N-CSRS 1 h39455nvcsrs.txt AIM SELECT REAL ESTATE INCOME FUND --------------------------- 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 811-21048 AIM Select Real Estate Income Fund (Exact name of registrant as specified in charter) 11 Greenway Plaza, Suite 100 Houston, Texas 77046 (Address of principal executive offices) (Zip code) Philip A. Taylor 11 Greenway Plaza, Suite 100 Houston, Texas 77046 (Name and address of agent for service) Registrant's telephone number, including area code: (713) 626-1919 Date of fiscal year end: 12/31 Date of reporting period: 06/30/06 Item 1. Reports to Stockholders. AIM SELECT REAL ESTATE INCOME FUND Semiannual Report to Shareholders o June 30, 2006 [COVER IMAGE] [YOUR GOALS. OUR SOLUTIONS.] [AIM INVESTMENTS LOGO APPEARS HERE] --Registered Trademark-- --Registered Trademark-- AIM SELECT REAL ESTATE INCOME FUND'S PRIMARY INVESTMENT OBJECTIVE IS HIGH CURRENT INCOME; THE FUND'S SECONDARY INVESTMENT OBJECTIVE IS CAPITAL APPRECIATION. o Unless otherwise stated, information presented in this report is as of June 30, 2006, and is based on total net assets attributable to common shares plus assets attributable to outstanding preferred shares.
GENERAL INFORMATION Fund preferred shares or borrowing, are rities commonly referred to as "junk borne entirely by the common shareholders. bonds." Securities of below-investment o AIM Select Real Estate Income Fund Common share income may fall if the grade quality are regarded as having performance figures are historical, and dividend rate on Fund preferred shares or predominantly speculative characteristics they reflect Fund expenses, the the interest rate on any borrowings rises with respect to capacity to pay interest reinvestment of distributions (if any) and and will fluctuate as the dividend rate on and repay principal. changes in net asset value (NAV) for Fund preferred shares or the interest on performance based on NAV and changes in any borrowings varies. o The Fund's Declaration of Trust and market price for performance based on Bylaws include provisions that could limit market price. o REITs tend to be small- to the ability of other entities or persons medium-sized companies. REIT shares, like to acquire control of the Fund or convert PRINCIPAL RISKS OF INVESTING IN THE FUND other smaller company shares, may be more the Fund to open-end status. These volatile than and perform differently from provisions could have the effect of o The performance of the Fund will be larger-company shares. There may be less depriving the common shareholders of closely linked to the performance of the trading in a smaller company's shares, opportunities to sell their common shares real estate markets. Property values may which means that buy and sell transactions at a premium over the then-current market fall due to declining rents or increasing in those shares could have a larger impact prices of the common shares. vacancies resulting from economic, legal, on the share's prices than is the case cultural, or technological developments. with larger-company shares. o An investment in the Fund is subject The Fund invests substantial assets in to investment risk, including the possible Real Estate Investment Trusts (REITs). o The Fund is classified as loss of the entire principal amount that REIT prices may drop because of poor "non-diversified" under the Investment you invest. Your common shares at any management or because borrowers fail to Company Act of 1940. It can invest a point in time may be worth less than what pay their loans. Many REITs use leverage greater portion of its assets in you invested, even after taking into (and some may be highly leveraged), which obligations of a single issuer than a account the reinvestment of Fund dividends increases investment risk and could "diversified" Fund. As a result, the Fund and distributions. The value of the Fund's adversely affect a REIT's operation and will be more susceptible than a more portfolio securities may move up or down, market value in periods of rising interest widely diversified fund to any single sometimes rapidly and unpredictably. rates in addition to the risks normally corporate, economic, political or associated with debt financing. Financial regulatory occurrence. o Investing in a single-sector mutual covenants related to REIT leveraging may fund may involve greater risk and affect the ability of REITs to operate o The prices of foreign securities may potential reward than investing in a more effectively. Real estate risks may also be affected by factors not present with diversified fund. Due to significant arise if a portfolio company fails to securities traded in the U.S. markets, market volatility, results of an carry adequate insurance or if a portfolio including currency exchange rates, investment made today may differ company becomes liable for removal or political and economic conditions, less substantially from the historical other costs related to environmental stringent regulation and higher performance shown. Call your financial contamination. Investing in REITs presents volatility. As a result, many foreign advisor for more current information. risks not associated with investing in securities may be less liquid and more stocks. volatile than U.S. securities. ABOUT INDEXES USED IN THIS REPORT o The Fund has the ability to use o If the Fund enters into interest rate o The unmanaged STANDARD & POOR'S leverage through the issuance of preferred swaps, interest rate caps, or options or COMPOSITE INDEX OF 500 STOCKS (the shares, commercial paper or notes, and/or futures transactions, a decline in S&P 500--Registered Trademark-- Index) is borrowing in an aggregate amount of up to interest rates may result in a decline in an index of common stocks frequently used 30% of the Fund's total assets after such the net amount receivable by the Fund as a general measure of U.S. stock market issuance and/or borrowing. It has under the interest rate hedging performance. currently issued preferred shares. The use transaction (or increase the net amount of leverage by the Fund can result in payable by the Fund under the interest o The unmanaged FTSE NATIONAL greater volatility of the NAV and market rate hedging transaction), which could ASSOCIATION OF REAL ESTATE INVESTMENT price of the Fund's common shares because result in a decline in the NAV of the TRUSTS (THE NAREIT) U.S. REAL ESTATE changes in the value of the Fund's common shares. EQUITY INDEX tracks the performance of portfolio investments, including equity REITs listed on New York Stock investments purchased with the proceeds of o The Fund may invest up to 20% of its Exchange, NASDAQ National Market System, the issuance of total assets in securities of and the American Stock Exchange. below-investment grade quality, including non-investment grade secu-
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE AIMinvestments.com
o The MSCI U.S. REIT INDEX is a Funds. You may also obtain a printed copy The Fund provides a complete list of its total-return index composed of the most by calling AIM's Client Services holdings four times in each fiscal year, actively traded real estate investment department a 800-959-4246. at the quarter-ends. For the second and trusts and is designed to be a measure of fourth quarters, the lists appear in the real estate equity performance. The index o The Fund's Annual CEO Certification of Fund's semiannual and annual reports to was developed with a base value of 200 as Compliance regarding the Fund's compliance shareholders. For the first and third of December 31, 1994. It is compiled by with NYSE corporate governance listing quarters, the Fund files the lists with Morgan Stanley Capital International. standards was filed with the NYSE on the Securities and Exchange Commission June 5, 2006. (SEC) on Form N-Q. The most recent list of o The unmanaged LIPPER SECTOR EQUITY portfolio holdings is available at FUND CATEGORY AVERAGE (Closed-End Funds) o The certifications of the Fund's AIMinvestments.com. From our home page, represents an average of all the principal executive officer and principal click on Products & Performance, then AIM closed-end sector equity funds tracked by financial officer, as required by Section Select Real Estate Income Fund, then Fund Lipper Inc., an independent mutual fund 302 of the Sarbanes-Oxley Act of 2002, are overview and then holdings. Shareholders performance monitor. filed with Securities and Exchange can also look up the Fund's Forms N-Q on Commission (SEC) with the Fund's Form the SEC's Web site at sec.gov. Copies of o The unmanaged LIPPER CLOSED-END REAL N-CSR for the period covered by this the Fund's Forms N-Q may be reviewed and ESTATE FUND INDEX represents an average of Semiannual Report to Shareholders. The copied at the SEC's Public Reference Room the performance of the 10 largest Fund's Form N-CSR for the period covered at 100 F Street, N.E., Washington, D.C. closed-end real estate funds tracked by by this Semiannual Report to Shareholders 20549. You can obtain information on the Lipper Inc., an independent mutual fund will be posted on the SEC's Web site, operation of the Public Reference Room, performance monitor. sec.gov, within 10 days after this Report including information about duplicating is first sent to shareholders. fee charges, by calling 1-202-942-8090 or o The Fund is not managed to track the 1-800-732-0330, or by electronic request performance of any particular index, OTHER INFORMATION ABOUT THE ADVISOR at the following e-mail address: including the indexes defined here, and publicinfo@sec.gov. The SEC file numbers consequently, the performance of the Fund o Additional Compensation of Certain for the Fund are 811-21048 and 333-84256 may deviate significantly from the Broker-Dealers. Pursuant to an agreement for common shares and 333-90388 for performance of the indexes. entered into on May 28, 2002, at the time preferred shares. of the initial offering of the Fund's o A direct investment cannot be made in common shares, the Fund's advisor makes A description of the policies and an index. Unless otherwise indicated, incentive fee payments to certain procedures that the Fund uses to determine index results include reinvested broker-dealers who participated in the how to vote proxies relating to portfolio dividends, and they do not reflect sales underwriting of such offering in securities is available without charge, charges. Performance of an index of funds consideration of the Fund's receipt from upon request, from our Client Services reflects fund expenses; performance of a such broker-dealers of after market department at 800-959-4246 or on the AIM market does not. support services designed to maintain the Web site, AIMinvestments.com. On the home visibility of the Fund on an ongoing page, scroll down and click on AIM Funds OTHER INFORMATION basis. Annual fees paid by the Fund's Proxy Policy. The information is also advisor shall not exceed 0.10% of the available on the SEC Web site, sec.gov. o Property type classifications used in Fund's aggregate Managed Assets (average this report are generally according to the daily net assets attributable to the Information regarding how the Fund voted FTSE National Association of Real Estate Fund's common shares, plus assets proxies related to its portfolio Investment Trusts (NAREIT) U.S. Real attributable to the Fund's Preferred securities during the 12 months ended June Estate Equity Index, which is exclusively Shares that are outstanding, plus the 30, 2006, is available at our Web site. Go owned by the National Association of Real principal amount of any borrowings). Over to AIMinvestments.com, access the About Us Estate Investment Trusts (NAREIT). time, these payments cannot exceed, in the tab, click on Required Notices and then aggregate, $12,583,413. click on Proxy Voting Activity. Next, o The Fund's audit committee Charter is select the Fund from the drop-down menu. available on the AIM Web site, The information is also available on the AIMinvestments.com. Go to SEC Web site, sec.gov. AIMinvestments.com. Under the Products list, click on AIM Select Real Estate Income Fund, then click on Fund overview, then on Charter of the Audit Committees of the AIM
2
DIVIDEND REINVESTMENT PLAN o If, on the payment date of the dividend, o All correspondence concerning the Plan the closing market price per Common Shares should be directed to the Plan o The Fund has adopted the following plus per share brokerage commissions Administrator at: P.O. Box 43011, Dividend Reinvestment Plan: applicable to an open market purchase of Providence, RI 02940-3011 Common Shares is at or above the net asset You may elect to have all dividends, value per Common Share, the Fund will TRANSFERS OF SHARES AND CONTINUED including any capital gain dividends, on issue new shares at a price equal to the PARTICIPATION IN THE DIVIDEND REINVESTMENT your Common Shares automatically greater of (i) net asset value per Common PLAN reinvested by Computershare Trust Company, Share on that trading date or (ii) 95% of N.A. as plan administrator (the "Plan the closing market price on that trading o A shareholder who holds Common Shares in Administrator") for the Common date. a brokerage account and participates in Shareholders, in additional Common shares the dividend reinvestment plan may not be under the Dividend Reinvestment Plan (the o The Plan Administrator maintains all able to transfer the shares to another "Plan"). You may elect to participate in shareholders' accounts in the Plan and broker and continue to participate in the the Plan by contacting the Plan gives written confirmation of all dividend reinvestment plan. Administrator at 1-800-730-6001. If you do transactions in the accounts, including not participate, you will receive all information you may need for tax records. TAX TREATMENT OF REINVESTED DIVIDENDS distributions in cash paid by check mailed Common Shares in your account will be held directly to you by Computershare Trust by the Plan Administrator in book-entry o Dividends paid out of the Fund's Company, N.A. as dividend paying agent. (non-certificated) form. Any proxy you "investment company taxable income" will receive will include all Common Shares you be taxable as ordinary income to the o If you decide to participate in the have received under the Plan. extent of the Fund's earnings and profits. Plan, the number of Common Shares you will Distributions of net capital gain (the receive will be determined as follows: o You may withdraw from the Plan at any excess of net long-term capital gain over time by giving notice to the Plan net short-term capital loss), if any, are If, on the payment date of the dividend, Administrator. If you withdraw completely taxable to shareholders as long-term the closing market price per Common Share from the Plan or the Plan is terminated, capital gain, regardless of the length of plus per share brokerage commissions the Plan Administrator will transfer your time fund shares were held. A distribution applicable to an open market purchase of account or issue the shares in your of an amount in excess of the Fund's Common Shares is below the net asset value account to you (which may include a cash earnings and profits is treated as a non per Common Share at the time of valuation, payment to you for any fraction of a share taxable return of capital that reduces a the Plan Administrator will receive the in your account). If you wish, the Plan shareholder's tax basis in their common dividend or distribution in cash and will Administrator will sell your shares and shares; any such distributions in excess purchase Common Shares in the open market, send you the proceeds, minus applicable of basis are treated as gain from the sale on the New York Stock Exchange or brokerage commissions and a $15.00 service of shares. elsewhere, for the participants' accounts. fee. It is possible that the market price for o The tax treatment of dividends and the Common Shares may increase before the o There is not brokerage charge for distributions are the same regardless of Plan Administrator has completed its reinvestment of your dividends or whether they are paid in cash or purchases. Therefore, the weighted average distributions in Common Shares. However, reinvested in additional Common Shares. If purchase price per share paid by the Plan all participants will pay a pro rata share a shareholder sells his Common Shares, or Administrator may exceed the closing of brokerage commissions incurred by the has shares repurchased by the Fund, the market price at the time of valuation, Plan Administrator when it makes open shareholder may realize a capital gain or resulting in the purchase of fewer shares market purchases. loss, which will be long-term or than if the dividend or distribution had short-term depending on the shareholder's been paid in Common Shares issued by the o Automatically reinvesting dividends and holding period for the shares. Fund Fund. The Plan Administrator will use all distributions does not mean that you do distributions also may be subject to state dividends and distributions received in not have to pay income taxes due upon and local taxes. cash to purchase Common Shares in the open receiving dividends and distributions. market prior to the next ex-dividend date. In the event it appears that the Plan o The Fund reserves the right to amend or Administrator will not be able to complete terminate the Plan if in the judgment of the open market purchases prior to the the Board of Trustees the change is next ex-dividend date, the Fund will warranted. There is no direct service determine whether to issue the remaining charge to participants in the Plan; shares at net asset value. Interest will however, the Fund reserves the right to not be paid on any uninvested cash amend the Plan to include a service charge payments. payable by the participants. Additional information about the Plan may be obtained from the Plan Administrator.
3 DEAR FELLOW SHAREHOLDERS OF THE AIM FAMILY OF FUNDS--Registered Trademark--: We're pleased to provide you with this report, which [GRAHAM includes a discussion of how your Fund was managed during PHOTO] the period under review in this report, and what factors affected its performance. That discussion begins on page 6. It's been said nothing is certain but death and taxes. We would venture to add that one other thing is certain: Markets change--and change often--in the short term. The first six months of 2006 were a perfect example. Domestic ROBERT H. GRAHAM and global equity markets were generally strong during the early months of the period, but they became considerably more volatile and negative beginning in May. Inflation fears were the primary cause of this change in market sentiment: o Amid signs of rising inflation, the U.S. Federal Reserve Board continued to raise interest rates in response to inflation risks. o The dollar remained weak, making imports more expensive and thereby raising inflation. o Oil prices remained at historically high levels, threatening to reduce consumer spending--and possibly slowing the U.S. economy. While we can't do anything about the ambiguity and uncertainty surrounding death and taxes, we can suggest an [TAYLOR alternative to reacting to fluctuating short-term market PHOTO] conditions: Maintain a diversified portfolio. AIM Investments--Registered Trademark-- can help by offering a broad product line that gives your advisor the necessary tools to build a portfolio that's right for you regardless of market conditions. AIM offers a comprehensive range of retail mutual funds, including domestic, global and PHILIP TAYLOR international equity funds, taxable and tax-exempt fixed-income funds, and a variety of allocation portfolios--with varied risk and return characteristics to match your needs. We maintain this extensive set of product solutions for one reason: We believe in the value of comprehensive, diversified investment portfolios. We also believe in the value of a trusted financial advisor who can create an investment plan you can stick with for the long term. Your advisor can help allocate your portfolio appropriately and review your investments regularly to ensure they remain suitable as your financial situation changes. While there are no guarantees with any investment program, a long-term plan that's based on your financial goals, risk tolerance and time horizon is more likely to keep you and your investments on track. OUR COMMITMENT TO YOU In the short term, the one sure thing about markets is their unpredictability. While past performance cannot guarantee comparable future results, we believe that staying invested for the long term with a thoughtful plan offers the best opportunity for weathering that unpredictability. We at AIM Investments remain committed to building solutions to help you achieve your investment goals, and we're pleased you've placed your trust in us. Information about investing, the markets and your Fund is always available on our Web site, AIMinvestments.com. If you have questions about your individual account, we invite you to contact one of our highly trained client services representatives at 800-959-4246. Sincerely, /S/ ROBERT H. GRAHAM /S/ PHILIP TAYLOR Robert H. Graham Philip Taylor Vice Chair -- AIM Funds President -- AIM Funds Chair, AIM Investments CEO, AIM Investments August 10, 2006 AIM Investments is a registered service mark of A I M Management Group Inc. A I M Advisors, Inc. and A I M Capital Management, Inc. are the investment advisors. A I M Distributors, Inc. is the distributor for the retail funds represented by AIM Investments. 4 DEAR FELLOW AIM FUND SHAREHOLDERS: At our meeting at the end of June, your Board completed its comprehensive review* of each fund's advisory agreement with A I M Advisors, Inc. (AIM) to make certain your interests are being served in terms of fees, performance and operations. Looking ahead, your Board finds many reasons to be positive about AIM's management and strategic direction. [CROCKETT Most importantly, AIM management's investment management PHOTO] discipline is paying off in terms of improved overall performance. While work remains to be done, AIM's complex-wide, asset-weighted mutual fund performance for the trailing one-, three- and five-year periods is at its highest since 2000. We are also pleased with AIM BRUCE L. CROCKETT management's efforts to seek more cost-effective ways of delivering superior service. In addition, AIM is realizing the benefits of belonging to a leading independent global investment management organization in its parent company, AMVESCAP PLC, which is dedicated to helping people worldwide build their financial security. AMVESCAP manages more than $414 billion globally, operating under the AIM, INVESCO, AIM Trimark, INVESCO PERPETUAL and Atlantic Trust brands. These companies are home to an abundance of investment talent that is gradually being integrated and leveraged into centers of excellence, each focusing on a given market segment or asset class. Over the next few years, your Board will be meeting at these various centers of excellence to learn about their progress and how they can serve you by enhancing performance and reducing costs. The seven new AIM funds--which include Asian funds, structured U.S. equity funds and specialized bond funds--are an early example of the kind of opportunities the AMVESCAP organization can provide AIM clients. More information on these funds can be found on AIM's Web site. Your Board is very pleased with the overall direction and progress of the AIM Funds. We're working closely and effectively with AIM's management to continue this momentum. As always, your Board is eager to hear your views on how we might better serve you. Please send your comments in a letter addressed to me at AIM Investments, AIM Investments Tower, 11 Greenway Plaza, Suite 100, Houston TX 77046. Sincerely, /S/ BRUCE L. CROCKETT Bruce L. Crockett Independent Chair AIM Funds Board August 10, 2006 *To learn more about all the factors we considered before approving each fund's advisory agreement, go to the "Products & Performance" tab at the AIM Web site (aiminvestments.com) and click on "Investment Advisory Agreement Renewals." The approval of the advisory agreement information for your Fund is also included in this semiannual report on pages 8-9. 5 AIM SELECT REAL ESTATE INCOME FUND
MANAGEMENT'S DISCUSSION The Fund may seek to increase portfolio OF FUND PERFORMANCE yield through borrowing to provide leverage to the Fund, with the intent of ======================================================================================= generating a higher return on the assets PERFORMANCE SUMMARY than the Fund pays to borrow those assets. ========================================== We also use strategies designed to reduce During the six-month reporting period FUND VS. INDEXES the risk of short-term interest rate ended June 30, 2006, AIM Select Real movement, which can affect the preferred Estate Income Fund once again provided CUMULATIVE TOTAL RETURNS, 12/31/05-6/30/06 share borrowing rate. shareholders with positive returns. The Fund's primary objective is high current Fund at NAV 8.69% We attempt to control risk by income with approximately 27.6% of the diversification of property types and Fund's assets invested in preferred Fund at Market 7.95 geographic location as well as limiting stocks. During the reporting period, REIT holding concentrations of any one preferred stocks generally had lower S&P 500 Index security. returns than REIT common stocks. As the (Broad Market Index) 2.71 proportion of preferred stocks is higher We will consider selling a holding in the Fund than in the FTSE NAREIT U.S. FTSE NAREIT U.S. when: Real Estate Equity Index, the Fund lagged Real Estate Equity Index this index. (Style-Specific Index) 12.90 o Relative yield falls below desired levels. Since the Fund is a closed-end Lipper Closed-End management investment company, shares may Real Estate Fund Index o Risk/return relationships change trade at a discount or premium to NAV. As (Peer Group)(1) 12.32 significantly. of June 30, 2006, the close of the reporting period, the Fund's Common Shares Lipper Sector o Company fundamentals change (property traded at a 14.9% discount to NAV, Equity Fund Category type, geography or management changes). compared with 14.4% at the close of Average (Closed-End Funds) 7.28 2005. As of June 30, 2006, the close (Former Peer Group) o A more attractive yield on investment opportunity is identified. SOURCE: LIPPER INC. MARKET CONDITIONS AND YOUR FUND (1) Lipper recently reclassified AIM Select Real Estate Income Fund from During the first four months of 2006, the Lipper Sector Equity Fund Category equity markets generally posted positive to the Lipper Closed-End Real Estate returns. However, over the last two months Fund Category. of the reporting period, equity markets ========================================== retreated as investors became concerned about persistently high energy prices and of the fiscal year, the average discount rising interest rates and the potential rate to NAV of closed-end real estate impact of both on economic growth and funds available from Lipper was 11.5%, inflation. During the reporting period, compared with 11.9% at the end of 2005. the U.S. Federal Reserve Board (the Fed) continued its tightening policy, raising ======================================================================================= the key federal funds target rate to 5.25%. HOW WE INVEST and management and structure review to identify securities with: The REIT market easily outpaced the Your Fund holds primarily real broad market as measured by the S&P 500 estate-oriented securities. We focus on o Potential to pay attractive dividends Index. REIT performance was positive public companies whose value is driven by relative to similar properties. during the first tangible assets. Our goal is to create a portfolio that will provide high current o Quality underlying properties. (continued) income. We use a fundamentals-driven investment process, including property o Solid management teams. market cycle analysis, property evaluation, o Reasonable valuations relative to similar companies. ========================================== ========================================== ========================================== PORTFOLIO COMPOSITION TOP 10 SECURITY HOLDINGS* COMMON SHARE MARKET VALUE $15.55 By property type 1. Colonial Properties Trust 4.5% COMMON SHARE NET ASSET VALUE $18.28 Healthcare 19.6% 2. Brandywine Realty Trust 4.1 MARKET PRICE DISCOUNT (14.93%) Diversified 15.6 3. Nationwide Health TOTAL NUMBER OF HOLDINGS* 123 Properties, Inc. 4.1 Office Properties 15.3 AT THE CLOSE OF THE REPORTING PERIOD, THE 4. Hospitality Properties Trust 3.6 FUND'S COMMON SHARES NAV STOOD AT $18.28, Lodging-Resorts 9.7 AND ITS MARKET SHARE PRICE WAS $15.55. 5. National Retail Properties, Inc. 3.6 SINCE THE FUND IS A CLOSED-END MANAGEMENT Shopping Centers 7.2 INVESTMENT COMPANY, SHARES OF THE FUND 6. Healthcare Realty Trust, Inc. 3.4 MAY TRADE AT A DISCOUNT FROM THE NAV. Regional Malls 6.2 THIS CHARACTERISTIC IS SEPARATE AND 7. Senior Housing Properties Trust 3.4 DISTINCT FROM THE RISK THAT NAV COULD Freestanding 5.9 DECREASE AS A RESULT OF INVESTMENT 8. iStar Financial Inc. 3.2 ACTIVITIES AND MAY BE A GREATER RISK TO Apartments 4.6 INVESTORS EXPECTING TO SELL THEIR SHARES 9. Health Care Property AFTER A SHORT TIME. THE FUND CANNOT Industrial/Office Mixed 4.5 Investors, Inc. 3.1 PREDICT WHETHER SHARES WILL TRADE AT, ABOVE OR BELOW NAV. Industrial Properties 3.6 10. Inland Real Estate Corp. 2.6 (continued) Self Storage Facilities 2.4 Specialty Properties 1.9 The Fund's holdings are subject to change, and there is no assurance that the Fund Manufactured Homes 0.3 will continue to hold any particular security. Money Market Funds Plus Other Assets Less Liabilities 3.2 *Excluding money market holdings. ========================================== ========================================== ==========================================
6 AIM SELECT REAL ESTATE INCOME FUND
quarter of 2006 but retreated in April and institutions, was a detractor during the JOE V. RODRIGUEZ, JR., May. The sector rebounded in June to end period. Shares of the stock declined amid Director of Securities the period with solid performance. The concern over the company's business [RODRIGUEZ Management, INVESCO group's favorable relative performance was strategy. We continued to maintain our PHOTO] Real Estate, is lead driven by a number of recurring themes, position because of its attractive manager of AIM Select including ongoing REIT privatization relative valuation and believe it could Real Estate Income activity; improving real estate operating make progress in addressing investor Fund. He oversees all fundamentals; inclusion of two large-cap concerns. phases of the unit REIT names into the S&P 500 Index and including growing demand for stable, As the Fund's primary objective is securities research and administration. income-producing assets and real estate in income, the Fund has exposure to REIT Mr. Rodriguez began his investment career general. preferred stocks. Due to their in 1983 and joined INVESCO Real Estate, fixed-income characteristics, REIT the Dallas-based investment management Select holdings within the office preferred shares may behave more like affiliate of INVESCO Institutional (N.A.), sector contributed the most to our bonds. During the year, REIT preferred Inc., in 1990. He has served on the positive performance. CARRAMERICA REALTY stocks provided income but did not editorial boards of the National CORP., which owns and operates office participate as fully in the share price Association of Real Estate Investment properties, was a strong contributor. appreciation as REIT common stocks did. Trusts (NAREIT) as well as the CarrAmerica Realty benefited after a Institutional Real Estate Securities private equity firm, Blackstone Group, As part of our investment strategy, the Newsletter. He is a member of the National announced in early March that it would pay Fund also leverages through the issuance Association of Business Economists, $5.6 billion to acquire it. of preferred shares, which increases the American Real Estate Society and the Fund's yield and may help or hurt NAV Institute of Certified Financial Planners. Given the Fund's primary goal of depending on whether the REIT market is He also served as adjunct professor of income, we continued to have meaningful going up or down. We leverage through the economics at the University of Texas at exposure to the healthcare sector, as issuance of auction rate preferred shares Dallas. In addition, Mr. Rodriguez was a healthcare REITs have historically and then swap a portion of the floating contributing author to Real Estate produced a relatively high and steady rates paid on the preferred shares for Investment Trusts: Structure Analysis and stream of income. Our positions within the fixed rates in an effort to mitigate Strategy, published by McGraw Hill. Mr. health care and diversified sectors also interest rate uncertainty. Given the REIT Rodriguez earned his B.B.A. in economics contributed positively to performance. environment during the reporting period, and finance as well as his M.B.A. in Diversified REIT holding COLONIAL leverage helped the Fund by boosting finance from Baylor University. PROPERTIES TRUST was our top contributor income and NAV. to performance over the reporting period. MARK D. BLACKBURN, The company owns a portfolio of IN CLOSING Chartered Financial multifamily, office and retail properties [BLACKBURN Analyst, Director of in the United States and reported positive We were encouraged by the resiliency of PHOTO] Investments, INVESCO earnings. In addition, the company also the REIT market during the period. We Real Estate, is made some recent acquisitions in the believe REIT prices largely reflected fair manager of AIM Select Atlanta market that could potentially levels relative to the value of their Real Estate Income allow them to grow and develop their underlying holdings. Although REIT prices Fund. Prior to joining portfolio in the area. increased, we believe occupancy and rental INVESCO in 1998, he worked as an associate rates have supported that growth and that director of research, focusing on equity On the other hand, AMERICAN FINANCIAL REIT fundamentals continued to improve. securities research and recommendations REALTY TRUST, which acquires, manages and Also important will be investor sentiment with a regional brokerage firm. He has operates properties leased to regulated toward the interaction of economic growth approximately 19 years of experience in financial against the backdrop of the Fed interest institutional investing and risk rate policy. We appreciate your continued management, along with a background in ========================================== participation in AIM Select Real Estate evaluating the high-yield and convertible Income Fund. securities markets. Mr. Blackburn earned a THE FUND SHOULD NOT BE VIEWED AS A VEHICLE B.S. in accounting from Louisiana State FOR TRADING PURPOSES. IT IS DESIGNED THE VIEWS AND OPINIONS EXPRESSED IN University and an M.B.A. from Southern PRIMARILY FOR RISK-TOLERANT LONG-TERM MANAGEMENT'S DISCUSSION OF FUND Methodist University. He is a Certified INVESTORS. PERFORMANCE ARE THOSE OF A I M ADVISORS, Public Accountant and a member of the INC. THESE VIEWS AND OPINIONS ARE SUBJECT National Association of Real Estate THE PERFORMANCE DATA QUOTED REPRESENT TO CHANGE AT ANY TIME BASED ON FACTORS Investment Trusts. PAST PERFORMANCE AND CANNOT GUARANTEE SUCH AS MARKET AND ECONOMIC CONDITIONS. COMPARABLE FUTURE RESULTS; CURRENT THESE VIEWS AND OPINIONS MAY NOT BE RELIED JAMES W. TROWBRIDGE, PERFORMANCE MAY BE LOWER OF HIGHER. PLEASE UPON AS INVESTMENT ADVICE OR portfolio manager, SEE YOUR FINANCIAL ADVISOR FOR THE MOST RECOMMENDATIONS, OR AS AN OFFER FOR A [TROWBRIDGE INVESCO Real Estate, RECENT MONTH-END PERFORMANCE. FUND PARTICULAR SECURITY. THE INFORMATION IS PHOTO] is manager of AIM PERFORMANCE FIGURES ARE HISTORICAL, AND NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF Select Real Estate THEY REFLECT FUND EXPENSES, THE ANY MARKET, COUNTRY, INDUSTRY, SECURITY OR Income Fund. In 1989, REINVESTMENT OF DISTRIBUTIONS (IF ANY) AND THE FUND. STATEMENTS OF FACT ARE FROM Mr. Trowbridge joined CHANGES IN NAV FOR PERFORMANCE BASED ON SOURCES CONSIDERED RELIABLE, BUT A I M INVESCO Real Estate. NAV AND CHANGES IN MARKET PRICE FOR ADVISORS, INC. MAKES NO REPRESENTATION OR With 31 years of real estate investment PERFORMANCE BASED ON MARKET PRICE. THE WARRANTY AS TO THEIR COMPLETENESS OR experience for major institutional VALUE OF YOUR FUND'S SHARES WILL FLUCTUATE ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE investors, Mr. Trowbridge is responsible SO THAT YOU MAY HAVE A GAIN OR LOSS WHEN IS NO GUARANTEE OF FUTURE RESULTS, THESE for integrating his knowledge into YOU SELL SHARES. INSIGHTS MAY HELP YOU UNDERSTAND OUR INVESCO's publicly traded REIT INVESTMENT MANAGEMENT PHILOSOPHY. investments. Mr. Trowbridge earned his HAD THE ADVISOR NOT WAIVED FEES AND/OR B.S. in finance from Indiana University. REIMBURSED EXPENSES, RETURNS WOULD HAVE See important Fund and index He has completed numerous appraisal and BEEN LOWER. disclosures inside front cover. income property courses sponsored by the American Appraisal Institute and the Mortgage Bankers Association, of which he has been active on several income property subcommittees. He is a member of the National Association of Real Estate Investment Trusts. Assisted by the Real Estate Team
7 AIM SELECT REAL ESTATE INCOME FUND APPROVAL OF INVESTMENT ADVISORY AGREEMENT
The Board of Trustees of AIM Select Real (at net asset value) during the past one o Fees relative to those of comparable Estate Income Fund (the "Board") oversees and two calendar years against the funds with other advisors. The Board the management of AIM Select Real Estate performance of funds advised by other reviewed the advisory fee rate for the Income Fund (the "Fund") and, as required advisors with investment strategies Fund under the Advisory Agreement. The by law, determines annually whether to comparable to those of the Fund. The Board Board compared effective contractual approve the continuance of the Fund's noted that the Fund's performance (at net advisory fee rates at a common asset level advisory agreement with A I M Advisors, asset value) in such periods was below the at the end of the past calendar year and Inc. ("AIM"). Based upon the median performance of such comparable noted that the Fund's rate was comparable recommendation of the Investments funds. Based on this review and after to the median rate of the funds advised by Committee of the Board, at a meeting held taking account of all of the other factors other advisors with investment strategies on June 27, 2006, the Board, including all that the Board considered in determining comparable to those of the Fund that the of the independent trustees, approved the whether to continue the Advisory Agreement Board reviewed. The Board noted that AIM continuance of the advisory agreement (the for the Fund, the Board concluded that no has agreed to waive advisory fees of the "Advisory Agreement") between the Fund and changes should be made to the Fund and Fund, as discussed below. Based on this AIM for another year, effective July 1, that it was not necessary to change the review, the Board concluded that the 2006. Fund's portfolio management team at this advisory fee rate for the Fund under the time. However, due to the Fund's Advisory Agreement was fair and The Board considered the factors under-performance, the Board also reasonable. discussed below in evaluating the fairness concluded that it would be appropriate for and reasonableness of the Advisory the Board to continue to closely monitor o Expense limitations and fee waivers. The Agreement at the meeting on June 27, 2006 and review the performance of the Fund. Board noted that AIM has contractually and as part of the Board's ongoing Although the independent written agreed to waive advisory fees through oversight of the Fund. In their evaluation of the Fund's Senior Officer June 30, 2009 in an amount equal to a deliberations, the Board and the (discussed below) only considered Fund percentage of average daily managed independent trustees did not identify any performance through the most recent assets. The Board considered the particular factor that was controlling, calendar year, the Board also reviewed contractual nature of this fee waiver and and each trustee attributed different more recent Fund performance, which did noted that it remains in effect until June weights to the various factors. not change their conclusions. 30, 2009. The Board considered the effect this fee waiver would have on the Fund's One responsibility of the independent o The performance of the Fund relative to estimated expenses and concluded that the Senior Officer of the Fund is to manage indices. The Board reviewed the levels of fee waivers/expense limitations the process by which the Fund's proposed performance of the Fund (at net asset for the Fund were fair and reasonable. management fees are negotiated to ensure value) during the past one and three that they are negotiated in a manner which calendar years against the performance of o Breakpoints and economies of scale. The is at arms' length and reasonable. To that the MSCI U.S. REIT Index. The Board noted Board reviewed the structure of the Fund's end, the Senior Officer must either that the Fund's performance was below the advisory fee under the Advisory Agreement, supervise a competitive bidding process or performance of such Index for the one year noting that it does not include any prepare an independent written evaluation. period and comparable to such Index for breakpoints. The Board considered whether The Senior Officer has recommended an the three year period. The Board also it would be appropriate to add advisory independent written evaluation in lieu of noted that the performance of such Index fee breakpoints for the Fund or whether, a competitive bidding process and, upon does not reflect fees, while the due to the nature of the Fund and the the direction of the Board, has prepared performance of the Fund does reflect fees. advisory fee structures of comparable such an independent written evaluation. Based on this review and after taking funds, it was reasonable to structure the Such written evaluation also considered account of all of the other factors that advisory fee without breakpoints. Based on certain of the factors discussed below. In the Board considered in determining this review, the Board concluded that it addition, as discussed below, the Senior whether to continue the Advisory Agreement was not necessary to add advisory fee Officer made a recommendation to the Board for the Fund, the Board concluded that no breakpoints to the Fund's advisory fee in connection with such written changes should be made to the Fund and schedule. The Board reviewed the level of evaluation. that it was not necessary to change the the Fund's advisory fees, and noted that Fund's portfolio management team at this such fees, as a percentage of the Fund's The discussion below serves as a time. However, due to the Fund's net assets, would remain constant under summary of the Senior Officer's under-performance, the Board also the Advisory Agreement because the independent written evaluation and concluded that it would be appropriate for Advisory Agreement does not include any recommendation to the Board in connection the Board to continue to closely monitor breakpoints. The Board concluded that the therewith, as well as a discussion of the and review the performance of the Fund. Fund's fee levels under the Advisory material factors and the conclusions with Although the independent written Agreement therefore would not reflect respect thereto that formed the basis for evaluation of the Fund's Senior Officer economies of scale. the Board's approval of the Advisory (discussed below) only considered Fund Agreement. After consideration of all of performance through the most recent o Investments in affiliated money market the factors below and based on its calendar year, the Board also reviewed funds. The Board also took into account informed business judgment, the Board more recent Fund performance, which did the fact that uninvested cash and cash determined that the Advisory Agreement is not change their conclusions. collateral from securities lending in the best interests of the Fund and its arrangements, if any (collectively, "cash shareholders and that the compensation to o Meetings with the Fund's portfolio balances") of the Fund may be invested in AIM under the Advisory Agreement is fair managers and investment personnel. With money market funds advised by AIM pursuant and reasonable and would have been respect to the Fund, the Board is meeting to the terms of an SEC exemptive order. obtained through arm's length periodically with such Fund's portfolio The Board found that the Fund may realize negotiations. managers and/or other investment personnel certain benefits upon investing cash and believes that such individuals are balances in AIM advised money market Unless otherwise stated, information competent and able to continue to carry funds, including a higher net return, presented below is as of June 27, 2006 and out their responsibilities under the increased liquidity, increased does not reflect any changes that may have Advisory Agreement. diversification or decreased transaction occurred since June 27, 2006, including costs. The Board also found that the Fund but not limited to changes to the Fund's o Overall performance of AIM. The Board will not receive reduced services if it performance, advisory fees, expense considered the overall performance of AIM invests its cash balances in such money limitations and/or fee waivers. in providing investment advisory and market funds. The Board noted that, to the portfolio administrative services to the extent the Fund invests uninvested cash in o The nature and extent of the advisory Fund and concluded that such performance affiliated money market funds, AIM has services to be provided by AIM. The Board was satisfactory. voluntarily agreed to waive a portion of reviewed the services to be provided by the advisory fees it receives from the AIM under the Advisory Agreement. Based on o Fees relative to those of clients of AIM Fund attributable to such investment. The such review, the Board concluded that the with comparable investment strategies. The Board further determined that the proposed range of services to be provided by AIM Board reviewed the effective advisory fee securities lending program and related under the Advisory Agreement was rate (before waivers) for the Fund under procedures with respect to the lending appropriate and that AIM currently is the Advisory Agreement. The Board noted Fund is in the best interests of the providing services in accordance with the that this rate was below the total lending Fund and its respective terms of the Advisory Agreement. advisory fee rate for a separately managed shareholders. The Board therefore account/wrap account managed by an AIM concluded that the investment of cash o The quality of services to be provided affiliate with investment strategies collateral received in connection with the by AIM. The Board reviewed the credentials comparable to those of the Fund and above securities lending program in the money and experience of the officers and the total advisory fee rates for 46 other market funds according to the procedures employees of AIM who will provide separately managed accounts/wrap accounts is in the best interests of the lending investment advisory services to the Fund. managed by an AIM affiliate with Fund and its respective shareholders. In reviewing the qualifications of AIM to investment strategies comparable to those provide investment advisory services, the of the Fund. The Board noted that AIM has o Independent written evaluation and Board considered such issues as AIM's agreed to waive advisory fees of the Fund, recommendations of the Fund's Senior portfolio and product review process, as discussed below. Based on this review, Officer. The Board noted that, upon their various back office support functions the Board concluded that the advisory fee direction, the Senior Officer of the Fund, provided by AIM and AIM's equity and fixed rate for the Fund under the Advisory who is independent of AIM and AIM's income trading operations. Based on the Agreement was fair and reasonable. affiliates, had prepared an independent review of these and other factors, the written evaluation in order to assist the Board concluded that the quality of Board in services to be provided by AIM was appropriate and that AIM currently is (continued) providing satisfactory services in accordance with the terms of the Advisory Agreement. o The performance of the Fund relative to comparable funds. The Board reviewed the performance of the Fund
8 AIM SELECT REAL ESTATE INCOME FUND
determining the reasonableness of the approved the continuance of the does reflect fees. Based on this review proposed management fees of the AIM Funds, sub-advisory agreement (the "Sub-Advisory and after taking account of all of the including the Fund. The Board noted that Agreement") between INVESCO Institutional other factors that the Board considered in the Senior Officer's written evaluation (N.A.), Inc. (the "Sub-Advisor") and AIM determining whether to continue the had been relied upon by the Board in this with respect to the Fund for another year, Advisory Agreement for the Fund, the Board regard in lieu of a competitive bidding effective July 1, 2006. concluded that no changes should be made process. In determining whether to to the Fund and that it was not necessary continue the Advisory Agreement for the The Board considered the factors to change the Fund's portfolio management Fund, the Board considered the Senior discussed below in evaluating the fairness team at this time. However, due to the Officer's written evaluation. and reasonableness of the Sub-Advisory Fund's under-performance, the Board also Agreement at the meeting on June 27, 2006 concluded that it would be appropriate for o Profitability of AIM and its affiliates. and as part of the Board's ongoing the Board to continue to closely monitor The Board reviewed information concerning oversight of the Fund. In their and review the performance of the Fund. the profitability of AIM's (and its deliberations, the Board and the Although the independent written affiliates') investment advisory and other independent trustees did not identify any evaluation of the Fund's Senior Officer activities and its financial condition. particular factor that was controlling, (discussed below) only considered Fund The Board considered the overall and each trustee attributed different performance through the most recent profitability of AIM, as well as the weights to the various factors. calendar year, the Board also reviewed profitability of AIM in connection with more recent Fund performance, which did managing the Fund. The Board noted that The discussion below serves as a not change their conclusions. AIM's operations remain profitable, discussion of the material factors and the although increased expenses in recent conclusions with respect thereto that o Meetings with the Fund's portfolio years have reduced AIM's profitability. formed the basis for the Board's approval managers and investment personnel. The Based on the review of the profitability of the Sub-Advisory Agreement. After Board is meeting periodically with the of AIM's and its affiliates' investment consideration of all of the factors below Fund's portfolio managers and/or other advisory and other activities and its and based on its informed business investment personnel and believes that financial condition, the Board concluded judgment, the Board determined that the such individuals are competent and able to that the compensation to be paid by the Sub-Advisory Agreement is in the best continue to carry out their Fund to AIM under its Advisory Agreement interests of the Fund and its shareholders responsibilities under the Sub-Advisory was not excessive. and that the compensation to the Agreement. Sub-Advisor under the Sub-Advisory o Benefits of soft dollars to AIM. The Agreement is fair and reasonable. o Overall performance of the Sub-Advisor. Board considered the benefits realized by The Board considered the overall AIM as a result of brokerage transactions Unless otherwise stated, information performance of the Sub-Advisor in executed through "soft dollar" presented below is as of June 27, 2006 and providing investment advisory services to arrangements. Under these arrangements, does not reflect any changes that may have the Fund and concluded that such brokerage commissions paid by the Fund occurred since June 27, 2006, including performance was satisfactory. and/or other funds advised by AIM are used but not limited to changes to the Fund's to pay for research and execution performance. o Fees relative to those clients of the services. This research may be used by AIM Sub-Advisor with comparable investment in making investment decisions for the o The nature and extent of the advisory strategies. The Board reviewed the Fund. The Board concluded that such services to be provided by the sub-advisory fee rate for the Fund under arrangements were appropriate. Sub-Advisor. The Board reviewed the the Sub-Advisory Agreement and the services to be provided by the Sub-Advisor sub-advisory fees paid thereunder. The o AIM's financial soundness in light of under the Sub-Advisory Agreement. Based on Board noted that this rate was comparable the Fund's needs. The Board considered such review, the Board concluded that the to or above the total advisory fee rates whether AIM is financially sound and has range of services to be provided by the for 19 separately managed accounts/wrap the resources necessary to perform its Sub-Advisor under the Sub-Advisory accounts managed by the Sub-Advisor with obligations under the Advisory Agreement, Agreement was appropriate and that the investment strategies comparable to those and concluded that AIM has the financial Sub-Advisor currently is providing of the Fund and below the total advisory resources necessary to fulfill its services in accordance with the terms of fee rates for 28 separately managed obligations under the Advisory Agreement. the Sub-Advisory Agreement. accounts/wrap accounts managed by the Sub-Advisor with investment strategies o Historical relationship between the Fund o The quality of services to be provided comparable to those of the Fund. The Board and AIM. In determining whether to by the Sub-Advisor. The Board reviewed the noted that AIM has agreed to limit the continue the Advisory Agreement for the credentials and experience of the officers Fund's total annual operating expenses. Fund, the Board also considered the prior and employees of the Sub-Advisor who will The Board also considered the services to relationship between AIM and the Fund, as provide investment advisory services to be provided by the Sub-Advisor pursuant to well as the Board's knowledge of AIM's the Fund. Based on the review of these and the Sub-Advisory Agreement and the operations, and concluded that it was other factors, the Board concluded that services to be provided by AIM pursuant to beneficial to maintain the current the quality of services to be provided by the Advisory Agreement, as well as the relationship, in part, because of such the Sub-Advisor was appropriate, and that allocation of fees between AIM and the knowledge. The Board also reviewed the the Sub-Advisor currently is providing Sub-Advisor pursuant to the Sub-Advisory general nature of the non-investment satisfactory services in accordance with Agreement. The Board noted that the advisory services currently performed by the terms of the Sub-Advisory Agreement. sub-advisory fees have no direct effect on AIM and its affiliates, such as the Fund or its shareholders, as they are administrative, transfer agency and o The performance of the Fund relative to paid by AIM to the Sub-Advisor, and that distribution services, and the fees comparable funds. The Board reviewed the AIM and the Sub-Advisor are affiliates. received by AIM and its affiliates for performance of the Fund (at net asset Based on this review, the Board concluded performing such services. In addition to value) during the past one and two that the sub-advisory fee rate under the reviewing such services, the trustees also calendar years against the performance of Sub-Advisory Agreement was fair and considered the organizational structure funds advised by other advisors with reasonable. employed by AIM and its affiliates to investment strategies comparable to those provide those services. Based on the of the Fund. The Board noted that the o Profitability of AIM and its affiliates. review of these and other factors, the Fund's performance (at net asset value) in The Board reviewed information concerning Board concluded that AIM and its such periods was below the median the profitability of AIM's (and its affiliates were qualified to continue to performance of such comparable funds. affiliates') investment advisory and other provide non-investment advisory services Based on this review and after taking activities and its financial condition. to the Fund, including administrative, account of all of the other factors that The Board considered the overall transfer agency and distribution services, the Board considered in determining profitability of AIM, as well as the and that AIM and its affiliates currently whether to continue the Advisory Agreement profitability of AIM in connection with are providing satisfactory non-investment for the Fund, the Board concluded that no managing the Fund. The Board noted that advisory services. changes should be made to the Fund and AIM's operations remain profitable, that it was not necessary to change the although increased expenses in recent o Other factors and current trends. The Fund's portfolio management team at this years have reduced AIM's profitability. Board considered the steps that AIM and time. However, due to the Fund's Based on the review of the profitability its affiliates have taken over the last under-performance, the Board also of AIM's and its affiliates' investment several years, and continue to take, in concluded that it would be appropriate for advisory and other activities and its order to improve the quality and the Board to continue to closely monitor financial condition, the Board concluded efficiency of the services they provide to and review the performance of the Fund. that the compensation to be paid by the the Funds in the areas of investment Although the independent written Fund to AIM under its Advisory Agreement performance, product line diversification, evaluation of the Fund's Senior Officer was not excessive. distribution, fund operations, shareholder (discussed below) only considered Fund services and compliance. The Board performance through the most recent o The Sub-Advisor's financial soundness in concluded that these steps taken by AIM calendar year, the Board also reviewed light of the Fund's needs. The Board have improved, and are likely to continue more recent Fund performance, which did considered whether the Sub-Advisor is to improve, the quality and efficiency of not change their conclusions. financially sound and has the resources the services AIM and its affiliates necessary to perform its obligations under provide to the Fund in each of these o The performance of the Fund relative to the Sub-Advisory Agreement, and concluded areas, and support the Board's approval of indices. The Board reviewed the that the Sub-Advisor has the financial the continuance of the Advisory Agreement performance of the Fund (at net asset resources necessary to fulfill its for the Fund. value) during the past one and three obligations under the Sub-Advisory calendar years against the performance of Agreement. APPROVAL OF SUB-ADVISORY AGREEMENT the MSCI U.S. REIT Index. The Board noted that the Fund's performance was below the The Board oversees the management of the performance of such Index for the one year Fund and, as required by law, determines period and comparable to such Index for annually whether to approve the the three year period. The Board also continuance of the Fund's sub-advisory noted that the performance of such Index agreement. Based upon the recommendation does not reflect fees, while the of the Investments Committee of the Board, performance of the Fund at a meeting held on June 27, 2006, the Board, including all of the independent trustees,
9 AIM SELECT REAL ESTATE INCOME FUND SCHEDULE OF INVESTMENTS June 30, 2006 (Unaudited)
SHARES VALUE ------------------------------------------------------------------------ REAL ESTATE INVESTMENT TRUSTS, COMMON STOCKS & OTHER EQUITY INTERESTS-89.05% APARTMENTS-2.39% American Campus Communities, Inc. 420,900 $ 10,459,365 ------------------------------------------------------------------------ Education Realty Trust, Inc. 397,400 6,616,710 ======================================================================== 17,076,075 ======================================================================== DIVERSIFIED-14.75% AEW Real Estate Income Fund 100,000 1,919,000 ------------------------------------------------------------------------ CentraCore Properties Trust 95,400 2,361,150 ------------------------------------------------------------------------ Colonial Properties Trust 837,978 41,396,113 ------------------------------------------------------------------------ Crescent Real Estate Equities Co. 594,600 11,035,776 ------------------------------------------------------------------------ DWS RREEF Real Estate Fund Inc. 122,435 2,686,224 ------------------------------------------------------------------------ iStar Financial Inc. 778,800 29,399,700 ------------------------------------------------------------------------ Lexington Corporate Properties Trust 373,800 8,074,080 ------------------------------------------------------------------------ Neuberger Berman Realty Income Fund Inc. 192,800 3,846,360 ------------------------------------------------------------------------ Nuveen Real Estate Income Fund 77,400 1,787,166 ------------------------------------------------------------------------ Real Estate Income Fund, Inc. 157,000 2,954,740 ======================================================================== 105,460,309 ======================================================================== FREESTANDING-7.61% Getty Realty Corp. 491,200 13,969,728 ------------------------------------------------------------------------ National Retail Properties Inc. 1,652,400 32,965,380 ------------------------------------------------------------------------ Realty Income Corp. 234,100 5,126,790 ------------------------------------------------------------------------ Trustreet Properties, Inc. 179,400 2,366,286 ======================================================================== 54,428,184 ======================================================================== HEALTHCARE-23.47% Cogdell Spencer Inc. 236,200 4,608,262 ------------------------------------------------------------------------ Health Care Property Investors, Inc. 1,071,700 28,657,258 ------------------------------------------------------------------------ Health Care REIT, Inc. 587,973 20,549,657 ------------------------------------------------------------------------ Healthcare Realty Trust, Inc. 986,300 31,413,655 ------------------------------------------------------------------------ Medical Properties Trust Inc. 207,000 2,285,280 ------------------------------------------------------------------------ Nationwide Health Properties, Inc. 1,663,500 37,445,385 ------------------------------------------------------------------------ Omega Healthcare Investors, Inc. 720,900 9,530,298 ------------------------------------------------------------------------ Senior Housing Properties Trust 1,723,000 30,858,930 ------------------------------------------------------------------------ Universal Health Realty Income Trust 77,200 2,420,220 ======================================================================== 167,768,945 ======================================================================== INDUSTRIAL PROPERTIES-2.57% First Industrial Realty Trust, Inc. 483,200 18,332,608 ========================================================================
SHARES VALUE ------------------------------------------------------------------------
INDUSTRIAL/OFFICE MIXED-3.43% Liberty Property Trust 516,600 $ 22,833,720 ------------------------------------------------------------------------ Mission West Properties Inc. 153,700 1,702,996 ======================================================================== 24,536,716 ======================================================================== LODGING-RESORTS-6.40% Ashford Hospitality Trust, Inc. 567,800 7,165,636 ------------------------------------------------------------------------ DiamondRock Hospitality Co. 45,000 666,450 ------------------------------------------------------------------------ Hersha Hospitality Trust 523,800 4,866,102 ------------------------------------------------------------------------ Hospitality Properties Trust 752,600 33,054,192 ======================================================================== 45,752,380 ======================================================================== MANUFACTURED HOMES-0.34% Sun Communities, Inc. 75,600 2,459,268 ======================================================================== OFFICE PROPERTIES-14.42% American Financial Realty Trust 1,736,500 16,809,320 ------------------------------------------------------------------------ Brandywine Realty Trust 1,175,301 37,809,433 ------------------------------------------------------------------------ Glenborough Realty Trust Inc. 421,600 9,081,264 ------------------------------------------------------------------------ HRPT Properties Trust 1,551,300 17,933,028 ------------------------------------------------------------------------ Mack-Cali Realty Corp. 409,300 18,795,056 ------------------------------------------------------------------------ Parkway Properties, Inc. 58,000 2,639,000 ======================================================================== 103,067,101 ======================================================================== REGIONAL MALLS-2.47% Glimcher Realty Trust 712,500 17,677,125 ======================================================================== SELF STORAGE FACILITIES-2.54% Extra Space Storage Inc. 572,800 9,302,272 ------------------------------------------------------------------------ Public Storage, Inc.-Series A Dep. Shares 167,200 4,464,240 ------------------------------------------------------------------------ U-Store-It Trust 233,500 4,403,810 ======================================================================== 18,170,322 ======================================================================== SHOPPING CENTERS-7.57% Cedar Shopping Centers Inc. 181,200 2,667,264 ------------------------------------------------------------------------ Heritage Property Investment Trust 547,500 19,118,700 ------------------------------------------------------------------------ Inland Real Estate Corp. 1,581,800 23,537,184 ------------------------------------------------------------------------ New Plan Excel Realty Trust(a) 58,000 1,432,020 ------------------------------------------------------------------------ Ramco-Gershenson Properties Trust 273,400 7,362,662 ======================================================================== 54,117,830 ========================================================================
F-1 AIM SELECT REAL ESTATE INCOME FUND
SHARES VALUE ------------------------------------------------------------------------ SPECIALTY PROPERTIES-1.09% Spirit Finance Corp. 691,000 $ 7,780,660 ======================================================================== Total Real Estate Investment Trusts, Common Stocks & Other Equity Interests (Cost $503,076,778) 636,627,523 ======================================================================== PREFERRED STOCKS-35.54% APARTMENTS-3.56% Apartment Investment & Management Co., Class Y, 7.88% 20,000 496,000 ------------------------------------------------------------------------ Series T, 8.00% 200,000 4,992,000 ------------------------------------------------------------------------ Series V, 8.00% 128,300 3,201,085 ------------------------------------------------------------------------ BRE Properties, Inc., Series B, 8.08% 200,000 5,044,000 ------------------------------------------------------------------------ Series C, 6.75% 48,500 1,132,475 ------------------------------------------------------------------------ Equity Residential-Series K, 8.29%(b) 4,200 230,081 ------------------------------------------------------------------------ Mid-America Apartment Communities, Inc., Series F, 9.25% 47,000 1,243,150 ------------------------------------------------------------------------ Series H, 8.30% 195,000 4,958,850 ------------------------------------------------------------------------ Post Properties, Inc.-Series A, 8.50% 71,700 4,174,374 ======================================================================== 25,472,015 ======================================================================== DIVERSIFIED-5.27% Colonial Properties Trust-Series D, 8.13% 200,000 5,158,000 ------------------------------------------------------------------------ Cousins Properties Inc., Series A, 7.75% 548,300 13,685,568 ------------------------------------------------------------------------ Series B, 7.50% 60,000 1,500,000 ------------------------------------------------------------------------ Crescent Real Estate Equities Co.-Series B, 9.50% 51,400 1,341,540 ------------------------------------------------------------------------ iStar Financial Inc., Series E, 7.88% 185,000 4,615,750 ------------------------------------------------------------------------ Series I, 7.50% 200,000 4,890,000 ------------------------------------------------------------------------ Lexington Corporate Properties Trust-Series B, 8.05% 70,000 1,781,500 ------------------------------------------------------------------------ Vornado Realty Trust-Series F, 6.75% 200,000 4,730,000 ======================================================================== 37,702,358 ======================================================================== HEALTHCARE-1.76% Health Care Property Investors, Inc.-Series F, 7.10% 285,000 7,039,500 ------------------------------------------------------------------------ Health Care REIT, Inc.-Series F, 7.63% 16,600 417,158 ------------------------------------------------------------------------ Omega Healthcare Investors, Inc.-Series D, 8.38% 200,000 5,124,000 ======================================================================== 12,580,658 ======================================================================== INDUSTRIAL PROPERTIES-2.12% AMB Property Corp.-Series O, 7.00% 120,000 3,002,400 ------------------------------------------------------------------------ EastGroup Properties, Inc.-Series D, 7.95% 260,000 6,656,000 ------------------------------------------------------------------------ First Industrial Realty Trust, Inc.-Series J, 7.25% 220,300 5,430,395 ------------------------------------------------------------------------ ProLogis-Series C, 8.54%(b) 950 50,439 ======================================================================== 15,139,234 ========================================================================
SHARES VALUE ------------------------------------------------------------------------
INDUSTRIAL/OFFICE MIXED-2.38% Bedford Property Investors, Inc., Series A, 8.75%(c) 60,000 $ 2,640,000 ------------------------------------------------------------------------ Series B, 7.63%(c) 139,200 2,714,400 ------------------------------------------------------------------------ Duke Realty Corp., Series B, 7.99%(b) 10,000 507,188 ------------------------------------------------------------------------ Series J, 6.63% 11,300 261,482 ------------------------------------------------------------------------ Series M, 6.95% 120,000 2,946,000 ------------------------------------------------------------------------ Series N, 7.25%(b) 200,000 5,062,500 ------------------------------------------------------------------------ PS Business Parks, Inc., Series F, 8.75% 16,000 405,600 ------------------------------------------------------------------------ Series O, 7.38% 100,000 2,480,000 ======================================================================== 17,017,170 ======================================================================== LODGING-RESORTS-6.03% Eagle Hospitality Properties Trust, Inc. Series A, 8.25% 291,500 7,127,175 ------------------------------------------------------------------------ FelCor Lodging Trust Inc.-Series C, 8.00% 138,700 3,398,150 ------------------------------------------------------------------------ Hersha Hospitality Trust-Series A, 8.00% 43,800 1,086,678 ------------------------------------------------------------------------ Hilton Hotels Corp., 8.00% 45,000 1,136,250 ------------------------------------------------------------------------ Hospitality Properties Trust-Series B, 8.88% 450,000 11,556,000 ------------------------------------------------------------------------ LaSalle Hotel Properties, Series A, 10.25% 36,300 932,910 ------------------------------------------------------------------------ Series B, 8.38% 40,000 1,017,600 ------------------------------------------------------------------------ Series D, 7.50% 100,000 2,380,000 ------------------------------------------------------------------------ Series E, 8.00% 105,300 2,658,825 ------------------------------------------------------------------------ Strategic Hotels & Resorts, Inc.-Series B, 8.25% 72,700 1,793,509 ------------------------------------------------------------------------ Strategic Hotels & Resorts, Inc.-Series C, 8.25% 200,000 4,980,000 ------------------------------------------------------------------------ Sunstone Hotel Investors, Inc.-Series A, 8.00% 200,000 5,040,000 ======================================================================== 43,107,097 ======================================================================== OFFICE PROPERTIES-5.27% Alexandria Real Estate Equities, Inc.-Series B, 9.10% 5,600 141,736 ------------------------------------------------------------------------ CarrAmerica Realty Corp.-Series E, 7.50% 75,000 1,893,750 ------------------------------------------------------------------------ Corporate Office Properties Trust-Series G, 8.00% 300,000 7,578,000 ------------------------------------------------------------------------ DRA CRT Acquisition Corp.-Series A, 8.50% 120,000 2,760,000 ------------------------------------------------------------------------ Glenborough Realty Trust Inc.-Series A, $1.94 Conv. 25,245 619,765 ------------------------------------------------------------------------ Highwoods Properties, Inc.-Series B, 8.00% 16,891 423,964 ------------------------------------------------------------------------ HRPT Properties Trust, Series B, 8.75% 510,000 13,260,000 ------------------------------------------------------------------------ Series C, 7.13% 100,000 2,455,000 ------------------------------------------------------------------------ Kilroy Realty Corp., Series E, 7.80% 51,600 1,310,640 ------------------------------------------------------------------------ Series F, 7.50% 175,000 4,292,750 ------------------------------------------------------------------------ SL Green Realty Corp.-Series C, 7.63% 120,000 2,940,000 ======================================================================== 37,675,605 ========================================================================
F-2 AIM SELECT REAL ESTATE INCOME FUND
SHARES VALUE ------------------------------------------------------------------------ REGIONAL MALLS-5.52% CBL & Associates Properties, Inc., Series B, 8.75% 315,000 $ 15,970,500 ------------------------------------------------------------------------ Series C, 7.75% 350,000 8,837,500 ------------------------------------------------------------------------ Series D, 7.38% 175,000 4,331,250 ------------------------------------------------------------------------ Glimcher Realty Trust, Series F, 8.75% 80,000 2,055,200 ------------------------------------------------------------------------ Series G, 8.13% 144,000 3,600,000 ------------------------------------------------------------------------ Taubman Centers, Inc.-Series G, 8.00% 183,200 4,651,448 ======================================================================== 39,445,898 ======================================================================== SELF STORAGE FACILITIES-0.55% Public Storage, Inc., Series G, 7.00% 60,000 1,468,800 ------------------------------------------------------------------------ Series I, 7.25% 100,000 2,480,000 ======================================================================== 3,948,800 ======================================================================== SHOPPING CENTERS-1.76% Cedar Shopping Centers Inc.-Series A, 8.88% 75,000 1,966,500 ------------------------------------------------------------------------ Developers Diversified Realty Corp.-Class F, 8.60% 229,700 5,834,380 ------------------------------------------------------------------------ Federal Realty Investment Trust-Series B, 8.50% 70,600 1,798,182 ------------------------------------------------------------------------ Ramco-Gershenson Properties Trust-Series B, 9.50% 40,000 1,026,400 ------------------------------------------------------------------------ Regency Centers Corp., 6.70% 11,600 271,672 ------------------------------------------------------------------------ Series D, 7.25% 13,600 338,776 ------------------------------------------------------------------------ Saul Centers, Inc.-Series A, 8.00% 50,000 1,312,500 ======================================================================== 12,548,410 ========================================================================
SHARES VALUE ------------------------------------------------------------------------
SPECIALTY PROPERTIES-1.32% Digital Realty Trust, Inc., Series A, 8.50% 51,100 $ 1,292,319 ------------------------------------------------------------------------ Series B, 7.88% 80,000 1,900,000 ------------------------------------------------------------------------ Entertainment Properties Trust, Series A, 9.50% 138,900 3,560,007 ------------------------------------------------------------------------ Series B, 7.75% 112,800 2,695,920 ======================================================================== 9,448,246 ======================================================================== Total Preferred Stocks (Cost $253,897,400) 254,085,491 ======================================================================== MONEY MARKET FUNDS-0.26% Liquid Assets Portfolio-Institutional Class(d) 931,148 931,148 ------------------------------------------------------------------------ Premier Portfolio-Institutional Class(d) 931,148 931,148 ======================================================================== Total Money Market Funds (Cost $1,862,296) 1,862,296 ======================================================================== TOTAL INVESTMENTS-124.85% (Cost $758,836,474) 892,575,310 ======================================================================== OTHER ASSETS LESS LIABILITIES-3.82% 27,370,166 ======================================================================== AUCTION RATE PREFERRED SHARES AT LIQUIDATION VALUE-(28.67)% (205,000,000) ======================================================================== NET ASSETS ATTRIBUTABLE TO COMMON SHARES-100.00% $ 714,945,476 ________________________________________________________________________ ========================================================================
Investment Abbreviations: Conv. - Convertible Dep. - Depositary REIT - Real Estate Investment Trust
Notes to Schedule of Investments: (a) A portion of the value was pledged as collateral to cover margin requirements for open interest rate swap transactions. See Note 1H and Note 11. (b) In accordance with the procedures established by the Board of Trustees, security fair valued based on an evaluated quote provided by an independent pricing service. The aggregate value of these securities at June 30, 2006 was $5,850,208, which represented 0.82% of the Fund's Net Assets attributable to common shares. See Note 1A. (c) Security considered to be illiquid. The Fund is limited to investing 10% of net assets in illiquid securities at the time of purchase. The aggregate value of these securities considered illiquid at June 30, 2006 was $5,354,400, which represented 0.75% of the Fund's Net Assets attributable to common shares. (d) The money market fund and the Fund are affiliated by having the same investment advisor. See Note 3. See accompanying Notes to Financial Statements which are an integral part of the financial statements. F-3 AIM SELECT REAL ESTATE INCOME FUND STATEMENT OF ASSETS AND LIABILITIES June 30, 2006 (Unaudited) ASSETS: Investments, at value (cost $756,974,178) $890,713,014 ----------------------------------------------------------- Investments in affiliated money market funds (cost $1,862,296) 1,862,296 =========================================================== Total investments (cost $758,836,474) 892,575,310 =========================================================== Receivables for: Investments sold 18,500,601 ----------------------------------------------------------- Dividends 4,359,179 ----------------------------------------------------------- Unrealized appreciation on interest rate swap transactions 4,753,287 ----------------------------------------------------------- Interest on interest rate swap transactions 86,362 ----------------------------------------------------------- Investment for trustee deferred compensation and retirement plans 29,881 ----------------------------------------------------------- Other assets 32,117 =========================================================== Total assets 920,336,737 ___________________________________________________________ =========================================================== LIABILITIES: Payables for: Investments purchased 92,186 ----------------------------------------------------------- Trustee deferred compensation and retirement plans 73,294 ----------------------------------------------------------- Dividends declared on auction rate preferred shares 84,980 ----------------------------------------------------------- Accrued trustees' and officer's fees and benefits 703 ----------------------------------------------------------- Accrued operating expenses 140,098 =========================================================== Total liabilities 391,261 =========================================================== Auction rate preferred shares, at liquidation value 205,000,000 =========================================================== Net assets attributable to common shares $714,945,476 ___________________________________________________________ =========================================================== NET ASSETS ATTRIBUTABLE TO COMMON SHARES CONSIST OF: Shares of beneficial interest -- common shares $534,711,129 ----------------------------------------------------------- Undistributed net investment income (12,025,924) ----------------------------------------------------------- Undistributed net realized gain from investment securities and interest rate swap transactions 53,768,148 ----------------------------------------------------------- Unrealized appreciation of investment securities and interest rate swap transactions 138,492,123 =========================================================== $714,945,476 ___________________________________________________________ =========================================================== SHARES OUTSTANDING, $0.001 PAR VALUE PER COMMON SHARE: Outstanding 39,108,196 ___________________________________________________________ =========================================================== Net asset value per common share $ 18.28 ___________________________________________________________ =========================================================== Market value per common share $ 15.55 ___________________________________________________________ =========================================================== Market price premium (discount) to net asset value per common share (14.93)% ___________________________________________________________ ===========================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. F-4 AIM SELECT REAL ESTATE INCOME FUND STATEMENT OF OPERATIONS For the six months ended June 30, 2006 (Unaudited) INVESTMENT INCOME: Dividends $20,450,010 ------------------------------------------------------------------------- Dividends from affiliated money market funds 268,615 ========================================================================= Total investment income 20,718,625 ========================================================================= EXPENSES: Advisory fees 4,154,966 ------------------------------------------------------------------------- Administrative services fees 111,141 ------------------------------------------------------------------------- Custodian fees 38,457 ------------------------------------------------------------------------- Auction rate preferred shares remarketing fees 259,097 ------------------------------------------------------------------------- Transfer agent fees 21,319 ------------------------------------------------------------------------- Trustees' and officer's fees and benefits 20,474 ------------------------------------------------------------------------- Other 200,405 ========================================================================= Total expenses 4,805,859 ========================================================================= Less: Fees waived and expense offset arrangement (1,397,183) ========================================================================= Net expenses 3,408,676 ========================================================================= Net investment income 17,309,949 ========================================================================= REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES AND INTEREST RATE SWAP TRANSACTIONS: Net realized gain from: Investment securities 43,761,900 ------------------------------------------------------------------------- Interest rate swap transactions 513,848 ========================================================================= 44,275,748 ========================================================================= Change in net unrealized (depreciation) of: Investment securities (5,258,034) ------------------------------------------------------------------------- Interest rate swap transactions 2,554,514 ========================================================================= (2,703,520) ========================================================================= Net gain from investment securities and interest rate swap transactions 41,572,228 ========================================================================= Net increase in net assets resulting from operations 58,882,177 ========================================================================= Distributions to auction rate preferred shareholders from net investment income (4,564,371) ========================================================================= Net increase in net assets from operations attributable to common shares $54,317,806 _________________________________________________________________________ =========================================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. F-5 AIM SELECT REAL ESTATE INCOME FUND STATEMENT OF CHANGES IN NET ASSETS For the six months ended June 30, 2006 and the year ended December 31, 2005 (Unaudited)
JUNE 30, DECEMBER 31, 2006 2005 ------------------------------------------------------------------------------------------ OPERATIONS: Net investment income $ 17,309,949 $ 35,929,303 ------------------------------------------------------------------------------------------ Net realized gain from investment securities and interest rate swap transactions 44,275,748 74,378,212 ------------------------------------------------------------------------------------------ Change in net unrealized appreciation (depreciation) of investment securities and interest rate swap transactions (2,703,520) (88,702,186) ========================================================================================== Net increase in net assets resulting from operations 58,882,177 21,605,329 ========================================================================================== Distributions to auction rate preferred shareholders from net investment income (4,564,371) (6,598,783) ========================================================================================== Net increase in net assets from operations attributable to common shares 54,317,806 15,006,546 ========================================================================================== Distributions to common shareholders from: Net investment income (24,718,458) (49,480,081) ------------------------------------------------------------------------------------------ Net realized gains -- (66,504,582) ========================================================================================== Decrease in net assets resulting from distributions to common shares (24,718,458) (115,984,663) ========================================================================================== Capital stock transactions: Decrease in common shares repurchased (Note 9) (13,033,473) -- ========================================================================================== Net increase (decrease) in net assets attributable to common shares 16,565,875 (100,978,117) ========================================================================================== NET ASSETS: Beginning of period 698,379,601 799,357,718 ========================================================================================== End of period (including undistributed net investment income of $(12,025,924) and $(53,044), respectively) $714,945,476 $ 698,379,601 __________________________________________________________________________________________ ==========================================================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. F-6 AIM SELECT REAL ESTATE INCOME FUND STATEMENT OF CASH FLOWS For the six months ended June 30, 2006 (Unaudited) CASH PROVIDED BY OPERATING ACTIVITIES: Net increase in net assets resulting from operations $ 54,317,806 =========================================================================== ADJUSTMENTS TO RECONCILE NET INCREASE IN NET ASSETS TO NET CASH PROVIDED BY OPERATIONS: Purchases of investments (168,149,442) --------------------------------------------------------------------------- Proceeds from disposition of investments 191,579,596 --------------------------------------------------------------------------- Decrease in dividends receivable 985,994 --------------------------------------------------------------------------- Increase in interest receivable on interest rate swap transactions (86,362) --------------------------------------------------------------------------- Decrease in other assets 17,406 --------------------------------------------------------------------------- Decrease in interest payable on interest rate swap transactions (17,346) --------------------------------------------------------------------------- Decrease in dividends payables declared on auction rate preferred shares (7,806) --------------------------------------------------------------------------- Increase in accrued expenses and other payables 32,227 --------------------------------------------------------------------------- Unrealized appreciation (depreciation) of investment securities 5,258,034 --------------------------------------------------------------------------- Net realized gain from investment securities (43,761,900) =========================================================================== Net cash provided by operating activities 40,168,207 =========================================================================== CASH USED IN FINANCING ACTIVITIES: Decrease in payable to custodian (40,132) --------------------------------------------------------------------------- Increase in interest rate swap transactions (513,848) --------------------------------------------------------------------------- Disbursements from common shares repurchased (13,033,473) --------------------------------------------------------------------------- Dividends paid to shareholders (24,718,458) =========================================================================== Net cash provided by (used in) financing activities (38,305,911) =========================================================================== Net increase in cash and cash equivalents 1,862,296 =========================================================================== Cash and cash equivalents at beginning of period 0 =========================================================================== Cash and cash equivalents at end of period $ 1,862,296 ___________________________________________________________________________ ===========================================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. F-7 AIM SELECT REAL ESTATE INCOME FUND NOTES TO FINANCIAL STATEMENTS June 30, 2006 (Unaudited) NOTE 1--SIGNIFICANT ACCOUNTING POLICIES AIM Select Real Estate Income Fund (the "Fund") was organized as a Delaware statutory trust on March 11, 2002 and is registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as a non-diversified, closed-end management investment company. The Fund currently has Common Shares and Auction Rate Preferred Shares ("Preferred Shares") outstanding. The Common Shares are traded on the New York Stock Exchange under the symbol "RRE." Preferred Shares are currently sold in weekly auctions through broker-dealers who have an agreement with the auction agent. Preferred Shares have seniority over the Common Shares and the issuance of Preferred Shares leveraged the value of the Fund's Common Shares. Except as otherwise indicated in the Agreement and Declaration of Trust, as amended, (the "Declaration of Trust") and except as otherwise required by applicable law, holders of Preferred Shares will vote together with Common Shareholders as a single class. The Fund's primary investment objective is high current income; the Fund's secondary investment objective is capital appreciation. Under the Trust's organizational documents, each Trustee, officer, employee or other agent of the Trust (including the Trust's investment manager) is indemnified against certain liabilities that may arise out of performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts that contain a variety of indemnification clauses. The Fund's maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates. The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements. A. SECURITY VALUATIONS -- Securities, including restricted securities, are valued according to the following policy. A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales on a particular day, the security is valued at the closing bid price on that day. Securities traded in the over-the-counter market (but not securities reported on the NASDAQ National Market System) are valued based on the prices furnished by independent pricing services, in which case the securities may be considered fair valued, or by market makers. Each security reported on the NASDAQ National Market System is valued at the NASDAQ Official Closing Price ("NOCP") as of the close of the customary trading session on the valuation date or absent a NOCP, at the closing bid price. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and the ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange ("NYSE"). Interest rate swap transactions are marked to market daily based upon quotations from market makers. The value of interest rate swaps is based on pricing models that consider the time value of money, volatility, the current market and contractual prices of the underlying financial instrument. Investments in open-end registered investment companies and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in closed-end registered investment companies that trade on an exchange are valued at the last sales price as of the close of the customary trading session on the exchange where the security is principally traded. Debt obligations (including convertible bonds) are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Short-term obligations having 60 days or less to maturity and commercial paper are valued at amortized cost which approximates value. Securities for which market prices are not provided by any of the above methods are valued based upon quotes furnished by independent sources and are valued at the last bid price in the case of equity securities and in the case of debt obligations, the mean between the last bid and asked prices. Foreign securities (including foreign exchange contracts) are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. Generally, trading in foreign securities is substantially completed each day at various times prior to the close of the NYSE. The values of such securities used in computing the net asset value of the Fund's shares are determined as of the close of the respective markets. Events affecting the values of such foreign securities may occur between the times at which the particular foreign market closes and the close of the customary trading session of the NYSE which would not ordinarily be reflected in the computation of the Fund's net asset value. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current market value as of the close of the NYSE. Foreign securities meeting the approved degree of certainty that the price is not reflective of current market value F-8 AIM SELECT REAL ESTATE INCOME FUND will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, ADRs, domestic and foreign index futures. Securities for which market quotations are not readily available or are unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust's officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security's fair value. B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income is recorded on the ex-dividend date. Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the realized and unrealized net gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund's net asset value and, accordingly, they reduce the Fund's total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the advisor. The Fund recharacterizes distributions received from REIT investments based on information provided by the REIT into the following categories: ordinary income, long-term and short-term capital gains, and return of capital. If information is not available timely from the REIT, the recharacterization will be based on available information which may include the previous year's allocation. If new or additional information becomes available from the REIT at a later date, a recharacterization will be made in the following year. The Fund records as dividend income the amount recharacterized as ordinary income and as realized gain the amount recharacterized as capital gain in the Statement of Operations, and the amount recharacterized as return of capital in the Statement of Changes in Net Assets. These recharacterizations are reflected in the accompanying financial statements. C. COUNTRY DETERMINATION -- For the purposes of making investment selection decisions and presentation in the Schedule of Investments, AIM may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer's securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be United States of America unless otherwise noted. D. DISTRIBUTIONS -- Dividends from net investment income (prior to any reclassification as a return of capital) are declared and paid to Common Shareholders monthly. Distributions from net realized capital gain, if any, are generally paid annually and recorded on ex-dividend date. Dividends from net investment income, distributions from capital gains and return of capital are determined in accordance with federal income tax regulations which may differ from generally accepted accounting principles. The Fund offers a Dividend Reinvestment Plan to allow dividends, including any capital gain dividends, on Common Shares to be automatically reinvested in additional Common Shares of the Fund. Computershare, the Transfer Agent for the Common Shares of the Fund, will make the determination on the reinvestment of the dividend based on the market price per Common Share in comparison to the net asset value of the Fund. Generally, if on the fifth trading day preceding the payment date of the dividend, the market price per Common Share plus share brokerage commissions applicable to an open market purchase of Common Shares is below the net asset value per Common Share, the Transfer Agent will receive the dividend or distribution in cash. Under these circumstances, the Transfer Agent will purchase Common Shares in the open market. Otherwise the Fund will issue new Common Shares to fulfill dividend reinvestment obligations. Preferred Shares issued by the Fund pay dividends based on a determined rate, usually the rate set at the preceding auction, normally held every seven days. In most instances, dividends are payable every seven days, on the first business day following the last day of a dividend period. Under the 1940 Act, the Fund is required to maintain, with respect to all outstanding senior equity securities of the Fund, including Preferred Shares, as of the last business day on any month in which any Preferred Shares are outstanding, asset coverage of at least 200%. Additionally, the Fund is required to meet more stringent asset coverage requirements under the terms of the Preferred Shares' offering documents and the Preferred Shares' rating agencies as described in the offering documents. Should these requirements not be met, or should dividends accrued on the Preferred Shares not be paid, the Fund may be restricted in its ability to declare dividends to Common Shareholders or will be subject to mandatory redemption of the Preferred Shares. At June 30, 2006, no such restrictions have been placed on the Fund. E. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and, as such, will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) which is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. F. EXPENSES -- All expenses incurred by the Fund are included in the determination of the net assets attributable to Common Shares and do not impact the liquidation preference of Preferred Shares. F-9 AIM SELECT REAL ESTATE INCOME FUND G. CASH AND CASH EQUIVALENTS -- Cash and cash equivalents in the Statement of Cash Flows are comprised of cash and investments in affiliated money market funds for the purpose of investing daily available cash balances. H. INTEREST RATE SWAP TRANSACTIONS -- The Fund may enter into interest rate swap transactions in order to reduce the risk that the cost of leveraging by the Fund will exceed the returns realized by the Fund on the leverage proceeds. The Fund uses interest rate swap transactions in connection with the sale of Preferred Shares. In an interest rate swap, the Fund agrees to pay to the other party to the swap (which is known as the "counterparty") a fixed rate payment, and the counterparty agrees to pay to the Fund a variable rate payment. The variable rate payment is intended to approximate all or a portion of the Fund's dividend payment obligation on Preferred Shares or interest payment obligation on any variable rate borrowings. The payment obligations are based on the notional amount of the swap. The Fund has segregated liquid securities in a separate account having a value at least equal to the Fund's net payment obligations under any swap transaction. Interest rate swap transactions are marked to market daily. Entering into these agreements involves, to varying degrees, elements of credit, market and documentation risk in excess of amounts recognized on the Statement of Assets and Liabilities. Such risks involve the possibility that there will be no liquid market for these agreements, that the counterparty to the agreements may default on its obligation to perform or disagree as to the meaning of contractual terms in the agreements, and that there may be unfavorable changes in interest rates. The Fund records periodic payments made under interest rate agreements as a component of realized gain (loss) in the Statement of Operations. I. COLLATERAL -- To the extent the Fund has pledged or segregated a security as collateral and that security is subsequently sold, it is the Fund's practice to replace such collateral no later than the next business day. NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES The Fund has entered into a master investment advisory agreement with AIM Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to AIM at the annual rate of 0.90% of the sum of the Fund's average daily net assets attributable to Common Shares, plus assets attributable to any Preferred Shares that may be outstanding, plus the principal amount of any Borrowings ("Managed Assets"), payable on a monthly basis. For the six months ended June 30, 2006, average daily Managed Assets were $930,977,641. Under the terms of a master sub-advisory agreement between AIM and INVESCO Institutional (N.A.), Inc. ("INVESCO"), AIM pays INVESCO 50% of the amount paid by the Fund to AIM, net of fee waivers and expense reimbursements. AIM has contractually agreed to waive a portion of its advisory fee as a percentage of average daily Managed Assets for the first seven years of the Fund's operations as follows:
WAIVER PERIOD FEE WAIVER -------------------------------------------------------------------------- 05/31/02-06/30/07 0.30% -------------------------------------------------------------------------- 07/01/07-06/30/08 0.20% -------------------------------------------------------------------------- 07/01/08-06/30/09 0.10% _________________________________________________________________________ ==========================================================================
Further, AIM has voluntarily agreed to waive advisory fees of the Fund in the amount of 25% of the advisory fee AIM receives from the affiliated money market funds on investments by the Fund in such affiliated money market funds. AIM is also voluntarily waiving a portion of the advisory fee payable by the Fund equal to the difference between the income earned from investing in the affiliated money market fund and the hypothetical income earned from investing in an appropriate comparative benchmark. Voluntary fee waivers or reimbursements may be modified or discontinued at any time upon consultation with the Board of Trustees without further notice to investors. For the six months ended June 30, 2006, AIM waived fees of $1,386,497. At the request of the Trustees of the Trust, AMVESCAP PLC ("AMVESCAP") agreed to reimburse expenses incurred by the Fund in connection with market timing matters in the AIM Funds, which may include legal, audit, shareholder reporting, communications and trustee expenses. For the six months ended June 30, 2006, AMVESCAP did not reimburse any expenses. The Fund, pursuant to a master administrative services agreement with AIM, has agreed to pay AIM for certain administrative costs incurred in providing accounting services to the Fund. Pursuant to such agreement, for the six months ended June 30, 2006, AIM was paid $111,141. Certain officers and trustees of the Fund are officers and directors of AIM and/or AIM Investments, the parent corporation of AIM. F-10 AIM SELECT REAL ESTATE INCOME FUND NOTE 3--INVESTMENTS IN AFFILIATES The Fund is permitted, pursuant to an exemptive order from the Securities and Exchange Commission ("SEC") and approved procedures by the Board of Trustees, to invest daily available cash balances in affiliated money market funds. The Fund and the money market funds below have the same investment advisor and therefore, are considered to be affiliated. The table below shows the transactions in and earnings from investments in affiliated money market funds for the six months ended June 30, 2006.
CHANGE IN UNREALIZED VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED FUND 12/31/05 AT COST FROM SALES (DEPRECIATION) 06/30/06 INCOME GAIN (LOSS) --------------------------------------------------------------------------------------------------------------------------------- Liquid Assets Portfolio- Institutional Class $ -- $ 71,718,867 $ (70,787,719) $ -- $ 931,148 $133,970 $ -- --------------------------------------------------------------------------------------------------------------------------------- Premier Portfolio- Institutional Class -- 2,862,340 (1,931,192) -- 931,148 910 -- --------------------------------------------------------------------------------------------------------------------------------- STIC Prime Portfolio- Institutional Class -- 71,661,335 (71,661,335) -- -- 133,735 -- ================================================================================================================================= Total $ -- $146,242,542 $(144,380,246) $ -- $1,862,296 $268,615 $ -- _________________________________________________________________________________________________________________________________ =================================================================================================================================
NOTE 4--EXPENSE OFFSET ARRANGEMENT The expense offset arrangement is comprised of custodian credits which result from periodic overnight cash balances at the custodian. For the six months ended June 30, 2006, the Fund received credits from this arrangement, which resulted in the reduction of the Fund's total expenses of $10,686. NOTE 5--TRUSTEES' AND OFFICER'S FEES AND BENEFITS "Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund to pay remuneration to each Trustee and Officer of the Fund who is not an "interested person" of AIM. Trustees have the option to defer compensation payable by the Fund, and "Trustees' and Officer's Fees and Benefits" also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various AIM Funds in which their deferral accounts shall be deemed to be invested. Finally, current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. "Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund. During the six months ended June 30, 2006, the Fund paid legal fees of $3,372 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A member of that firm is a Trustee of the Trust. NOTE 6--BORROWINGS The Fund is a participant in a committed line of credit facility with a syndicate administered by JPMorgan Chase Bank. The Fund may borrow up to the lesser of (i) $250,000,000, or (ii) the limits set by its prospectus for borrowings. The Fund and other funds advised by AIM which are parties to the line of credit may borrow on a first come, first served basis. The funds which are party to the line of credit are charged a commitment fee of 0.06% on the unused balance of the committed line. During the six months ended June 30, 2006, the Fund did not borrow under the committed credit facility. NOTE 7--TAX INFORMATION The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. Reclassifications are made to the Fund's capital accounts to reflect income and gains available for distribution (or available capital loss carryforward) under income tax regulations. The tax character of distributions paid during the year and the tax components of net assets will be reported at the Fund's fiscal year-end. The Fund did not have a capital loss carryforward as of December 31, 2005. F-11 AIM SELECT REAL ESTATE INCOME FUND NOTE 8--INVESTMENT SECURITIES The aggregate amount of investment securities (other than short-term securities and money market funds) purchased and sold by the Fund during the six months ended June 30, 2006 was $168,241,628 and $201,414,073, respectively. For interim reporting periods, the cost of investments for tax purposes includes reversals of certain tax items, such as, wash sales that have occurred since the prior fiscal year-end.
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS ------------------------------------------------------------------------------ Aggregate unrealized appreciation of investment securities $141,804,962 ------------------------------------------------------------------------------ Aggregate unrealized (depreciation) of investment securities (9,742,826) ============================================================================== Net unrealized appreciation of investment securities $132,062,136 ______________________________________________________________________________ ============================================================================== Cost of investments for tax purposes is $760,513,174.
NOTE 9--SHARE INFORMATION On October 27, 2005, the Board of Trustees approved the Fund to engage in open-market share purchase of its Common Shares. For the six months ended June 30, 2006, the Fund repurchased 827,300 shares of Common Shares for $13,033,473. The weighted average discount of market price to net asset value of Common Shares repurchased during the six months ended June 30, 2006 was 14%. On March 11, 2002, AIM purchased one Common Share. On May 21, 2002, AIM purchased an additional 7,000 Common Shares. During the period May 31, 2002 (date investment operations commenced) through December 31, 2002, 39,900,000 Common Shares and 2,050 Preferred Shares of each Series M, W, R and F were issued. The Fund issued 4,317, 24,178, 0, 0 and 0 Common Shares for the reinvestment of dividends during the period May 31, 2002 (date investment operations commenced) to December 31, 2002 and for the years ended December 31, 2003, 2004, 2005 and for the six months ended June 30, 2006, respectively. NOTE 10--DISTRIBUTIONS DECLARED -- COMMON SHARES For July, 2006, a dividend of $0.104 per share and a capital gain distribution of $0.2867 per share were declared on June 28, 2006, payable on July 28, 2006, for Fund Common Shareholders of record on July 18, 2006. On August 1, 2006, the Board of Trustees of the Fund declared a distribution of $0.104 per share payable on August 30, 2006 to shareholders of record on August 18, 2006. Of the distribution, it is estimated that approximately $0.0254 per share represents net investment income and $0.0786 per share represents a return of capital. On August 1, 2006, the Board of Trustees of the Fund declared a distribution of $0.104 per share payable on September 28, 2006 to shareholders of record on September 18, 2006. Of the distribution, it is estimated that approximately $0.0792 per share represents net investment income and $0.0248 per share represents a return of capital. NOTE 11--INTEREST RATE SWAP AGREEMENTS The Fund has entered into interest rate swap agreements. Under the agreements, the Fund receives a floating rate of interest income and pays a fixed rate of interest on the notional values of the swaps to the agreement counterparty. At June 30, 2006, the Fund had open interest rate swap agreements as follows:
FLOATING RATE* (RATE RESET UNREALIZED NOTIONAL AMOUNT FIXED RATE MONTHLY) TERMINATION DATE APPRECIATION -------------------------------------------------------------------------------------------------------------------------------- Citibank, N.A $40,000,000 3.5000% 4.7760% 09/19/07 $ 960,710 -------------------------------------------------------------------------------------------------------------------------------- Citibank, N.A 42,000,000 4.6325% 4.6330% 08/02/09 1,015,573 -------------------------------------------------------------------------------------------------------------------------------- Citibank, N.A 40,000,000 4.4500% 4.4500% 03/01/12 2,102,748 -------------------------------------------------------------------------------------------------------------------------------- Merrill Lynch Capital Services, Inc. 30,000,000 3.6000% 4.7200% 09/12/07 674,256 ================================================================================================================================ $4,753,287 ________________________________________________________________________________________________________________________________ ================================================================================================================================
* Based on 30 day London Interbank Offered Rate (LIBOR). NOTE 12--NEW ACCOUNTING STANDARD In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes ("FIN 48"). FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The provisions for FIN 48 are effective for fiscal years beginning after December 15, 2006. Management is currently assessing the impact of FIN 48, if any, on the Fund's financial statements and intends for the Fund to adopt the FIN 48 provisions during 2007. F-12 AIM SELECT REAL ESTATE INCOME FUND NOTE 13--FINANCIAL HIGHLIGHTS The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
MAY 31, 2002 SIX MONTHS (DATE INVESTMENT ENDED YEAR ENDED DECEMBER 31, OPERATIONS COMMENCED) JUNE 30, -------------------------------- TO DECEMBER 31, 2006 2005 2004 2003 2002 -------------------------------------------------------------------------------------------------------------------------------- Net asset value per common share, beginning of period $ 17.49 $ 20.02 $ 17.83 $ 12.83 $ 14.33 -------------------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income 0.43 0.90 0.85 0.95(a) 0.49(a) -------------------------------------------------------------------------------------------------------------------------------- Net gains (losses) on securities (both realized and unrealized) 1.05 (0.36) 3.16 5.33 (1.35) ================================================================================================================================ Total from investment operations 1.48 0.54 4.01 6.28 (0.86) ================================================================================================================================ Less distributions to auction rate preferred shareholders from net investment income(b) (0.12) (0.17) (0.08) (0.06) (0.04) ================================================================================================================================ Total from investment operations attributable to common shares 1.36 0.37 3.93 6.22 (0.90) ================================================================================================================================ Less offering costs charged to paid-in capital on common shares: Offering costs on common shares -- -- -- -- (0.03) -------------------------------------------------------------------------------------------------------------------------------- Offering costs on auction rate preferred shares -- -- -- (0.00) (0.07) -------------------------------------------------------------------------------------------------------------------------------- Dilutive effect of common share offering -- -- -- (0.00) (0.00) ================================================================================================================================ Total offering costs charged to paid-in capital -- -- -- (0.00) (0.10) ================================================================================================================================ Less distributions to common shareholders: Dividends from net investment income (0.62) (1.24) (1.24) (0.79) (0.42) -------------------------------------------------------------------------------------------------------------------------------- Distributions from net realized gains -- (1.66) (0.50) -- -- -------------------------------------------------------------------------------------------------------------------------------- Return of capital -- -- -- (0.43) (0.08) ================================================================================================================================ Total distributions to common shareholders (0.62) (2.90) (1.74) (1.22) (0.50) ================================================================================================================================ Increase from common shares repurchased 0.05 -- -- -- -- ================================================================================================================================ Net asset value per common share, end of period $ 18.28 $ 17.49 $ 20.02 $ 17.83 $ 12.83 ================================================================================================================================ Market value per common share, end of period $ 15.55 $ 14.98 $ 17.50 $ 16.59 $ 12.30 ================================================================================================================================ Net asset value total return(c)(d) 8.69% 4.44% 24.43% 51.41% (6.90)% ================================================================================================================================ Market value return(c)(d) 7.95% 2.33% 16.89% 46.95% (14.73)% ________________________________________________________________________________________________________________________________ ================================================================================================================================ Ratios/supplemental data: Net assets attributable to common shares, end of period (000s omitted) $714,945 $698,380 $799,358 $712,069 $511,940 ================================================================================================================================ Ratio of expenses to average net assets attributable to common shares: With fee waivers and/or expense reimbursements(e) 0.95%(f) 0.95% 0.93% 1.00%(a) 1.02%(a)(g) -------------------------------------------------------------------------------------------------------------------------------- Without fee waivers and/or expense reimbursements(e) 1.33%(f) 1.33% 1.32% 1.41%(a) 1.43%(a)(g) ================================================================================================================================ Ratio of net investment income to average net assets attributable to common shares(e) 4.81%(f) 4.70% 4.64% 6.46%(a) 6.28%(a)(g) ================================================================================================================================ Ratio of distributions to auction rate preferred shareholders to average net assets attributable to common shares 1.27%(f) 0.86% 0.42% 0.43% 0.50%(g) ________________________________________________________________________________________________________________________________ ================================================================================================================================ Portfolio turnover rate(h) 18% 17% 19% 37% 35% ________________________________________________________________________________________________________________________________ ================================================================================================================================ Auction rate preferred shares: Liquidation value, end of period (000s omitted) $205,000 $205,000 $205,000 $205,000 $205,000 ================================================================================================================================ Total shares outstanding 8,200 8,200 8,200 8,200 8,200 ================================================================================================================================ Asset coverage per share $112,188 $110,168 $122,483 $111,838 $ 87,432 ================================================================================================================================ Liquidation and market value per share $ 25,000 $ 25,000 $ 25,000 $ 25,000 $ 25,000 ________________________________________________________________________________________________________________________________ ================================================================================================================================
(a) As a result of changes in accounting principles generally accepted in the United States of America, the Fund reclassified periodic payments made under interest rate swap agreements, previously included within interest expense as a component of realized gain (loss) in the Statement of Operations. The effect of this reclassification was to increase the net investment income ratio by 0.67%, decrease the expense ratio by 0.67% and increase net investment income per share by $0.10 for the year ended December 31, 2003. For consistency, similar reclassifications have been made to prior year amounts, resulting in an increase to the net investment income ratio of 0.38%, a decrease to the expense ratio of 0.38% and an increase to net investment income per share of $0.03 for the period May 31, 2002 (date investment operations commenced) through December 31, 2002. (b) Based on average number of common shares outstanding. (c) Not annualized for periods less than one year. (d) Net asset value return includes adjustments in accordance with accounting principles generally accepted in the United States of America and measures the changes in common shares' value over the period indicated, taking into account dividends as reinvested. Market value return is computed based upon the New York Stock Exchange market price of the Fund's common shares and excludes the effects of brokerage commissions. Dividends and distributions, if any, are assumed for purposes of this calculation, to be reinvested at prices obtained under the Fund's dividend reinvestment plan. (e) Ratios do not reflect the effect of dividend payments to auction rate preferred shareholders; income ratios reflect income earned on investments made with assets attributable to auction rate preferred shares. (f) Ratios are annualized and based on average daily net assets of $725,977,641. (g) Annualized. (h) Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year. F-13 AIM SELECT REAL ESTATE INCOME FUND NOTE 14--SUBSEQUENT EVENT On August 1, 2006, the Fund's Board of Trustees determined that it was in the best interest of holders of the Fund's Common Shares to reorganize the Fund as an open-end fund. Among other benefits, such reorganization will eliminate the Common Shares' trading discount to net asset value. Formal Board approval of all actions necessary to accomplish the reorganization is anticipated to occur in the coming months, at which time the Fund will announce the terms of the reorganization. Before the Fund can reorganize as an open-end fund, it will be required to redeem its outstanding Preferred Shares and to obtain the approval of the holders of its Common Shares. The reorganization also will be subject to making the necessary regulatory filings with the SEC and receiving subsequent SEC approval. The Fund has, from time to time, purchased its Common Shares in open-market purchases. The Fund has ceased purchasing its Common Shares as a result of the Board's determination to reorganize the Fund as an open-end fund. NOTE 15--LEGAL PROCEEDINGS Terms used in the Legal Proceedings Note are defined terms solely for the purpose of this note. SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING A I M Advisors, Inc. ("AIM"), the investment advisor to AIM Select Real Estate Income Fund (the "Fund"), also serves as investment advisor to a number of open-end mutual funds (the AIM Funds"). On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment advisor to certain AIM Funds), AIM and A I M Distributors, Inc. ("ADI") (the distributor of the retail AIM Funds) reached final settlements with certain regulators, including the Securities and Exchange Commission ("SEC"), the New York Attorney General and the Colorado Attorney General, to resolve civil enforcement actions and/or investigations related to market timing and related activity in the AIM Funds, including those formerly advised by IFG. As part of the settlements, a $325 million fair fund ($110 million of which is civil penalties) has been created to compensate shareholders harmed by market timing and related activity in funds formerly advised by IFG. Additionally, AIM and ADI created a $50 million fair fund ($30 million of which is civil penalties) to compensate shareholders harmed by market timing and related activity in funds advised by AIM, which was done pursuant to the terms of the settlement. These two fair funds may increase as a result of contributions from third parties who reach final settlements with the SEC or other regulators to resolve allegations of market timing and/or late trading that also may have harmed applicable AIM Funds. These two fair funds will be distributed in accordance with a methodology to be determined by AIM's independent distribution consultant, in consultation with AIM and the independent trustees of the AIM Funds and acceptable to the staff of the SEC. Although the methodology is unknown at the present time, because the Fund is not an open-end fund it is not expected that the Fund will participate in the distribution of the two fair funds and such distribution therefore is not expected to have an impact on the Fund's financial statements in the future. At the request of the trustees of the AIM Funds, AMVESCAP PLC ("AMVESCAP"), the parent company of IFG and AIM, has agreed to reimburse expenses incurred by the AIM Funds related to market timing matters. PENDING LITIGATION AND REGULATORY INQUIRIES On August 30, 2005, the West Virginia Office of the State Auditor-Securities Commission ("WVASC") issued a Summary Order to Cease and Desist and Notice of Right to Hearing to AIM and ADI (Order No. 05-1318). The WVASC makes findings of fact that AIM and ADI entered into certain arrangements permitting market timing of the AIM Funds, including those formerly advised by IFG, and failed to disclose these arrangements in the prospectuses for such Funds, and conclusions of law to the effect that AIM and ADI violated the West Virginia securities laws. The WVASC orders AIM and ADI to cease any further violations and seeks to impose monetary sanctions, including restitution to affected investors, disgorgement of fees, reimbursement of investigatory, administrative and legal costs and an "administrative assessment," to be determined by the Commissioner. Initial research indicates that these damages could be limited or capped by statute. Civil lawsuits, including purported class action and shareholder derivative suits, have been filed against certain of the AIM Funds, IFG, AIM, ADI and/or related entities and individuals, depending on the lawsuit, alleging: - that the defendants permitted improper market timing and related activity in the AIM Funds; - that certain AIM Funds inadequately employed fair value pricing; - that the defendants charged excessive advisory and/or distribution fees and failed to pass on to shareholders the perceived savings generated by economies of scale and that the defendants adopted unlawful distribution plans; and - that the defendants improperly used the assets of the AIM Funds to pay brokers to aggressively promote the sale of the AIM Funds over other mutual funds and that the defendants concealed such payments from investors by disguising them as brokerage commissions. These lawsuits allege as theories of recovery, depending on the lawsuit, violations of various provisions of the Federal and state securities laws and ERISA, negligence, breach of fiduciary duty and/or breach of contract. These lawsuits seek remedies that include, depending on the lawsuit, damages, restitution, injunctive relief, imposition of a constructive trust, removal of certain directors and/or employees, various corrective measures under ERISA, rescission of certain AIM Funds' advisory agreements and/or distribution plans and recovery of all fees paid, an accounting of all fund-related fees, commissions and soft dollar payments, restitution of all commissions and fees paid, and prospective relief in the form of reduced fees. All lawsuits based on allegations of market timing, late trading and related issues have been transferred to the United States District Court for the District of Maryland (the "MDL Court"). Pursuant to an Order of the MDL Court, plaintiffs in these lawsuits consolidated their claims for pre-trial purposes into three amended complaints against various AIM- and IFG-related parties: (i) a Consolidated Amended Class Action Complaint purportedly brought on behalf of shareholders of the AIM Funds; (ii) a Consolidated Amended Fund Derivative Complaint purportedly brought on behalf of the AIM F-14 AIM SELECT REAL ESTATE INCOME FUND NOTE 15--LEGAL PROCEEDINGS--(CONTINUED) Funds and fund registrants; and (iii) an Amended Class Action Complaint for Violations of the Employee Retirement Income Securities Act ("ERISA") purportedly brought on behalf of participants in AMVESCAP's 401(k) plan. Based on orders issued by the MDL Court, all claims asserted against the AIM Funds that have been transferred to the MDL Court have been dismissed, although certain Funds remain nominal defendants in the Consolidated Amended Fund Derivative Complaint. IFG, AIM, ADI and/or related entities and individuals have received inquiries from numerous regulators in the form of subpoenas or other oral or written requests for information and/or documents related to one or more of the following issues, among others, some of which concern one or more AIM Funds: market timing activity, late trading, fair value pricing, excessive or improper advisory and/or distribution fees, mutual fund sales practices, including revenue sharing and directed-brokerage arrangements, investments in securities of other registered investment companies, contractual plans, issues related to Section 529 college savings plans and procedures for locating lost security holders. IFG, AIM and ADI have advised the Fund that they are providing full cooperation with respect to these inquiries. Regulatory actions and/or additional civil lawsuits related to these or other issues may be filed against the AIM Funds, IFG, AIM and/or related entities and individuals in the future. At the present time, management of AIM and the Fund are unable to estimate the impact, if any, that the outcome of the Pending Litigation and Regulatory Inquiries described above may have on AIM or the Fund. * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * As a result of the matters discussed above, investors in the Fund might react by selling their shares which could have an adverse effect on market value of the Fund's shares. F-15 AIM SELECT REAL ESTATE INCOME FUND PROXY RESULTS An Annual Meeting of Shareholders of AIM Select Real Estate Income Fund, a Delaware business trust, was held on May 9, 2006. The meeting was held for the following purpose: COMMON SHARES AND PREFERRED SHARES (1) Election of Trustees. Nominees: Bob R. Baker, Frank S. Bayley, Prema Mathai-Davis, Ph.D., Lewis F. Pennock and Larry Soll, Ph.D. (2) *Ratification of the Audit Committee's appointment of PricewaterhouseCoopers LLP as independent registered public accountants. The results of voting on the above matters were as follows:
WITHHELD/ TRUSTEES/MATTER (COMMON SHARES AND PREFERRED SHARES) VOTES FOR VOTES AGAINST ABSTENTIONS ----------------------------------------------------------------------------------------------------------------- (1) Bob R. Baker................................................ 37,425,614 N/A 533,897 Frank S. Bayley............................................. 37,404,798 N/A 554,713 Prema Mathai-Davis, Ph.D. .................................. 37,436,654 N/A 522,857 Lewis F. Pennock............................................ 37,449,671 N/A 509,840 Larry Soll, Ph.D. .......................................... 37,444,163 N/A 515,348 (2) *Ratification of the Audit Committee's selection of PricewaterhouseCoopers LLP as independent registered public accountants................................................. 37,654,239 120,109 185,163
* Proposal required approval by a combined vote of Common and Preferred Shares F-16 AIM SELECT REAL ESTATE INCOME FUND TRUSTEES AND OFFICERS BOARD OF TRUSTEES OFFICERS OFFICE OF THE FUND Bob R. Baker Philip A. Taylor 11 Greenway Plaza Frank S. Bayley President and Principal Suite 100 James T. Bunch Executive Officer Houston, TX 77046-1173 Bruce L. Crockett Chair Mark H. Williamson INVESTMENT ADVISOR Albert R. Dowden Executive Vice President A I M Advisors, Inc. Jack M. Fields 11 Greenway Plaza Carl Frischling Todd L. Spillane Suite 100 Robert H. Graham Chief Compliance Officer Houston, TX 77046-1173 Vice Chair Prema Mathai-Davis Russell C. Burk SUB-ADVISOR Lewis F. Pennock Senior Vice President and Senior Officer INVESCO Institutional (N.A.), Inc. Ruth H. Quigley INVESCO Realty Advisors Division Larry Soll John M. Zerr Three Galleria Tower Raymond Stickel, Jr. Senior Vice President, Secretary Suite 500 Mark H. Williamson and Chief Legal Officer 13155 Noel Road Dallas, TX 75240-5042 Sidney M. Dilgren Vice President, Treasurer TRANSFER AGENT (PREFERRED SHARES) and Principal Financial Officer Deutsche Bank Trust Company Americas Lisa O. Brinkley 100 Plaza One Vice President Jersey City, NJ 07311-3901 Kevin M. Carome TRANSFER AGENT (COMMON SHARES) Vice President Computershare Trust Company, N.A. P.O. Box 43010 J. Philip Ferguson Providence, RI 02940-0310 Vice President CUSTODIAN Karen Dunn Kelley State Street Bank and Trust Company Vice President 225 Franklin Street Boston, MA 02110-2801 COUNSEL TO THE FUND Ballard Spahr Andrews & Ingersoll, LLP 1735 Market Street, 51st Floor Philadelphia, PA 19103-7599 COUNSEL TO THE INDEPENDENT TRUSTEES Kramer, Levin, Naftalis & Frankel LLP 1177 Avenue of the Americas New York, NY 10036-2714
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ITEM 2. CODE OF ETHICS. There were no amendments to the Code of Ethics (the "Code") that applies to the Registrant's Principal Executive Officer ("PEO") and Principal Financial Officer ("PFO") during the period covered by the report. The Registrant did not grant any waivers, including implicit waivers, from any provisions of the Code to the PEO or PFO during the period covered by this report. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. Not applicable. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. Not applicable. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. Not applicable. ITEM 6. SCHEDULE OF INVESTMENTS. Investments in securities of unaffiliated issuers is included as part of the reports to stockholders filed under Item 1 of this Form. ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable. ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable. ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. AIM Select Real Estate Income Fund Purchases of Equity Securities
Maximum Number (or Total Number of Approximate Shares (or Units) Dollar Value) of Purchased as Shares (or Units) Total Number Part of Publicly that May Yet Be of Shares Announced Purchased Under (or Units) Average Price Paid Plans or the Plans or Period Purchased per Shares (or Units) Programs Programs ------ ------------ ---------------------- ----------------- ----------------- Month #1 100 15.9800 100 See Footnote (1) January 1, 2006 - January 31, 2006 Month #2 February 1, 2006 - February 28, 2006 70,600 15.8547 70,600 See Footnote (1) Month #3 March 1 - March 31, 2006 222,000 16.2475 222,000 See Footnote (1)
Month #4 April 1, 2006 - April 30, 2006 237,100 15.8247 237,100 See Footnote (1) Month #5 May 1, 2006 - May 31, 2006 142,400 15.1445 142,400 See Footnote (1) Month #6 June 1, 2006 - June 30, 2006 155,100 15.2944 155,100 See Footnote (1) Total 827,300 15.7243 827,300 See Footnote (1)
(1) Any or all common shares outstanding may be repurchased subject to the conditions set forth in Rule 10b-18 of the Securities Exchange Act of 1934 and in the Fund's governing documents, and provided that after giving effect to any share repurchase, the Fund's leverage (outstanding borrowings plus outstanding auction rate preferred shares) does not exceed 30% of the Fund's total assets. Additional Disclosures a. The date each plan or program was announced. The Board of Trustees for the Fund announced on October 27, 2005 that the Fund may engage in open market purchases of its common shares. b. The dollar amount (or share unit amount) approved. Any or all common shares outstanding may be repurchased subject to the conditions set forth in Rule 10b-18 of the Securities Exchange Act of 1934 and in the Fund's governing documents, and provided that after giving effect to any share repurchase, the Fund's leverage (outstanding borrowings plus outstanding auction rate preferred shares) does not exceed 30% of the Fund's total assets. c. The expiration date (if any) of each plan or program. None. However, the Board of Trustees for the Fund announced on August 1, 2006 that the Fund has ceased engaging in open market purchases of its common shares. d. Each plan or program that has expired during the period covered by the table. None. However, the Board of Trustees for the Fund announced on August 1, 2006 that the Fund has ceased engaging in open market purchases of its common shares. e. Each plan or program the registrant has determined to terminate prior to expiration, or under which the registrant does not intend to make further purchases. None. However, the Board of Trustees for the Fund announced on August 1, 2006 that the Fund has ceased engaging in open market purchases of its common shares. ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. ITEM 11. CONTROLS AND PROCEDURES. (a) As of June 19, 2006, an evaluation was performed under the supervision and with the participation of the officers of the Registrant, including the Principal Executive Officer ("PEO") and Principal Financial Officer ("PFO"), to assess the effectiveness of the Registrant's disclosure controls and procedures, as that term is defined in Rule 30a-3(c) under the Investment Company Act of 1940 (the "Act"), as amended. Based on that evaluation, the Registrant's officers, including the PEO and PFO, concluded that, as of June 19, 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 has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting. ITEM 12. EXHIBITS. 12(a) (1) Not applicable. 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 Select Real Estate Income Fund By: /s/ Philip A. Taylor --------------------------------- Philip A. Taylor Principal Executive Officer Date: September 5, 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/ Philip A. Taylor --------------------------------- Philip A. Taylor Principal Executive Officer Date: September 5, 2006 By: /s/ Sidney M. Dilgren --------------------------------- Sidney M. Dilgren Principal Financial Officer Date: September 5, 2006 EXHIBIT INDEX 12(a) (1) Not applicable. 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.