Invesco Select Real Estate Income Fund

Transcription

1 Annual Report to Shareholders August 31, 2010 Invesco Select Real Estate Income Fund T-1 Letters to Shareholders Performance Summary Management Discussion Long-Term Fund Performance Supplemental Information Schedule of Investments Financial Statements Notes to Financial Statements Financial Highlights Auditor s Report Fund Expenses Approval of Investment Advisory and Sub-Advisory Agreements Tax Information s and Officers

2 Letters to Shareholders Dear Shareholders: I m pleased to present this report on your Fund s performance for the period covered by this report. Whether you re a long-time Invesco client or a shareholder who joined us as a result of our June 1 acquisition of Morgan Stanley s retail asset management business, including Van Kampen Investments, I m glad you re part of the Invesco family. Near the end of this letter, I ve provided the number to call if you have specific questions about your account; I ve also provided my address so you can send a general Invesco-related question or comment to me directly. Philip Taylor The benefits of Invesco As a leading global investment manager, Invesco is committed to helping investors worldwide achieve their financial objectives. I believe Invesco is uniquely positioned to serve your needs. First, we are committed to investment excellence. We believe the best investment insights come from specialized investment teams with discrete investment perspectives, each operating under a disciplined philosophy and process with strong risk oversight and quality controls. This approach enables our portfolio managers, analysts and researchers to pursue consistent results across market cycles. Second, we offer you a broad range of investment products that can be tailored to your needs and goals. In addition to traditional mutual funds, we manage a variety of other investment products. These products include single-country, regional and global investment options spanning major equity, fixed income and alternative asset classes. And third, we have just one focus: investment management. At Invesco, we believe that focus brings success, and that s why investment management is all we do. We direct all of our intellectual capital and global resources toward helping investors achieve their long-term financial objectives. Your financial adviser can also help you as you pursue your financial goals. Your financial adviser is familiar with your individual goals and risk tolerance, and can answer questions about changing market conditions and your changing investment needs. Our customer focus Short-term market conditions can change from time to time, sometimes suddenly and sometimes dramatically. But regardless of market trends, our commitment to putting you first, helping you achieve your financial objectives and providing you with excellent customer service will not change. If you have questions about your account, please contact one of our client services representatives at If you have a general Invesco-related question or comment for me, please me directly at phil@invesco.com. I want to thank our existing Invesco clients for placing your faith in us. And I want to welcome our new Invesco clients: We look forward to serving your needs in the years ahead. Thank you for investing with us. Sincerely, Philip Taylor Senior Managing Director, Invesco 2 Invesco Select Real Estate Income Fund

3 Dear Fellow Shareholders: Although the global markets have improved since their lows of 2009, they remain challenging as governments around the world work to ensure the recovery remains on track. In this volatile environment, it s comforting to know that your Board is committed to putting your interests first. We realize you have many choices when selecting a money manager, and your Board is working hard to ensure you feel you ve made the right choice. To that end, I m pleased to share the news that Invesco has completed its acquisition of Morgan Stanley s retail asset management business, including Van Kampen Investments. This acquisition Bruce Crockett greatly expands the breadth and depth of investment strategies we can offer you. As a result of this combination, Invesco gained investment talent for a number of investment strategies, including U.S. value equity, U.S. small cap growth equity, tax-free municipals, bank loans and others. Another key advantage of this combination is the highly complementary nature of our cultures. This is making it much easier to bring our organizations together while ensuring that our investment teams remain focused on managing your money. We view this addition as an excellent opportunity for you, our shareholders, to have access to an even broader range of well-diversified mutual funds. Now that the acquisition has closed, Invesco is working to bring the full value of the combined organization to shareholders. The key goals of this effort are to ensure that we have deeply resourced and focused investment teams, a compelling line of products and enhanced efficiency, which will benefit our shareholders now and over the long term. It might interest you to know that the mutual funds of the combined organization are overseen by a single fund Board composed of 17 current members, including four new members who joined us from Van Kampen/Morgan Stanley. This expanded Board will continue to oversee the funds with the same strong sense of responsibility for your money and your continued trust that we have always maintained. As always, you are welcome to contact me at bruce@brucecrockett.com with any questions or concerns you may have. We look forward to representing you and serving your interests. Sincerely, Bruce L. Crockett Independent Chair Invesco Funds Board of s 3 Invesco Select Real Estate Income Fund

4 Management s Discussion of Fund Performance Performance summary In general, equity markets produced positive results, and the economy showed signs of improvement during the fiscal year ended August 31, The U.S. real estate investment trust (REIT) market benefited from improvements in credit markets and increased access to capital through debt refinancing and secondary equity offerings. As a result, the Fund outperformed the broad market, as measured by the S&P 500 Index, by a wide margin. However, the Fund underperformed the Custom Select Real Estate Income Index, its style-specific benchmark, due primarily to the Fund s allocation among fixed income and fixed income-like securities Your Fund s long-term performance appears later in this report. Fund vs. Indexes Total returns, 8/31/09 to 8/31/10, at net asset value (NAV). Performance shown does not include applicable contingent deferred sales charges (CDSC) or front-end sales charges, which would have reduced performance. Class A Shares 21.85% Class B Shares Class C Shares Class Y Shares Institutional Class Shares S&P 500 Index (Broad Market Index) 4.93 Custom Select Real Estate Income Index (Style-Specific Index) Lipper Real Estate Funds Index (Peer Group Index) Lipper Inc.; Invesco Aim, Lipper Inc., Bloomberg LP How we invest Your Fund holds primarily real estateoriented securities. We focus on public companies whose value is driven by tangible assets. Our goal is to create a fund that will provide attractive current income. We use a fundamentals-driven investment process, including property market cycle analysis, property evaluation and management and structure review to identify securities with: Attractive relative dividend yields. Favorable property market outlook. Reasonable valuations relative to peer investment alternatives. We attempt to manage risk by allocating between property related common stocks and fixed income securities as well as diversifying by property types and geographic location and also limiting the size of any one holding. We will consider selling a holding when: Relative yields and/or valuation falls below desired levels. Risk/return relationships change significantly. Company fundamentals change (property type, geography or management changes). A more attractive investment opportunity is identified. Market conditions and your Fund The U.S. economy provided signs of improvement during the Fund s fiscal year, potentially indicating that the economy had transitioned from a contraction phase into an expansionary phase. Nevertheless, the pace of recovery remained modest and the transition from government stimulus-induced growth to private economic recovery was uncertain. The U.S. Federal Reserve s (the Fed) federal funds target rate remained low ranging from zero to 0.25%. 1 Real gross domestic product (GDP) registered positive growth during the reporting period with quarterly annualized increases of 5.0%, 3.7% and 1.7% for the fourth quarter of 2009, first and second quarter 2010, respectively. 2 Inflation, as measured by the seasonally adjusted Consumer Price Index (CPI), remained relatively benign. While labor markets improved as layoffs moderated, new hiring remained quite weak. 3 Unemployment, after climbing steadily throughout 2009, fell slightly during the first half of 2010 to a rate of 9.6% nationwide as of August Given this environment, the U.S. REIT market, as measured by the FTSE NAREIT Equity REITs Index, produced a gain for the period and outperformed the broad market, as measured by the S&P 500 Index, by a wide margin. The Fund underperformed its style-specific benchmark, the Custom Select Real Estate Income Index, as a result of underweight exposure in REIT preferred stock and an overweight exposure in commercial mortgage backed securities (CMBS). On an absolute basis, each property REIT sector contributed positively to the Fund s fiscal year performance. The Fund s holdings in health care REITs, regional mall REITs and apartment REITs, in particular, enhanced performance during the period. Portfolio Composition By property type Health Care 16.1% Office 12.0 Regional Malls 10.0 Diversified 9.5 Industrial/Office: Mixed 8.9 Apartments 8.0 Asset-Backed Securities 7.3 Freestanding 5.5 Specialty Properties 4.4 Lodging-Resorts 4.1 Industrial 3.4 Self Storage Facilities 3.2 Shopping Centers 3.2 Bonds & Notes 2.4 Money Market Funds Plus Other Assets Less Liabilities 2.0 Top 10 Equity Holdings* 1. Simon Property Group, Inc. 7.5% 2. Senior Housing Properties Trust Essex Property Trust, Inc Liberty Property Trust Health Care REIT, Inc National Retail Properties, Inc Mack-Cali Realty Corp Washington REIT Hospitality Properties Trust Ventas, Inc. 2.1 Total Net Assets $225.7 million Total Number of Holdings* 99 The Fund s holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security. *Excluding money market fund holdings. 4 Invesco Select Real Estate Income Fund

5 Top contributors during the fiscal year included Simon Property Group and Vornado Realty Trust. Recent equity offerings and debt refinancing by Simon Property Group, a REIT which offered an attractive portfolio of top-tier U.S. regional malls, covered near-term debt maturities and provided necessary capital for future acquisition opportunities. Similarly, Vornado s recent equity offering provided liquidity for new acquisitions. Moreover, the company benefited from improving rental fundamentals in Manhattan and Washington D.C., the firm s largest markets. Hospitality Properties Trust and CBL & Associates Properties, however, were top detractors from Fund performance during the fiscal year. Hospitality Properties Trust (HPT) was not a Fund holding for most of the period due to a less favorable growth profile relative to other opportunities in the hotel sector. HPT had a less favorable growth profile due to lower operating leverage from its owned hotels and its rent exposure to less favorable travel centers. CBL & Associates, on the other hand, is among the largest U.S. regional mall REITs with properties from coast to coast. Both positions have provided above-average divided yields. Because volatility in the market continued at elevated levels, we remained active in portfolio positioning given changes in relative value between stocks. Across sectors, we added to certain positions whose valuations began to reflect a bottoming in operating fundamentals. In addition, we reduced exposure to several relatively low risk stocks whose valuations appeared relatively high. We remained committed to owning quality real estate companies that we believe may benefit from relatively better sector trends. We continued to manage risk by holding a portfolio diversified by property type and geographic location. Lower leveraged companies with above average levels of dividend coverage remained favored in the portfolio. We thank you for your continued investment in Invesco Select Real Estate Income Fund and encourage everyone to follow a disciplined asset allocation strategy and rebalance regularly. 1 U.S. Federal Reserve 2 Bureau of Economic Analysis 3 Bureau of Labor Statistics The views and opinions expressed in management s discussion of Fund performance are those of Invesco Advisers, Inc. These views and opinions are subject to change at any time based on factors such as market and economic conditions. These views and opinions may not be relied upon as investment advice or recommendations, or as an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but Invesco Advisers, Inc. makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy. See important Fund and index disclosures later in this report. Joe Rodriguez, Jr. Portfolio manager, is lead manager of Invesco Select Real Estate Income Fund. He is head of real estate securities for Invesco Real Estate, where he oversees all phases of the unit, including securities research and administration. Mr. Rodriguez began his investment career in 1983 and joined Invesco in He earned a B.B.A. in economics and finance as well as an M.B.A. in finance from Baylor University. Mark Blackburn Chartered Financial Analyst, portfolio manager, is manager of Invesco Select Real Estate Income Fund. He earned a B.S. in accounting from Louisiana State University and an M.B.A. from Southern Methodist University. Mr. Blackburn is a Certified Public Accountant. Paul Curbo Chartered Financial Analyst, portfolio manager, is manager of Invesco Select Real Estate Income Fund. He joined Invesco in Mr. Curbo earned a B.B.A. in finance from the University of Texas at Dallas. James Trowbridge Portfolio manager, is manager of Invesco Select Real Estate Income Fund. He joined Invesco in Mr. Trowbridge earned his B.A. in finance from Indiana University. Darin Turner Portfolio manager, is manager of Invesco Select Real Estate Income Fund. He joined Invesco in Mr. Turner earned a B.B.A. in finance from Baylor University, an M.S. in real estate from the University of Texas at Arlington and an M.B.A. specializing in investments from Southern Methodist University. Assisted by the Real Estate Team 5 Invesco Select Real Estate Income Fund

6 Your Fund s Long-Term Performance Results of a $10,000 Investment Oldest Share Class since Inception Fund and index data from 5/31/02 $40,000 $20,148 Invesco Select Real Estate Income Fund- Class A Shares 20,000 $20,039 Custom Select Real Estate Income Index 1 $18,943 Lipper Real Estate Funds Index 2 $11,578 S&P 500 Index 2 10,000 5,000 5/31/02 8/03 8/04 8/05 8/06 8/07 8/08 8/09 8/10 1 Invesco, Lipper Inc., Bloomberg L.P. 2 Lipper Inc. Past performance cannot guarantee comparable future results. The data shown in the chart include reinvested distributions, applicable sales charges and Fund expenses including management fees. Index results include reinvested dividends, but they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses and management fees; performance of a market index does not. Performance shown in the chart and table(s) does not reflect deduction of taxes a shareholder would pay on Fund distributions or sale of Fund shares. This chart, which is a logarithmic chart, presents the fluctuations in the value of the Fund and its indexes. We believe that a logarithmic chart is more effective than other types of charts in illustrating changes in value during the early years shown in the chart. The vertical axis, the one that indicates the dollar value of an investment, is constructed with each segment representing a percent change in the value of the investment. In this chart, each segment represents a doubling, or 100% change, in the value of the investment. In other words, the space between $5,000 and $10,000 is the same size as the space between $10,000 and $20,000, and so on. 6 Invesco Select Real Estate Income Fund

7 Average Annual Total Returns As of 8/31/10, including maximum applicable sales charges Class A Shares Inception (5/31/02) 8.86% 5 Years Year Class B Shares Inception 8.56% 5 Years Year Class C Shares Inception 8.56% 5 Years Year Class Y Shares Inception 9.62% 5 Years Year Institutional Class Shares Inception 9.78% 5 Years Year On March 12, 2007, the Fund reorganized from a Closed-Fnd Fund to an Open-End Fund. Performance shown prior to that date is that of the Closed-End Fund s Common shares and includes the fees applicable to Common shares. The Closed-End Fund s Common shares performance reflects any applicable fee waivers or expense reimbursements. Class B shares incepted on March 9, Performance shown prior to that date is that of Class A shares, restated to reflect the higher 12b-1 fees applicable to Class B shares. Class A shares performance reflects any applicable fee waivers or expense reimbursements. Class C shares incepted on March 9, Performance shown prior to that date is that of Class A shares, restated to reflect the higher 12b-1 fees applicable to Class C shares. Class A shares performance reflects any applicable fee Average Annual Total Returns As of 6/30/10, the most recent calendar quarter-end including maximum applicable sales charges. Class A Shares Inception (5/31/02) 8.16% 5 Years Year Class B Shares Inception 7.87% 5 Years Year Class C Shares Inception 7.87% 5 Years Year Class Y Shares Inception 8.93% 5 Years Year Institutional Class Shares Inception 9.09% 5 Years Year waivers or expense reimbursements. Class Y shares incepted on October 3, Performance shown prior to that date is that of Class A shares and includes the 12b-1 fees applicable to Class A shares. Class A shares performance reflects any applicable fee waivers or expense reimbursements. Institutional Class shares incepted on March 9, Performance shown prior to that date is that of Class A shares and includes the 12b-1 fees applicable to Class A shares. Class A shares performance reflects any applicable fee waivers or expense reimbursements. The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please visit invesco.com/performance for the most recent month-end performance. Performance figures reflect reinvested distributions (reinvested at net asset value, except for periods prior to March 12, 2007 where reinvestments were made at the lower of the Closed- End Fund s net asset value or market price), changes in net asset value and the effect of the maximum sales charge unless otherwise stated. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares. The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Class A, Class B, Class C, Class Y and Institutional Class shares was 1.75, 2.50%, 2.50%, 1.50% and 1.13%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report. Class A share performance reflects the maximum 5.50% sales charge, and Class B and Class C share performance reflects the applicable contingent deferred sales charge (CDSC) for the period involved. The CDSC on Class B shares declines from 5% beginning at the time of purchase to 0% at the beginning of the seventh year. The CDSC on Class C shares is 1% for the first year after purchase. The performance of the Fund s share classes will differ primarily due to different sales charge structures and class expenses. Class Y and Institutional class shares do not have a front-end sales charge or a CDSC; therefore, performance is at net asset value. Fund performance was positively impacted by a temporary 2% fee on redemptions that was in effect from March 12, 2007 to March 12, Without income from this temporary fee, returns would have been lower. Had the adviser not waived fees and/or reimbursed expenses in the past, performance would have been lower. continued from page 8 a rigorous and comprehensive study program in the field of investment management and research analysis. The returns shown in management s discussion of Fund performance are based on net asset values calculated for shareholder transactions. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes, and as such, the net asset values for shareholder transactions and the returns based on those net asset values may differ from the net asset values and returns reported in the Financial Highlights. Industry classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor s. 7 Invesco Select Real Estate Income Fund

8 Invesco Select Real Estate Income Fund s investment objectives are high current income and, secondarily, capital appreciation. Unless otherwise stated, information presented in this report is as of August 31, 2010, and is based on total net assets. Unless otherwise noted, all data provided by Invesco. To access your Fund s reports/prospectus visit invesco.com/fundreports. About share classes On March 12, 2007, Invesco Select Real Estate Income Fund was reorganized from a Closed-End Fund to an Open-End Fund. Information presented for Class A shares prior to the reorganization included financial data for the Closed-End Fund s Common Shares. Effective September 30, 2003, for qualified plans only, those previously established are eligible to purchase Class B shares of any Invesco fund. Please see the prospectus for more information. Class Y shares are available to only certain investors. Please see the prospectus for more information. Institutional Class shares are offered exclusively to institutional investors, including defined contribution plans that meet certain criteria. Please see the prospectus for more information. Principal risks of investing in the Fund The issuer of instruments in which the Fund invests may be unable to meet interest and/or principal payments, thereby causing its instruments to decrease in value and lowering the issuer s credit rating. Prices of equity securities change in response to many factors including the historical and prospective earnings of the issuer, the value of its assets, general economic conditions, interest rates, investor perceptions and market liquidity. The Fund s foreign investments may be affected by changes in the foreign country s exchange rates; political and social instability; changes in economic or taxation policies; difficulties when enforcing obligations; decreased liquidity; and increased volatility. Foreign companies may be subject to less regulation resulting in less publicly available information about the companies. Interest rate risk refers to the risk that bond prices generally fall as interest rates rise and vice versa. The Fund may invest a large percentage of its assets in a limited number of securities or other instruments, which could negatively affect the value of the Fund. The Fund may hold illiquid securities that it is unable to sell at the preferred time or price and could lose its entire investment in such securities. The Fund s investments in fixed income securities rated lower than investment grade, or if unrated, of comparable quality as determined by the adviser (commonly know as junk bonds) pose significant risks. The prices of junk bonds are likely to be more sensitive to adverse economic changes or individual corporate developments than higher rated securities and involve a greater risk of default. The secondary market for junk bonds may be less liquid than the market for higher quality securities. The investment techniques and risk analysis used by the Fund s portfolio managers may not produce the desired results. The Fund may invest in mortgage- and asset-backed securities that are subject to prepayment or call risk, which is the risk that the borrower s payments may be received earlier or later than expected due to changes in prepayment rates on underlying loans. Faster prepayments often happen when interest rates are falling. As a result, the fund may reinvest these early payments at lower interest rates, thereby reducing the Fund s income. Conversely, when interest rates rise, prepayments may happen more slowly, causing the security to lengthen in duration. Longer duration securities tend to be more volatile. Securities may be prepaid at a price less than the original purchase value. The Fund is non-diversified and can invest a greater portion of its assets in a single issuer. A change in the value of the issuer could affect the value of the Fund more than if it was a diversified fund. Because the Fund concentrates its assets in the real estate industry, an investment in the Fund will be closely linked to the performance of the real estate markets. Short sales may cause the Fund to repurchase a security at a higher price, thereby causing a loss. As there is no limit on how much the price of the security can increase, the Fund s exposure is unlimited. About indexes used in this report The S&P 500 Index is an unmanaged index considered representative of the U.S. stock market. The Custom Select Real Estate Income Index, created by Invesco to serve as a benchmark for Invesco Select Real Estate Income Fund, is composed of the following indexes: FTSE NAREIT Equity REIT (50%) and Wachovia Hybrid and Preferred Securities REIT (50%). The Lipper Real Estate Funds Index is an unmanaged index considered representative of real estate funds tracked by Lipper. The FTSE NAREIT Equity REITs Index is an unmanaged index considered representative of U.S. REITs. The Fund is not managed to track the performance of any particular index, including the indexes defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the indexes. A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not. Other information The Chartered Financial Analyst (CFA ) designation is globally recognized and attests to a charterholder s success in This report must be accompanied or preceded by a currently effective Fund prospectus, which contains more complete information, including sales charges and expenses. Investors should read it carefully before investing. 8 Invesco Select Real Estate Income Fund continued on page 7 Fund Nasdaq Symbols Class A Shares Class B Shares Class C Shares Class Y Shares Institutional Class Shares ASRAX SARBX ASRCX ASRYX ASRIX

9 Schedule of Investments (a) August 31, 2010 Shares Value Shares Value Real Estate Investment Trusts, Common Stocks & Other Equity Interests 61.62% Apartments 7.74% Camden Property Trust 91,650 $ 4,193,904 Essex Property Trust, Inc. 91,900 9,720,263 Mid-America Apartment Communities, Inc. 63,000 3,557,610 17,471,777 Diversified 5.40% Cohen & Steers Quality Income Realty Fund, Inc. 201,773 1,396,269 Colonial Properties Trust 87,834 1,393,047 Neuberger Berman Real Estate Securities Income Fund Inc. 16,275 57,451 Vornado Realty Trust 41,388 3,354,912 Washington Real Estate Investment Trust 194,891 5,971,460 12,173,139 Freestanding 4.47% Getty Realty Corp. 80,900 2,008,747 National Retail Properties Inc. 291,500 7,100,940 Realty Income Corp. 29, ,664 10,074,351 Healthcare 14.42% Health Care REIT, Inc. 188,073 8,640,074 LTC Properties, Inc. 46,750 1,153,790 Medical Properties Trust Inc. 125,700 1,236,888 Nationwide Health Properties, Inc. 76,200 2,931,414 OMEGA Healthcare Investors, Inc. 170,900 3,665,805 Senior Housing Properties Trust 429,750 10,099,125 Ventas, Inc. 95,500 4,823,705 32,550,801 Industrial 3.35% DCT Industrial Trust Inc. 489,900 2,268,237 EastGroup Properties, Inc. 84,100 2,964,525 ProLogis 213,900 2,320,815 7,553,577 Industrial/Office: Mixed 4.22% Liberty Property Trust 313,400 9,517,958 Lodging-Resorts 2.18% Hospitality Properties Trust 252,100 4,928,555 Office 4.82% Corporate Office Properties Trust 18, ,215 Highwoods Properties, Inc. 14, ,304 Office (continued) Mack-Cali Realty Corp. 212,800 $ 6,564,880 Piedmont Office Realty Trust Inc. Class A (b) 175,300 3,218,508 10,885,907 Regional Malls 8.60% CBL & Associates Properties, Inc. 208,600 2,544,920 Simon Property Group, Inc. 186,468 16,866,031 19,410,951 Shopping Centers 2.99% Inland Real Estate Corp. 252,850 1,949,473 Ramco-Gershenson Properties Trust 99,200 1,035,648 Regency Centers Corp. 81,850 2,984,251 Tanger Factory Outlet Centers, Inc. 16, ,496 6,745,868 Specialty Properties 3.43% Digital Realty Trust, Inc. 61,900 3,668,813 Entertainment Properties Trust 35,100 1,512,459 Government Properties Income Trust 99,850 2,563,149 7,744,421 Total Real Estate Investment Trusts, Common Stocks & Other Equity Interests (Cost $116,753,714) 139,057,305 Preferred Stocks 26.68% Apartments 0.27% BRE Properties, Inc., Series D, 6.75% Pfd. 25, ,850 Diversified 4.09% Vornado Realty Trust, Series E, 7.00% Pfd. 135,963 3,495,609 Series H, 6.75% Pfd. 91,800 2,276,640 Series I, 6.63% Pfd. 140,900 3,452,050 9,224,299 Freestanding 1.01% National Retail Properties Inc., Series C, 7.38% Pfd. 90,450 2,281,149 Healthcare 1.63% Health Care REIT, Inc., Series F, 7.63% Pfd. 36, ,750 Omega Healthcare Investors, Inc., Series D, 8.38% Pfd. 107,100 2,748,186 3,678,936 Industrial 0.02% ProLogis, Series C, 8.54% Pfd ,281 See accompanying Notes to Financial Statements which are an integral part of the financial statements. 9 Invesco Select Real Estate Income Fund

10 Shares Value Shares Value Industrial/Office: Mixed 4.68% Duke Realty Corp., Series J, 6.63% Pfd. 4,954 $ 110,970 Series K, 6.50% Pfd. 5, ,511 Series L, 6.60% Pfd. 59,500 1,334,585 Series M, 6.95% Pfd. 72,400 1,759,320 Series N, 7.25% Pfd. 15, ,035 PS Business Parks, Inc., Series L, 7.60% Pfd. 36, ,828 Series M, 7.20% Pfd. 123,100 3,087,348 Series O, 7.38% Pfd. 110,763 2,842,179 10,555,776 Lodging-Resorts 1.95% Eagle Hospitality Properties Trust Inc., Series A, 8.25% Pfd. 195, ,297 Hospitality Properties Trust, Series C, 7.00% Pfd. 28, ,384 LaSalle Hotel Properties, Series D, 7.50% Pfd. 62,833 1,492,912 Series G, 7.25% Pfd. 88,950 2,073,647 4,412,240 Office 7.16% Alexandria Real Estate Equities Inc., Series D, 7.00% Pfd. 24, ,831 BioMed Realty Trust, Inc., Series A, 7.38% Pfd. 79,600 1,986,816 Brandywine Realty Trust, Series D, 7.38% Pfd. 10, ,695 Corporate Office Properties Trust, Series J, 7.63% Pfd. 83,470 2,089,254 Kilroy Realty Corp., Series E, 7.80% Pfd. 58,195 1,452,547 Series F, 7.50% Pfd. 188,500 4,672,915 SL Green Realty Corp., Series C, 7.63% Pfd. 151,100 3,786,566 Series D, 7.88% Pfd. 54,400 1,367,616 16,168,240 Regional Malls 1.42% CBL & Associates Properties, Inc., Series D, 7.38% Pfd. 85,200 2,014,980 Taubman Centers, Inc., Series G, 8.00% Pfd. 45,900 1,179,630 3,194,610 Self Storage Facilities 3.22% Public Storage, Series H, 6.95% Pfd. 34, ,405 Series I, 7.25% Pfd. 98,600 2,573,460 Series L, 6.75% Pfd. 62,400 1,580,592 Series M, 6.63% Pfd. 87,300 2,234,007 7,267,464 Shopping Centers 0.26% Developers Diversified Realty Corp., Series H, 7.38% Pfd. 9,200 $ 219,052 Series I, 7.5% Pfd. 14, , ,360 Specialty Properties 0.97% Digital Realty Trust, Inc., Series B, 7.88% Pfd. 85,211 2,189,923 Total Preferred Stocks (Cost $58,904,188) 60,219,128 Principal Amount Asset-Backed Securities 7.28% Banc of America Large Loan Inc., Series 2006-BIX1, Class B, Floating Rate Pass Through Ctfs., 0.42%, 10/15/19 (c)(d) $1,465,000 1,334,468 Series 2006-BIX1, Class E, Floating Rate Pass Through Ctfs., 0.52%, 10/15/19 (c)(d) 1,900,000 1,567,355 Bear Stearns Commercial Mortgage Securities, Series 2005-PWR8, Class A2, Pass Through Ctfs., 4.48%, 06/11/41 4,419 4,415 Series 2005-T18, Class A2, Variable Rate Pass Through Ctfs., 4.56%, 02/13/42 (c) 84,639 84,770 Series 2005-T18, Class AJ, Variable Rate Pass Through Ctfs., 5.01%, 02/13/42 (c) 350, ,532 Citigroup Commercial Mortgage Trust, Series 2006-C5, Class AMP3, Pass Through Ctfs., 5.50%, 10/15/49 (d) 1,731,078 1,587,307 Commercial Mortgage Pass Through Ctfs., Series 2001-J1A, Class C, Variable Rate Pass Through Ctfs., 6.83%, 02/16/34 (c)(d) 900, ,274 Credit Suisse First Boston Mortgage Securities Corp., Series 2003-C3, Class G, Variable Rate Pass Through Ctfs., 4.62%, 05/15/38 (c)(d) 25,000 22,484 Credit Suisse Mortgage Capital Ctfs., Series 2006-TF2A, Class A2, Floating Rate Pass Through Ctfs., 0.45%, 10/15/21 (c)(d) 1,900,000 1,621,747 DLJ Commercial Mortgage Corp., Series 1998-CG1, Class B4, Variable Rate Pass Through Ctfs., 7.46%, 06/10/31 (c)(d) 340, ,220 Greenwich Capital Commercial Funding Corp., Series 2005-GG3, Class AJ, Variable Rate Pass Through Ctfs., 4.86%, 08/10/42 (c) 400, ,342 GS Mortgage Securities Corp. II, Series 2001-LIBA, Class C, Pass Through Ctfs., 6.73%, 02/14/16 (d) 627, ,405 LB-UBS Commercial Mortgage Trust, Series 2002-C7, Class B, Pass Through Ctfs., 5.08%, 01/15/36 96, ,434 Series 2005-C1, Class A2, Pass Through Ctfs., 4.31%, 02/15/30 80,324 80,618 Series 2005-C3, Class AJ, Pass Through Ctfs., 4.84%, 07/15/40 1,250,000 1,111,201 See accompanying Notes to Financial Statements which are an integral part of the financial statements. 10 Invesco Select Real Estate Income Fund

11 Principal Amount Value Principal Amount Value Merrill Lynch Floating Trust, Series , Class B, Floating Rate Pass Through Ctfs., 0.45%, 06/15/22 (c)(d) $1,950,000 $ 1,669,605 Series , Class D, Floating Rate Pass Through Ctfs., 0.48%, 06/15/22 (c)(d) 1,925,000 1,560,414 Merrill Lynch Mortgage Trust, Series 2004-MKB1, Class B, Variable Rate Pass Through Ctfs., 5.28%, 02/12/42 (c) 25,000 26,267 Morgan Stanley Capital I, Series 2005-HQ7, Class AJ, Variable Rate Pass Through Ctfs., 5.38%, 11/14/42 (c) 1,120,000 1,031,714 Series 2005-T19, Class A2, Pass Through Ctfs., 4.73%, 06/12/47 15,320 15,309 Series 2006-IQ11, Class B, Variable Rate Pass Through Ctfs., 5.94%, 10/15/42 (c) 270, ,306 Wachovia Bank Commercial Mortgage Trust, Series 2003-C5, Class B, Pass Through Ctfs., 4.11%, 06/15/35 180, ,809 Series 2005-C19, Class A4, Pass Through Ctfs., 4.61%, 05/15/44 240, ,550 Series 2006-WL7A, Class A2, Floating Rate Pass Through Ctfs., 0.40%, 09/15/21 (c)(d) 1,700,000 1,396,312 Total Asset-Backed Securities (Cost $16,206,465) 16,435,858 Bonds & Notes 2.39% Industrial 1.95% ProLogis, Sr. Unsec. Notes, 6.25%, 03/15/17 $4,500,000 $ 4,397,559 Shopping Centers 0.44% Developers Diversified Realty Corp., Sr. Unsec. Medium-Term Notes, 7.50%, 07/15/18 1,000,000 1,001,250 Total Bonds & Notes (Cost $5,251,538) 5,398,809 Shares Money Market Funds 3.06% Liquid Assets Portfolio Institutional Class (e) 3,455,993 3,455,993 Premier Portfolio Institutional Class (e) 3,455,993 3,455,993 Total Money Market Funds (Cost $6,911,986) 6,911,986 TOTAL INVESTMENTS % (Cost $204,027,891) 228,023,086 OTHER ASSETS LESS LIABILITIES (1.03)% (2,329,210) NET ASSETS % $225,693,876 Investment Abbreviations: Ctfs. Certificates Pfd. Preferred REIT Real Estate Investment Trust Sr. Senior Unsec. Unsecured Notes to Schedule of Investments: (a) Property type classifications used in this report are generally according to FSTE National Association of Real Estate Investment Trusts ( NAREIT ) Equity REITs Index, which is exclusively owned by NAREIT. (b) Non-income producing security. (c) Interest or dividend rate is re-determined periodically. Rate shown is the rate in effect on August 31, (d) Security purchased or received in a transaction exempt from registration under the Securities Act of 1933, as amended. The security may be resold pursuant to an exemption from registration under the 1933 Act, typically to qualified institutional buyers. The aggregate value of these securities at August 31, 2010 was $12,691,591, which represented 5.62% of the Fund s Net Assets. (e) The money market fund and the Fund are affiliated by having the same investment adviser. See accompanying Notes to Financial Statements which are an integral part of the financial statements. 11 Invesco Select Real Estate Income Fund

12 Statement of Assets and Liabilities August 31, 2010 Assets: Investments, at value (Cost $197,115,905) $221,111,100 Investments in affiliated money market funds, at value and cost 6,911,986 Total investments, at value (Cost $204,027,891) 228,023,086 Receivables for: Investments sold 2,301,776 Fund shares sold 604,903 Dividends and interest 323,622 Investment for trustee deferred compensation and retirement plans 20,298 Other assets 24,787 Total assets 231,298,472 Liabilities: Payables for: Investments purchased 5,031,642 Fund shares reacquired 282,990 Accrued fees to affiliates 152,103 Accrued other operating expenses 62,955 deferred compensation and retirement plans 74,906 Total liabilities 5,604,596 Net assets applicable to shares outstanding $225,693,876 Net assets consist of: Shares of beneficial interest $238,089,563 Undistributed net investment income 1,135,981 Undistributed net realized gain (loss) (37,526,863) Unrealized appreciation 23,995,195 $225,693,876 Net Assets: Class A $147,568,004 Class B $ 1,675,775 Class C $ 16,691,898 Class Y $ 22,046,917 Institutional Class $ 37,711,282 Shares outstanding, $0.01 par value per share, unlimited number of shares authorized: Class A 18,992,990 Class B 216,242 Class C 2,154,061 Class Y 2,845,044 Institutional Class 4,857,721 Class A: Net asset value per share $ 7.77 Maximum offering price per share (Net asset value of $ %) $ 8.22 Class B: Net asset value and offering price per share $ 7.75 Class C: Net asset value and offering price per share $ 7.75 Class Y: Net asset value and offering price per share $ 7.75 Institutional Class: Net asset value and offering price per share $ 7.76 See accompanying Notes to Financial Statements which are an integral part of the financial statements. 12 Invesco Select Real Estate Income Fund

13 Statement of Operations For the year ended August 31, 2010 Investment income: Dividends $ 8,639,731 Dividends from affiliated money market funds 11,667 Interest 1,533,290 Total investment income 10,184,688 Expenses: Advisory fees 1,439,691 Administrative services fees 50,000 Custodian fees 21,327 Distribution fees: Class A 319,185 Class B 10,823 Class C 115,551 Transfer agent fees A, B, C and Y 373,323 Transfer agent fees Institutional 13,087 s and officers fees and benefits 24,367 Other 174,273 Total expenses 2,541,627 Less: Fees waived, expenses reimbursed and expense offset arrangement(s) (14,743) Net expenses 2,526,884 Net investment income 7,657,804 Realized and unrealized gain (loss) from: Net realized gain from investment securities 12,627,123 Change in net unrealized appreciation of investment securities 16,465,933 Net realized and unrealized gain 29,093,056 Net increase in net assets resulting from operations $36,750,860 See accompanying Notes to Financial Statements which are an integral part of the financial statements. 13 Invesco Select Real Estate Income Fund

14 Statement of Changes in Net Assets For the years ended August 31, 2010 and Operations: Net investment income $ 7,657,804 $ 4,057,436 Net realized gain (loss) 12,627,123 (41,566,429) Change in net unrealized appreciation 16,465,933 18,227,028 Net increase (decrease) in net assets resulting from operations 36,750,860 (19,281,965) Distributions to shareholders from net investment income: Class A (4,685,749) (3,432,938) Class B (30,709) (25,447) Class C (317,879) (56,307) Class Y (484,837) (20,142) Institutional Class (1,558,748) (471,968) Total distributions from net investment income (7,077,922) (4,006,802) Share transactions net: Class A 32,864,761 4,766,853 Class B 832,365 (193,923) Class C 10,729,487 2,443,803 Class Y 17,204,765 2,356,933 Institutional Class (2,073,276) 23,093,975 Net increase in net assets resulting from share transactions 59,558,102 32,467,641 Net increase in net assets 89,231,040 9,178,874 Net assets: Beginning of year 136,462, ,283,962 End of year (includes undistributed net investment income of $1,135,981 and $554,808, respectively) $225,693,876 $136,462,836 Notes to Financial Statements August 31, 2010 NOTE 1 Significant Accounting Policies Invesco Select Real Estate Income Fund, formerly AIM Select Real Estate Income Fund (the Fund ), is a series portfolio of AIM Counselor Series Trust (Invesco Counselor Series Trust), formerly AIM Counselor Series Trust (the Trust ). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the 1940 Act ), as an open-end series management investment company consisting of twenty-two separate portfolios, each authorized to issue an unlimited number of shares of beneficial interest. Prior to March 12, 2007, the Fund operated as AIM Select Real Estate Income Fund (the Closed-End Fund ). The Closed-End Fund was reorganized as an open-end fund at which time the Fund became a new series portfolio of the Trust. The Closed-End Fund was reorganized as an open-end fund on March 12, 2007 (the Reorganization Date ) through the transfer of all its assets and liabilities to the Fund (the Reorganization ). Prior to the Reorganization, the Closed-End Fund redeemed Preferred Shares in their entirety. As part of the Reorganization, the Closed-End Fund was restructured from a sole series of AIM Select Real Estate Income Fund to a new series portfolio of the Trust. Upon the closing of the Reorganization, holders of the Closed-End Fund Common Shares received Class A shares of the Fund. Information for the Common Shares of the Closed-End Fund, prior to the Reorganization is included with Class A shares throughout this report. The Fund s investment objectives are high current income and secondarily, capital appreciation. The Fund currently consists of five different classes of shares: Class A, Class B, Class C, Class Y and Institutional Class. Class A shares are sold with a frontend sales charge unless certain waiver criteria are met and under certain circumstances load waived shares may be subject to contingent deferred sales charges ( CDSC ). Class B shares and Class C shares are sold with a CDSC. Class Y and Institutional Class shares are sold at net asset value. Generally, Class B shares will automatically convert to Class A shares on or about the month-end which is at least eight years after the date of purchase. 14 Invesco Select Real Estate Income Fund

15 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 or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. 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 ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange ( NYSE ). Investments in open-end 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 open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded. Debt obligations (including convertible bonds) and unlisted equities 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, including commercial paper, having 60 days or less to maturity are recorded at amortized cost which approximates value. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. 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. If market quotations are available and reliable for foreign exchange traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that are significant and make the closing price unreliable, the Fund may fair value the security. 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 s. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economical upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards. Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices will be used to value debt obligations and Corporate Loans. 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 s. 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. Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. 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. Paydown gains and losses on mortgage and asset-backed securities are recorded as adjustments to interest income. Dividend income (net of withholding tax, if any) is recorded on the ex-dividend date. Bond premiums and discounts are amortized and/or accreted for financial reporting purposes. The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain (loss) for investments no longer held and as unrealized gain (loss) for investments still held. 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 investment adviser. 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 15 Invesco Select Real Estate Income Fund