------------------------------------------------------------------
Net asset value, beginning of period $ 1.43
- -----------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.01)
- -----------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) 0.87
- -----------------------------------------------------------------------------
Total from investment operations 0.86
- -----------------------------------------------------------------------------
Less dividends from net investment income --
- -----------------------------------------------------------------------------
Net asset value, end of period $ 2.29
- -----------------------------------------------------------------------------
Total return/(b)/ 60.14%
- -----------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $104,831
- -----------------------------------------------------------------------------
Ratio of expenses to average net assets 2.10%
- -----------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (0.80)%
- -----------------------------------------------------------------------------
Portfolio turnover rate 46%
- -----------------------------------------------------------------------------
/(a)/Calculated using average shares outstanding.
/(b)/Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net
asset values may differ from the net asset value and returns for
shareholder transactions.
/(c)/Ratios are based on average daily net assets of $111,034,137.
/(d)/After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements was
1.61%.
F-14
AIM GOLD & PRECIOUS METALS FUND
NOTE 13--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds), AIM and A I M Distributors, Inc. ("ADI") (the
distributor of the retail AIM Funds) reached final settlements with certain
regulators, including the Securities and Exchange Commission ("SEC"), the New
York Attorney General and the Colorado Attorney General, to resolve civil
enforcement actions and/or investigations related to market timing and related
activity in the AIM Funds, including those formerly advised by IFG. As part of
the settlements, a $325 million fair fund ($110 million of which is civil
penalties) has been created to compensate shareholders harmed by market timing
and related activity in funds formerly advised by IFG. Additionally, AIM and
ADI created a $50 million fair fund ($30 million of which is civil penalties)
to compensate shareholders harmed by market timing and related activity in
funds advised by AIM, which was done pursuant to the terms of the settlement.
These two fair funds may increase as a result of contributions from third
parties who reach final settlements with the SEC or other regulators to resolve
allegations of market timing and/or late trading that also may have harmed
applicable AIM Funds. These two fair funds will be distributed in accordance
with a methodology to be determined by AIM's independent distribution
consultant, in consultation with AIM and the independent trustees of the AIM
Funds and acceptable to the staff of the SEC. 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.
PENDING LITIGATION AND REGULATORY INQUIRIES
On August 30, 2005, the West Virginia Office of the State Auditor--Securities
Commission ("WVASC") issued a Summary Order to Cease and Desist and Notice of
Right to Hearing to AIM and ADI (Order No. 05-1318). The WVASC makes findings
of fact that AIM and ADI entered into certain arrangements permitting market
timing of the AIM Funds, including those formerly advised by IFG, and failed to
disclose these arrangements in the prospectuses for such Funds, and conclusions
of law to the effect that AIM and ADI violated the West Virginia securities
laws. The WVASC orders AIM and ADI to cease any further violations and seeks to
impose monetary sanctions, including restitution to affected investors,
disgorgement of fees, reimbursement of investigatory, administrative and legal
costs and an "administrative assessment," to be determined by the Commissioner.
Initial research indicates that these damages could be limited or capped by
statute.
Civil lawsuits, including purported class action and shareholder derivative
suits, have been filed against certain of the AIM Funds, IFG, AIM, ADI and/or
related entities and individuals, depending on the lawsuit, alleging:
. that the defendants permitted improper market timing and related
activity in the AIM Funds;
. that certain AIM Funds inadequately employed fair value pricing;
. that the defendants charged excessive advisory and/or distribution
fees and failed to pass on to shareholders the perceived savings
generated by economies of scale and that the defendants adopted
unlawful distribution plans; and
. that the defendants improperly used the assets of the AIM Funds to pay
brokers to aggressively promote the sale of the AIM Funds over other
mutual funds and that the defendants concealed such payments from
investors by disguising them as brokerage commissions.
These lawsuits allege as theories of recovery, depending on the lawsuit,
violations of various provisions of the Federal and state securities laws and
ERISA, negligence, breach of fiduciary duty and/or breach of contract. These
lawsuits seek remedies that include, depending on the lawsuit, damages,
restitution, injunctive relief, imposition of a constructive trust, removal of
certain directors and/or employees, various corrective measures under ERISA,
rescission of certain AIM Funds' advisory agreements and/or distribution plans
and recovery of all fees paid, an accounting of all fund-related fees,
commissions and soft dollar payments, restitution of all commissions and fees
paid, and prospective relief in the form of reduced fees.
All lawsuits based on allegations of market timing, late trading and related
issues have been transferred or conditionally transferred to the United States
District Court for the District of Maryland (the "MDL Court"). Pursuant to an
Order of the MDL Court, plaintiffs in these lawsuits consolidated their claims
for pre-trial purposes into three amended complaints against various AIM- and
IFG-related parties: (i) a Consolidated Amended Class Action Complaint
purportedly brought on behalf of shareholders of the AIM Funds; (ii) a
Consolidated Amended Fund Derivative Complaint purportedly brought on behalf of
the AIM Funds and fund registrants; and (iii) an Amended Class Action Complaint
for Violations of the Employee Retirement Income Securities Act ("ERISA")
purportedly brought on behalf of participants in AMVESCAP's 401(k) plan.
On March 1, 2006, the MDL Court entered orders on Defendants' Motions to
dismiss in the derivative and class action lawsuits. The MDL Court dismissed
all derivative causes of action in the derivative lawsuit but two: (i) the
excessive fee claim under Section 36(b) of the Investment Company Act of 1940
(the "1940 Act"); and (ii) the "control person liability" claim under
Section 48 of the 1940 Act. The MDL Court dismissed all claims asserted in the
class action lawsuit but three: (i) the securities fraud claims under
Section 10(b) of the Securities Exchange Act of 1934; (ii) the excessive fee
claim under Section 36(b) of the 1940 Act (which survived only insofar as
plaintiffs seek recovery of fees associated with the assets involved in market
timing); and (iii) the "control person liability" claim under Section 48 of the
1940 Act. Based on the MDL Court's March 1, 2006 orders, all claims asserted
against the Funds that have been transferred to the MDL Court have been
dismissed, although certain Funds remain nominal defendants in the derivative
lawsuit. Defendants filed their Original Answer in the class action lawsuit on
March 31, 2006. The MDL Court has indefinitely deferred Defendants' obligation
to answer the derivative lawsuit.
On February 27, 2006, Judge Motz for the MDL Court issued a memorandum
opinion on the AMVESCAP defendants' motion to dismiss the ERISA lawsuit. Judge
Motz granted the motion in part and denied the motion in part, holding that:
(i) plaintiff has both constitutional and statutory standing to pursue her
claims under
F-15
AIM GOLD & PRECIOUS METALS FUND
NOTE 13--LEGAL PROCEEDINGS-(CONTINUED)
ERISA (S) 502(a)(2); (ii) plaintiff lacks standing under ERISA (S) 502(a)(3) to
obtain equitable relief; (iii) the motion is granted as to the claims alleged
under ERISA (S) 404 for failure to prudently and loyally manage plan assets
against certain AMVESCAP defendants; (iv) the motion is denied as to the claims
alleged under ERISA (S) 404 for failure to prudently and loyally manage plan
assets against AMVESCAP and certain other AMVESCAP defendants. The opinion
also: (i) confirmed plaintiff's abandonment of her claims that defendants
engaged in prohibited transactions and/or misrepresentation; (ii) postponed
consideration of the duty to monitor and co-fiduciary duty claims until after
any possible amendments to the complaints; (iii) stated that plaintiff may seek
leave to amend her complaint within 40 days of the date of filing of the
memorandum opinion. On April 4, 2006, Judge Motz entered an order implementing
these rulings in the ERISA (Calderon) lawsuit against the AMVESCAP defendants.
Plaintiffs indicated that they intend to amend their complaint in light of this
order. Defendants will have 30 days after such amendment to answer or otherwise
respond.
IFG, AIM, ADI and/or related entities and individuals have received inquiries
from numerous regulators in the form of subpoenas or other oral or written
requests for information and/or documents related to one or more of the
following issues, among others, some of which concern one or more AIM Funds:
market timing activity, late trading, fair value pricing, excessive or improper
advisory and/or distribution fees, mutual fund sales practices, including
revenue sharing and directed-brokerage arrangements, investments in securities
of other registered investment companies, contractual plans, issues related to
Section 529 college savings plans and procedures for locating lost security
holders. IFG, AIM and ADI have advised the Fund that they are providing full
cooperation with respect to these inquiries. Regulatory actions and/or
additional civil lawsuits related to these or other issues may be filed against
the AIM Funds, IFG, AIM and/or related entities and individuals in the future.
At the present time, management of AIM and the Fund are unable to estimate
the impact, if any, that the outcome of the Pending Litigation and Regulatory
Inquiries described above may have on AIM, 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
AIM GOLD & PRECIOUS METALS FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees of AIM Sector Funds
and Shareholders of AIM Gold & Precious Metals Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of AIM Gold & Precious Metals Fund
(one of the funds constituting AIM Sector Funds, hereafter referred to as the
"Fund") at March 31, 2006, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended and the financial highlights for each of the periods indicated, in
conformity with accounting principles generally accepted in the United States
of America. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits, which included confirmation of
investments at March 31, 2006 by correspondence with the custodian and brokers,
provide a reasonable basis for our opinion.
/s/ PRICEWATERHOUSECOOPERS LLP
May 19, 2006
Houston, Texas
F-17
AIM GOLD & PRECIOUS METALS FUND
TAX DISCLOSURE
U.S. ESTATE TAX FOR NON-RESIDENT ALIEN SHAREHOLDER
The percentage of qualifying assets not subject to the U.S. estate tax for the
fiscal quarters ended June 30, 2005, September 30, December 31, 2005 and
March 31, 2006, are 77.29%, 75.38%, 73.99 % and 74.86%, respectively.
F-18
AIM GOLD & PRECIOUS METALS FUND
TRUSTEES AND OFFICERS
As of March 31, 2006
The address of each trustee and officer of AIM Sector Funds (the "Trust"), is
11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 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)
TRUST OR OFFICER SINCE DURING PAST 5 YEARS
- ----------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- ----------------------------------------------------------------------------------------------------
Robert H. Graham/1 /-- 1946 2003 Director and Chairman, A I M Management
Trustee, Vice Chair, President and Group Inc. (financial services holding
Principal Executive Officer company); Director and Vice Chairman,
AMVESCAP PLC; Chairman of AMVESCAP
PLC -- AIM Division (parent of AIM and
a global investment management firm);
and Trustee, Vice Chair, President and
Principal Executive Officer of the AIM
Family of Funds
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 Trustee and Executive Vice President of
Trustee and Executive Vice President the AIM Family of Funds
Formerly: Director, Chairman, President
and Chief Executive Officer, INVESCO
Funds Group, Inc.; President and Chief
Executive Officer, INVESCO
Distributors, Inc.; and Chief Executive
Officer, AMVESCAP PLC -- Managed
Products; and Chairman, A I M Advisors,
Inc.; Director, President and Chief
Executive Officer, A I M Management
Group Inc.; Director and President,
A I M Advisors, Inc.; Director, A I M
Capital Management, Inc. and A I M
Distributors,
Inc.; Director and Chairman, AIM Investment
Services, Inc., Fund Management Company
and INVESCO Distributors, Inc.
(registered broker dealer); Chief
Executive Officer, AMVESCAP PLC -- AIM
Division
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- ----------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 2003 Chairman, Crockett Technology
Trustee and Chair Associates (technology consulting
company)
- ----------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 1983 Retired
Trustee
- ----------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2003 Retired
Trustee
Formerly: Partner, law firm of Baker &
McKenzie
- ----------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2000 Founder, Green, Manning & Bunch, Ltd.
Trustee (investment banking firm); and
Director, Policy Studies, Inc. and Van
Gilder Insurance Corporation
- ----------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2003 Director of a number of public and
Trustee private business corporations,
including the Boss Group, Ltd. (private
investment and management); Cortland
Trust, Inc. (Chairman) (registered
investment company (3 portfolios));
Annuity and Life Re (Holdings), Ltd.
(insurance company; CompuDyne
Corporation (provider of products and
services to the public security market)
and Homeowners of American Holding
Corporation
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President,
AB Volvo; and director of various
affiliated Volvo companies
- ----------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 2003 Chief Executive Officer, Twenty First
Trustee Century Group, Inc. (government affairs
company); and Owner, Dos Angelos Ranch,
L.P.
Formerly: Chief Executive Officer,
Texana Timber LP (sustainable forestry
company)
- ----------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 2003 Partner, law firm of Kramer Levin
Trustee Naftalis and Frankel LLP
- ----------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 2003 Formerly: Chief Executive Officer, YWCA
Trustee of the USA
- ----------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 2003 Partner, law firm of Pennock & Cooper
Trustee
- ----------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2003 Retired
Trustee
- ----------------------------------------------------------------------------------------------------
Larry Soll -- 1942 1997 Retired
Trustee
- ----------------------------------------------------------------------------------------------------
Raymond Stickel, Jr. -- 1944 2005 Retired
Trustee
Formerly: Partner, Deloitte & Touche
- ----------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
DURING PAST 5 YEARS HELD BY TRUSTEE
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
Director and Chairman, A I M Management None
Group Inc. (financial services holding
company); Director and Vice Chairman,
AMVESCAP PLC; Chairman of AMVESCAP
PLC -- AIM Division (parent of AIM and
a global investment management firm);
and Trustee, Vice Chair, President and
Principal Executive Officer of the AIM
Family of Funds
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
- ----------------------------------------------------------------------------
Trustee and Executive Vice President of None
the AIM Family of Funds
Formerly: Director, Chairman, President
and Chief Executive Officer, INVESCO
Funds Group, Inc.; President and Chief
Executive Officer, INVESCO
Distributors, Inc.; and Chief Executive
Officer, AMVESCAP PLC -- Managed
Products; and Chairman, A I M Advisors,
Inc.; Director, President and Chief
Executive Officer, A I M Management
Group Inc.; Director and President,
A I M Advisors, Inc.; Director, A I M
Capital Management, Inc. and A I M
Distributors,
Inc.; Director and Chairman, AIM Investment
Services, Inc., Fund Management Company
and INVESCO Distributors, Inc.
(registered broker dealer); Chief
Executive Officer, AMVESCAP PLC -- AIM
Division
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
Chairman, Crockett Technology ACE Limited (insurance
Associates (technology consulting company); and Captaris, Inc.
company) (unified messaging provider)
- ----------------------------------------------------------------------------
Retired None
- ----------------------------------------------------------------------------
Retired Badgley Funds, Inc. (registered
investment company
Formerly: Partner, law firm of Baker & (2 portfolios))
McKenzie
- ----------------------------------------------------------------------------
Founder, Green, Manning & Bunch, Ltd. None
(investment banking firm); and
Director, Policy Studies, Inc. and Van
Gilder Insurance Corporation
- ----------------------------------------------------------------------------
Director of a number of public and None
private business corporations,
including the Boss Group, Ltd. (private
investment and management); Cortland
Trust, Inc. (Chairman) (registered
investment company (3 portfolios));
Annuity and Life Re (Holdings), Ltd.
(insurance company; CompuDyne
Corporation (provider of products and
services to the public security market)
and Homeowners of American Holding
Corporation
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President,
AB Volvo; and director of various
affiliated Volvo companies
- ----------------------------------------------------------------------------
Chief Executive Officer, Twenty First Administaff, and Discovery
Century Group, Inc. (government affairs Global Education Fund
company); and Owner, Dos Angelos Ranch, (non-profit)
L.P.
Formerly: Chief Executive Officer,
Texana Timber LP (sustainable forestry
company)
- ----------------------------------------------------------------------------
Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Naftalis and Frankel LLP investment company
(3 portfolios))
- ----------------------------------------------------------------------------
Formerly: Chief Executive Officer, YWCA None
of the USA
- ----------------------------------------------------------------------------
Partner, law firm of Pennock & Cooper None
- ----------------------------------------------------------------------------
Retired None
- ----------------------------------------------------------------------------
Retired None
- ----------------------------------------------------------------------------
Retired Director, Mainstay VP Series
Funds, Inc. (21 portfolios)
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.
AIM GOLD & PRECIOUS METALS FUND
TRUSTEES AND OFFICERS-(CONTINUED)
As of March 31, 2006
The address of each trustee and officer of AIM Sector Funds (the "Trust"), is
11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 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
- --------------------------------------------------------------------------------------------------------------------
Russell C. Burk -- 1958 2005 Senior Vice President and Senior N/A
Senior Vice President and Officer of the AIM Family of Funds
Senior Officer
Formerly: Director of Compliance and
Assistant General Counsel, ICON
Advisers, Inc.; Financial Consultant,
Merrill Lynch; General Counsel and
Director of Compliance, ALPS Mutual
Funds, Inc.
- --------------------------------------------------------------------------------------------------------------------
John M. Zerr -- 1962/3/ 2006 Director, Senior Vice President, N/A
Senior Vice President, Chief Legal Secretary and General Counsel, A I M
Officer and Secretary Management Group Inc. (financial
services holding company) and A I M
Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Vice President, A I M Capital
Management, Inc., AIM Investment
Services, Inc., and Fund Management
Company; and Senior Vice President, A I
M Distributors, Inc.; and Senior Vice
President, Chief Legal Officer and
Secretary of the AIM Family of Funds
Formerly: Chief Operating Officer,
Senior Vice President, General Counsel,
and Secretary, Liberty Ridge Capital,
Inc. (an investment adviser); Vice
President and Secretary, PBHG Funds (an
investment company); Vice President and
Secretary, PBHG Insurance Series Fund
(an investment company); General
Counsel and Secretary, Pilgrim Baxter
Value Investors (an investment
adviser); Chief Operating Officer,
General Counsel and Secretary, Old
Mutual Investment Partners (a
broker-dealer); General Counsel and
Secretary, Old Mutual Fund Services (an
administrator); General Counsel and
Secretary, Old Mutual Shareholder
Services (a shareholder servicing
center); Executive Vice President,
General Counsel and Secretary, Old
Mutual Capital, Inc. (an investment
adviser); and Vice President and
Secretary, Old Mutual Advisors Funds
(an investment company)
- --------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley -- 1959 2004 Global Compliance Director, AMVESCAP N/A
Vice President PLC; and Vice President of the AIM
Family of Funds
Formerly: Senior Vice President, A I M
Management Group Inc. (financial
services holding company); Senior Vice
President and Chief Compliance Officer,
A I M Advisors, Inc. and the AIM Family
of Funds; Vice President and Chief
Compliance Officer, A I M Capital
Management, Inc. and A I M
Distributors, Inc.; Vice President, AIM
Investment Services, Inc. and Fund
Management Company; and Senior Vice
President and Compliance Director,
Delaware Investments Family of Funds
- --------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Senior Vice President and General N/A
Vice President Counsel, AMVESCAP PLC; and Vice
President of the AIM Family of Funds
Formerly: Director, General Counsel,
and Vice President Fund Management
Company; Director, Senior Vice
President, Secretary and General
Counsel, A I M Management Group Inc.
(financial services holding company)
and A I M Advisors, Inc.; Director and
Vice President, INVESCO Distributors,
Inc.; Senior Vice President,
A I M Distributors, Inc.; Vice
President, A I M Capital Management,
Inc. and AIM Investment Services, Inc.;
Senior Vice President, Chief Legal
Officer and Secretary of the AIM Family
of Funds; and Senior Vice President,
Chief Legal Officer and General
Counsel, Liberty Financial Companies,
Inc. and Liberty Funds Group, LLC
- --------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, N/A
Vice President, Treasurer and A I M Advisors, Inc.; and Vice
Principal Financial Officer President, Treasurer and Principal
Financial Officer of the AIM Family of
Funds
Formerly: Vice President,
A I M Distributors, Inc.; and Senior
Vice President, AIM Investment
Services, 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.;
and Vice President of the AIM Family of
Funds
Formerly: Senior Vice President, AIM
Private Asset Management, Inc.; and
Chief Equity Officer and Senior
Investment Officer, A I M Capital
Management, Inc.
- --------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 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. and the AIM Family
of Fund
- --------------------------------------------------------------------------------------------------------------------
Todd L. Spillane/4 /-- 1958 2006 Senior Vice President, A I M Management N/A
Chief Compliance Officer Group Inc.; Senior Vice President and
Chief Compliance Officer, A I M
Advisors, Inc.; Chief Compliance
Officer of the AIM Family of Funds;
Vice President and Chief Compliance
Officer, A I M Capital Management,
Inc.; and Vice President, A I M
Distributors, Inc., AIM Investment
Services, Inc. and Fund Management
Company
Formerly: Global Head of Product
Development, AIG-Global Investment
Group, Inc.; Chief Compliance Officer
and Deputy General Counsel,
AIG-SunAmerica Asset Management; and
Chief Compliance Officer, Chief
Operating Officer and Deputy General
Counsel, American General Investment
Management
- --------------------------------------------------------------------------------------------------------------------
/3/ Mr. Zerr was elected Senior Vice President, Chief Legal Officer and
Secretary effective March 29, 2006.
/4/ Mr. Spillane was elected Chief Compliance Officer effective March 29, 2006.
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, 51st Floor Frankel LLP Houston, TX 77210-4739 225 Franklin Street
Philadelphia, PA 19103-7599 1177 Avenue of the Americas Boston, MA 02110-2801
New York, NY 10036-2714
DOMESTIC EQUITY SECTOR EQUITY AIM ALLOCATION SOLUTIONS
AIM Basic Balanced Fund* AIM Advantage Health Sciences Fund AIM Conservative Allocation Fund
AIM Basic Value Fund AIM Energy Fund AIM Growth Allocation Fund/2/
AIM Capital Development Fund AIM Financial Services Fund AIM Moderate Allocation Fund
AIM Charter Fund AIM Global Health Care Fund AIM Moderate Growth Allocation Fund
AIM Constellation Fund AIM Global Real Estate Fund AIM Moderately Conservative
AIM Diversified Dividend Fund AIM Gold & Precious Metals Fund Allocation Fund
AIM Dynamics Fund AIM Leisure Fund
AIM Large Cap Basic Value Fund AIM Multi-Sector Fund DIVERSIFIED PORTFOLIOS
AIM Large Cap Growth Fund AIM Real Estate Fund/1/
AIM Mid Cap Basic Value Fund AIM Technology Fund AIM Income Allocation Fund
AIM Mid Cap Core Equity Fund/1/ AIM Utilities Fund AIM International Allocation Fund
AIM Opportunities I Fund
AIM Opportunities II Fund FIXED INCOME
AIM Opportunities III Fund
AIM S&P 500 Index Fund TAXABLE
AIM Select Equity Fund
AIM Small Cap Equity Fund AIM Enhanced Short Bond Fund
AIM Small Cap Growth Fund AIM Floating Rate Fund
AIM Structured Core Fund AIM High Yield Fund
AIM Structured Growth Fund AIM Income Fund
AIM Structured Value Fund AIM Intermediate Government Fund
AIM Summit Fund AIM International Bond Fund
AIM Trimark Endeavor Fund AIM Limited Maturity Treasury Fund
AIM Trimark Small Companies Fund AIM Money Market Fund
AIM Short Term Bond Fund
* Domestic equity and income fund AIM Total Return Bond Fund
Premier Portfolio
INTERNATIONAL/GLOBAL EQUITY Premier U.S. Government Money Portfolio
AIM Asia Pacific Growth Fund TAX-FREE
AIM China Fund
AIM Developing Markets Fund AIM High Income Municipal Fund/1/
AIM European Growth Fund AIM Municipal Bond Fund
AIM European Small Company Fund/1/ AIM Tax-Exempt Cash Fund
AIM Global Aggressive Growth Fund AIM Tax-Free Intermediate Fund
AIM Global Equity Fund Premier Tax-Exempt Portfolio
AIM Global Growth Fund
AIM Global Value Fund
AIM Japan Fund
AIM International Core Equity Fund
AIM International Growth Fund
AIM International Small Company Fund/1/
AIM Trimark Fund
/1/ This Fund has limited public sales of its shares to certain investors. For
more information on who may continue to invest in the Fund, please see the
appropriate prospectus.
/2/ Effective April 29, 2005, AIM Aggressive Allocation Fund was renamed AIM
Growth Allocation Fund.
Shareholders approved the reorganization of the following funds to be
effective on or about April 10, 2006: AIM Mid Cap Growth Fund into AIM Dynamics
Fund, AIM Small Company Growth Fund into AIM Small Cap Growth Fund and AIM
Premier Equity Fund into AIM Charter Fund.
If used after July 20, 2006, 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. AIM is a subsidiary of AMVESCAP PLC, one of the world's
largest independent financial services companies with $411 billion in assets
under management. Data as of March 31, 2006.
- --------------------------------------------------------------------------------
CONSIDER THE INVESTMENT OBJECTIVES, RISKS, AND CHARGES AND EXPENSES CAREFULLY.
FOR THIS AND OTHER INFORMATION ABOUT AIM FUNDS, OBTAIN A PROSPECTUS FROM YOUR
FINANCIAL ADVISOR AND READ IT CAREFULLY BEFORE INVESTING.
- --------------------------------------------------------------------------------
AIMinvestments.com I-GPM-AR-1 A I M Distributors, Inc.
[YOUR GOALS. OUR SOLUTIONS.]
- REGISTERED TRADEMARK -
Mutual Retirement Annuities College Separately Offshore Cash
Funds Products Savings Managed Products Management
Plans Accounts
[AIM INVESTMENTS LOGO]
- REGISTERED TRADEMARK -
AIM LEISURE FUND
Annual Report to Shareholders . March 31, 2006
[COVER IMAGE]
[YOUR GOALS. OUR SOLUTIONS.]
- REGISTERED TRADEMARK -
[AIM INVESTMENTS LOGO]
- REGISTERED TRADEMARK -
AIM LEISURE FUND SEEKS TO PROVIDE CAPITAL GROWTH.
.. Unless otherwise stated, information presented in this report is as of March
31, 2006, 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.
.. Investor Class shares are closed to most investors. For more information on
who may continue to invest in Investor Class shares, please see the prospectus.
.. Class R shares are available only to certain retirement plans. Please see the
prospectus for more information.
.. Effective October 21, 2005, Class K shares were converted to Class A shares.
PRINCIPAL RISKS OF INVESTING IN THE FUND
.. Investing in a single-sector or single-region mutual fund involves greater
risk and potential reward than investing in a more diversified fund.
.. Investing in smaller companies involves risks not associated with investing in
more established companies, including business risk, significant stock price
fluctuations and illiquidity.
.. The Fund may invest up to 25% of its assets in the securities of non-U.S.
issuers. Securities of Canadian issuers and American Depository Receipts are not
subject to this 25% limitation. International investing presents certain risks
not associated with investing solely in the United States. These include risks
relating to fluctuations in the value of the U.S. dollar relative to the values
of other currencies, the custody arrangements made for the fund's foreign
holdings, differences in accounting, political risks and the lesser degree of
public information required to be provided by non-U.S. companies.
ABOUT INDEXES USED IN THIS REPORT
.. The unmanaged Lehman Brothers U.S. AGGREGATE BOND INDEX (the Lehman
Aggregate), which represents the U.S. investment-grade fixed-rate bond market
(including government and corporate securities, mortgage pass-through securities
and asset-backed securities), is compiled by Lehman Brothers, a global
investment bank.
.. The unmanaged MSCI WORLD INDEX is a group of global securities tracked by
Morgan Stanley Capital International.
.. The unmanaged STANDARD & POOR'S COMPOSITE INDEX OF 500 STOCKS (the S&P 500
- --REGISTERED TRADEMARK-- Index) is an index of common stocks frequently used as
a general measure of U.S. stock market performance.
.. The Fund is not managed to track the performance of any particular index,
including the indexes defined here, and consequently, the performance of the
Fund may deviate significantly from the performance of the index.
.. A direct investment cannot be made in an index. Unless otherwise indicated,
index results include reinvested dividends, and they do not reflect sales
charges. Performance of an index of funds reflects fund expenses; performance of
a market index does not.
OTHER INFORMATION
.. The returns shown in management's discussion of Fund performance are based on
net asset values calculated for shareholder transactions. Generally accepted
accounting principles require adjustments to be made to the net assets of the
Fund at period end for financial reporting purposes, and as such, the net asset
values for shareholder transactions and the returns based on those net asset
values may differ from the net asset values and returns reported in the
Financial Highlights.
.. Industry classifications used in this report are generally according to the
Global Industry Classification Standard, which was developed by and is the
exclusive property and a service mark of Morgan Stanley Capital International
Inc. and Standard & Poor's.
The Fund provides a complete list of its holdings four times in each fiscal
year, at the quarter-ends. For the second and fourth quarters, the lists appear
in the Fund's semiannual and annual reports to shareholders. For the first and
third quarters, the Fund files the lists with the Securities and Exchange
Commission (SEC) on Form N-Q. 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. 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 811-03826 and 333-85905.
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 ILSAX
Class B Shares ILSBX
Class C Shares IVLCX
Class R Shares ILSRX
Investor Class Shares FLISX
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND
PROSPECTUS, WHICH CONTAINS MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES
AND EXPENSES. INVESTORS SHOULD READ IT CAREFULLY BEFORE INVESTING.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
- --------------------------------------------------------------------------------
AIMINVESTMENTS.COM
AIM LEISURE FUND
DEAR FELLOW AIM FUNDS SHAREHOLDERS:
Although many concerns, including rising fuel costs, weighed
on investors' minds during the fiscal year covered by this
report, stocks posted gains for the period. The S&P 500
[GRAHAM PHOTO] Index, frequently cited as a benchmark for U.S. stock market
performance, returned 11.72%. Results for international
stocks were more impressive, with the MSCI World Index
gaining 18.02%. Bonds posted more modest gains, as the
Lehman Brothers U.S. Aggregate Bond Index returned 2.26%.
Domestically, small- and mid-cap stocks generally
outperformed their large-cap counterparts. Within the S&P
500 Index, energy, financials and telecommunication services
were the best-performing sectors. Internationally, emerging
markets produced more attractive results than developed
markets.
ROBERT H. GRAHAM Bond performance also varied, with high yield bonds and
emerging market debt among the better-performing segments of
the fixed-income market. Municipal bonds also posted
above-average returns for the fiscal year.
Among the developments that affected markets and the
economy during the fiscal year were:
. Hurricane Katrina, which devastated several Gulf Coast
states in August, dealt a short-term setback to consumer
confidence. However, consumer confidence rebounded
toward the end of the period, with analysts crediting
the resiliency of the economy and job growth for this
trend.
[TAYLOR PHOTO] . The Federal Reserve (the Fed) continued its tightening
policy, raising the key federal funds target rate to 4.75%
by the end of the reporting period. Many analysts believed
that the central bank was near the end of its tightening
policy as Ben Bernanke succeeded the retiring Alan
Greenspan as Fed chairman early in 2006.
PHILIP TAYLOR For a discussion of the specific market conditions that
affected your Fund and how your Fund was managed during the
reporting period, please see the management discussion of
Fund performance in this report.
PHILIP TAYLOR HEADS NORTH AMERICAN RETAIL DISTRIBUTION
Effective April 17, 2006, Philip Taylor assumed the
leadership of North American Retail Distribution for
AMVESCAP PLC, the parent company of AIM Investments
--REGISTERED TRADEMARK-- and AIM Trimark Investments in
Canada. As president and vice chair of AIM Funds, I would
personally like to congratulate Phil on his new role with
our organization. Phil has been chief executive officer of
AIM Trimark, one of Canada's largest and most successful
investment management firms, since January 2002. He will be
relocating to AIM's offices in Houston, Texas. All of us at
AIM are looking forward to working with Phil.
Mark Williamson, former chief executive officer and
president of AIM Investments, will continue to serve AIM and
AMVESCAP in various capacities for the remainder of 2006. We
want to take this opportunity to thank Mark for his many
contributions to fund shareholders and our company. He
joined AIM during a very challenging period. Mark has been
instrumental in enhancing our investment process, improving
our company's departmental structure and deepening
relationships with our clients.
YOUR FUND
Further information about the markets, your Fund and
investing in general is always available on our
comprehensive 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. Phil and I thank you for
your continued participation in AIM Investments. If you have
any questions, please contact our award-winning Client
Service representatives at 800-959-4246. We are pleased to
be of help.
Sincerely,
/s/ ROBERT H. GRAHAM /s/ PHILIP TAYLOR
Robert H. Graham Philip Taylor
President & Vice Chair - AIM Funds CEO, AIM Investments
Chair, AIM Investments
May 17, 2006
AIM INVESTMENTS IS A REGISTERED SERVICE MARK OF A I M
MANAGEMENT GROUP INC. A I M ADVISORS, INC. AND A I M CAPITAL
MANAGEMENT, INC. ARE THE INVESTMENT ADVISORS. A I M
DISTRIBUTORS, INC. IS THE DISTRIBUTOR FOR THE RETAIL FUNDS
REPRESENTED BY AIM INVESTMENTS.
1
AIM LEISURE FUND
DEAR FELLOW AIM FUND SHAREHOLDERS:
Having completed a year of transition and change at AIM
Funds--as well as my first full year as your board's
independent chair--I can assure you that shareholder
[CROCKETT PHOTO] interests are at the forefront of every decision your board
makes. While regulators and fund companies debate the value
of an independent board chair, this structure is working for
you. Our new structure has enabled the board to work more
effectively with management to achieve benefits for the
shareholders, as shown in the highlights of 2005 listed
below:
. During 2005, management proposed, and your board
approved, voluntary advisory fee reductions, which are
BRUCE L. CROCKETT saving shareholders more than $20 million annually,
based on asset levels of March 31, 2005.
. Also during 2005, management proposed to your board
the merger of 14 funds into other AIM funds with similar
objectives. In each case, the goal was for the resulting
merged fund to benefit from strengthened management and
greater efficiency. Your board carefully analyzed and
discussed with management the rationale and proposed
terms of each merger to ensure that the mergers were
beneficial to the shareholders of all affected funds
before approving them. Eight of these mergers were
subsequently approved by shareholders of the target
funds during 2005. The remaining six fund mergers were
approved by shareholders in early 2006.
. Your board, through its Investments Committee and
Subcommittees, continued to closely monitor the
portfolio performance of the funds. During the year,
your board reviewed portfolio management changes made by
the advisor at 11 funds with the objective of organizing
management teams around common processes and shared
investment views. Management believes these changes will
lead to improved investment performance.
In 2006, your board will continue to focus on fund
expenses and investment performance. Although many funds
have good performance, we are working with management to
seek improvements for those funds currently performing below
expectations. Eight in-person board meetings and several
additional telephone and committee meetings are scheduled to
take place this year. I'll inform you of our progress in my
next semiannual letter to shareholders.
The AIM Funds board is pleased to welcome our newest
independent member, Raymond Stickel, Jr., a former partner
with the international auditing firm of Deloitte & Touche.
We also send our thanks and best wishes to Gerald J. Lewis,
who retired from your board in December 2005, and to Edward
K. Dunn, Jr., who retired in 2006.
Your board welcomes your views. Please mail them to me at
AIM Investments, AIM Investments Tower, 11 Greenway Plaza,
Suite 100, Houston TX 77046.
Sincerely,
/s/ BRUCE L. CROCKETT
Bruce L. Crockett
Independent Chair
AIM Funds Board
May 17, 2006
2
AIM LEISURE FUND
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
- --------------------------------------------------------------------------------
PERFORMANCE SUMMARY
The fiscal year ended March 31, 2006, was a difficult one for consumer
discretionary stocks--the type of stocks in which AIM Leisure Fund invests the
bulk of its assets. For the year, your Fund lagged the S&P 500 Index but held up
better than the consumer discretionary sector of the S&P 500 Index, which
returned just 2.24%. The Fund underperformed the S&P 500 Index because the
consumer discretionary sector was the weakest sector of the broad market.
We encourage shareholders to measure the success of our investment process
over the long term. Senior portfolio manager Mark Greenberg recently reached his
10-year anniversary of managing the Fund. Average annual total return for the
Fund's Investor Class shares, which are sold at net asset value, was 13.21%
versus 8.95% for the S&P 500 Index for the 10 years ended March 31, 2006.
Your Fund's long-term performance appears on pages 6 and 7.
- --------------------------------------------------------------------------------
FUND VS. INDEXES
TOTAL RETURNS, 3/31/05-3/31/06, EXCLUDING APPLICABLE SALES CHARGES. IF SALES
CHARGES WERE INCLUDED, RETURNS WOULD BE LOWER.
Class A Shares 6.58%
Class B Shares 5.81
Class C Shares 5.79
Investor Class Shares 6.59
S&P 500 Index (Broad Market Index/
Style-specific Index) 11.72
SOURCE: LIPPER INC.
- --------------------------------------------------------------------------------
HOW WE INVEST
We focus on companies that profit from consumer spending on leisure activities
(products and/or services purchased with consumers' discretionary dollars) and
that are growing their market share, cash flow and earnings at rates greater
than the broad market.
We perform both fundamental and valuation analysis:
.. Fundamental research includes interviews with company managements, buyers,
customers and competitors. We ask company management teams to detail their
three- to five-year strategic plan and their corresponding financial goals. We
then evaluate whether the company has the right management in place, appropriate
competitive position and adequate resources to realize their vision
.. Valuation analysis involves using financial models for each company in an
effort to estimate its fair valuation over the next two to three years based
primarily on our expectations for free cash flow growth
Just as we look for managements with long-term visions, we maintain a
long-term investment horizon, resulting in relatively low portfolio turnover. We
manage risk by diversifying the Fund's holdings across leisure-related
industries that include cable TV, satellite programming, publishing, cruise
lines, advertising agencies, hotels, casinos, electronic games and toys, and
entertainment companies.
We consider selling or trimming a stock when:
.. There is a change in the company's fundamental business prospects
.. A stock reaches its target price
MARKET CONDITIONS AND YOUR FUND
Despite widespread concern about the potential impact of rising short-term
interest rates, historically high energy prices, ongoing fear of a housing
bubble and the long-term economic effects of two devastating Gulf Coast
hurricanes, the U.S. economy showed signs of strength for the fiscal year. The
economy expanded, inflation remained contained and corporate profits generally
rose. During the fiscal year, the U.S. Federal Reserve (the Fed) continued its
tightening policy, raising the key federal funds rate to 4.75%.
(continued)
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION TOP 10 EQUITY HOLDINGS*
By sector 1. Harrah's Entertainment, Inc. 6.7%
Consumer Discretionary 80.0% 2. Omnicom Group Inc. 6.2
Consumer Staples 8.4 3. News Corp.-Class A 4.1
Financials 5.3 4. Groupe Bruxelles Lambert S.A.
Information Technology 2.5 (Belgium) 3.8
Industrials 1.4 5. Starwood Hotels & Resorts Worldwide Inc. 3.6
Exchange-Traded Funds 1.4 6. Carnival Corp. 3.2
Money Market Funds 7. Hilton Hotels Corp. 2.7
Plus Other Assets Less Liabilities 1.0 8. Polo Ralph Lauren Corp. 2.7
9. Cablevision Systems Corp.-Class A 2.6
10. InterContinental Hotels
Group PLC (United Kingdom) 2.3
TOTAL NET ASSETS $768.7 MILLION
TOTAL NUMBER OF HOLDINGS* 80
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.
- --------------------------------------------------------------------------------
3
AIM LEISURE FUND
Against this backdrop, energy, financials and telecommunication services
were the best-performing sectors of the S&P 500 Index. The consumer
discretionary sector struggled and was the weakest sector of the broad market.
Rising oil and natural gas prices hurt the profits of many consumer
discretionary companies. We do not make investments or position the Fund on the
basis of short-term outlooks for such economic factors as changes in energy
prices.
We are comfortable
with the quality of
the companies that we
have selected
for inclusion in
AIM Leisure Fund,
and we remind share-
holders that our
time horizon for the
stocks in the Fund
is two to three years.
Although consumer discretionary stocks generally struggled during the year,
there were a number of bright spots for the Fund. Luxury goods and apparel
stocks, as a group, did well during the year. RICHEMONT, the parent company of
jeweler Cartier, and POLO RALPH LAUREN, a distributor of apparel, home and
fragrance products, continued to be standout performers due to products that
were well received by consumers. The companies' higher-end consumers tend to be
less affected by rising energy prices, and both companies raised their earnings
guidance.
Our investments in casino and gaming stocks were also among the top
contributors to Fund performance during the year. HARRAH'S ENTERTAINMENT and
INTERNATIONAL GAME TECHNOLOGY--both long-term Fund holdings--were strong
contributors for the fiscal year. We continued to own the stocks based on our
belief that both companies are leading growth companies in the industry with
sustainable competitive advantages, solid strategic plans and strong management
teams.
Conversely, our advertising, broadcasting and cable television
stocks--including OMINICOM, LIBERTY MEDIA and COMCAST--detracted from Fund
performance. Omnicom, a diversified advertising, marketing and communications
company, underperformed during the year even though the company recently won new
business and reported rising earnings. Apparently, few on Wall Street are
interested in advertising firms not strictly tied to the Internet. We believe
that kind of thinking is short-sighted, and we continued to hold the stock at
the close of the reporting period.
As a group, broadcasting stocks struggled for much of the year as investors
worried that advertising revenues might weaken, given economic uncertainty and a
shift from traditional advertising to online advertising. Nonetheless, we
continued to hold both Liberty Media and Comcast because we considered the
companies attractively valued and believed that they may be poised to do well
going forward.
We are comfortable with the quality of the companies that we have selected
for inclusion in AIM Leisure Fund, and we remind shareholders that our time
horizon for the stocks in the Fund is two to three years. The Fund is positioned
in line with its mandate; it has exposure to a variety of leisure-related
industries based on our bottom-up, stock-by-stock approach to investing.
IN CLOSING
In good years and bad, we've reminded investors that sectors go in and out
of favor--and we've explained that there will be years in which the Fund will
outperform the broad market, and years in which it will lag the broad market.
This fiscal year was one in which the Fund underperformed the broad market due
to pervasive weakness in the consumer discretionary sector.
While no one can predict the future, we take comfort in the fact that for
more than four decades, spending on leisure-related activities grew faster than
the overall market. That is why we maintain a long-term investment perspective,
and why we urge you to do the same.
As always, we thank you for your continuing investment in AIM Leisure Fund.
THE VIEWS AND OPINIONS EXPRESSED IN MANAGEMENT'S DISCUSSION OF FUND
PERFORMANCE ARE THOSE OF A I M ADVISORS, INC. THESE VIEWS AND OPINIONS ARE
SUBJECT TO CHANGE AT ANY TIME BASED ON FACTORS SUCH AS MARKET AND ECONOMIC
CONDITIONS. THESE VIEWS AND OPINIONS MAY NOT BE RELIED UPON AS INVESTMENT ADVICE
OR RECOMMENDATIONS, OR AS AN OFFER FOR A PARTICULAR SECURITY. THE INFORMATION IS
NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET, COUNTRY, INDUSTRY,
SECURITY OR THE FUND. STATEMENTS OF FACT ARE FROM SOURCES CONSIDERED RELIABLE,
BUT A I M ADVISORS, INC. MAKES NO REPRESENTATION OR WARRANTY AS TO THEIR
COMPLETENESS OR ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE IS NO GUARANTEE OF
FUTURE RESULTS, THESE INSIGHTS MAY HELP YOU UNDERSTAND OUR INVESTMENT MANAGEMENT
PHILOSOPHY.
See important Fund and index disclosures inside front cover.
- --------------------------------------------------------------------------------
[GREENBERG PHOTO]
MARK D. GREENBERG, Chartered Financial Analyst, senior portfolio manager, is
portfolio manager of AIM Leisure Fund. Mr. Greenberg began his career in 1980,
and media and entertainment stocks became his focus in 1983. He joined the
Fund's advisor in 1996. Mr. Greenberg attended City University in London,
England, and received his B.S.B.A. in economics with a specialization in finance
from Marquette University.
Assisted by the Leisure Team
[RIGHT ARROW GRAPHIC]
- --------------------------------------------------------------------------------
FOR A PRESENTATION OF YOUR FUND'S LONG-TERM PERFORMANCE, PLEASE SEE PAGES 6
AND 7.
4
AIM LEISURE FUND
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, which may include sales charges (loads) on purchase payments; contingent
deferred sales charges on redemptions; and redemption fees, if any; and (2)
ongoing costs, including management fees; distribution and/or service fees
(12b-1); and other Fund expenses. This example is intended to help you
understand your ongoing costs (in dollars) of investing in the Fund and to
compare these costs with ongoing costs of investing in other mutual funds. With
the exception of the actual ending account value and expenses of Class R shares,
the example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period October 1, 2005, through March 31, 2006.
The actual ending account value and expenses of Class R shares in the below
example are based on an investment of $1,000 invested on October 25, 2005 (the
date the share class commenced sales) and held through March 31, 2006.
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 (October 25, 2005 through
March 31, 2006 for Class R shares). Because the actual ending account value and
expense information in the example is not based upon a six month period for
Class R shares, the ending account value and expense information may not provide
a meaningful comparison to mutual funds that provide such information for a full
six month period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The table below also provides information about hypothetical account values and
hypothetical expenses based on the Fund's actual expense ratio and an assumed
rate of return of 5% per year before expenses, which is not the Fund's actual
return. The Fund's actual cumulative total returns at net asset value after
expenses for the six months ended March 31, 2006, appear in the table
"Cumulative Total Returns" on page 7. (Class R share performance also appears 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.
- --------------------------------------------------------------------------------
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES ENDING ACCOUNT EXPENSES ANNUALIZED
SHARE VALUE VALUE PAID DURING VALUE PAID DURING EXPENSE
CLASS (10/1/05) (3/31/06)/1/ PERIOD/2/ (3/31/06) PERIOD/2,3/ RATIO
A $ 1,000.00 $ 1,071.00 $ 6.45 $ 1,018.70 $ 6.29 1.25%
B 1,000.00 1,067.10 10.31 1,014.96 10.05 2.00
C 1,000.00 1,066.80 10.31 1,014.96 10.05 2.00
Investor 1,000.00 1,070.80 6.45 1,018.70 6.29 1.25
R 1,000.00 1,105.70 6.93 1,017.35 7.64 1.52
/1/ The actual ending account value is based on the actual total return of the
Fund for the period October 1, 2005, through March 31, 2006 (October 25, 2005
through March 31, 2006 for Class R shares), 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 period
ended March 31, 2006, appear in the table "Cumulative Total Returns" on page 7.
For Class R share performance, see page 7.
/2/ Expenses are equal to the Fund's annualized expense ratio as indicated above
multiplied by the average account value over the period, multiplied by 182/365
to reflect the most recent fiscal half-year. For Class R shares, actual expenses
are equal to the annualized expense ratio indicated above multiplied by the
average account value over the period, multiplied by 158 (October 25, 2005,
through March 31, 2006)/365. Because Class R shares have not been in existence
for a full six-month period, the actual ending account value and expense
information shown may not provide a meaningful comparison to fund expense
information of classes that show such data for a full six-month period. Also,
because the actual ending account value and expense information in the expense
example covers a short time period, return and expense data may not be
indicative of return and expense data for longer time periods.
/3/ Hypothetical expenses are equal to the annualized expense ratio indicated
above multiplied by the average account value over the period, multiplied by
182/365 to reflect a one-half year period. The hypothetical ending account value
and expenses may be used to compare ongoing costs of investing in Class R shares
of the Fund and other funds because such data is based on a full six month
period.
- --------------------------------------------------------------------------------
[ARROW
BUTTON For More Information Visit
IMAGE] AIMINVESTMENTS.COM
5
AIM LEISURE FUND
YOUR FUND'S LONG-TERM PERFORMANCE
RESULTS OF A $10,000 INVESTMENT
FUND DATA FROM 1/19/84, INDEX DATA FROM 1/31/84
- --------------------------------------------------------------------------------
[MOUNTAIN CHART]
DATE AIM LEISURE FUND- S&P 500
INVESTOR CLASS SHARES INDEX
01/19/84 $ 10000
01/84 10000 $ 10000
02/84 9975 9648
03/84 9850 9815
04/84 9901 9908
05/84 9601 9359
06/84 10126 9562
07/84 9913 9444
08/84 10700 10486
09/84 10500 10488
10/84 10663 10529
11/84 10424 10411
12/84 10689 10685
01/85 11595 11518
02/85 12262 11659
03/85 12602 11666
04/85 12299 11656
05/85 12703 12329
06/85 12904 12523
07/85 12904 12506
08/85 12917 12384
09/85 12087 12010
10/85 12679 12565
11/85 13348 13427
12/85 14132 14077
01/86 14271 14156
02/86 16027 15213
03/86 17064 16062
04/86 17696 15882
05/86 18794 16727
06/86 19730 17010
07/86 17467 16059
08/86 17771 17249
09/86 16558 15822
10/86 17877 16735
11/86 17546 17142
12/86 16792 16705
01/87 18520 18955
02/87 20405 19704
03/87 20405 20273
04/87 19871 20093
05/87 19588 20266
06/87 20515 21289
07/87 22275 22368
08/87 22558 23203
09/87 22102 22695
10/87 16387 17808
11/87 15312 16341
12/87 16913 17585
01/88 17405 18323
02/88 18662 19173
03/88 19299 18583
04/88 19607 18789
05/88 19262 18949
06/88 20955 19819
07/88 20936 19743
08/88 19990 19074
09/88 21591 19886
10/88 21829 20439
11/88 20956 20147
12/88 21739 20498
01/89 23450 21998
02/89 23851 21450
03/89 24779 21950
04/89 26890 23089
05/89 28111 24020
06/89 27510 23885
07/89 29985 26040
08/89 31077 26548
09/89 31459 26439
10/89 30452 25825
11/89 30620 26350
12/89 30054 26982
01/90 26931 25171
02/90 27330 25496
03/90 28483 26172
04/90 28463 25520
05/90 31315 28003
06/90 31208 27816
07/90 29888 27727
08/90 25803 25223
09/90 23393 23997
10/90 22747 23896
11/90 25101 25438
12/90 26760 26145
01/91 28556 27279
02/91 30958 29227
03/91 33177 29934
04/91 33111 30006
05/91 35488 31297
06/91 33157 29863
07/91 34390 31255
08/91 36344 31992
09/91 36322 31458
10/91 38076 31880
11/91 37155 30598
12/91 40874 34092
01/92 41618 33458
02/92 43079 33890
03/92 43079 33232
04/92 41795 34206
05/92 41924 34374
06/92 41157 33862
07/92 42079 35243
08/92 41721 34524
09/92 42977 34932
10/92 44297 35050
11/92 48890 36242
12/92 50440 36688
01/93 52422 36996
02/93 51604 37499
03/93 54974 38290
04/93 53699 37364
05/93 56556 38361
06/93 55769 38473
07/93 56857 38319
08/93 62543 39771
09/93 66814 39465
10/93 69260 40282
11/93 67224 39899
12/93 68460 40382
01/94 67050 41755
02/94 67198 40623
03/94 64637 38856
04/94 64082 39354
05/94 62967 39995
06/94 61172 39015
07/94 63613 40295
08/94 65935 41943
09/94 65935 40919
10/94 66554 41836
11/94 65024 40313
12/94 65056 40910
01/95 64230 41969
02/95 67448 43602
03/95 69505 44888
04/95 68706 46208
05/95 69592 48052
06/95 72598 49166
07/95 76802 50794
08/95 77508 50921
09/95 75733 53070
10/95 73196 52879
11/95 75012 55195
12/95 75334 56260
01/96 77451 58173
02/96 79287 58714
03/96 80381 59278
04/96 83845 60149
05/96 84868 61695
06/96 84308 61929
07/96 77884 59192
08/96 79753 60441
09/96 82752 63838
10/96 80997 65600
11/96 83614 70552
12/96 82167 69155
01/97 83769 73471
02/97 83367 74051
03/97 81108 71015
04/97 82487 75247
05/97 86636 79845
06/97 91514 83398
07/97 95046 90028
08/97 93734 84987
09/97 99227 89636
10/97 99058 86642
11/97 100406 90653
12/97 103900 92212
01/98 103453 93227
02/98 110933 99948
03/98 119963 105066
04/98 120047 106138
05/98 117886 104312
06/98 123650 108547
07/98 122303 107396
08/98 102355 91878
09/98 108036 97767
10/98 114086 105706
11/98 121764 112111
12/98 134841 118569
01/99 145952 123525
02/99 142902 119684
03/99 152362 124471
04/99 164871 129288
05/99 164953 126237
06/99 175329 133218
07/99 174768 129075
08/99 169192 128429
09/99 177787 124910
10/99 188384 132817
11/99 198801 135513
12/99 223293 143481
01/00 208467 136279
02/00 207341 133703
03/00 221046 146779
04/00 207054 142361
05/00 198006 139443
06/00 209827 142873
07/00 210016 140644
08/00 220201 149378
09/00 213309 141491
10/00 213821 140897
11/00 196052 129794
12/00 205502 130430
01/01 226032 135060
02/01 219567 122756
03/01 208874 114986
04/01 224185 123909
05/01 231717 124739
06/01 229702 121708
07/01 216540 120515
08/01 209177 112983
09/01 174454 103865
10/01 183682 105849
11/01 203979 113968
12/01 213934 114971
01/02 211195 113292
02/02 214722 111105
03/02 221422 115283
04/02 217790 108297
05/02 217681 107506
06/02 192953 99852
07/02 179022 92073
08/02 183050 92672
09/02 172597 82608
10/02 176740 89869
11/02 190260 95153
12/02 180938 89568
01/03 177011 87230
02/03 170763 85922
03/03 175203 86755
04/03 190498 93895
05/03 201528 98834
06/03 202999 100099
07/03 206470 101861
08/03 211921 103847
09/03 207195 102746
10/03 219129 108551
11/03 224936 109507
12/03 235778 115245
01/04 237830 117365
02/04 242491 118997
03/04 242952 117200
04/04 239040 115360
05/04 238753 116940
06/04 239732 119209
07/04 225756 115263
08/04 224221 115724
09/04 234333 116974
10/04 242628 118763
11/04 254954 123562
12/04 267880 127763
01/05 259924 124645
02/05 263693 127263
03/05 260819 125010
04/05 251325 122635
05/05 258362 126535
06/05 262263 126712
07/05 267928 131426
08/05 262998 130230
09/05 259632 131285
10/05 249428 129092
11/05 259730 133972
12/05 264561 134025
01/06 269878 137577
02/06 270337 137948
03/06 277954 139692
- --------------------------------------------------------------------------------
SOURCE: LIPPER, INC.
Past performance cannot guarantee comparable future results.
The data shown in the chart include reinvested distributions, 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 the space
between $10,000 and $20,000, the space between $10,000 and $20,000 is the same
as that between $20,000 and $40,000, and so on.
6
AIM LEISURE FUND
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
As of 3/31/06, including applicable sales charges
CLASS A SHARES
Inception (3/28/02) 4.38%
1 Year 0.73
CLASS B SHARES
Inception (3/28/02) 4.69%
1 Year 1.07
CLASS C SHARES
Inception (2/14/00) 3.56%
5 Years 5.00
1 Year 4.84
CLASS R SHARES
Inception (10/25/05) 10.57%
Investor Class Shares
Inception (1/19/84) 16.16%
10 Years 13.21
5 Years 5.89
1 Year 6.59
================================================================================
CUMULATIVE TOTAL RETURNS
6 months ended 3/31/06, excluding applicable sales charges
Class A Shares 7.10%
Class B Shares 6.71
Class C Shares 6.68
Investor Class Shares 7.08
================================================================================
CUMULATIVE TOTAL RETURNS
10/25/05-3/31/06, excluding applicable sales charges
Class R Shares 10.57%
================================================================================
THE PERFORMANCE DATA QUOTED REPRESENT PAST PERFORMANCE AND CANNOT GUARANTEE
COMPARABLE FUTURE RESULTS; CURRENT PERFORMANCE MAY BE LOWER OR HIGHER. PLEASE
VISIT AIMINVESTMENTS.COM FOR THE MOST RECENT MONTH-END PERFORMANCE. PERFORMANCE
FIGURES REFLECT REINVESTED DISTRIBUTIONS, CHANGES IN NET ASSET VALUE AND THE
EFFECT OF THE MAXIMUM SALES CHARGE UNLESS OTHERWISE STATED. INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT YOU MAY HAVE A GAIN OR LOSS WHEN YOU
SELL SHARES.
CLASS A SHARE PERFORMANCE REFLECTS THE MAXIMUM 5.50% SALES CHARGE, AND
CLASS B AND CLASS C SHARE PERFORMANCE REFLECTS THE APPLICABLE CONTINGENT
DEFERRED SALES CHARGE (CDSC) FOR THE PERIOD INVOLVED. THE CDSC ON CLASS B SHARES
DECLINES FROM 5% BEGINNING AT THE TIME OF PURCHASE TO 0% AT THE BEGINNING OF THE
SEVENTH YEAR. THE CDSC ON CLASS C SHARES IS 1% FOR THE FIRST YEAR AFTER
PURCHASE. CLASS R SHARES DO NOT HAVE A FRONT-END SALES CHARGE; RETURNS SHOWN ARE
AT NET ASSET VALUE AND DO NOT REFLECT A 0.75% CDSC THAT MAY BE IMPOSED ON A
TOTAL REDEMPTION OF RETIREMENT PLAN ASSETS WITHIN THE FIRST YEAR.
INVESTOR CLASS SHARES DO NOT HAVE A FRONT-END SALES CHARGE OR A CDSC;
THEREFORE, PERFORMANCE IS AT NET ASSET VALUE.
THE PERFORMANCE OF THE FUND'S SHARE CLASSES WILL DIFFER DUE TO DIFFERENT
SALES CHARGE STRUCTURES AND CLASS EXPENSES.
HAD THE ADVISOR NOT WAIVED FEES AND/OR REIMBURSED EXPENSES, PERFORMANCE
WOULD HAVE BEEN LOWER.
7
AIM LEISURE FUND
APPROVAL OF INVESTMENT ADVISORY AGREEMENT AND
SUMMARY OF INDEPENDENT WRITTEN FEE EVALUATION
The Board of Trustees of AIM Sector Funds (the "Board") oversees the management
of AIM Leisure 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, 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 for the one and three year periods was below the median performance
of such comparable funds and above such median performance for the five 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.
.. 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 S&P 500 Index. The Board noted that the Fund's
performance in such periods was above the performance of such Index. The Board
also noted that the performance of such Index does not reflect fees, while the
performance of the Fund does reflect fees. 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 reviewed the advisory fee rate for the Fund under the
Advisory Agreement. The Board noted that this rate (i) was the same as the
initial advisory fee rate for a variable insurance fund advised by AIM and
offered to insurance company separate accounts with investment strategies
comparable to those of the Fund, although there were no breakpoints in the
advisory fee schedule applicable to the variable insurance fund; and (ii) was
lower than the advisory fee rates for two offshore funds for which an AIM
affiliate serves as advisor with investment strategies comparable to those of
the Fund. 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.
.. 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 comparable to 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 June 30, 2006 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 through June 30, 2006. The
Board noted that AIM has contractually agreed to waive fees and/or limit
expenses of the Fund through March 31, 2006 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 also noted that AIM has voluntarily
agreed to waive fees and/or limit expenses of the Fund 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 that is lower than the contractual
agreement. The Board considered the contractual and voluntary nature of these
fee waivers/expense limitations and noted that the contractual agreement remains
in effect through March 31, 2006 and the voluntary agreement can be terminated
at any time by AIM without further notice to investors. 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.
(continued)
8
AIM LEISURE FUND
.. Breakpoints and economies of scale. The Board reviewed the structure of the
Fund's advisory fee under the Advisory Agreement, noting that it includes six
breakpoints. The Board reviewed the level of the Fund's advisory fees, and noted
that such fees, as a percentage of the Fund's net assets, have decreased as net
assets increased because the Advisory Agreement includes breakpoints. The Board
noted that, due to the Fund's current asset levels and the way in which the
advisory fee breakpoints have been structured, the Fund has yet to fully benefit
from the breakpoints. The Board noted that AIM has contractually agreed to waive
advisory fees of the Fund through June 30, 2006 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 reflect economies of scale and that it was not necessary to
change the advisory fee breakpoints in the Fund's advisory fee schedule.
.. Investments in 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.
9
AIM LEISURE FUND
SCHEDULE OF INVESTMENTS
March 31, 2006
SHARES VALUE
-------------------------------------------------------------------------
DOMESTIC COMMON STOCKS & OTHER
EQUITY INTERESTS-77.30%
ADVERTISING-6.74%
Harte-Hanks, Inc. 161,050 $ 4,404,717
-------------------------------------------------------------------------
Omnicom Group Inc. 569,100 47,377,575
-------------------------------------------------------------------------
51,782,292
-------------------------------------------------------------------------
APPAREL, ACCESSORIES & LUXURY
GOODS-3.24%
Carter's, Inc./(a)/ 62,637 4,227,371
-------------------------------------------------------------------------
Polo Ralph Lauren Corp. 341,768 20,714,559
-------------------------------------------------------------------------
24,941,930
-------------------------------------------------------------------------
BREWERS-0.98%
Anheuser-Busch Cos., Inc. 176,933 7,567,424
-------------------------------------------------------------------------
BROADCASTING & CABLE TV-13.83%
Cablevision Systems Corp.-Class A/(a)/ 750,893 20,048,843
-------------------------------------------------------------------------
CBS Corp.-Class A 64,550 1,555,655
-------------------------------------------------------------------------
CBS Corp.-Class B 64,700 1,551,506
-------------------------------------------------------------------------
Clear Channel Communications, Inc. 296,549 8,602,886
-------------------------------------------------------------------------
Comcast Corp.-Class A/(a)/ 425,300 11,125,848
-------------------------------------------------------------------------
Discovery Holding Co.-Class A/(a)/ 261,468 3,922,020
-------------------------------------------------------------------------
EchoStar Communications Corp.-Class A/(a)/ 349,485 10,439,117
-------------------------------------------------------------------------
Gray Television, Inc. 318,674 2,676,862
-------------------------------------------------------------------------
Liberty Global, Inc.-Class A/(a)/ 220,489 4,513,410
-------------------------------------------------------------------------
Liberty Global, Inc.-Series C/(a)/ 220,489 4,354,658
-------------------------------------------------------------------------
Liberty Media Corp.-Class A/(a)/ 2,004,379 16,455,952
-------------------------------------------------------------------------
Liberty Media Corp.-Class B/(a)/ 179,925 1,484,381
-------------------------------------------------------------------------
NTL Inc./(a)/ 146,250 4,257,337
-------------------------------------------------------------------------
Scripps Co. (E.W.) (The)-Class A 137,300 6,138,683
-------------------------------------------------------------------------
Sinclair Broadcast Group, Inc.-Class A 495,200 4,035,880
-------------------------------------------------------------------------
Spanish Broadcasting System, Inc.-Class A/(a)/ 222,200 1,228,766
-------------------------------------------------------------------------
Univision Communications Inc.-Class A/(a)/ 113,300 3,905,451
-------------------------------------------------------------------------
106,297,255
-------------------------------------------------------------------------
CASINOS & GAMING-10.24%
Aztar Corp./(a)/ 122,100 5,126,979
-------------------------------------------------------------------------
Harrah's Entertainment, Inc. 664,572 51,810,033
-------------------------------------------------------------------------
International Game Technology 349,740 12,317,843
-------------------------------------------------------------------------
MGM MIRAGE/(a)/ 220,032 9,481,179
-------------------------------------------------------------------------
78,736,034
-------------------------------------------------------------------------
CONSUMER ELECTRONICS-0.19%
Directed Electronics, Inc./(a)/ 85,714 1,435,709
-------------------------------------------------------------------------
DEPARTMENT STORES-1.12%
Kohl's Corp./(a)/ 162,774 8,628,650
-------------------------------------------------------------------------
SHARES VALUE
-----------------------------------------------------------------------
DIVERSIFIED COMMERCIAL & PROFESSIONAL
SERVICES-1.44%
Cendant Corp. 639,259 $ 11,091,144
-----------------------------------------------------------------------
FOOTWEAR-0.77%
NIKE, Inc.-Class B 69,400 5,905,940
-----------------------------------------------------------------------
GENERAL MERCHANDISE STORES-0.76%
Target Corp. 112,700 5,861,527
-----------------------------------------------------------------------
HOME ENTERTAINMENT SOFTWARE-0.42%
Electronic Arts Inc./(a)/ 58,400 3,195,648
-----------------------------------------------------------------------
HOME IMPROVEMENT RETAIL-1.63%
Home Depot, Inc. (The) 295,722 12,509,041
-----------------------------------------------------------------------
HOTELS, RESORTS & CRUISE LINES-12.84%
Carnival Corp./(b)/ 520,100 24,637,137
-----------------------------------------------------------------------
Hilton Hotels Corp. 816,041 20,776,404
-----------------------------------------------------------------------
Marriott International, Inc.-Class A 235,500 16,155,300
-----------------------------------------------------------------------
Royal Caribbean Cruises Ltd. 231,944 9,746,287
-----------------------------------------------------------------------
Starwood Hotels & Resorts Worldwide, Inc./(c)/ 403,860 27,353,438
-----------------------------------------------------------------------
98,668,566
-----------------------------------------------------------------------
HYPERMARKETS & SUPER CENTERS-1.04%
Wal-Mart Stores, Inc. 169,177 7,991,921
-----------------------------------------------------------------------
INTERNET RETAIL-1.16%
Blue Nile, Inc./(a)(d)/ 134,217 4,723,096
-----------------------------------------------------------------------
Expedia, Inc./(a)/ 206,050 4,176,634
-----------------------------------------------------------------------
8,899,730
-----------------------------------------------------------------------
INTERNET SOFTWARE & SERVICES-2.10%
Yahoo! Inc./(a)/ 499,482 16,113,289
-----------------------------------------------------------------------
INVESTMENT COMPANIES-EXCHANGE TRADED
FUNDS-1.37%
iShares Russell 3000 Index Fund 46,568 3,524,732
-----------------------------------------------------------------------
iShares S&P 500 Index Fund 26,936 3,498,987
-----------------------------------------------------------------------
S&P 500 Depositary Receipts Trust-Series 1 27,039 3,510,473
-----------------------------------------------------------------------
10,534,192
-----------------------------------------------------------------------
LEISURE FACILITIES-0.34%
Cedar Fair, L.P. 89,200 2,609,100
-----------------------------------------------------------------------
LEISURE PRODUCTS-0.89%
Marvel Entertainment, Inc./(a)/ 110,300 2,219,236
-----------------------------------------------------------------------
Polaris Industries Inc. 84,700 4,621,232
-----------------------------------------------------------------------
6,840,468
-----------------------------------------------------------------------
F-1
AIM LEISURE FUND
SHARES VALUE
----------------------------------------------------------------------------
MOVIES & ENTERTAINMENT-8.98%
News Corp.-Class A 1,903,094 $ 31,610,391
----------------------------------------------------------------------------
Pixar/(a)/ 66,600 4,271,724
----------------------------------------------------------------------------
Time Warner Inc. 980,000 16,454,200
----------------------------------------------------------------------------
Viacom Inc.-Class A/(a)/ 54,850 2,125,986
----------------------------------------------------------------------------
Viacom Inc.-Class B/(a)/ 55,000 2,134,000
----------------------------------------------------------------------------
Walt Disney Co. (The) 447,299 12,475,169
----------------------------------------------------------------------------
69,071,470
----------------------------------------------------------------------------
PUBLISHING-3.53%
Belo Corp.-Class A 304,800 6,059,424
----------------------------------------------------------------------------
Gannett Co., Inc. 95,205 5,704,684
----------------------------------------------------------------------------
McClatchy Co. (The)-Class A/(d)/ 129,300 6,316,305
----------------------------------------------------------------------------
McGraw-Hill Cos., Inc. (The) 157,000 9,046,340
----------------------------------------------------------------------------
27,126,753
----------------------------------------------------------------------------
RESTAURANTS-1.57%
McDonald's Corp. 142,720 4,903,859
----------------------------------------------------------------------------
Ruth's Chris Steak House, Inc./(a)/ 86,393 2,057,017
----------------------------------------------------------------------------
Yum! Brands, Inc. 104,926 5,126,685
----------------------------------------------------------------------------
12,087,561
----------------------------------------------------------------------------
SOFT DRINKS-0.87%
PepsiCo, Inc. 115,700 6,686,303
----------------------------------------------------------------------------
SPECIALTY STORES-1.25%
PETsMART, Inc. 341,167 9,600,439
----------------------------------------------------------------------------
Total Domestic Common Stocks & Other
Equity Interests
(Cost $413,248,382) 594,182,386
----------------------------------------------------------------------------
FOREIGN STOCKS & OTHER EQUITY
INTERESTS-21.69%
BELGIUM-5.09%
Compagnie Nationale a Portefeuille (Multi-Sector
Holdings)/(d)(e)/ 8,900 3,207,111
----------------------------------------------------------------------------
Groupe Bruxelles Lambert S.A. (Multi-Sector Holdings) 263,800 29,343,545
----------------------------------------------------------------------------
InBev N.V. (Brewers) 139,535 6,543,185
----------------------------------------------------------------------------
39,093,841
----------------------------------------------------------------------------
BRAZIL-1.19%
Companhia de Bebidas das Americas-ADR (Brewers) 244,546 9,177,811
----------------------------------------------------------------------------
CANADA-1.38%
Intrawest Corp. (Hotels, Resorts & Cruise Lines) 309,480 10,581,121
----------------------------------------------------------------------------
DENMARK-1.01%
Carlsberg A.S.-Class B (Brewers)/(d)(e)/ 119,300 7,778,747
----------------------------------------------------------------------------
SHARES VALUE
- --------------------------------------------------------------------------------
FRANCE-3.16%
Accor S.A. (Hotels, Resorts & Cruise Lines)/(e)/ 207,500 $ 11,929,489
- --------------------------------------------------------------------------------
JC Decaux S.A. (Advertising)/(a)(e)/ 218,400 5,910,245
- --------------------------------------------------------------------------------
Pernod Ricard S.A. (Distillers & Vintners) 33,800 6,475,058
- --------------------------------------------------------------------------------
24,314,792
- --------------------------------------------------------------------------------
HONG KONG-0.21%
Television Broadcasts Ltd.-ADR (Broadcasting &
Cable TV)/(d)(f)/ 138,900 1,575,182
- --------------------------------------------------------------------------------
JAPAN-0.39%
Sony Corp.-ADR (Consumer Electronics) 64,500 2,971,515
- --------------------------------------------------------------------------------
NETHERLANDS-1.47%
Jetix Europe N.V. (Broadcasting & Cable TV)/(a)(d)(e)/ 513,915 11,327,693
- --------------------------------------------------------------------------------
SWITZERLAND-2.18%
Compagnie Financiere Richemont A.G.-Class A
(Apparel, Accessories & Luxury Goods)/(d)(e)/ 179,500 8,606,514
- --------------------------------------------------------------------------------
Pargesa Holding S.A.-Class B (Multi-Sector
Holdings)/(d)(e)/ 84,800 8,175,790
- --------------------------------------------------------------------------------
16,782,304
- --------------------------------------------------------------------------------
UNITED KINGDOM-5.61%
Diageo PLC (Distillers & Vintners) 774,600 12,199,587
- --------------------------------------------------------------------------------
InterContinental Hotels Group PLC (Hotels, Resorts &
Cruise Lines)/(e)/ 1,077,018 17,590,286
- --------------------------------------------------------------------------------
WPP Group PLC (Advertising)/(e)/ 1,112,030 13,319,357
- --------------------------------------------------------------------------------
43,109,230
- --------------------------------------------------------------------------------
Total Foreign Stocks & Other Equity Interests
(Cost $101,410,800) 166,712,236
- --------------------------------------------------------------------------------
MONEY MARKET FUNDS-0.24%
Premier Portfolio-Institutional Class/(g)/ 1,876,748 1,876,748
- --------------------------------------------------------------------------------
Total Money Market Funds
(Cost $1,876,748) 1,876,748
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS (excluding investments
purchased with cash collateral from securities
loaned)-99.23%
(Cost $516,535,930) 762,771,370
- --------------------------------------------------------------------------------
INVESTMENTS PURCHASED WITH CASH
COLLATERAL FROM SECURITIES LOANED
MONEY MARKET FUNDS-3.16%
Premier Portfolio-Institutional Class/(g)(h)/ 24,296,094 24,296,094
- --------------------------------------------------------------------------------
Total Money Market Funds (purchased with cash
collateral from securities loaned)
(Cost $24,296,094) 24,296,094
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS-102.39% (Cost $540,832,024) 787,067,464
- --------------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-(2.39)% (18,389,270)
- --------------------------------------------------------------------------------
NET ASSETS-100.00% $ 768,678,194
- --------------------------------------------------------------------------------
F-2
AIM LEISURE FUND
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 paired trust share.
/(c)/Each unit represents one common share and one Class B share.
/(d)/All or a portion of this security is out on loan at March 31, 2006.
/(e)/In accordance with the procedures established by the Board of Trustees,
the foreign security is fair valued using adjusted closing market prices.
The aggregate value of these securities at March 31, 2006 was $87,845,232,
which represented 11.43% of the Fund's Net Assets. See Note 1A.
/(f)/In accordance with the procedures established by the Board of Trustees,
security fair valued based on an evaluated quote provided by an
independent pricing service. The value of this security at March 31, 2006
represented 0.20% of the Fund's Net Assets. See Note 1A.
/(g)/The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
/(h)/The security has been segregated to satisfy the commitment to return the
cash collateral received in securities lending transactions upon the
borrower's return of the securities loaned. See Note 8.
See accompanying Notes to Financial Statements which are an integral part of
the financial statements.
F-3
AIM LEISURE FUND
STATEMENT OF ASSETS AND LIABILITIES
March 31, 2006
ASSETS:
Investments, at value (cost $514,659,182)* $760,894,622
- ----------------------------------------------------------------------------------
Investments in affiliated money market funds (cost $26,172,842) 26,172,842
- ----------------------------------------------------------------------------------
Total investments (cost $540,832,024) 787,067,464
- ----------------------------------------------------------------------------------
Foreign currencies, at value (cost $3,476,698) 3,478,119
- ----------------------------------------------------------------------------------
Receivables for:
Investments sold 5,086,488
- ----------------------------------------------------------------------------------
Fund shares sold 333,491
- ----------------------------------------------------------------------------------
Dividends 1,185,820
- ----------------------------------------------------------------------------------
Investment for trustee deferred compensation and retirement plans 79,397
- ----------------------------------------------------------------------------------
Other assets 39,690
- ----------------------------------------------------------------------------------
Total assets 797,270,469
- ----------------------------------------------------------------------------------
LIABILITIES:
Payables for:
Fund shares reacquired 3,490,247
- ----------------------------------------------------------------------------------
Trustee deferred compensation and retirement plans 114,354
- ----------------------------------------------------------------------------------
Collateral upon return of securities loaned 24,296,094
- ----------------------------------------------------------------------------------
Accrued distribution fees 197,645
- ----------------------------------------------------------------------------------
Accrued trustees' and officer's fees and benefits 6,096
- ----------------------------------------------------------------------------------
Accrued transfer agent fees 349,107
- ----------------------------------------------------------------------------------
Accrued operating expenses 138,732
- ----------------------------------------------------------------------------------
Total liabilities 28,592,275
- ----------------------------------------------------------------------------------
Net assets applicable to shares outstanding $768,678,194
- ----------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Shares of beneficial interest $514,346,332
- ----------------------------------------------------------------------------------
Undistributed net investment income (loss) (12,984,441)
- ----------------------------------------------------------------------------------
Undistributed net realized gain from investment securities, foreign
currencies and futures contracts 21,087,447
- ----------------------------------------------------------------------------------
Unrealized appreciation from investment securities and foreign
currencies 246,228,856
- ----------------------------------------------------------------------------------
$768,678,194
- ----------------------------------------------------------------------------------
NET ASSETS:
Class A $132,514,551
------------------------------------------------------------
Class B $ 34,272,024
------------------------------------------------------------
Class C $ 33,549,410
------------------------------------------------------------
Class R $ 21,517
------------------------------------------------------------
Investor Class $568,320,692
------------------------------------------------------------
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Class A 3,050,024
------------------------------------------------------------
Class B 807,206
------------------------------------------------------------
Class C 811,279
------------------------------------------------------------
Class R 495.7
------------------------------------------------------------
Investor Class 13,102,996
------------------------------------------------------------
Class A:
Net asset value per share $ 43.45
------------------------------------------------------------
Offering price per share:
(Net asset value of $43.45 / 94.50%) $ 45.98
------------------------------------------------------------
Class B:
Net asset value and offering price per share $ 42.46
------------------------------------------------------------
Class C:
Net asset value and offering price per share $ 41.35
------------------------------------------------------------
Class R:
Net asset value and offering price per share $ 43.41
------------------------------------------------------------
Investor Class:
Net asset value and offering price per share $ 43.37
------------------------------------------------------------
* At March 31, 2006, securities with an aggregate value of $23,243,449 were on
loan to brokers.
See accompanying Notes to Financial Statements which are an integral part of
the financial statements.
F-4
AIM LEISURE FUND
STATEMENT OF OPERATIONS
For the year ended March 31, 2006
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $237,205) $ 12,483,548
- --------------------------------------------------------------------------------------------------------
Dividends from affiliated money market funds (includes securities lending income of
$135,673, after compensation to counterparties of $753,885) 861,123
- --------------------------------------------------------------------------------------------------------
Interest 8,007
- --------------------------------------------------------------------------------------------------------
Total investment income 13,352,678
- --------------------------------------------------------------------------------------------------------
EXPENSES:
Advisory fees 5,562,715
- --------------------------------------------------------------------------------------------------------
Administrative services fees 228,604
- --------------------------------------------------------------------------------------------------------
Custodian fees 204,706
- --------------------------------------------------------------------------------------------------------
Distribution fees:
Class A 334,019
- --------------------------------------------------------------------------------------------------------
Class B 352,840
- --------------------------------------------------------------------------------------------------------
Class C 343,667
- --------------------------------------------------------------------------------------------------------
Class K 58,646
- --------------------------------------------------------------------------------------------------------
Class R 24
- --------------------------------------------------------------------------------------------------------
Investor Class 1,534,991
- --------------------------------------------------------------------------------------------------------
Transfer agent fees 1,964,387
- --------------------------------------------------------------------------------------------------------
Trustees' and officer's fees and benefits 39,848
- --------------------------------------------------------------------------------------------------------
Other 386,083
- --------------------------------------------------------------------------------------------------------
Total expenses 11,010,530
- --------------------------------------------------------------------------------------------------------
Less:Fees waived, expenses reimbursed and expense offset arrangements (38,610)
- --------------------------------------------------------------------------------------------------------
Net expenses 10,971,920
- --------------------------------------------------------------------------------------------------------
Net investment income 2,380,758
- --------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES, FOREIGN CURRENCIES AND
FUTURES CONTRACTS
Net realized gain (loss) from:
Investment securities (includes gains from securities sold to affiliates of $99,600) 97,152,618
- --------------------------------------------------------------------------------------------------------
Foreign currencies (548,435)
- --------------------------------------------------------------------------------------------------------
Futures contracts (2,403,546)
- --------------------------------------------------------------------------------------------------------
94,200,637
- --------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of:
Investment securities (49,012,689)
- --------------------------------------------------------------------------------------------------------
Foreign currencies (7,968)
- --------------------------------------------------------------------------------------------------------
(49,020,657)
- --------------------------------------------------------------------------------------------------------
Net gain from investment securities, foreign currencies and futures contracts 45,179,980
- --------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 47,560,738
- --------------------------------------------------------------------------------------------------------
See accompanying Notes to Financial Statements which are an integral part of
the financial statements.
F-5
AIM LEISURE FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended March 31, 2006 and 2005
MARCH 31, MARCH 31,
2006 2005
- -------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ 2,380,758 $ (716,062)
- -------------------------------------------------------------------------------------------------------------
Net realized gain on investment securities, foreign currencies and futures
contracts 94,200,637 51,283,517
- -------------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of investment securities
and foreign currencies (49,020,657) 9,887,579
- -------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 47,560,738 60,455,034
- -------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class A (1,478,318) (527,790)
- -------------------------------------------------------------------------------------------------------------
Class B (275,141) (65,995)
- -------------------------------------------------------------------------------------------------------------
Class C (273,567) (81,397)
- -------------------------------------------------------------------------------------------------------------
Class K -- (741,168)
- -------------------------------------------------------------------------------------------------------------
Class R (104) --
- -------------------------------------------------------------------------------------------------------------
Investor Class (6,284,550) (5,286,809)
- -------------------------------------------------------------------------------------------------------------
Total distributions from net investment income (8,311,680) (6,703,159)
- -------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net realized gains:
Class A (13,787,712) --
- -------------------------------------------------------------------------------------------------------------
Class B (3,646,606) --
- -------------------------------------------------------------------------------------------------------------
Class C (3,625,742) --
- -------------------------------------------------------------------------------------------------------------
Class R (1,007) --
- -------------------------------------------------------------------------------------------------------------
Investor Class (57,249,907) --
- -------------------------------------------------------------------------------------------------------------
Total distributions from net realized gains (78,310,974) --
- -------------------------------------------------------------------------------------------------------------
Decrease in net assets resulting from distributions (86,622,654) (6,703,159)
- -------------------------------------------------------------------------------------------------------------
Share transactions-net:
Class A 51,259,710 16,189,948
- -------------------------------------------------------------------------------------------------------------
Class B 7,419,440 8,541,533
- -------------------------------------------------------------------------------------------------------------
Class C 5,751,247 (266,170)
- -------------------------------------------------------------------------------------------------------------
Class K (98,550,104) (22,985,488)
- -------------------------------------------------------------------------------------------------------------
Class R 21,525 --
- -------------------------------------------------------------------------------------------------------------
Investor Class (65,151,262) (82,709,983)
- -------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from share transactions (99,249,444) (81,230,160)
- -------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets (138,311,360) (27,478,285)
- -------------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 906,989,554 934,467,839
- -------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment income (loss) of
($12,984,441) and ($9,330,263), respectively) $ 768,678,194 $906,989,554
- -------------------------------------------------------------------------------------------------------------
See accompanying Notes to Financial Statements which are an integral part of
the financial statements.
F-6
AIM LEISURE FUND
NOTES TO FINANCIAL STATEMENTS
March 31, 2006
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Leisure Fund (the "Fund") is a series portfolio of AIM Sector Funds (the
"Trust"). The Trust is a Delaware statutory trust registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of six separate portfolios,
each authorized to issue an unlimited number of shares of beneficial interest.
The Fund currently consists of 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. The risk of material loss as a result of such indemnification claims
is considered remote.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period including
estimates and assumptions related to taxation. Actual results could differ from
those estimates. The following is a summary of the significant accounting
policies followed by the Fund in the preparation of its financial statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy.
A security listed or traded on an exchange (except convertible bonds) is
valued at its last sales price as of the close of the customary trading
session on the exchange where the security is principally traded, or lacking
any sales on a particular day, the security is valued at the closing bid
price on that day. Securities traded in the over-the-counter market (but not
securities reported on the NASDAQ National Market System) are valued based
on the prices furnished by independent pricing services, in which case the
securities may be considered fair valued, or by market makers. Each security
reported on the NASDAQ National Market System is valued at the NASDAQ
Official Closing Price ("NOCP") as of the close of the customary trading
session on the valuation date or absent a NOCP, at the closing bid price.
Futures contracts are valued at the final settlement price set by an
exchange on which they are principally traded. Listed options are valued at
the mean between the last bid and the ask prices from the exchange on which
they are principally traded. Options not listed on an exchange are valued by
an independent source at the mean between the last bid and ask prices. For
purposes of determining net asset value per share, futures and option
contracts generally are valued 15 minutes after the close of the customary
trading session of the New York Stock Exchange ("NYSE").
Investments in open-end registered investment companies and closed-end
registered investment companies that do not trade on an exchange are valued
at the end of day net asset value per share. Investments in closed-end
registered investment companies that trade on an exchange are valued at the
last sales price as of the close of the customary trading session on the
exchange where the security is principally traded.
Debt obligations (including convertible bonds) are fair valued using an
evaluated quote provided by an independent pricing service. Evaluated quotes
provided by the pricing service may be determined without exclusive reliance
on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, developments
related to specific securities, dividend rate, yield, quality, type of
issue, coupon rate, maturity, individual trading characteristics and other
market data. Short-term obligations having 60 days or less to maturity and
commercial paper are recorded at amortized cost which approximates value.
Securities for which market prices are not provided by any of the above
methods are valued based upon quotes furnished by independent sources and
are valued at the last bid price in the case of equity securities and in the
case of debt obligations, the mean between the last bid and asked prices.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the close
of the NYSE. Generally, trading in foreign securities is substantially
completed each day at various times prior to the close of the NYSE. The
values of such securities used in computing the net asset value of the
Fund's shares are determined as of the close of the respective markets.
Events affecting the values of such foreign securities may occur between the
times at which the particular foreign market closes and the close of the
customary trading session of the NYSE which would not ordinarily be
reflected in the computation of the Fund's net asset value. If the event is
likely to have affected the closing price of the security, the security will
be valued at fair value in good faith using procedures approved by the Board
of Trustees. Adjustments to closing prices to reflect fair value may also be
based on a screening process of an independent pricing service to indicate
the degree of certainty, based on historical data, that the closing price in
the principal market where a foreign security trades is not the current
value as of the close of the NYSE. Foreign securities meeting the approved
degree of certainty that the price is not reflective of current value will
be priced at the indication of fair value from the independent pricing
service. Multiple factors may be considered by the independent pricing
service in determining adjustments to reflect fair value and may include
information relating to sector indices, ADRs 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
AIM LEISURE FUND
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 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. 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. Realized and
unrealized gains and losses on these contracts are included in the Statement
of Operations. 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. FUTURES CONTRACTS -- The Fund may purchase or sell futures contracts as a
hedge against changes in market conditions. Initial margin deposits required
upon entering into futures contracts are satisfied by the segregation of
specific securities as collateral for the account of the broker (the Fund's
agent in acquiring the futures position). During the period the futures
contracts are open, changes in the value of the contracts are recognized as
unrealized gains or losses by "marking to market" on a daily basis to
reflect the market value of the contracts at the end of each day's trading.
Variation margin payments are received or made depending upon whether
unrealized gains or losses are incurred. When the contracts are closed, the
Fund recognizes a realized gain or loss equal to the difference between the
proceeds from, or cost of, the closing transaction and the Fund's basis in
the contract. If the Fund were unable to liquidate a futures contract and/or
enter into an offsetting closing transaction, the Fund would continue to be
subject to market risk with respect to the value of the contracts and
continue to be required to maintain the margin deposits on the futures
contracts.
J. COLLATERAL -- To the extent the Fund has pledged or segregated a security as
collateral and that security is subsequently sold, it is the Fund's practice
to replace such collateral no later than the next business day. This
practice does not apply to securities pledged as collateral for securities
lending transactions.
F-8
AIM LEISURE FUND
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 to AIM based on the annual rate of the Fund's
average daily net assets as follows:
AVERAGE NET ASSETS RATE
----------------------------------------------------
First $350 million 0.75%
----------------------------------------------------
Next $350 million 0.65%
----------------------------------------------------
Next $1.3 billion 0.55%
----------------------------------------------------
Next $2 billion 0.45%
----------------------------------------------------
Next $2 billion 0.40%
----------------------------------------------------
Next $2 billion 0.375%
----------------------------------------------------
Over $8 billion 0.35%
----------------------------------------------------
AIM has voluntarily agreed to waive advisory fees and/or reimburse expenses
to the extent necessary to limit total annual operating expenses (excluding
certain items discussed below) of Class A, Class B, Class C, Class K, Class R
and Investor Class shares to 1.40%, 2.15%, 2.15%, 1.60%, 1.65% and 1.40% of
average daily net assets, respectively. 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 net annual operating expenses to
exceed the numbers reflected above: (i) interest; (ii) taxes; (iii) dividend
expense on short sales; (iv) extraordinary items; (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. AIM did not waive fees and/or
reimburse expenses during the period under this expense limitation.
AIM has voluntarily agreed to waive advisory fees of the Fund in the amount
of 25% of the advisory fee AIM receives from the affiliated money market funds
on investments by the Fund in such affiliated money market funds (excluding
investments made in affiliated money market funds with cash collateral from
securities loaned by the fund). AIM is also voluntarily waiving a portion of
the advisory fee payable by the Fund equal to the difference between the income
earned from investing in the affiliated money market fund and the hypothetical
income earned from investing in an appropriate comparative benchmark. Voluntary
fee waivers or reimbursements may be modified or discontinued at any time upon
consultation with the Board of Trustees without further notice to investors.
For the year ended March 31, 2006, AIM waived fees of $4,183.
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 March 31, 2006, AMVESCAP reimbursed expenses of the Fund in the amount of
$2,637.
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. Pursuant to such agreement, for the year ended
March 31, 2006, AIM was paid $228,604.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AISI for certain expenses
incurred by AISI in the course of providing such services. AISI may make
payments to intermediaries that provide omnibus account services,
sub-accounting services and/or networking services. For the year ended
March 31, 2006, the Fund paid AISI $1,964,387.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("ADI") to serve as the distributor for the Class A, Class
B, Class C, Class K, Class R and Investor Class shares of the Fund. The Trust
has adopted plans pursuant to Rule 12b-1 under the 1940 Act with respect to the
Fund's Class A, Class B, Class C, Class K, Class R and Investor Class shares
(collectively the "Plans"). The Fund, pursuant to the Plans, pays ADI
compensation at the annual rate of 0.25% of the Fund's average daily net assets
of Class A shares, 1.00% of the average daily net assets of Class B and Class C
shares, 0.45% of the average daily net assets of Class K, 0.50% of the average
daily net assets of Class R and 0.25% of the average daily net assets of
Investor Class shares. Prior to July 1, 2005, the Fund paid ADI 0.35% of the
average daily assets of Class A shares. Of the Rule 12b-1 payments, up to 0.25%
of the average daily net assets of the Class A, Class B, Class C, Class K,
Class R or Investor Class shares may be paid to furnish continuing personal
shareholder services to customers who purchase and own shares of such classes.
Any amounts not paid as a service fee under the Plans would constitute an
asset-based sales charge. 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 March 31, 2006, the Class A, Class B, Class C, Class
R and Investor Class shares paid $334,019, $352,840, $343,667, $24 and
$1,534,991, respectively. For the period April 1, 2005 through October 21, 2005
(date of conversion), Class K shares paid $58,646.
Front-end sales commissions and contingent deferred sales charges ("CDSC")
(collectively the "sales charges") are not recorded as expenses of the Fund.
Front-end sales commissions are deducted from proceeds from the sales of Fund
shares prior to investment in Class A shares of the Fund. CDSC are deducted
from redemption proceeds prior to remittance to the shareholder. During the
year ended March 31, 2006, ADI advised the Fund that it retained $102,174 in
front-end sales commissions from the sale of Class A shares and $1,753,
$43,312, $6,951 and $0 from Class A, Class B, Class C and Class R shares,
respectively, for CDSC imposed upon redemptions by shareholders. For the period
April 1, 2005 through October 21, 2005 (date of conversion), ADI advised the
Fund it retained $0 from Class K shares for CDSC imposed upon redemptions by
shareholders.
Certain officers and trustees of the Trust are officers and directors of AIM,
AISI and/or ADI.
F-9
AIM LEISURE FUND
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to an exemptive order from the Securities and
Exchange Commission ("SEC") and approved procedures by their Board of Trustees,
to invest daily available cash balances and cash collateral from securities
lending transactions in an affiliated money market fund. The Fund and the money
market fund below have the same investment advisor and therefore, are
considered to be affiliated. The tables below show the transactions in and
earnings from investments in an affiliated money market fund for the year ended
March 31, 2006.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
- ---------------------------------------------
CHANGE IN
UNREALIZED REALIZED
VALUE PURCHASES AT PROCEEDS FROM APPRECIATION VALUE DIVIDEND GAIN
FUND 03/31/05 COST SALES (DEPRECIATION) 03/31/06 INCOME (LOSS)
- -------------------------------------------------------------------------------------------------------------------------
Premier Portfolio-Institutional Class $24,712,532 $230,744,249 $(253,580,033) $-- $1,876,748 $725,450 $--
- -------------------------------------------------------------------------------------------------------------------------
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
- --------------------------------------------------------------------
CHANGE IN
UNREALIZED REALIZED
VALUE PURCHASES AT PROCEEDS FROM APPRECIATION VALUE DIVIDEND GAIN
FUND 03/31/05 COST SALES (DEPRECIATION) 03/31/06 INCOME* (LOSS)
- --------------------------------------------------------------------------------------------------------------------------
Premier Portfolio-Institutional Class $26,348,886 $294,798,917 $(296,851,709) $-- $24,296,094 $135,673 $--
- --------------------------------------------------------------------------------------------------------------------------
Total $51,061,418 $525,543,166 $(550,431,742) $-- $26,172,842 $861,123 $--
- --------------------------------------------------------------------------------------------------------------------------
* Net of compensation to counterparties.
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, for the year ended March 31, 2006,
the Fund engaged in securities sales of $1,221,660, which resulted in net
realized gains of $99,600 and securities purchases of $2,321,646.
NOTE 5--EXPENSE OFFSET ARRANGEMENTS
The expense offset arrangements are comprised of (i) transfer agency credits
which result from balances in Demand Deposit Accounts (DDA) used by the
transfer agent for clearing shareholder transactions and (ii) custodian credits
which result from periodic overnight cash balances at the custodian. For the
year ended March 31, 2006, the Fund received credits from these arrangements,
which resulted in the reduction of the Fund's total expenses of $31,790.
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 March 31, 2006, the Fund paid legal fees of $6,876 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.
F-10
AIM LEISURE FUND
During the year ended March 31, 2006, 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.
NOTE 8--PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities having a market value up to one-third of
the Fund's total assets. Such loans are secured by collateral equal to no less
than the market value of the loaned securities determined daily. Such
collateral will be cash or debt securities issued or guaranteed by the U.S.
Government or any of its agencies. Cash collateral received in connection with
these loans is invested in short-term money market instruments or affiliated
money market funds. It is the Fund's policy to obtain additional collateral
from or return excess collateral to the borrower by the end of the next
business day, following the valuation date of the securities loaned. Therefore,
the value of the collateral held may be temporarily less than the value of the
securities on loan. Lending securities entails a risk of loss to the Fund if
and to the extent that the market value of the securities loaned were to
increase and the borrower did not increase the collateral accordingly, and the
borrower fails to return the securities. The Fund could also experience delays
and costs in gaining access to the collateral. The Fund bears the risk of any
deficiency in the amount of the collateral available for return to the borrower
due to a loss on the collateral invested.
At March 31, 2006, securities with an aggregate value of $23,243,449 were on
loan to brokers. The loans were secured by cash collateral of $24,296,094
received by the Fund and subsequently invested in an affiliated money market
fund. For the year ended March 31, 2006, the Fund received dividends on cash
collateral investments of $135,673 for securities lending transactions, which
are net of compensation to counterparties.
NOTE 9--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
The tax character of distributions paid during the years ended March 31, 2006
and 2005 was as follows:
2006 2005
-----------------------------------------------
Distributions paid from:
Ordinary income $ 8,311,680 $6,703,159
-----------------------------------------------
Long-term capital gain 78,310,974 --
-----------------------------------------------
Total distributions $86,622,654 $6,703,159
-----------------------------------------------
TAX COMPONENTS OF NET ASSETS:
As of March 31, 2006, the components of net assets on a tax basis were as
follows:
2006
----------------------------------------------------
Undistributed ordinary income $ 10,376,767
----------------------------------------------------
Undistributed long-term gain 19,004,711
----------------------------------------------------
Unrealized appreciation -- investments 225,044,166
----------------------------------------------------
Temporary book/tax differences (70,624)
----------------------------------------------------
Post-October currency loss deferral (23,158)
----------------------------------------------------
Shares of beneficial interest 514,346,332
----------------------------------------------------
Total net assets $768,678,194
----------------------------------------------------
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation (depreciation) difference is attributable primarily to losses on
wash sales. The tax-basis unrealized appreciation on investments amount
includes appreciation (depreciation) on foreign currencies of $(6,583).
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 has no capital loss carryforward as of March 31, 2006.
F-11
AIM LEISURE FUND
NOTE 10--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the year ended
March 31, 2006 was $162,418,351 and $334,442,609, respectively.
UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENT SECURITIES ON A TAX BASIS
--------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $231,911,219
--------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (6,860,470)
--------------------------------------------------------------------------
Net unrealized appreciation of investment securities $225,050,749
--------------------------------------------------------------------------
Cost of investments for tax purposes is $562,016,715.
NOTE 11--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of foreign currency
transactions, partnership investments and passive foreign investment companies,
on March 31, 2006, undistributed net investment income (loss) was increased by
$2,276,744, undistributed net realized gain (loss) was decreased by $2,264,346
and shares of beneficial interest decreased by $12,398. This reclassification
had no effect on the net assets of the Fund.
F-12
AIM LEISURE FUND
NOTE 12--SHARE INFORMATION
The Fund currently consists of five different classes of shares: Class A
shares, Class B shares, Class C shares, Class R shares and Investor Class
shares. The Fund formerly offered Class K shares; however, as of the close of
business October 21, 2005, the Class K shares were converted to Class A shares.
Investor Class shares of the Fund are offered only to certain grandfathered
investors.
Class A shares are sold with a front-end sales charge. Class B shares and
Class C shares are sold with CDSC. Class R shares and Investor Class shares are
sold at net asset value. Under certain circumstances, Class A shares and Class
R 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 MARCH 31,
------------------------------------------------------
2006/(a)/ 2005
--------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
- -----------------------------------------------------------------------------------------------------------------
Sold:
Class A 1,690,157 $ 76,342,165 793,522 $ 34,832,067
- -----------------------------------------------------------------------------------------------------------------
Class B 303,966 13,527,410 261,051 11,331,283
- -----------------------------------------------------------------------------------------------------------------
Class C 335,088 14,484,186 173,013 7,308,032
- -----------------------------------------------------------------------------------------------------------------
Class K 87,158 3,917,051 323,100 13,842,382
- -----------------------------------------------------------------------------------------------------------------
Class R/(b)/ 468.8 20,414 -- --
- -----------------------------------------------------------------------------------------------------------------
Investor Class 1,086,533 48,574,296 1,793,600 78,195,458
- -----------------------------------------------------------------------------------------------------------------
Issued as reinvestment of dividends:
Class A 352,631 14,581,266 10,802 494,402
- -----------------------------------------------------------------------------------------------------------------
Class B 89,561 3,626,335 1,313 59,192
- -----------------------------------------------------------------------------------------------------------------
Class C 93,161 3,674,292 1,538 67,727
- -----------------------------------------------------------------------------------------------------------------
Class K -- -- 16,282 736,909
- -----------------------------------------------------------------------------------------------------------------
Class R/(b)/ 26.9 1,111 -- --
- -----------------------------------------------------------------------------------------------------------------
Investor Class 1,495,835 61,748,054 112,325 5,130,605
- -----------------------------------------------------------------------------------------------------------------
Conversion of Class K shares to Class A shares:
Class A 349,033 15,172,483 -- --
- -----------------------------------------------------------------------------------------------------------------
Class K (353,342) (15,172,483) -- --
- -----------------------------------------------------------------------------------------------------------------
Automatic conversion of Class B shares to Class A shares:
Class A 14,950 660,308 3,955 172,948
- -----------------------------------------------------------------------------------------------------------------
Class B (15,261) (660,308) (4,023) (172,948)
- -----------------------------------------------------------------------------------------------------------------
Reacquired:
Class A (1,265,646) (55,496,512) (452,330) (19,309,469)
- -----------------------------------------------------------------------------------------------------------------
Class B (212,534) (9,073,997) (62,523) (2,675,994)
- -----------------------------------------------------------------------------------------------------------------
Class C (294,933) (12,407,231) (184,864) (7,641,929)
- -----------------------------------------------------------------------------------------------------------------
Class K (1,983,958) (87,294,672) (870,192) (37,564,779)
- -----------------------------------------------------------------------------------------------------------------
Investor Class (3,970,756) (175,473,612) (3,857,390) (166,036,046)
- -----------------------------------------------------------------------------------------------------------------
(2,197,861.3) $ (99,249,444) (1,940,821) $ (81,230,160)
- -----------------------------------------------------------------------------------------------------------------
/(a)/There is one entity that is record owner of more than 5% of the
outstanding shares of the Fund and in the aggregate it own 22% of the
outstanding shares of the Fund. ADI has an agreement with this entity to
sell Fund shares. The Fund, AIM and/or AIM affiliates may make payments to
this entity, which is considered to be related to the Fund, for providing
services to the Fund, AIM and/or AIM affiliates including but not limited
to services such as securities brokerage, third party record keeping and
account servicing. The Trust has no knowledge as to whether all or any
portion of the shares owned of record by this entity is also owned
beneficially.
/(b)/Class R shares commenced sales on October 25, 2005.
F-13
AIM LEISURE FUND
NOTE 13--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
CLASS A
----------------------------------------------
YEAR ENDED MARCH 31,
----------------------------------------------
2006 2005 2004 2003/(A)/
- -------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 45.61 $ 42.83 $ 30.88 $ 38.96
- -------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss)/(b)/ 0.15 (0.05) (0.14) (0.17)
- -------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) 2.60 3.15 12.09 (7.91)
- -------------------------------------------------------------------------------------------------------------------
Total from investment operations 2.75 3.10 11.95 (8.08)
- -------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.47) (0.32) -- --
- -------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (4.44) -- -- --
- -------------------------------------------------------------------------------------------------------------------
Total distributions (4.91) (0.32) -- --
- -------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 43.45 $ 45.61 $ 42.83 $ 30.88
- -------------------------------------------------------------------------------------------------------------------
Total return/(c)/ 6.58% 7.23% 38.70% (20.74)%
- -------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $132,515 $87,068 $66,510 $27,175
- -------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 1.29%/(d)/ 1.42%/(e)/ 1.48% 1.42%
- -------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets 0.34%/(d)/ (0.11)% (0.37)% (0.56)%
- -------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 20% 8% 20% 20%
- -------------------------------------------------------------------------------------------------------------------
/(a)/Class commenced sales on March 28, 2002.
/(b)/Calculated using average shares outstanding.
/(c)/Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net
asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges.
/(d)/Ratios are based on average daily net assets of $123,809,377.
/(e)/After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements was
1.43%.
F-14
AIM LEISURE FUND
NOTE 13--FINANCIAL HIGHLIGHTS-(CONTINUED)
CLASS B
------------------------------------------
YEAR ENDED MARCH 31,
------------------------------------------
2006 2005 2004 2003/(A)/
- ---------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 44.86 $ 42.22 $ 30.65 $ 38.96
- ---------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss)/(b)/ (0.17) (0.32) (0.40) (0.38)
- ---------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) 2.54 3.08 11.97 (7.93)
- ---------------------------------------------------------------------------------------------------------------
Total from investment operations 2.37 2.76 11.57 (8.31)
- ---------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.33) (0.12) -- --
- ---------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (4.44) -- -- --
- ---------------------------------------------------------------------------------------------------------------
Total distributions (4.77) (0.12) -- --
- ---------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 42.46 $ 44.86 $ 42.22 $ 30.65
- ---------------------------------------------------------------------------------------------------------------
Total return/(c)/ 5.81% 6.54% 37.75% (21.33)%
- ---------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $34,272 $28,776 $18,814 $ 8,268
- ---------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 2.02%/(d)/ 2.07% 2.15% 2.14%
- ---------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 2.02%/(d)/ 2.08% 2.26% 2.23%
- ---------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (0.39)%/(d)/ (0.76)% (1.04)% (1.29)%
- ---------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 20% 8% 20% 20%
- ---------------------------------------------------------------------------------------------------------------
/(a)/Class commenced sales on March 28, 2002.
/(b)/Calculated using average shares outstanding.
/(c)/Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net
asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges.
/(d)/Ratios are based on average daily net assets of $35,284,014.
F-15
AIM LEISURE FUND
NOTE 13--FINANCIAL HIGHLIGHTS-(CONTINUED)
CLASS C
------------------------------------------------------------
YEAR ENDED MARCH 31,
------------------------------------------------------------
2006 2005 2004 2003 2002
- -------------------------------------------------------------------------------------------------------
Net asset value, beginning of
period $ 43.82 $ 41.24 $ 30.00 $ 38.29 $ 36.80
- -------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.17)/(a)/ (0.31)/(a)/ (0.46)/(a)/ (0.18) (0.17)/(b)/
- -------------------------------------------------------------------------------------------------------
Net gains (losses) on securities
(both realized and unrealized) 2.47 3.01 11.70 (8.11) 2.02
- -------------------------------------------------------------------------------------------------------
Total from investment operations 2.30 2.70 11.24 (8.29) 1.85
- -------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment
income (0.33) (0.12) -- -- --
- -------------------------------------------------------------------------------------------------------
Distributions from net realized
gains (4.44) -- -- -- (0.36)
- -------------------------------------------------------------------------------------------------------
Total distributions (4.77) (0.12) -- -- (0.36)
- -------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 41.35 $ 43.82 $ 41.24 $ 30.00 $ 38.29
- -------------------------------------------------------------------------------------------------------
Total return/(c)/ 5.78% 6.55% 37.47% (21.65)% 5.10%
- -------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $33,549 $29,706 $28,383 $17,768 $16,307
- -------------------------------------------------------------------------------------------------------
Ratio of expenses to average net
assets 2.02%/(d)/ 2.07%/(e)/ 2.36% 2.44% 2.26%
- -------------------------------------------------------------------------------------------------------
Ratio of net investment income
(loss) to average net assets (0.39)%/(d)/ (0.76)% (1.25)% (1.62)% (1.48)%
- -------------------------------------------------------------------------------------------------------
Portfolio turnover rate 20% 8% 20% 20% 27%
- -------------------------------------------------------------------------------------------------------
/(a)/Calculated using average shares outstanding.
/(b)/The net investment income (loss) per share was calculated after permanent
book tax differences, such as net operating 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 $(0.34) for
the year ended March 31, 2002.
/(c)/Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net
asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges.
/(d)/Ratios are based on average daily net assets of $34,366,641.
/(e)/After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements was
2.08%.
F-16
AIM LEISURE FUND
NOTE 13--FINANCIAL HIGHLIGHTS-(CONTINUED)
CLASS K
---------------------------------------------------------
APRIL 1, 2005 TO
OCTOBER 21, 2005
(DATE SHARES YEAR ENDED MARCH 31,
CONVERTED) -------------------------------------
---------------- 2005 2004 2003
- -------------------------------------------------------------------- ----------------------------------------
Net asset value, beginning of period $45.09 $ 42.36 $ 30.74 $ 38.98
- -----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.04/(a)/ (0.09)/(a)/ (0.39)/(a)/ (0.06)
- -----------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) (2.19) 3.11 12.01 (8.18)
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations (2.15) 3.02 11.62 (8.24)
- -----------------------------------------------------------------------------------------------------------------------------
Less dividends from net investment income -- (0.29) -- --
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $42.94 $ 45.09 $ 42.36 $ 30.74
- -----------------------------------------------------------------------------------------------------------------------------
Total return/(b)/ (4.77)% 7.13% 37.80% (21.14)%
- -----------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ -- $101,461 $117,792 $67,465
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.47%/(c)/ 1.52% 2.14% 1.87%
- -----------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.47%/(c)/ 1.53% 2.14% 2.21%
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets 0.16%/(c)/ (0.21)% (1.03)% (1.05)%
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate/(e)/ 20% 8% 20% 20%
- -----------------------------------------------------------------------------------------------------------------------------
-------------
DECEMBER 14, 2001
(DATE SALES
COMMENCED) TO
MARCH 31,
2002
- -------------------------------------------------------------------
Net asset value, beginning of period $ 36.11
- --------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.09)/(a)/
- --------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) 2.96
- --------------------------------------------------------------------------------------
Total from investment operations 2.87
- --------------------------------------------------------------------------------------
Less dividends from net investment income --
- --------------------------------------------------------------------------------------
Net asset value, end of period $ 38.98
- --------------------------------------------------------------------------------------
Total return/(b)/ 7.95%
- --------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $62,226
- --------------------------------------------------------------------------------------
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.23%/(d)/
- --------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.23%/(d)/
- --------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (0.48)%/(d)/
- --------------------------------------------------------------------------------------
Portfolio turnover rate/(e)/ 27%
- --------------------------------------------------------------------------------------
/(a)/Calculated using average shares outstanding.
/(b)/Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net
asset values may differ from the net asset value and returns for
shareholder transactions. Not annualized for periods less than one year.
/(c)/Ratios are annualized and based on average daily net assets of $23,317,825.
/(d)/Annualized.
/(e)/Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
F-17
AIM LEISURE FUND
NOTE 13--FINANCIAL HIGHLIGHTS-(CONTINUED)
CLASS R
----------------
OCTOBER 25, 2005
(DATE SALES
COMMENCED) TO
MARCH 31, 2006
--------------------------------------------------------------------------
Net asset value, beginning of period $43.91
--------------------------------------------------------------------------
Income from investment operations:
Net investment income/(a)/ 0.02
--------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 4.38
--------------------------------------------------------------------------
Total from investment operations 4.40
--------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.46)
--------------------------------------------------------------------------
Distributions from net realized gains (4.44)
--------------------------------------------------------------------------
Total distributions (4.90)
--------------------------------------------------------------------------
Net asset value, end of period $43.41
--------------------------------------------------------------------------
Total return/(b)/ 10.57%
--------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 22
--------------------------------------------------------------------------
Ratio of expenses to average net assets/(c)/ 1.52%
--------------------------------------------------------------------------
Ratio of net investment income to average net assets/(c)/ 0.11%
--------------------------------------------------------------------------
Portfolio turnover rate/(d)/ 20%
--------------------------------------------------------------------------
/(a)/Calculated using average shares outstanding.
/(b)/Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net
asset values may differ from the net asset value and returns for
shareholder transactions. Not annualized for periods less than one year.
/(c)/Ratios are annualized and based on average daily net assets of $11,188./ /
/(d)/Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
INVESTOR CLASS
-------------------------------------------------------
YEAR ENDED MARCH 31,
-------------------------------------------------------
2006 2005 2004 2003
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 45.54 $ 42.75 $ 30.83 $ 38.95
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.16/(a)/ (0.00)/(a)/ (0.14)/(a)/ (0.23)
- ---------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) 2.59 3.14 12.06 (7.89)
- ---------------------------------------------------------------------------------------------------------------------------
Total from investment operations 2.75 3.14 11.92 (8.12)
- ---------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.48) (0.35) -- --
- ---------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (4.44) -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
Total distributions (4.92) (0.35) -- --
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 43.37 $ 45.54 $ 42.75 $ 30.83
- ---------------------------------------------------------------------------------------------------------------------------
Total return/(c)/ 6.60% 7.35% 38.66% (20.87)%
- ---------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $568,321 $659,978 $702,969 $536,108
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 1.27%/(d)/ 1.32%/(e)/ 1.49% 1.50%
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets 0.36%/(d)/ (0.01)% (0.38)% (0.69)%
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 20% 8% 20% 20 %
- ---------------------------------------------------------------------------------------------------------------------------
---------
---------
2002
- ---------------------------------------------------------------------------------
Net asset value, beginning of period $ 37.13
- ---------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.03)/(b)/
- ---------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) 2.21
- ---------------------------------------------------------------------------------
Total from investment operations 2.18
- ---------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income --
- ---------------------------------------------------------------------------------
Distributions from net realized gains (0.36)
- ---------------------------------------------------------------------------------
Total distributions (0.36)
- ---------------------------------------------------------------------------------
Net asset value, end of period $ 38.95
- ---------------------------------------------------------------------------------
Total return/(c)/ 6.01%
- ---------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $799,465
- ---------------------------------------------------------------------------------
Ratio of expenses to average net assets 1.40%
- ---------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (0.64)%
- ---------------------------------------------------------------------------------
Portfolio turnover rate 27%
- ---------------------------------------------------------------------------------
/(a)/Calculated using average shares outstanding.
/(b)/The net investment income (loss) per share was calculated after permanent
book tax differences, such as net operating losses, which were
reclassified from accumulated net investment income (loss) to paid in
capital. Had net investment income (loss) per share been calculated using
the current method, which is before reclassification of net operating
losses, net investment income (loss) per share would have been $(0.22) for
the year ended March 31, 2002.
/(c)/Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net
asset values may differ from the net asset value and returns for
shareholder transactions.
/(d)/Ratios are based on average daily net assets of $613,996,359.
/(e)/After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements was
1.33%.
F-18
AIM LEISURE FUND
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. 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.
PENDING LITIGATION AND REGULATORY INQUIRIES
On August 30, 2005, the West Virginia Office of the State Auditor--Securities
Commission ("WVASC") issued a Summary Order to Cease and Desist and Notice of
Right to Hearing to AIM and ADI (Order No. 05-1318). The WVASC makes findings
of fact that AIM and ADI entered into certain arrangements permitting market
timing of the AIM Funds, including those formerly advised by IFG, and failed to
disclose these arrangements in the prospectuses for such Funds, and conclusions
of law to the effect that AIM and ADI violated the West Virginia securities
laws. The WVASC orders AIM and ADI to cease any further violations and seeks to
impose monetary sanctions, including restitution to affected investors,
disgorgement of fees, reimbursement of investigatory, administrative and legal
costs and an "administrative assessment," to be determined by the Commissioner.
Initial research indicates that these damages could be limited or capped by
statute.
Civil lawsuits, including purported class action and shareholder derivative
suits, have been filed against certain of the AIM Funds, IFG, AIM, ADI and/or
related entities and individuals, depending on the lawsuit, alleging:
. that the defendants permitted improper market timing and related
activity in the AIM Funds;
. that certain AIM Funds inadequately employed fair value pricing;
. that the defendants charged excessive advisory and/or distribution
fees and failed to pass on to shareholders the perceived savings
generated by economies of scale and that the defendants adopted
unlawful distribution plans; and
. that the defendants improperly used the assets of the AIM Funds to pay
brokers to aggressively promote the sale of the AIM Funds over other
mutual funds and that the defendants concealed such payments from
investors by disguising them as brokerage commissions.
These lawsuits allege as theories of recovery, depending on the lawsuit,
violations of various provisions of the Federal and state securities laws and
ERISA, negligence, breach of fiduciary duty and/or breach of contract. These
lawsuits seek remedies that include, depending on the lawsuit, damages,
restitution, injunctive relief, imposition of a constructive trust, removal of
certain directors and/or employees, various corrective measures under ERISA,
rescission of certain AIM Funds' advisory agreements and/or distribution plans
and recovery of all fees paid, an accounting of all fund-related fees,
commissions and soft dollar payments, restitution of all commissions and fees
paid, and prospective relief in the form of reduced fees.
All lawsuits based on allegations of market timing, late trading and related
issues have been transferred or conditionally transferred to the United States
District Court for the District of Maryland (the "MDL Court"). Pursuant to an
Order of the MDL Court, plaintiffs in these lawsuits consolidated their claims
for pre-trial purposes into three amended complaints against various AIM- and
IFG-related parties: (i) a Consolidated Amended Class Action Complaint
purportedly brought on behalf of shareholders of the AIM Funds; (ii) a
Consolidated Amended Fund Derivative Complaint purportedly brought on behalf of
the AIM Funds and fund registrants; and (iii) an Amended Class Action Complaint
for Violations of the Employee Retirement Income Securities Act ("ERISA")
purportedly brought on behalf of participants in AMVESCAP's 401(k) plan.
On March 1, 2006, the MDL Court entered orders on Defendants' Motions to
dismiss in the derivative and class action lawsuits. The MDL Court dismissed
all derivative causes of action in the derivative lawsuit but two: (i) the
excessive fee claim under Section 36(b) of the Investment Company Act of 1940
(the "1940 Act"); and (ii) the "control person liability" claim under
Section 48 of the 1940 Act. The MDL Court dismissed all claims asserted in the
class action lawsuit but three: (i) the securities fraud claims under
Section 10(b) of the Securities Exchange Act of 1934; (ii) the excessive fee
claim under Section 36(b) of the 1940 Act (which survived only insofar as
plaintiffs seek recovery of fees associated with the assets involved in market
timing); and (iii) the "control person liability" claim under Section 48 of the
1940 Act. Based on the MDL Court's March 1, 2006 orders, all claims asserted
against the Funds that have been transferred to the MDL Court have been
dismissed, although certain Funds remain nominal defendants in the derivative
lawsuit. Defendants filed their Original Answer in the class action lawsuit on
March 31, 2006. The MDL Court has indefinitely deferred Defendants' obligation
to answer the derivative lawsuit.
On February 27, 2006, Judge Motz for the MDL Court issued a memorandum
opinion on the AMVESCAP defendants' motion to dismiss the ERISA lawsuit. Judge
Motz granted the motion in part and denied the motion in part, holding that:
(i) plaintiff has both constitutional and statutory standing to pursue her
claims under
F-19
AIM LEISURE FUND
NOTE 14--LEGAL PROCEEDINGS-(CONTINUED)
ERISA (S) 502(a)(2); (ii) plaintiff lacks standing under ERISA (S) 502(a)(3) to
obtain equitable relief; (iii) the motion is granted as to the claims alleged
under ERISA (S) 404 for failure to prudently and loyally manage plan assets
against certain AMVESCAP defendants; (iv) the motion is denied as to the claims
alleged under ERISA (S) 404 for failure to prudently and loyally manage plan
assets against AMVESCAP and certain other AMVESCAP defendants. The opinion
also: (i) confirmed plaintiff's abandonment of her claims that defendants
engaged in prohibited transactions and/or misrepresentation; (ii) postponed
consideration of the duty to monitor and co-fiduciary duty claims until after
any possible amendments to the complaints; (iii) stated that plaintiff may seek
leave to amend her complaint within 40 days of the date of filing of the
memorandum opinion. On April 4, 2006, Judge Motz entered an order implementing
these rulings in the ERISA (Calderon) lawsuit against the AMVESCAP defendants.
Plaintiffs indicated that they intend to amend their complaint in light of this
order. Defendants will have 30 days after such amendment to answer or otherwise
respond.
IFG, AIM, ADI and/or related entities and individuals have received inquiries
from numerous regulators in the form of subpoenas or other oral or written
requests for information and/or documents related to one or more of the
following issues, among others, some of which concern one or more AIM Funds:
market timing activity, late trading, fair value pricing, excessive or improper
advisory and/or distribution fees, mutual fund sales practices, including
revenue sharing and directed-brokerage arrangements, investments in securities
of other registered investment companies, contractual plans, issues related to
Section 529 college savings plans and procedures for locating lost security
holders. IFG, AIM and ADI have advised the Fund that they are providing full
cooperation with respect to these inquiries. Regulatory actions and/or
additional civil lawsuits related to these or other issues may be filed against
the AIM Funds, IFG, AIM and/or related entities and individuals in the future.
At the present time, management of AIM and the Fund are unable to estimate
the impact, if any, that the outcome of the Pending Litigation and Regulatory
Inquiries described above may have on AIM, 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-20
AIM LEISURE FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees of AIM Sector Funds
and Shareholders of AIM Leisure Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of AIM Leisure Fund (one of the funds
constituting AIM Sector Funds, hereafter referred to as the "Fund") at March
31, 2006, the results of its operations for the year then ended, the changes in
its net assets for each of the two years in the period then ended and the
financial highlights for each of the periods indicated, in conformity with
accounting principles generally accepted in the United States of America. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits, which included confirmation of securities at March 31, 2006 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
/s/ PRICEWATERHOUSECOOPERS LLP
May 19, 2006
Houston, Texas
AIM LEISURE FUND
TAX DISCLOSURES
REQUIRED FEDERAL INCOME TAX INFORMATION
Of the ordinary dividends paid to shareholders during the Fund's tax year ended
March 31, 2006, 55.05% is eligible for the dividends received deduction for
corporations. The Fund distributed long-term capital gains of $78,310,974 for
the Fund's tax year ended March 31, 2006.
For its tax year ended March 31, 2006, the Fund designated 77.09%, or the
maximum allowable, of its dividend distributions as qualified dividend income.
The actual amounts for the calendar year will be designated in the Fund's year
end tax statement.
TAX INFORMATION FOR NON-RESIDENT ALIEN SHAREHOLDERS
For its tax year ended March 31, 2006, the Fund designates 0%, or the maximum
amount allowable of its dividend distributions as qualified interest income
exempt from U.S. income tax for non-resident alien shareholders. Your actual
amount of qualified interest income for the calendar year will be reported in
your Form 1042-S mailing. You should consult your tax advisor regarding
treatment of the amounts.
The percentage of qualifying assets not subject to the U.S. estate tax for
the fiscal quarters ended June 30, 2005, September 30, 2005, December 31, 2005,
and March 31, 2006 are 21.01%, 20.19%, 21.14%, and 22.49%, respectively.
AIM LEISURE FUND
TRUSTEES AND OFFICERS
As of March 31, 2006
The address of each trustee and officer of AIM Sector Funds (the "Trust"), is
11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 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)
TRUST OR OFFICER SINCE DURING PAST 5 YEARS
- ----------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- ----------------------------------------------------------------------------------------------------
Robert H. Graham/1 /-- 1946 2003 Director and Chairman, A I M Management
Trustee, Vice Chair, President and Group Inc. (financial services holding
Principal Executive Officer company); Director and Vice Chairman,
AMVESCAP PLC; Chairman of AMVESCAP
PLC -- AIM Division (parent of AIM and
a global investment management firm);
and Trustee, Vice Chair, President and
Principal Executive Officer of the AIM
Family of Funds
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 Trustee and Executive Vice President of
Trustee and Executive Vice President the AIM Family of Funds
Formerly: Director, Chairman, President
and Chief Executive Officer, INVESCO
Funds Group, Inc.; President and Chief
Executive Officer, INVESCO
Distributors, Inc.; and Chief Executive
Officer, AMVESCAP PLC -- Managed
Products; and Chairman, A I M Advisors,
Inc.; Director, President and Chief
Executive Officer, A I M Management
Group Inc.; Director and President,
A I M Advisors, Inc.; Director, A I M
Capital Management, Inc. and A I M
Distributors,
Inc.; Director and Chairman, AIM Investment
Services, Inc., Fund Management Company
and INVESCO Distributors, Inc.
(registered broker dealer); Chief
Executive Officer, AMVESCAP PLC -- AIM
Division
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- ----------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 2003 Chairman, Crockett Technology
Trustee and Chair Associates (technology consulting
company)
- ----------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 1983 Retired
Trustee
- ----------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2003 Retired
Trustee
Formerly: Partner, law firm of Baker &
McKenzie
- ----------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2000 Founder, Green, Manning & Bunch, Ltd.
Trustee (investment banking firm); and
Director, Policy Studies, Inc. and Van
Gilder Insurance Corporation
- ----------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2003 Director of a number of public and
Trustee private business corporations,
including the Boss Group, Ltd. (private
investment and management); Cortland
Trust, Inc. (Chairman) (registered
investment company (3 portfolios));
Annuity and Life Re (Holdings), Ltd.
(insurance company; CompuDyne
Corporation (provider of products and
services to the public security market)
and Homeowners of American Holding
Corporation
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President,
AB Volvo; and director of various
affiliated Volvo companies
- ----------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 2003 Chief Executive Officer, Twenty First
Trustee Century Group, Inc. (government affairs
company); and Owner, Dos Angelos Ranch,
L.P.
Formerly: Chief Executive Officer,
Texana Timber LP (sustainable forestry
company)
- ----------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 2003 Partner, law firm of Kramer Levin
Trustee Naftalis and Frankel LLP
- ----------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 2003 Formerly: Chief Executive Officer, YWCA
Trustee of the USA
- ----------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 2003 Partner, law firm of Pennock & Cooper
Trustee
- ----------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2003 Retired
Trustee
- ----------------------------------------------------------------------------------------------------
Larry Soll -- 1942 1997 Retired
Trustee
- ----------------------------------------------------------------------------------------------------
Raymond Stickel, Jr. -- 1944 2005 Retired
Trustee
Formerly: Partner, Deloitte & Touche
- ----------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
DURING PAST 5 YEARS HELD BY TRUSTEE
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
Director and Chairman, A I M Management None
Group Inc. (financial services holding
company); Director and Vice Chairman,
AMVESCAP PLC; Chairman of AMVESCAP
PLC -- AIM Division (parent of AIM and
a global investment management firm);
and Trustee, Vice Chair, President and
Principal Executive Officer of the AIM
Family of Funds
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
- ----------------------------------------------------------------------------
Trustee and Executive Vice President of None
the AIM Family of Funds
Formerly: Director, Chairman, President
and Chief Executive Officer, INVESCO
Funds Group, Inc.; President and Chief
Executive Officer, INVESCO
Distributors, Inc.; and Chief Executive
Officer, AMVESCAP PLC -- Managed
Products; and Chairman, A I M Advisors,
Inc.; Director, President and Chief
Executive Officer, A I M Management
Group Inc.; Director and President,
A I M Advisors, Inc.; Director, A I M
Capital Management, Inc. and A I M
Distributors,
Inc.; Director and Chairman, AIM Investment
Services, Inc., Fund Management Company
and INVESCO Distributors, Inc.
(registered broker dealer); Chief
Executive Officer, AMVESCAP PLC -- AIM
Division
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
Chairman, Crockett Technology ACE Limited (insurance
Associates (technology consulting company); and Captaris, Inc.
company) (unified messaging provider)
- ----------------------------------------------------------------------------
Retired None
- ----------------------------------------------------------------------------
Retired Badgley Funds, Inc. (registered
investment company
Formerly: Partner, law firm of Baker & (2 portfolios))
McKenzie
- ----------------------------------------------------------------------------
Founder, Green, Manning & Bunch, Ltd. None
(investment banking firm); and
Director, Policy Studies, Inc. and Van
Gilder Insurance Corporation
- ----------------------------------------------------------------------------
Director of a number of public and None
private business corporations,
including the Boss Group, Ltd. (private
investment and management); Cortland
Trust, Inc. (Chairman) (registered
investment company (3 portfolios));
Annuity and Life Re (Holdings), Ltd.
(insurance company; CompuDyne
Corporation (provider of products and
services to the public security market)
and Homeowners of American Holding
Corporation
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President,
AB Volvo; and director of various
affiliated Volvo companies
- ----------------------------------------------------------------------------
Chief Executive Officer, Twenty First Administaff, and Discovery
Century Group, Inc. (government affairs Global Education Fund
company); and Owner, Dos Angelos Ranch, (non-profit)
L.P.
Formerly: Chief Executive Officer,
Texana Timber LP (sustainable forestry
company)
- ----------------------------------------------------------------------------
Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Naftalis and Frankel LLP investment company
(3 portfolios))
- ----------------------------------------------------------------------------
Formerly: Chief Executive Officer, YWCA None
of the USA
- ----------------------------------------------------------------------------
Partner, law firm of Pennock & Cooper None
- ----------------------------------------------------------------------------
Retired None
- ----------------------------------------------------------------------------
Retired None
- ----------------------------------------------------------------------------
Retired Director, Mainstay VP Series
Funds, Inc. (21 portfolios)
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.
AIM LEISURE FUND
TRUSTEES AND OFFICERS-(CONTINUED)
As of March 31, 2006
The address of each trustee and officer of AIM Sector Funds (the "Trust"), is
11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 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
- --------------------------------------------------------------------------------------------------------------------
Russell C. Burk -- 1958 2005 Senior Vice President and Senior N/A
Senior Vice President and Officer of the AIM Family of Funds
Senior Officer
Formerly: Director of Compliance and
Assistant General Counsel, ICON
Advisers, Inc.; Financial Consultant,
Merrill Lynch; General Counsel and
Director of Compliance, ALPS Mutual
Funds, Inc.
- --------------------------------------------------------------------------------------------------------------------
John M. Zerr -- 1962/3/ 2006 Director, Senior Vice President, N/A
Senior Vice President, Chief Legal Secretary and General Counsel, A I M
Officer and Secretary Management Group Inc. (financial
services holding company) and A I M
Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Vice President, A I M Capital
Management, Inc., AIM Investment
Services, Inc., and Fund Management
Company; and Senior Vice President, A I
M Distributors, Inc.; and Senior Vice
President, Chief Legal Officer and
Secretary of the AIM Family of Funds
Formerly: Chief Operating Officer,
Senior Vice President, General Counsel,
and Secretary, Liberty Ridge Capital,
Inc. (an investment adviser); Vice
President and Secretary, PBHG Funds (an
investment company); Vice President and
Secretary, PBHG Insurance Series Fund
(an investment company); General
Counsel and Secretary, Pilgrim Baxter
Value Investors (an investment
adviser); Chief Operating Officer,
General Counsel and Secretary, Old
Mutual Investment Partners (a
broker-dealer); General Counsel and
Secretary, Old Mutual Fund Services (an
administrator); General Counsel and
Secretary, Old Mutual Shareholder
Services (a shareholder servicing
center); Executive Vice President,
General Counsel and Secretary, Old
Mutual Capital, Inc. (an investment
adviser); and Vice President and
Secretary, Old Mutual Advisors Funds
(an investment company)
- --------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley -- 1959 2004 Global Compliance Director, AMVESCAP N/A
Vice President PLC; and Vice President of the AIM
Family of Funds
Formerly: Senior Vice President, A I M
Management Group Inc. (financial
services holding company); Senior Vice
President and Chief Compliance Officer,
A I M Advisors, Inc. and the AIM Family
of Funds; Vice President and Chief
Compliance Officer, A I M Capital
Management, Inc. and A I M
Distributors, Inc.; Vice President, AIM
Investment Services, Inc. and Fund
Management Company; and Senior Vice
President and Compliance Director,
Delaware Investments Family of Funds
- --------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Senior Vice President and General N/A
Vice President Counsel, AMVESCAP PLC; and Vice
President of the AIM Family of Funds
Formerly: Director, General Counsel,
and Vice President Fund Management
Company; Director, Senior Vice
President, Secretary and General
Counsel, A I M Management Group Inc.
(financial services holding company)
and A I M Advisors, Inc.; Director and
Vice President, INVESCO Distributors,
Inc.; Senior Vice President,
A I M Distributors, Inc.; Vice
President, A I M Capital Management,
Inc. and AIM Investment Services, Inc.;
Senior Vice President, Chief Legal
Officer and Secretary of the AIM Family
of Funds; and Senior Vice President,
Chief Legal Officer and General
Counsel, Liberty Financial Companies,
Inc. and Liberty Funds Group, LLC
- --------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, N/A
Vice President, Treasurer and A I M Advisors, Inc.; and Vice
Principal Financial Officer President, Treasurer and Principal
Financial Officer of the AIM Family of
Funds
Formerly: Vice President,
A I M Distributors, Inc.; and Senior
Vice President, AIM Investment
Services, 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.;
and Vice President of the AIM Family of
Funds
Formerly: Senior Vice President, AIM
Private Asset Management, Inc.; and
Chief Equity Officer and Senior
Investment Officer, A I M Capital
Management, Inc.
- --------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 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. and the AIM Family
of Fund
- --------------------------------------------------------------------------------------------------------------------
Todd L. Spillane/4 /-- 1958 2006 Senior Vice President, A I M Management N/A
Chief Compliance Officer Group Inc.; Senior Vice President and
Chief Compliance Officer, A I M
Advisors, Inc.; Chief Compliance
Officer of the AIM Family of Funds;
Vice President and Chief Compliance
Officer, A I M Capital Management,
Inc.; and Vice President, A I M
Distributors, Inc., AIM Investment
Services, Inc. and Fund Management
Company
Formerly: Global Head of Product
Development, AIG-Global Investment
Group, Inc.; Chief Compliance Officer
and Deputy General Counsel,
AIG-SunAmerica Asset Management; and
Chief Compliance Officer, Chief
Operating Officer and Deputy General
Counsel, American General Investment
Management
- --------------------------------------------------------------------------------------------------------------------
/3/ Mr. Zerr was elected Senior Vice President, Chief Legal Officer and
Secretary effective March 29, 2006.
/4/ Mr. Spillane was elected Chief Compliance Officer effective March 29, 2006.
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, 51st Floor Frankel LLP Houston, TX 77210-4739 225 Franklin Street
Philadelphia, PA 19103-7599 1177 Avenue of the Americas Boston, MA 02110-2801
New York, NY 10036-2714
DOMESTIC EQUITY SECTOR EQUITY AIM ALLOCATION SOLUTIONS
AIM Basic Balanced Fund* AIM Advantage Health Sciences Fund AIM Conservative Allocation Fund
AIM Basic Value Fund AIM Energy Fund AIM Growth Allocation Fund/2/
AIM Capital Development Fund AIM Financial Services Fund AIM Moderate Allocation Fund
AIM Charter Fund AIM Global Health Care Fund AIM Moderate Growth Allocation Fund
AIM Constellation Fund AIM Global Real Estate Fund AIM Moderately Conservative Allocation Fund
AIM Diversified Dividend Fund AIM Gold & Precious Metals Fund
AIM Dynamics Fund AIM Leisure Fund
AIM Large Cap Basic Value Fund AIM Multi-Sector Fund DIVERSIFIED PORTFOLIOS
AIM Large Cap Growth Fund AIM Real Estate Fund/1/
AIM Mid Cap Basic Value Fund AIM Technology Fund AIM Income Allocation Fund
AIM Mid Cap Core Equity Fund/1/ AIM Utilities Fund AIM International Allocation Fund
AIM Opportunities I Fund
AIM Opportunities II Fund FIXED INCOME
AIM Opportunities III Fund
AIM S&P 500 Index Fund TAXABLE
AIM Select Equity Fund
AIM Small Cap Equity Fund AIM Enhanced Short Bond Fund
AIM Small Cap Growth Fund AIM Floating Rate Fund
AIM Structured Core Fund AIM High Yield Fund
AIM Structured Growth Fund AIM Income Fund
AIM Structured Value Fund AIM Intermediate Government Fund
AIM Summit Fund AIM International Bond Fund
AIM Trimark Endeavor Fund AIM Limited Maturity Treasury Fund
AIM Trimark Small Companies Fund AIM Money Market Fund
AIM Short Term Bond Fund
*Domestic equity and income fund AIM Total Return Bond Fund
Premier Portfolio
INTERNATIONAL/GLOBAL EQUITY Premier U.S. Government Money
Portfolio
AIM Asia Pacific Growth Fund
AIM China Fund TAX-FREE
AIM Developing Markets Fund
AIM European Growth Fund AIM High Income Municipal Fund/1/
AIM European Small Company Fund/1/ AIM Municipal Bond Fund
AIM Global Aggressive Growth Fund AIM Tax-Exempt Cash Fund
AIM Global Equity Fund AIM Tax-Free Intermediate Fund
AIM Global Growth Fund Premier Tax-Exempt Portfolio
AIM Global Value Fund
AIM Japan Fund
AIM International Core Equity Fund
AIM International Growth Fund
AIM International Small Company Fund/1/
AIM Trimark Fund
/1/ This Fund has limited public sales of its shares to certain investors. For
more information on who may continue to invest in the Fund, please see the
appropriate prospectus.
/2/ Effective April 29, 2005, AIM Aggressive Allocation Fund was renamed AIM
Growth Allocation Fund.
Shareholders approved the reorganization of the following funds to be
effective on or about April 10, 2006: AIM Mid Cap Growth Fund into AIM Dynamics
Fund, AIM Small Company Growth Fund into AIM Small Cap Growth Fund and AIM
Premier Equity Fund into AIM Charter Fund.
If used after July 20, 2006, 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. AIM is a subsidiary of AMVESCAP PLC, one of the world's
largest independent financial services companies with $411 billion in assets
under management. Data as of March 31, 2006.
- --------------------------------------------------------------------------------
CONSIDER THE INVESTMENT OBJECTIVES, RISKS, AND CHARGES AND EXPENSES CAREFULLY.
FOR THIS AND OTHER INFORMATION ABOUT AIM FUNDS, OBTAIN A PROSPECTUS FROM YOUR
FINANCIAL ADVISOR AND READ IT CAREFULLY BEFORE INVESTING.
- --------------------------------------------------------------------------------
AIMinvestments.com I-LEI-AR-1 A I M Distributors, Inc.
[YOUR GOALS. OUR SOLUTIONS.]
- REGISTERED TRADEMARK -
Mutual Retirement Annuities College Separately Offshore Cash
Funds Products Savings Managed Products Management
Plans Accounts
[AIM INVESTMENTS LOGO]
- REGISTERED TRADEMARK -
AIM TECHNOLOGY FUND
Annual Report to Shareholders . March 31, 2006
[COVER IMAGE]
[YOUR GOALS. OUR SOLUTIONS.]
- REGISTERED TRADEMARK -
[AIM INVESTMENTS LOGO]
- REGISTERED TRADEMARK -
AIM TECHNOLOGY FUND SEEKS TO PROVIDE CAPITAL GROWTH.
.. Unless otherwise stated, information presented in this report is as of
March 31, 2006, 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.
.. Investor Class shares are closed to most investors. For more information on
who may continue to invest in Investor Class shares, please see the prospectus.
.. Effective October 21, 2005, Class K shares were converted to Class A shares.
PRINCIPAL RISKS OF INVESTING IN THE FUND
.. Investing in a single-sector or single-region mutual fund involves greater
risk and potential reward than investing in a more diversified fund.
.. Investing in mid-sized companies involves greater risks not associated with
investing in more established companies.
.. The Fund may invest up to 25% of its assets in the securities of non-U.S.
issuers. Securities of Canadian issuers and American 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.
.. Portfolio turnover is greater than that of most funds, which may affect
performance.
ABOUT INDEXES USED IN THIS REPORT
The GOLDMAN SACHS TECHNOLOGY COMPOSITE INDEX is a modified capitalization-
weighted index composed of companies involved in the technology industry. The
index is rebalanced semiannually.
.. The unmanaged LEHMAN BROTHERS U.S. AGGREGATE BOND INDEX (the Lehman
Aggregate), which represents the U.S. investment-grade fixed-rate bond market
(including government and corporate securities, mortgage pass-through securities
and asset-backed securities), is compiled by Lehman Brothers, a global
investment bank.
.. The unmanaged LIPPER SCIENCE AND TECHNOLOGY FUND INDEX represents an average
of the performance of the 30 largest science and technology funds tracked by
Lipper Inc., an independent mutual fund performance monitor.
.. The unmanaged MSCI WORLD INDEX is a group of global securities tracked by
Morgan Stanley Capital International.
.. The unmanaged STANDARD & POOR'S COMPOSITE INDEX OF 500 STOCKS (the S&P 500
- --REGISTERED TRADEMARK -- Index) is an index of common stocks frequently used as
a general measure of U.S. stock market performance.
.. The Fund is not managed to track the performance of any particular index,
including the indexes defined here, and consequently, the performance of the
Fund may deviate significantly from the performance of the index.
.. A direct investment cannot be made in an index. Unless otherwise indicated,
index results include reinvested dividends, and they do not reflect sales
charges. Performance of an index of funds reflects fund expenses; performance of
a market index does not.
OTHER INFORMATION
.. The returns shown in management's discussion of Fund performance are based on
net asset values calculated for shareholder transactions. Generally accepted
accounting principles require adjustments to be made to the net assets of the
Fund at period end for financial reporting purposes, and as such, the net asset
values for shareholder transactions and the returns based on those net asset
values may differ from the net asset values and returns reported in the
Financial Highlights.
.. Industry classifications used in this report are generally according to the
Global Industry Classification Standard, which was developed by and is the
exclusive property and a service mark of Morgan Stanley Capital International
Inc. and Standard & Poor's.
The Fund provides a complete list of its holdings four times in each fiscal
year, at the quarter-ends. For the second and fourth quarters, the lists appear
in the Fund's semiannual and annual reports to shareholders. For the first and
third quarters, the Fund files the lists with the Securities and Exchange
Commission (SEC) on Form N-Q. 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. 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 811-03826 and 333-85905.
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 ITYAX
Class B Shares ITYBX
Class C Shares ITHCX
Investor Class Shares FTCHX
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND
PROSPECTUS, WHICH CONTAINS MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES
AND EXPENSES. INVESTORS SHOULD READ IT CAREFULLY BEFORE INVESTING.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
- --------------------------------------------------------------------------------
AIMINVESTMENTS.COM
AIM TECHNOLOGY FUND
DEAR FELLOW AIM FUNDS SHAREHOLDERS:
Although many concerns, including rising fuel costs,
weighed on investors' minds during the fiscal year covered
by this report, stocks posted gains for the period. The S&P
500 Index, frequently cited as a benchmark for U.S. stock
[GRAHAM PHOTO] market performance, returned 11.72%. Results for
international stocks were more impressive, with the MSCI
World Index gaining 18.02%. Bonds posted more modest gains,
as the Lehman Brothers U.S. Aggregate Bond Index returned
2.26%.
Domestically, small- and mid-cap stocks generally
outperformed their large-cap counterparts. Within the S&P
500 Index, energy, financials and telecommunication services
were the best-performing sectors. Internationally, emerging
markets produced more attractive results than developed
markets.
ROBERT H. GRAHAM Bond performance also varied, with high yield bonds and
emerging market debt among the better-performing segments of
the fixed-income market. Municipal bonds also posted
above-average returns for the fiscal year.
Among the developments that affected markets and the
economy during the fiscal year were:
. Hurricane Katrina, which devastated several Gulf Coast
states in August, dealt a short-term setback to consumer
confidence. However, consumer confidence rebounded toward
the end of the period, with analysts crediting the
resiliency of the economy and job growth for this trend.
[TAYLOR PHOTO] . The Federal Reserve (the Fed) continued its tightening
policy, raising the key federal funds target rate to 4.75%
by the end of the reporting period. Many analysts believed
that the central bank was near the end of its tightening
policy as Ben Bernanke succeeded the retiring Alan
Greenspan as Fed chairman early in 2006.
PHILIP TAYLOR For a discussion of the specific market conditions that
affected your Fund and how your Fund was managed during the
reporting period, please see the management discussion of
Fund performance in this report.
PHILIP TAYLOR HEADS NORTH AMERICAN RETAIL DISTRIBUTION
Effective April 17, 2006, Philip Taylor assumed the
leadership of North American Retail Distribution for
AMVESCAP PLC, the parent company of AIM Investments
--REGISTERED TRADEMARK -- and AIM Trimark Investments in
Canada. As president and vice chair of AIM Funds, I would
personally like to congratulate Phil on his new role with
our organization. Phil has been chief executive officer of
AIM Trimark, one of Canada's largest and most successful
investment management firms, since January 2002. He will be
relocating to AIM's offices in Houston, Texas. All of us at
AIM are looking forward to working with Phil.
Mark Williamson, former chief executive officer and
president of AIM Investments, will continue to serve AIM and
AMVESCAP in various capacities for the remainder of 2006. We
want to take this opportunity to thank Mark for his many
contributions to fund shareholders and our company. He
joined AIM during a very challenging period. Mark has been
instrumental in enhancing our investment process, improving
our company's departmental structure and deepening
relationships with our clients.
YOUR FUND
Further information about the markets, your Fund and
investing in general is always available on our
comprehensive 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. Phil and I thank you for
your continued participation in AIM Investments. If you have
any questions, please contact our award-winning Client
Service representatives at 800-959-4246. We are pleased to
be of help.
Sincerely,
/s/ ROBERT H. GRAHAM /s/ PHILIP TAYLOR
Robert H. Graham Philip Taylor
President & Vice Chair - AIM Funds CEO, AIM Investments
Chair, AIM Investments
May 17, 2006
AIM INVESTMENTS IS A REGISTERED SERVICE MARK OF A I M
MANAGEMENT GROUP INC. A I M ADVISORS, INC. AND A I M CAPITAL
MANAGEMENT, INC. ARE THE INVESTMENT ADVISORS. A I M
DISTRIBUTORS, INC. IS THE DISTRIBUTOR FOR THE RETAIL FUNDS
REPRESENTED BY AIM INVESTMENTS.
1
AIM TECHNOLOGY FUND
DEAR FELLOW AIM FUND SHAREHOLDERS:
Having completed a year of transition and change at AIM
Funds--as well as my first full year as your board's
independent chair--I can assure you that shareholder
interests are at the forefront of every decision your board
[CROCKETT PHOTO] makes. While regulators and fund companies debate the value
of an independent board chair, this structure is working for
you. Our new structure has enabled the board to work more
effectively with management to achieve benefits for the
shareholders, as shown in the highlights of 2005 listed
below:
. During 2005, management proposed, and your board
approved, voluntary advisory fee reductions, which are
BRUCE L. CROCKETT saving shareholders more than $20 million annually,
based on asset levels of March 31, 2005.
. Also during 2005, management proposed to your board the
merger of 14 funds into other AIM funds with similar
objectives. In each case, the goal was for the resulting
merged fund to benefit from strengthened management and
greater efficiency. Your board carefully analyzed and
discussed with management the rationale and proposed
terms of each merger to ensure that the mergers were
beneficial to the shareholders of all affected funds
before approving them. Eight of these mergers were
subsequently approved by shareholders of the target
funds during 2005. The remaining six fund mergers were
approved by shareholders in early 2006.
. Your board, through its Investments Committee and
Subcommittees, continued to closely monitor the
portfolio performance of the funds. During the year,
your board reviewed portfolio management changes made by
the advisor at 11 funds with the objective of organizing
management teams around common processes and shared
investment views. Management believes these changes will
lead to improved investment performance.
In 2006, your board will continue to focus on fund
expenses and investment performance. Although many funds
have good performance, we are working with management to
seek improvements for those funds currently performing below
expectations. Eight in-person board meetings and several
additional telephone and committee meetings are scheduled to
take place this year. I'll inform you of our progress in my
next semiannual letter to shareholders.
The AIM Funds board is pleased to welcome our newest
independent member, Raymond Stickel, Jr., a former partner
with the international auditing firm of Deloitte & Touche.
We also send our thanks and best wishes to Gerald J. Lewis,
who retired from your board in December 2005, and to Edward
K. Dunn, Jr., who retired in 2006.
Your board welcomes your views. Please mail them to me at
AIM Investments, AIM Investments Tower, 11 Greenway Plaza,
Suite 100, Houston TX 77046.
Sincerely,
/s/ BRUCE L. CROCKETT
Bruce L. Crockett
Independent Chair
AIM Funds Board
May 17, 2006
2
AIM TECHNOLOGY FUND
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
- --------------------------------------------------------------------------------
PERFORMANCE SUMMARY
For the 12 months ended March 31, 2006, and excluding sales charges, Class A
shares of AIM Technology Fund outperformed the Fund's broad market and
style-specific indexes.
The Fund's Class A shares outperformed the broad market largely because the
information technology (IT) sector was one of the stronger performing sectors of
the S&P 500 Index for the fiscal year. Class A shares outperformed the Fund's
style-specific index due to strong performance of many of the Fund's computer
hardware, Internet software and services, and semiconductor stocks.
- --------------------------------------------------------------------------------
FUND VS. INDEXES
TOTAL RETURNS, 3/31/05-3/31/06, EXCLUDING APPLICABLE SALES CHARGES. IF SALES
CHARGES WERE INCLUDED, RETURNS WOULD BE LOWER.
Class A Shares 20.60%
Class B Shares 19.75
Class C Shares 19.75
Investor Class Shares 20.63
S&P 500 Index (Broad Market Index) 11.72
Goldman Sachs Technology Composite Index
(Style-specific Index) 16.11
Lipper Science and Technology Fund Index
(Peer Group Index) 22.92
SOURCE: LIPPER INC.
- --------------------------------------------------------------------------------
Your Fund's long-term performance appears on pages 6 and 7.
- --------------------------------------------------------------------------------
HOW WE INVEST
We seek attractively valued, well-managed companies in the IT sector with the
potential to generate sustainable growth and free cash flow that is not yet
anticipated by the market. We begin by identifying industries in the sector we
believe may benefit over the next 12 to 24 months from strong fundamentals, such
as increased demand, a new product cycle or greater visibility among investors
and the public. We weight these industries according to our assessment of the
fundamentals and the perception of the industry among investors and analysts.
Within each industry, we look for:
.. Companies addressing growing market with unique product offerings
.. Strong management teams
.. Profitable share gainers
.. Sustainable business models
Our quantitative sector model is used to rank companies based on growth rate,
sustainability of earnings, revenue, cash flow and ranking investment candidates
on absolute and relative attractiveness. We then apply our proprietary valuation
analysis, comparing a stock's current valuation to its historical valuations as
well as the valuations of its competitors.
We typically invest 60-80% of the Fund's assets in core holdings--companies
with above-mentioned qualities and 20-40% in tactical holdings.
We manage risk through diversification within the sector and by allocating a
portion of assets to core holdings, which generally have more favorable return
and valuation characteristics.
We may reduce or eliminate exposure to a stock when:
.. We identify a more attractive investment opportunity
.. A company's fundamentals change (product failure, reduced pricing power,
margin compression, etc.)
.. A company's earnings disappoint
.. Management's strategic direction shifts or unfavorable changes occur
.. A stock's price target has been met
MARKET CONDITIONS AND YOUR FUND
Despite widespread concern about the potential impact of rising short-term
interest rates, historically high energy prices, ongoing fear of a housing
bubble and the long-term economic effects of two devastating Gulf Coast
hurricanes,
(continued)
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION TOP 10 EQUITY HOLDINGS*
By industry
Communications Equipment 20.5% 1. Cisco Systems, Inc. 3.1%
Semiconductors 19.4 2. Akamai Technologies, Inc. 2.6
Application Software 10.3 3. QUALCOMM Inc. 2.4
Internet Software & Services 8.9 4. Hewlett-Packard Co. 2.3
Computer Storage & Peripherals 6.5 5. Microsoft Corp. 2.2
Computer Hardware 5.6 6. Nokia Oyj (Finland) 2.2
Semiconductor Equipment 4.5 7. Freescale Semiconductor Inc.-Class B 2.1
Systems Software 4.3 8. Openwave Systems Inc. 2.1
Wireless Telecommunication Services 4.2 9. Adobe Systems Inc. 2.1
Data Processing & Outsourced Services 4.0 10. Cognizant Technology Solutions Corp.-Class A 2.0
IT Consulting & Other Services 3.5
Eight Other Industries, Each With
Less Than 3% of Total Next Assets 6.7 TOTAL NET ASSETS $1.2 BILLION
Money Market Funds Plus Other Assets TOTAL NUMBER OF HOLDINGS* 83
Less Liabilities 1.6
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.
- --------------------------------------------------------------------------------
3
AIM TECHNOLOGY FUND
the U.S. economy showed signs of strength for the fiscal year. During the year,
the U.S. Federal Reserve (the Fed) continued its tightening policy, raising the
key federal funds target rate to 4.75%.
DURING THE YEAR, WE TOOK
PROFITS AND TRIMMED
OUR INTERNET HOLDINGS
AND SEMICONDUCTOR
EQUIPMENT STOCKS...
Against this backdrop, energy, financials and telecommunication services were
the best-performing sectors of the S&P 500 Index.
Historically, IT stocks have shown strength in the fourth quarter, and in
2005 this trend continued. During the fourth quarter, there is often high demand
for electronic products such as digital music players and flat-panel and digital
televisions. Internet-related companies also tend to have a seasonal bias due to
the increase in online shopping, which often incrementally improves advertising
revenue.
During the period, the Fund exhibited strong broad-based performance as key
industries--including Internet software and services, communications equipment,
computers and peripherals, diversified telecommunication services, and
semiconductor and semiconductor equipment--performed well.
Stocks that aided Fund performance included AKAMAI TECHNOLOGIES, BROADCOM and
CORNING. Akamai, a leading global service provider for accelerating content and
business processes online, reported favorable financial results. Broadcom
benefited from accelerated demand in the wireless industry, and Corning
performed well due to its exposure to higher demand for flat-panel screens in
notebook computers and plasma television screens.
Detractors from Fund performance included IBM and DELL. Shares of IBM and
Dell declined after they reported disappointing financial results that were
below analysts' estimates. We sold both stocks before the close of the fiscal
year.
During the year, we took profits and trimmed our Internet holdings and
semiconductor equipment stocks as we were concerned about inventory buildup in
the semiconductors and semiconductor equipment industry. We used the proceeds to
increase the Fund's exposure to software stocks and stocks in the
telecommunication services sector. Many such stocks have begun to exhibit
momentum and improving performance of late. Additionally, a better spending
environment has helped increase earnings projections for many such stocks.
Toward the end of the fiscal year, we made several changes to our investment
process. Some of the changes included:
.. Refining our quantitative analysis and incorporating a new model in our
investment process
.. Reducing the number of portfolio holdings and concentrating on those in which
we have greater conviction
IN CLOSING
We were pleased to have provided investors with strong relative returns. During
the year covered by this report, we saw consolidation in the information
technology sector coupled with early signs of inventory buildup at many
semiconductor and contract manufacturing companies. We also observed positive
trends in many telecommunications and Internet stocks as well as continued
strength in the "digital consumer" movement. As always, we thank you for your
continued investments in AIM Technology Fund.
THE VIEWS AND OPINIONS EXPRESSED IN MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
ARE THOSE OF A I M ADVISORS, INC. THESE VIEWS AND OPINIONS ARE SUBJECT TO CHANGE
AT ANY TIME BASED ON FACTORS SUCH AS MARKET AND ECONOMIC CONDITIONS. THESE VIEWS
AND OPINIONS MAY NOT BE RELIED UPON AS INVESTMENT ADVICE OR RECOMMENDATIONS, OR
AS AN OFFER FOR A PARTICULAR SECURITY. THE INFORMATION IS NOT A COMPLETE
ANALYSIS OF EVERY ASPECT OF ANY MARKET, COUNTRY, INDUSTRY, SECURITY OR THE FUND.
STATEMENTS OF FACT ARE FROM SOURCES CONSIDERED RELIABLE, BUT A I M ADVISORS,
INC. MAKES NO REPRESENTATION OR WARRANTY AS TO THEIR COMPLETENESS OR ACCURACY.
ALTHOUGH HISTORICAL PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS, THESE
INSIGHTS MAY HELP YOU UNDERSTAND OUR INVESTMENT MANAGEMENT PHILOSOPHY.
See important Fund and index disclosures inside front cover.
- --------------------------------------------------------------------------------
[KEITHLER PHOTO]
WILLIAM R. KEITHLER, Chartered Financial Analyst, senior portfolio manager, is
lead portfolio manager of AIM Technology Fund. He began his career in the
investment industry in 1982 and joined the Fund's advisor in 1986, managing
several funds for the company until 1993. He rejoined the Fund's advisor in
1998. Mr. Keithler has a B.A. from Webster College in St. Louis and an M.A. in
finance from the University of Wisconsin-Madison.
[ESPELIEN PHOTO]
MICHELLE ESPELIEN FENTON, Chartered Financial Analyst, portfolio manager, is a
portfolio manager of AIM Technology Fund. She began her career in the investment
industry in 1995. Before joining the Fund's advisor in 1998, she worked as an
equity analyst at another investment firm. She assumed her current duties in
2003. Ms. Fenton received her B.A. in finance from Montana State University.
Assisted by the Technology Team
EFFECTIVE MAY 1, 2006, AFTER THE CLOSE OF THE FISCAL YEAR COVERED BY THIS
REPORT, WILLIAM R. KEITHLER RETIRED FROM AIM. EFFECTIVE ON THE SAME DATE,
MICHELLE ESPELIEN FENTON, ASSISTED BY THE TECHNOLOGY TEAM, ASSUMED MANAGEMENT OF
THE FUND.
- --------------------------------------------------------------------------------
[RIGHT ARROW GRAPHIC]
FOR A PRESENTATION OF YOUR FUND'S LONG-TERM PERFORMANCE, PLEASE SEE PAGES 6
AND 7.
4
AIM TECHNOLOGY FUND
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, which may include sales charges (loads) on purchase payments; contingent
deferred sales charges on redemptions; and redemption fees, if any; and (2)
ongoing costs, including management fees; distribution and/or service fees
(12b-1); and other Fund expenses. This example is intended to help you
understand your ongoing costs (in dollars) of investing in the Fund and to
compare these costs with ongoing costs of investing in other mutual funds. The
example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period October 1, 2005, through March 31, 2006.
ACTUAL EXPENSES
The table below provides information about actual account values and actual
expenses. You may use the information in this table, together with the amount
you invested, to estimate the expenses that you paid over the period. Simply
divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number in the table
under the heading entitled "Actual Expenses Paid During Period" to estimate the
expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The table below also provides information about hypothetical account values and
hypothetical expenses based on the Fund's actual expense ratio and an assumed
rate of return of 5% per year before expenses, which is not the Fund's actual
return. The Fund's actual cumulative total returns at net asset value after
expenses for the six months ended March 31, 2006, 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.
- --------------------------------------------------------------------------------
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES ENDING ACCOUNT EXPENSES ANNUALIZED
SHARE VALUE VALUE PAID DURING VALUE PAID DURING EXPENSE
CLASS (10/1/05) (3/31/06)/1/ PERIOD/2/ (3/31/06) PERIOD/2/ RATIO
A $ 1,000.00 $ 1,128.10 $ 8.22 $ 1,017.20 $ 7.80 1.55%
B 1,000.00 1,123.80 12.18 1,013.46 11.55 2.30
C 1,000.00 1,124.30 12.18 1,013.46 11.55 2.30
Investor 1,000.00 1,128.50 8.23 1,017.20 7.80 1.55
/1/ The actual ending account value is based on the actual total return of the
Fund for the period October 1, 2005, through March 31, 2006, after actual
expenses and will differ from the hypothetical ending account value which is
based on the Fund's expense ratio and a hypothetical annual return of 5% before
expenses. The Fund's actual cumulative total returns at net asset value after
expenses for the six months ended March 31, 2006, appear in the table
"Cumulative Total Returns" on page 7.
/2/ Expenses are equal to the Fund's annualized expense ratio as indicated above
multiplied by the average account value over the period, multiplied by 182/365
to reflect the most recent fiscal half year.
- --------------------------------------------------------------------------------
[ARROW
BUTTON For More Information Visit
IMAGE] AIMINVESTMENTS.COM
5
AIM TECHNOLOGY FUND
YOUR FUND'S LONG-TERM PERFORMANCE
RESULTS OF A $10,000 INVESTMENT
FUND DATA FROM 1/19/84, INDEX DATA FROM 1/31/84
- --------------------------------------------------------------------------------
[MOUNTAIN CHART]
DATE AIM TECHNOLOGY FUND- S&P 500
INVESTOR CLASS SHARES INDEX
01/19/84 $ 10000
01/84 10000 $ 10000
02/84 9975 9648
03/84 9925 9815
04/84 9787 9908
05/84 9412 9359
06/84 9488 9562
07/84 8563 9444
08/84 9762 10486
09/84 9137 10488
10/84 8913 10529
11/84 8123 10411
12/84 8712 10685
01/85 10091 11518
02/85 10580 11659
03/85 10129 11666
04/85 9590 11656
05/85 9903 12329
06/85 9665 12523
07/85 10141 12506
08/85 10078 12384
09/85 9439 12010
10/85 9515 12565
11/85 10706 13427
12/85 11095 14077
01/86 11358 14156
02/86 11634 15213
03/86 12624 16062
04/86 13025 15882
05/86 13602 16727
06/86 12838 17010
07/86 11685 16059
08/86 12625 17249
09/86 11898 15822
10/86 12986 16735
11/86 13265 17142
12/86 13517 16705
01/87 16032 18955
02/87 17724 19704
03/87 18101 20273
04/87 19220 20093
05/87 19583 20266
06/87 18032 21289
07/87 17823 22368
08/87 18383 23203
09/87 18747 22695
10/87 11880 17808
11/87 10788 16341
12/87 12803 17585
01/88 12216 18323
02/88 13573 19173
03/88 14049 18583
04/88 14693 18789
05/88 14427 18949
06/88 15799 19819
07/88 15058 19743
08/88 14330 19074
09/88 14527 19886
10/88 14149 20439
11/88 13869 20147
12/88 14625 20498
01/89 15227 21998
02/89 15031 21450
03/89 15395 21950
04/89 16137 23089
05/89 17355 24020
06/89 15829 23885
07/89 17159 26040
08/89 18041 26548
09/89 18447 26439
10/89 17720 25825
11/89 18154 26350
12/89 17762 26982
01/90 17105 25171
02/90 18574 25496
03/90 19639 26172
04/90 19778 25520
05/90 22620 28003
06/90 22901 27816
07/90 21362 27727
08/90 18450 25223
09/90 16365 23997
10/90 16254 23896
11/90 18214 25438
12/90 19293 26145
01/91 22190 27279
02/91 23520 29227
03/91 25998 29934
04/91 25200 30006
05/91 26279 31297
06/91 23940 29863
07/91 26669 31255
08/91 28867 31992
09/91 29568 31458
10/91 31481 31880
11/91 30090 30598
12/91 34125 34092
01/92 36230 33458
02/92 37415 33890
03/92 34631 33232
04/92 32180 34206
05/92 33135 34374
06/92 31220 33862
07/92 32369 35243
08/92 31136 34524
09/92 32805 34932
10/92 35134 35050
11/92 38907 36242
12/92 40541 36688
01/93 40160 36996
02/93 36787 37499
03/93 37846 38290
04/93 36942 37364
05/93 41201 38361
06/93 41860 38473
07/93 42032 38319
08/93 45268 39771
09/93 46853 39465
10/93 46942 40282
11/93 44923 39899
12/93 46635 40382
01/94 47740 41755
02/94 47821 40623
03/94 44598 38856
04/94 45369 39354
05/94 44993 39995
06/94 42739 39015
07/94 43410 40295
08/94 46791 41943
09/94 47287 40919
10/94 49302 41836
11/94 47660 40313
12/94 49090 40910
01/95 49006 41969
02/95 51966 43602
03/95 53702 44888
04/95 56274 46208
05/95 56787 48052
06/95 61750 49166
07/95 66566 50794
08/95 67179 50921
09/95 69120 53070
10/95 70101 52879
11/95 72268 55195
12/95 71574 56260
01/96 71767 58173
02/96 75004 58714
03/96 73504 59278
04/96 80148 60149
05/96 83258 61695
06/96 77963 61929
07/96 74361 59192
08/96 80273 60441
09/96 86157 63838
10/96 84106 65600
11/96 88968 70552
12/96 87135 69155
01/97 91945 73471
02/97 85334 74051
03/97 80862 71015
04/97 85698 75247
05/97 92108 79845
06/97 94752 83398
07/97 104511 90028
08/97 104793 84987
09/97 108838 89636
10/97 101514 86642
11/97 99422 90653
12/97 94839 92212
01/98 93255 93227
02/98 100165 99948
03/98 106085 105066
04/98 109045 106138
05/98 103331 104312
06/98 109748 108547
07/98 107981 107396
08/98 88901 91878
09/98 98600 97767
10/98 98984 105706
11/98 108012 112111
12/98 123392 118569
01/99 136793 123525
02/99 123428 119684
03/99 141696 124471
04/99 144969 129288
05/99 144055 126237
06/99 164756 133218
07/99 162104 129075
08/99 175931 128429
09/99 181227 124910
10/99 205130 132817
11/99 240618 135513
12/99 302216 143481
01/00 301038 136279
02/00 407394 133703
03/00 381280 146779
04/00 337776 142361
05/00 297952 139443
06/00 349021 142873
07/00 338062 140644
08/00 395735 149378
09/00 366570 141491
10/00 330096 140897
11/00 234368 129794
12/00 233431 130430
01/01 252292 135060
02/01 175393 122756
03/01 139034 114986
04/01 174307 123909
05/01 161844 124739
06/01 158332 121708
07/01 145127 120515
08/01 123808 112983
09/01 92720 103865
10/01 108770 105849
11/01 127870 113968
12/01 127205 114971
01/02 126467 113292
02/02 107130 111105
03/02 118765 115283
04/02 103064 108297
05/02 97045 107506
06/02 83614 99852
07/02 73145 92073
08/02 70373 92672
09/02 58501 82608
10/02 67598 89869
11/02 77907 95153
12/02 67125 89568
01/03 66541 87230
02/03 67206 85922
03/03 65996 86755
04/03 71969 93895
05/03 79778 98834
06/03 79076 100099
07/03 82555 101861
08/03 89118 103847
09/03 85723 102746
10/03 95169 108551
11/03 96892 109507
12/03 96107 115245
01/04 99894 117365
02/04 98175 118997
03/04 95633 117200
04/04 89503 115360
05/04 94032 116940
06/04 95433 119209
07/04 85517 115263
08/04 82002 115724
09/04 85832 116974
10/04 91454 118763
11/04 96612 123562
12/04 99346 127763
01/05 93683 124645
02/05 94273 127263
03/05 91266 125010
04/05 87241 122635
05/05 94779 126535
06/05 92940 126712
07/05 97550 131426
08/05 96458 130230
09/05 97548 131285
10/05 95636 129092
11/05 101728 133972
12/05 101138 134025
01/06 107540 137577
02/06 106410 137948
03/06 110029 139692
- --------------------------------------------------------------------------------
SOURCE: LIPPER, INC.
Past performance cannot guarantee comparable future results.
The data shown in the chart include reinvested distributions, 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 the space
between $10,000 and $20,000, the space between $10,000 and $20,000 is the same
as that between $20,000 and $40,000, and so on.
6
AIM TECHNOLOGY FUND
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
As of 3/31/06, including applicable sales charges
CLASS A SHARES
Inception (3/28/02) -3.03%
1 Year 13.98
CLASS B SHARES
Inception (3/28/02) -2.89%
1 Year 14.75
CLASS C SHARES
Inception (2/14/00) -18.13%
5 Years -5.28
1 Year 18.75
INVESTOR CLASS SHARES
Inception (1/19/84) 11.41%
10 Years 4.12
5 Years -4.56
1 Year 20.63
================================================================================
CUMULATIVE TOTAL RETURNS
6 months ended 3/31/06, excluding applicable sales charges
Class A Shares 12.81%
Class B Shares 12.38
Class C Shares 12.43
Investor Class Shares 12.85
- --------------------------------------------------------------------------------
THE PERFORMANCE DATA QUOTED REPRESENT PAST PERFORMANCE AND CANNOT GUARANTEE
COMPARABLE FUTURE RESULTS; CURRENT PERFORMANCE MAY BE LOWER OR HIGHER. PLEASE
VISIT AIMINVESTMENTS.COM FOR THE MOST RECENT MONTH-END PERFORMANCE. PERFORMANCE
FIGURES REFLECT REINVESTED DISTRIBUTIONS, CHANGES IN NET ASSET VALUE AND THE
EFFECT OF THE MAXIMUM SALES CHARGE UNLESS OTHERWISE STATED. INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT YOU MAY HAVE A GAIN OR LOSS WHEN YOU
SELL SHARES.
CLASS A SHARE PERFORMANCE REFLECTS THE MAXIMUM 5.50% SALES CHARGE, AND
CLASS B AND CLASS C SHARE PERFORMANCE REFLECTS THE APPLICABLE CONTINGENT
DEFERRED SALES CHARGE (CDSC) FOR THE PERIOD INVOLVED. THE CDSC ON CLASS B SHARES
DECLINES FROM 5% BEGINNING AT THE TIME OF PURCHASE TO 0% AT THE BEGINNING OF THE
SEVENTH YEAR. THE CDSC ON CLASS C SHARES IS 1% FOR THE FIRST YEAR AFTER
PURCHASE.
INVESTOR CLASS SHARES DO NOT HAVE A FRONT-END SALES CHARGE OR A CDSC;
THEREFORE, PERFORMANCE IS AT NET ASSET VALUE.
THE PERFORMANCE OF THE FUND'S SHARE CLASSES WILL DIFFER DUE TO DIFFERENT
SALES CHARGE STRUCTURES AND CLASS EXPENSES.
HAD THE ADVISOR NOT WAIVED FEES AND/OR REIMBURSED EXPENSES IN THE PAST FOR
THE FUND'S CLASS A, CLASS B AND CLASS C SHARES, PERFORMANCE WOULD HAVE BEEN
LOWER.
7
AIM TECHNOLOGY FUND
APPROVAL OF INVESTMENT ADVISORY AGREEMENT AND
SUMMARY OF INDEPENDENT WRITTEN FEE EVALUATION
The Board of Trustees of AIM Sector Funds (the "Board") oversees the management
of AIM Technology 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, 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 for the three and five year periods was below the median performance
of such comparable funds and above such median 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 and after taking account of all of
the other factors that the Board considered in determining whether to continue
the Advisory Agreement for the Fund, the Board concluded that no changes should
be made to the Fund and that it was not necessary to change the Fund's portfolio
management team at this time. However, due to the Fund's under-performance, the
Board also concluded that it would be appropriate for management and the Board
to continue to closely monitor the performance of the Fund.
.. 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 Science & Technology 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. Based on this review and after taking account of all
of the other factors that the Board considered in determining whether to
continue the Advisory Agreement for the Fund, the Board concluded that no
changes should be made to the Fund and that it was not necessary to change the
Fund's portfolio management team at this time. However, due to the Fund's
under-performance, the Board also concluded that it would be appropriate for
management and the Board to continue to closely monitor the performance of the
Fund.
.. 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 reviewed the advisory fee rate for the Fund under the
Advisory Agreement. The Board noted that this rate (i) was the same as the
initial advisory fee rate for a variable insurance fund advised by AIM and
offered to insurance company separate accounts with investment strategies
comparable to those of the Fund, although there were no breakpoints in the
advisory fee schedule applicable to the variable insurance fund; (ii) was lower
than the advisory fee rate for four offshore funds for which an AIM affiliate
serves as advisor with investment strategies comparable to those of the Fund;
and (iii) was higher than the sub-advisory fee rates for two unaffiliated mutual
funds for which an AIM affiliate serves as sub-advisor, although the total
management fees paid by such unaffiliated mutual funds were higher than the
advisory fee rate for the Fund. 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.
.. 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 comparable to 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 June 30, 2006 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 through June 30, 2006. The
Board noted that AIM has contractually agreed to waive fees and/or limit
expenses of the Fund through June 30, 2006 in an amount necessary to limit total
(continued)
8
AIM TECHNOLOGY FUND
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 through June
30, 2006. 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 includes six
breakpoints. The Board reviewed the level of the Fund's advisory fees, and noted
that such fees, as a percentage of the Fund's net assets, have decreased as net
assets increased because the Advisory Agreement includes breakpoints. The Board
noted that, due to the Fund's current asset levels and the way in which the
advisory fee breakpoints have been structured, the Fund has yet to fully benefit
from the breakpoints. The Board noted that AIM has contractually agreed to waive
advisory fees of the Fund through June 30, 2006 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 reflect economies of scale and that it was not necessary to
change the advisory fee breakpoints in the Fund's advisory fee schedule.
.. Investments in 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.
9
SUPPLEMENT TO ANNUAL REPORT DATED 3/31/06
AIM TECHNOLOGY FUND
INSTITUTIONAL CLASS SHARES
The following information has been prepared to provide Institutional Class
shareholders with a performance overview specific to their holdings.
Institutional Class shares are offered exclusively to institutional investors,
including defined contribution plans that meet certain criteria.
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
For periods ended 3/31/06
Inception (12/21/98) -0.40%
5 Years -3.76
1 Year 21.52
6 Months* 13.23
*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 800-451-4246 OR VISIT
AIMINVESTMENTS.COM.
- --------------------------------------------------------------------------------
NASDAQ SYMBOL FTPIX
- --------------------------------------------------------------------------------
Over for information on your Fund's expenses.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
FOR INSTITUTIONAL INVESTOR USE ONLY
This material is for institutional investor use only and may not be quoted,
reproduced or shown to the public, nor used in written form as sales literature
for public use.
[YOUR GOALS.
OUR SOLUTIONS.] [AIM INVESTMENTS LOGO]
- REGISTERED TRADEMARK - - REGISTERED TRADEMARK -
AIMINVESTMENTS.COM I-TEC-INS-1 A I M Distributors, Inc.
INFORMATION ABOUT YOUR FUND'S EXPENSES
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE
As a shareholder of the Fund, you incur ongoing costs, including management fees
and other Fund expenses. This example is intended to help you understand your
ongoing costs (in dollars) of investing in the Fund and to compare these costs
with ongoing costs of investing in other mutual funds. The example is based on
an investment of $1,000 invested at the beginning of the period and held for the
entire period October 1, 2005, through March 31, 2006.
ACTUAL EXPENSES
The table below provides information about actual account values and actual
expenses. You may use the information in this table, together with the amount
you invested, to estimate the expenses that you paid over the period. Simply
divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number in the table
under the heading entitled "Actual Expenses Paid During Period" to estimate the
expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The table below also provides information about hypothetical account values and
hypothetical expenses based on the Fund's actual expense ratio and an assumed
rate of return of 5% per year before expenses, which is not the Fund's
actual return. The Fund's actual cumulative total return after expenses for the
six months ended March 31, 2006, 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 ANNUALIZED
SHARE VALUE VALUE PAID DURING VALUE PAID DURING EXPENSE
CLASS (10/1/05) (3/31/06)/1/ PERIOD/2/ (3/31/06) PERIOD/2/ RATIO
Institutional $ 1,000.00 $ 1,132.30 $ 4.36 $ 1,020.84 $ 4.13 0.82%
/1/ The actual ending account value is based on the actual total return of the
Fund for the period October 1, 2005 through March 31, 2006, after actual
expenses and will differ from the hypothetical ending account value which is
based on the Fund's expense ratio and a hypothetical annual return of 5% before
expenses. The Fund's actual cumulative total return after expenses for the six
months ended March 31, 2006, appears in the table on the front of this
supplement.
/2/ Expenses are equal to the Fund's annualized expense ratio as indicated above
multiplied by the average account value over the period, multiplied by 182/365
to reflect the one-half year period.
- --------------------------------------------------------------------------------
AIMINVESTMENTS.COM I-TEC-INS-1 A I M Distributors, Inc.
AIM TECHNOLOGY FUND
SCHEDULE OF INVESTMENTS
March 31, 2006
SHARES VALUE
------------------------------------------------------------------------------
DOMESTIC STOCKS-80.98%
ALTERNATIVE CARRIERS-0.40%
Time Warner Telecom Inc.-Class A/(a)/ 273,702 $ 4,912,951
------------------------------------------------------------------------------
APPLICATION SOFTWARE-9.01%
Adobe Systems Inc./(a)/ 716,061 25,004,850
------------------------------------------------------------------------------
Amdocs Ltd./(a)/ 489,816 17,662,765
------------------------------------------------------------------------------
Autodesk, Inc./(a)/ 158,951 6,122,793
------------------------------------------------------------------------------
Cadence Design Systems, Inc./(a)/ 723,860 13,384,171
------------------------------------------------------------------------------
Citrix Systems, Inc./(a)/ 332,902 12,616,986
------------------------------------------------------------------------------
Quest Software, Inc./(a)/ 673,553 11,248,335
------------------------------------------------------------------------------
Synopsys, Inc./(a)/ 703,629 15,726,108
------------------------------------------------------------------------------
Witness Systems, Inc./(a)/ 324,185 8,234,299
------------------------------------------------------------------------------
110,000,307
------------------------------------------------------------------------------
BIOTECHNOLOGY-0.00%
Ingenex, Inc.-Series B, Pfd.
(Acquired 09/27/94; Cost $178,316)/(a)(b)(c)(d)(e)/ 30,627 0
------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT-14.15%
ADC Telecommunications, Inc./(a)/ 459,195 11,750,800
------------------------------------------------------------------------------
Cisco Systems, Inc./(a)/ 1,757,917 38,094,062
------------------------------------------------------------------------------
Comverse Technology, Inc./(a)/ 364,391 8,574,120
------------------------------------------------------------------------------
Corning Inc./(a)/ 908,058 24,435,841
------------------------------------------------------------------------------
Foundry Networks, Inc./(a)/ 377,400 6,853,584
------------------------------------------------------------------------------
JDS Uniphase Corp./(a)/ 2,470,376 10,301,468
------------------------------------------------------------------------------
Motorola, Inc. 928,555 21,273,195
------------------------------------------------------------------------------
QUALCOMM Inc. 568,015 28,747,239
------------------------------------------------------------------------------
Tellabs, Inc./(a)/ 1,429,328 22,726,315
------------------------------------------------------------------------------
172,756,624
------------------------------------------------------------------------------
COMPUTER HARDWARE-4.67%
Apple Computer, Inc./(a)/ 237,053 14,867,964
------------------------------------------------------------------------------
Hewlett-Packard Co. 862,120 28,363,748
------------------------------------------------------------------------------
Palm, Inc./(a)(f)/ 594,243 13,762,668
------------------------------------------------------------------------------
56,994,380
------------------------------------------------------------------------------
COMPUTER STORAGE & PERIPHERALS-5.89%
Electronics for Imaging, Inc./(a)/ 328,016 9,174,608
------------------------------------------------------------------------------
EMC Corp./(a)/ 1,754,319 23,911,368
------------------------------------------------------------------------------
Network Appliance, Inc./(a)/ 456,783 16,457,891
------------------------------------------------------------------------------
Rackable Systems Inc./(a)/ 184,568 9,754,419
------------------------------------------------------------------------------
Seagate Technology/(a)/ 476,386 12,543,243
------------------------------------------------------------------------------
71,841,529
------------------------------------------------------------------------------
CONSUMER ELECTRONICS-0.43%
Directed Electronics, Inc./(a)/ 309,470 5,183,623
------------------------------------------------------------------------------
SHARES VALUE
------------------------------------------------------------------------------
DATA PROCESSING & OUTSOURCED
SERVICES-4.02%
DST Systems, Inc./(a)/ 279,171 $ 16,175,168
------------------------------------------------------------------------------
First Data Corp. 413,307 19,351,034
------------------------------------------------------------------------------
Fiserv, Inc./(a)/ 319,613 13,599,533
------------------------------------------------------------------------------
49,125,735
------------------------------------------------------------------------------
ELECTRICAL COMPONENTS &
EQUIPMENT-0.70%
Energy Conversion Devices, Inc./(a)(f)/ 63,273 3,111,766
------------------------------------------------------------------------------
Evergreen Solar, Inc./(a)(f)/ 353,523 5,444,254
------------------------------------------------------------------------------
8,556,020
------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT
MANUFACTURERS-0.19%
SunPower Corp. -Class A/(a)(f)/ 59,114 2,255,790
------------------------------------------------------------------------------
INTERNET SOFTWARE & SERVICES-8.89%
Akamai Technologies, Inc./(a)(g)/ 971,470 31,951,648
------------------------------------------------------------------------------
Digital River, Inc./(a)/ 241,821 10,545,814
------------------------------------------------------------------------------
eBay Inc./(a)/ 159,450 6,228,117
------------------------------------------------------------------------------
Google Inc.-Class A/(a)/ 42,390 16,532,100
------------------------------------------------------------------------------
Openwave Systems Inc./(a)/ 1,208,987 26,089,940
------------------------------------------------------------------------------
Yahoo! Inc./(a)/ 532,712 17,185,289
------------------------------------------------------------------------------
108,532,908
------------------------------------------------------------------------------
IT CONSULTING & OTHER SERVICES-3.45%
Accenture Ltd.-Class A 574,047 17,261,594
------------------------------------------------------------------------------
Cognizant Technology Solutions Corp.-Class A/(a)/ 417,323 24,826,545
------------------------------------------------------------------------------
42,088,139
------------------------------------------------------------------------------
OTHER DIVERSIFIED FINANCIAL
SERVICES-0.83%
BlueStream Ventures L.P. (Acquired 08/03/00-
02/13/06; Cost $21,378,414)/(a)(b)(c)(d)(e)(h)(i)/ 22,394,998 10,135,080
------------------------------------------------------------------------------
SEMICONDUCTOR EQUIPMENT-3.53%
Applied Materials, Inc. 667,689 11,691,234
------------------------------------------------------------------------------
FormFactor Inc./(a)/ 482,515 18,972,490
------------------------------------------------------------------------------
Lam Research Corp./(a)/ 289,691 12,456,713
------------------------------------------------------------------------------
43,120,437
------------------------------------------------------------------------------
SEMICONDUCTORS-17.15%
Analog Devices, Inc. 238,112 9,117,309
------------------------------------------------------------------------------
Broadcom Corp.-Class A/(a)/ 536,081 23,137,256
------------------------------------------------------------------------------
Freescale Semiconductor Inc.-Class A/(a)/ 68,662 1,909,490
------------------------------------------------------------------------------
Freescale Semiconductor Inc.-Class B/(a)/ 940,178 26,108,743
------------------------------------------------------------------------------
Integrated Device Technology, Inc./(a)/ 861,689 12,804,699
------------------------------------------------------------------------------
Intel Corp. 592,982 11,474,202
------------------------------------------------------------------------------
Intersil Corp.-Class A 442,307 12,791,518
------------------------------------------------------------------------------
F-1
AIM TECHNOLOGY FUND
SHARES VALUE
-----------------------------------------------------------------------------
SEMICONDUCTORS-(CONTINUED)
Linear Technology Corp. 251,090 $ 8,808,237
-----------------------------------------------------------------------------
Marvell Technology Group Ltd./(a)/ 381,172 20,621,405
-----------------------------------------------------------------------------
Maxim Integrated Products, Inc. 269,469 10,010,773
-----------------------------------------------------------------------------
Microchip Technology Inc. 453,476 16,461,179
-----------------------------------------------------------------------------
National Semiconductor Corp. 437,740 12,186,682
-----------------------------------------------------------------------------
NVIDIA Corp./(a)/ 212,996 12,196,151
-----------------------------------------------------------------------------
PMC-Sierra, Inc./(a)(g)/ 1,561,005 19,184,751
-----------------------------------------------------------------------------
Texas Instruments Inc. 385,815 12,527,413
-----------------------------------------------------------------------------
209,339,808
-----------------------------------------------------------------------------
SYSTEMS SOFTWARE-4.27%
Microsoft Corp. 994,009 27,046,985
-----------------------------------------------------------------------------
Oracle Corp./(a)/ 997,858 13,660,676
-----------------------------------------------------------------------------
Red Hat, Inc./(a)(f)(g)/ 408,500 11,429,830
-----------------------------------------------------------------------------
52,137,491
-----------------------------------------------------------------------------
TECHNOLOGY DISTRIBUTORS-1.48%
Arrow Electronics, Inc./(a)/ 369,164 11,912,922
-----------------------------------------------------------------------------
Ingram Micro Inc.-Class A/(a)/ 305,484 6,109,680
-----------------------------------------------------------------------------
18,022,602
-----------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION
SERVICES-1.92%
NII Holdings Inc./(a)/ 397,832 23,460,153
-----------------------------------------------------------------------------
Total Domestic Stocks
(Cost $692,696,003) 988,463,577
-----------------------------------------------------------------------------
FOREIGN STOCKS & OTHER EQUITY
INTERESTS-17.42%
CANADA-2.14%
Nortel Networks Corp. (Communications
Equipment)/(a)/ 3,746,597 11,427,121
-----------------------------------------------------------------------------
Telus Corp. (Integrated Telecommunication Services) 375,400 14,730,519
-----------------------------------------------------------------------------
26,157,640
-----------------------------------------------------------------------------
CHINA-0.13%
Suntech Power Holdings Co., Ltd (Electrical
Components & Equipment)-ADR/(a)/ 43,823 1,621,013
-----------------------------------------------------------------------------
FINLAND-2.15%
Nokia Oyj (Communications Equipment)-ADR 1,267,283 26,258,104
-----------------------------------------------------------------------------
FRANCE-1.13%
Silicon-On-Insulator Technologies
(Semiconductors)/(a)(j)/ 406,089 13,774,625
-----------------------------------------------------------------------------
GERMANY-1.25%
SAP A.G. (Application Software)-ADR 280,364 15,229,372
-----------------------------------------------------------------------------
ISRAEL-1.29%
NICE Systems Ltd. (Communication
Equipment)-ADR/(a)/ 309,449 15,769,521
-----------------------------------------------------------------------------
SHARES VALUE
- --------------------------------------------------------------------------------
JAPAN-1.43%
Sumco Corp. (Semiconductors) (Acquired 11/07/05;
Cost $783,987)/(b)(f)(j)/ 28,100 $ 1,509,608
- --------------------------------------------------------------------------------
Sumco Corp. (Semiconductors)/(f)(j)/ 82,500 4,432,124
- --------------------------------------------------------------------------------
Toshiba Corp. (Computer Hardware)/(f)(j)/ 1,978,000 11,500,281
- --------------------------------------------------------------------------------
17,442,013
- --------------------------------------------------------------------------------
MEXICO-1.63%
America Movil S.A. de C.V. (Wireless
Telecommunication Services)-Series L-ADR 578,727 19,827,187
- --------------------------------------------------------------------------------
NETHERLANDS-0.99%
ASML Holding N.V. (Semiconductor Equipment)-
New York Shares/(a)/ 595,362 12,127,524
- --------------------------------------------------------------------------------
RUSSIA-0.70%
OAO Vimpel-Communications (Wireless
Telecommunication Services)-ADR/(a)/ 197,779 8,506,475
- --------------------------------------------------------------------------------
SOUTH KOREA-0.67%
Samsung Electronics Co., Ltd. (Semiconductors)/(j)/ 12,630 8,167,501
- --------------------------------------------------------------------------------
SWEDEN-1.93%
Telefonaktiebolaget LM Ericsson (Communications
Equipment)-ADR/(a)/ 624,086 23,540,524
- --------------------------------------------------------------------------------
TAIWAN-1.98%
Catcher Technology Co., Ltd. (Computer Storage &
Peripherals)/(j)/ 852,000 7,641,708
- --------------------------------------------------------------------------------
Hon Hai Precision Industry Co., Ltd. (Electronic
Manufacturing Services)/(j)/ 2,680,952 16,536,163
- --------------------------------------------------------------------------------
24,177,871
- --------------------------------------------------------------------------------
Total Foreign Stocks & Other Equity Interests
(Cost $174,832,135) 212,599,370
- --------------------------------------------------------------------------------
MONEY MARKET FUNDS-1.18%
Premier Portfolio-Institutional Class/(k)/ 14,449,995 14,449,995
- --------------------------------------------------------------------------------
Total Money Market Funds
(Cost $14,449,995) 14,449,995
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS (excluding investments
purchased with cash collateral from securities
loaned)-99.58% (Cost $881,978,133) 1,215,512,942
- --------------------------------------------------------------------------------
INVESTMENTS PURCHASED WITH CASH
COLLATERAL FROM SECURITIES LOANED-
2.26%
MONEY MARKET FUND-2.26%
Premier Portfolio-Institutional Class/(k)(l)/ 27,614,426 27,614,426
- --------------------------------------------------------------------------------
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $27,614,426) 27,614,426
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS-101.84% (Cost $909,592,559) 1,243,127,368
- --------------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-(1.84)% (22,425,289)
- --------------------------------------------------------------------------------
NET ASSETS-100.00% $ 1,220,702,079
- --------------------------------------------------------------------------------
F-2
AIM TECHNOLOGY FUND
Investment Abbreviations:
ADR - AmericanDepositary Receipt
Pfd. - Preferred
Notes to Schedule of Investments:
/(a)/Non-income producing security.
/(b)/Security not registered under the Securities Act of 1933, as amended
(e.g., the security was purchased in a Rule 144A transaction or a
Regulation D transaction). The security may be resold only pursuant to an
exemption from registration under the 1933 Act, typically to qualified
institutional buyers. The Fund has no rights to demand registration of
these securities. The aggregate value of these securities at March 31,
2006 was $11,644,688, which represented 0.95% of the Fund's Net Assets.
Unless otherwise indicated, these securities are not considered to be
illiquid.
/(c)/Security fair valued in good faith in accordance with the procedures
established by the Board of Trustees. The aggregate value of these
securities at March 31, 2006 was $10,135,080, which represented 0.83% of
the Fund's Net Assets. See Note 1A.
/(d)/Security considered to be illiquid. The Fund is limited to investing 15%
of net assets in illiquid securities at the time of purchase. The
aggregate value of these securities considered illiquid at March 31, 2006
was $10,135,080, which represented 0.83% of the Fund's Net Assets.
/(e)/Security is considered venture capital.
/(f)/All or a portion of this security is out on loan at March 31, 2006.
/(g)/A portion of this security is subject to call options written. See Note 1I
and Note 9.
/(h)/Affiliated company. The Investment Company Act of 1940 defines affiliates
as those issuances 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 value of this security as of
March 31, 2006 represented 0.83% of the Fund's Net Assets. See Note 3.
/(i)/The Fund has a remaining commitment of $5,252,965 to purchase additional
interests in BlueStream Ventures L.P., which is subject to the terms of
the limited partnership agreement.
/(j)/In accordance with the procedures established by the Board of Trustees,
the foreign security is fair valued using adjusted closing market prices.
The aggregate value of these securities at March 31, 2006 was $63,562,010,
which represented 5.21% of the Fund's Net Assets. See Note 1A.
/(k)/The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
/(l)/The security has been segregated to satisfy the commitment to return the
cash collateral received in securities lending transactions upon the
borrower's return of the securities loaned. See Note 8.
See accompanying Notes to Financial Statements which are an integral part of
the financial statements.
F-3
AIM TECHNOLOGY FUND
STATEMENT OF ASSETS AND LIABILITIES
March 31, 2006
ASSETS:
Investments, at value (cost $846,149,724)* $1,190,927,867
- ----------------------------------------------------------------------------------
Investments in affiliates (cost $63,442,835) 52,199,501
- ----------------------------------------------------------------------------------
Total investments (cost $909,592,559) 1,243,127,368
- ----------------------------------------------------------------------------------
Foreign currencies, at value (cost $8,729,911) 8,760,545
- ----------------------------------------------------------------------------------
Receivables for:
Investments sold 8,736,308
- ----------------------------------------------------------------------------------
Fund shares sold 349,188
- ----------------------------------------------------------------------------------
Dividends 840,248
- ----------------------------------------------------------------------------------
Investment for trustee deferred compensation and retirement plans 412,877
- ----------------------------------------------------------------------------------
Other assets 43,245
- ----------------------------------------------------------------------------------
Total assets 1,262,269,779
- ----------------------------------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 7,467,574
- ----------------------------------------------------------------------------------
Fund shares reacquired 3,153,155
- ----------------------------------------------------------------------------------
Options written, at value (premiums received $692,110) 1,217,582
- ----------------------------------------------------------------------------------
Trustee deferred compensation and retirement plans 515,131
- ----------------------------------------------------------------------------------
Collateral upon return of securities loaned 27,614,426
- ----------------------------------------------------------------------------------
Accrued distribution fees 308,582
- ----------------------------------------------------------------------------------
Accrued trustees' and officer's fees and benefits 7,084
- ----------------------------------------------------------------------------------
Accrued transfer agent fees 976,088
- ----------------------------------------------------------------------------------
Accrued operating expenses 308,078
- ----------------------------------------------------------------------------------
Total liabilities 41,567,700
- ----------------------------------------------------------------------------------
Net assets applicable to shares outstanding $1,220,702,079
- ----------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Shares of beneficial interest $1,495,078,536
- ----------------------------------------------------------------------------------
Undistributed net investment income (loss) (426,140)
- ----------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment securities,
foreign currencies and option contracts (606,988,658)
- ----------------------------------------------------------------------------------
Unrealized appreciation from investment securities, foreign
currencies and option contracts 333,038,341
- ----------------------------------------------------------------------------------
$1,220,702,079
- ----------------------------------------------------------------------------------
NET ASSETS:
Class A $329,461,396
----------------------------------------------------------------
Class B $ 81,212,323
----------------------------------------------------------------
Class C $ 26,507,297
----------------------------------------------------------------
Investor Class $783,508,722
----------------------------------------------------------------
Institutional Class $ 12,341
----------------------------------------------------------------
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Class A 11,578,354
----------------------------------------------------------------
Class B 2,943,366
----------------------------------------------------------------
Class C 986,948
----------------------------------------------------------------
Investor Class 27,797,823
----------------------------------------------------------------
Institutional Class 415.5
----------------------------------------------------------------
Class A:
Net asset value per share $ 28.45
----------------------------------------------------------------
Offering price per share:
(Net asset value of $28.45 / 94.50%) $ 30.11
----------------------------------------------------------------
Class B:
Net asset value and offering price per share $ 27.59
----------------------------------------------------------------
Class C:
Net asset value and offering price per share $ 26.86
----------------------------------------------------------------
Investor Class:
Net asset value and offering price per share $ 28.19
----------------------------------------------------------------
Institutional Class:
Net asset value and offering price per share $ 29.70
----------------------------------------------------------------
* At March 31, 2006, securities with an aggregate value of $26,957,502 were on
loan to brokers.
See accompanying Notes to Financial Statements which are an integral part of
the financial statements.
F-4
AIM TECHNOLOGY FUND
STATEMENT OF OPERATIONS
For the year ended March 31, 2006
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $350,952) $ 5,432,380
- ----------------------------------------------------------------------------------------------
Dividends from affiliates (includes securities lending income of $179,518,
after compensation to counterparties of $1,767,593) 670,395
- ----------------------------------------------------------------------------------------------
Total investment income 6,102,775
- ----------------------------------------------------------------------------------------------
EXPENSES:
Advisory fees 7,986,788
- ----------------------------------------------------------------------------------------------
Administrative services fees 335,673
- ----------------------------------------------------------------------------------------------
Custodian fees 197,152
- ----------------------------------------------------------------------------------------------
Distribution fees:
Class A 872,432
- ----------------------------------------------------------------------------------------------
Class B 831,883
- ----------------------------------------------------------------------------------------------
Class C 269,175
- ----------------------------------------------------------------------------------------------
Class K 32,425
- ----------------------------------------------------------------------------------------------
Investor Class 2,064,612
- ----------------------------------------------------------------------------------------------
Transfer agent fees-A, B, C, K and Investor 8,134,742
- ----------------------------------------------------------------------------------------------
Transfer agent fees-Institutional 11
- ----------------------------------------------------------------------------------------------
Trustees' and officer's fees and benefits 38,137
- ----------------------------------------------------------------------------------------------
Other 419,960
- ----------------------------------------------------------------------------------------------
Total expenses 21,182,990
- ----------------------------------------------------------------------------------------------
Less:Fees waived, expenses reimbursed and expense offset arrangements (562,516)
- ----------------------------------------------------------------------------------------------
Net expenses 20,620,474
- ----------------------------------------------------------------------------------------------
Net investment income (loss) (14,517,699)
- ----------------------------------------------------------------------------------------------
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
$4,960,377) 185,648,751
- ----------------------------------------------------------------------------------------------
Foreign currencies (148,952)
- ----------------------------------------------------------------------------------------------
Option contracts written 2,235,767
- ----------------------------------------------------------------------------------------------
187,735,566
- ----------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of:
Investment securities 61,198,342
- ----------------------------------------------------------------------------------------------
Foreign currencies 29,004
- ----------------------------------------------------------------------------------------------
Option contracts written (610,426)
- ----------------------------------------------------------------------------------------------
60,616,920
- ----------------------------------------------------------------------------------------------
Net gain from investment securities, foreign currencies and option contracts 248,352,486
- ----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $233,834,787
- ----------------------------------------------------------------------------------------------
See accompanying Notes to Financial Statements which are an integral part of
the financial statements.
F-5
AIM TECHNOLOGY FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended March 31, 2006 and 2005
2006 2005
- -----------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (14,517,699) $ (14,440,048)
- -----------------------------------------------------------------------------------------------------------------
Net realized gain on investment securities, foreign currencies and option
contracts 187,735,566 266,865,422
- -----------------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of investment securities,
foreign currencies and option contracts 60,616,920 (423,163,376)
- -----------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations 233,834,787 (170,738,002)
- -----------------------------------------------------------------------------------------------------------------
Share transactions-net:
Class A (45,689,980) (77,627,447)
- -----------------------------------------------------------------------------------------------------------------
Class B (21,848,741) (31,117,750)
- -----------------------------------------------------------------------------------------------------------------
Class C (5,334,370) (8,376,194)
- -----------------------------------------------------------------------------------------------------------------
Class K (13,237,491) (6,196,692)
- -----------------------------------------------------------------------------------------------------------------
Investor Class (262,478,863) (393,625,584)
- -----------------------------------------------------------------------------------------------------------------
Institutional Class (954) (1,227,237,773)
- -----------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from share transactions (348,590,399) (1,744,181,440)
- -----------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets (114,755,612) (1,914,919,442)
- -----------------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 1,335,457,691 3,250,377,133
- -----------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment income (loss) of
$(426,140) and $(310,067), respectively) $1,220,702,079 $ 1,335,457,691
- -----------------------------------------------------------------------------------------------------------------
See accompanying Notes to Financial Statements which are an integral part of
the financial statements.
F-6
AIM TECHNOLOGY FUND
NOTES TO FINANCIAL STATEMENTS
March 31, 2006
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Technology Fund (the "Fund") is a series portfolio of AIM Sector Funds (the
"Trust"). The Trust is a Delaware statutory trust registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of six separate portfolios,
each authorized to issue an unlimited number of shares of beneficial interest.
The Fund currently consists of 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. The risk of material loss as a result of such indemnification claims
is considered remote.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period including
estimates and assumptions related to taxation. Actual results could differ from
those estimates. The following is a summary of the significant accounting
policies followed by the Fund in the preparation of its financial statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy.
A security listed or traded on an exchange (except convertible bonds) is
valued at its last sales price as of the close of the customary trading
session on the exchange where the security is principally traded, or lacking
any sales on a particular day, the security is valued at the closing bid
price on that day. Securities traded in the over-the-counter market (but not
securities reported on the NASDAQ National Market System) are valued based
on the prices furnished by independent pricing services, in which case the
securities may be considered fair valued, or by market makers. Each security
reported on the NASDAQ National Market System is valued at the NASDAQ
Official Closing Price ("NOCP") as of the close of the customary trading
session on the valuation date or absent a NOCP, at the closing bid price.
Futures contracts are valued at the final settlement price set by an
exchange on which they are principally traded. Listed options are valued at
the mean between the last bid and the ask prices from the exchange on which
they are principally traded. Options not listed on an exchange are valued by
an independent source at the mean between the last bid and ask prices. For
purposes of determining net asset value per share, futures and option
contracts generally are valued 15 minutes after the close of the customary
trading session of the New York Stock Exchange ("NYSE").
Investments in open-end registered investment companies and closed-end
registered investment companies that do not trade on an exchange are valued
at the end of day net asset value per share. Investments in closed-end
registered investment companies that trade on an exchange are valued at the
last sales price as of the close of the customary trading session on the
exchange where the security is principally traded.
Debt obligations (including convertible bonds) are fair valued using an
evaluated quote provided by an independent pricing service. Evaluated quotes
provided by the pricing service may be determined without exclusive reliance
on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, developments
related to specific securities, dividend rate, yield, quality, type of
issue, coupon rate, maturity, individual trading characteristics and other
market data. Short-term obligations having 60 days or less to maturity and
commercial paper are recorded at amortized cost which approximates value.
Securities for which market prices are not provided by any of the above
methods are valued based upon quotes furnished by independent sources and
are valued at the last bid price in the case of equity securities and in the
case of debt obligations, the mean between the last bid and asked prices.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the close
of the NYSE. Generally, trading in foreign securities is substantially
completed each day at various times prior to the close of the NYSE. The
values of such securities used in computing the net asset value of the
Fund's shares are determined as of the close of the respective markets.
Events affecting the values of such foreign securities may occur between the
times at which the particular foreign market closes and the close of the
customary trading session of the NYSE which would not ordinarily be
reflected in the computation of the Fund's net asset value. If the event is
likely to have affected the closing price of the security, the security will
be valued at fair value in good faith using procedures approved by the Board
of Trustees. Adjustments to closing prices to reflect fair value may also be
based on a screening process of an independent pricing service to indicate
the degree of certainty, based on historical data, that the closing price in
the principal market where a foreign security trades is not the current
value as of the close of the NYSE. Foreign securities meeting the approved
degree of certainty that the price is not reflective of current value will
be priced at the indication of fair value from the independent pricing
service. Multiple factors may be considered by the independent pricing
service in determining adjustments to reflect fair value and may include
information relating to sector indices, ADRs 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
AIM TECHNOLOGY FUND
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. Realized and
unrealized gains and losses on these contracts are included in the Statement
of Operations. 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. Realized and
unrealized gains and losses on these contracts are included in the Statement
of Operations. 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. This
practice does not apply to securities pledged as collateral for securities
lending transactions.
F-8
AIM TECHNOLOGY FUND
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 to AIM based on the annual rate of the Fund's
average daily net assets as follows:
AVERAGE NET ASSETS RATE
----------------------------------------------------
First $350 million 0.75%
----------------------------------------------------
Next $350 million 0.65%
----------------------------------------------------
Next $1.3 billion 0.55%
----------------------------------------------------
Next $2 billion 0.45%
----------------------------------------------------
Next $2 billion 0.40%
----------------------------------------------------
Next $2 billion 0.375%
----------------------------------------------------
Over $8 billion 0.35%
----------------------------------------------------
Effective July 1, 2005, AIM has contractually agreed to waive advisory fees
and/or reimburse expenses to the extent necessary to limit total annual
operating expenses (excluding certain items discussed below) of Class A, Class
B, Class C, Class K, Investor Class and Institutional Class shares to 1.55%,
2.30%, 2.30%, 1.75%, 1.55% and 1.30% of average daily net assets, respectively,
through June 30, 2007 (except for Class K which were converted to Class A
shares). Prior to June 30, 2005, AIM voluntarily agreed to waive advisory fees
and/or reimburse expenses to the extent necessary to limit total agreed to
waive advisory fees and/or reimburse expenses to the extent necessary to limit
total annual operating expenses (excluding certain items discussed below) of
Class A, Class B, Class C, Class K, Investor Class and Institutional Class
shares to 1.65%, 2.30%, 2.30%, 1.75%, 1.65% and 1.30% of average daily net
assets, respectively. 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 net annual operating expenses to exceed the
numbers reflected above: (i) interest; (ii) taxes; (iii) dividend expense on
short sales; (iv) extraordinary items; (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.
AIM has voluntarily agreed to waive advisory fees of the Fund in the amount
of 25% of the advisory fee AIM receives from the affiliated money market funds
on investments by the Fund in such affiliated money market funds (excluding
investments made in affiliated money market funds with cash collateral from
securities loaned by the fund). AIM is also voluntarily waiving a portion of
the advisory fee payable by the Fund equal to the difference between the income
earned from investing in the affiliated money market fund and the hypothetical
income earned from investing in an appropriate comparative benchmark. Voluntary
fee waivers or reimbursements may be modified or discontinued at any time upon
consultation with the Board of Trustees without further notice to investors.
For the year ended March 31, 2006, AIM waived fees of $3,440 and reimbursed
class level expenses of Class A, Class B, Class C, Class K and Investor Class
shares in the amount of $167,519, $44,796, $14,203, $5,028 and $264,431,
respectively.
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 March 31, 2006, AMVESCAP reimbursed expenses of the Fund in the amount of
$8,904.
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. Pursuant to such agreement, for the year ended
March 31, 2006, AIM was paid $335,673.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AISI for certain expenses
incurred by AISI in the course of providing such services. AISI may make
payments to intermediaries that provide omnibus account services,
sub-accounting services and/or networking services. For the year ended
March 31, 2006, the Fund paid AISI $8,134,742 for Class A, Class B, Class C,
Class K and Investor Class shares and $11 for Institutional Class shares.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B, Class C, Class K, Investor Class and Institutional Class
shares of the Fund. The Trust has adopted plans pursuant to Rule 12b-1 under
the 1940 Act with respect to the Fund's Class A, Class B, Class C, Class K and
Investor Class shares (collectively the "Plans"). The Fund, pursuant to the
Class A, Class B, Class C and Class K Plans, pays ADI compensation at the
annual rate of 0.25% of the Fund's average daily net assets of Class A shares,
1.00% of the average daily net assets of Class B and Class C shares and 0.45%
of the average daily net assets of Class K shares. Prior to July 1, 2005, the
Fund paid ADI 0.35% of the average daily net assets of Class A shares. The
Fund, pursuant to the Investor Class Plan, pays ADI for its allocated share of
expenses incurred pursuant to the Investor Class Plan for the period, up to a
maximum annual rate of 0.25% of the average daily net assets of the Investor
Class shares. Of the Rule 12b-1 payments, up to 0.25% of the average daily net
assets of the Class A, Class B, Class C, Class K or Investor Class shares may
be paid to furnish continuing personal shareholder services to customers who
purchase and own shares of such classes. Any amounts not paid as a service fee
under the Plans would constitute an asset-based sales charge. 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
March 31, 2006, the Class A, Class B, Class C, Class R and Investor Class
shares paid $872,432, $831,883, $269,175 and $2,064,612, respectively. For the
period April 1, 2005 through October 21, 2005 (date of conversion), Class K
paid $32,425
Front-end sales commissions and contingent deferred sales charges ("CDSC")
(collectively the "sales charges") are not recorded as expenses of the Fund.
Front-end sales commissions are deducted from proceeds from the sales of Fund
shares prior to investment in Class A shares of the Fund. CDSC are deducted
from redemption proceeds prior to remittance to the shareholder. During the
year ended March 31, 2006, ADI advised the Fund that it retained $40,133 in
front-end sales
F-9
AIM TECHNOLOGY FUND
commissions from the sale of Class A shares and $241, $59,077 and $2,988 from
Class A, Class B and Class C shares, respectively, for CDSC imposed upon
redemptions by shareholders. For the period April 1, 2005 through October 21,
2005 (date of conversion), ADI advised the Fund it retained $0 from Class K
shares for CDSC imposed upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of AIM,
AISI and/or ADI.
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to an exemptive order from the Securities and
Exchange Commission ("SEC") and approved procedures by the Board of Trustees to
invest daily available cash balances and cash collateral from securities
lending transactions in an affiliated money market fund. The Fund and the money
market fund below have the same investment advisor and therefore, are
considered to be affiliated. The tables below show the transactions in and
earnings from investments in an affiliated money market fund for the year ended
March 31, 2006.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
CHANGE IN
UNREALIZED REALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND GAIN
FUND 03/31/05 AT COST FROM SALES (DEPRECIATION) 03/31/06 INCOME (LOSS)
- -----------------------------------------------------------------------------------------------------------------------------
Premier Portfolio -- Institutional Class $59,112,303 $450,630,563 $(495,292,871) $-- $14,449,995 $490,877 $--
- -----------------------------------------------------------------------------------------------------------------------------
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
CHANGE IN
UNREALIZED REALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND GAIN
FUND 03/31/05 AT COST FROM SALES (DEPRECIATION) 03/31/06 INCOME* (LOSS)
- --------------------------------------------------------------------------------------------------------------------------------
Premier Portfolio -- Institutional Class $7,397,327 $1,186,137,294 $(1,165,920,195) $-- $27,614,426 $179,518 $--
- --------------------------------------------------------------------------------------------------------------------------------
* Net of compensation to counterparties.
INVESTMENTS IN OTHER AFFILIATES:
The Investment Company Act of 1940 defines affiliates as those issuances in
which a fund holds 5% or more of the outstanding voting securities. The Fund
has not owned enough of the outstanding voting securities of the issuer to have
control (as defined in the Investment Company Act of 1940) of that issuer. The
following is a summary of the transactions with affiliates for the year ended
March 31, 2006
CHANGE IN
UNREALIZED REALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND GAIN
COMPANY 03/31/05 AT COST FROM SALES (DEPRECIATION) 03/31/06 INCOME (LOSS)
- -----------------------------------------------------------------------------------------------------------------
BlueStream Ventures L.P. $ 6,153,899 $ 3,594,133 $ -- $387,048 $10,135,080 $ -- $--
- -----------------------------------------------------------------------------------------------------------------
Total $72,663,529 $1,640,361,990 $(1,661,213,066) $387,048 $52,199,501 $670,395 $--
- -----------------------------------------------------------------------------------------------------------------
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, for the year ended March 31, 2006,
the Fund engaged in securities sales of $21,760,691, which resulted in net
realized gains of $4,960,377 and securities purchases of $19,690,377.
NOTE 5--EXPENSE OFFSET ARRANGEMENTS
The expense offset arrangements are comprised of (i) transfer agency credits
which result from balances in Demand Deposit Accounts (DDA) used by the
transfer agent for clearing shareholder transactions and (ii) custodian credits
which result from periodic overnight cash balances at the custodian. For the
year ended March 31, 2006, the Fund received credits from these arrangements,
which resulted in the reduction of the Fund's total expenses of $54,195.
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
F-10
AIM TECHNOLOGY FUND
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 March 31, 2006, the Fund paid legal fees of $8,676 for
services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 7--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate
available on investments in overnight repurchase agreements) is favorable to
both the lending fund and the borrowing fund. A loan will be secured by
collateral if the Fund's aggregate borrowings from all sources exceeds 10% of
the Fund's total assets. To the extent that the loan is required to be secured
by collateral, the collateral is marked to market daily to ensure that the
market value is at least 102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to
the credit facility can borrow on a first come, first served basis. Principal
on each loan outstanding shall bear interest at the bid rate quoted by SSB at
the time of the request for the loan.
During the year ended March 31, 2006, 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.
NOTE 8--PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities having a market value up to one-third of
the Fund's total assets. Such loans are secured by collateral equal to no less
than the market value of the loaned securities determined daily. Such
collateral will be cash or debt securities issued or guaranteed by the U.S.
Government or any of its agencies. Cash collateral received in connection with
these loans is invested in short-term money market instruments or affiliated
money market funds. It is the Fund's policy to obtain additional collateral
from or return excess collateral to the borrower by the end of the next
business day, following the valuation date of the securities loaned. Therefore,
the value of the collateral held may be temporarily less than the value of the
securities on loan. Lending securities entails a risk of loss to the Fund if
and to the extent that the market value of the securities loaned were to
increase and the borrower did not increase the collateral accordingly, and the
borrower fails to return the securities. The Fund could also experience delays
and costs in gaining access to the collateral. The Fund bears the risk of any
deficiency in the amount of the collateral available for return to the borrower
due to a loss on the collateral invested.
At March 31, 2006, securities with an aggregate value of $26,957,502 were on
loan to brokers. The loans were secured by cash collateral of $27,614,426
received by the Fund and subsequently invested in an affiliated money market
fund. For the year ended March 31, 2006, the Fund received dividends on cash
collateral investments of $179,518 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 period 10,040 $ 624,671
------------------------------------------
Written 28,043 3,841,825
------------------------------------------
Closed (7,366) (1,849,223)
------------------------------------------
Exercised (2,939) (369,733)
------------------------------------------
Expired (17,777) (1,555,430)
------------------------------------------
End of period 10,001 $ 692,110
------------------------------------------
F-11
AIM TECHNOLOGY FUND
OPEN CALL OPTIONS WRITTEN AT PERIOD END
- --------------------------------------------------------------------------------------
UNREALIZED
CONTRACT STRIKE NUMBER OF PREMIUMS VALUE APPRECIATION
MONTH PRICE CONTRACTS RECEIVED 03/31/06 (DEPRECIATION)
- --------------------------------------------------------------------------------------
Akamai Technologies, Inc. Apr-06 $30.0 2,755 $214,883 $ 909,150 $(694,267)
- --------------------------------------------------------------------------------------
PMC-Sierra, Inc. Apr-06 12.5 5,203 258,633 247,142 11,491
- --------------------------------------------------------------------------------------
Red Hat, Inc. Apr-06 30.0 2,043 218,594 61,290 157,304
- --------------------------------------------------------------------------------------
10,001 $692,110 $1,217,582 $(525,472)
- --------------------------------------------------------------------------------------
NOTE 10--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
There were no ordinary income or long term gain distributions paid during the
years ended March 31, 2006 and 2005.
TAX COMPONENTS OF NET ASSETS:
As of March 31, 2006, the components of net assets on a tax basis were as
follows:
2006
------------------------------------------------------
Unrealized appreciation -- investments $ 329,575,108
------------------------------------------------------
Temporary book/tax differences (299,478)
------------------------------------------------------
Capital loss carryforward (603,525,425)
------------------------------------------------------
Post-October Currency loss deferral (126,662)
------------------------------------------------------
Shares of beneficial interest 1,495,078,536
------------------------------------------------------
Total net assets $1,220,702,079
------------------------------------------------------
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 deferral of losses on certain straddles
and the treatment of partnerships. The tax-basis unrealized appreciation on
investments amount includes appreciation (depreciation) on options written of
$(525,472) and appreciation on foreign currencies of $29,004.
The temporary book/tax differences are a result of timing differences between
book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan expenses.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the
amount of capital loss carryforward actually available for the Fund to utilize.
The ability to utilize capital loss carryforward in the future may be limited
under the Internal Revenue Code and related regulations based on the results of
future transactions. Under these limitation rules, the Fund is limited as of
March 31, 2006 to utilizing $161,990,602 of capital loss carryforward in the
fiscal year ended March 31, 2007.
The Fund utilized $180,619,397 of capital loss carryforward in the current
period to offset net realized capital gain for federal income tax purposes. The
Fund has a capital loss carryforward as of March 31, 2006 which expires as
follows:
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
---------------------------------------------
March 31, 2010 $235,615,312
---------------------------------------------
March 31, 2011 367,910,113
---------------------------------------------
Total capital loss carryforward $603,525,425
---------------------------------------------
* Capital loss carryforward as of the date listed above is reduced for
limitations, if any, to the extent required by the Internal Revenue Code. To
the extent that unrealized gains as of November 24, 2003, the date of the
reorganization of AIM New Technology Fund, AIM Global Science & Technology
Fund and INVESCO Telecommunications Fund into the Fund, are realized on
securities held in each fund at such date, the capital loss carryforward may
be further limited for up to five years from the date of the reorganization.
F-12
AIM TECHNOLOGY FUND
NOTE 11--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the year ended
March 31, 2006 was $1,337,648,968 and $1,674,109,357, respectively.
At the request of the Trustee, AIM recovered third party research credits
during the year ended March 31, 2006, in the amount of $163,114. These research
credits were recorded as realized gains.
UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENT SECURITIES ON A TAX BASIS
--------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $336,680,407
--------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (6,608,831)
--------------------------------------------------------------------------
Net unrealized appreciation of investment securities $330,071,576
--------------------------------------------------------------------------
Cost of investments for tax purposes is $913,055,792.
NOTE 12--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of net operating losses,
organization expenses, partnership transactions, corporate actions and foreign
currency transactions on March 31, 2006, undistributed net investment income
(loss) was increased by $14,401,626, undistributed net realized gain (loss) was
increased by $421,490 and shares of beneficial interest decreased by
$14,823,116. This reclassification had no effect on the net assets of the Fund.
F-13
AIM TECHNOLOGY FUND
NOTE 13--SHARE INFORMATION
The Fund currently consists of five different classes of shares: Class A
shares, Class B shares, Class C shares, Investor Class shares and Institutional
Class shares. The Fund formerly offered Class K shares; however, as of the
close of business October 21, 2005, the Class K shares were converted to
Class A shares. Investor Class shares of the Fund are offered only to certain
grandfathered investors.
Class A shares are sold with a front-end sales charge. Class B shares and
Class C shares are sold with CDSC. Investor Class and 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 MARCH 31,
--------------------------------------------------------
2006/(a)/ 2005
-------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------------------------------------------
Sold:
Class A 1,129,976 $ 28,845,975 1,091,737 $ 26,091,564
- -------------------------------------------------------------------------------------------------------------------
Class B 260,920 6,473,754 324,767 7,546,468
- -------------------------------------------------------------------------------------------------------------------
Class C 354,767 8,680,425 199,704 4,490,729
- -------------------------------------------------------------------------------------------------------------------
Class K/(b)/ 100,778 2,391,807 348,095 8,080,397
- -------------------------------------------------------------------------------------------------------------------
Investor Class 3,764,263 94,459,210 7,578,874 177,927,956
- -------------------------------------------------------------------------------------------------------------------
Institutional Class -- -- 1,199,210 30,689,266
- -------------------------------------------------------------------------------------------------------------------
Conversion of Class K shares to Class A shares:/(c)/
Class A 501,679 12,225,909 -- --
- -------------------------------------------------------------------------------------------------------------------
Class K/(b)/ (513,478) (12,225,909) -- --
- -------------------------------------------------------------------------------------------------------------------
Automatic conversion of Class B shares to Class A shares:
Class A 159,811 4,010,453 314,887 7,493,236
- -------------------------------------------------------------------------------------------------------------------
Class B (164,166) (4,010,453) (321,273) (7,493,236)
- -------------------------------------------------------------------------------------------------------------------
Reacquired:
Class A (3,554,908) (90,772,317) (4,673,472) (111,212,247)
- -------------------------------------------------------------------------------------------------------------------
Class B (983,065) (24,312,042) (1,344,399) (31,170,982)
- -------------------------------------------------------------------------------------------------------------------
Class C (572,477) (14,014,795) (568,055) (12,866,923)
- -------------------------------------------------------------------------------------------------------------------
Class K/(b)/ (142,541) (3,403,389) (628,117) (14,277,089)
- -------------------------------------------------------------------------------------------------------------------
Investor Class (14,168,269) (356,938,073) (24,400,287) (571,553,540)
- -------------------------------------------------------------------------------------------------------------------
Institutional Class (38) (954) (52,868,543) (1,257,927,039)
- -------------------------------------------------------------------------------------------------------------------
(13,826,748) $(348,590,399) (73,746,872) $(1,744,181,440)
- -------------------------------------------------------------------------------------------------------------------
/(a)/There is one entity that is a record owner of more than 5% of the
outstanding shares of the Fund and it owns 13% of the outstanding shares
of the Fund. ADI has an agreement with this entity to sell Fund shares.
The Fund, AIM and/or AIM affiliates may make payments to this entity,
which is considered to be related to the Fund, for providing services to
the Fund, AIM and/or AIM affiliates including but not limited to services
such as, securities brokerage, distribution, third party record keeping
and account servicing. The Trust has no knowledge as to whether all or any
portion of the shares owned of record by this entity are also owned
beneficially.
/(b)/Class K shares activity for the period April 1, 2005 through October 21,
2005 (date of conversion).
/(c)/Effective as of close of business October 21, 2005, all outstanding Class
K shares were converted to Class A shares of the Fund.
F-14
AIM TECHNOLOGY FUND
NOTE 14--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
CLASS A
-----------------------------------------------------
YEAR ENDED MARCH 31,
-----------------------------------------------------
2006 2005 2004 2003/(A)/
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 23.59 $ 24.71 $ 16.98 $ 30.41
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.28)/(b)/ (0.19)/(b)/ (0.33)/(b)/ (0.20)/(b)(c)/
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) 5.14 (0.93) 8.06 (13.23)
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 4.86 (1.12) 7.73 (13.43)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 28.45 $ 23.59 $ 24.71 $ 16.98
- ---------------------------------------------------------------------------------------------------------------------------------
Total return/(d)/ 20.60% (4.53)% 45.52% (44.16)%
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $329,461 $314,755 $410,407 $ 4,460
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.57%/(e)/ 1.50% 1.50% 1.47%
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.63%/(e)/ 1.68% 1.93% 1.51%
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (1.09)%/(e)/ (0.80)% (1.31)% (1.12)%
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 107% 92% 141% 107%
- ---------------------------------------------------------------------------------------------------------------------------------
/(a)/Class commenced sales on March 28, 2002.
/(b)/Calculated using average shares outstanding.
/(c)/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 $(0.20) for
the year ended March 31, 2003.
/(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.
/(e)/Ratios are based on average daily net assets of $318,066,928.
F-15
AIM TECHNOLOGY FUND
NOTE 14--FINANCIAL HIGHLIGHTS-(CONTINUED)
CLASS B
---------------------------------------------------
YEAR ENDED MARCH 31,
---------------------------------------------------
2006 2005 2004 2003/(A)/
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 23.04 $ 24.29 $ 16.84 $ 30.41
- -------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.45)/(b)/ (0.34)/(b)/ (0.48)/(b)/ (0.27)/(b)(c)/
- -------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) 5.00 (0.91) 7.93 (13.30)
- -------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 4.55 (1.25) 7.45 (13.57)
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 27.59 $ 23.04 $ 24.29 $ 16.84
- -------------------------------------------------------------------------------------------------------------------------------
Total return/(d)/ 19.75% (5.15)% 44.24% (44.62)%
- -------------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $81,212 $88,240 $125,597 $ 532
- -------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 2.30%/(e)/ 2.15% 2.15% 2.15%
- -------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 2.36%/(e)/ 2.33% 3.16% 2.74%
- -------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (1.82)%/(e)/ (1.45)% (1.96)% (1.71)%
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 107% 92% 141% 107%
- -------------------------------------------------------------------------------------------------------------------------------
/(a)/Class commenced sales on March 28, 2002.
/(b)/Calculated using average shares outstanding.
/(c)/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 $(0.27) for
the year ended March 31, 2003.
/(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.
/(e)/Ratios are based on average daily net assets of $83,188,325.
F-16
AIM TECHNOLOGY FUND
NOTE 14--FINANCIAL HIGHLIGHTS-(CONTINUED)
CLASS C
--------------------------------------------------------
YEAR ENDED MARCH 31,
--------------------------------------------------------
2006 2005 2004 2003
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 22.43 $ 23.64 $ 16.39 $ 29.73
- ----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.44)/(a)/ (0.33)/(a)/ (0.45)/(a)/ (0.62)/(b)/
- ----------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) 4.87 (0.88) 7.70 (12.72)
- ----------------------------------------------------------------------------------------------------------------------------
Total from investment operations 4.43 (1.21) 7.25 (13.34)
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 26.86 $ 22.43 $ 23.64 $ 16.39
- ----------------------------------------------------------------------------------------------------------------------------
Total return/(c)/ 19.75% (5.12)% 44.23% (44.87)%
- ----------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $26,507 $27,016 $37,191 $ 5,759
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 2.30%/(d)/ 2.15% 2.15% 2.69%
- ----------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 2.36%/(d)/ 2.33% 3.20% 3.95%
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (1.82)%/(d)/ (1.45)% (1.96)% (2.39)%
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 107% 92% 141% 107%
- ----------------------------------------------------------------------------------------------------------------------------
--------
--------
2002
- --------------------------------------------------------------------------------
Net asset value, beginning of period $ 35.22
- --------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.22)/(b)/
- --------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) (5.27)
- --------------------------------------------------------------------------------
Total from investment operations (5.49)
- --------------------------------------------------------------------------------
Net asset value, end of period $ 29.73
- --------------------------------------------------------------------------------
Total return/(c)/ (15.59)%
- --------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $18,910
- --------------------------------------------------------------------------------
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 2.54%
- --------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 2.54%
- --------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (2.26)%
- --------------------------------------------------------------------------------
Portfolio turnover rate 79%
- --------------------------------------------------------------------------------
/(a)/Calculated using average shares outstanding.
/(b)/The net investment income (loss) per share was calculated after permanent
book tax differences, such as net operating losses, which were
reclassified from accumulated net investment income (loss) to paid in
capital. Had net investment income (loss) per share been calculated using
the current method, which is before reclassification of net operating
losses, net investment income (loss) per share would have been $(0.84) and
$(0.54) for the years ended March 31, 2003 and 2002, respectively.
/(c)/Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net
asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges.
/(d)/Ratios are based on average daily net assets of $26,917,464.
CLASS K
------------------------------------------------------------
APRIL 1, 2005
THROUGH
OCTOBER 21, 2005
(DATE SHARES
CONVERTED) YEAR ENDED MARCH 31,
---------------- -----------------------------------------
2006 2005 2004 2003
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $23.06 $ 24.21 $ 16.78 $ 30.22
- --------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.17)/(a)/ (0.25)/(a)/ (0.42)/(a)/ (0.07)/(b)/
- --------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) 0.92 (0.90) 7.85 (13.37)
- --------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.75 (1.15) 7.43 (13.44)
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $23.81 $ 23.06 $ 24.21 $ 16.78
- --------------------------------------------------------------------------------------------------------------------------------
Total return/(c)/ 3.25% (4.75)% 44.28% (44.47)%
- --------------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ -- $12,805 $20,224 $22,156
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.75%/(d)/ 1.76% 2.12% 1.88%
- --------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.82%/(d)/ 1.78% 2.74% 2.49%
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (1.27)%/(d)/ (1.06)% (1.93)% (1.55)%
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate/(f)/ 107% 92% 141% 107%
- --------------------------------------------------------------------------------------------------------------------------------
---------------------------
NOVEMBER 30,
2000
(DATE SALES
COMMENCED)
TO MARCH 31,
-------- 2001
2002 ------------
- ------------------------------------------------------------------------------------
Net asset value, beginning of period $ 35.09 $ 60.01
- ----------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.27)/(a)(b)/ (0.82)/(b)/
- ----------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) (4.60) (24.10)
- ----------------------------------------------------------------------------------------------------
Total from investment operations (4.87) (24.92)
- ----------------------------------------------------------------------------------------------------
Net asset value, end of period $ 30.22 $ 35.09
- ----------------------------------------------------------------------------------------------------
Total return/(c)/ (13.85)% (41.54)%
- ----------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $27,147 $ 1
- ----------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.28% 5.18%/(e)/
- ----------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.28% 5.18%/(e)/
- ----------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (1.15)% (4.67)%/(e)/
- ----------------------------------------------------------------------------------------------------
Portfolio turnover rate/(f)/ 79% 85%
- ----------------------------------------------------------------------------------------------------
/(a)/Calculated using average shares outstanding.
/(b)/The net investment income (loss) per share was calculated after permanent
book tax differences, such as net operating losses, which were
reclassified from accumulated net investment income (loss) to paid in
capital. Had net investment income (loss) per share been calculated using
the current method, which is before reclassification of net operating
losses, net investment income (loss) per share would have been $(0.30),
$(0.27) and $(0.86) for the years ended March 31, 2003 and 2002 and the
period ended March 31, 2001, respectively.
/(c)/Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net
asset values may differ from the net asset value and returns for
shareholder transactions. Not annualized for periods less than one year.
/(d)/Ratios are annualized and based on average daily net assets of $12,829,542.
/(e)/Annualized.
/(f)/Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
F-17
AIM TECHNOLOGY FUND
NOTE 14--FINANCIAL HIGHLIGHTS-(CONTINUED)
INVESTOR CLASS
--------------------------------------------------------------
YEAR ENDED MARCH 31,
--------------------------------------------------------------
2006 2005 2004 2003
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 23.37 $ 24.49 $ 16.90 $ 30.41
- ----------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.27)/(a)/ (0.20)/(a)/ (0.35)/(a)/ (0.14)/(b)/
- ----------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) 5.09 (0.92) 7.94 (13.37)
- ----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 4.82 (1.12) 7.59 (13.51)
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 28.19 $ 23.37 $ 24.49 $ 16.90
- ----------------------------------------------------------------------------------------------------------------------------------
Total return/(c)/ 20.63% (4.57)% 44.91% (44.43)%
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $783,509 $892,630 $1,347,355 $853,530
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.57%/(d)/ 1.56% 1.72% 1.77%
- ----------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.61%/(d)/ 1.58% 1.75% 1.77%
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (1.09)%/(d)/ (0.86)% (1.53)% (1.46)%
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 107% 92% 141% 107%
- ----------------------------------------------------------------------------------------------------------------------------------
-----------
-----------
2002
- -----------------------------------------------------------------------------------
Net asset value, beginning of period $ 35.60
- -----------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.08)/(b)/
- -----------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) (5.11)
- -----------------------------------------------------------------------------------
Total from investment operations (5.19)
- -----------------------------------------------------------------------------------
Net asset value, end of period $ 30.41
- -----------------------------------------------------------------------------------
Total return/(c)/ (14.58)%
- -----------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,865,251
- -----------------------------------------------------------------------------------
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.37%
- -----------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.37%
- -----------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (1.08)%
- -----------------------------------------------------------------------------------
Portfolio turnover rate 79%
- -----------------------------------------------------------------------------------
/(a)/Calculated using average shares outstanding.
/(b)/The net investment income (loss) per share was calculated after permanent
book tax differences, such as net operating losses, which were
reclassified from accumulated net investment income (loss) to paid in
capital. Had net investment income (loss) per share been calculated using
the current method, which is before reclassification of net operating
losses, net investment income (loss) per share would have been $(0.29) and
$(0.37) for the years ended March 31, 2003 and 2002, respectively.
/(c)/Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net
asset values may differ from the net asset value and returns for
shareholder transactions.
/(d)/Ratios are based on average daily net assets of $825,844,747.
INSTITUTIONAL CLASS
-------------------------------------------------------------
YEAR ENDED MARCH 31,
-------------------------------------------------------------
2006 2005 2004 2003
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $24.44 $25.35 $ 17.34 $ 30.93
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.09)/(a)/ (0.02)/(a)/ (0.16)/(a)/ (0.12)/(a)(b)/
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) 5.35 (0.89) 8.17 (13.47)
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 5.26 (0.91) 8.01 (13.59)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $29.70 $24.44 $ 25.35 $ 17.34
- ---------------------------------------------------------------------------------------------------------------------------------
Total return/(c)/ 21.52% (3.59)% 46.19% (43.94)%
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 12 $ 11 $1,309,623 $707,040
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 0.81%/(d)/ 0.79%/(e)/ 0.86% 0.90%
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (0.33)%/(d)/ (0.09)% (0.67)% (0.59)%
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 107% 92% 141% 107%
- ---------------------------------------------------------------------------------------------------------------------------------
-----------
-----------
2002
- --------------------------------------------------------------------------------------
Net asset value, beginning of period $ 35.98
- --------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.16)/(a)(b)/
- --------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) (4.89)
- --------------------------------------------------------------------------------------
Total from investment operations (5.05)
- --------------------------------------------------------------------------------------
Net asset value, end of period $ 30.93
- --------------------------------------------------------------------------------------
Total return/(c)/ (14.04)%
- --------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,360,738
- --------------------------------------------------------------------------------------
Ratio of expenses to average net assets 0.74%
- --------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (0.46)%
- --------------------------------------------------------------------------------------
Portfolio turnover rate 79%
- --------------------------------------------------------------------------------------
/(a)/Calculated using average shares outstanding.
/(b)/The net investment income (loss) per share was calculated after permanent
book tax differences, such as net operating losses, which were
reclassified from accumulated net investment income (loss) to paid in
capital. Had net investment income (loss) per share been calculated using
the current method, which is before reclassification of net operating
losses, net investment income (loss) per share would have been $(0.12) and
$(0.16) for the years ended March 31, 2003 and 2002, respectively.
/(c)/Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net
asset values may differ from the net asset value and returns for
shareholder transactions.
/(d)/Ratios are based on average daily net assets of $11,149.
/(e)/After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements was
0.81% for the year ended March 31, 2005.
F-18
AIM TECHNOLOGY FUND
NOTE 15--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds), AIM and A I M Distributors, Inc. ("ADI") (the
distributor of the retail AIM Funds) reached final settlements with certain
regulators, including the Securities and Exchange Commission ("SEC"), the New
York Attorney General and the Colorado Attorney General, to resolve civil
enforcement actions and/or investigations related to market timing and related
activity in the AIM Funds, including those formerly advised by IFG. As part of
the settlements, a $325 million fair fund ($110 million of which is civil
penalties) has been created to compensate shareholders harmed by market timing
and related activity in funds formerly advised by IFG. Additionally, AIM and
ADI created a $50 million fair fund ($30 million of which is civil penalties)
to compensate shareholders harmed by market timing and related activity in
funds advised by AIM, which was done pursuant to the terms of the settlement.
These two fair funds may increase as a result of contributions from third
parties who reach final settlements with the SEC or other regulators to resolve
allegations of market timing and/or late trading that also may have harmed
applicable AIM Funds. These two fair funds will be distributed in accordance
with a methodology to be determined by AIM's independent distribution
consultant, in consultation with AIM and the independent trustees of the AIM
Funds and acceptable to the staff of the SEC. 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.
PENDING LITIGATION AND REGULATORY INQUIRIES
On August 30, 2005, the West Virginia Office of the State Auditor--Securities
Commission ("WVASC") issued a Summary Order to Cease and Desist and Notice of
Right to Hearing to AIM and ADI (Order No. 05-1318). The WVASC makes findings
of fact that AIM and ADI entered into certain arrangements permitting market
timing of the AIM Funds, including those formerly advised by IFG, and failed to
disclose these arrangements in the prospectuses for such Funds, and conclusions
of law to the effect that AIM and ADI violated the West Virginia securities
laws. The WVASC orders AIM and ADI to cease any further violations and seeks to
impose monetary sanctions, including restitution to affected investors,
disgorgement of fees, reimbursement of investigatory, administrative and legal
costs and an "administrative assessment," to be determined by the Commissioner.
Initial research indicates that these damages could be limited or capped by
statute.
Civil lawsuits, including purported class action and shareholder derivative
suits, have been filed against certain of the AIM Funds, IFG, AIM, ADI and/or
related entities and individuals, depending on the lawsuit, alleging:
. that the defendants permitted improper market timing and related
activity in the AIM Funds;
. that certain AIM Funds inadequately employed fair value pricing;
. that the defendants charged excessive advisory and/or distribution
fees and failed to pass on to shareholders the perceived savings
generated by economies of scale and that the defendants adopted
unlawful distribution plans; and
. that the defendants improperly used the assets of the AIM Funds to pay
brokers to aggressively promote the sale of the AIM Funds over other
mutual funds and that the defendants concealed such payments from
investors by disguising them as brokerage commissions.
These lawsuits allege as theories of recovery, depending on the lawsuit,
violations of various provisions of the Federal and state securities laws and
ERISA, negligence, breach of fiduciary duty and/or breach of contract. These
lawsuits seek remedies that include, depending on the lawsuit, damages,
restitution, injunctive relief, imposition of a constructive trust, removal of
certain directors and/or employees, various corrective measures under ERISA,
rescission of certain AIM Funds' advisory agreements and/or distribution plans
and recovery of all fees paid, an accounting of all fund-related fees,
commissions and soft dollar payments, restitution of all commissions and fees
paid, and prospective relief in the form of reduced fees.
All lawsuits based on allegations of market timing, late trading and related
issues have been transferred or conditionally transferred to the United States
District Court for the District of Maryland (the "MDL Court"). Pursuant to an
Order of the MDL Court, plaintiffs in these lawsuits consolidated their claims
for pre-trial purposes into three amended complaints against various AIM- and
IFG-related parties: (i) a Consolidated Amended Class Action Complaint
purportedly brought on behalf of shareholders of the AIM Funds; (ii) a
Consolidated Amended Fund Derivative Complaint purportedly brought on behalf of
the AIM Funds and fund registrants; and (iii) an Amended Class Action Complaint
for Violations of the Employee Retirement Income Securities Act ("ERISA")
purportedly brought on behalf of participants in AMVESCAP's 401(k) plan.
On March 1, 2006, the MDL Court entered orders on Defendants' Motions to
dismiss in the derivative and class action lawsuits. The MDL Court dismissed
all derivative causes of action in the derivative lawsuit but two: (i) the
excessive fee claim under Section 36(b) of the Investment Company Act of 1940
(the "1940 Act"); and (ii) the "control person liability" claim under
Section 48 of the 1940 Act. The MDL Court dismissed all claims asserted in the
class action lawsuit but three: (i) the securities fraud claims under
Section 10(b) of the Securities Exchange Act of 1934; (ii) the excessive fee
claim under Section 36(b) of the 1940 Act (which survived only insofar as
plaintiffs seek recovery of fees associated with the assets involved in market
timing); and (iii) the "control person liability" claim under Section 48 of the
1940 Act. Based on the MDL Court's March 1, 2006 orders, all claims asserted
against the Funds that have been transferred to the MDL Court have been
dismissed, although certain Funds remain nominal defendants in the derivative
lawsuit. Defendants filed their Original Answer in the class action lawsuit on
March 31, 2006. The MDL Court has indefinitely deferred Defendants' obligation
to answer the derivative lawsuit.
On February 27, 2006, Judge Motz for the MDL Court issued a memorandum
opinion on the AMVESCAP defendants' motion to dismiss the ERISA lawsuit. Judge
Motz granted the motion in part and denied the motion in part, holding that:
(i) plaintiff has both constitutional and statutory standing to pursue her
claims under
F-19
AIM TECHNOLOGY FUND
NOTE 15--LEGAL PROCEEDINGS-(CONTINUED)
ERISA (S) 502(a)(2); (ii) plaintiff lacks standing under ERISA (S) 502(a)(3) to
obtain equitable relief; (iii) the motion is granted as to the claims alleged
under ERISA (S) 404 for failure to prudently and loyally manage plan assets
against certain AMVESCAP defendants; (iv) the motion is denied as to the claims
alleged under ERISA (S) 404 for failure to prudently and loyally manage plan
assets against AMVESCAP and certain other AMVESCAP defendants. The opinion
also: (i) confirmed plaintiff's abandonment of her claims that defendants
engaged in prohibited transactions and/or misrepresentation; (ii) postponed
consideration of the duty to monitor and co-fiduciary duty claims until after
any possible amendments to the complaints; (iii) stated that plaintiff may seek
leave to amend her complaint within 40 days of the date of filing of the
memorandum opinion. On April 4, 2006, Judge Motz entered an order implementing
these rulings in the ERISA (Calderon) lawsuit against the AMVESCAP defendants.
Plaintiffs indicated that they intend to amend their complaint in light of this
order. Defendants will have 30 days after such amendment to answer or otherwise
respond.
IFG, AIM, ADI and/or related entities and individuals have received inquiries
from numerous regulators in the form of subpoenas or other oral or written
requests for information and/or documents related to one or more of the
following issues, among others, some of which concern one or more AIM Funds:
market timing activity, late trading, fair value pricing, excessive or improper
advisory and/or distribution fees, mutual fund sales practices, including
revenue sharing and directed-brokerage arrangements, investments in securities
of other registered investment companies, contractual plans, issues related to
Section 529 college savings plans and procedures for locating lost security
holders. IFG, AIM and ADI have advised the Fund that they are providing full
cooperation with respect to these inquiries. Regulatory actions and/or
additional civil lawsuits related to these or other issues may be filed against
the AIM Funds, IFG, AIM and/or related entities and individuals in the future.
At the present time, management of AIM and the Fund are unable to estimate
the impact, if any, that the outcome of the Pending Litigation and Regulatory
Inquiries described above may have on AIM, 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-20
AIM TECHNOLOGY FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees of AIM Sector Funds
and Shareholders of AIM Technology Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of AIM Technology Fund (one of the
funds constituting AIM Sector Funds, hereafter referred to as the "Fund") at
March 31, 2006, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then ended
and the financial highlights for each of the periods indicated, in conformity
with accounting principles generally accepted in the United States of America.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits, which included confirmation of securities at March 31, 2006 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
/s/ PRICEWATERHOUSECOOPERS LLP
May 19, 2006
Houston, Texas
AIM TECHNOLOGY FUND
TAX DISCLOSURES
TAX INFORMATION FOR NON-RESIDENT ALIEN SHAREHOLDERS
The percentage of qualifying assets not subject to the U.S. estate tax for the
fiscal quarters ended June 30, 2005, September 30, 2005, December 31, 2005 and
March 31, 2006 are 10.70%, 15.69%, 16.15% and 19.16%, respectively.
AIM TECHNOLOGY FUND
TRUSTEES AND OFFICERS
As of March 31, 2006
The address of each trustee and officer of AIM Sector Funds (the "Trust"), is
11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 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 TRUSTEE AND/ PRINCIPAL OCCUPATION(S)
POSITIONS(S) HELD WITH THE TRUST OR OFFICER SINCE DURING PAST 5 YEARS
- ------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
Robert H. Graham/1/ -- 1946 2003 Director and Chairman, A I M
Trustee, Vice Chair, President and Management Group Inc. (financial
Principal Executive Officer services holding company);
Director and Vice Chairman,
AMVESCAP PLC; Chairman of AMVESCAP
PLC -- AIM Division (parent of AIM
and a global investment management
firm); and Trustee, Vice Chair,
President and Principal Executive
Officer of the AIM Family of Funds
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 Trustee and Executive Vice
Trustee and Executive Vice President President of the AIM Family of
Funds
Formerly: Director, Chairman,
President and Chief Executive
Officer, INVESCO Funds Group,
Inc.; President and Chief
Executive Officer, INVESCO
Distributors, Inc.; and Chief
Executive Officer, AMVESCAP
PLC -- Managed Products; and
Chairman, A I M Advisors, Inc.;
Director, President and Chief
Executive Officer, A I M
Management Group Inc.; Director
and President, A I M Advisors,
Inc.; Director, A I M Capital
Management, Inc. and A I M
Distributors,
Inc.; Director and Chairman, AIM Investment
Services, Inc., Fund Management
Company and INVESCO Distributors,
Inc. (registered broker dealer);
Chief Executive Officer, AMVESCAP
PLC -- AIM Division
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- ------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 2003 Chairman, Crockett Technology
Trustee and Chair Associates (technology consulting
company)
- ------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 1983 Retired
Trustee
- ------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2003 Retired
Trustee
Formerly: Partner, law firm of
Baker & McKenzie
- ------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2000 Founder, Green, Manning & Bunch,
Trustee 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
Trustee private business corporations,
including the Boss Group, Ltd.
(private investment and
management); Cortland Trust, Inc.
(Chairman) (registered investment
company (3 portfolios)); Annuity
and Life Re (Holdings), Ltd.
(insurance company; CompuDyne
Corporation (provider of products
and services to the public
security market) and Homeowners of
American Holding Corporation
Formerly: Director, President and
Chief Executive Officer, Volvo
Group North America, Inc.; Senior
Vice President, AB Volvo; and
director of various affiliated
Volvo companies
- ------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 2003 Chief Executive Officer, Twenty
Trustee First Century Group, Inc.
(government affairs company); and
Owner, Dos Angelos Ranch, L.P.
Formerly: Chief Executive Officer,
Texana Timber LP (sustainable
forestry company)
- ------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 2003 Partner, law firm of Kramer Levin
Trustee Naftalis and Frankel LLP
- ------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 2003 Formerly: Chief Executive Officer,
Trustee YWCA of the USA
- ------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 2003 Partner, law firm of Pennock &
Trustee Cooper
- ------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2003 Retired
Trustee
- ------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 1997 Retired
Trustee
- ------------------------------------------------------------------------------------------------------
Raymond Stickel, Jr. -- 1944 2005 Retired
Trustee
Formerly: Partner, Deloitte &
Touche
- ------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
DURING PAST 5 YEARS HELD BY TRUSTEE
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
Director and Chairman, A I M None
Management Group Inc. (financial
services holding company);
Director and Vice Chairman,
AMVESCAP PLC; Chairman of AMVESCAP
PLC -- AIM Division (parent of AIM
and a global investment management
firm); and Trustee, Vice Chair,
President and Principal Executive
Officer of the AIM Family of Funds
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
- ----------------------------------------------------------------------------
Trustee and Executive Vice None
President of the AIM Family of
Funds
Formerly: Director, Chairman,
President and Chief Executive
Officer, INVESCO Funds Group,
Inc.; President and Chief
Executive Officer, INVESCO
Distributors, Inc.; and Chief
Executive Officer, AMVESCAP
PLC -- Managed Products; and
Chairman, A I M Advisors, Inc.;
Director, President and Chief
Executive Officer, A I M
Management Group Inc.; Director
and President, A I M Advisors,
Inc.; Director, A I M Capital
Management, Inc. and A I M
Distributors,
Inc.; Director and Chairman, AIM Investment
Services, Inc., Fund Management
Company and INVESCO Distributors,
Inc. (registered broker dealer);
Chief Executive Officer, AMVESCAP
PLC -- AIM Division
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
Chairman, Crockett Technology ACE Limited (insurance
Associates (technology consulting company); and Captaris, Inc.
company) (unified messaging provider)
- ----------------------------------------------------------------------------
Retired None
- ----------------------------------------------------------------------------
Retired Badgley Funds, Inc. (registered
investment company
Formerly: Partner, law firm of (2 portfolios))
Baker & McKenzie
- ----------------------------------------------------------------------------
Founder, Green, Manning & Bunch, None
Ltd. (investment banking firm);
and Director, Policy Studies, Inc.
and Van Gilder Insurance
Corporation
- ----------------------------------------------------------------------------
Director of a number of public and None
private business corporations,
including the Boss Group, Ltd.
(private investment and
management); Cortland Trust, Inc.
(Chairman) (registered investment
company (3 portfolios)); Annuity
and Life Re (Holdings), Ltd.
(insurance company; CompuDyne
Corporation (provider of products
and services to the public
security market) and Homeowners of
American Holding Corporation
Formerly: Director, President and
Chief Executive Officer, Volvo
Group North America, Inc.; Senior
Vice President, AB Volvo; and
director of various affiliated
Volvo companies
- ----------------------------------------------------------------------------
Chief Executive Officer, Twenty Administaff, and Discovery
First Century Group, Inc. Global Education Fund
(government affairs company); and (non-profit)
Owner, Dos Angelos Ranch, L.P.
Formerly: Chief Executive Officer,
Texana Timber LP (sustainable
forestry company)
- ----------------------------------------------------------------------------
Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Naftalis and Frankel LLP investment company
(3 portfolios))
- ----------------------------------------------------------------------------
Formerly: Chief Executive Officer, None
YWCA of the USA
- ----------------------------------------------------------------------------
Partner, law firm of Pennock & None
Cooper
- ----------------------------------------------------------------------------
Retired None
- ----------------------------------------------------------------------------
Retired None
- ----------------------------------------------------------------------------
Retired Director, Mainstay VP Series
Funds, Inc. (21 portfolios)
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.
AIM TECHNOLOGY FUND
TRUSTEES AND OFFICERS-(CONTINUED)
As of March 31, 2006
The address of each trustee and officer of AIM Sector Funds (the "Trust"), is
11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 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 TRUSTEE AND/ PRINCIPAL OCCUPATION(S) DURING OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST OR OFFICER SINCE PAST 5 YEARS HELD BY TRUSTEE
- -----------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -----------------------------------------------------------------------------------------------------------------
Russell C. Burk -- 1958 2005 Senior Vice President and Senior N/A
Senior Vice President and Officer of the AIM Family of Funds
Senior Officer
Formerly: Director of Compliance
and Assistant General Counsel,
ICON Advisers, Inc.; Financial
Consultant, Merrill Lynch; General
Counsel and Director of
Compliance, ALPS Mutual Funds, Inc.
- -----------------------------------------------------------------------------------------------------------------
John M. Zerr -- 1962/3/ 2006 Director, Senior Vice President, N/A
Senior Vice President, Chief Legal Secretary and General Counsel, A I
Officer and Secretary M Management Group Inc. (financial
services holding company) and A I
M Advisors, Inc.; Director and
Vice President, INVESCO
Distributors, Inc.; Vice
President, A I M Capital
Management, Inc., AIM Investment
Services, Inc., and Fund
Management Company; and Senior
Vice President, A I M
Distributors, Inc.; and Senior
Vice President, Chief Legal
Officer and Secretary of the AIM
Family of Funds
Formerly: Chief Operating Officer,
Senior Vice President, General
Counsel, and Secretary, Liberty
Ridge Capital, Inc. (an investment
adviser); Vice President and
Secretary, PBHG Funds (an
investment company); Vice
President and Secretary, PBHG
Insurance Series Fund (an
investment company); General
Counsel and Secretary, Pilgrim
Baxter Value Investors (an
investment adviser); Chief
Operating Officer, General Counsel
and Secretary, Old Mutual
Investment Partners (a
broker-dealer); General Counsel
and Secretary, Old Mutual Fund
Services (an administrator);
General Counsel and Secretary, Old
Mutual Shareholder Services (a
shareholder servicing center);
Executive Vice President, General
Counsel and Secretary, Old Mutual
Capital, Inc. (an investment
adviser); and Vice President and
Secretary, Old Mutual Advisors
Funds (an investment company)
- -----------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley -- 1959 2004 Global Compliance Director, N/A
Vice President AMVESCAP PLC; and Vice President
of the AIM Family of Funds
Formerly: Senior Vice President, A
I M Management Group Inc.
(financial services holding
company); Senior Vice President
and Chief Compliance Officer,
A I M Advisors, Inc. and the AIM
Family of Funds; Vice President
and Chief Compliance Officer, A I
M Capital Management, Inc. and
A I M Distributors, Inc.; Vice
President, AIM Investment
Services, Inc. and Fund Management
Company; and Senior Vice President
and Compliance Director, Delaware
Investments Family of Funds
- -----------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Senior Vice President and General N/A
Vice President Counsel, AMVESCAP PLC; and Vice
President of the AIM Family of
Funds
Formerly: Director, General
Counsel, and Vice President Fund
Management Company; Director,
Senior Vice President, Secretary
and General Counsel,
A I M Management Group Inc.
(financial services holding
company) and A I M Advisors, Inc.;
Director and Vice President,
INVESCO Distributors, Inc.; Senior
Vice President,
A I M Distributors, Inc.; Vice
President, A I M Capital
Management, Inc. and AIM
Investment Services, Inc.; Senior
Vice President, Chief Legal
Officer and Secretary of the AIM
Family of Funds; and Senior Vice
President, Chief Legal Officer and
General Counsel, Liberty Financial
Companies, Inc. and Liberty Funds
Group, LLC
- -----------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, N/A
Vice President, Treasurer and A I M Advisors, Inc.; and Vice
Principal Financial Officer President, Treasurer and Principal
Financial Officer of the AIM
Family of Funds
Formerly: Vice President,
A I M Distributors, Inc.; and
Senior Vice President, AIM
Investment Services, 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.; and Vice President of
the AIM Family of Funds
Formerly: Senior Vice President,
AIM Private Asset Management,
Inc.; and Chief Equity Officer and
Senior Investment Officer, A I M
Capital Management, Inc.
- -----------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 2003 Director of Cash Management, N/A
Vice President Managing 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. and the AIM Family
of Fund
- -----------------------------------------------------------------------------------------------------------------
Todd L. Spillane/4/ -- 1958 2006 Senior Vice President, A I M N/A
Chief Compliance Officer Management Group Inc.; Senior Vice
President and Chief Compliance
Officer, A I M Advisors, Inc.;
Chief Compliance Officer of the
AIM Family of Funds; Vice
President and Chief Compliance
Officer, A I M Capital Management,
Inc.; and Vice President, A I M
Distributors, Inc., AIM Investment
Services, Inc. and Fund Management
Company
Formerly: Global Head of Product
Development, AIG-Global Investment
Group, Inc.; Chief Compliance
Officer and Deputy General
Counsel, AIG-SunAmerica Asset
Management; and Chief Compliance
Officer, Chief Operating Officer
and Deputy General Counsel,
American General Investment
Management
- -----------------------------------------------------------------------------------------------------------------
(3)Mr. Zerr was elected Senior Vice President, Chief Legal Officer and
Secretary effective March 29, 2006.
(4)Mr. Spillane was elected Chief Compliance Officer effective March 29, 2006.
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, 51st Floor Frankel LLP Houston, TX 77210-4739 225 Franklin Street
Philadelphia, PA 19103-7599 1177 Avenue of the Americas Boston, MA 02110-2801
New York, NY 10036-2714
DOMESTIC EQUITY SECTOR EQUITY AIM ALLOCATION SOLUTIONS
AIM Basic Balanced Fund* AIM Advantage Health Sciences Fund AIM Conservative Allocation Fund
AIM Basic Value Fund AIM Energy Fund AIM Growth Allocation Fund/2/
AIM Capital Development Fund AIM Financial Services Fund AIM Moderate Allocation Fund
AIM Charter Fund AIM Global Health Care Fund AIM Moderate Growth Allocation Fund
AIM Constellation Fund AIM Global Real Estate Fund AIM Moderately Conservative
AIM Diversified Dividend Fund AIM Gold & Precious Metals Fund Allocation Fund
AIM Dynamics Fund AIM Leisure Fund
AIM Large Cap Basic Value Fund AIM Multi-Sector Fund
AIM Large Cap Growth Fund AIM Real Estate Fund/1/ DIVERSIFIED PORTFOLIOS
AIM Mid Cap Basic Value Fund AIM Technology Fund
AIM Mid Cap Core Equity Fund/1/ AIM Utilities Fund AIM Income Allocation Fund
AIM Opportunities I Fund AIM International Allocation Fund
AIM Opportunities II Fund FIXED INCOME
AIM Opportunities III Fund
AIM S&P 500 Index Fund TAXABLE
AIM Select Equity Fund
AIM Small Cap Equity Fund AIM Enhanced Short Bond Fund
AIM Small Cap Growth Fund AIM Floating Rate Fund
AIM Structured Core Fund AIM High Yield Fund
AIM Structured Growth Fund AIM Income Fund
AIM Structured Value Fund AIM Intermediate Government Fund
AIM Summit Fund AIM International Bond Fund
AIM Trimark Endeavor Fund AIM Limited Maturity Treasury Fund
AIM Trimark Small Companies Fund AIM Money Market Fund
AIM Short Term Bond Fund
* Domestic equity and income fund AIM Total Return Bond Fund
Premier Portfolio
INTERNATIONAL/GLOBAL EQUITY Premier U.S. Government Money Portfolio
AIM Asia Pacific Growth Fund TAX-FREE
AIM China Fund
AIM Developing Markets Fund AIM High Income Municipal Fund/1/
AIM European Growth Fund AIM Municipal Bond Fund
AIM European Small Company Fund/1/ AIM Tax-Exempt Cash Fund
AIM Global Aggressive Growth Fund AIM Tax-Free Intermediate Fund
AIM Global Equity Fund Premier Tax-Exempt Portfolio
AIM Global Growth Fund
AIM Global Value Fund
AIM Japan Fund
AIM International Core Equity Fund
AIM International Growth Fund
AIM International Small Company Fund/1/
AIM Trimark Fund
/1/ This Fund has limited public sales of its shares to certain investors. For
more information on who may continue to invest in the Fund, please see the
appropriate prospectus.
/2/ Effective April 29, 2005, AIM Aggressive Allocation Fund was renamed AIM
Growth Allocation Fund.
Shareholders approved the reorganization of the following funds to be
effective on or about April 10, 2006: AIM Mid Cap Growth Fund into AIM Dynamics
Fund, AIM Small Company Growth Fund into AIM Small Cap Growth Fund and AIM
Premier Equity Fund into AIM Charter Fund.
If used after July 20, 2006, 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. AIM is a subsidiary of AMVESCAP PLC, one of the world's
largest independent financial services companies with $411 billion in assets
under management. Data as of March 31, 2006.
- --------------------------------------------------------------------------------
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-TEC-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 UTILITIES FUND
Annual Report to Shareholders . March 31, 2006
[COVER IMAGE]
[YOUR GOALS. OUR SOLUTIONS.]
- REGISTERED TRADEMARK -
[AIM INVESTMENTS LOGO]
- REGISTERED TRADEMARK -
AIM UTILITIES FUND SEEKS CAPITAL GROWTH AND INCOME.
.. Unless otherwise stated, information presented in this report is as of March
31, 2006, 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.
.. Investor Class shares are closed to most investors. For more information on
who may continue to invest in the Investor Class shares, please see the
prospectus.
PRINCIPAL RISKS OF INVESTING IN THE FUND
.. Investing in a single-sector or single-region mutual fund involves greater
risk and potential reward than investing in a more diversified fund.
.. 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 smaller companies involves greater risk than investing in more
established companies, such as business risk, significant stock price
fluctuations and illiquidity.
.. By concentrating on a small number of holdings, the Fund carries greater risk
because each investment has a greater effect on the Fund's overall performance.
ABOUT INDEXES USED IN THIS REPORT
.. The unmanaged STANDARD & POOR'S COMPOSITE INDEX OF 500 STOCKS (the S&P 500
- --REGISTERED TRADEMARK -- Index) is an index of common stocks frequently used as
a general measure of U.S. stock market performance.
.. The unmanaged LIPPER UTILITY FUND INDEX represents an average of the 30
largest utility funds tracked by Lipper Inc., an independent mutual fund
performance monitor.
.. The unmanaged LEHMAN BROTHERS U.S. AGGREGATE BOND INDEX (the Lehman
Aggregate), which represents the U.S. investment-grade fixed-rate bond market
(including government and corporate securities, mortgage pass-through securities
and asset-backed securities), is compiled by Lehman Brothers, a global
investment bank.
.. The unmanaged MSCI WORLD INDEX is a group of global securities tracked by
Morgan Stanley Capital International.
.. The Fund is not managed to track the performance of any particular index,
including the indexes defined here, and consequently, the performance of the
Fund may deviate significantly from the performance of the index.
.. A direct investment cannot be made in an index. Unless otherwise indicated,
index results include reinvested dividends, and they do not reflect sales
charges. Performance of an index of funds reflects fund expenses; performance of
a market index does not.
OTHER INFORMATION
.. The returns shown in management's discussion of Fund performance are based on
net asset values calculated for shareholder transactions. Generally accepted
accounting principles require adjustments to be made to the net assets of the
Fund at period end for financial reporting purposes, and as such, the net asset
values for shareholder transactions and the returns based on those net asset
values may differ from the net asset values and returns reported in the
Financial Highlights.
.. Industry classifications used in this report are generally according to the
Global Industry Classification Standard, which was developed by and is the
exclusive property and a service mark of Morgan Stanley Capital International
Inc. and Standard & Poor's.
The Fund provides a complete list of its holdings four times in each fiscal
year, at the quarter-ends. For the second and fourth quarters, the lists appear
in the Fund's semiannual and annual reports to shareholders. For the first and
third quarters, the Fund files the lists with the Securities and Exchange
Commission (SEC) on Form N-Q. 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. 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 811-03826 and 002-85905.
A description of the policies and procedures that the Fund uses to determine how
to vote proxies relating to portfolio securities is avail-able 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 IAUTX
Class B Shares IBUTX
Class C Shares IUTCX
Investor Class Shares FSTUX
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND
PROSPECTUS, WHICH CONTAINS MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES
AND EXPENSES. INVESTORS SHOULD READ IT CAREFULLY BEFORE INVESTING.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
- --------------------------------------------------------------------------------
AIMINVESTMENTS.COM
AIM UTILITIES FUND
DEAR FELLOW AIM FUNDS SHAREHOLDERS:
Although many concerns, including rising fuel costs,
weighed on investors' minds during the fiscal year covered
by this report, stocks posted gains for the period. The S&P
500 Index, frequently cited as a benchmark for U.S. stock
market performance, returned 11.72%. Results for
[GRAHAM PHOTO] international stocks were more impressive, with the MSCI
World Index gaining 18.02%. Bonds posted more modest gains,
as the Lehman Brothers U.S. Aggregate Bond Index returned
2.26%.
Domestically, small- and mid-cap stocks generally
outperformed their large-cap counterparts. Within the S&P
500 Index, energy, financials and telecommunication
services were the best-performing sectors. Internationally,
emerging markets produced more attractive results than
developed markets.
ROBERT H. GRAHAM Bond performance also varied, with high yield bonds and
emerging market debt among the better-performing segments
of the fixed-income market. Municipal bonds also posted
above-average returns for the fiscal year.
Among the developments that affected markets and the
economy during the fiscal year were:
. Hurricane Katrina, which devastated several Gulf Coast
states in August, dealt a short-term setback to consumer
confidence. However, consumer confidence rebounded toward
the end of the period, with analysts crediting the
resiliency of the economy and job growth for this trend.
[TAYLOR PHOTO] . The Federal Reserve (the Fed) continued its tightening
policy, raising the key federal funds target rate to
4.75% by the end of the reporting period. Many analysts
believed that the central bank was near the end of its
tightening policy as Ben Bernanke succeeded the retiring
Alan Greenspan as Fed chairman early in 2006.
PHILIP TAYLOR For a discussion of the specific market conditions that
affected your Fund and how your Fund was managed during the
reporting period, please see the management discussion of
Fund performance in this report.
PHILIP TAYLOR HEADS NORTH AMERICAN RETAIL DISTRIBUTION
Effective April 17, 2006, Philip Taylor assumed the
leadership of North American Retail Distribution for
AMVESCAP PLC, the parent company of AIM Investments
--REGISTERED TRADEMARK-- and AIM Trimark Investments in
Canada. As president and vice chair of AIM Funds, I would
personally like to congratulate Phil on his new role with
our organization. Phil has been chief executive officer of
AIM Trimark, one of Canada's largest and most successful
investment management firms, since January 2002. He will be
relocating to AIM's offices in Houston, Texas. All of us at
AIM are looking forward to working with Phil.
Mark Williamson, former chief executive officer and
president of AIM Investments, will continue to serve AIM
and AMVESCAP in various capacities for the remainder of
2006. We want to take this opportunity to thank Mark for
his many contributions to fund shareholders and our
company. He joined AIM during a very challenging period.
Mark has been instrumental in enhancing our investment
process, improving our company's departmental structure and
deepening relationships with our clients.
YOUR FUND
Further information about the markets, your Fund and
investing in general is always available on our
comprehensive 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. Phil and I thank you for
your continued participation in AIM Investments. If you
have any questions, please contact our award-winning Client
Service representatives at 800-959-4246. We are pleased to
be of help.
Sincerely,
/S/ ROBERT H. GRAHAM /S/ PHILIP TAYLOR
Robert H. Graham Philip Taylor
President & Vice Chair - AIM Funds CEO, AIM Investments
Chair, AIM Investments
May 17, 2006
AIM INVESTMENTS IS A REGISTERED SERVICE MARK OF A I M
MANAGEMENT GROUP INC. A I M ADVISORS, INC. AND A I M
CAPITAL MANAGEMENT, INC. ARE THE INVESTMENT ADVISORS. A I M
DISTRIBUTORS, INC. IS THE DISTRIBUTOR FOR THE RETAIL FUNDS
REPRESENTED BY AIM INVESTMENTS.
1
AIM UTILITIES FUND
DEAR FELLOW AIM FUND SHAREHOLDERS:
Having completed a year of transition and change at AIM
Funds--as well as my first full year as your board's
independent chair--I can assure you that shareholder
[CROCKETT PHOTO] interests are at the forefront of every decision your board
makes. While regulators and fund companies debate the value
of an independent board chair, this structure is working
for you. Our new structure has enabled the board to work
more effectively with management to achieve benefits for
the shareholders, as shown in the highlights of 2005 listed
below:
. During 2005, management proposed, and your board
approved, voluntary advisory fee reductions, which are
saving shareholders more than $20 million annually, based
on asset levels of March 31, 2005.
BRUCE L. CROCKETT . Also during 2005, management proposed to your board the
merger of 14 funds into other AIM funds with similar
objectives. In each case, the goal was for the resulting
merged fund to benefit from strengthened management and
greater efficiency. Your board carefully analyzed and
discussed with management the rationale and proposed
terms of each merger to ensure that the mergers were
beneficial to the shareholders of all affected funds
before approving them. Eight of these mergers were
subsequently approved by shareholders of the target funds
during 2005. The remaining six fund mergers were approved
by shareholders in early 2006.
. Your board, through its Investments Committee and
Subcommittees, continued to closely monitor the portfolio
performance of the funds. During the year, your board
reviewed portfolio management changes made by the advisor
at 11 funds with the objective of organizing management
teams around common processes and shared investment
views. Management believes these changes will lead to
improved investment performance.
In 2006, your board will continue to focus on fund
expenses and investment performance. Although many funds
have good performance, we are working with management to
seek improvements for those funds currently performing
below expectations. Eight in-person board meetings and
several additional telephone and committee meetings are
scheduled to take place this year. I'll inform you of our
progress in my next semiannual letter to shareholders.
The AIM Funds board is pleased to welcome our newest
independent member, Raymond Stickel, Jr., a former partner
with the international auditing firm of Deloitte & Touche.
We also send our thanks and best wishes to Gerald J. Lewis,
who retired from your board in December 2005, and to Edward
K. Dunn, Jr., who retired in 2006.
Your board welcomes your views. Please mail them to me at
AIM Investments, AIM Investments Tower, 11 Greenway Plaza,
Suite 100, Houston TX 77046.
Sincerely,
/S/ BRUCE L. CROCKETT
Bruce L. Crockett
Independent Chair
AIM Funds Board
May 17, 2006
2
AIM UTILITIES FUND
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
- --------------------------------------------------------------------------------
PERFORMANCE SUMMARY
An investor preference for dividend-paying equities boosted the performance of
utilities stocks, helping the Fund post strong gains for the fiscal year ended
March 31, 2006. Excluding sales charges, the Fund outperformed the S&P 500 Index
due to strong stock selection. In addition, investors favored utilities stocks
because of their generally more defensive character and their tendency to pay
dividends.
For long-term performance, please see pages 6 and 7.
- --------------------------------------------------------------------------------
FUND VS. INDEXES
TOTAL RETURNS, 3/31/05-3/31/06, EXCLUDING APPLICABLE SALES CHARGES. IF SALES
CHARGES WERE INCLUDED, RETURNS WOULD BE LOWER.
Class A Shares 15.74%
Class B Shares 14.92
Class C Shares 14.98
Investor Class Shares 15.79
S&P 500 Index
(Broad Market Index) 11.72
Lipper Utility Fund Index
(Peer Group Index) 16.02
SOURCE: LIPPER INC.
- --------------------------------------------------------------------------------
HOW WE INVEST
We invest primarily in natural gas, electricity and telecommunication services
companies, selecting stocks based on our quantitative and fundamental analysis
of individual companies. Our quantitative analysis focuses on positive cash
flows and predictable earnings. Our fundamental analysis seeks strong balance
sheets, competent management and sustainable dividends and distributions.
We look for companies that could potentially benefit from industry trends,
such as increased demand for certain products and deregulation of state markets,
and that are attractively valued relative to the rest of the market. We also
monitor and may adjust industry and position weights according to prevailing
economic trends such as gross domestic product (GDP) growth and interest rate
changes.
We control risk by:
.. Diversifying across most industries and sub-industries within the utilities
sector
.. Owning both regulated and unregulated utilities--unregulated companies
provide greater growth potential, while regulated firms provide more stable
dividends and principal
.. Maintaining a reasonable cash position to avoid having to sell stocks during
market downturns
We may sell a stock for any of the following reasons:
.. Earnings growth is threatened because by deterioration in the firm's
fundamentals or change in the operating environment
.. Valuation becomes too high
.. Corporate strategy changes
MARKET CONDITIONS AND YOUR FUND
Despite widespread concern about the potential impact of rising short-term
interest rates, historically high energy prices, ongoing fear of a housing
bubble, and the long-term economic effects of two devastating Gulf Coast
hurricanes, the U.S. economy showed signs of strength for the fiscal year.
During the reporting period, the Federal Reserve (the Fed) continued its
tightening policy, raising the key federal funds rate to 4.75%, and ushered in
Ben Bernanke as the new Fed chairman. Against this backdrop, energy, financial
services and telecommunication services were the best-performing sectors of the
S&P 500 Index during the period.
Although utilities stocks posted strong returns for the fiscal year, most
of the gains were recorded in the first half of the period. During the last six
months, the sector posted a loss as investors rotated out of utilities stocks
into materials and telecommunication services stocks. Utilities stocks also tend
to be sensitive to interest rate movements because they generally pay dividends
and are particularly attractive when interest rates are low. As the Fed
continued its tight monetary policy, it hurt the
(continued)
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION TOP 10 EQUITY HOLDINGS*
By industry 1. TXU Corp. 4.9%
Electric Utilities 26.9% 2. Exelon Corp. 4.8
Multi-Utilities 23.2 3. BellSouth Corp. 4.4
Independent Power Producers & Energy Traders 15.0 4. Kinder Morgan, Inc. 4.4
Integrated Telecommunication Services 12.5 5. Dominion Resources, Inc. 4.4
Gas Utilities 9.9 6. Questar Corp. 4.3
Oil & Gas Storage & Transportation 8.7 7. Williams Cos., Inc. (The) 4.3
Water Utilities 2.5 8. Sempra Energy 4.2
Money Market Funds Plus Other Assets Less Liabilities 1.3 9. Verizon Communications Inc. 4.2
10. Edison International 4.2
TOTAL NET ASSETS $274.4 MILLION
TOTAL NUMBER OF HOLDINGS* 34
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.
- --------------------------------------------------------------------------------
3
AIM UTILITIES FUND
performance of utilities stocks during the last half of the period.
For the fiscal year, our holdings in electric utilities and oil, gas and
consumable fuel companies had the most positive impact on Fund performance.
Rising energy prices had relatively little negative effect on utilities,
particularly those that were relatively deregulated and had the ability to pass
on fuel costs to their customers. Indeed, companies with this ability were among
the better performing stocks for the Fund. One of these stocks was TXU, a
Texas-based power company and the Fund's top holding. TXU has made an impressive
turnaround through restructuring, going from unprofitable early in 2004 to
profitable in 2005. TXU benefited from the deregulation of the electric industry
in Texas, which enabled it to increase its customer base.
PEABODY ENERGY, the world's largest private-sector coal company, was also a
positive contributor to Fund performance. The company, which provides fuel for
generating about 3% of the world's electricity, has benefited from increased
coal demand. The firm reported its net income for the fourth quarter increased
138% in comparison to the same quarter for the previous year, boosted by record
production and high coal and fuel prices. We sold the stock and took profits.
A number of the Fund's diversified telecommunications holdings performed
well during the period; BELLSOUTH in particular was a notable contributor. The
company provides phone and data services in nine southeastern states, and it
serves about 22 million residential and business phone lines. Recently, the
company returned cash to shareholders through dividends and an aggressive share
repurchase program. The firm recently announced it had already completed $600
million of its $2 billion share repurchase plan. In addition, the company agreed
to be bought by AT&T for $67 billion in stock.
Detracting from Fund performance was CALPINE, a California-based power
producer and marketer. The company was adversely affected by equipment outages
in key markets and service agreement cancellations and was saddled with
considerable debt. We sold the stock.
DOMINION RESOURCES also underperformed during the period. In November, the
company reported operating earnings per share below guidance and analyst
expectations. While not directly affecting its utility operations, hurricanes
Katrina and Rita damaged the company's exploration and production downstream
processing facilities. As company management noted in its earnings conference
call, the issue is a timing concern, as earnings lost in 2005 are expected to be
offset in 2006 when business interruption insurance proceeds are expected to be
received.
IN CLOSING
At the close of the fiscal year, while we believed some provisions of the Tax
Relief Reconciliation Act of 2003 could be reconsidered, we also believed the
15% tax rate for qualified dividends, which has made utilities stocks attractive
to investors, would be extended. However, we were modestly concerned about
interest rate and inflationary trends. We continued to maintain our focus on
holding the favorably priced stocks of strong companies with reasonable growth
prospects and attractive dividend yields.
We thank you for your continued investment in AIM Utilities Fund.
THE VIEWS AND OPINIONS EXPRESSED IN MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
ARE THOSE OF A I M ADVISORS, INC. THESE VIEWS AND OPINIONS ARE SUBJECT TO CHANGE
AT ANY TIME BASED ON FACTORS SUCH AS MARKET AND ECONOMIC CONDITIONS. THESE VIEWS
AND OPINIONS MAY NOT BE RELIED UPON AS INVESTMENT ADVICE OR RECOMMENDATIONS, OR
AS AN OFFER FOR A PARTICULAR SECURITY. THE INFORMATION IS NOT A COMPLETE
ANALYSIS OF EVERY ASPECT OF ANY MARKET, COUNTRY, INDUSTRY, SECURITY OR THE FUND.
STATEMENTS OF FACT ARE FROM SOURCES CONSIDERED RELIABLE, BUT A I M ADVISORS,
INC. MAKES NO REPRESENTATION OR WARRANTY AS TO THEIR COMPLETENESS OR ACCURACY.
ALTHOUGH HISTORICAL PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS, THESE
INSIGHTS MAY HELP YOU UNDERSTAND OUR INVESTMENT MANAGEMENT PHILOSOPHY.
See important Fund and index disclosures inside front cover.
- --------------------------------------------------------------------------------
[SEGNER PHOTO]
JOHN S. SEGNER, senior portfolio manager, is lead portfolio manager of AIM
Utilities 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 a
managing director and principal with an investment management company that
focused exclusively on publicly traded energy stocks. Prior to that, he held
positions with several energy companies. Mr. Segner earned 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.
Assisted by the Energy/Gold/Utilities Team
- --------------------------------------------------------------------------------
[RIGHT ARROW GRAPHIC]
FOR A PRESENTATION OF YOUR FUND'S LONG-TERM PERFORMANCE, PLEASE SEE PAGES 6 AND
7.
4
AIM UTILITIES FUND
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, which may include sales charges (loads) on purchase payments; contingent
deferred sales charges on redemptions; and redemption fees, if any; and (2)
ongoing costs, including management fees; distribution and/or service fees
(12b-1); and other Fund expenses. This example is intended to help you
understand your ongoing costs (in dollars) of investing in the Fund and to
compare these costs with ongoing costs of investing in other mutual funds. The
example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period October 1, 2005, through March 31, 2006.
ACTUAL EXPENSES
The table below provides information about actual account values and actual
expenses. You may use the information in this table, together with the amount
you invested, to estimate the expenses that you paid over the period. Simply
divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number in the table
under the heading entitled "Actual Expenses Paid During Period" to estimate the
expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The table below also provides information about hypothetical account values and
hypothetical expenses based on the Fund's actual expense ratio and an assumed
rate of return of 5% per year before expenses, which is not the Fund's actual
return. The Fund's actual cumulative total returns at net asset value after
expenses for the six months ended March 31, 2006, 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.
- --------------------------------------------------------------------------------
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES ENDING ACCOUNT EXPENSES ANNUALIZED
SHARE VALUE VALUE PAID DURING VALUE PAID DURING EXPENSE
CLASS (10/1/05) (3/31/06)/1/ PERIOD/2/ (3/31/06) PERIOD/2/ RATIO
A $ 1,000.00 $ 969.50 $ 6.38 $ 1,018.45 $ 6.54 1.30%
B 1,000.00 966.10 10.05 1,014.71 10.30 2.05
C 1,000.00 966.30 10.05 1,014.71 10.30 2.05
Investor 1,000.00 969.80 6.38 1,018.45 6.54 1.30
/1/The actual ending account value is based on the actual total return of the
Fund for the period October 1, 2005, through March 31, 2006, after actual
expenses and will differ from the hypothetical ending account value which is
based on the Fund's expense ratio and a hypothetical annual return of 5% before
expenses. The Fund's actual cumulative total returns at net asset value after
expenses for the six months ended March 31, 2006, appear in the table
"Cumulative Total Returns" on page 7.
/2/Expenses are equal to the Fund's annualized expense ratio as indicated above
multiplied by the average account value over the period, multiplied by 182/365
to reflect the most recent fiscal half year.
- --------------------------------------------------------------------------------
[ARROW
BUTTON For More Information Visit
IMAGE] AIMINVESTMENTS.COM
5
AIM UTILITIES FUND
YOUR FUND'S LONG-TERM PERFORMANCE
RESULTS OF A $10,000 INVESTMENT
FUND AND INDEX DATA FROM 3/31/96
- --------------------------------------------------------------------------------
[MOUNTAIN CHART]
AIM UTILITY FUND- S&P 500 LIPPER UTILITY
DATE INVESTOR CLASS SHARES INDEX FUND INDEX
-------- --------------------- ------- --------------
03/31/96 $ 10000 $ 10000 $ 10000
04/96 10442 10147 10021
05/96 10416 10408 10076
06/96 10584 10447 10363
07/96 10149 9986 9893
08/96 10326 10196 10034
09/96 10433 10769 10130
10/96 10771 11067 10479
11/96 11047 11902 10880
12/96 11002 11666 10976
01/97 11101 12394 11185
02/97 11072 12492 11206
03/97 10596 11980 10868
04/97 10675 12694 10966
05/97 11222 13470 11483
06/97 11731 14069 11834
07/97 11888 15188 12131
08/97 11493 14337 11753
09/97 12321 15121 12431
10/97 12316 14616 12324
11/97 13109 15293 13124
12/97 13683 15556 13797
01/98 13725 15727 13728
02/98 14276 16861 14132
03/98 15438 17724 15166
04/98 15012 17905 14849
05/98 14859 17597 14644
06/98 15196 18312 14933
07/98 15083 18118 14730
08/98 13581 15500 13771
09/98 14620 16493 14778
10/98 15202 17832 15125
11/98 15749 18913 15509
12/98 17008 20002 16336
01/99 17252 20838 16262
02/99 16926 20190 15745
03/99 17094 20998 15728
04/99 18092 21811 16775
05/99 18662 21296 17205
06/99 18936 22474 17442
07/99 18904 21775 17395
08/99 17900 21666 16885
09/99 18038 21072 16850
10/99 18731 22406 17738
11/99 19218 22861 17858
12/99 20386 24205 18708
01/00 21532 22990 19053
02/00 22544 22555 19108
03/00 23225 24761 20037
04/00 21622 24016 19237
05/00 20781 23524 19037
06/00 21054 24102 19016
07/00 20620 23726 18929
08/00 21874 25200 20263
09/00 22383 23869 20915
10/00 21629 23769 20368
11/00 19687 21896 19300
12/00 21232 22003 20312
01/01 20869 22784 19796
02/01 20287 20709 19386
03/01 19702 19398 18973
04/01 20845 20903 20022
05/01 19640 21043 19584
06/01 17653 20532 18360
07/01 16544 20331 17785
08/01 15472 19060 17150
09/01 13475 17522 16102
10/01 13829 17857 15735
11/01 13951 19226 15653
12/01 14019 19395 15974
01/02 12781 19112 15124
02/02 12316 18743 14701
03/02 13135 19448 15627
04/02 12778 18269 15021
05/02 12247 18136 14542
06/02 11667 16845 13607
07/02 10601 15533 12152
08/02 10762 15634 12417
09/02 10003 13936 11286
10/02 10491 15161 11780
11/02 10666 16052 12234
12/02 10895 15110 12346
01/03 10505 14716 11975
02/03 10202 14495 11572
03/03 10377 14635 11829
04/03 10897 15840 12635
05/03 11861 16673 13680
06/03 11914 16886 13866
07/03 11340 17184 13369
08/03 11454 17519 13420
09/03 11765 17333 13688
10/03 11906 18312 14017
11/03 12054 18474 14164
12/03 12817 19442 15008
01/04 12985 19799 15325
02/04 13269 20074 15647
03/04 13232 19771 15645
04/04 12868 19461 15276
05/04 12998 19728 15332
06/04 13237 20110 15644
07/04 13459 19445 15783
08/04 13812 19522 16196
09/04 14143 19733 16562
10/04 14737 20035 17235
11/04 15688 20845 18040
12/04 16063 21553 18595
01/05 16050 21027 18599
02/05 16543 21469 19070
03/05 16553 21089 19098
04/05 16660 20688 19255
05/05 16915 21346 19582
06/05 17692 21376 20483
07/05 18364 22171 21114
08/05 18970 21969 21460
09/05 19765 22147 22162
10/05 18520 21778 21036
11/05 18507 22601 21238
12/05 18775 22610 21387
01/06 19535 23209 22257
02/06 19645 23272 22435
03/06 19164 23571 22168
- --------------------------------------------------------------------------------
SOURCE: LIPPER, INC.
Past performance cannot guarantee comparable future results.
The data shown in the chart include reinvested distributions, Fund expenses
and management fees. Index results include reinvested dividends. Performance of
an index of funds reflects fund expenses and management fees; performance of a
market index does not. Performance shown in the chart and tables does not
reflect deduction of taxes a shareholder would pay on Fund distributions or sale
of Fund shares. Performance of the indexes does not reflect the effects of
taxes.
This chart, which is a logarithmic chart, presents the fluctuations in the
value of the Fund and its indexes. We believe that a logarithmic chart is more
effective than other types of charts in illustrating changes in value during the
early years shown in the chart. The vertical axis, the one that indicates the
dollar value of an investment, is constructed with each segment representing a
percent change in the value of the investment. In this chart, each segment
represents a doubling, or 100% change, in the value of the investment. In other
words, the space between $5,000 and $10,000 is the same size as the space
between $10,000 and $20,000, as is the space between $20,000 and $40,000.
6
AIM UTILITIES FUND
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
As of 3/31/06, including applicable sales charges
CLASS A SHARES
Inception (3/28/02) 8.25%
1 Year 9.41
CLASS B SHARES
Inception (3/28/02) 8.63%
1 Year 9.92
CLASS C SHARES
Inception (2/14/00) -3.52%
5 Years -1.44
1 Year 13.98
INVESTOR CLASS SHARES
Inception (6/2/86) 8.80%
10 Years 6.72
5 Years -0.55
1 Year 15.79
================================================================================
CUMULATIVE TOTAL RETURNS
6 months ended 3/31/06, excluding applicable sales charges
Class A Shares -3.05%
Class B Shares -3.39
Class C Shares -3.37
Investor Class Shares -3.02
- --------------------------------------------------------------------------------
THE PERFORMANCE DATA QUOTED REPRESENT PAST PERFORMANCE AND CANNOT GUARANTEE
COMPARABLE FUTURE RESULTS; CURRENT PERFORMANCE MAY BE LOWER OR HIGHER. PLEASE
VISIT AIMINVESTMENTS.COM FOR THE MOST RECENT MONTH-END PERFORMANCE. PERFORMANCE
FIGURES REFLECT REINVESTED DISTRIBUTIONS, CHANGES IN NET ASSET VALUE AND THE
EFFECT OF THE MAXIMUM SALES CHARGE UNLESS OTHERWISE STATED. INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT YOU MAY HAVE A GAIN OR LOSS WHEN YOU
SELL SHARES.
CLASS A SHARE PERFORMANCE REFLECTS THE MAXIMUM 5.50% SALES CHARGE, AND
CLASS B AND CLASS C SHARE PERFORMANCE REFLECTS THE APPLICABLE CONTINGENT
DEFERRED SALES CHARGE (CDSC) FOR THE PERIOD INVOLVED. THE CDSC ON CLASS B SHARES
DECLINES FROM 5% BEGINNING AT THE TIME OF PURCHASE TO 0% AT THE BEGINNING OF THE
SEVENTH YEAR. THE CDSC ON CLASS C SHARES IS 1% FOR THE FIRST YEAR AFTER
PURCHASE.
INVESTOR CLASS SHARES DO NOT HAVE A FRONT-END SALES CHARGE OR A CDSC;
THEREFORE, PERFORMANCE IS AT NET ASSET VALUE.
THE PERFORMANCE OF THE FUND'S SHARE CLASSES WILL DIFFER DUE TO DIFFERENT
SALES CHARGE STRUCTURES AND CLASS EXPENSES.
HAD THE ADVISOR NOT WAIVED FEES AND/OR REIMBURSED EXPENSES IN THE PAST,
PERFORMANCE WOULD HAVE BEEN LOWER.
7
AIM UTILITIES FUND
APPROVAL OF INVESTMENT ADVISORY AGREEMENT AND
SUMMARY OF INDEPENDENT WRITTEN FEE EVALUATION
The Board of Trustees of AIM Sector Funds (the "Board") oversees the management
of AIM Utilities 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, 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 A I M '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 for the three and five year periods was below the median performance
of such comparable funds and above such median 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.
.. 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 Utility Fund Index. The Board noted that
the Fund's performance for the three and five year periods was below the
performance of such Index and comparable to such Index 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 reviewed the advisory fee rate for the Fund under the
Advisory Agreement. The Board noted that this rate was higher than the initial
advisory fee rate for a variable insurance fund advised by AIM and offered to
insurance company separate accounts with investment strategies comparable to
those of the Fund, although there were no breakpoints in the advisory fee
schedule applicable to the variable insurance fund. 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.
.. 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 comparable to 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 June 30, 2006 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 through June 30, 2006. The
Board noted that AIM has contractually agreed to waive fees and/or limit
expenses of the Fund through March 31, 2006 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 (other than Institutional Class shares). The
Board also noted that AIM has voluntarily agreed to waive fees and/or limit
expenses of the Fund 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 (including Institutional Class shares) that is lower than the
contractual agreement, if applicable. The Board considered the contractual and
voluntary nature of these fee waivers/expense limitations and noted that the
contractual agreement remains in effect through March 31, 2006 and the voluntary
agreement can be terminated at any time by AIM without further notice to
investors. 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.
(continued)
8
AIM UTILITIES FUND
.. Breakpoints and economies of scale. The Board reviewed the structure of the
Fund's advisory fee under the Advisory Agreement, noting that it includes six
breakpoints. The Board reviewed the level of the Fund's advisory fees, and noted
that such fees, as a percentage of the Fund's net assets, would decrease as net
assets increase because the Advisory Agreement includes breakpoints. The Board
noted that, due to the Fund's current asset levels and the way in which the
advisory fee breakpoints have been structured, the Fund has yet to benefit from
the breakpoints. The Board noted that AIM has contractually agreed to waive
advisory fees of the Fund through June 30, 2006 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 reflect economies of scale at higher asset levels and
that it was not necessary to change the advisory fee breakpoints in the Fund's
advisory fee schedule.
.. 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.
9
SUPPLEMENT TO ANNUAL REPORT DATED 3/31/06
AIM UTILITIES 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.
================================================================================
CUMULATIVE TOTAL RETURNS
For periods ended 3/31/06
Inception (10/25/05) 4.34%
================================================================================
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 800-451-4246 OR VISIT
AIMINVESTMENTS.COM.
- --------------------------------------------------------------------------------
NASDAQ SYMBOL FSIUX
- --------------------------------------------------------------------------------
Over for information on your Fund's expenses.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
FOR INSTITUTIONAL INVESTOR USE ONLY
This material is for institutional investor use only and may not be quoted,
reproduced or shown to the public, nor used in written form as sales literature
for public use.
[YOUR GOALS.
OUR SOLUTIONS.]
- REGISTERED TRADEMARK - [AIM INVESTMENTS LOGO]
- REGISTERED TRADEMARK -
AIMINVESTMENTS.COM I-UTI-INS-1 A I M Distributors, Inc.
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 actual ending account
value and expenses in the below example are based on an investment of $1,000
invested on October 25, 2005 (the date the share class commenced sales) and held
through March 31, 2006. The hypothetical ending account value and expenses in
the below example are based on an investment of $1,000 invested at the beginning
of the period and held for the entire six month period October 1, 2005, through
March 31, 2006.
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 the period, October 25, 2005, through
March 31, 2006. Because the actual ending account value and expense information
in the example is not based upon a six month period, the ending account value
and expense information may not provide a meaningful comparison to mutual funds
that provide such information for a full six month 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 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 ANNUALIZED
SHARE VALUE VALUE PAID DURING VALUE PAID DURING EXPENSE
CLASS (10/01/05) (3/31/06)/1/ PERIOD/2/ (3/31/06) PERIOD/3/ RATIO
Institutional/4/ $ 1,000.00 $ 1,043.40 $ 4.11 $ 1,020.29 $ 4.68 0.93%
/1/The actual ending account value is based on the actual total return of the
Fund for the period October 25, 2005, through March 31, 2006, 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 over the six month period October 1, 2005, through March 31, 2006.
/2/Actual expenses are equal to the annualized expense ratio as indicated above
multiplied by the average account value over the period, multiplied by 158
(October 25, 2005, through March 31, 2006)/365. Because the share class has not
been in existence for a full six month period, the actual ending account value
and expense information shown may not provide a meaningful comparison to fund
expense information of classes that show such data for a full six month period
and, because the actual ending account value and expense information in the
expense example covers a short time period, return and expense data may not be
indicative of return and expense data for longer time periods.
/3/Hypothetical expenses are equal to the annualized as indicated above
multiplied by the average account value over the period, multiplied by 182/365
to reflect a one-half year period. The hypothetical ending account value and
expenses may be used to compare ongoing costs of investing the Institutional
Class shares of the Fund and other funds because such data is based on a full
six month period.
/4/Institutional Class shares commenced sales October 25, 2005.
- --------------------------------------------------------------------------------
AIMINVESTMENTS.COM I-UTI-INS-1 A I M Distributors, Inc.
AIM UTILITIES FUND
SCHEDULE OF INVESTMENTS
March 31, 2006
SHARES VALUE
---------------------------------------------------------
DOMESTIC COMMON STOCKS-88.74%
ELECTRIC UTILITIES-21.65%
Edison International 277,000 $ 11,406,860
---------------------------------------------------------
Entergy Corp. 120,000 8,272,800
---------------------------------------------------------
Exelon Corp. 250,000 13,225,000
---------------------------------------------------------
FirstEnergy Corp. 170,000 8,313,000
---------------------------------------------------------
FPL Group, Inc. 200,000 8,028,000
---------------------------------------------------------
PPL Corp. 260,000 7,644,000
---------------------------------------------------------
Westar Energy, Inc. 120,000 2,497,200
---------------------------------------------------------
59,386,860
---------------------------------------------------------
GAS UTILITIES-9.88%
AGL Resources Inc. 160,000 5,768,000
---------------------------------------------------------
Equitable Resources, Inc. 205,000 7,484,550
---------------------------------------------------------
Peoples Energy Corp./(a)/ 55,000 1,960,200
---------------------------------------------------------
Questar Corp. 170,000 11,908,500
---------------------------------------------------------
27,121,250
---------------------------------------------------------
INDEPENDENT POWER PRODUCERS & ENERGY
TRADERS-14.96%
Constellation Energy Group 150,000 8,206,500
---------------------------------------------------------
Duke Energy Corp. 363,000 10,581,450
---------------------------------------------------------
NRG Energy, Inc./(b)/ 195,000 8,817,900
---------------------------------------------------------
TXU Corp. 300,000 13,428,000
---------------------------------------------------------
41,033,850
---------------------------------------------------------
INTEGRATED TELECOMMUNICATION
SERVICES-12.52%
AT&T Inc. 400,000 10,816,000
---------------------------------------------------------
BellSouth Corp. 350,000 12,127,500
---------------------------------------------------------
Verizon Communications Inc. 335,000 11,410,100
---------------------------------------------------------
34,353,600
---------------------------------------------------------
MULTI-UTILITIES-18.55%
Ameren Corp. 120,000 5,978,400
---------------------------------------------------------
Dominion Resources, Inc. 173,000 11,942,190
---------------------------------------------------------
KeySpan Corp. 70,000 2,860,900
---------------------------------------------------------
OGE Energy Corp. 75,000 2,175,000
---------------------------------------------------------
PG&E Corp. 280,000 10,892,000
---------------------------------------------------------
PNM Resources Inc. 110,000 2,684,000
---------------------------------------------------------
SCANA Corp. 70,000 2,746,800
---------------------------------------------------------
Sempra Energy 250,000 11,615,000
---------------------------------------------------------
50,894,290
---------------------------------------------------------
SHARES VALUE
- -------------------------------------------------------------------------------
OIL & GAS STORAGE &
TRANSPORTATION-8.65%
Kinder Morgan, Inc. 130,000 $ 11,958,700
- -------------------------------------------------------------------------------
Williams Cos., Inc. (The) 550,000 11,764,500
- -------------------------------------------------------------------------------
23,723,200
- -------------------------------------------------------------------------------
WATER UTILITIES-2.53%
Aqua America Inc. 250,000 6,955,000
- -------------------------------------------------------------------------------
Total Domestic Common Stocks
(Cost $182,679,671) 243,468,050
- -------------------------------------------------------------------------------
FOREIGN STOCKS-9.92%
FRANCE-3.54%
Veolia Environnement (Multi-Utilities)/(a)(c)/ 175,000 9,711,286
- -------------------------------------------------------------------------------
GERMANY-2.61%
E.ON A.G. (Electric Utilities)/(a)/ 65,000 7,152,241
- -------------------------------------------------------------------------------
ITALY-1.54%
Enel S.p.A. (Electric Utilities)/(a)(c)/ 500,000 4,227,264
- -------------------------------------------------------------------------------
SPAIN-1.14%
Endesa, S.A. (Electric Utilities)/(c)/ 97,000 3,127,723
- -------------------------------------------------------------------------------
UNITED KINGDOM-1.09%
National Grid PLC (Multi-Utilities)/(c)/ 300,000 2,984,336
- -------------------------------------------------------------------------------
Total Foreign Stocks
(Cost $19,091,539) 27,202,850
- -------------------------------------------------------------------------------
MONEY MARKET FUND-1.25%
Premier Portfolio-Institutional Class
(Cost $3,440,728)/(d)/ 3,440,728 3,440,728
- -------------------------------------------------------------------------------
TOTAL INVESTMENTS (excluding investments
purchased with cash collateral from securities
loaned)-99.91%
(Cost $205,211,938) 274,111,628
- -------------------------------------------------------------------------------
INVESTMENTS PURCHASED WITH CASH
COLLATERAL FROM SECURITIES
LOANED-5.29%
Premier Portfolio-Institutional Class/(d)(e)/ 14,506,448 14,506,448
- -------------------------------------------------------------------------------
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $14,506,448) 14,506,448
- -------------------------------------------------------------------------------
TOTAL INVESTMENTS-105.20% (Cost $219,718,386) 288,618,076
- -------------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-(5.20)% (14,267,441)
- -------------------------------------------------------------------------------
NET ASSETS-100.00% $274,350,635
- -------------------------------------------------------------------------------
Notes to Schedule of Investments:
/(a)/All or a portion of this security is out on loan at March 31, 2006.
/(b)/Non-income producing security.
/(c)/In accordance with the procedures established by the Board of Trustees,
the foreign security is fair valued using adjusted closing market prices.
The aggregate value of these securities at March 31, 2006 was $20,050,609,
which represented 7.31% of the Fund's Net Assets. See Note 1A.
/(d)/The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
/(e)/The security has been segregated to satisfy the commitment to return the
cash collateral received in securities lending transactions upon the
borrower's return of the securities loaned. See Note 8.
F-1
AIM UTILITIES FUND
STATEMENT OF ASSETS AND LIABILITIES
March 31, 2006
ASSETS:
Investments, at value (cost $201,771,210)* $270,670,900
- -----------------------------------------------------------------------------------
Investments in affiliated money market funds (cost $17,947,176) 17,947,176
- -----------------------------------------------------------------------------------
Total investments (cost $219,718,386) 288,618,076
- -----------------------------------------------------------------------------------
Foreign currencies, at value (cost $1,250) 1,250
- -----------------------------------------------------------------------------------
Receivables for:
Fund shares sold 353,611
- -----------------------------------------------------------------------------------
Dividends 602,507
- -----------------------------------------------------------------------------------
Investment for trustee deferred compensation and retirement plans 80,129
- -----------------------------------------------------------------------------------
Other assets 70,807
- -----------------------------------------------------------------------------------
Total assets 289,726,380
- -----------------------------------------------------------------------------------
LIABILITIES:
Payables for:
Fund shares reacquired 497,198
- -----------------------------------------------------------------------------------
Trustee deferred compensation and retirement plans 102,400
- -----------------------------------------------------------------------------------
Collateral upon return of securities loaned 14,506,448
- -----------------------------------------------------------------------------------
Accrued distribution fees 92,178
- -----------------------------------------------------------------------------------
Accrued trustees' and officer's fees and benefits 5,121
- -----------------------------------------------------------------------------------
Accrued transfer agent fees 100,783
- -----------------------------------------------------------------------------------
Accrued operating expenses 71,617
- -----------------------------------------------------------------------------------
Total liabilities 15,375,745
- -----------------------------------------------------------------------------------
Net assets applicable to shares outstanding $274,350,635
- -----------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Shares of beneficial interest $280,929,000
- -----------------------------------------------------------------------------------
Undistributed net investment income 90,977
- -----------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment securities and
foreign currencies (75,594,717)
- -----------------------------------------------------------------------------------
Unrealized appreciation from investment securities and foreign
currencies 68,925,375
- -----------------------------------------------------------------------------------
$274,350,635
- -----------------------------------------------------------------------------------
NET ASSETS:
Class A $135,834,785
-----------------------------------------------------------
Class B $ 41,887,841
-----------------------------------------------------------
Class C $ 11,208,378
-----------------------------------------------------------
Investor Class $ 84,700,792
-----------------------------------------------------------
Institutional Class $ 718,839
-----------------------------------------------------------
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Class A 9,757,506
-----------------------------------------------------------
Class B 2,999,025
-----------------------------------------------------------
Class C 796,272
-----------------------------------------------------------
Investor Class 6,033,764
-----------------------------------------------------------
Institutional Class 51,639
-----------------------------------------------------------
Class A:
Net asset value per share $ 13.92
-----------------------------------------------------------
Offering price per share:
(Net asset value of $13.92 / 94.50%) $ 14.73
-----------------------------------------------------------
Class B:
Net asset value and offering price per share $ 13.97
-----------------------------------------------------------
Class C:
Net asset value and offering price per share $ 14.08
-----------------------------------------------------------
Investor Class:
Net asset value and offering price per share $ 14.04
-----------------------------------------------------------
Institutional Class:
Net asset value and offering price per share $ 13.92
-----------------------------------------------------------
* At March 31, 2006, securities with an aggregate value of $13,748,238 were on
loan to brokers.
See accompanying Notes to Financial Statements which are an integral part of
the financial statements.
F-2
AIM UTILITIES FUND
STATEMENT OF OPERATIONS
For the year ended March 31, 2006
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of
$171,144) $ 9,180,487
---------------------------------------------------------------
Dividends from affiliated money market funds
(includes securities lending income of $45,865,
after compensation to counterparties of $335,410) 254,025
---------------------------------------------------------------
Interest and bond premium amortization (35,959)
---------------------------------------------------------------
Total investment income 9,398,553
---------------------------------------------------------------
EXPENSES:
Advisory fees 2,097,315
---------------------------------------------------------------
Administrative services fees 98,647
---------------------------------------------------------------
Custodian fees 40,151
---------------------------------------------------------------
Distribution fees:
Class A 347,641
---------------------------------------------------------------
Class B 417,277
---------------------------------------------------------------
Class C 105,714
---------------------------------------------------------------
Investor Class 220,399
---------------------------------------------------------------
Transfer agent fees-A, B, C and Investor 877,604
---------------------------------------------------------------
Transfer agent fees-Institutional 128
---------------------------------------------------------------
Trustees' and officer's fees and benefits 23,959
---------------------------------------------------------------
Other 243,094
---------------------------------------------------------------
Total expenses 4,471,929
---------------------------------------------------------------
Less:Fees waived, expenses reimbursed and expense
offset arrangements (442,759)
---------------------------------------------------------------
Net expenses 4,029,170
---------------------------------------------------------------
Net investment income 5,369,383
---------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES AND FOREIGN CURRENCIES:
Net realized gain from:
Investment securities 17,771,238
---------------------------------------------------------------
Foreign currencies 177,623
---------------------------------------------------------------
17,948,861
---------------------------------------------------------------
Change in net unrealized appreciation
(depreciation) of:
Investment securities 14,449,446
---------------------------------------------------------------
Foreign currencies (5,658)
---------------------------------------------------------------
14,443,788
---------------------------------------------------------------
Net gain from investment securities and foreign
currencies 32,392,649
---------------------------------------------------------------
Net increase in net assets resulting from
operations $37,762,032
---------------------------------------------------------------
See accompanying Notes to Financial Statements which are an integral part of
the financial statements.
F-3
AIM UTILITIES FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended March 31, 2006 and 2005
2006
- ---------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 5,369,383
- ---------------------------------------------------------------------------------------------------------------------
Net realized gain on investment securities and foreign currencies 17,948,861
- ---------------------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment securities and foreign currencies 14,443,788
- ---------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 37,762,032
- ---------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class A (2,989,929)
- ---------------------------------------------------------------------------------------------------------------------
Class B (572,852)
- ---------------------------------------------------------------------------------------------------------------------
Class C (146,149)
- ---------------------------------------------------------------------------------------------------------------------
Investor Class (1,870,643)
- ---------------------------------------------------------------------------------------------------------------------
Institutional Class (4,121)
- ---------------------------------------------------------------------------------------------------------------------
Decrease in net assets resulting from distributions (5,583,694)
- ---------------------------------------------------------------------------------------------------------------------
Share transactions-net:
Class A 7,090,274
- ---------------------------------------------------------------------------------------------------------------------
Class B 1,623,807
- ---------------------------------------------------------------------------------------------------------------------
Class C 3,083,887
- ---------------------------------------------------------------------------------------------------------------------
Investor Class (5,412,154)
- ---------------------------------------------------------------------------------------------------------------------
Institutional Class 721,596
- ---------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from share transactions 7,107,410
- ---------------------------------------------------------------------------------------------------------------------
Net increase in net assets 39,285,748
- ---------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 235,064,887
- ---------------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment income of $90,977 and $ (15,543), respectively) $274,350,635
- ---------------------------------------------------------------------------------------------------------------------
2005
- --------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 5,787,147
- --------------------------------------------------------------------------------------------------------------------
Net realized gain on investment securities and foreign currencies 7,929,205
- --------------------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment securities and foreign currencies 34,630,010
- --------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 48,346,362
- --------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class A (2,901,177)
- --------------------------------------------------------------------------------------------------------------------
Class B (685,445)
- --------------------------------------------------------------------------------------------------------------------
Class C (129,399)
- --------------------------------------------------------------------------------------------------------------------
Investor Class (2,058,141)
- --------------------------------------------------------------------------------------------------------------------
Institutional Class --
- --------------------------------------------------------------------------------------------------------------------
Decrease in net assets resulting from distributions (5,774,162)
- --------------------------------------------------------------------------------------------------------------------
Share transactions-net:
Class A (9,390,014)
- --------------------------------------------------------------------------------------------------------------------
Class B (5,658,456)
- --------------------------------------------------------------------------------------------------------------------
Class C (751,072)
- --------------------------------------------------------------------------------------------------------------------
Investor Class (3,714,283)
- --------------------------------------------------------------------------------------------------------------------
Institutional Class --
- --------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from share transactions (19,513,825)
- --------------------------------------------------------------------------------------------------------------------
Net increase in net assets 23,058,375
- --------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 212,006,512
- --------------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment income of $90,977 and $ (15,543), respectively) $235,064,887
- --------------------------------------------------------------------------------------------------------------------
See accompanying Notes to Financial Statements which are an integral part of
the financial statements.
F-4
AIM UTILITIES FUND
NOTES TO FINANCIAL STATEMENTS
March 31, 2006
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Utilities Fund (the "Fund") is a series portfolio of AIM Sector Funds (the
"Trust"). The Trust is a Delaware statutory trust registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of six separate portfolios,
each authorized to issue an unlimited number of shares of beneficial interest.
The Fund currently consists of multiple classes of shares. Matters affecting
each portfolio or class will be voted on exclusively by the shareholders of
such portfolio or class. The assets, liabilities and operations of each
portfolio are accounted for separately. Information presented in these
financial statements pertains only to the Fund.
The Fund's investment objective is to achieve capital growth and current
income.
Under the Trust's organizational documents, each Trustee, officer, employee
or other agent of the Trust (including the Trust's investment manager) is
indemnified against certain liabilities that may arise out of performance of
their duties to the Fund. Additionally, in the normal course of business, the
Fund enters into contracts that contain a variety of indemnification clauses.
The Fund's maximum exposure under these arrangements is unknown as this would
involve future claims that may be made against the Fund that have not yet
occurred. The risk of material loss as a result of such indemnification claims
is considered remote.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period including
estimates and assumptions related to taxation. Actual results could differ from
those estimates. The following is a summary of the significant accounting
policies followed by the Fund in the preparation of its financial statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy.
A security listed or traded on an exchange (except convertible bonds) is
valued at its last sales price as of the close of the customary trading
session on the exchange where the security is principally traded, or lacking
any sales on a particular day, the security is valued at the closing bid
price on that day. Securities traded in the over-the-counter market (but not
securities reported on the NASDAQ National Market System) are valued based
on the prices furnished by independent pricing services, in which case the
securities may be considered fair valued, or by market makers. Each security
reported on the NASDAQ National Market System is valued at the NASDAQ
Official Closing Price ("NOCP") as of the close of the customary trading
session on the valuation date or absent a NOCP, at the closing bid price.
Futures contracts are valued at the final settlement price set by an
exchange on which they are principally traded. Listed options are valued at
the mean between the last bid and the ask prices from the exchange on which
they are principally traded. Options not listed on an exchange are valued by
an independent source at the mean between the last bid and ask prices. For
purposes of determining net asset value per share, futures and option
contracts generally are valued 15 minutes after the close of the customary
trading session of the New York Stock Exchange ("NYSE").
Investments in open-end registered investment companies and closed-end
registered investment companies that do not trade on an exchange are valued
at the end of day net asset value per share. Investments in closed-end
registered investment companies that trade on an exchange are valued at the
last sales price as of the close of the customary trading session on the
exchange where the security is principally traded.
Debt obligations (including convertible bonds) are fair valued using an
evaluated quote provided by an independent pricing service. Evaluated quotes
provided by the pricing service may be determined without exclusive reliance
on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, developments
related to specific securities, dividend rate, yield, quality, type of
issue, coupon rate, maturity, individual trading characteristics and other
market data. Short-term obligations having 60 days or less to maturity and
commercial paper are recorded at amortized cost which approximates value.
Securities for which market prices are not provided by any of the above
methods are valued based upon quotes furnished by independent sources and
are valued at the last bid price in the case of equity securities and in the
case of debt obligations, the mean between the last bid and asked prices.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the close
of the NYSE. Generally, trading in foreign securities is substantially
completed each day at various times prior to the close of the NYSE. The
values of such securities used in computing the net asset value of the
Fund's shares are determined as of the close of the respective markets.
Events affecting the values of such foreign securities may occur between the
times at which the particular foreign market closes and the close of the
customary trading session of the NYSE which would not ordinarily be
reflected in the computation of the Fund's net asset value. If the event is
likely to have affected the closing price of the security, the security will
be valued at fair value in good faith using procedures approved by the Board
of Trustees. Adjustments to closing prices to reflect fair value may also be
based on a screening process of an independent pricing service to indicate
the degree of certainty, based on historical data, that the closing price in
the principal market where a foreign security trades is not the current
value as of the close of the NYSE. Foreign securities meeting the approved
degree of certainty that the price is not reflective of current value will
be priced at the indication of fair value from the independent pricing
service. Multiple factors may be considered by the independent pricing
service in determining adjustments to reflect fair value and may include
information relating to sector indices, ADRs 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.
F-5
AIM UTILITIES FUND
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 are declared and paid quarterly
and are recorded on ex-dividend date. Distributions from net realized
capital gain, if any, are generally paid annually and recorded on
ex-dividend date. The Fund may elect to use a portion of the proceeds from
redemptions as distributions for federal income tax purposes.
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. Realized and
unrealized gains and losses on these contracts are included in the
Statements of Operations. The Fund could be exposed to risk if
counterparties to the contracts are unable to meet the terms of their
contracts or if the value of the foreign currency changes unfavorably.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM based on the annual rate of the Fund's
average daily net assets as follows:
AVERAGE NET ASSETS RATE
----------------------------------------------------
First $350 million 0.75%
----------------------------------------------------
Next $350 million 0.65%
----------------------------------------------------
Next $1.3 billion 0.55%
----------------------------------------------------
Next $2 billion 0.45%
----------------------------------------------------
Next $2 billion 0.40%
----------------------------------------------------
Next $2 billion 0.375%
----------------------------------------------------
Over $8 billion 0.35%
----------------------------------------------------
F-6
AIM UTILITIES FUND
Through June 30, 2006, 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 0.75%
---------------------------------------------------
Next $250 million 0.74%
---------------------------------------------------
Next $500 million 0.73%
---------------------------------------------------
Next $1.5 billion 0.72%
---------------------------------------------------
Next $2.5 billion 0.71%
---------------------------------------------------
Next $2.5 billion 0.70%
---------------------------------------------------
Next $2.5 billion 0.69%
---------------------------------------------------
Over $10 billion 0.68%
---------------------------------------------------
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, Investor Class and
Institutional Class shares to 1.30%, 2.05%, 2.05%, 1.30% and 1.05% of average
daily net assets, respectively, through June 30, 2007. 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 net annual
operating expenses to exceed the numbers reflected above: (i) interest;
(ii) taxes; (iii) dividend expense on short sales; (iv) extraordinary items;
(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.
AIM has voluntarily agreed to waive advisory fees of the Fund in the amount
of 25% of the advisory fee AIM receives from the affiliated money market funds
on investments by the Fund in such affiliated money market funds (excluding
investments made in affiliated money market funds with cash collateral from
securities loaned by the fund). AIM is also voluntarily waiving a portion of
the advisory fee payable by the Fund equal to the difference between the income
earned from investing in the affiliated money market fund and the hypothetical
income earned from investing in an appropriate comparative benchmark. Voluntary
fee waivers or reimbursements may be modified or discontinued at any time upon
consultation with the Board of Trustees without further notice to investors.
For the year ended March 31, 2006, AIM waived fees of $343,808 and reimbursed
$85,799 of class level expenses of Class A, Class B, Class C and Investor Class
shares in proportion to the net assets of each class.
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 March 31, 2006, AMVESCAP reimbursed expenses of the Fund in the amount of
$2,317.
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. Pursuant to such agreement, for the year ended
March 31, 2006, AIM was paid $98,647.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AISI for certain expenses
incurred by AISI in the course of providing such services. AISI may make
payments to intermediaries that provide omnibus account services,
sub-accounting services and/or networking services. For the year ended
March 31, 2006, the Fund paid AISI $877,604 for Class A, Class B, Class C and
Investor Class shares and $128 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, Investor Class and Institutional Class shares of the Fund. The
Trust has adopted plans pursuant to Rule 12b-1 under the 1940 Act with respect
to the Fund's Class A, Class B, Class C and Investor Class shares (collectively
the "Plans"). The Fund, pursuant to the Plans, pays ADI compensation at the
annual rate of 0.25% of the Fund's average daily net assets of Class A shares,
1.00% of the average daily net assets of Class B and Class C shares and 0.25%
of the average daily net assets of Investor Class shares. Of the Rule 12b-1
payments, up to 0.25% of the average daily net assets of the Class A, Class B,
Class C or Investor Class shares may be paid to furnish continuing personal
shareholder services to customers who purchase and own shares of such classes.
Any amounts not paid as a service fee under the Plans would constitute an
asset-based sales charge. 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 March 31, 2006, the Class A, Class B, Class C and
Investor Class shares paid $347,641, $417,277, $105,714 and $220,399,
respectively.
Front-end sales commissions and contingent deferred sales charges ("CDSC")
(collectively the "sales charges") are not recorded as expenses of the Fund.
Front-end sales commissions are deducted from proceeds from the sales of Fund
shares prior to investment in Class A shares of the Fund. CDSC are deducted
from redemption proceeds prior to remittance to the shareholder. During the
year ended March 31, 2006, ADI advised the Fund that it retained $85,092 in
front-end sales commissions from the sale of Class A shares and $8,834, $23,384
and $2,811 from Class A, Class B and Class C shares, respectively, for CDSC
imposed upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of AIM,
AISI and/or ADI.
F-7
AIM UTILITIES FUND
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to an exemptive order from the Securities and
Exchange Commission ("SEC") and approved procedures by the Board of Trustees,
to invest daily available cash balances and cash collateral from securities
lending transactions in an affiliated money market fund. The Fund and the money
market fund below have the same investment advisor and therefore, are
considered to be affiliated. The tables below show the transactions in and
earnings from investments in an affiliated money market fund for the year ended
March 31, 2006.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
CHANGE IN
UNREALIZED REALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND GAIN
FUND 03/31/05 AT COST FROM SALES (DEPRECIATION) 03/31/06 INCOME (LOSS)
- ---------------------------------------------------------------------------------------------------------------------------
Premier Portfolio -- Institutional Class $1,026,579 $109,689,442 $(107,275,293) $-- $3,440,728 $208,160 $--
- ---------------------------------------------------------------------------------------------------------------------------
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
CHANGE IN
UNREALIZED REALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND GAIN
FUND 03/31/05 AT COST FROM SALES (DEPRECIATION) 03/31/06 INCOME* (LOSS)
- -----------------------------------------------------------------------------------------------------------------------------
Premier Portfolio -- Institutional Class $11,544,702 $ 41,684,379 $ (38,722,633) $-- $14,506,448 $ 45,865 $--
- -----------------------------------------------------------------------------------------------------------------------------
Total $12,571,281 $151,373,821 $(145,997,926) $-- $17,947,176 $254,025 $--
- -----------------------------------------------------------------------------------------------------------------------------
* Net of compensation to counterparties.
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, for the year ended March 31, 2006,
the Fund engaged in securities sales of $0 and securities purchases of $439,700.
NOTE 5--EXPENSE OFFSET ARRANGEMENTS
The expense offset arrangements are comprised of (i) transfer agency credits
which result from balances in Demand Deposit Accounts (DDA) used by the
transfer agent for clearing shareholder transactions and (ii) custodian credits
which result from periodic overnight cash balances at the custodian. For the
year ended March 31, 2006, the Fund received credits from these arrangements,
which resulted in the reduction of the Fund's total expenses of $10,835.
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 March 31, 2006, the Fund paid legal fees of $4,756 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.
F-8
AIM UTILITIES FUND
During the year ended March 31, 2006, 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.
NOTE 8--PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities having a market value up to one-third of
the Fund's total assets. Such loans are secured by collateral equal to no less
than the market value of the loaned securities determined daily. Such
collateral will be cash or debt securities issued or guaranteed by the U.S.
Government or any of its agencies. Cash collateral received in connection with
these loans is invested in short-term money market instruments or affiliated
money market funds. It is the Fund's policy to obtain additional collateral
from or return excess collateral to the borrower by the end of the next
business day, following the valuation date of the securities loaned. Therefore,
the value of the collateral held may be temporarily less than the value of the
securities on loan. Lending securities entails a risk of loss to the Fund if
and to the extent that the market value of the securities loaned were to
increase and the borrower did not increase the collateral accordingly, and the
borrower fails to return the securities. The Fund could also experience delays
and costs in gaining access to the collateral. The Fund bears the risk of any
deficiency in the amount of the collateral available for return to the borrower
due to a loss on the collateral invested.
At March 31, 2006, securities with an aggregate value of $13,748,238 were on
loan to brokers. The loans were secured by cash collateral of $14,506,448
received by the Fund and subsequently invested in an affiliated money market
fund. For the year ended March 31, 2006, the Fund received dividends on cash
collateral investments of $45,865 for securities lending transactions, which
are net of compensation to counterparties.
NOTE 9--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
The tax character of distributions paid during the years ended March 31, 2006
and 2005 was as follows:
2006 2005
-------------------------------------------------------------
Distributions paid from ordinary income $5,583,694 $5,774,162
-------------------------------------------------------------
TAX COMPONENTS OF NET ASSETS:
As of March 31, 2006, the components of net assets on a tax basis were as
follows:
2006
----------------------------------------------------
Undistributed ordinary income $ 199,644
----------------------------------------------------
Unrealized appreciation -- investments 63,929,370
----------------------------------------------------
Temporary book/tax differences (82,118)
----------------------------------------------------
Capital loss carryforward (70,625,261)
----------------------------------------------------
Shares of beneficial interest 280,929,000
----------------------------------------------------
Total net assets $274,350,635
----------------------------------------------------
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation (depreciation) difference is attributable primarily to losses on
wash sales, the treatment of corporate actions and defaulted bonds. The
tax-basis unrealized appreciation on investments amount includes appreciation
(depreciation) on foreign currencies of $(383) and remaining proceeds to be
received on Candescent Technologies Corp. of $26,068.
The temporary book/tax differences are a result of timing differences between
book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan expenses.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the
amount of capital loss carryforward actually available for the Fund to utilize.
The ability to utilize capital loss carryforward in the future may be limited
under the Internal Revenue Code and related regulations based on the results of
future transactions. Under these limitation rules, the Fund is limited as of
March 31, 2006 to utilizing $56,933,583 of capital loss carryforward in the
fiscal year ended March 31, 2007.
F-9
AIM UTILITIES FUND
The Fund utilized $21,462,928 of capital loss carryforward in the current
period to offset net realized capital gain for federal income tax purposes. The
Fund has a capital loss carryforward as of March 31, 2006 which expires as
follows:
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
---------------------------------------------
March 31, 2010 $46,592,205
---------------------------------------------
March 31, 2011 23,729,348
---------------------------------------------
March 31, 2013 303,708
---------------------------------------------
Total capital loss carryforward $70,625,261
---------------------------------------------
* Capital loss carryforward as of the date listed above is reduced for
limitations, if any, to the extent required by the Internal Revenue Code. To
the extent that unrealized gains (losses) as of November 24, 2003, the date
of the reorganization of AIM Global Utilities Fund into the Fund, are
realized on securities held in each fund at such date, the capital loss
carryforward may be further limited for up to five years from the date of the
reorganization.
NOTE 10--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the year ended
March 31, 2006 was $104,138,083 and $99,475,636, respectively.
At the request of the Trustee, AIM recovered third party research credits
during the year ended March 31, 2006, in the amount of $10,992. These research
credits were recorded as realized gains.
UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENT SECURITIES ON A TAX BASIS
-------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $65,208,562
-------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (1,304,877)
-------------------------------------------------------------------------
Net unrealized appreciation of investment securities $63,903,685
-------------------------------------------------------------------------
Cost of investments for tax purposes is $224,714,391.
NOTE 11--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of bond premium
amortization, foreign currency transactions and reorganization expenses, on
March 31, 2006, undistributed net investment income was increased by $320,831,
undistributed net realized gain (loss) was decreased by $318,631 and shares of
beneficial interest decreased by $2,200. This reclassification had no effect on
the net assets of the Fund.
F-10
AIM UTILITIES FUND
NOTE 12--SHARE INFORMATION
The Fund currently consists of five different classes of shares: Class A
shares, Class B shares, Class C shares, Investor Class shares and Institutional
Class shares. Investor Class shares of the Fund are offered only to certain
grandfathered investors.
Class A shares are sold with a front-end sales charge. Class B shares and
Class C shares are sold with CDSC. Investor Class and 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 MARCH 31,
--------------------------------------------------
2006 /(A)/ 2005
------------------------ ------------------------
SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------------------------------------
Sold:
Class A 4,467,715 $ 60,682,158 1,349,057 $ 15,037,912
- -------------------------------------------------------------------------------------------------------------
Class B 1,328,228 17,798,142 686,957 7,827,572
- -------------------------------------------------------------------------------------------------------------
Class C 753,200 10,129,701 218,268 2,494,228
- -------------------------------------------------------------------------------------------------------------
Investor Class 1,922,756 26,204,938 1,519,629 17,110,449
- -------------------------------------------------------------------------------------------------------------
Institutional Class /(b)/ 52,882 739,049 -- --
- -------------------------------------------------------------------------------------------------------------
Issued as reinvestment of dividends:
Class A 191,385 2,654,174 229,550 2,550,083
- -------------------------------------------------------------------------------------------------------------
Class B 36,537 507,108 53,977 599,076
- -------------------------------------------------------------------------------------------------------------
Class C 9,371 130,997 9,938 111,371
- -------------------------------------------------------------------------------------------------------------
Investor Class 126,615 1,767,848 172,440 1,934,858
- -------------------------------------------------------------------------------------------------------------
Institutional Class /(b)/ 290 4,096 -- --
- -------------------------------------------------------------------------------------------------------------
Automatic conversion of Class B shares to Class A shares:
Class A 295,266 3,977,446 388,776 4,257,299
- -------------------------------------------------------------------------------------------------------------
Class B (294,511) (3,977,446) (387,695) (4,257,299)
- -------------------------------------------------------------------------------------------------------------
Reacquired:
Class A (4,428,535) (60,223,504) (2,825,080) (31,235,308)
- -------------------------------------------------------------------------------------------------------------
Class B (937,188) (12,703,997) (901,951) (9,827,805)
- -------------------------------------------------------------------------------------------------------------
Class C (522,221) (7,176,811) (302,675) (3,356,671)
- -------------------------------------------------------------------------------------------------------------
Investor Class (2,440,722) (33,384,940) (2,049,799) (22,759,590)
- -------------------------------------------------------------------------------------------------------------
Institutional Class /(b)/ (1,533) (21,549) -- --
- -------------------------------------------------------------------------------------------------------------
559,535 $ 7,107,410 (1,838,608) $(19,513,825)
- -------------------------------------------------------------------------------------------------------------
/(a)/There is one entity that is a record owner of more than 5% of the
outstanding shares of the Fund and it owns 7% of the outstanding shares of
the Fund. ADI has an agreement with this entity to sell Fund shares. The
Fund, AIM and/or AIM affiliates may make payments to this entity, which is
considered to be related to the Fund, for providing services to the Fund,
AIM and/or AIM affiliates including but not limited to services such as
securities brokerage, distribution, third party record keeping and account
servicing. The Trust has no knowledge as to whether all or any portion of
the shares owned of record by this entity is also owned beneficially.
/(b)/Institutional Class shares commenced sales on October 25, 2005.
F-11
AIM UTILITIES FUND
NOTE 13--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
CLASS A
--------------------------------------------------
YEAR ENDED MARCH 31,
--------------------------------------------------
2006 2005 2004 2003/(A)/
- -----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.28 $ 10.10 $ 8.13 $ 10.66
- -----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.28 0.30/(b)/ 0.22/(b)/ 0.16
- -----------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) 1.65 2.18 1.98 (2.40)
- -----------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.93 2.48 2.20 (2.24)
- -----------------------------------------------------------------------------------------------------------------------
Less distributions from net investment income (0.29) (0.30) (0.23) (0.29)
- -----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 13.92 $ 12.28 $ 10.10 $ 8.13
- -----------------------------------------------------------------------------------------------------------------------
Total return/(c)/ 15.74% 24.95% 27.33 % (21.05)%
- -----------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $135,835 $113,325 $101,899 $ 450
- -----------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.30%/(d)/ 1.40% 1.40 % 1.41 %
- -----------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.46%/(d)/ 1.46% 1.77 % 1.74 %
- -----------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 2.06%/(d)/ 2.76% 2.27 % 2.79 %
- -----------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 37% 33% 101 % 64 %
- -----------------------------------------------------------------------------------------------------------------------
/(a)/Class commenced sales on March 28, 2002.
/(b)/Calculated using average shares outstanding.
/(c)/Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net
asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges.
/(d)/Ratios are based on average daily net assets of $139,056,469.
CLASS B
-----------------------------------------------
YEAR ENDED MARCH 31,
-----------------------------------------------
2006 2005 2004 2003/(A)/
- --------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.32 $ 10.13 $ 8.15 $ 10.66
- --------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.18 0.23/(b)/ 0.16/(b)/ 0.13
- --------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) 1.66 2.19 1.98 (2.43)
- --------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.84 2.42 2.14 (2.30)
- --------------------------------------------------------------------------------------------------------------------
Less distributions from net investment income (0.19) (0.23) (0.16) (0.21)
- --------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 13.97 $ 12.32 $ 10.13 $ 8.15
- --------------------------------------------------------------------------------------------------------------------
Total return/(c)/ 14.92% 24.17 % 26.47 % (21.67)%
- --------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $41,888 $35,303 $34,606 $ 193
- --------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 2.05%/(d)/ 2.05 % 2.05 % 2.14 %
- --------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 2.21%/(d)/ 2.21 % 2.79 % 2.69 %
- --------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 1.31%/(d)/ 2.11 % 1.62 % 1.84 %
- --------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 37% 33 % 101 % 64 %
- --------------------------------------------------------------------------------------------------------------------
/(a)/Class commenced sales on March 28, 2002.
/(b)/Calculated using average shares outstanding.
/(c)/Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net
asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges.
/(d)/Ratios are based on average daily net assets of $41,727,746.
F-12
AIM UTILITIES FUND
NOTE 13--FINANCIAL HIGHLIGHTS-(CONTINUED)
CLASS C
-------------------------------------------------------
YEAR ENDED MARCH 31,
-------------------------------------------------------
2006 2005 2004 2003 2002
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.41 $10.21 $ 8.22 $ 10.63 $ 16.08
- ----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.18 0.23/(a)/ 0.16/(a)/ 0.15 0.03
- ----------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) 1.68 2.20 1.98 (2.47) (5.48)
- ----------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.86 2.43 2.14 (2.32) (5.45)
- ----------------------------------------------------------------------------------------------------------------------------
Less distributions from net investment income (0.19) (0.23) (0.15) (0.09) (0.00)
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 14.08 $12.41 $10.21 $ 8.22 $ 10.63
- ----------------------------------------------------------------------------------------------------------------------------
Total return/(b)/ 14.98% 24.08% 26.17% (21.85)% (33.87)%
- ----------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $11,208 $6,900 $6,437 $ 667 $ 1,799
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 2.05%/(c)/ 2.05% 2.05 % 2.05 % 2.04 %
- ----------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 2.21%/(c)/ 2.21% 3.14 % 3.70 % 2.45 %
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 1.31%/(c)/ 2.11% 1.62 % 1.75 % 0.32 %
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 37% 33% 101 % 64 % 56 %
- ----------------------------------------------------------------------------------------------------------------------------
/(a)/Calculated using average shares outstanding.
/(b)/Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net
asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges.
/(c)/Ratios are based on average daily net assets of $10,571,373.
INVESTOR CLASS
----------------------------------------------------------
YEAR ENDED MARCH 31,
----------------------------------------------------------
2006 2005 2004 2003 2002
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.38 $ 10.18 $ 8.19 $ 10.66 $ 16.20
- -------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.28 0.31/(a)/ 0.22/(a)/ 0.23 0.15
- -------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) 1.67 2.21 2.01 (2.46) (5.54)
- -------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.95 2.52 2.23 (2.23) (5.39)
- -------------------------------------------------------------------------------------------------------------------------------
Less distributions from net investment income (0.29) (0.32) (0.24) (0.24) (0.15)
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 14.04 $ 12.38 $ 10.18 $ 8.19 $ 10.66
- -------------------------------------------------------------------------------------------------------------------------------
Total return/(b)/ 15.79% 25.08% 27.50 % (20.99)% (33.34)%
- -------------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $84,701 $79,536 $69,065 $72,749 $124,578
- -------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.30%/(c)/ 1.30% 1.30% 1.30% 1.30%
- -------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.46%/(c)/ 1.46% 2.01% 1.90% 1.57%
- -------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 2.06%/(c)/ 2.86% 2.37% 2.63% 1.09%
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 37% 33% 101% 64% 56%
- -------------------------------------------------------------------------------------------------------------------------------
/(a)/Calculated using average shares outstanding.
/(b)/Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net
asset values may differ from the net asset value and returns for
shareholder transactions.
/(c)/Ratios are based on average daily net assets of $88,159,600.
F-13
AIM UTILITIES FUND
NOTE 13--FINANCIAL HIGHLIGHTS-(CONTINUED)
INSTITUTIONAL
CLASS
----------------
OCTOBER 25, 2005
(DATE SALES
COMMENCED) TO
MARCH 31,
----------------
2006
---------------------------------------------------------------------------
Net asset value, beginning of period $13.48
---------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.13
---------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 0.46
---------------------------------------------------------------------------
Total from investment operations 0.59
---------------------------------------------------------------------------
Less distributions from net investment income (0.15)
---------------------------------------------------------------------------
Net asset value, end of period $13.92
---------------------------------------------------------------------------
Total return/(a)/ 4.34%
---------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 719
---------------------------------------------------------------------------
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 0.92%/(b)/
---------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.05%/(b)/
---------------------------------------------------------------------------
Ratio of net investment income to average net assets 2.44%/(b)/
---------------------------------------------------------------------------
Portfolio turnover rate/(c)/ 37%
---------------------------------------------------------------------------
/(a)/Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net
asset values may differ from the net asset value and returns for
shareholder transactions. Not annualized for periods less than one year.
/(b)/Ratios are annualized and based on average daily net assets of $293,050.
/(c)/Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
F-14
AIM UTILITIES FUND
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. 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.
PENDING LITIGATION AND REGULATORY INQUIRIES
On August 30, 2005, the West Virginia Office of the State Auditor--Securities
Commission ("WVASC") issued a Summary Order to Cease and Desist and Notice of
Right to Hearing to AIM and ADI (Order No. 05-1318). The WVASC makes findings
of fact that AIM and ADI entered into certain arrangements permitting market
timing of the AIM Funds, including those formerly advised by IFG, and failed to
disclose these arrangements in the prospectuses for such Funds, and conclusions
of law to the effect that AIM and ADI violated the West Virginia securities
laws. The WVASC orders AIM and ADI to cease any further violations and seeks to
impose monetary sanctions, including restitution to affected investors,
disgorgement of fees, reimbursement of investigatory, administrative and legal
costs and an "administrative assessment," to be determined by the Commissioner.
Initial research indicates that these damages could be limited or capped by
statute.
Civil lawsuits, including purported class action and shareholder derivative
suits, have been filed against certain of the AIM Funds, IFG, AIM, ADI and/or
related entities and individuals, depending on the lawsuit, alleging:
. that the defendants permitted improper market timing and related
activity in the AIM Funds;
. that certain AIM Funds inadequately employed fair value pricing;
. that the defendants charged excessive advisory and/or distribution
fees and failed to pass on to shareholders the perceived savings
generated by economies of scale and that the defendants adopted
unlawful distribution plans; and
. that the defendants improperly used the assets of the AIM Funds to pay
brokers to aggressively promote the sale of the AIM Funds over other
mutual funds and that the defendants concealed such payments from
investors by disguising them as brokerage commissions.
These lawsuits allege as theories of recovery, depending on the lawsuit,
violations of various provisions of the Federal and state securities laws and
ERISA, negligence, breach of fiduciary duty and/or breach of contract. These
lawsuits seek remedies that include, depending on the lawsuit, damages,
restitution, injunctive relief, imposition of a constructive trust, removal of
certain directors and/or employees, various corrective measures under ERISA,
rescission of certain AIM Funds' advisory agreements and/or distribution plans
and recovery of all fees paid, an accounting of all fund-related fees,
commissions and soft dollar payments, restitution of all commissions and fees
paid, and prospective relief in the form of reduced fees.
All lawsuits based on allegations of market timing, late trading and related
issues have been transferred or conditionally transferred to the United States
District Court for the District of Maryland (the "MDL Court"). Pursuant to an
Order of the MDL Court, plaintiffs in these lawsuits consolidated their claims
for pre-trial purposes into three amended complaints against various AIM- and
IFG-related parties: (i) a Consolidated Amended Class Action Complaint
purportedly brought on behalf of shareholders of the AIM Funds; (ii) a
Consolidated Amended Fund Derivative Complaint purportedly brought on behalf of
the AIM Funds and fund registrants; and (iii) an Amended Class Action Complaint
for Violations of the Employee Retirement Income Securities Act ("ERISA")
purportedly brought on behalf of participants in AMVESCAP's 401(k) plan.
On March 1, 2006, the MDL Court entered orders on Defendants' Motions to
dismiss in the derivative and class action lawsuits. The MDL Court dismissed
all derivative causes of action in the derivative lawsuit but two: (i) the
excessive fee claim under Section 36(b) of the Investment Company Act of 1940
(the "1940 Act"); and (ii) the "control person liability" claim under
Section 48 of the 1940 Act. The MDL Court dismissed all claims asserted in the
class action lawsuit but three: (i) the securities fraud claims under
Section 10(b) of the Securities Exchange Act of 1934; (ii) the excessive fee
claim under Section 36(b) of the 1940 Act (which survived only insofar as
plaintiffs seek recovery of fees associated with the assets involved in market
timing); and (iii) the "control person liability" claim under Section 48 of the
1940 Act. Based on the MDL Court's March 1, 2006 orders, all claims asserted
against the Funds that have been transferred to the MDL Court have been
dismissed, although certain Funds remain nominal defendants in the derivative
lawsuit. Defendants filed their Original Answer in the class action lawsuit on
March 31, 2006. The MDL Court has indefinitely deferred Defendants' obligation
to answer the derivative lawsuit.
On February 27, 2006, Judge Motz for the MDL Court issued a memorandum
opinion on the AMVESCAP defendants' motion to dismiss the ERISA lawsuit. Judge
Motz granted the motion in part and denied the motion in part, holding that:
(i) plaintiff has both constitutional and statutory standing to pursue her
claims under
F-15
AIM UTILITIES FUND
NOTE 14--LEGAL PROCEEDINGS-(CONTINUED)
ERISA (S) 502(a)(2); (ii) plaintiff lacks standing under ERISA (S) 502(a)(3) to
obtain equitable relief; (iii) the motion is granted as to the claims alleged
under ERISA (S) 404 for failure to prudently and loyally manage plan assets
against certain AMVESCAP defendants; (iv) the motion is denied as to the claims
alleged under ERISA (S) 404 for failure to prudently and loyally manage plan
assets against AMVESCAP and certain other AMVESCAP defendants. The opinion
also: (i) confirmed plaintiff's abandonment of her claims that defendants
engaged in prohibited transactions and/or misrepresentation; (ii) postponed
consideration of the duty to monitor and co-fiduciary duty claims until after
any possible amendments to the complaints; (iii) stated that plaintiff may seek
leave to amend her complaint within 40 days of the date of filing of the
memorandum opinion. On April 4, 2006, Judge Motz entered an order implementing
these rulings in the ERISA (Calderon) lawsuit against the AMVESCAP defendants.
Plaintiffs indicated that they intend to amend their complaint in light of this
order. Defendants will have 30 days after such amendment to answer or otherwise
respond.
IFG, AIM, ADI and/or related entities and individuals have received inquiries
from numerous regulators in the form of subpoenas or other oral or written
requests for information and/or documents related to one or more of the
following issues, among others, some of which concern one or more AIM Funds:
market timing activity, late trading, fair value pricing, excessive or improper
advisory and/or distribution fees, mutual fund sales practices, including
revenue sharing and directed-brokerage arrangements, investments in securities
of other registered investment companies, contractual plans, issues related to
Section 529 college savings plans and procedures for locating lost security
holders. IFG, AIM and ADI have advised the Fund that they are providing full
cooperation with respect to these inquiries. Regulatory actions and/or
additional civil lawsuits related to these or other issues may be filed against
the AIM Funds, IFG, AIM and/or related entities and individuals in the future.
At the present time, management of AIM and the Fund are unable to estimate
the impact, if any, that the outcome of the Pending Litigation and Regulatory
Inquiries described above may have on AIM, 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
AIM UTILITIES FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees of AIM Sector Funds
and Shareholders of AIM Utilities Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of AIM Utilities Fund (one of the
funds constituting AIM Sector Funds, hereafter referred to as the "Fund") at
March 31, 2006, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then ended
and the financial highlights for each of the periods indicated, in conformity
with accounting principles generally accepted in the United States of America.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits, which included confirmation of securities at March 31, 2006 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
/s/ PRICEWATERHOUSECOOPERS LLP
May 19, 2006
Houston, Texas
F-17
AIM UTILITIES FUND
TAX DISCLOSURES
REQUIRED FEDERAL INCOME TAX INFORMATION
Of ordinary dividends paid to shareholders during the Fund's tax year ended
March 31, 2006, 100% is eligible for the dividends received deduction for
corporations.
For its tax year ended March 31, 2006, the Fund designated 100%, or the
maximum amount allowable, of its dividend distributions as qualified dividend
income. Your actual amount of qualified dividend income for the calendar year
will be reported in Form 1099-DIV. You should consult your tax advisor
regarding treatment of these amounts.
TAX INFORMATION FOR NON-RESIDENT ALIEN SHAREHOLDERS
For its tax year ended March 31, 2006, the Fund designates 3.10%, or the
maximum amount allowable, of its dividend distributions as qualified interest
income exempt from U.S. income tax for non-resident alien shareholders. Your
actual amount of qualified interest income for the calendar year will be
reported in your Form 1042-S mailing. You should consult your tax advisor
regarding treatment of the amounts.
The percentage of qualifying assets not subject to the U.S. estate tax for
the fiscal quarters ended June 30, 2005, September 30, 2005, December 31, 2005
and March 31, 2006 are 18.60%, 21.74%, 14.65% and 11.15%, respectively.
F-18
AIM UTILITIES FUND
TRUSTEES AND OFFICERS
As of March 31, 2006
The address of each trustee and officer of AIM Sector Funds (the "Trust"), is
11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 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)
TRUST OR OFFICER SINCE DURING PAST 5 YEARS
- ----------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- ----------------------------------------------------------------------------------------------------
Robert H. Graham/1 /-- 1946 2003 Director and Chairman, A I M Management
Trustee, Vice Chair, President and Group Inc. (financial services holding
Principal Executive Officer company); Director and Vice Chairman,
AMVESCAP PLC; Chairman of AMVESCAP
PLC -- AIM Division (parent of AIM and
a global investment management firm);
and Trustee, Vice Chair, President and
Principal Executive Officer of the AIM
Family of Funds
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 Trustee and Executive Vice President of
Trustee and Executive Vice President the AIM Family of Funds
Formerly: Director, Chairman, President
and Chief Executive Officer, INVESCO
Funds Group, Inc.; President and Chief
Executive Officer, INVESCO
Distributors, Inc.; and Chief Executive
Officer, AMVESCAP PLC -- Managed
Products; and Chairman, A I M Advisors,
Inc.; Director, President and Chief
Executive Officer, A I M Management
Group Inc.; Director and President,
A I M Advisors, Inc.; Director, A I M
Capital Management, Inc. and A I M
Distributors,
Inc.; Director and Chairman, AIM Investment
Services, Inc., Fund Management Company
and INVESCO Distributors, Inc.
(registered broker dealer); Chief
Executive Officer, AMVESCAP PLC -- AIM
Division
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- ----------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 2003 Chairman, Crockett Technology
Trustee and Chair Associates (technology consulting
company)
- ----------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 1983 Retired
Trustee
- ----------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2003 Retired
Trustee
Formerly: Partner, law firm of Baker &
McKenzie
- ----------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2000 Founder, Green, Manning & Bunch, Ltd.
Trustee (investment banking firm); and
Director, Policy Studies, Inc. and Van
Gilder Insurance Corporation
- ----------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2003 Director of a number of public and
Trustee private business corporations,
including the Boss Group, Ltd. (private
investment and management); Cortland
Trust, Inc. (Chairman) (registered
investment company (3 portfolios));
Annuity and Life Re (Holdings), Ltd.
(insurance company; CompuDyne
Corporation (provider of products and
services to the public security market)
and Homeowners of American Holding
Corporation
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President,
AB Volvo; and director of various
affiliated Volvo companies
- ----------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 2003 Chief Executive Officer, Twenty First
Trustee Century Group, Inc. (government affairs
company); and Owner, Dos Angelos Ranch,
L.P.
Formerly: Chief Executive Officer,
Texana Timber LP (sustainable forestry
company)
- ----------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 2003 Partner, law firm of Kramer Levin
Trustee Naftalis and Frankel LLP
- ----------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 2003 Formerly: Chief Executive Officer, YWCA
Trustee of the USA
- ----------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 2003 Partner, law firm of Pennock & Cooper
Trustee
- ----------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2003 Retired
Trustee
- ----------------------------------------------------------------------------------------------------
Larry Soll -- 1942 1997 Retired
Trustee
- ----------------------------------------------------------------------------------------------------
Raymond Stickel, Jr. -- 1944 2005 Retired
Trustee
Formerly: Partner, Deloitte & Touche
- ----------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
DURING PAST 5 YEARS HELD BY TRUSTEE
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
Director and Chairman, A I M Management None
Group Inc. (financial services holding
company); Director and Vice Chairman,
AMVESCAP PLC; Chairman of AMVESCAP
PLC -- AIM Division (parent of AIM and
a global investment management firm);
and Trustee, Vice Chair, President and
Principal Executive Officer of the AIM
Family of Funds
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
- ----------------------------------------------------------------------------
Trustee and Executive Vice President of None
the AIM Family of Funds
Formerly: Director, Chairman, President
and Chief Executive Officer, INVESCO
Funds Group, Inc.; President and Chief
Executive Officer, INVESCO
Distributors, Inc.; and Chief Executive
Officer, AMVESCAP PLC -- Managed
Products; and Chairman, A I M Advisors,
Inc.; Director, President and Chief
Executive Officer, A I M Management
Group Inc.; Director and President,
A I M Advisors, Inc.; Director, A I M
Capital Management, Inc. and A I M
Distributors,
Inc.; Director and Chairman, AIM Investment
Services, Inc., Fund Management Company
and INVESCO Distributors, Inc.
(registered broker dealer); Chief
Executive Officer, AMVESCAP PLC -- AIM
Division
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
Chairman, Crockett Technology ACE Limited (insurance
Associates (technology consulting company); and Captaris, Inc.
company) (unified messaging provider)
- ----------------------------------------------------------------------------
Retired None
- ----------------------------------------------------------------------------
Retired Badgley Funds, Inc. (registered
investment company
Formerly: Partner, law firm of Baker & (2 portfolios))
McKenzie
- ----------------------------------------------------------------------------
Founder, Green, Manning & Bunch, Ltd. None
(investment banking firm); and
Director, Policy Studies, Inc. and Van
Gilder Insurance Corporation
- ----------------------------------------------------------------------------
Director of a number of public and None
private business corporations,
including the Boss Group, Ltd. (private
investment and management); Cortland
Trust, Inc. (Chairman) (registered
investment company (3 portfolios));
Annuity and Life Re (Holdings), Ltd.
(insurance company; CompuDyne
Corporation (provider of products and
services to the public security market)
and Homeowners of American Holding
Corporation
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President,
AB Volvo; and director of various
affiliated Volvo companies
- ----------------------------------------------------------------------------
Chief Executive Officer, Twenty First Administaff, and Discovery
Century Group, Inc. (government affairs Global Education Fund
company); and Owner, Dos Angelos Ranch, (non-profit)
L.P.
Formerly: Chief Executive Officer,
Texana Timber LP (sustainable forestry
company)
- ----------------------------------------------------------------------------
Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Naftalis and Frankel LLP investment company
(3 portfolios))
- ----------------------------------------------------------------------------
Formerly: Chief Executive Officer, YWCA None
of the USA
- ----------------------------------------------------------------------------
Partner, law firm of Pennock & Cooper None
- ----------------------------------------------------------------------------
Retired None
- ----------------------------------------------------------------------------
Retired None
- ----------------------------------------------------------------------------
Retired Director, Mainstay VP Series
Funds, Inc. (21 portfolios)
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.
AIM UTILITIES FUND
TRUSTEES AND OFFICERS
As of March 31, 2006
The address of each trustee and officer of AIM Sector Funds (the "Trust"), is
11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 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
- --------------------------------------------------------------------------------------------------------------------
Russell C. Burk -- 1958 2005 Senior Vice President and Senior N/A
Senior Vice President and Officer of the AIM Family of Funds
Senior Officer
Formerly: Director of Compliance and
Assistant General Counsel, ICON
Advisers, Inc.; Financial Consultant,
Merrill Lynch; General Counsel and
Director of Compliance, ALPS Mutual
Funds, Inc.
- --------------------------------------------------------------------------------------------------------------------
John M. Zerr -- 1962/3/ 2006 Director, Senior Vice President, N/A
Senior Vice President, Chief Legal Secretary and General Counsel, A I M
Officer and Secretary Management Group Inc. (financial
services holding company) and A I M
Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Vice President, A I M Capital
Management, Inc., AIM Investment
Services, Inc., and Fund Management
Company; and Senior Vice President, A I
M Distributors, Inc.; and Senior Vice
President, Chief Legal Officer and
Secretary of the AIM Family of Funds
Formerly: Chief Operating Officer,
Senior Vice President, General Counsel,
and Secretary, Liberty Ridge Capital,
Inc. (an investment adviser); Vice
President and Secretary, PBHG Funds (an
investment company); Vice President and
Secretary, PBHG Insurance Series Fund
(an investment company); General
Counsel and Secretary, Pilgrim Baxter
Value Investors (an investment
adviser); Chief Operating Officer,
General Counsel and Secretary, Old
Mutual Investment Partners (a
broker-dealer); General Counsel and
Secretary, Old Mutual Fund Services (an
administrator); General Counsel and
Secretary, Old Mutual Shareholder
Services (a shareholder servicing
center); Executive Vice President,
General Counsel and Secretary, Old
Mutual Capital, Inc. (an investment
adviser); and Vice President and
Secretary, Old Mutual Advisors Funds
(an investment company)
- --------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley -- 1959 2004 Global Compliance Director, AMVESCAP N/A
Vice President PLC; and Vice President of the AIM
Family of Funds
Formerly: Senior Vice President, A I M
Management Group Inc. (financial
services holding company); Senior Vice
President and Chief Compliance Officer,
A I M Advisors, Inc. and the AIM Family
of Funds; Vice President and Chief
Compliance Officer, A I M Capital
Management, Inc. and A I M
Distributors, Inc.; Vice President, AIM
Investment Services, Inc. and Fund
Management Company; and Senior Vice
President and Compliance Director,
Delaware Investments Family of Funds
- --------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Senior Vice President and General N/A
Vice President Counsel, AMVESCAP PLC; and Vice
President of the AIM Family of Funds
Formerly: Director, General Counsel,
and Vice President Fund Management
Company; Director, Senior Vice
President, Secretary and General
Counsel, A I M Management Group Inc.
(financial services holding company)
and A I M Advisors, Inc.; Director and
Vice President, INVESCO Distributors,
Inc.; Senior Vice President,
A I M Distributors, Inc.; Vice
President, A I M Capital Management,
Inc. and AIM Investment Services, Inc.;
Senior Vice President, Chief Legal
Officer and Secretary of the AIM Family
of Funds; and Senior Vice President,
Chief Legal Officer and General
Counsel, Liberty Financial Companies,
Inc. and Liberty Funds Group, LLC
- --------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, N/A
Vice President, Treasurer and A I M Advisors, Inc.; and Vice
Principal Financial Officer President, Treasurer and Principal
Financial Officer of the AIM Family of
Funds
Formerly: Vice President,
A I M Distributors, Inc.; and Senior
Vice President, AIM Investment
Services, 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.;
and Vice President of the AIM Family of
Funds
Formerly: Senior Vice President, AIM
Private Asset Management, Inc.; and
Chief Equity Officer and Senior
Investment Officer, A I M Capital
Management, Inc.
- --------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 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. and the AIM Family
of Fund
- --------------------------------------------------------------------------------------------------------------------
Todd L. Spillane/4 /-- 1958 2006 Senior Vice President, A I M Management N/A
Chief Compliance Officer Group Inc.; Senior Vice President and
Chief Compliance Officer, A I M
Advisors, Inc.; Chief Compliance
Officer of the AIM Family of Funds;
Vice President and Chief Compliance
Officer, A I M Capital Management,
Inc.; and Vice President, A I M
Distributors, Inc., AIM Investment
Services, Inc. and Fund Management
Company
Formerly: Global Head of Product
Development, AIG-Global Investment
Group, Inc.; Chief Compliance Officer
and Deputy General Counsel,
AIG-SunAmerica Asset Management; and
Chief Compliance Officer, Chief
Operating Officer and Deputy General
Counsel, American General Investment
Management
- --------------------------------------------------------------------------------------------------------------------
/3/ Mr. Zerr was elected Senior Vice President, Chief Legal Officer and
Secretary effective March 29, 2006.
/4/ Mr. Spillane was elected Chief Compliance Officer effective March 29, 2006.
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, 51st Floor Frankel LLP Houston, TX 77210-4739 225 Franklin Street
Philadelphia, PA 19103-7599 1177 Avenue of the Americas Boston, MA 02110-2801
New York, NY 10036-2714
DOMESTIC EQUITY SECTOR EQUITY AIM ALLOCATION SOLUTIONS
AIM Basic Balanced Fund* AIM Advantage Health Sciences Fund AIM Conservative Allocation Fund
AIM Basic Value Fund AIM Energy Fund AIM Growth Allocation Fund/2/
AIM Capital Development Fund AIM Financial Services Fund AIM Moderate Allocation Fund
AIM Charter Fund AIM Global Health Care Fund AIM Moderate Growth Allocation Fund
AIM Constellation Fund AIM Global Real Estate Fund AIM Moderately Conservative Allocation
AIM Diversified Dividend Fund AIM Gold & Precious Metals Fund Fund
AIM Dynamics Fund AIM Leisure Fund
AIM Large Cap Basic Value Fund AIM Multi-Sector Fund DIVERSIFIED PORTFOLIOS
AIM Large Cap Growth Fund AIM Real Estate Fund/1/
AIM Mid Cap Basic Value Fund AIM Technology Fund AIM Income Allocation Fund
AIM Mid Cap Core Equity Fund/1/ AIM Utilities Fund AIM International Allocation Fund
AIM Opportunities I Fund
AIM Opportunities II Fund
AIM Opportunities III Fund FIXED INCOME
AIM S&P 500 Index Fund
AIM Select Equity Fund TAXABLE
AIM Small Cap Equity Fund
AIM Small Cap Growth Fund AIM Enhanced Short Bond Fund
AIM Structured Core Fund AIM Floating Rate Fund
AIM Structured Growth Fund AIM High Yield Fund
AIM Structured Value Fund AIM Income Fund
AIM Summit Fund AIM Intermediate Government Fund
AIM Trimark Endeavor Fund AIM International Bond Fund
AIM Trimark Small Companies Fund AIM Limited Maturity Treasury Fund
AIM Money Market Fund
*Domestic equity and income fund AIM Short Term Bond Fund
AIM Total Return Bond Fund
INTERNATIONAL/GLOBAL EQUITY Premier Portfolio
Premier U.S. Government Money Portfolio
AIM Asia Pacific Growth Fund
AIM China Fund TAX-FREE
AIM Developing Markets Fund
AIM European Growth Fund AIM High Income Municipal Fund/1/
AIM European Small Company Fund/1/ AIM Municipal Bond Fund
AIM Global Aggressive Growth Fund AIM Tax-Exempt Cash Fund
AIM Global Equity Fund AIM Tax-Free Intermediate Fund
AIM Global Growth Fund Premier Tax-Exempt Portfolio
AIM Global Value Fund
AIM Japan Fund
AIM International Core Equity Fund
AIM International Growth Fund
AIM International Small Company Fund/1/
AIM Trimark Fund
/1/This Fund has limited public sales of its shares to certain investors. For
more information on who may continue to invest in the Fund, please see the
appropriate prospectus.
/2/Effective April 29, 2005, AIM Aggressive Allocation Fund was renamed AIM
Growth Allocation Fund.
Shareholders approved the reorganization of the following funds to be
effective on or about April 10, 2006: AIM Mid Cap Growth Fund into AIM Dynamics
Fund, AIM Small Company Growth Fund into AIM Small Cap Growth Fund and AIM
Premier Equity Fund into AIM Charter Fund.
If used after July 20, 2006, 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. AIM is a subsidiary of AMVESCAP PLC, one of the world's
largest independent financial services companies with $411 billion in assets
under management. Data as of March 31, 2006.
- --------------------------------------------------------------------------------
CONSIDER THE INVESTMENT OBJECTIVES, RISKS, AND CHARGES AND EXPENSES CAREFULLY.
FOR THIS AND OTHER INFORMATION ABOUT AIM FUNDS, OBTAIN A PROSPECTUS FROM YOUR
FINANCIAL ADVISOR AND READ IT CAREFULLY BEFORE INVESTING.
- --------------------------------------------------------------------------------
AIMinvestments.com I-UTI-AR-1 A I M Distributors, Inc.
[YOUR GOALS. OUR SOLUTIONS.]
- REGISTERED TRADEMARK -
Mutual Retirement Annuities College Separately Offshore Cash
Funds Products Savings Managed Products Management
Plans Accounts
[AIM INVESTMENTS LOGO]
- REGISTERED TRADEMARK -
ITEM 2. CODE OF ETHICS.
As of the end of the period covered by this report, the Registrant had
adopted a code of ethics (the "Code") that applies to the Registrant's
principal executive officer ("PEO") and principal financial officer ("PFO").
There were no amendments to the Code during the period covered by the
report. The Registrant did not grant any waivers, including implicit
waivers, from any provisions of the Code to the PEO or PFO during the period
covered by this report.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The Board of Trustees has determined that the Registrant has at least one
audit committee financial expert serving on its Audit Committee. The Audit
Committee financial expert is Raymond Stickel, Jr. 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 2006 Fees Billed for year end 2005
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 2006 Requirement/(1)/ fiscal year end 2005 Requirement/(1)/
-------------------- --------------------- -------------------- ---------------------
Audit Fees.......... $213,492 N/A $257,253 N/A
Audit-Related Fees.. $ 0 0% $ 0 0%
Tax Fees/(2)/....... $ 47,507 0% $ 84,955 0%
All Other Fees...... $ 0 0% $ 0 0%
-------- --------
Total Fees.......... $260,999 0% $342,208 0%
PWC billed the Registrant aggregate non-audit fees of $47,507 for the fiscal
year ended 2006, and $84,955 for the fiscal year ended 2005, 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 March 31, 2006 includes fees billed for
reviewing tax returns. Tax fees for fiscal year end March 31, 2005 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
Rendered to AIM and Billed Applicable to Rendered to AIM and Percentage of Fees
AIM Affiliates for Non-Audit Services AIM Affiliates for Billed Applicable to
fiscal year end 2006 Provided for fiscal year fiscal year end 2005 Non-Audit Services
That Were Required end 2006 Pursuant to That Were Required Provided for fiscal year
to be Pre-Approved Waiver of Pre- to be Pre-Approved end 2005 Pursuant to
by the Registrant's Approval by the Registrant's Waiver of Pre-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 2006, and $0 for the fiscal
year ended 2005, for non-audit services rendered to AIM and AIM Affiliates.
The Audit Committee also has considered whether the provision of non-audit
services that were rendered to AIM and AIM Affiliates that were not
required to be pre-approved pursuant to SEC regulations, if any, is
compatible with maintaining PWC's independence. To the extent that such
services were provided, the Audit Committee determined that the provision
of such services is compatible with PWC maintaining independence with
respect to the Registrant.
PRE-APPROVAL OF AUDIT AND NON-AUDIT SERVICES
POLICIES AND PROCEDURES
As adopted by the Audit Committees of
the AIM Funds (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 30/th/ 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 March 21, 2006, an evaluation was performed under the
supervision and with the participation of the officers of the
Registrant, including the PEO and PFO, to assess the effectiveness of
the Registrant's disclosure controls and procedures, as that term is
defined in Rule 30a-3(c) under the Investment Company Act of 1940
(the "Act"), as amended. Based on that evaluation, the Registrant's
officers, including the PEO and PFO, concluded that, as of March 21,
2006, the Registrant's disclosure controls and procedures were
reasonably designed to ensure: (1) that information required to be
disclosed by the Registrant on Form N-CSR is recorded, processed,
summarized and reported within the time periods specified by the
rules and forms of the Securities and Exchange Commission; and
(2) that material information relating to the Registrant is made
known to the PEO and PFO as appropriate to allow timely decisions
regarding required disclosure.
(b) There have been no changes in the Registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the Act) that
occurred during the second fiscal quarter of the period covered by
the report that have materially affected, or are reasonably likely to
materially affect, the Registrant's internal control over financial
reporting.
ITEM 12. EXHIBITS.
12(a)(1) Code of Ethics.
12(a)(2) Certifications of principal executive officer and principal financial
officer as required by Rule 30a-2(a) under the Investment Company Act
of 1940.
12(a)(3) Not applicable.
12(b) Certifications of principal executive officer and principal financial
officer as required by Rule 30a-2(b) under the Investment Company Act
of 1940.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
Registrant: AIM Sector Funds
By: /s/ ROBERT H. GRAHAM
-----------------------------
Robert H. Graham
Principal Executive Officer
Date: June 2, 2006
Pursuant to the requirements of the Securities and Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
By: /s/ ROBERT H. GRAHAM
-----------------------------
Robert H. Graham
Principal Executive Officer
Date: June 2, 2006
By: /s/ SIDNEY M. DILGREN
-----------------------------
Sidney M. Dilgren
Principal Financial Officer
Date: June 2, 2006
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.