As filed with the Securities and Exchange Commission on May 17, 2002
Securities Act Registration No. ___________
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-effective Amendment No. Post-effective Amendment No.
----- -----
(Check appropriate box or boxes)
AIM FUNDS GROUP
--------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
11 Greenway Plaza
Suite 100
Houston, TX 77046
---------------------------------------------
(Address of Principal Executive Offices)
Registrant's Telephone Number: (713) 626-1919
Name and Address of Agent for Service: Copy to:
CAROL F. RELIHAN, ESQUIRE THOMAS H. DUNCAN, ESQUIRE
A I M Advisors, Inc. Ballard Spahr Andrews & Ingersoll, LLP
11 Greenway Plaza 1225 17th Street
Suite 100 Suite 2300
Houston, TX 77046 Denver, CO 80202
Approximate Date of Proposed Public Offering: As soon as practicable
after the Registration Statement becomes effective under the Securities Act of
1933.
It is proposed that this filing will become effective on July 2, 2002
pursuant to Rule 488.
The title of the securities being registered is AIM Global Utilities
Fund Class A shares, Class B shares and Class C shares. No filing fee is due in
reliance on Section 24(f) of the Investment Company Act of 1940.
AIM GLOBAL INFRASTRUCTURE FUND
A PORTFOLIO OF AIM INVESTMENT FUNDS
11 GREENWAY PLAZA, SUITE 100
HOUSTON, TEXAS 77046
July __, 2002
Dear Shareholder:
Enclosed is a combined proxy statement and prospectus seeking your approval of a
proposed combination of AIM Global Infrastructure Fund with AIM Global Utilities
Fund. AIM Global Infrastructure Fund ("Infrastructure Fund") is an investment
portfolio of AIM Investment Funds, a Delaware business trust. AIM Global
Utilities Fund ("Utilities Fund") is an investment portfolio of AIM Funds Group,
a Delaware business trust.
Infrastructure Fund and Utilities Fund both invest in equity and fixed income
securities issued by domestic and foreign companies. Those companies conduct
business operations in sectors of the global economy that overlap, and the two
funds currently hold many of the same securities. A I M Advisors, Inc., serves
as the investment adviser to Infrastructure Fund and Utilities Fund. As
discussed in the accompanying document, Utilities Fund has generally provided a
better long-term return to its shareholders than Infrastructure Fund, and
Utilities Fund's ratio of expenses to net assets are lower than those of
Infrastructure Fund. Utilities Fund is significantly larger than Infrastructure
Fund, and the combined assets of the two funds should provide a more stable
asset base for management of the assets of Infrastructure Fund because daily
purchases and redemptions of shares should have a less significant impact on the
size of the combined fund. The accompanying document describes the proposed
transaction and compares the investment policies, operating expenses and
performance history of Infrastructure Fund and Utilities Fund. You should review
the enclosed materials carefully.
Shareholders of Infrastructure Fund are being asked to approve an Agreement and
Plan of Reorganization by and among AIM Investment Funds, AIM Funds Group, and
A I M Advisors, Inc., that will govern the reorganization of Infrastructure Fund
into Utilities Fund. After careful consideration, the Board of Trustees of AIM
Investment Funds has unanimously approved the proposal and recommends that you
vote FOR the proposal.
If you attend the meeting, you may vote your shares in person. If you expect to
attend the meeting in person, or have questions, please notify AIM Investment
Funds by calling 1-800-952-3502. If you do not expect to attend the meeting,
please fill in, date, sign and return the proxy card in the enclosed envelope
which requires no postage if mailed in the United States.
Your vote is important. Please take a moment after reviewing the enclosed
materials to sign and return your proxy card in the enclosed postage paid return
envelope. If we do not hear from you after a reasonable amount of time, you may
receive a telephone call from our proxy solicitor, Georgeson Shareholder
Communications, Inc., reminding you to vote your shares. You may also vote your
shares by telephone or on the internet at http://www.aimfunds.com by following
the instructions that appear on the enclosed proxy materials.
Sincerely,
/s/ Robert H. Graham
Robert H. Graham
Chairman
1
AIM GLOBAL INFRASTRUCTURE FUND
A PORTFOLIO OF
AIM INVESTMENT FUNDS
11 GREENWAY PLAZA, SUITE 100
HOUSTON, TEXAS 77046-1173
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON SEPTEMBER 4, 2002
TO THE SHAREHOLDERS OF AIM GLOBAL INFRASTRUCTURE FUND:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of AIM Global
Infrastructure Fund ("Infrastructure Fund"), an investment portfolio of AIM
Investment Funds ("AIF"), will be held at 11 Greenway Plaza, Suite 100, Houston,
TX 77046-1173 on September 4, 2002, at 3:00 p.m., Central Time, for the
following purposes:
1. To approve an Agreement and Plan of Reorganization (the "Agreement") by
and among AIF, acting on behalf of Infrastructure Fund, AIM Funds Group ("AFG"),
acting on behalf of AIM Global Utilities Fund ("Utilities Fund") and A I M
Advisors, Inc. The Agreement provides for the combination of Infrastructure Fund
with Utilities Fund (the "Reorganization"). Pursuant to the Agreement, all of
the assets of Infrastructure Fund will be transferred to Utilities Fund.
Utilities Fund will assume all of the liabilities of Infrastructure Fund, and
AFG will issue Class A shares of Utilities Fund to Infrastructure Fund's Class A
shareholders, Class B shares of Utilities Fund to Infrastructure Fund's Class B
shareholders, and Class C shares of Utilities Fund to Infrastructure Fund's
Class C shareholders. The value of each Infrastructure Fund shareholder's
account with Utilities Fund immediately after the Reorganization will be the
same as the value of such shareholder's account with Infrastructure Fund
immediately prior to the Reorganization. The Reorganization has been structured
as a tax-free transaction. No initial sales charge will be imposed in connection
with the Reorganization.
2. To transact any other business, not currently contemplated, that may
properly come before the Special Meeting, in the discretion of the proxies or
their substitutes.
Shareholders of record as of the close of business on June 10, 2002, are
entitled to notice of, and to vote at, the Special Meeting or any adjournment
thereof.
SHAREHOLDERS ARE REQUESTED TO EXECUTE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE THE ACCOMPANYING PROXY, WHICH IS BEING SOLICITED BY THE MANAGEMENT OF
AIF. YOU MAY ALSO VOTE YOUR SHARES THROUGH A WEBSITE ESTABLISHED FOR THAT
PURPOSE OR BY TELEPHONE BY FOLLOWING THE INSTRUCTIONS ON THE ENCLOSED PROXY
MATERIALS. YOUR VOTE IS IMPORTANT FOR THE PURPOSE OF ENSURING A QUORUM AT THE
SPECIAL MEETING. PROXIES MAY BE REVOKED AT ANY TIME BEFORE THEY ARE EXERCISED BY
THE EXECUTION AND SUBMISSION OF A REVISED PROXY, BY GIVING WRITTEN NOTICE OF
REVOCATION TO AIF OR BY VOTING IN PERSON AT THE SPECIAL MEETING.
Carol F. Relihan
Senior Vice President and Secretary
July ___, 2002
2
AIM GLOBAL INFRASTRUCTURE FUND AIM GLOBAL UTILITIES FUND
A PORTFOLIO OF A PORTFOLIO OF
AIM INVESTMENT FUNDS AIM FUNDS GROUP
11 GREENWAY PLAZA 11 GREENWAY PLAZA
SUITE 100 SUITE 100
HOUSTON, TEXAS 77046-1173 HOUSTON, TEXAS 77046-1173
TOLL FREE: (800) 454-0327 TOLL FREE: (800) 454-0327
COMBINED PROXY STATEMENT AND PROSPECTUS
DATED: JULY ___, 2002
This document is being furnished in connection with a special meeting of
shareholders of AIM Global Infrastructure Fund ("Infrastructure Fund"), an
investment portfolio of AIM Investment Funds ("AIF"), a Delaware business trust,
to be held on September 4, 2002, (the "Special Meeting"). At the Special
Meeting, the shareholders of Infrastructure Fund are being asked to consider and
approve an Agreement and Plan of Reorganization (the "Agreement") by and among
AIF, acting on behalf of Infrastructure Fund, AIM Funds Group ("AFG"), acting on
behalf of AIM Global Utilities Fund ("Utilities Fund"), and A I M Advisors,
Inc., ("AIM Advisors"). The Agreement provides for the combination of
Infrastructure Fund with Utilities Fund (the "Reorganization"). THE BOARD OF
TRUSTEES OF AIF HAS UNANIMOUSLY APPROVED THE AGREEMENT AND THE REORGANIZATION AS
BEING IN THE BEST INTERESTS OF THE SHAREHOLDERS OF INFRASTRUCTURE FUND.
Utilities Fund is an investment portfolio of AFG, an open-end, series
management investment company. Pursuant to the Agreement, all of the assets of
Infrastructure Fund will be transferred to Utilities Fund, Utilities Fund will
assume all of the liabilities of Infrastructure Fund, and AFG will issue Class A
shares of Utilities Fund to Infrastructure Fund's Class A shareholders, Class B
shares of Utilities Fund to Infrastructure Fund's Class B shareholders, and
Class C shares of Utilities Fund to Infrastructure Fund's Class C shareholders.
The value of each Infrastructure Fund shareholder's account with Utilities Fund
immediately after the Reorganization will be the same as the value of such
shareholder's account with Infrastructure Fund immediately prior to the
Reorganization. The Reorganization has been structured as a tax-free
transaction. No initial sales charge will be imposed in connection with the
Reorganization.
The investment objective of Utilities Fund differs from the investment
objective of Infrastructure Fund. Utilities Fund seeks high total return, while
Infrastructure Fund seeks long-term growth of capital. Both funds seek to
achieve their investment objective by investing in a portfolio of equity
securities and fixed income securities. See "Comparison of Investment Objectives
and Policies."
This Combined Proxy Statement and Prospectus ("Proxy Statement/Prospectus")
sets forth the information that a shareholder of Infrastructure Fund should know
before voting on the Agreement. It should be read and retained for future
reference.
The current Prospectus of Infrastructure Fund, dated March 1, 2002, as
supplemented March 5, 2002, (the "Infrastructure Fund Prospectus"), together
with the related Statement of Additional Information also dated March 1, 2002,
as supplemented March 5, 2002, are on file with the Securities and Exchange
Commission (the "SEC") and are incorporated by reference herein. The Prospectus
of Utilities Fund dated May 1, 2002, as supplemented May 1, 2002, (the
"Utilities Fund Prospectus"), and the related Statement of Additional
Information dated May 1, 2002, as supplemented May 1, 2002, have been filed with
the SEC and are incorporated by reference herein. A copy of the Utilities Fund
Prospectus is attached as Appendix II to this Proxy Statement/Prospectus. The
SEC maintains a website at http://www.sec.gov that contains the prospectuses and
statements of additional information described above, material incorporated by
reference, and other information about AIF and AFG. These documents are also
available without charge by writing to A I M Fund Services, Inc., P.O. Box 4739,
Houston, Texas 77210-4739, or by calling 1-800-347-4246. Additional information
about Infrastructure Fund and Utilities Fund may also be obtained on the
internet at http://www.aimfunds.com.
These securities have not been approved or disapproved by the Securities
and Exchange Commission nor has the Securities and Exchange Commission passed
upon the accuracy or adequacy of this Proxy Statement/Prospectus. Any
representation to the contrary is a criminal offense.
3
[AIMLOGO]
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
----
INTRODUCTION........................................................... 5
PROPOSAL 1: APPROVAL OF AGREEMENT AND PLAN OF
REORGANIZATION....................................................... 5
SYNOPSIS............................................................... 5
The Reorganization................................................... 5
Reasons for the Reorganization....................................... 6
Comparison of Utilities Fund and Infrastructure Fund................. 6
RISK FACTORS........................................................... 9
Comparative Risks.................................................... 9
Risks Associated with Utilities Fund................................. 9
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES....................... 10
Investment Objectives of Utilities Fund and Infrastructure Fund...... 10
Investment Policies of Utilities Fund................................ 10
Investment Policies of Infrastructure Fund........................... 11
Utilities Fund Portfolio Management.................................. 11
Management's Discussion and Analysis of Performance.................. 11
FINANCIAL HIGHLIGHTS................................................... 11
ADDITIONAL INFORMATION ABOUT THE AGREEMENT............................. 15
Terms of the Reorganization.......................................... 15
The Reorganization................................................... 15
Board Considerations................................................. 15
Other Terms.......................................................... 16
Federal Tax Consequences............................................. 17
Accounting Treatment................................................. 18
ADDITIONAL INFORMATION ABOUT UTILITIES FUND AND INFRASTRUCTURE FUND.... 19
RIGHTS OF SHAREHOLDERS................................................. 19
OWNERSHIP OF INFRASTRUCTURE FUND AND UTILITIES FUND SHARES............. 20
Significant Holders.................................................. 20
Share Ownership by Executive Officers and Trustees................... 21
CAPITALIZATION......................................................... 22
LEGAL MATTERS.......................................................... 22
INFORMATION FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION........................................................... 22
APPENDIX I....................Agreement and Plan of Reorganization
APPENDIX II............................Prospectus of Utilities Fund
APPENDIX III....Utilities Fund Discussion & Analysis of Performance
</Table>
The AIM Family of Funds, The AIM Family of Funds and Design (i.e., the AIM
logo), AIM and Design, AIM, AIM Funds, AIM Funds and Design, AIM Investor, AIM
LINK, AIM Institutional Funds, aimfunds.com, Invest with DISCIPLINE, Invierta
con DISCIPLINA, La Familia AIM de Fondos, and La Familia AIM de Fondos and
Design are registered service marks, and AIM Bank Connection and AIM Internet
Connect are service marks of A I M Management Group Inc.
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
prospectus, and you should not rely on such other information or
representations.
4
INTRODUCTION
This Proxy Statement/Prospectus is furnished in connection with the
solicitation of proxies by the Board of Trustees of AIF for use at the Special
Meeting of Shareholders to be held at 11 Greenway Plaza, Suite 100, Houston, TX
77046, on September 4, 2002, at 3:00 p.m., Central Time (such meeting and any
adjournments thereof are referred to as the "Special Meeting").
All properly executed and unrevoked proxies received in time for the Special
Meeting will be voted in accordance with the instructions contained therein. If
no instructions are given, shares represented by proxies will be voted FOR the
proposal to approve the Agreement and in accordance with management's
recommendation on other matters. The presence in person or by proxy of one-third
of the outstanding shares of beneficial interest in Infrastructure Fund at the
Special Meeting will constitute a quorum. Approval of the Agreement by
Infrastructure Fund requires the affirmative vote of a majority of the shares
cast by shareholders of Infrastructure Fund. Abstentions and broker non-votes
will be counted as shares present at the Special Meeting for quorum purposes,
but will not be considered votes cast at the Special Meeting. Broker non-votes
arise from a proxy returned by a broker holding shares for a customer which
indicates that the broker has not been authorized by the customer to vote on a
proposal. Any person giving a proxy has the power to revoke it at any time prior
to its exercise by executing a superseding proxy or by submitting a notice of
revocation to the Secretary of AIF. In addition, although mere attendance at the
Special Meeting will not revoke a proxy, a shareholder present at the Special
Meeting may withdraw his or her proxy and vote in person. Shareholders may also
transact any other business not currently contemplated that may properly come
before the Special Meeting in the discretion of the proxies or their
substitutes.
Shareholders of record as of the close of business on June 10, 2002 (the
"Record Date"), are entitled to vote at the Special Meeting. On the Record Date,
there were ______________________ Class A shares, _________________ Class B
shares, and _________________ Class C shares of Infrastructure Fund outstanding.
Each share is entitled to one vote for each full share held, and a fractional
vote for a fractional share held.
AIF has engaged the services of Georgeson Shareholder Communications, Inc.
("GSC") to assist it in the solicitation of proxies for the Special Meeting. AIF
expects to solicit proxies principally by mail, but AIF or GSC may also solicit
proxies by telephone, facsimile or personal interview. AIF's officers will not
receive any additional or special compensation for any such solicitation. The
cost of the Reorganization is expected to be approximately $71,400.
Infrastructure Fund and Utilities Fund will each bear their own costs and
expenses incurred in connection with the Reorganization.
AIF intends to mail this Proxy Statement/Prospectus and the accompanying
proxy on or about July ___, 2002.
PROPOSAL 1:
APPROVAL OF AGREEMENT AND PLAN OF REORGANIZATION
SYNOPSIS
THE REORGANIZATION
The Reorganization will result in the combination of Infrastructure Fund
with Utilities Fund. Infrastructure Fund is a portfolio of AIF, a Delaware
business trust. Utilities Fund is a portfolio of AFG, a Delaware business trust.
If shareholders of Infrastructure Fund approve the Agreement and other
closing conditions are satisfied, all of the assets of Infrastructure Fund will
be transferred to Utilities Fund, Utilities Fund will assume all of the
liabilities of Infrastructure Fund, and AFG will issue Class A shares of
Utilities Fund to Infrastructure Fund's Class A shareholders, Class B shares of
Utilities Fund to Infrastructure Fund's Class B shareholders and Class C shares
of Utilities Fund to Infrastructure Fund's Class C shareholders. The shares of
Utilities Fund issued in the Reorganization will have an aggregate net asset
value equal to the value of Infrastructure Fund's net assets transferred to
Utilities Fund. Shareholders will not pay any initial sales charge for shares of
Utilities Fund received in connection with the Reorganization. The value of each
shareholder's account with Utilities Fund immediately after the Reorganization
will be the same as the value of such shareholder's account with Infrastructure
Fund immediately prior to the Reorganization. A copy of the Agreement is
attached as Appendix I to this Proxy Statement/Prospectus. See "Additional
Information About the Agreement" below.
5
Infrastructure Fund will receive an opinion of Ballard Spahr Andrews &
Ingersoll, LLP, to the effect that the Reorganization will constitute a tax-free
reorganization for Federal income tax purposes. Thus, shareholders will not have
to pay Federal income taxes as a result of the Reorganization. See "Additional
Information About the Agreement -- Federal Tax Consequences" below.
REASONS FOR THE REORGANIZATION
The Board of Trustees of AIF, including the independent trustees, has
determined that the reorganization of Infrastructure Fund into Utilities Fund is
in the best interests of Infrastructure Fund and its shareholders and that the
interests of the shareholders of Infrastructure Fund will not be diluted as a
result of the Reorganization.
In making its determination, the Board of Trustees noted that the two funds'
investment objectives are different. However, both funds invest in equity and
debt securities issued by domestic and foreign companies that generally operate
in sectors of the global economy that overlap. As a result, the funds currently
have similar holdings. The Board of Trustees noted that Utilities Fund has
outperformed Infrastructure Fund, providing a better long-term total return to
shareholders. The total operating expenses of Utilities Fund, expressed as a
percentage of assets, are lower than those of Infrastructure Fund. Utilities
Fund is also significantly larger than Infrastructure Fund. Although past
performance does not guarantee future results, the combination of better
long-term performance and lower expenses should make Utilities Fund a better
investment for Infrastructure Fund shareholders.
COMPARISON OF UTILITIES FUND AND INFRASTRUCTURE FUND
Investment Objective and Policies
Utilities Fund seeks to achieve high total return by investing, normally, at
least 80% of its assets in securities of domestic and foreign public utility
companies. Utilities Fund may also invest in non-utility securities, but
generally invests in securities of companies that derive revenues from
utility-related activities such as providing services, equipment or fuel sources
to utilities. Such companies may include those that provide maintenance services
to electric, telephone or natural gas utilities; companies that provide energy
sources such as coal or uranium; fuel services and equipment companies;
companies that provide pollution control for water utilities; and companies that
build pipelines or turbines which help produce electricity.
Infrastructure Fund seeks to achieve long-term growth of capital by
investing, normally, at least 80% of its assets in equity securities of domestic
and foreign infrastructure companies. Infrastructure Fund considers an
"infrastructure company" to be one that (1) derives at least 50% of its revenues
or earnings from infrastructure activities; or (2) devotes at least 50% of its
assets to such activities, based on its most recent fiscal year. Such companies
include those that design, develop, or provide products and services significant
to a country's infrastructure (such as transportation systems, communications
equipment and services, nuclear power and other energy sources, water supply,
and oil, gas, and coal exploration). The fund may invest up to 35% of its assets
in debt securities issued by infrastructure companies, and up to 20% of its
assets in equity and debt securities of other companies the portfolio managers
believe will benefit from development in the infrastructure industry.
6
Investment Advisory Services
AIM Advisors serves as investment adviser to both Infrastructure Fund and
Utilities Fund
Performance
Average annual total returns for the periods indicated for Class A shares of
Utilities Fund and Infrastructure Fund, including sales charges, are shown
below. Past performance cannot guarantee comparable future results.
<Table>
<Caption>
UTILITIES FUND INFRASTRUCTURE FUND
CLASS A SHARES CLASS A SHARES
-------------- -------------------
1 Year Ended December 31, 2001.......... (32.28)% (41.44)%
5 Years Ended December 31, 2001......... 4.91% (5.20)%
10 Years Ended December 31, 2001 or
Since Inception*.................... 7.11% 0.34%
</Table>
- ----------
* Inception date for Infrastructure Fund Class A shares is May 31, 1994.
Expenses
A comparison of annual operating expenses as a percentage of net assets
("Expense Ratio"), based on the fiscal year ended October 31, 2001, for the
Class A, Class B and Class C shares of Infrastructure Fund and for the fiscal
year ended December 31, 2001, for the Class A, Class B and Class C shares of
Utilities Fund are shown below. Pro forma estimated Expense Ratios of Utilities
Fund giving effect to the Reorganization are also provided.
<Table>
<Caption>
INFRASTRUCTURE FUND UTILITIES FUND
------------------------------ ----------------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
SHARES SHARES SHARES SHARES SHARES SHARES
------- ------- ------- ------- ------- -------
SHAREHOLDER TRANSACTION
EXPENSES
Maximum sales load imposed on
purchase of shares (as a
percentage of offering price) ....... 4.75% None None 5.50% None None
Deferred Sales Load (as a
percentage of original purchase
price or redemption proceeds, as .... None(1) 5.00% 1.00% None(1) 5.00% 1.00%
applicable)
ANNUAL OPERATING EXPENSES
(AS A % OF NET ASSETS)
Management fees ....................... 0.98% 0.98% 0.98% 0.56% 0.56% 0.56%
Distribution and/or Service
(12b-1)Fees ......................... 0.50% 1.00% 1.00% 0.25% 1.00% 1.00%
Other expenses ........................ 0.93% 0.93% 0.93% 0.32%(2) 0.32%(2) 0.32%(2)
---- ---- ---- ---- ---- ----
Total fund operating
expenses(3) ................. 2.41%(4) 2.91.%(4) 2.91%(4) 1.13% 1.88% 1.88%
<Caption>
UTILITIES FUND
PRO FORMA ESTIMATED
----------------------------------
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
------- ------- -------
SHAREHOLDER TRANSACTION
EXPENSES
Maximum sales load imposed on
purchase of shares (as a
percentage of offering price) ....... 5.50% None None
Deferred Sales Load (as a
percentage of original purchase
price or redemption proceeds, as .... None(1) 5.00% 1.00%
applicable)
ANNUAL OPERATING EXPENSES
(AS A % OF NET ASSETS)
Management fees ....................... 0.55% 0.55% 0.55%
Distribution and/or Service
(12b-1)Fees ......................... 0.25% 1.00% 1.00%
Other expenses ........................ 0.34%(2) 0.34%(2) 0.34%(2)
---- ---- ----
Total fund operating
expenses(3) ................. 1.14%(5) 1.89%(5) 1.89%(5)
</Table>
- ----------
(1) If you buy $1,000,000 or more of Class A shares and redeem these shares
within 18 months from the date of purchase, you may pay a 1% contingent
deferred sales charge ("CDSC") at the time of redemption.
(2) Other Expenses have been restated to reflect expense arrangements in
effect as of March 4, 2002.
(3) There is no guarantee that actual expenses will be the same as those
shown in the table.
(4) AIM has agreed to limit, voluntarily, Total Annual Fund Operating
Expenses of Infrastructure Fund (excluding interest, taxes, dividend
expenses on short sales, merger transaction costs, extraordinary items
and increases due to expense offset arrangements, if any) on Class A,
Class B, and Class C shares to 2.00%, 2.50%, and 2.50%, respectively.
(5) Upon consummation of the Reorganization, AIM has agreed to waive,
voluntarily, 0.02% of the management fees it is entitled to receive
from Utilities Fund. Total fund operating expenses net of this
voluntary arrangement are estimated to be 1.12%, 1.87%, and 1.87% for
Class A, Class B, and Class C, respectively.
7
Hypothetical Example of Effect of Expenses
An investor would have directly or indirectly paid the following expenses on
a $10,000 investment under the existing and estimated fees and expenses stated
above, assuming a 5% annual return.
<Table>
<Caption>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
----- ------ ------ -------
INFRASTRUCTURE FUND
Class A shares(1).............................. $ 708 $1,191 $1,699 $ 3,091
Class B shares:
Assuming complete redemption at end of
period(2)............................... $ 794 $1,201 $1,733 $ 3,115
Assuming no redemption.................... $ 294 $ 901 $1,533 $ 3,115
Class C shares:
Assuming complete redemption at end of
period(2)............................... $ 394 $ 901 $1,533 $ 3,233
Assuming no redemption.................... $ 294 $ 901 $1,533 $ 3,233
UTILITIES FUND
Class A shares(1).............................. $ 659 $ 889 $1,138 $ 1,849
Class B shares:
Assuming complete redemption at end of
period(2)............................... $ 691 $ 891 $1,216 $ 2,005
Assuming no redemption.................... $ 191 $ 591 $1,016 $ 2,005
Class C shares:
Assuming complete redemption at end of
period(2)............................... $ 291 $ 591 $1,016 $ 2,201
Assuming no redemption.................... $ 191 $ 591 $1,016 $ 2,201
COMBINED FUND
Class A shares(1).............................. $ 660 $ 892 $1,143 $ 1,860
Class B shares:
Assuming complete redemption at end of
period(2)............................... $ 692 $ 894 $1,221 $ 2,016
Assuming no redemption.................... $ 192 $ 594 $1,021 $ 2,016
Class C shares:
Assuming complete redemption at end of
period(2)............................... $ 292 $ 594 $1,021 $ 2,212
Assuming no redemption.................... $ 192 $ 594 $1,021 $ 2,212
</Table>
- ----------
(1) Assumes payment of maximum sales charge by the investor.
(2) Assumes payment of the applicable CDSC.
THE "HYPOTHETICAL EXAMPLE" IS NOT A REPRESENTATION OF PAST OR FUTURE
EXPENSES. THE FUNDS' ACTUAL EXPENSES, AND AN INVESTOR'S DIRECT AND INDIRECT
EXPENSES, MAY BE MORE OR LESS THAN THOSE SHOWN. THE TABLE AND THE ASSUMPTION IN
THE EXAMPLE OF A 5% ANNUAL RETURN ARE REQUIRED BY REGULATIONS OF THE SEC
APPLICABLE TO ALL MUTUAL FUNDS. THE 5% ANNUAL RETURN IS NOT A PREDICTION OF AND
DOES NOT REPRESENT THE FUNDS' PROJECTED OR ACTUAL PERFORMANCE.
The actual expenses attributable to each class of a fund's shares will
depend upon, among other things, the level of average net assets and the extent
to which a fund incurs variable expenses, such as transfer agency costs.
Sales Charges
No sales charges are applicable to shares of Utilities Fund received in
connection with the Reorganization. The initial sales charge applicable to Class
A shares of Utilities is higher than the initial sales charge applicable to
Class A shares of Infrastructure. Shareholders of Infrastructure who choose to
purchase additional Class A shares of Utilities after the Reorganization will be
charged the higher initial sales charge applicable to Class A shares of
Utilities.
Utilities Fund Class A shares, which will be issued to Infrastructure Fund
Class A shareholders pursuant to the Agreement, are sold at net asset value plus
an initial sales charge of 5.50%. Utilities Fund Class B shares are offered at
net asset value, without an initial sales charge, and are subject to a maximum
contingent deferred sales charge of 5.00% on certain redemptions made within six
years from the date such shares were purchased. Utilities Fund Class C shares
are offered at net asset value, without an initial sales charge, and are subject
to a maximum contingent deferred sales charge of 1.00% on certain redemptions
made within one year from the date such shares were purchased.
Utilities Fund pays a fee in the amount of 0.25% of the average daily net
assets of Class A shares to A I M Distributors, Inc. ("AIM Distributors") for
distribution services. Utilities Fund pays AIM Distributors fees at an annual
rate of 1.00% of the average daily net assets attributable to the Class B shares
and Class C shares for distribution services. For more information, see the
discussion
8
under the heading "Shareholder Information-Distribution and Service (12b-1)
Fees" in the Utilities Fund Prospectus attached as Appendix II to this Proxy
Statement/Prospectus.
The Class A shares of Infrastructure Fund are sold at net asset value plus
an initial sales charge of 4.75%. Infrastructure Fund Class B shares are offered
at net asset value without an initial sales charge and are subject to a maximum
contingent deferred sales charge of 5.00% on certain redemptions made within six
years from the date such shares were purchased. Infrastructure Fund Class C
shares are offered at net asset value, without an initial sales charge, and are
subject to a maximum contingent deferred sales charge of 1.00% on certain
redemptions made within one year from the date such shares were purchased.
AIM Distributors is entitled to receive from Infrastructure Fund a fee in
the amount of 0.50% of average daily net assets of the Class A shares for
distribution services. Infrastructure Fund pays AIM Distributors at an annual
rate of 1.00% of the average daily net assets attributable to the Class B shares
and Class C shares for distribution services.
Distribution; Purchase, Exchange and Redemption
Shares of Utilities Fund and Infrastructure Fund are both distributed by AIM
Distributors. Purchase and redemption procedures are the same for both funds.
Generally, shares of both funds may be exchanged for shares of other funds
within The AIM Family of Funds(R) of the same class.
Further Information
Additional information concerning Utilities Fund is contained in this Proxy
Statement/Prospectus and in the current prospectus for Utilities Fund that is
attached hereto as Appendix II. Further information concerning Infrastructure
Fund can be found in its prospectus which has been made part of this Proxy
Statement/Prospectus by reference. See the cover page for more information on
how to obtain further information.
RISK FACTORS
COMPARATIVE RISKS
Utilities Fund and Infrastructure Fund both invest in debt and equity
securities of domestic and foreign companies. Accordingly, many of the risks
associated with an investment in Utilities Fund are the same as the risks
associated with an investment in Infrastructure Fund.
However, Utilities Fund and Infrastructure Fund each invest primarily in the
securities of issuers engaged in particular industries. As a result, the value
of each fund's shares are particularly vulnerable to factors affecting those
particular industries. After the reorganization, Utilities Fund will continue to
invest primarily in the securities of domestic and foreign utility companies,
although it is permitted to hold securities of issuers who are infrastructure
companies. The market sector focus of Utilities Fund may make its share price
more volatile than that of Infrastructure Fund.
RISKS ASSOCIATED WITH UTILITIES FUND
There is a risk that you could lose all or a portion of your investment in
Utilities Fund and that the income you may receive from the fund may vary. The
value of your investment in Utilities Fund will go up and down with the prices
of the securities in which the fund invests. The 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. Interest rate
increases can cause the price of a debt security to decrease. The longer a debt
security's duration, the more sensitive it is to this risk. The issuer of a
security may default or otherwise be unable to honor a financial obligation.
The value of Utilities Fund's shares are particularly vulnerable to factors
affecting the utility company industry, such as substantial economic,
operational, competitive, or regulatory changes. Such changes may, among other
things, increase compliance costs or the costs of doing business. In addition,
increases in fuel, energy and other prices have historically limited the growth
potential of utility companies. Because Utilities Fund focuses its investments
in the public utility industry, the value of your shares may rise and fall more
than the value of shares of a fund that invests more broadly.
9
Because it is non-diversified, Utilities Fund may invest in fewer issuers
than if it were a diversified fund. The value of Utilities Fund's shares may
vary more widely, and the fund may be subject to greater investment and credit
risk, than if the fund invested more broadly.
The prices of foreign securities may be further affected by other factors
including:
Currency exchange rates - The dollar value of Utilities Fund's foreign
investments will be affected by changes in the exchange rates between the
dollar and the currencies in which those investments are valued.
Political and economic conditions - The value of Utilities Fund's foreign
investments may be adversely affected by political and social instability in
other countries and by changes in economic or taxation policies in those
countries.
Regulations - Foreign companies generally are subject to less stringent
regulations, including financial and accounting controls, than are U.S.
companies. As a result, there generally is less publicly available
information about foreign companies than about U.S. companies.
Markets - The securities markets of other countries are smaller than U.S.
securities markets. As a result, many foreign securities may be less liquid
and more volatile than U.S. securities.
These factors may affect the prices of securities issued by foreign
companies located in developing countries more than those in countries with
mature economies. For example, many developing countries have, in the past,
experienced high rates of inflation or sharply devalued their currencies against
the U.S. dollar, thereby causing the value of investments in companies located
in those countries to decline. Transaction costs are often higher in developing
countries and there may be delays in settlement procedures.
Utilities Fund currently participates in the initial public offering (IPO)
market, and a significant portion of its returns currently are attributable to
its investment in IPOs, which have a magnified impact due to its small asset
base. As its assets grow, it is probable that the effect of the fund's
investment in IPOs on its total returns will decline.
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES
INVESTMENT OBJECTIVES OF UTILITIES FUND AND INFRASTRUCTURE FUND
The investment objective of Utilities Fund is to achieve high total return.
The investment objective of Infrastructure Fund is long-term growth of capital.
INVESTMENT POLICIES OF UTILITIES FUND
Utilities Fund seeks to meet its investment objective by investing,
normally, at least 80% of its assets in securities of domestic and foreign
public utility companies. The fund may also invest in non-utility securities,
but generally invests in securities of companies that derive revenues from
utility-related activities such as providing services, equipment or fuel sources
to utilities. Such companies may include those that provide maintenance services
to electric, telephone or natural gas utilities; companies that provide energy
sources such as coal or uranium; fuel services and equipment companies;
companies that provide pollution control for water utilities; and companies that
build pipelines or turbines which help produce electricity.
The fund may invest up to 80% of its total assets in foreign securities,
including securities of issuers located in developing countries. Developing
countries are those that are in the initial stages of their industrial cycles.
The fund normally invests in the securities of companies located in at least
four different countries, including the United States. The fund may invest up to
25% of its total assets in convertible securities. The fund may also invest up
to 25% of its total assets in lower-quality debt securities, i.e., "junk bonds."
The fund is non-diversified. This means that with respect to 50% of its
assets, it is permitted to invest more than 5% of its assets in the securities
of any one issuer. The portfolio managers focus on securities that have
favorable prospects for high total return. The portfolio managers consider
whether to sell a particular security when any of those factors materially
changes.
The portfolio managers focus on securities that have favorable prospects for
high total return. The portfolio managers consider whether to sell a particular
security when those prospects materially change.
10
INVESTMENT POLICIES OF INFRASTRUCTURE FUND
Infrastructure Fund seeks to meet its investment objective by investing,
normally, at least 80% of its assets in equity securities of domestic and
foreign infrastructure companies. The fund considers an "infrastructure company"
to be one that (1) derives at least 50% of its revenues or earnings from
infrastructure activities; or (2) devotes at least 50% of its assets to such
activities, based on its most recent fiscal year. Such companies include those
that design, develop, or provide products and services significant to a
country's infrastructure (such as transportation systems, communications
equipment and services, nuclear power and other energy sources, water supply,
and oil, gas, and coal exploration). The fund may invest up to 35% of its assets
in debt securities issued by infrastructure companies, and up to 20% of its
assets in equity and debt securities of other companies the portfolio managers
believe will benefit from developments in the infrastructure industry.
The fund normally invests in the securities of companies located in at least
three different countries, including the United States, and may invest a
significant portion of its assets in the securities of U.S. issuers. However,
the fund will invest no more than 50% of its total assets in the securities of
issuers in any one country, other than the U.S. The fund may invest in companies
located in developing countries, i.e., those that are in the initial stages of
their industrial cycles. The fund may also invest up to 20% of its total assets
in lower-quality debt securities, i.e., "junk bonds."
UTILITIES FUND PORTFOLIO MANAGEMENT
AIM Advisors uses a team approach to investment management. The individual
members of the team who are primarily responsible for the day-to-day management
of Utilities Fund's portfolio are
o Robert G. Alley, Senior Portfolio Manager, who has been responsible for
the fund since 1992 and has been associated with the adviser and/or its
affiliates since 1992,
o Claude C. Cody IV, Senior Portfolio Manager, who has been responsible
for the fund since 1992 and has been associated with the adviser and/or
its affiliates since 1992,
o Jan H. Friedli, Senior Portfolio Manager, who has been responsible for
the fund since 2000 and has been associated with the adviser and/or its
affiliates since 1999. From 1997 to 1999, he was global fixed-income
portfolio manager for Nicholas-Applegate Capital Management. From 1994
to 1997, he was an international fixed-income trader and analyst for
Strong Capital Management,
o Craig A. Smith, Senior Portfolio Manager, who has been responsible for
the fund since 1996 and has been associated with the adviser and/or its
affiliates since 1989, and
o Meggan M. Walsh, Senior Portfolio Manager, has been responsible for the
fund since 1998 and has been associated with the adviser and/or its
affiliates since 1991.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF PERFORMANCE
A discussion of the performance of Utilities Fund for the fiscal year ended
December 31, 2001, is set forth in Appendix III to this Proxy
Statement/Prospectus.
FINANCIAL HIGHLIGHTS
Shown below are financial highlights for a Class A, Class B, and Class C
share of Utilities Fund outstanding during each of the five fiscal years ended
December 31, 1997 through December 31, 2001. This information has been audited
by AFG's independent accountants whose unqualified report on the financial
statements of Utilities Fund is included in its annual report to shareholders
for the fiscal year ended December 31, 2001. Utilities Fund's annual report to
shareholders dated December 31, 2001, is available without charge upon request
made to AFG at the address or telephone number appearing on the cover page of
this Proxy Statement/Prospectus.
11
UTILITIES FUND CLASS A SHARES
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------------
2001(a) 2000(a) 1999(a) 1998 1997
----------- ----------- ----------- ----------- -----------
Net asset value, beginning of
period ............................... $ 22.45 $ 26.08 $ 21.01 $ 19.26 $ 16.01
----------- ----------- ----------- ----------- -----------
Income from investment operations:
Net investment income ................ 0.29(b) 0.33 0.38 0.48 0.47
Net gains (losses) on securities
(both realized and unrealized) ..... (6.63) (1.00) 6.60 2.53 3.26
----------- ----------- ----------- ----------- -----------
Total from investment
operations .................. (6.34) (0.67) 6.98 3.01 3.73
----------- ----------- ----------- ----------- -----------
Less distributions:
Dividends from net investment
income ............................. (0.29) (0.28) (0.35) (0.46) (0.47)
Distributions from net realized
gains .............................. (0.18) (2.68) (1.56) (0.80) (0.01)
----------- ----------- ----------- ----------- -----------
Total distributions ........... (0.47) (2.96) (1.91) (1.26) (0.48)
----------- ----------- ----------- ----------- -----------
Net asset value, end of
period ...................... $ 15.64 $ 22.45 $ 26.08 $ 21.01 $ 19.26
=========== =========== =========== =========== ===========
Total return(c) ........................ (28.33)% (2.54)% 34.15% 16.01% 23.70%
Ratios/supplemental data:
Net assets, end of period (000s
omitted) ........................... $ 171,432 $ 267,200 $ 238,432 $ 196,665 $ 179,456
Ratio of expenses to average net
assets ............................. 1.12%(d) 1.03% 1.10% 1.06% 1.13%
Ratio of net investment income
to average net assets .............. 1.53%(b)(d) 1.23% 1.69% 2.39% 2.79%
Portfolio turnover rate .............. 19% 52% 37% 38% 26%
</Table>
- ----------
(a) Calculated using average shares outstanding.
(b) As required, effective January 1, 2001, the Fund has adopted the
provisions of the AICPA Audit and Accounting Guide for Investment
Companies and began amortizing premiums on debt securities. Had the
Fund not amortized premiums on debt securities, the net investment
income per share would have been $0.30 and the ratio of net investment
income to average net assets would have been 1.57%. In accordance with
the AICPA Audit and Accounting Guide for Investment Companies, per
share and ratios for periods prior to January 1, 2001 have not been
restated to reflect this change in presentation.
(c) Does not includes sales charges.
(d) Ratios are based on average daily net assets of $217,585,019.
12
UTILITIES FUND CLASS B SHARES
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------------
2001(a) 2000(a) 1999(a) 1998 1997
----------- ----------- ----------- ----------- -----------
Net asset value, beginning of
period ................................ $ 22.38 $ 26.03 $ 20.98 $ 19.24 $ 16.01
----------- ----------- ----------- ----------- -----------
Income from investment operations:
Net investment income ................. 0.15(b) 0.13 0.21 0.33 0.34
Net gains (losses) on securities
(both realized and unrealized) ...... (6.60) (1.01) 6.59 2.53 3.25
----------- ----------- ----------- ----------- -----------
Total from investment
operations ................... (6.45) (0.88) 6.80 2.86 3.59
----------- ----------- ----------- ----------- -----------
Less distributions:
Dividends from net investment
income .............................. (0.15) (0.09) (0.19) (0.32) (0.35)
Distributions from net realized
gains ............................... (0.18) (2.68) (1.56) (0.80) (0.01)
----------- ----------- ----------- ----------- -----------
Total distributions ............ (0.33) (2.77) (1.75) (1.12) (0.36)
----------- ----------- ----------- ----------- -----------
Net asset value, end of
period ....................... $ 15.60 $ 22.38 $ 26.03 $ 20.98 $ 19.24
=========== =========== =========== =========== ===========
Total return(b) ......................... (28.87)% (3.28)% 33.16% 15.14% 22.74%
Ratios/supplemental data:
Net assets, end of period (000s
omitted) ............................ $ 94,615 $ 160,820 $ 142,632 $ 111,866 $ 94,227
Ratio of expenses to average net
assets .............................. 1.88%(d) 1.80% 1.84% 1.81% 1.91%
Ratio of net investment income
to average net assets ............... 0.78%(b)(d) 0.46% 0.95% 1.64% 2.01%
Portfolio turnover rate ............... 19% 52% 37% 38% 26%
</Table>
- ----------
(a) Calculated using average shares outstanding.
(b) As required, effective January 1, 2001, the Fund has adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and began
amortizing premiums on debt securities. Had the Fund not amortized premiums
on debt securities, the net investment income per share would have been the
same and the ratio of net investment income to average net assets would have
been 0.81%. In accordance with the AICPA Audit and Accounting Guide for
Investment Companies, per share and ratios for periods prior to January 1,
2001 have not been restated to reflect this change in presentation.
(c) Does not include contingent deferred sales charges.
(d) Ratios are based on average daily net assets of $130,913,088.
13
UTILITIES FUND CLASS C SHARES
<Table>
<Caption>
AUGUST 4, 1997
(DATE SALES
YEAR ENDED DECEMBER 31, COMMENCED) TO
-------------------------------------------------------------- DECEMBER 31,
2001(A) 2000(A) 1999(A) 1998 1997
---------- ---------- ---------- ---------- --------------
Net asset value, beginning of period ........ $ 22.37 $ 26.02 $ 20.97 $ 19.24 $ 17.67
---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income ..................... 0.15(b) 0.13 0.21 0.33 0.13
Net gains (losses) on securities
(both realized and unrealized) ........ (6.60) (1.01) 6.59 2.52 1.58
---------- ---------- ---------- ---------- ----------
Total from investment
operations ....................... (6.45) (0.88) 6.80 2.85 1.71
---------- ---------- ---------- ---------- ----------
Less distributions:
Dividends from net investment
income .................................. (0.15) (0.09) (0.19) (0.32) (0.13)
Distributions from net realized
gains ................................... (0.18) (2.68) (1.56) (0.80) (0.01)
---------- ---------- ---------- ---------- ----------
Total distributions ................ (0.33) (2.77) (1.75) (1.12) (0.14)
---------- ---------- ---------- ---------- ----------
Net asset value, end of
period ........................... $ 15.59 $ 22.37 $ 26.02 $ 20.97 $ 19.24
========== ========== ========== ========== ==========
Total return(c) ............................. (28.88)% (3.28)% 33.18% 15.09% 9.74%
Ratios/supplemental data:
Net assets, end of period (000s
omitted) ................................ $ 11,679 $ 17,727 $ 6,702 $ 2,994 $ 1,183
Ratio of expenses to average
net assets .............................. 1.88%(d) 1.80% 1.84% 1.81% 1.90%(e)
Ratio of net investment income
to average net assets ................... 0.78%(b)(d) 0.46% 0.95% 1.64% 2.02%(e)
Portfolio turnover rate ................... 19% 52% 37% 38% 26%
</Table>
- ----------
(a) Calculated using average shares outstanding.
(b) As required, effective January 1, 2001, the Fund has adopted the
provisions of the AICPA Audit and Accounting Guide for Investment
Companies and began amortizing premiums on debt securities. Had the
Fund not amortized premiums on debt securities, the net investment
income per share would have been the same and the ratio of net
investment income to average net assets would have been 0.81%. In
accordance with the AICPA Audit and Accounting Guide for Investment
Companies, per share and ratios for periods prior to January 1, 2001
have not been restated to reflect this change in presentation.
(c) Does not include contingent deferred sales charges and is not
annualized for periods less than one year.
(d) Ratios are based on average daily net assets of $15,035,993.
(e) Annualized.
14
ADDITIONAL INFORMATION ABOUT THE AGREEMENT
TERMS OF THE REORGANIZATION
The terms and conditions under which the Reorganization may be consummated
are set forth in the Agreement. Significant provisions of the Agreement are
summarized below; however, this summary is qualified in its entirety by
reference to the Agreement, a copy of which is attached as Appendix I to this
Proxy Statement/Prospectus.
THE REORGANIZATION
Utilities Fund will acquire all of the assets of Infrastructure Fund in
exchange for shares of Utilities Fund and the assumption by Utilities Fund of
the liabilities of Infrastructure Fund. Consummation of the Reorganization (the
"Closing") is expected to occur on September 23, 2002, at 8:00 a.m. Eastern Time
(the "Effective Time") on the basis of values calculated as of the close of
regular trading on the NYSE on September 20, 2002.
At the Effective Time, all of the assets of Infrastructure Fund shall be
delivered to the Custodian for the account of Utilities Fund in exchange for the
assumption by Utilities Fund of all of the liabilities of any kind of
Infrastructure Fund and delivery by AFG directly to (i) Infrastructure Fund
Class A shareholders of a number of Utilities Fund Class A shares and to (ii)
Infrastructure Fund Class B shareholders of a number of Utilities Fund Class B
shares and to (iii) Infrastructure Fund Class C shareholders of a number of
Utilities Fund Class C shares, having an aggregate net asset value equal to the
net value of the assets of Infrastructure Fund transferred.
BOARD CONSIDERATIONS
The Board of Trustees of AIF has determined that the Reorganization of
Infrastructure Fund is in the best interests of the shareholders of
Infrastructure Fund and will not dilute the interests of Infrastructure Fund's
shareholders. The Board of Trustees recommends approval of the Agreement by the
shareholders of Infrastructure Fund at the Special Meeting. A summary of the
information that was presented to, and considered by, the Board of Trustees in
making its determination is provided below.
At a meeting of the Board of Trustees held on May 14-15, 2002, AIM Advisors
proposed that the Board of Trustees consider the Reorganization of
Infrastructure Fund into Utilities Fund. The Trustees received from AIM Advisors
written materials that contained information concerning Infrastructure Fund and
Utilities Fund, including comparative total return and fee and expense
information, a comparison of the investment objectives of Infrastructure Fund
and Utilities Fund and pro forma expense ratios of Utilities Fund. AIM Advisors
also provided the trustees with written materials concerning the structure of
the proposed Reorganization and the Federal tax consequences of the
Reorganization as well as the de minimis nature of the costs of the
Reorganization.
In considering the Reorganization, the Board of Trustees noted that
Infrastructure Fund and Utilities Fund have different investment objectives.
However, both funds invest in equity and fixed income securities to achieve
their investment objectives and the companies in which the funds invest
generally operate in sectors of the global economy that overlap. As a result, as
of December 31, 2001, 65% of the securities held in Infrastructure Fund are also
held in Utilities Fund.
Utilities Fund is significantly larger than Infrastructure Fund. It had
total net assets at February 28, 2002, of approximately $249 million, compared
with total net assets for Infrastructure Fund of approximately $19 million.
Infrastructure Fund experienced net redemptions of its shares in the amount of
approximately $5 million during the twelve month period ended December 31, 2001.
The combined assets of the two funds involved in the reorganization should
provide a more stable base for management of the assets of Infrastructure Fund
because daily purchases and redemptions of shares should have a less significant
impact on the size of the combined fund.
15
The Board of Trustees considered the performance of Infrastructure Fund in
relation to the performance of Utilities Fund, noting that Utilities Fund has
generally provided a higher long-term total return to its shareholders. As of
December 2001, the Lipper Inc. rankings for Utilities Fund and Infrastructure
Fund were as follows:
LIPPER RANK (PERCENTILE)(1)
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
Utilities Fund(2) 84% 58% 72% 74%
Infrastructure Fund(3)......... 98% 98% 98% N/A
</Table>
- ----------
(1) Under the Lipper ranking system, the lower the percentile rank, the better
the performance.
(2) Lipper places Utilities Fund in the Utilities category.
(3) Lipper places Infrastructure Fund in the Global Funds category.
The Board considered the operating expenses incurred by the two funds. The
total operating expenses of Infrastructure Fund, expressed as a percentage of
average daily net assets, are higher than the total operating expenses of
Utilities Fund. AIM Advisors reported to the Board of Trustees that it intends
to waive, voluntarily, 0.02% of the advisory fees it is entitled to receive from
Utilities Fund upon the consummation of the Reorganization. As a result, on a
pro forma basis, the total operating expense ratios for Utilities Fund Class A
shares, Class B shares and Class C shares are expected to be approximately
0.88%, 0.63% and 0.63% lower than the total operating expense ratios for the
respective Infrastructure Fund classes of shares, after fee waivers and expense
reimbursements.
AIM Advisors noted that Utilities Fund's better long-term performance and
lower expense ratio should make Utilities Fund a better investment for
shareholders than Infrastructure Fund.
The Reorganization may result in reduced revenues for AIM Advisors, since
AIM Advisors receives lower management fees on the assets presently held by
Utilities Fund. However, AIM Advisors could also benefit in the future if the
assets of the combined fund grow faster than the assets of the individual funds
would have grown in the absence of the Reorganization.
In addition, the Board of Trustees noted that no initial sales or other
charges would be imposed on any of the shares of Utilities Fund issued to the
shareholders of Infrastructure Fund in connection with the Reorganization.
Finally, the Board of Trustees reviewed the principal terms of the Agreement.
The Board of Trustees noted that Infrastructure Fund would be provided with an
opinion of counsel that the Reorganization would be tax-free as to
Infrastructure Fund and its shareholders.
Based on the foregoing, and the information presented to them at its meeting
on May 14-15, 2002, the Board of Trustees determined that the Reorganization
will not dilute the interests of the shareholders of Infrastructure Fund and is
in the best interest of the Infrastructure Fund shareholders in view of the
better performance and lower operating expenses of Utilities Fund. Therefore,
the Board of Trustees recommended the approval of the Reorganization by the
shareholders of Infrastructure Fund.
At a meeting of the Board of Trustees of Utilities held on May 14-15, 2002,
the Board recommended approval of the Reorganization by the shareholders of
Utilities. The Board of Trustees of Utilities Fund noted that AIM has agreed to
waive, voluntarily, 0.02% of its advisory fee to offset any potential increase
in Utilities Fund's expense ratios attributable to the Reorganization. The Board
of Trustees determined that the Reorganization was in the best interests of the
shareholders of Utilities and that the Reorganization will not dilute the
interests of Utilities' shareholders.
OTHER TERMS
The Agreement may be amended without shareholder approval by mutual
agreement of AIF and AFG. If any amendment is made to the Agreement which would
have a material adverse effect on shareholders, such change will be submitted to
the affected shareholders for their approval.
Each of AIF and AFG has made representations and warranties in the Agreement
that are customary in matters such as the Reorganization. The obligations of AIF
and AFG pursuant to the Agreement with respect to Infrastructure Fund or
Utilities Fund are subject to various conditions, including the following:
16
o the assets of Infrastructure Fund to be acquired by Utilities Fund shall
constitute at least 90% of the fair market value of the net assets and
at least 70% of the fair market value of the gross assets held by
Infrastructure Fund immediately prior to the Reorganization;
o AFG's Registration Statement on Form N-14 under the Securities Act of
1933 (the "1933 Act") shall have been filed with the SEC and such
Registration Statement shall have become effective, and no stop-order
suspending the effectiveness of the Registration Statement shall have
been issued, and no proceeding for that purpose shall have been
initiated or threatened by the SEC (and not withdrawn or terminated);
o the shareholders of Infrastructure Fund shall have approved the
Agreement; and
o AIF and AFG shall have received an opinion from Ballard Spahr Andrews &
Ingersoll, LLP, that the consummation of the transactions contemplated
by the Agreement will not result in the recognition of gain or loss for
Federal income tax purposes for Infrastructure Fund, Utilities Fund or
their shareholders.
Infrastructure Fund and Utilities Fund have agreed to bear their own
expenses in connection with the Reorganization.
The Board of Trustees of AIF may waive without shareholder approval any
default by AFG or any failure by AFG to satisfy any of the conditions to AIF's
obligations as long as such a waiver will not have a material adverse effect on
the benefits intended under the Agreement for the shareholders of Infrastructure
Fund. The Agreement may be terminated and the Reorganization may be abandoned by
either AIF or AFG at any time by mutual agreement of AIF and AFG, or by either
party in the event that Infrastructure Fund shareholders do not approve the
Agreement or if the Closing does not occur on or before December 1, 2002.
FEDERAL TAX CONSEQUENCES
The following is a general summary of the material Federal income tax
consequences of the Reorganization and is based upon the current provisions of
the Internal Revenue Code of 1986, as amended (the "Code"), the existing
Treasury regulations thereunder, current administrative rulings of the Internal
Revenue Service ("IRS") and judicial decisions, all of which are subject to
change. The principal Federal income tax consequences that are expected to
result from the Reorganization, under currently applicable law, are as follows:
o the Reorganization will qualify as a "reorganization" within the meaning
of Section 368(a) of the Code;
o no gain or loss will be recognized by Infrastructure Fund upon the
transfer of its assets to Utilities Fund;
o no gain or loss will be recognized by any shareholder of Infrastructure
Fund upon the exchange of shares of Infrastructure Fund solely for
shares of Utilities Fund;
o the tax basis of the shares of Utilities Fund to be received by a
shareholder of Infrastructure Fund will be the same as the tax basis of
the shares of Infrastructure Fund surrendered in exchange therefor;
o the holding period of the shares of Utilities Fund to be received by a
shareholder of Infrastructure Fund will include the holding period for
which such shareholder held the shares of Infrastructure Fund exchanged
therefor, provided that such shares of Infrastructure Fund are capital
assets in the hands of such shareholder as of the Closing;
o no gain or loss will be recognized by Utilities Fund on the receipt of
assets of Infrastructure Fund in exchange for shares of Utilities Fund
and Utilities Fund's assumption of Infrastructure Fund's liabilities;
o the tax basis of the assets of Infrastructure Fund in the hands of
Utilities Fund will be the same as the tax basis of such assets in the
hands of Infrastructure Fund immediately prior to the Reorganization;
o Utilities Fund will succeed to and take into account the capital loss
carryover and certain other tax attributes of Infrastructure Fund,
subject to all relevant conditions and limitations on the use of such
tax benefits; and
o the holding period of the assets of Infrastructure Fund to be received
by Utilities Fund will include the holding period of such assets in the
hands of Infrastructure Fund immediately prior to the Reorganization.
17
As a condition to Closing, Ballard Spahr Andrews & Ingersoll, LLP will
render a favorable opinion to AIF and AFG as to the foregoing Federal income tax
consequences of the Reorganization, which opinion will be conditioned upon the
accuracy, as of the date of Closing, of certain representations of AIF and AFG
upon which Ballard Spahr Andrews & Ingersoll, LLP will rely in rendering its
opinion, which representations include, but are not limited to, the following
(taking into account for purposes thereof any events that are part of the plan
of reorganization):
o there is no plan or intention by the shareholders of Infrastructure
Fund to redeem a number of shares of Utilities Fund received in the
Reorganization that would reduce Infrastructure Fund shareholders'
ownership of Utilities Fund shares to a number of shares having a
value, as of the Closing Date, of less than 50% of the value of all of
the formerly outstanding shares of Infrastructure Fund as of the
Closing Date;
o following the Reorganization, Utilities Fund will continue the historic
business of Infrastructure Fund (for this purpose "historic business"
shall mean the business most recently conducted by Infrastructure Fund
which was not entered into in connection with the Reorganization) or
use a significant portion of Infrastructure Fund's historic business
assets in its business;
o at the direction of Infrastructure Fund, Utilities Fund will issue
directly to each Infrastructure Fund shareholder pro rata the shares of
Utilities Fund that Infrastructure Fund constructively receives in the
Reorganization and Infrastructure Fund will distribute its other
properties (if any) to its shareholders on, or as promptly as
practicable after, the Closing;
o Utilities Fund has no plan or intention to reacquire any of its shares
issued in the Reorganization, except to the extent that Utilities Fund
is required by the Investment Company Act of 1940 (the "1940 Act") to
redeem any of its shares presented for redemption;
o Utilities Fund does not plan or intend to sell or otherwise dispose of
any of the assets of Infrastructure Fund acquired in the
Reorganization, except for dispositions made in the ordinary course of
its business or dispositions necessary to maintain its status as a
"regulated investment company" ("RIC") under the Code;
o Utilities Fund, Infrastructure Fund and the shareholders of
Infrastructure Fund will pay their respective expenses, if any,
incurred in connection with the Reorganization;
o Utilities Fund will acquire at least 90% of the fair market value of
the net assets, and at least 70% of the fair market value of the gross
assets, held by Infrastructure Fund immediately before the
Reorganization, including for this purpose any amounts used by
Infrastructure Fund to pay its reorganization expenses and all
redemptions and distributions made by Infrastructure Fund immediately
before the Reorganization (other than redemptions pursuant to a demand
of a shareholder in the ordinary course of Infrastructure Fund's
business as an open-end diversified management investment company under
the 1940 Act and regular, normal dividends not in excess of the
requirements of Section 852 of the Code); and
o Utilities Fund and Infrastructure Fund have each elected to be taxed as
a RIC under Section 851 of the Code and will each have qualified for
the special Federal tax treatment afforded RICs under the Code for all
taxable periods (including the last short taxable period of
Infrastructure Fund ending on the Closing and the taxable year of
Utilities Fund that includes the Closing).
THE FOREGOING DESCRIPTION OF THE FEDERAL INCOME TAX CONSEQUENCES OF THE
REORGANIZATION IS MADE WITHOUT REGARD TO THE PARTICULAR FACTS AND CIRCUMSTANCES
OF ANY SHAREHOLDER OF INFRASTRUCTURE FUND. INFRASTRUCTURE FUND SHAREHOLDERS ARE
URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC CONSEQUENCES TO THEM
OF THE REORGANIZATION, INCLUDING THE APPLICABILITY AND EFFECT OF STATE, LOCAL,
FOREIGN AND OTHER TAX LAWS.
ACCOUNTING TREATMENT
The Reorganization will be accounted for on a tax-free combined basis.
Accordingly, the book cost basis to Utilities Fund of the assets of
Infrastructure Fund will be the same as the book cost basis of such assets to
Infrastructure Fund.
18
ADDITIONAL INFORMATION ABOUT UTILITIES FUND AND INFRASTRUCTURE FUND
For more information with respect to AFG and Utilities Fund concerning the
following topics, please refer to the Utilities Fund Prospectus as indicated:
(i) see "Investment Objective and Strategies" and "Fund Management" for further
information regarding AFG and Utilities Fund; (ii) see "Investment Objective and
Strategies," "Fund Management," and "Other Information" for further information
regarding management of AFG and Utilities Fund; (iii) see "Fund Management" and
"Other Information" for further information regarding the shares of AFG and
Utilities Fund; (iv) see "Fund Management," "Other Information," and
"Shareholder Information" for further information regarding the purchase,
redemption and repurchase of shares of AFG and Utilities Fund.
For more information with respect to AIF and Infrastructure Fund concerning
the following topics, please refer to the Infrastructure Fund Prospectus as
indicated: (i) see "Investment Objective and Strategies" and "Fund Management"
for further information regarding AIF and Infrastructure Fund; (ii) see
discussion in "Investment Objective and Strategies," "Fund Management," and
"Other Information" for further information regarding the shares of AIF and
Infrastructure Fund; (iii) see "Fund Management," "Other Information," and
"Shareholder Information" for further information regarding the purchase,
redemption and repurchase of AIF and Infrastructure Fund.
RIGHTS OF SHAREHOLDERS
AIF and AFG are both Delaware business trusts. Generally, there will be no
material differences between the rights of shareholders under the Agreement and
the Declaration of Trust of AIF and the rights of shareholders under the
Agreement and the Declaration of Trust of AFG.
19
OWNERSHIP OF INFRASTRUCTURE FUND AND UTILITIES FUND SHARES
SIGNIFICANT HOLDERS
Listed below is the name, address and percent ownership of each person who
as of _____________, _________, 2002, to the knowledge of AIF, owned 5% or more
of any class of the outstanding shares of Infrastructure Fund:
<Table>
<Caption>
PERCENT OWNED
CLASS OF NUMBER OF SHARES PERCENT OWNED OF RECORD
NAME AND ADDRESS SHARES OWNED OF RECORD* AND BENEFICIALLY
---------------- -------- ---------------- ------------- ----------------
</Table>
- ----------
* AIF has no knowledge of whether all or any portion of the shares owned of
record are also owned beneficially.
Listed below is the name, address and percent ownership of each person who
as of _____________, _________, 2002, to the knowledge of AFG, owned 5% or more
of any class of the outstanding shares of Utilities Fund:
<Table>
<Caption>
PERCENT OWNED
CLASS OF NUMBER OF SHARES PERCENT OWNED OF RECORD
NAME AND ADDRESS SHARES OWNED OF RECORD* AND BENEFICIALLY
---------------- -------- ---------------- ------------- ----------------
</Table>
- ----------
* AFG has no knowledge of whether all or any portion of the shares owned of
record are also owned beneficially.
20
SHARE OWNERSHIP BY EXECUTIVE OFFICERS AND TRUSTEES
To the best of the knowledge of AFG, the ownership of shares of Utilities
Fund by executive officers and trustees of AFG as a group constituted less than
1% of the outstanding shares of each class of such fund as of _____________,
___, 2002. To the best of the knowledge of AIF, the ownership of shares of
Infrastructure Fund by executive officers or trustees of AIF as a group
constituted less than 1% of the outstanding shares of each class of such fund as
of _____________, ___, 2002.
21
CAPITALIZATION
The following table sets forth as of December 31, 2001, (i) the
capitalization of Infrastructure Fund Class A, Class B and Class C shares, (ii)
the capitalization of Utilities Fund Class A, Class B and Class C Shares, and
(iii) the pro forma capitalization of Utilities Fund Class A, Class B, and Class
C shares as adjusted to give effect to the transactions contemplated by the
Agreement.
INFRASTRUCTURE FUND AND UTILITIES FUND
<Table>
<Caption>
PRO FORMA
INFRASTRUCTURE UTILITIES FUND
FUND CLASS A UTILITIES FUND CLASS A SHARES
SHARES CLASS A SHARES AS ADJUSTED
-------------- -------------- --------------
Net Assets.................. $11,828,856 $171,431,993 $183,260,849
Shares Outstanding.......... 1,452,362 10,960,466 11,716,363
Net Asset Value Per Share... $ 8.14 $ 15.64 $ 15.64
</Table>
<Table>
<Caption>
PRO FORMA
INFRASTRUCTURE UTILITIES FUND
FUND CLASS B UTILITIES FUND CLASS B SHARES
SHARES CLASS B SHARES AS ADJUSTED
-------------- -------------- --------------
Net Assets.................. $10,448,652 $94,614,911 $105,063,563
Shares Outstanding.......... 1,341,714 6,065,482 6,735,479
Net Asset Value Per Share... $ 7.79 $ 15.60 $ 15.60
</Table>
<Table>
<Caption>
PRO FORMA
INFRASTRUCTURE UTILITIES FUND
FUND CLASS C UTILITIES FUND CLASS C SHARES
SHARES CLASS C SHARES AS ADJUSTED
-------------- -------------- --------------
Net Assets.................. $258,918 $11,678,660 $11,937,578
Shares Outstanding.......... 33,319 748,962 765,568
Net Asset Value Per Share... $ 7.77 $ 15.59 $ 15.59
</Table>
LEGAL MATTERS
Certain legal matters concerning AFG and its participation in the
Reorganization, the issuance of shares of Utilities Fund in connection with the
Reorganization and the tax consequences of the Reorganization will be passed
upon by Ballard Spahr Andrews & Ingersoll, LLP, 1735 Market Street, 51st Floor,
Philadelphia, PA 19103-7599.
INFORMATION FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION
This Proxy Statement/Prospectus and the related Statement of Additional
Information do not contain all the information set forth in the registration
statements and the exhibits relating thereto and annual reports which AIF and
AFG have filed with the SEC pursuant to the requirements of the 1933 Act and the
1940 Act, to which reference is hereby made. The SEC file number for AIF's
registration statement containing the Prospectus and Statement of Additional
Information relating to Infrastructure Fund is Registration No. 811-06463. Such
Prospectus and Statement of Additional Information are incorporated herein by
reference. The SEC file number for AFG's registration statement containing the
Prospectus and Statement of Additional Information relating to Utilities Fund is
Registration No. 811-01540. Such Prospectus and Statement of Additional
Information are incorporated herein by reference.
AFG and AIF are subject to the informational requirements of the 1940 Act
and in accordance therewith file reports and other information with the SEC.
Reports, proxy statements, registration statements and other information filed
by AIF and AFG (including the Registration Statement of AFG relating to
Utilities Fund on Form N-14 of which this Proxy Statement/Prospectus is a part
and which is hereby incorporated by reference) may be inspected without charge
and copied at the public reference facilities maintained by the SEC at Room
1014, Judiciary Plaza, 450 Fifth Street, NW, Washington, DC 20549, and at the
following regional office of the SEC: 500 West Madison Street, 14th Floor,
Chicago, Illinois 60661. Copies of such material may also be obtained from the
Public Reference Section of the SEC at 450 Fifth Street, NW, Washington, DC
20549, at the prescribed rates. The SEC maintains a website at
http://www.sec.gov that contains information regarding AFG, AIF, and other
registrants that file electronically with the SEC.
22
APPENDIX I
AGREEMENT
and
PLAN OF REORGANIZATION
for
AIM GLOBAL INFRASTRUCTURE FUND
a separate portfolio of
AIM INVESTMENT FUNDS
May __, 2002
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
ARTICLE 1 DEFINITIONS.........................................................1
Section 1.1 Definitions.............................................1
ARTICLE 2 TRANSFER OF ASSETS..................................................5
Section 2.1 Reorganization of Infrastructure Fund...................5
Section 2.2 Computation of Net Asset Value..........................5
Section 2.3 Valuation Date..........................................5
Section 2.4 Delivery................................................6
Section 2.5 Termination of Series...................................6
Section 2.6 Issuance of Utilities Fund Shares.......................6
Section 2.7 Investment Securities...................................7
Section 2.8 Liabilities.............................................7
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF AIF...............................7
Section 3.1 Organization; Authority.................................7
Section 3.2 Registration and Regulation of AIF......................7
Section 3.3 Financial Statements....................................8
Section 3.4 No Material Adverse Changes; Contingent Liabilities.....8
Section 3.5 Infrastructure Fund Shares; Liabilities;
Business Operations.....................................8
Section 3.6 Accountants.............................................9
Section 3.7 Binding Obligation......................................9
Section 3.8 No Breaches or Defaults.................................9
Section 3.9 Authorizations or Consents.............................10
Section 3.10 Permits................................................10
Section 3.11 No Actions, Suits or Proceedings.......................10
Section 3.12 Contracts..............................................10
Section 3.13 Properties and Assets..................................11
Section 3.14 Taxes..................................................11
Section 3.15 Benefit and Employment Obligations.....................11
Section 3.16 Brokers................................................12
Section 3.17 Voting Requirements....................................12
Section 3.18 State Takeover Statutes................................12
Section 3.19 Books and Records......................................12
Section 3.20 Prospectus and Statement of Additional Information.....12
Section 3.21 No Distribution........................................12
Section 3.22 Liabilities of Infrastructure Fund.....................12
Section 3.23 Value of Shares........................................12
Section 3.24 Shareholder Expenses...................................13
Section 3.25 Intercompany Indebtedness..............................13
</Table>
i
<Table>
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF AFG..............................13
Section 4.1 Organization; Authority................................13
Section 4.2 Registration and Regulation of AFG.....................13
Section 4.3 Financial Statements...................................13
Section 4.4 No Material Adverse Changes; Contingent Liabilities....13
Section 4.5 Registration of Utilities Fund Class A Shares,
Utilities Fund Class B Shares and Utilities Fund
Class C Shares.........................................14
Section 4.6 Accountants............................................15
Section 4.7 Binding Obligation.....................................15
Section 4.8 No Breaches or Defaults................................15
Section 4.9 Authorizations or Consents.............................15
Section 4.10 Permits................................................15
Section 4.11 No Actions, Suits or Proceedings.......................16
Section 4.12 Taxes..................................................16
Section 4.13 Brokers................................................17
Section 4.14 Representations Concerning the Reorganization..........17
Section 4.15 Prospectus and Statement of Additional Information.....17
Section 4.16 Value of Shares........................................17
Section 4.17 Intercompany Indebtedness; Consideration...............18
ARTICLE 5 COVENANTS..........................................................18
Section 5.1 Conduct of Business....................................18
Section 5.2 Announcements..........................................18
Section 5.3 Expenses...............................................19
Section 5.4 Further Assurances.....................................19
Section 5.5 Notice of Events.......................................19
Section 5.6 Access to Information..................................19
Section 5.7 Consents, Approvals and Filings........................19
Section 5.8 Submission of Agreement to Shareholders................20
ARTICLE 6 CONDITIONS PRECEDENT TO THE REORGANIZATION.........................20
Section 6.1 Conditions Precedent of AFG............................20
Section 6.2 Mutual Conditions......................................21
Section 6.3 Conditions Precedent of AIF............................22
ARTICLE 7 TERMINATION OF AGREEMENT...........................................22
Section 7.1 Termination............................................22
Section 7.2 Survival After Termination.............................23
ARTICLE 8 MISCELLANEOUS......................................................23
Section 8.1 Survival of Representations and Warranties.............23
Section 8.2 Governing Law..........................................23
Section 8.3 Binding Effect, Persons Benefiting, No Assignment......23
Section 8.4 Obligations of AFG and AIF.............................23
Section 8.5 Amendments.............................................24
</Table>
ii
<Table>
Section 8.6 Enforcement............................................24
Section 8.7 Interpretation.........................................24
Section 8.8 Counterparts...........................................24
Section 8.9 Entire Agreement; Schedules............................24
Section 8.10 Notices................................................25
Section 8.11 Representations by AIM Advisors........................25
Schedule 6.1(d) Opinion of Counsel to AIF
Schedule 6.2(f) Tax Opinions
Schedule 6.3(d) Opinion of Counsel to AFG
</Table>
iii
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION, dated as of May __, 2002
(this "Agreement"), by and among AIM Investment Funds, a Delaware business trust
("AIF"), acting on behalf of AIM Global Infrastructure Fund ("Infrastructure
Fund"), a separate series of AIF, AIM Funds Group, a Delaware business trust
("AFG"), acting on behalf of AIM Global Utilities Fund ("Utilities Fund"), a
separate series of AFG, and A I M Advisors, Inc. ("AIM Advisors"), a Delaware
corporation.
WITNESSETH
WHEREAS, AIF is a management investment company registered
with the Securities and Exchange Commission (the "SEC") under the Investment
Company Act (as defined below) that offers separate series of its shares
representing interests in its investment portfolios, including Infrastructure
Fund, for sale to the public; and
WHEREAS, AFG is a management investment company registered
with the SEC under the Investment Company Act that offers separate series of its
shares representing interests in investment portfolios, including Utilities
Fund, for sale to the public; and
WHEREAS, AIM Advisors provides investment advisory services to
both AIF and AFG; and
WHEREAS, Infrastructure Fund desires to provide for its
reorganization through the transfer of all of its assets to Utilities Fund in
exchange for the assumption by Utilities Fund of all of the liabilities of
Infrastructure Fund and the issuance by AFG of shares of Utilities Fund in the
manner set forth in this Agreement; and
WHEREAS, this Agreement is intended to be and is adopted by
the parties hereto as a Plan of Reorganization within the meaning of Section
368(a) of the Internal Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the foregoing premises and
the agreements and undertakings contained in this Agreement, AIF, AFG and AIM
Advisors agree as follows:
ARTICLE 1
DEFINITIONS
Section 1.1 Definitions For all purposes in this Agreement, the
following terms shall have the respective meanings set forth in this Section 1.1
(such definitions to be equally applicable to both the singular and plural forms
of the terms herein defined):
"Advisers Act" means the Investment Advisers Act of 1940, as
amended, and all rules and regulations of the SEC adopted pursuant thereto.
"Affiliated Person" means an affiliated person as defined in
Section 2(a)(3) of the Investment Company Act.
"AFG" means AIM Funds Group, a Delaware business trust.
"AFG Registration Statement" means the registration statement
on Form N-1A of AFG, as amended, 1940 Act Registration No. 811-01540.
"Agreement" means this Agreement and Plan of Reorganization,
together with all schedules and exhibits attached hereto and all amendments
hereto and thereof.
"AIF" means AIM Investment Funds, a Delaware business trust.
"AIF Registration Statement" means the registration statement
on Form N-1A of AIF, as amended, 1940 Act Registration No. 811-05426.
"Benefit Plan" means any material "employee benefit plan" (as
defined in Section 3(3) of ERISA) and any material bonus, deferred compensation,
incentive compensation, stock ownership, stock purchase, stock option, phantom
stock, vacation, retirement, profit sharing, welfare plans or other plan,
arrangement or understanding maintained or contributed to by AIF on behalf of
Infrastructure Fund, or otherwise providing benefits to any current or former
employee, officer or trustee of AIF.
"Closing" means the transfer of the assets of Infrastructure
Fund to Utilities Fund, the assumption of all of Infrastructure Fund's
liabilities by Utilities Fund and the issuance of Utilities Fund Shares directly
to Infrastructure Fund Shareholders as described in Section 2.1 of this
Agreement.
"Closing Date" means September 23, 2002 or such other date as
the parties may mutually determine.
"Code" means the Internal Revenue Code of 1986, as amended,
and all rules and regulations adopted pursuant thereto.
"Custodian" means State Street Bank and Trust Company acting
in its capacity as custodian for the assets of Utilities Fund and Infrastructure
Fund.
"Effective Time" means 8:00 a.m. Eastern Time on the Closing
Date.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and all rules or regulations adopted pursuant thereto.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and all rules and regulations adopted pursuant thereto.
"Governmental Authority" means any foreign, United States or
state government, government agency, department, board, commission (including
the SEC) or instrumentality, and
2
any court, tribunal or arbitrator of competent jurisdiction, and any
governmental or non-governmental self-regulatory organization, agency or
authority (including the NASD Regulation, Inc., the Commodity Futures Trading
Commission, the National Futures Association, the Investment Management
Regulatory Organization Limited and the Office of Fair Trading).
"Infrastructure Fund" means AIM Global Infrastructure Fund, a
separate series of AIF.
"Infrastructure Fund Class A Shares" means Class A shares of
beneficial interest of Infrastructure Fund issued by AIF.
"Infrastructure Fund Class B Shares" means Class B shares of
beneficial interest of Infrastructure Fund issued by AIF.
"Infrastructure Fund Class C Shares" means Class C shares of
beneficial interest of Infrastructure Fund issued by AIF.
"Infrastructure Fund Financial Statements" shall have the
meaning set forth in Section 3.3 of this Agreement.
"Infrastructure Fund Shareholders" means the holders of record
as of the Effective Time of the issued and outstanding shares of beneficial
interest in Infrastructure Fund.
"Infrastructure Fund Shareholders Meeting" means a meeting of
the shareholders of Infrastructure Fund convened in accordance with applicable
law and the Agreement and Declaration of Trust of AIF to consider and vote upon
the approval of this Agreement and the Reorganization of Infrastructure Fund
contemplated by this Agreement.
"Infrastructure Fund Shares" means the issued and outstanding
shares of beneficial interest in Infrastructure Fund.
"Investment Company Act" means the Investment Company Act of
1940, as amended, and all rules and regulations adopted pursuant thereto.
"Lien" means any pledge, lien, security interest, charge,
claim or encumbrance of any kind.
"Material Adverse Effect" means an effect that would cause a
change in the condition (financial or otherwise), properties, assets or
prospects of an entity having an adverse monetary effect in an amount equal to
or greater than $50,000.
"Person" means an individual or a corporation, partnership,
joint venture, association, trust, unincorporated organization or other entity.
"Reorganization" means the acquisition of the assets of
Infrastructure Fund by Utilities Fund in consideration of the assumption by
Utilities Fund of all of the liabilities of Infrastructure Fund and the issuance
by AFG of Utilities Fund Shares directly to Infrastructure
3
Fund Shareholders as described in this Agreement, and the termination of
Infrastructure Fund's status as a designated series of shares of AIF.
"Required Shareholder Vote" shall have the meaning set forth
in Section 3.17 of this Agreement.
"Return" means any return, report or form or any attachment
thereto required to be filed with any taxing authority.
"SEC" means the United States Securities and Exchange
Commission.
"Securities Act" means the Securities Act of 1933, as amended,
and all rules and regulations adopted pursuant thereto.
"Tax" means any tax or similar governmental charge, impost or
levy (including income taxes (including alternative minimum tax and estimated
tax), franchise taxes, transfer taxes or fees, sales taxes, use taxes, gross
receipts taxes, value added taxes, employment taxes, excise taxes, ad valorem
taxes, property taxes, withholding taxes, payroll taxes, minimum taxes, or
windfall profit taxes), together with any related penalties, fines, additions to
tax or interest, imposed by the United States or any state, county, local or
foreign government or subdivision or agency thereof.
"Utilities Fund" means AIM Utilities Fund, a separate series
of AFG.
"Utilities Fund Class A Shares" means Class A Shares of
beneficial interest of Utilities Fund issued by AFG.
"Utilities Fund Class B Shares" means Class B Shares of
beneficial interest of Utilities Fund issued by AFG.
"Utilities Fund Class C Shares" means Class C Shares of
beneficial interest of Utilities Fund issued by AFG.
"Utilities Fund Financial Statements" shall have the meaning
set forth in Section 4.3 of this Agreement.
"Utilities Fund Shares" means shares of beneficial interest of
Utilities Fund issued pursuant to Section 2.6 of this Agreement.
"Valuation Date" shall have the meaning set forth in Section
2.3 of this Agreement.
4
ARTICLE 2
TRANSFER OF ASSETS
Section 2.1 Reorganization of Infrastructure Fund At the Effective
Time, all of the assets of Infrastructure Fund shall be delivered to the
Custodian for the account of Utilities Fund in exchange for the assumption by
Utilities Fund of all of the liabilities of any kind of Infrastructure Fund and
delivery by AFG directly to (i) the holders of record as of the Effective Time
of the issued and outstanding Class A shares of Infrastructure Fund of a number
of Utilities Fund Class A shares (including, if applicable, fractional shares
rounded to the nearest thousandth), to (ii) the holders of record as of the
Effective Time of the issued and outstanding Class B shares of Infrastructure
Fund of a number of Utilities Fund Class B shares (including, if applicable,
fractional shares rounded to the nearest thousandth), and to (iii) the holders
of record as of the Effective Time of the issued and outstanding Class C shares
of Infrastructure Fund of a number of Utilities Fund Class C shares (including,
if applicable, fractional shares rounded to the nearest thousandth), having an
aggregate net asset value equal to the net value of the assets of Infrastructure
Fund so transferred, assigned and delivered, all determined and adjusted as
provided in Section 2.2 below. Upon delivery of such assets, AIM Utilities Fund
will receive good and marketable title to such assets free and clear of all
Liens.
Section 2.2 Computation of Net Asset Value
(a) The net asset value of Utilities Fund Shares, and the net
value of the assets of Infrastructure Fund, shall, in each case, be determined
as of the close of regular trading on the New York Stock Exchange ("NYSE") on
the Valuation Date.
(b) The net asset value of Utilities Fund Shares shall be
computed in accordance with the policies and procedures of Utilities Fund as
described in the AFG Registration Statement.
(c) The net value of the assets of Infrastructure Fund to be
transferred to Utilities Fund pursuant to this Agreement shall be computed in
accordance with the policies and procedures of Infrastructure Fund as described
in the AIF Registration Statement.
(d) All computations of value regarding the net assets of
Infrastructure Fund and the net asset value of Utilities Fund Shares to be
issued pursuant to this Agreement shall be made by agreement of AIF and AFG. The
parties agree to use commercially reasonable efforts to resolve any material
pricing differences between the prices of portfolio securities determined in
accordance with their respective pricing policies and procedures.
Section 2.3 Valuation Date The assets of Infrastructure Fund and the
net asset value per share of Utilities Fund Shares shall be valued as of the
close of regular trading on the NYSE on the business day next preceding the
Closing Date (the "Valuation Date"). The share transfer books of Infrastructure
Fund will be permanently closed as of the close of business on the Valuation
Date and only requests for the redemption of shares of Infrastructure Fund
received in proper form prior to the close of regular trading on the NYSE on the
Valuation Date shall be accepted by Infrastructure Fund. Redemption requests
thereafter received by Infrastructure Fund
5
shall be deemed to be redemption requests for Utilities Fund Class A Shares,
Utilities Fund Class B Shares or Utilities Fund Class C Shares, as applicable
(assuming that the transactions contemplated by this Agreement have been
consummated), to be distributed to Infrastructure Fund Shareholders under this
Agreement.
Section 2.4 Delivery
(a) Assets held by Infrastructure Fund shall be delivered by
AIF to the Custodian on the Closing Date. No later than three (3) business days
preceding the Closing Date, AIF shall instruct the Custodian to transfer such
assets to the account of Utilities Fund. The assets so delivered shall be duly
endorsed in proper form for transfer in such condition as to constitute a good
delivery thereof, in accordance with the custom of brokers, and shall be
accompanied by all necessary state stock transfer stamps, if any, or a check for
the appropriate purchase price thereof. Cash held by Infrastructure Fund shall
be delivered on the Closing Date and shall be in the form of currency or wire
transfer in Federal funds, payable to the order of the account of Utilities Fund
at the Custodian.
(b) If, on the Closing Date, Infrastructure Fund is unable to
make delivery in the manner contemplated by Section 2.4(a) of securities held by
Infrastructure Fund for the reason that any of such securities purchased prior
to the Closing Date have not yet been delivered to Infrastructure Fund or its
broker, then AFG shall waive the delivery requirements of Section 2.4(a) with
respect to said undelivered securities if Infrastructure Fund has delivered to
the Custodian by or on the Closing Date, and with respect to said undelivered
securities, executed copies of an agreement of assignment and escrow and due
bills executed on behalf of said broker or brokers, together with such other
documents as may be required by AFG or the Custodian, including brokers'
confirmation slips.
Section 2.5 Termination of Series As soon as reasonably practicable
after the Closing Date, the status of Infrastructure Fund as a designated series
of shares of AIF shall be terminated; provided, however, that the termination of
the status of Infrastructure Fund as a series of shares of AIF shall not be
required if the Reorganization shall not have been consummated.
Section 2.6 Issuance of Utilities Fund Shares At the Effective Time,
Infrastructure Fund Shareholders of record as of the close of regular trading on
the NYSE on the Valuation Date holding Infrastructure Fund Class A shares shall
be issued that number of full and fractional Class A shares of Utilities Fund
having a net asset value equal to the net asset value of Infrastructure Fund
Class A shares held by Infrastructure Fund Shareholders on the Valuation Date,
Infrastructure Fund Shareholders of record as of the Valuation Date holding
Infrastructure Fund Class B shares shall be issued that number of full and
fractional Class B shares of Utilities Fund having a net asset value equal to
the net asset value of Infrastructure Fund Class B Shares held by Infrastructure
Fund Shareholders on the Valuation Date, and Infrastructure Fund Shareholders of
record as of the Valuation Date holding Infrastructure Fund Class C shares shall
be issued that number of full and fractional Class C shares of Utilities Fund
having a net asset value equal to the net asset value of Infrastructure Fund
Class C shares held by Infrastructure Fund Shareholders on the Valuation Date.
All issued and outstanding shares of beneficial interest in Infrastructure Fund
shall thereupon be canceled on the books of AIF. AIF shall provide
6
instructions to the transfer agent of AFG with respect to Utilities Fund Class A
Shares, Utilities Fund Class B Shares and Utilities Fund Class C Shares to be
issued to Infrastructure Fund Shareholders. AFG shall have no obligation to
inquire as to the validity, propriety or correctness of any such instruction,
but shall, in each case, assume that such instruction is valid, proper and
correct. AFG shall record on its books the ownership of Utilities Fund Class A
Shares, Utilities Fund Class B Shares and Utilities Fund Class C Shares by
Infrastructure Fund Shareholders and shall forward a confirmation of such
ownership to Infrastructure Fund Shareholders. No redemption or repurchase of
such shares credited to former Infrastructure Fund Shareholders in respect of
Infrastructure Fund shares represented by unsurrendered shares certificates
shall be permitted until such certificates have been surrendered to AFG for
cancellation, or if such certificates are lost or misplaced, until lost
certificate affidavits have been executed and delivered to AFG.
Section 2.7 Investment Securities On or prior to the Valuation Date,
AIF shall deliver a list setting forth the securities Infrastructure Fund then
owned together with the respective Federal income tax bases thereof. AIF shall
provide to AFG on or before the Valuation Date, detailed tax basis accounting
records for each security to be transferred to it pursuant to this Agreement.
Such records shall be prepared in accordance with the requirements for specific
identification tax lot accounting and clearly reflect the bases used for
determination of gain and loss realized on the sale of any security transferred
to Utilities Fund hereunder. Such records shall be made available by AIF prior
to the Valuation Date for inspection by the Treasurer (or his or her designee)
or the auditors of AFG upon reasonable request.
Section 2.8 Liabilities Infrastructure Fund shall use reasonable best
efforts to discharge all of its known liabilities, so far as may be possible,
prior to the Closing Date.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF AIF
AIF, on behalf of Infrastructure Fund, represents and warrants
to AFG as follows:
Section 3.1 Organization; Authority AIF is duly organized, validly
existing and in good standing under the Delaware Business Trust Act, with all
requisite trust power and authority to enter into this Agreement and perform its
obligations hereunder.
Section 3.2 Registration and Regulation of AIF AIF is duly registered
with the SEC as an investment company under the Investment Company Act and all
Infrastructure Fund Shares which have been or are being offered for sale have
been duly registered under the Securities Act and have been duly registered,
qualified or are exempt from registration or qualification under the securities
laws of each state or other jurisdiction in which such shares have been or are
being offered for sale, and no action has been taken by AIF to revoke or rescind
any such registration or qualification. Infrastructure Fund is in compliance in
all material respects with all applicable laws, rules and regulations,
including, without limitation, the Investment Company Act, the Securities Act,
the Exchange Act and all applicable state securities laws. Infrastructure Fund
is in compliance in all material respects with the investment policies and
restrictions applicable to it set forth in the AIF Registration Statement
currently in effect. The value of the net assets of
7
Infrastructure Fund is determined using portfolio valuation methods that comply
in all material respects with the requirements of the Investment Company Act and
the policies of Infrastructure Fund and all purchases and redemptions of
Infrastructure Fund Shares have been effected at the net asset value per share
calculated in such manner.
Section 3.3 Financial Statements The books of account and related
records of Infrastructure Fund fairly reflect in reasonable detail its assets,
liabilities and transactions in accordance with generally accepted accounting
principles applied on a consistent basis. The audited financial statements for
the fiscal year ended October 31, 2001 of Infrastructure Fund previously
delivered to AFG (the "Infrastructure Fund Financial Statements") present fairly
in all material respects the financial position of Infrastructure Fund as of the
date indicated and the results of operations and changes in net assets for the
period then ended in accordance with generally accepted accounting principles
applied on a consistent basis for the period then ended.
Section 3.4 No Material Adverse Changes; Contingent Liabilities Since
October 31, 2001, no material adverse change has occurred in the financial
condition, results of operations, business, assets or liabilities of
Infrastructure Fund or the status of Infrastructure Fund as a regulated
investment company under the Code, other than changes resulting from any change
in general conditions in the financial or securities markets or the performance
of any investments made by Infrastructure Fund or occurring in the ordinary
course of business of Infrastructure Fund or AIF. There are no contingent
liabilities of Infrastructure Fund not disclosed in the Infrastructure Fund
Financial Statements which are required to be disclosed in accordance with
generally accepted accounting principles.
Section 3.5 Infrastructure Fund Shares; Liabilities; Business
Operations
(a) Infrastructure Fund Shares have been duly authorized and
validly issued and are fully paid and non-assessable.
(b) Since its inception, neither Infrastructure Fund nor any
person related to Infrastructure Fund (as defined in Section 1.368-1(e)(3) of
the Treasury Regulations without regard to Section 1.368-1(e)(3)(i)(A)) will
have directly or through any transaction, agreement, or arrangement with any
other person, (i) acquired shares of Infrastructure Fund for consideration other
than shares of Infrastructure Fund, except for shares redeemed in the ordinary
course of Infrastructure Fund's business as an open-end investment company as
required by the Investment Company Act, or (ii) made distributions with respect
to Infrastructure Fund's Shares, except for (a) distributions necessary to
satisfy the requirements of Sections 852 and 4982 of the Code for qualification
as a regulated investment company and avoidance of excise tax liability and (b)
additional distributions, to the extent such additional distributions do not
exceed 50 percent of the value (without giving effect to such distributions) of
the proprietary interest in Infrastructure Fund on the Effective Date.
(c) At the time of its Reorganization, Infrastructure Fund
shall not have outstanding any warrants, options, convertible securities or any
other type of right pursuant to which any Person could acquire Infrastructure
Fund Shares, except for the right of investors to acquire Infrastructure Fund
Shares at net asset value in the normal course of its business as a
8
series of an open-end management investment company operating under the
Investment Company Act.
(d) From the date it commenced operations and ending on the
Closing Date, Infrastructure Fund will have conducted its historic business
within the meaning of Section 1.368-1(d)(2) of the Income Tax Regulations under
the Code in a substantially unchanged manner. In anticipation of its
Reorganization, Infrastructure Fund will not dispose of assets that, in the
aggregate, will result in less than fifty percent (50%) of its historic business
assets (within the meaning of Section 1.368-1(d) of those regulations) being
transferred to Utilities Fund.
(e) AIF does not have, and has not had during the six (6)
months prior to the date of this Agreement, any employees, and shall not hire
any employees from and after the date of this Agreement through the Closing
Date.
Section 3.6 Accountants PricewaterhouseCoopers LLP was the independent
public accountant for Infrastructure Fund for the fiscal year ended October 31,
2001.
Section 3.7 Binding Obligation This Agreement has been duly authorized,
executed and delivered by AIF on behalf of Infrastructure Fund and, assuming
this Agreement has been duly executed and delivered by AFG and approved by
Infrastructure Fund Shareholders, constitutes the legal, valid and binding
obligation of AIF enforceable against AIF in accordance with its terms from and
with respect to the revenues and assets of Infrastructure Fund, except as the
enforceability hereof may be limited by bankruptcy, insolvency, reorganization
or similar laws relating to or affecting creditors rights generally, or by
general equity principles (whether applied in a court of law or a court of
equity and including limitations on the availability of specific performance or
other equitable remedies).
Section 3.8 No Breaches or Defaults The execution and delivery of this
Agreement by AIF on behalf of Infrastructure Fund and performance by AIF of its
obligations hereunder has been duly authorized by all necessary trust action on
the part of AIF, other than Infrastructure Fund Shareholders approval, and (i)
do not, and on the Closing Date will not, result in any violation of the
Agreement and Declaration of Trust or by-laws of AIF and (ii) do not, and on the
Closing Date will not, result in a breach of any of the terms or provisions of,
or constitute (with or without the giving of notice or the lapse of time or
both) a default under, or give rise to a right of termination, cancellation or
acceleration of any obligation or to the loss of a material benefit under, or
result in the creation or imposition of any Lien upon any property or assets of
Infrastructure Fund (except for such breaches or defaults or Liens that would
not reasonably be expected, individually or in the aggregate, to have a Material
Adverse Effect) under (A) any indenture, mortgage or loan agreement or any other
material agreement or instrument to which AIF is a party or by which it may be
bound and which relates to the assets of Infrastructure Fund or to which any
property of Infrastructure Fund may be subject; (B) any Permit (as defined
below); or (C) any existing applicable law, rule, regulation, judgment, order or
decree of any Governmental Authority having jurisdiction over AIF or any
property of Infrastructure Fund. AIF is not under the jurisdiction of a court in
a proceeding under Title 11 of the United States Code or similar case within the
meaning of Section 368(a)(3)(A) of the Code.
9
Section 3.9 Authorizations or Consents Other than those which shall
have been obtained or made on or prior to the Closing Date and those that must
be made after the Closing Date to comply with Section 2.5 of this Agreement, no
authorization or approval or other action by, and no notice to or filing with,
any Governmental Authority will be required to be obtained or made by AIF in
connection with the due execution and delivery by AIF of this Agreement and the
consummation by AIF of the transactions contemplated hereby.
Section 3.10 Permits AIF has in full force and effect all approvals,
consents, authorizations, certificates, filings, franchises, licenses, notices,
permits and rights of Governmental Authorities (collectively, "Permits")
necessary for it to conduct its business as presently conducted as it relates to
Infrastructure Fund, and there has occurred no default under any Permit, except
for the absence of Permits and for defaults under Permits the absence or default
of which would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect. To the knowledge of AIF there are no
proceedings relating to the suspension, revocation or modification of any
Permit, except for such that would not reasonably be expected, individually or
in the aggregate, to have a Material Adverse Effect.
Section 3.11 No Actions, Suits or Proceedings
(a) There is no pending action, litigation or proceeding, nor,
to the knowledge of AIF, has any litigation been overtly threatened in writing
or, if probable of assertion, orally, against AIF before any Governmental
Authority which questions the validity or legality of this Agreement or of the
actions contemplated hereby or which seeks to prevent the consummation of the
transactions contemplated hereby, including the Reorganization.
(b) There are no judicial, administrative or arbitration
actions, suits, or proceedings instituted or pending or, to the knowledge of
AIF, threatened in writing or, if probable of assertion, orally, against AIF
affecting any property, asset, interest or right of Infrastructure Fund, that
could reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect with respect to Infrastructure Fund. There are not in
existence on the date hereof any plea agreements, judgments, injunctions,
consents, decrees, exceptions or orders that were entered by, filed with or
issued by Governmental Authority relating to AIF's conduct of the business of
Infrastructure Fund affecting in any significant respect the conduct of such
business. AIF is not, and has not been to the knowledge of AIF, the target of
any investigation by the SEC or any state securities administrator with respect
to its conduct of the business of Infrastructure Fund.
Section 3.12 Contracts AIF is not in default under any contract,
agreement, commitment, arrangement, lease, insurance policy or other instrument
to which it is a party and which involves or affects the assets of
Infrastructure Fund, by which the assets, business, or operations of
Infrastructure Fund may be bound or affected, or under which it or the assets,
business or operations of Infrastructure Fund receives benefits, and which
default could reasonably be expected, individually or in the aggregate, to have
a Material Adverse Effect, and, to the knowledge of AIF there has not occurred
any event that, with the lapse of time or the giving of notice or both, would
constitute such a default.
10
Section 3.13 Properties and Assets Infrastructure Fund has good and
marketable title to all properties and assets reflected in the Infrastructure
Fund Financial Statements as owned by it, free and clear of all Liens, except as
described in Infrastructure Fund Financial Statements.
Section 3.14 Taxes
(a) Infrastructure Fund has elected to be treated as a
regulated investment company under Subchapter M of the Code and is a separate
corporation within the meaning of Section 851(g)(1) of the Code. Infrastructure
Fund has qualified as a regulated investment company for each taxable year since
inception that has ended prior to the Closing Date and will have satisfied the
requirements of Part I of Subchapter M of the Code to maintain such
qualification for the period beginning on the first day of its current taxable
year and ending on the Closing Date. Infrastructure Fund has no earnings and
profits accumulated in any taxable year in which the provisions of Subchapter M
of the Code did not apply to it. In order to (i) ensure continued qualification
of Infrastructure Fund as a "regulated investment company" for tax purposes and
(ii) eliminate any tax liability of Infrastructure Fund arising by reason of
undistributed investment company taxable income or net capital gain, AIF will
declare on or prior to the Valuation Date to the shareholders of Infrastructure
Fund a dividend or dividends that, together with all previous such dividends,
shall have the effect of distributing (A) all of Infrastructure Fund's
investment company taxable income (determined without regard to any deductions
for dividends paid) for the short taxable year beginning on November 1, 2001 and
ending on the Closing Date and (B) all of Infrastructure Fund's net capital gain
recognized in such short taxable year (after reduction for any capital loss
carryover).
(b) Infrastructure Fund has timely filed all Returns required
to be filed by it and all Taxes with respect thereto have been paid, except
where the failure so to file or so to pay, would not reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect. Adequate
provision has been made in the Infrastructure Fund Financial Statements for all
Taxes in respect of all periods ended on or before the date of such financial
statements, except where the failure to make such provisions would not
reasonably be expected, individually or in the aggregate, to have a Material
Adverse Effect. No deficiencies for any Taxes have been proposed, assessed or
asserted in writing by any taxing authority against Infrastructure Fund, and no
deficiency has been proposed, assessed or asserted, in writing, where such
deficiency would reasonably be expected, individually or in the aggregate, to
have a Material Adverse Effect. No waivers of the time to assess any such Taxes
are outstanding nor are any written requests for such waivers pending and no
Returns of Infrastructure Fund are currently being or have been audited with
respect to income taxes or other Taxes by any Federal, state, local or foreign
Tax authority.
(c) To the best knowledge of AIF, the fiscal year of
Infrastructure Fund has not been changed for tax purposes since the date on
which it commenced operations.
Section 3.15 Benefit and Employment Obligations On or prior to the
Closing Date, Infrastructure Fund will have no obligation to provide any
post-retirement or post-employment benefit to any Person, including but not
limited to under any Benefit Plan, and have no obligation to provide unfunded
deferred compensation or other unfunded or self-funded benefits to any
11
Person, except that Infrastructure Fund is liable for its proportionate share of
the expenses arising in connection with the retirement and deferred compensation
benefits made available to the directors and trustees of certain investment
companies advised by AIM Advisors.
Section 3.16 Brokers No broker, finder or similar intermediary has
acted for or on behalf of AIF in connection with this Agreement or the
transactions contemplated hereby, and no broker, finder, agent or similar
intermediary is entitled to any broker's, finder's or similar fee or other
commission in connection therewith based on any agreement, arrangement or
understanding with AIF or any action taken by it.
Section 3.17 Voting Requirements The vote of a majority of the shares
cast at a meeting of Infrastructure Fund shareholders at which a quorum is
present (the "Required Shareholder Vote") is the only vote of the holders of any
class or series of shares of beneficial interest in Infrastructure Fund
necessary to approve this Agreement and the Reorganization of Infrastructure
Fund contemplated by this Agreement.
Section 3.18 State Takeover Statutes No state takeover statute or
similar statute or regulation applies or purports to apply to the
Reorganization, this Agreement or any of the transactions contemplated by this
Agreement.
Section 3.19 Books and Records The books and records of AIF relating to
Infrastructure Fund, reflecting, among other things, the purchase and sale of
Infrastructure Fund Shares, the number of issued and outstanding shares owned by
Infrastructure Fund Shareholders and the state or other jurisdiction in which
such shares were offered and sold, are complete and accurate in all material
respects.
Section 3.20 Prospectus and Statement of Additional Information The
current prospectus and statement of additional information for Infrastructure
Fund as of the date on which they were issued did not contain, and as
supplemented by any supplement thereto dated prior to or on the Closing Date do
not contain, any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading.
Section 3.21 No Distribution Utilities Fund Shares are not being
acquired for the purpose of any distribution thereof, other than in accordance
with the terms of this Agreement.
Section 3.22 Liabilities of Infrastructure Fund The liabilities of
Infrastructure Fund that are to be assumed by Utilities Fund in connection with
the Reorganization, or to which the assets of Infrastructure Fund to be
transferred in the Reorganization are subject, were incurred by Infrastructure
Fund in the ordinary course of its business. The fair market value of the assets
of Infrastructure Fund to be transferred to Utilities Fund in the Reorganization
will equal or exceed the sum of the liabilities to be assumed by Utilities Fund
plus the amount of liabilities, if any, to which such transferred assets will be
subject.
Section 3.23 Value of Shares The fair market value of Utilities Fund
Class A Shares received by Infrastructure Fund Shareholders in the
Reorganization will be approximately equal
12
to the fair market value of Infrastructure Fund Class A shares constructively
surrendered in exchange therefor, the fair market value of Utilities Fund Class
B Shares received by Infrastructure Fund Shareholders in the Reorganization will
be approximately equal to the fair market value of Infrastructure Fund Class B
shares constructively surrendered in exchange therefor, and the fair market
value of Utilities Fund Class C Shares received by Infrastructure Fund
Shareholders in the Reorganization will be approximately equal to the fair
market value of Infrastructure Fund Class C shares constructively surrendered in
exchange therefor.
Section 3.24 Shareholder Expenses Infrastructure Fund Shareholders will
pay their own expenses, if any, incurred in connection with the Reorganization.
Section 3.25 Intercompany Indebtedness There is no intercompany
indebtedness between AIF and AFG that was issued or acquired, or will be
settled, at a discount.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF AFG
AFG, on behalf of Utilities Fund, represents and warrants to
AIF as follows:
Section 4.1 Organization; Authority AFG is duly organized, validly
existing and in good standing under the Delaware Business Trust Act, with all
requisite trust power and authority to enter into this Agreement and perform its
obligations hereunder.
Section 4.2 Registration and Regulation of AFG AFG is duly registered
with the SEC as an investment company under the Investment Company Act.
Utilities Fund is in compliance in all material respects with all applicable
laws, rules and regulations, including, without limitation, the Investment
Company Act, the Securities Act, the Exchange Act and all applicable state
securities laws. Utilities Fund is in compliance in all material respects with
the applicable investment policies and restrictions set forth in the AFG
Registration Statement. The value of the net assets of Utilities Fund is
determined using portfolio valuation methods that comply in all material
respects with the requirements of the Investment Company Act and the policies of
Utilities Fund and all purchases and redemptions of Utilities Fund Shares have
been effected at the net asset value per share calculated in such manner.
Section 4.3 Financial Statements The books of account and related
records of Utilities Fund fairly reflect in reasonable detail its assets,
liabilities and transactions in accordance with generally accepted accounting
principles applied on a consistent basis. The audited financial statements for
the fiscal year ended December 31, 2001 of Utilities Fund previously delivered
to AIF (the "Utilities Fund Financial Statements") present fairly in all
material respects the financial position of Utilities Fund as of the date
indicated and the results of operations and changes in net assets for the period
then ended in accordance with generally accepted accounting principles applied
on a consistent basis for the period then ended.
Section 4.4 No Material Adverse Changes; Contingent Liabilities Since
December 31, 2001, no material adverse change has occurred in the financial
condition, results of operations, business, assets or liabilities of Utilities
Fund or the status of Utilities Fund as a regulated
13
investment company under the Code, other than changes resulting from any change
in general conditions in the financial or securities markets or the performance
of any investments made by Utilities Fund or occurring in the ordinary course of
business of Utilities Fund or AFG. There are no contingent liabilities of
Utilities Fund not disclosed in the Utilities Fund Financial Statements which
are required to be disclosed in accordance with generally accepted accounting
principles.
Section 4.5 Registration of Utilities Fund Class A Shares, Utilities
Fund Class B Shares and Utilities Fund Class C Shares
(a) The shares of beneficial interest of AFG are divided into
twelve portfolios, including Utilities Fund. Utilities Fund currently has three
classes of shares, Class A shares, Class B shares and Class C shares. Under its
Agreement and Declaration of Trust, AFG is authorized to issue an unlimited
number of Class A, Class B and Class C Shares.
(b) Utilities Fund Shares to be issued pursuant to Section 2.6
shall on the Closing Date be duly registered under the Securities Act by a
Registration Statement on Form N-14 of AFG then in effect.
(c) Utilities Fund Shares to be issued pursuant to Section 2.6
are duly authorized and on the Closing Date will be validly issued and fully
paid and non-assessable and will conform to the description thereof contained in
the Registration Statement on Form N-14 then in effect. At the time of its
Reorganization, Utilities Fund shall not have outstanding any warrants, options,
convertible securities or any other type of right pursuant to which any Person
could acquire Utilities Fund Class A shares, Utilities Fund Class B shares or
Utilities Fund Class C shares, except for the right of investors to acquire
Utilities Fund Class A Shares, Utilities Fund Class B Shares or Utilities Fund
Class C Shares at net asset value in the normal course of its business as a
series of an open-end management investment company operating under the
Investment Company Act.
(d) The combined proxy statement/prospectus (the "Combined
Proxy Statement/Prospectus") which forms a part of AFG's Registration Statement
on Form N-14 shall be furnished to Infrastructure Fund Shareholders entitled to
vote at the Infrastructure Fund Shareholders Meeting. The Combined Proxy
Statement/Prospectus and related Statement of Additional Information of
Utilities Fund, when they become effective, shall conform to the applicable
requirements of the Securities Act and the Investment Company Act and shall not
include any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not materially
misleading, provided, however, that no representation or warranty is made with
respect to written information provided by AIF for inclusion in the Combined
Proxy Statement/Prospectus.
(e) The shares of Utilities Fund which have been or are being
offered for sale (other than the Utilities Fund Shares to be issued in
connection with the Reorganization) have been duly registered under the
Securities Act by the AFG Registration Statement and have been duly registered,
qualified or are exempt from registration or qualification under the securities
laws of each state or other jurisdiction in which such shares have been or are
being
14
offered for sale, and no action has been taken by AFG to revoke or rescind any
such registration or qualification.
Section 4.6 Accountants PricewaterhouseCoopers LLP, which has reported
upon the Utilities Fund Financial Statements for the fiscal year ended December
31, 2001, is the independent public accountant as required by the Securities Act
and the Exchange Act.
Section 4.7 Binding Obligation This Agreement has been duly authorized,
executed and delivered by AFG on behalf of Utilities Fund and, assuming this
Agreement has been duly executed and delivered by AIF, constitutes the legal,
valid and binding obligation of AFG, enforceable against AFG in accordance with
its terms from and with respect to the revenues and assets of Utilities Fund,
except as the enforceability hereof may be limited by bankruptcy, insolvency,
reorganization or similar laws relating to or affecting creditors' rights
generally, or by general equity principles (whether applied in a court or law or
a court of equity and including limitations on the availability of specific
performance or other equitable remedies).
Section 4.8 No Breaches or Defaults The execution and delivery of this
Agreement by AFG on behalf of Utilities Fund and performance by AFG of its
obligations hereunder have been duly authorized by all necessary trust action on
the part of AFG and (i) do not, and on the Closing Date will not, result in any
violation of the Agreement and Declaration of Trust or by-laws of AFG and (ii)
do not, and on the Closing Date will not, result in a breach of any of the terms
or provisions of, or constitute (with or without the giving of notice or the
lapse of time or both) a default under, or give rise to a right of termination,
cancellation or acceleration of any obligation or to the loss of a material
benefit under, or result in the creation or imposition of any Lien upon any
property or assets of Utilities Fund (except for such breaches or defaults or
Liens that would not reasonably be expected, individually or in the aggregate,
to have a Material Adverse Effect) under (A) any indenture, mortgage or loan
agreement or any other material agreement or instrument to which AFG is a party
or by which it may be bound and which relates to the assets of Utilities Fund or
to which any properties of Utilities Fund may be subject; (B) any Permit; or (C)
any existing applicable law, rule, regulation, judgment, order or decree of any
Governmental Authority having jurisdiction over AFG or any property of Utilities
Fund. AFG is not under the jurisdiction of a court in a proceeding under Title
11 of the United States Code or similar case within the meaning of Section
368(a)(3)(A) of the Code.
Section 4.9 Authorizations or Consents Other than those which shall
have been obtained or made on or prior to the Closing Date, no authorization or
approval or other action by, and no notice to or filing with, any Governmental
Authority will be required to be obtained or made by AFG in connection with the
due execution and delivery by AFG of this Agreement and the consummation by AFG
of the transactions contemplated hereby.
Section 4.10 Permits AFG has in full force and effect all Permits
necessary for it to conduct its business as presently conducted as it relates to
Utilities Fund, and there has occurred no default under any Permit, except for
the absence of Permits and for defaults under Permits the absence or default of
which would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect. To the knowledge of AFG there are no
proceedings
15
relating to the suspension, revocation or modification of any Permit, except for
such that would not reasonably be expected, individually or in the aggregate, to
have a Material Adverse Effect.
Section 4.11 No Actions, Suits or Proceedings
(a) There is no pending action, suit or proceeding, nor, to
the knowledge of AFG, has any litigation been overtly threatened in writing or,
if probable of assertion, orally, against AFG before any Governmental Authority
which questions the validity or legality of this Agreement or of the
transactions contemplated hereby, or which seeks to prevent the consummation of
the transactions contemplated hereby, including the Reorganization.
(b) There are no judicial, administrative or arbitration
actions, suits, or proceedings instituted or pending or, to the knowledge of
AFG, threatened in writing or, if probable of assertion, orally, against AFG,
affecting any property, asset, interest or right of Utilities Fund, that could
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect with respect to Utilities Fund. There are not in existence on the
date hereof any plea agreements, judgments, injunctions, consents, decrees,
exceptions or orders that were entered by, filed with or issued by any
Governmental Authority relating to AFG's conduct of the business of Utilities
Fund affecting in any significant respect the conduct of such business. AFG is
not, and has not been, to the knowledge of AFG, the target of any investigation
by the SEC or any state securities administrator with respect to its conduct of
the business of Utilities Fund.
Section 4.12 Taxes
(a) Utilities Fund has elected to be treated as a regulated
investment company under Subchapter M of the Code and is a separate corporation
within the meaning of Section 851(g)(1) of the Code. Utilities Fund has
qualified as a regulated investment company for each taxable year since
inception that has ended prior to the Closing Date and will satisfy the
requirements of Part I of Subchapter M of the Code to maintain such
qualification for its current taxable year. Utilities Fund has no earnings or
profits accumulated in any taxable year in which the provisions of Subchapter M
of the Code did not apply to it.
(b) Utilities Fund has timely filed all Returns required to be
filed by it and all Taxes with respect thereto have been paid, except where the
failure so to file or so to pay, would not reasonably be expected, individually
or in the aggregate, to have a Material Adverse Effect. Adequate provision has
been made in the Utilities Fund Financial Statements for all Taxes in respect of
all periods ending on or before the date of such financial statements, except
where the failure to make such provisions would not reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect. No
deficiencies for any Taxes have been proposed, assessed or asserted in writing
by any taxing authority against Utilities Fund, and no deficiency has been
proposed, assessed or asserted, in writing, where such deficiency would
reasonably be expected, individually or in the aggregate, to have a Material
Adverse Effect. No waivers of the time to assess any such Taxes are outstanding
nor are any written requests for such waivers pending and no Return of Utilities
Fund is currently being or has been audited with respect to income taxes or
other Taxes by any Federal, state, local or foreign Tax authority.
16
(c) The fiscal year of Utilities Fund has not been changed for
tax purposes.
Section 4.13 Brokers No broker, finder or similar intermediary has
acted for or on behalf of AFG in connection with this Agreement or the
transactions contemplated hereby, and no broker, finder, agent or similar
intermediary is entitled to any broker's, finder's or similar fee or other
commission in connection therewith based on any agreement, arrangement or
understanding with AFG or any action taken by it.
Section 4.14 Representations Concerning the Reorganization
(a) AFG has no plan or intention to reacquire any Utilities
Fund Shares issued in the Reorganization, except to the extent that Utilities
Fund is required by the Investment Company Act to redeem any of its shares
presented for redemption at net asset value in the ordinary course of its
business as an open-end, management investment company.
(b) Utilities Fund has no plan or intention to sell or
otherwise dispose of any of the assets of Infrastructure Fund acquired in the
Reorganization, other than in the ordinary course of its business and to the
extent necessary to maintain its status as a "regulated investment company"
under the Code.
(c) Following the Reorganization, Utilities Fund will continue
an "historic business" (within the meaning of Section 1.368-1(d) of the Income
Tax Regulations under the Code) of Infrastructure Fund or use a significant
portion of Infrastructure Fund's historic business assets in a business.
(d) Prior to or in the Reorganization, neither Utilities Fund
nor any person related to Utilities Fund (for purposes of this paragraph as
defined in section 1.368-1(e)(3) of the Treasury Regulations) will have acquired
directly or through any transaction, agreement or arrangement with any other
person, shares of Infrastructure Fund with consideration other than shares of
Utilities Fund. There is no plan or intention by Utilities Fund or any person
related to Utilities Fund to acquire or redeem any of the Utilities Fund Shares
issued in the Reorganization either directly or through any transaction,
agreement, or arrangement with any other person, other than redemptions in the
ordinary course of Utilities Fund's business as an open-end investment company
as required by the Investment Company Act.
Section 4.15 Prospectus and Statement of Additional Information The
current prospectus and statement of additional information for Utilities Fund as
of the date on which it was issued does not contain, and as supplemented by any
supplement thereto dated prior to or on the Closing Date does not contain, any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading.
Section 4.16 Value of Shares The fair market value of Utilities Fund
Class A Shares received by Infrastructure Fund Shareholders in the
Reorganization will be approximately equal to the fair market value of
Infrastructure Fund Class A shares constructively surrendered in
17
exchange therefor, the fair market value of Utilities Fund Class B Shares
received by Infrastructure Fund Shareholders in the Reorganization will be
approximately equal to the fair market value of Infrastructure Fund Class B
shares constructively surrendered therefor, and the fair market value of
Utilities Fund Class C Shares received by Infrastructure Fund Shareholders in
the Reorganization will be approximately equal to the fair market value of
Infrastructure Fund Class C shares constructively surrendered therefor.
Section 4.17 Intercompany Indebtedness; Consideration There is no
intercompany indebtedness between AIF and AFG that was issued or acquired, or
will be settled, at a discount. No consideration other than Utilities Fund
Shares (and Utilities Fund's assumption of Infrastructure Fund's liabilities,
including for this purpose all liabilities to which the assets of Infrastructure
Fund are subject) will be issued in exchange for the assets of Infrastructure
Fund acquired by Utilities Fund in connection with the Reorganization. The fair
market value of the assets of Infrastructure Fund transferred to Utilities Fund
in the Reorganization will equal or exceed the sum of the liabilities assumed by
Utilities Fund, plus the amount of liabilities, if any, to which such
transferred assets are subject.
ARTICLE 5
COVENANTS
Section 5.1 Conduct of Business
(a) From the date of this Agreement up to and including the
Closing Date (or, if earlier, the date upon which this Agreement is terminated
pursuant to Article 7), AIF shall conduct the business of Infrastructure Fund
only in the ordinary course and substantially in accordance with past practices,
and shall use its reasonable best efforts to preserve intact its business
organization and material assets and maintain the rights, franchises and
business and customer relations necessary to conduct the business of
Infrastructure Fund in the ordinary course in all material respects.
(b) From the date of this Agreement up to and including the
Closing Date (or, if earlier, the date upon which this Agreement is terminated
pursuant to Article 7), AFG shall conduct the business of Utilities Fund only in
the ordinary course and substantially in accordance with past practices, and
shall use its reasonable best efforts to preserve intact its business
organization and material assets and maintain the rights, franchises and
business relations necessary to conduct the business operations of Utilities
Fund in the ordinary course in all material respects.
Section 5.2 Announcements AIF and AFG shall consult with each other
before issuing any press release or otherwise making any public statements with
respect to this Agreement and the transactions contemplated by this Agreement,
and neither AIF nor AFG shall issue any such press release or make any public
statement without the prior written approval of the other party to this
Agreement, such approval not to be unreasonably withheld, except as may be
required by law.
18
Section 5.3 Expenses Infrastructure Fund and Utilities Fund shall each,
respectively, bear the expenses they incur in connection with this Agreement and
Reorganization and other transactions contemplated hereby.
Section 5.4 Further Assurances Each of the parties hereto shall execute
such documents and other papers and perform such further acts as may be
reasonably required to carry out the provisions hereof and the transactions
contemplated hereby. Each such party shall, on or prior to the Closing Date, use
its reasonable best efforts to fulfill or obtain the fulfillment of the
conditions precedent to the consummation of the Reorganization, including the
execution and delivery of any documents, certificates, instruments or other
papers that are reasonably required for the consummation of the Reorganization.
Section 5.5 Notice of Events AFG shall give prompt notice to AIF, and
AIF shall give prompt notice to AFG, of (a) the occurrence or non-occurrence of
any event which to the knowledge of AFG or to the knowledge of AIF, the
occurrence or non-occurrence of which would be likely to result in any of the
conditions specified in (i) in the case of AIF, Sections 6.1 and 6.2 or (ii) in
the case of AFG, Sections 6.2 and 6.3, not being satisfied so as to permit the
consummation of the Reorganization and (b) any material failure on its part, or
on the part of the other party hereto of which it has knowledge, to comply with
or satisfy any covenant, condition or agreement to be complied with or satisfied
by it hereunder; provided, however, that the delivery of any notice pursuant to
this Section 5.5 shall not limit or otherwise affect the remedies available
hereunder to any party.
Section 5.6 Access to Information
(a) AIF will, during regular business hours and on reasonable
prior notice, allow AFG and its authorized representatives reasonable access to
the books and records of AIF pertaining to the assets of Infrastructure Fund and
to officers of AIF knowledgeable thereof; provided, however, that any such
access shall not significantly interfere with the business or operations of AIF.
(b) AFG will, during regular business hours and on reasonable
prior notice, allow AIF and its authorized representatives reasonable access to
the books and records of AFG pertaining to the assets of Utilities Fund and to
officers of AFG knowledgeable thereof; provided, however, that any such access
shall not significantly interfere with the business or operations of AFG.
Section 5.7 Consents, Approvals and Filings Each of AIF and AFG shall
make all necessary filings, as soon as reasonably practicable, including,
without limitation, those required under the Securities Act, the Exchange Act,
the Investment Company Act and the Advisers Act, in order to facilitate prompt
consummation of the Reorganization and the other transactions contemplated by
this Agreement. In addition, each of AIF and AFG shall use its reasonable best
efforts, and shall cooperate fully with each other (i) to comply as promptly as
reasonably practicable with all requirements of Governmental Authorities
applicable to the Reorganization and the other transactions contemplated herein
and (ii) to obtain as promptly as reasonably practicable all necessary permits,
orders or other consents of Governmental Authorities and
19
consents of all third parties necessary for the consummation of the
Reorganization and the other transactions contemplated herein. Each of AIF and
AFG shall use reasonable efforts to provide such information and communications
to Governmental Authorities as such Governmental Authorities may request.
Section 5.8 Submission of Agreement to Shareholders AIF shall take all
action necessary in accordance with applicable law and its Agreement and
Declaration of Trust and by-laws to convene the Infrastructure Fund Shareholders
Meeting. AIF shall, through its Board of Trustees, recommend to Infrastructure
Fund Shareholders approval of this Agreement and the transactions contemplated
by this Agreement. AIF shall use its reasonable best efforts to hold a
Infrastructure Fund Shareholders Meeting as soon as practicable after the date
hereof.
ARTICLE 6
CONDITIONS PRECEDENT TO THE REORGANIZATION
Section 6.1 Conditions Precedent of AFG The obligation of AFG to
consummate the Reorganization is subject to the satisfaction, at or prior to the
Closing Date, of all of the following conditions, any one or more of which may
be waived in writing by AFG.
(a) The representations and warranties of AIF on behalf of
Infrastructure Fund participating in the Reorganization set forth in this
Agreement shall be true and correct in all material respects as of the date of
this Agreement and as of the Closing Date with the same effect as though all
such representations and warranties had been made as of the Closing Date.
(b) AIF shall have complied with and satisfied in all material
respects all agreements and conditions relating to Infrastructure Fund
participating in the Reorganization set forth herein on its part to be performed
or satisfied at or prior to the Closing Date.
(c) AFG shall have received at the Closing Date (i) a
certificate, dated as of the Closing Date, from an officer of AIF, in such
individual's capacity as an officer of AIF and not as an individual, to the
effect that the conditions specified in Section 6.1(a) and (b) have been
satisfied and (ii) a certificate, dated as of the Closing Date, from the
Secretary or Assistant Secretary of AIF certifying as to the accuracy and
completeness of the attached Agreement and Declaration of Trust and by-laws of
AIF, and resolutions, consents and authorizations of or regarding AIF with
respect to the execution and delivery of this Agreement and the transactions
contemplated hereby.
(d) AFG shall have received the signed opinion of Ballard
Spahr Andrews & Ingersoll, LLP, counsel to AIF, or other counsel reasonably
acceptable to AFG, in form and substance reasonably acceptable to counsel for
AFG, as to the matters set forth in Schedule 6.1(d).
(e) The dividend or dividends described in the last sentence
of Section 3.14(a) shall have been declared.
20
Section 6.2 Mutual Conditions The obligations of AIF and AFG to
consummate a Reorganization are subject to the satisfaction, at or prior to the
Closing Date, of all of the following further conditions, any one or more may be
waived in writing by AIF and AFG, but only if and to the extent that such waiver
is mutual.
(a) All filings required to be made prior to the Closing Date
with, and all consents, approvals, permits and authorizations required to be
obtained on or prior to the Closing Date from Governmental Authorities in
connection with the execution and delivery of this Agreement and the
consummation of the transactions contemplated herein by AIF and AFG shall have
been made or obtained, as the case may be; provided, however, that such
consents, approvals, permits and authorizations may be subject to conditions
that would not reasonably be expected, individually or in the aggregate, to have
a Material Adverse Effect.
(b) This Agreement, the Reorganization of Infrastructure Fund
and related matters shall have been approved and adopted at the Infrastructure
Fund Shareholders Meeting by the shareholders of Infrastructure Fund on the
record date by the Required Shareholder Vote.
(c) The assets of Infrastructure Fund to be acquired by
Utilities Fund shall constitute at least 90% of the fair market value of the net
assets and at least 70% of the fair market value of the gross assets held by
Infrastructure Fund immediately prior to the Reorganization. For purposes of
this Section 6.2(c), assets used by Infrastructure Fund to pay the expenses it
incurs in connection with this Agreement and the Reorganization and to effect
all shareholder redemptions and distributions (other than regular, normal
dividends and regular, normal redemptions pursuant to the Investment Company
Act, and not in excess of the requirements of Section 852 of the Code, occurring
in the ordinary course of Infrastructure Fund's business as a series of an
open-end management investment company) after the date of this Agreement shall
be included as assets of Infrastructure Fund held immediately prior to the
Reorganization.
(d) No temporary restraining order, preliminary or permanent
injunction or other order issued by any Governmental Authority preventing the
consummation of the Reorganization on the Closing Date shall be in effect;
provided, however, that the party or parties invoking this condition shall use
reasonable efforts to have any such order or injunction vacated.
(e) The Registration Statement on Form N-14 filed by AFG with
respect to Utilities Fund Shares to be issued to Infrastructure Fund
Shareholders in connection with the Reorganization shall have become effective
under the Securities Act and no stop order suspending the effectiveness thereof
shall have been issued and, to the best knowledge of the parties hereto, no
investigation or proceeding for that purpose shall have been instituted or be
pending, threatened or contemplated under the Securities Act.
(f) AIF and AFG shall have received on or before the Closing
Date an opinion of Ballard Spahr Andrews & Ingersoll, LLP ("BSA&I") in form and
substance reasonably acceptable to AIF, and AFG, as to the matters set forth on
Schedule 6.2(f). In
21
rendering such opinion, BSA&I may request and rely upon representations
contained in certificates of officers of AIF, AFG and others, and the officers
of AIF and AFG shall use their best efforts to make available such truthful
certificates.
Section 6.3 Conditions Precedent of AIF The obligation of AIF to
consummate a Reorganization is subject to the satisfaction, at or prior to the
Closing Date, of all of the following conditions, any one or more of which may
be waived in writing by AIF.
(a) The representations and warranties of AFG on behalf of
Utilities Fund participating in the Reorganization set forth in this Agreement
shall be true and correct in all material respects as of the date of this
Agreement and as of the Closing Date with the same effect as though all such
representations and warranties had been made as of the Closing Date.
(b) AFG shall have complied with and satisfied in all material
respects all agreements and conditions relating to Utilities Fund participating
in the Reorganization set forth herein on its part to be performed or satisfied
at or prior to the Closing Date.
(c) AIF shall have received on the Closing Date (i) a
certificate, dated as of the Closing Date, from an officer of AFG, in such
individual's capacity as an officer of AFG and not as an individual, to the
effect that the conditions specified in Sections 6.3(a) and (b) have been
satisfied and (ii) a certificate, dated as of the Closing Date, from the
Secretary or Assistant Secretary of AFG certifying as to the accuracy and
completeness of the attached Agreement and Declaration of Trust and by-laws, as
amended, of AFG and resolutions, consents and authorizations of or regarding AFG
with respect to the execution and delivery of this Agreement and the
transactions contemplated hereby.
(d) AIF shall have received the signed opinion of Ballard
Spahr Andrews & Ingersoll, LLP, counsel to AFG, or other counsel reasonably
acceptable to AIF, in form and substance reasonably acceptable to counsel for
AIF, as to the matters set forth on Schedule 6.3(d).
ARTICLE 7
TERMINATION OF AGREEMENT
Section 7.1 Termination
(a) This Agreement may be terminated on or prior to the
Closing Date as follows:
(i) by mutual written consent of AIF and AFG; or
(ii) at the election of AIF or AFG:
(A) if the Closing Date shall not be on or
before December 1, 2002, or such later date as the
parties hereto may agree upon, unless the failure to
consummate the Reorganization is
22
the result of a willful and material breach of this
Agreement by the party seeking to terminate this
Agreement;
(B) if, upon a vote at Infrastructure Fund
Shareholders Meeting or any adjournment thereof, the
Required Shareholder Vote shall not have been
obtained as contemplated by Section 5.8; or
(C) if any Governmental Authority shall have
issued an order, decree or ruling or taken any other
action permanently enjoining, restraining or
otherwise prohibiting the Reorganization and such
order, decree, ruling or other action shall have
become final and nonappealable.
(b) The termination of this Agreement shall be effectuated by
the delivery by the terminating party to the other party of a written notice of
such termination.
Section 7.2 Survival After Termination If this Agreement is terminated
in accordance with Section 7.1 hereof and the Reorganization of Infrastructure
Fund is not consummated, this Agreement shall become void and of no further
force and effect with respect to such Reorganization and the respective
Infrastructure Fund, except for the provisions of Section 5.3.
ARTICLE 8
MISCELLANEOUS
Section 8.1 Survival of Representations and Warranties The
representations, warranties and covenants in this Agreement or in any
certificate or instrument delivered pursuant to this Agreement shall survive the
consummation of the transactions contemplated hereunder for a period of one (1)
year following the Closing Date.
Section 8.2 Governing Law This Agreement shall be construed and
interpreted according to the laws of the State of Delaware applicable to
contracts made and to be performed wholly within such state.
Section 8.3 Binding Effect, Persons Benefiting, No Assignment This
Agreement shall inure to the benefit of and be binding upon the parties hereto
and the respective successors and assigns of the parties and such Persons.
Nothing in this Agreement is intended or shall be construed to confer upon any
entity or Person other than the parties hereto and their respective successors
and permitted assigns any right, remedy or claim under or by reason of this
Agreement or any part hereof. Without the prior written consent of the parties
hereto, this Agreement may not be assigned by any of the parties hereto.
Section 8.4 Obligations of AFG and AIF
(a) AIF and AFG hereby acknowledge and agree that Utilities
Fund is a separate investment portfolio of AFG, that AFG is executing this
Agreement on behalf of Utilities Fund, and that any amounts payable by AFG under
or in connection with this Agreement
23
shall be payable solely from the revenues and assets of Utilities Fund. AIF
further acknowledges and agrees that this Agreement has been executed by a duly
authorized officer of AFG in his or her capacity as an officer of AFG intending
to bind AFG as provided herein, and that no officer, trustee or shareholder of
AFG shall be personally liable for the liabilities or obligations of AFG
incurred hereunder.
(b) AIF and AFG hereby acknowledge and agree that
Infrastructure Fund is a separate investment portfolio of AIF, that AIF is
executing this Agreement on behalf of Infrastructure Fund and that any amounts
payable by AIF under or in connection with this Agreement shall be payable
solely from the revenues and assets of Infrastructure Fund. AFG further
acknowledges and agrees that this Agreement has been executed by a duly
authorized officer of AIF in his or her capacity as an officer of AIF intending
to bind AIF as provided herein, and that no officer, trustee or shareholder of
AIF shall be personally liable for the liabilities of AIF incurred hereunder.
Section 8.5 Amendments This Agreement may not be amended, altered or
modified except by a written instrument executed by AIF and AFG.
Section 8.6 Enforcement The parties agree irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court of the United States or
any state having jurisdiction, in addition to any other remedy to which they are
entitled at law or in equity.
Section 8.7 Interpretation When a reference is made in this Agreement
to a Section or Schedule, such reference shall be to a Section of, or a Schedule
to, this Agreement unless otherwise indicated. The table of contents and
headings contained in this Agreement are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement. Whenever
the words "include," "includes" or "including" are used in this Agreement, they
shall be deemed to be followed by the words "without limitation." Each
representation and warranty contained in Article 3 or 4 that relates to a
general category of a subject matter shall be deemed superseded by a specific
representation and warranty relating to a subcategory thereof to the extent of
such specific representation or warranty.
Section 8.8 Counterparts This Agreement may be executed in
counterparts, each of which shall be deemed an original and each of which shall
constitute one and the same instrument.
Section 8.9 Entire Agreement; Schedules This Agreement, including the
Schedules, certificates and lists referred to herein, and any documents executed
by the parties simultaneously herewith or pursuant thereto, constitute the
entire understanding and agreement of the parties hereto with respect to the
subject matter hereof and supersedes all other prior agreements and
understandings, written or oral, between the parties with respect to such
subject matter.
24
Section 8.10 Notices All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given when delivered by hand or by overnight courier, two days after being
sent by registered mail, return receipt requested, or when sent by telecopier
(with receipt confirmed), provided, in the case of a telecopied notice, a copy
is also sent by registered mail, return receipt requested, or by courier,
addressed as follows (or to such other address as a party may designate by
notice to the other):
(a) If to AIF:
AIM Investment Funds
11 Greenway Plaza, Suite 100
Houston, Texas 77046-1173
Attn: Carol F. Relihan, Esq.
Fax: (713) 993-9185
with a copy to:
Ballard Spahr Andrews & Ingersoll, LLP
1735 Market Street, 51st Floor
Philadelphia, Pennsylvania 19103-7599
Attn: William H. Rheiner, Esq.
Fax: (215) 864-8999
(b) If to AFG:
AIM Funds Group
11 Greenway Plaza, Suite 100
Houston, Texas 77046-1173
Attn: Carol F. Relihan, Esq.
Fax: (713) 993-9185
with a copy to:
Ballard Spahr Andrews & Ingersoll, LLP
1735 Market Street, 51st Floor
Philadelphia, Pennsylvania 19103-7599
Attn: William H. Rheiner, Esq.
Fax: (215) 864-8999
Section 8.11 Representations by AIM Advisors In its capacity as
investment adviser to AIF, AIM Advisors represents to AFG that to the best of
its knowledge the representations and warranties of AIF and Infrastructure Fund
contained in this Agreement are true and correct as of the date of this
Agreement. In its capacity as investment adviser to AFG, AIM Advisors represents
to AIF that to the best of its knowledge the representations and warranties of
AFG and Utilities Fund contained in this Agreement are true and correct as of
the date of this Agreement.
25
For purposes of this Section 8.11, the best knowledge standard shall be deemed
to mean that the officers of AIM Advisors who have substantive responsibility
for the provision of investment advisory services to AIF and AFG do not have
actual knowledge to the contrary after due inquiry.
26
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
AIM INVESTMENT FUNDS, acting
on behalf of AIM Global Infrastructure Fund
By:
----------------------------------------
AIM FUNDS GROUP, acting
on behalf of AIM Global Utilities Fund
By:
----------------------------------------
A I M ADVISORS, INC.
By:
----------------------------------------
27
Schedule 6.1(d)
Opinion of Counsel to AIF
1. AIF is duly organized and validly existing as a
business trust under the Delaware Business Trust Act.
2. AIF is an open-end, management investment company
registered under the Investment Company Act of 1940
3. The execution, delivery and performance of the
Agreement by AIF have been duly authorized and
approved by all requisite trust action on the part of
AIF. The Agreement has been duly executed and
delivered by AIF and constitutes the valid and
binding obligation of AIF.
4. Infrastructure Fund Shares outstanding on the date
hereof have been duly authorized and validly issued,
are fully paid and are non-assessable.
5. To the best of our knowledge, AIF is not required to
submit any notice, report or other filing with or
obtain any authorization, consent or approval from
any governmental authority or self regulatory
organization prior to the consummation of the
transactions contemplated by the Agreement.
We confirm to you that to our knowledge, no litigation or governmental
proceeding is pending or threatened in writing against Infrastructure Fund (i)
with respect to the Agreement or (ii) which involves in excess of $500,000 in
damages.
Schedule 6.2(f)
Tax Opinions
(i) The transfer of the assets of Infrastructure Fund to Utilities Fund
in exchange for Utilities Fund Shares distributed directly to Infrastructure
Fund Shareholders, as provided in the Agreement, will constitute a
"reorganization" within the meaning of Section 368(a) of the Code and that
Infrastructure Fund and Utilities Fund will be "a party to a reorganization"
within the meaning of Section 368(b) of the Code.
(ii) In accordance with Section 361(a) and Section 361(c)(1) of the
Code, no gain or loss will be recognized by Infrastructure Fund on the transfer
of its assets to Utilities Fund solely in exchange for Utilities Fund Class A
Shares, Utilities Fund Class B Shares and Utilities Fund Class C Shares or on
the distribution of Utilities Fund Class A Shares, Utilities Fund Class B Shares
and Utilities Fund Class C Shares to Infrastructure Fund Shareholders.
(iii) In accordance with Section 1032 of the Code, no gain or loss will
be recognized by Utilities Fund upon the receipt of assets of Infrastructure
Fund in exchange for Utilities Fund Class A Shares, Utilities Fund Class B
Shares and Utilities Fund Class C Shares issued directly to Infrastructure Fund
Shareholders.
(iv) In accordance with Section 354(a)(1) of the Code, no gain or loss
will be recognized by Infrastructure Fund Shareholders on the receipt of
Utilities Fund Class A Shares, Utilities Fund Class B Shares and Utilities Fund
Class C Shares in exchange for Infrastructure Fund Shares.
(v) In accordance with Section 362(b) of the Code, the basis to
Utilities Fund of the assets of Infrastructure Fund will be the same as the
basis of such assets in the hands of Infrastructure Fund immediately prior to
the Reorganization.
(vi) In accordance with Section 358(a) of the Code, a Infrastructure
Fund Shareholder's basis for Utilities Fund Class A Shares, Utilities Fund Class
B Shares or Utilities Fund Class C Shares received by the Infrastructure Fund
Shareholder will be the same as his basis for Infrastructure Fund Shares
exchanged therefor.
(vii) In accordance with Section 1223(1) of the Code, a Infrastructure
Fund Shareholder's holding period for Utilities Fund Class A Shares, Utilities
Fund Class B Shares or Utilities Fund Class C Shares will be determined by
including Infrastructure Fund Shareholder's holding period for Infrastructure
Fund Shares exchanged therefor, provided that the Infrastructure Fund
Shareholder held Infrastructure Fund Shares as a capital asset.
(viii) In accordance with Section 1223(2) of the Code, the holding
period with respect to the assets of Infrastructure Fund transferred to
Utilities Fund in the Reorganization will include the holding period for such
assets in the hands of Infrastructure Fund.
Schedule 6.3(d)
Opinion of Counsel to AFG
1. AFG is a trust validly existing and in good standing
under the Delaware Business Trust Act.
2. AIF is an open-end, management investment company
registered under the Investment Company Act of 1940
3. The execution, delivery and performance of the
Agreement by AFG have been duly authorized and
approved by all requisite trust action on the part of
AFG. The Agreement has been duly executed and
delivered by AFG and constitutes the valid and
binding obligation of AFG.
4. Utilities Fund Shares outstanding on the date hereof
have been duly authorized and validly issued, are
fully paid and are non-assessable.
5. To the best of our knowledge, AFG is not required to
submit any notice, report or other filing with or
obtain any authorization, consent or approval from
any governmental authority or self regulatory
organization prior to the consummation of the
transactions contemplated by the Agreement.
We confirm to you that to our knowledge, no litigation or governmental
proceeding is pending or threatened in writing against Utilities Fund (i) with
respect to the Agreement or (ii) which involves in excess of $500,000 in
damages.
APPENDIX II
CLASS A, CLASS B AND CLASS C SHARES OF
AIM GLOBAL UTILITIES FUND
Supplement dated May 1, 2002
to the Prospectus dated May 1, 2002
The Securities and Exchange Commission ("SEC") has adopted a rule that generally
requires mutual funds that have names suggesting a focus in a particular type of
investment, industry or geographic region to invest at least 80% of their assets
in such investment, industry or geographic region. In accordance with the
requirements of this new SEC rule and the underlying statutory purposes of the
new rule, the Board of Trustees of the fund has approved the changes to the
fund's investment strategies described in this supplement.
The following information replaces the first sentence of the second paragraph
under the heading "INVESTMENT OBJECTIVE AND STRATEGIES":
"The fund seeks to meet its objective by investing, normally, at least
80% of its net assets, plus the amount of any borrowings for investment
purposes, in securities of domestic and foreign public utility
companies. In complying with this 80% investment requirement, the fund
will invest primarily in marketable equity securities, including
convertible securities, and debt securities, but its investments may
include other securities, such as synthetic instruments. Synthetic
instruments are investments that have economic characteristics similar
to the fund's direct investments, and may include warrants, futures,
options, exchange-traded funds and American Depositary Receipts."
The following information is added after the third sentence of the third
paragraph under the heading "INVESTMENT OBJECTIVE AND STRATEGIES":
"The fund may invest a significant amount of its assets in the
securities of U.S. issuers."
The following information replaces in its entirety the fifth paragraph under the
heading "INVESTMENT OBJECTIVE AND STRATEGIES":
"In anticipation of or in response to adverse market or other
conditions, or atypical circumstances such as unusually large cash
inflows or redemptions, the fund may temporarily hold all or a portion
of its assets in cash or the following liquid assets: money market
instruments, shares of affiliated money market funds or high-quality
debt obligations. As a result, the fund may not achieve its investment
objective. For cash management purposes, the fund may also hold a
portion of its assets in cash or such liquid assets."
The changes noted above become effective July 1, 2002.
AIM GLOBAL UTILITIES FUND
--------------------------------------------------------------------------
AIM Global Utilities Fund seeks to achieve a high total return.
AIM--Registered Trademark--
PROSPECTUS
MAY 1, 2002
This prospectus contains important
information about the Class A, B and C
shares of the fund. Please read it before
investing and keep it for future reference.
As with all other mutual fund securities,
the Securities and Exchange Commission has
not approved or disapproved these
securities or determined whether the
information in this prospectus is adequate
or accurate. Anyone who tells you otherwise
is committing a crime.
Investments in the fund:
- are not FDIC insured;
- may lose value; and
- are not guaranteed by a bank.
[AIM LOGO APPEARS HERE] INVEST WITH DISCIPLINE
--Registered Trademark-- --Registered Trademark--
-------------------------
AIM GLOBAL UTILITIES FUND
-------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<Table>
INVESTMENT OBJECTIVE AND STRATEGIES 1
- ------------------------------------------------------
PRINCIPAL RISKS OF INVESTING IN THE FUND 1
- ------------------------------------------------------
PERFORMANCE INFORMATION 3
- ------------------------------------------------------
Annual Total Returns 3
Performance Table 3
FEE TABLE AND EXPENSE EXAMPLE 4
- ------------------------------------------------------
Fee Table 4
Expense Example 4
FUND MANAGEMENT 5
- ------------------------------------------------------
The Advisor 5
Advisor Compensation 5
Portfolio Managers 5
OTHER INFORMATION 5
- ------------------------------------------------------
Sales Charges 5
Dividends and Distributions 5
FINANCIAL HIGHLIGHTS 6
- ------------------------------------------------------
SHAREHOLDER INFORMATION A-1
- ------------------------------------------------------
Choosing a Share Class A-1
Purchasing Shares A-3
Redeeming Shares A-5
Exchanging Shares A-7
Pricing of Shares A-9
Taxes A-9
OBTAINING ADDITIONAL INFORMATION Back Cover
- ------------------------------------------------------
</Table>
The AIM Family of Funds, AIM and Design, AIM, AIM Funds, AIM Funds and Design,
AIM Investor, AIM LINK, AIM Institutional Funds, aimfunds.com, La Familia AIM de
Fondos, La Familia AIM de Fondos and Design, Invierta con DISCIPLINA and Invest
with DISCIPLINE are registered service marks and AIM Bank Connection, AIM
Internet Connect, AIM Private Asset Management, AIM Private Asset Management and
Design, AIM Stylized and/or Design, AIM Alternative Assets and Design,
myaim.com, The AIM College Savings Plan, AIM Solo 401(k) and AIM Lifetime
America are service marks of A I M Management Group Inc.
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
prospectus, and you should not rely on such other information or
representations.
-------------------------
AIM GLOBAL UTILITIES FUND
-------------------------
INVESTMENT OBJECTIVE AND STRATEGIES
- --------------------------------------------------------------------------------
The fund's investment objective is to achieve a high total return. The
investment objective of the fund may be changed by the Board of Trustees without
shareholder approval.
The fund seeks to meet its objective by investing, normally, at least 65% of
its total assets in securities of domestic and foreign public utility companies.
The fund may also invest in non-utility securities, but generally will invest in
securities of companies that derive revenues from utility-related activities
such as providing services, equipment or fuel sources to utilities. Such
companies may include those that provide maintenance services to electric,
telephone or natural gas utilities; companies that provide energy sources such
as coal or uranium; fuel services and equipment companies; companies that
provide pollution control for water utilities; and companies that build
pipelines or turbines which help produce electricity.
The fund may invest up to 80% of its total assets in foreign securities,
including securities of issuers located in developing countries. Developing
countries are those that are in the initial stages of their industrial cycles.
The fund will normally invest in the securities of companies located in at least
four different countries, including the United States. The fund may invest up to
25% of its total assets in convertible securities. The fund may also invest up
to 25% of its total assets in non-convertible bonds. The fund may invest up to
10% of its total assets in lower-quality debt securities, i.e., "junk bonds."
Any percentage limitations with respect to assets of the fund are applied at the
time of purchase.
The fund is non-diversified, which means it can invest a greater percentage
of its assets in any one issuer than a diversified fund can. With respect to 50%
of its assets, a non-diversified fund is permitted to invest more than 5% of its
assets in the securities of any one issuer.
The portfolio managers focus on securities that have favorable prospects for
high total return. The portfolio managers consider whether to sell a particular
security when any of these factors materially changes.
In anticipation of or in response to adverse market conditions, for cash
management purposes, or for defensive purposes, the fund may temporarily invest
up to 100% of its total assets in securities of U.S. issuers. During these
periods the fund may also hold all or a portion of its assets in cash, money
market instruments, shares of affiliated money market funds, bonds or other debt
securities. As a result, the fund may not achieve its investment objectives.
PRINCIPAL RISKS OF INVESTING IN THE FUND
- --------------------------------------------------------------------------------
There is a risk that you could lose all or a portion of your investment in the
fund and that the income you may receive from the fund may vary. The value of
your investment in the fund will go up and down with the prices of the
securities in which the fund invests. The 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. Interest rate increases may
cause the price of a debt security to decrease; the longer a debt security's
duration, the more sensitive it is to this risk. The issuer of a security may
default or otherwise be unable to honor a financial obligation.
The value of the fund's shares is particularly vulnerable to factors
affecting the utility company industry, such as substantial economic,
operational, competitive, or regulatory changes. Such changes may, among other
things, increase compliance costs or the costs of doing business. In addition,
increases in fuel, energy and other prices have historically limited the growth
potential of utility companies. Because the fund focuses its investments in the
public utility industry, the value of your shares may rise and fall more than
the value of shares of a fund that invests more broadly.
Because it is non-diversified, the fund may invest in fewer issuers than if
it were a diversified fund. The value of the fund's shares may vary more widely,
and the fund may be subject to greater investment and credit risk, than if the
fund invested more broadly.
The prices of foreign securities may be further affected by other factors
including:
- - Currency exchange rates--The dollar value of the fund's foreign investments
will be affected by changes in the exchange rates between the dollar and the
currencies in which those investments are valued.
- - Political and economic conditions--The value of the fund's foreign investments
may be adversely affected by political and social instability in other
countries and by changes in economic or taxation policies in those countries.
- - Regulations--Foreign companies generally are subject to less stringent
regulations, including financial and accounting controls, than are U.S.
companies. As a result, there generally is less publicly available information
about foreign companies than about U.S. companies.
- - Markets--The securities markets of other countries are smaller than U.S.
securities markets. As a result, many foreign securities may be less liquid
and more volatile than U.S. securities.
1
-------------------------
AIM GLOBAL UTILITIES FUND
-------------------------
PRINCIPAL RISKS OF INVESTING IN THE FUND (CONTINUED)
- --------------------------------------------------------------------------------
These factors may affect the prices of securities issued by foreign
companies located in developing countries more than those in countries with
mature economies. For example, many developing countries have, in the past,
experienced high rates of inflation or sharply devalued their currencies against
the U.S. dollar, thereby causing the value of investments in companies located
in those countries to decline. Transaction costs are often higher in developing
countries and there may be delays in settlement procedures.
The fund may participate in the initial public offering (IPO) market in some
market cycles. Because of the fund's small asset base, any investment the fund
may make in IPOs may significantly increase the fund's total return. As the
fund's assets grow, the impact of IPO investments will decline, which may reduce
the effect of IPO investments on the fund's total return.
An investment in the fund is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
2
-------------------------
AIM GLOBAL UTILITIES FUND
-------------------------
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
The bar chart and table shown below provide an indication of the risks of
investing in the fund. The fund's past performance (before and after taxes) is
not necessarily an indication of its future performance.
ANNUAL TOTAL RETURNS(1)
- --------------------------------------------------------------------------------
The following bar chart shows changes in the performance of the fund's Class A
shares from year to year. The bar chart does not reflect sales loads. If it did,
the annual total returns shown would be lower.
<Table>
<Caption>
ANNUAL
YEAR ENDED TOTAL
DECEMBER 31 RETURNS
- ----------- -------
1992................................................................... 7.92%
1993................................................................... 12.32%
1994................................................................... -11.57%
1995................................................................... 28.07%
1996................................................................... 13.88%
1997................................................................... 23.71%
1998................................................................... 16.01%
1999................................................................... 34.15%
2000................................................................... -2.54%
2001................................................................... -28.33%
</Table>
The Class A shares' year-to-date total return as of March 31, 2002 was
0.87%.
During the periods shown in the bar chart, the highest quarterly return was
26.35% (quarter ended December 31, 1999) and the lowest quarterly return was
- -15.97% (quarter ended September 30, 2001).
PERFORMANCE TABLE(1)
The following performance table compares the fund's performance to that of a
broad-based securities market index. The fund's performance reflects payment of
sales loads.
<Table>
<Caption>
AVERAGE ANNUAL TOTAL RETURNS
- -----------------------------------------------------------------------------------------------------
(for the periods ended SINCE INCEPTION
December 31, 2001) 1 YEAR 5 YEARS 10 YEARS INCEPTION(2) DATE
- ---------------------------------------------------------------------
Class A 01/19/88
Return Before Taxes (32.28)% 4.91% 7.11% --
Return After Taxes on Distributions (32.90) 2.96 5.00 --
Return After Taxes on Distributions
and Sale of Fund Shares (19.51) 3.54 5.03 --
Class B 09/01/93
Return Before Taxes (32.39) 4.98 -- 5.37%
Class C 08/04/97
Return Before Taxes (29.58) -- -- 3.36
- -----------------------------------------------------------------------------------------------------
S&P 500(3) (reflects no deduction for
fees, expenses, or taxes) (11.88) 10.70 12.93 -- --
Lipper Utility Fund Index(4) (reflects
no deduction for fees, expenses, or
taxes) (21.35) 7.80 8.52 -- --
- -----------------------------------------------------------------------------------------------------
</Table>
After-tax returns are calculated using the historical highest individual federal
marginal income tax rates and do not reflect the impact of state and local
taxes. Actual after-tax returns depend on an investor's tax situation and may
differ from those shown, and after-tax returns shown are not relevant to
investors who hold their fund shares through tax-deferred arrangements, such as
401(k) plans or individual retirement accounts. After-tax returns are shown for
Class A only and after-tax returns for Class B and C will vary.
(1)A significant portion of the fund's returns during certain periods prior to
2001 was attributable to its investments in IPOs. These investments had a
magnified impact when the fund's asset base was relatively small. As the
fund's assets grow, the impact of IPO investments will decline, which may
reduce the effect of IPO investments on the fund's total return. For
additional information regarding the impact of IPO investments on the fund's
performance, please see the "Financial Highlights" section of this
prospectus.
(2) Since Inception performance is only provided for a class with less than ten
calendar years of performance.
(3) The Standard & Poor's 500 Index is an unmanaged index of common stocks
frequently used as a general measure of U.S. stock market performance.
(4) The Lipper Utility Fund Index measures the performance of the 30 largest
utilities funds chartered by Lipper Inc., an independent mutual funds
performance monitor.
3
-------------------------
AIM GLOBAL UTILITIES FUND
-------------------------
FEE TABLE AND EXPENSE EXAMPLE
- --------------------------------------------------------------------------------
FEE TABLE
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
<Table>
<Caption>
SHAREHOLDER FEES
- --------------------------------------------------------------------------------
(fees paid directly from
your investment) CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Purchases
(as a percentage of offering price) 5.50% None None
Maximum Deferred Sales Charge (Load)
(as a percentage of
original purchase price
or redemption proceeds, whichever is less) None(1) 5.00% 1.00%
- --------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
ANNUAL FUND OPERATING EXPENSES(2)
- --------------------------------------------------------------------------------
(expenses that are deducted
from fund assets) CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
Management Fees 0.56% 0.56% 0.56%
Distribution and/or Service (12b-1) Fees 0.25 1.00 1.00
Other Expenses(3) 0.32 0.32 0.32
Total Annual Fund Operating Expenses 1.13 1.88 1.88
- --------------------------------------------------------------------------------
</Table>
(1) If you buy $1,000,000 or more of Class A shares and redeem these shares
within 18 months from the date of purchase, you may pay a 1% contingent
deferred sales charge (CDSC) at the time of redemption.
(2)There is no guarantee that actual expenses will be the same as those shown in
the table.
(3)Other Expenses have been restated to reflect expense arrangements in effect
as of March 4, 2002.
You may also be charged a transaction or other fee by the financial institution
managing your account.
As a result of 12b-1 fees, long-term shareholders in the fund may pay more
than the maximum permitted initial sales charge.
EXPENSE EXAMPLE
This example is intended to help you compare the costs of investing in different
classes of the fund with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
fund's operating expenses remain the same. To the extent fees are waived and/or
expenses are reimbursed, your expenses will be lower. Although your actual
returns and costs may be higher or lower, based on these assumptions your costs
would be:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
Class A $659 $889 $1,138 $1,849
Class B 691 891 1,216 2,005
Class C 291 591 1,016 2,201
- --------------------------------------------------------------------------------
</Table>
You would pay the following expenses if you did not redeem your shares:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
Class A.................................. $659 $889 $1,138 $1,849
Class B.................................. 191 591 1,016 2,005
Class C.................................. 191 591 1,016 2,201
- --------------------------------------------------------------------------------
</Table>
4
-------------------------
AIM GLOBAL UTILITIES FUND
-------------------------
FUND MANAGEMENT
- --------------------------------------------------------------------------------
THE ADVISOR
A I M Advisors, Inc. (the advisor) serves as the fund's investment advisor and
is responsible for its day-to-day management. The advisor is located at 11
Greenway Plaza, Suite 100, Houston, Texas 77046-1173. The advisor supervises all
aspects of the fund's operations and provides investment advisory services to
the fund, including obtaining and evaluating economic, statistical and financial
information to formulate and implement investment programs for the fund.
The advisor has acted as an investment advisor since its organization in
1976. Today, the advisor, together with its subsidiaries, advises or manages
over 150 investment portfolios, including the fund, encompassing a broad range
of investment objectives.
ADVISOR COMPENSATION
During the fiscal year ended December 31, 2001, the advisor received
compensation of 0.56% of average daily net assets.
PORTFOLIO MANAGERS
The advisor uses a team approach to investment management. The individual
members of the team who are primarily responsible for the day-to-day management
of the fund's portfolio are
- - Robert G. Alley, Senior Portfolio Manager, who has been responsible for the
fund since 1992 and has been associated with the advisor and/or its affiliates
since 1992.
- - Claude C. Cody IV, Senior Portfolio Manager, who has been responsible for the
fund since 1992 and has been associated with the advisor and/or its affiliates
since 1992.
- - Jan H. Friedli, Senior Portfolio Manager, who has been responsible for the
fund since 2000 and has been associated with the advisor and/or its affiliates
since 1999. From 1997 to 1999, he was a global fixed-income portfolio manager
for Nicholas Applegate Capital Management. From 1994 to 1997 he was an
international fixed-income trader and analyst for Strong Capital Management.
- - Craig A. Smith, Senior Portfolio Manager, who has been responsible for the
fund since 1996 and has been associated with the advisor and/or its affiliates
since 1989.
- - Meggan M. Walsh, Senior Portfolio Manager, who has been responsible for the
fund since 1998 and has been associated with the advisor and/or its affiliates
since 1991.
OTHER INFORMATION
- --------------------------------------------------------------------------------
SALES CHARGES
Purchases of Class A shares of AIM Global Utilities Fund are subject to the
maximum 5.50% initial sales charge as listed under the heading "CATEGORY I
Initial Sales Charges" in the "Shareholder Information--Choosing a Share Class"
section of this prospectus. Purchases of Class B and Class C shares are subject
to the contingent deferred sales charges listed in that section.
DIVIDENDS AND DISTRIBUTIONS
The fund expects that its distributions, if any, will consist of capital gains
and ordinary income.
DIVIDENDS
The fund generally declares and pays dividends, if any, quarterly.
CAPITAL GAINS DISTRIBUTIONS
The fund generally distributes long-term and short-term capital gains, if any,
annually.
5
\ -------------------------
AIM GLOBAL UTILITIES FUND
-------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the fund's
financial performance. Certain information reflects financial results for a
single fund share.
The total returns in the table represent the rate that an investor would
have earned (or lost) on an investment in the fund (assuming reinvestment of all
dividends and distributions).
The information for the fiscal years 2001 and 2000 has been audited by
PricewaterhouseCoopers LLP, whose report, along with the fund's financial
statements, is included in the fund's annual report, which is available upon
request. Information for the prior fiscal years or periods was audited by other
public accountants.
A significant portion of the fund's returns was attributable to its
investments in IPOs during certain fiscal years prior to 2001, including the
fiscal year ended 2000, which had a magnified impact on the fund due to its
relatively small asset base during that period. As the fund's assets grow, the
impact of IPO investments will decline, which may reduce the effect of IPO
investments on the fund's total return.
<Table>
<Caption>
CLASS A
------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
2001(a) 2000(a) 1999(a) 1998 1997
-------- -------- -------- -------- --------
Net asset value, beginning of period $ 22.45 $ 26.08 $ 21.01 $ 19.26 $ 16.01
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.29(b) 0.33 0.38 0.48 0.47
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (6.63) (1.00) 6.60 2.53 3.26
=================================================================================================================================
Total from investment operations (6.34) (0.67) 6.98 3.01 3.73
=================================================================================================================================
Less distributions:
Dividends from net investment income (0.29) (0.28) (0.35) (0.46) (0.47)
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.18) (2.68) (1.56) (0.80) (0.01)
=================================================================================================================================
Total distributions (0.47) (2.96) (1.91) (1.26) (0.48)
=================================================================================================================================
Net asset value, end of period $ 15.64 $ 22.45 $ 26.08 $ 21.01 $ 19.26
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) (28.33)% (2.54)% 34.15% 16.01% 23.70%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $171,432 $267,200 $238,432 $196,665 $179,456
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 1.12%(d) 1.03% 1.10% 1.06% 1.13%
=================================================================================================================================
Ratio of net investment income to average net assets 1.53%(b)(d) 1.23% 1.69% 2.39% 2.79%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 19% 52% 37% 38% 26%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b)As required, effective January 1, 2001, the Fund has adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and began
amortizing premiums on debt securities. Had the Fund not amortized premiums
on debt securities, the net investment income per share would have been $0.30
and the ratio of net investment income to average net assets would have been
1.57%. In accordance with the AICPA Audit and Accounting Guide for Investment
Companies, per share and ratios for periods prior to January 1, 2001 have not
been restated to reflect this change in presentation.
(c) Does not include sales charges.
(d) Ratios are based on average daily net assets of $217,585,019.
6
-------------------------
AIM GLOBAL UTILITIES FUND
-------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
<Table>
<Caption>
CLASS B
------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------
2001(a) 2000(a) 1999(a) 1998 1997
------- -------- -------- -------- -------
Net asset value, beginning of period $22.38 $ 26.03 $ 20.98 $ 19.24 $ 16.01
- ----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.15(b) 0.13 0.21 0.33 0.34
- ----------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (6.60) (1.01) 6.59 2.53 3.25
======================================================================================================================
Total from investment operations (6.45) (0.88) 6.80 2.86 3.59
======================================================================================================================
Less distributions:
Dividends from net investment income (0.15) (0.09) (0.19) (0.32) (0.35)
- ----------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.18) (2.68) (1.56) (0.80) (0.01)
======================================================================================================================
Total distributions (0.33) (2.77) (1.75) (1.12) (0.36)
======================================================================================================================
Net asset value, end of period $15.60 $ 22.38 $ 26.03 $ 20.98 $ 19.24
______________________________________________________________________________________________________________________
======================================================================================================================
Total return(c) (28.87)% (3.28)% 33.16% 15.14% 22.74%
______________________________________________________________________________________________________________________
======================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $94,615 $160,820 $142,632 $111,866 $94,227
______________________________________________________________________________________________________________________
======================================================================================================================
Ratio of expenses to average net assets 1.88%(d) 1.80% 1.84% 1.81% 1.91%
======================================================================================================================
Ratio of net investment income to average net assets 0.78%(b)(d) 0.46% 0.95% 1.64% 2.01%
______________________________________________________________________________________________________________________
======================================================================================================================
Portfolio turnover rate 19% 52% 37% 38% 26%
______________________________________________________________________________________________________________________
======================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b)As required, effective January 1, 2001, the Fund has adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and began
amortizing premiums on debt securities. Had the Fund not amortized premiums
on debt securities, the net investment income per share would have been the
same and the ratio of net investment income to average net assets would have
been 0.81%. In accordance with the AICPA Audit and Accounting Guide for
Investment Companies, per share and ratios for periods prior to January 1,
2001 have not been restated to reflect this change in presentation.
(c) Does not include contingent deferred sales charges.
(d) Ratios are based on average daily net assets of $130,913,088.
<Table>
<Caption>
CLASS C
---------------------------------------------------------
AUGUST 4, 1997
(DATE SALES
COMMENCED)
YEAR ENDED DECEMBER 31, TO
--------------------------------------- DECEMBER 31,
2001(a) 2000(a) 1999(a) 1998 1997
------- ------- ------- ------ --------------
Net asset value, beginning of period $22.37 $26.02 $20.97 $19.24 $17.67
- -----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.15(b) 0.13 0.21 0.33 0.13
- -----------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (6.60) (1.01) 6.59 2.52 1.58
=======================================================================================================================
Total from investment operations (6.45) (0.88) 6.80 2.85 1.71
=======================================================================================================================
Less distributions:
Dividends from net investment income (0.15) (0.09) (0.19) (0.32) (0.13)
- -----------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.18) (2.68) (1.56) (0.80) (0.01)
=======================================================================================================================
Total distributions (0.33) (2.77) (1.75) (1.12) (0.14)
=======================================================================================================================
Net asset value, end of period $15.59 $22.37 $26.02 $20.97 $19.24
_______________________________________________________________________________________________________________________
=======================================================================================================================
Total return(c) (28.88)% (3.28)% 33.18% 15.09% 9.74%
_______________________________________________________________________________________________________________________
=======================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $11,679 $17,727 $6,702 $2,994 $1,183
_______________________________________________________________________________________________________________________
=======================================================================================================================
Ratio of expenses to average net assets 1.88%(d) 1.80% 1.84% 1.81% 1.90%(e)
=======================================================================================================================
Ratio of net investment income to average net assets 0.78%(b)(d) 0.46% 0.95% 1.64% 2.02%(e)
_______________________________________________________________________________________________________________________
=======================================================================================================================
Portfolio turnover rate 19% 52% 37% 38% 26%
_______________________________________________________________________________________________________________________
=======================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b)As required, effective January 1, 2001, the Fund has adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and began
amortizing premiums on debt securities. Had the Fund not amortized premiums
on debt securities, the net investment income per share would have been the
same and the ratio of net investment income to average net assets would have
been 0.81%. In accordance with the AICPA Audit and Accounting Guide for
Investment Companies, per share and ratios for periods prior to January 1,
2001 have not been restated to reflect this change in presentation.
(c) Does not include contingent deferred sales charges and is not annualized for
periods less than one year.
(d) Ratios are based on average daily net assets of $15,035,993.
(e) Annualized.
7
-------------
THE AIM FUNDS
-------------
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
In addition to the fund, A I M Advisors, Inc. serves as investment advisor to
many other mutual funds (the AIM Funds). The following information is about all
the AIM Funds.
CHOOSING A SHARE CLASS
Many of the AIM Funds have multiple classes of shares, each class representing
an interest in the same portfolio of investments. When choosing a share class,
you should consider the factors below:
<Table>
<Caption>
CLASS A CLASS B CLASS C
- ---------------------------------------------------------------------------------------------------------
- - Initial sales charge - No initial sales charge - No initial sales charge
- - Reduced or waived initial sales - Contingent deferred sales - Contingent deferred sales
charge for certain charge on redemptions within six charge on redemptions within
purchases(1,2) years one year(2)
- - Lower distribution and service - 12b-1 fee of 1.00% - 12b-1 fee of 1.00%
(12b-1) fee than Class B or
Class C shares (See "Fee Table
and Expense Example")
- Converts to Class A shares at - Does not convert to Class A
the end of the month which is shares
eight years after the date on
which shares were purchased
along with a pro rata portion
of its reinvested dividends and
distributions(3)
- - Generally more appropriate for - Purchase orders limited to - Generally more appropriate
long-term investors amounts less than $250,000 for short-term investors
</Table>
(1) A contingent deferred sales charge may apply in some cases.
(2) AIM Small Cap Opportunities Fund will not accept any single purchase
order in excess of $250,000.
(3) AIM Money Market Fund: Class B shares convert to AIM Cash Reserve
Shares.
AIM Global Trends Fund: If you held Class B shares on May 29,
1998 and continue to hold them, those shares will convert to
Class A shares of that fund at the end of the month which is
seven years after the date on which shares were purchased. If
you exchange those shares for Class B shares of another AIM
Fund, the shares into which you exchanged will not convert to
Class A shares until the end of the month which is eight
years after the date on which you purchased your original
shares.
- --------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE (12b-1) FEES
Each AIM Fund (except AIM Tax-Free Intermediate Fund) has adopted 12b-1 plans
that allow the AIM Fund to pay distribution fees to A I M Distributors, Inc.
(the distributor) for the sale and distribution of its shares and fees for
services provided to shareholders, all or a substantial portion of which are
paid to the dealer of record. Because the AIM Fund pays these fees out of its
assets on an ongoing basis, over time these fees will increase the cost of your
investment and may cost you more than paying other types of sales charges.
SALES CHARGES
Sales charges on the AIM Funds and classes of those Funds are detailed below. As
used below, the term "offering price" with respect to all categories of Class A
shares includes the initial sales charge.
INITIAL SALES CHARGES
The AIM Funds are grouped into three categories with respect to initial sales
charges. The "Other Information" section of your prospectus will tell you in
what category your particular AIM Fund is classified.
<Table>
<Caption>
CATEGORY I INITIAL SALES CHARGES
- -------------------------------------------------------------
Investor's
Sales Charge
----------------------------
AMOUNT OF INVESTMENT As a % of As a % of
IN SINGLE TRANSACTION(1) offering price investment
- -------------------------------------------------------------
Less than $ 25,000 5.50% 5.82%
$ 25,000 but less than $ 50,000 5.25 5.54
$ 50,000 but less than $ 100,000 4.75 4.99
$100,000 but less than $ 250,000 3.75 3.90
$250,000 but less than $ 500,000 3.00 3.09
$500,000 but less than $1,000,000 2.00 2.04
- -------------------------------------------------------------
</Table>
(1) AIM Small Cap Opportunities Fund will not accept any single purchase order
in excess of $250,000.
A-1 MCF--1/02
-------------
THE AIM FUNDS
-------------
<Table>
<Caption>
CATEGORY II INITIAL SALES CHARGES
- -------------------------------------------------------------
INVESTOR'S
SALES CHARGE
----------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
- -------------------------------------------------------------
Less than $ 50,000 4.75% 4.99%
$ 50,000 but less than $ 100,000 4.00 4.17
$100,000 but less than $ 250,000 3.75 3.90
$250,000 but less than $ 500,000 2.50 2.56
$500,000 but less than $1,000,000 2.00 2.04
- -------------------------------------------------------------
</Table>
<Table>
<Caption>
CATEGORY III INITIAL SALES CHARGES
- -------------------------------------------------------------
INVESTOR'S
SALES CHARGE
----------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
- -------------------------------------------------------------
Less than $ 100,000 1.00% 1.01%
$100,000 but less than $ 250,000 0.75 0.76
$250,000 but less than $1,000,000 0.50 0.50
- -------------------------------------------------------------
</Table>
SHARES SOLD WITHOUT AN INITIAL SALES CHARGE
You will not pay an initial sales charge on purchases of Class A shares of AIM
Tax-Exempt Cash Fund and AIM Cash Reserve Shares of AIM Money Market Fund.
CONTINGENT DEFERRED SALES CHARGES FOR CLASS A SHARES AND AIM CASH RESERVE SHARES
OF AIM MONEY MARKET FUND
You can purchase $1,000,000 or more (a Large Purchase) of Class A shares of
Category I and II Funds at net asset value. However, if you redeem these shares
prior to 18 months after the date of purchase, they will be subject to a
contingent deferred sales charge (CDSC) of 1%.
You can also make a Large Purchase of Class A shares of Category III Funds at
net asset value. If your purchase occurs on or after November 15, 2001, the
shares will be subject to a 0.25% CDSC if you redeem them prior to 12 months
after the date of purchase.
If you currently own Class A shares of a Category I, II or III Fund and make
additional purchases at net asset value that result in account balances of
$1,000,000 or more, the additional shares purchased will be subject to a CDSC
(an 18-month, 1.0% CDSC for Category I and II Fund shares, and a 12-month, 0.25%
CDSC for Category III Fund shares.) The CDSC for Category III Fund shares will
not apply to additional purchases made prior to November 15, 2001.
You may be charged a CDSC when you redeem AIM Cash Reserve Shares of AIM Money
Market Fund or Class A shares of AIM Tax-Exempt Cash Fund if you acquired those
shares through an exchange, and the shares originally purchased were subject to
a CDSC.
The distributor may pay a dealer concession and/or a service fee for Large
Purchases.
CONTINGENT DEFERRED SALES CHARGES FOR CLASS B AND CLASS C SHARES
You can purchase Class B and Class C shares at their net asset value per share.
However, when you redeem them, they are subject to a CDSC in the following
percentages:
<Table>
<Caption>
YEAR SINCE
PURCHASE MADE CLASS B CLASS C
- ----------------------------------------------------------
First 5% 1%
Second 4 None
Third 3 None
Fourth 3 None
Fifth 2 None
Sixth 1 None
Seventh and following None None
- ----------------------------------------------------------
</Table>
COMPUTING A CDSC
The CDSC on redemptions of shares is computed based on the lower of their
original purchase price or current market value, net of reinvested dividends and
capital gains distributions. In determining whether to charge a CDSC, we will
assume that you have redeemed shares on which there is no CDSC first and, then,
shares in the order of purchase.
REDUCED SALES CHARGES AND SALES CHARGE EXCEPTIONS
You may qualify for reduced sales charges or sales charge exceptions. To qualify
for these reductions or exceptions, you or your financial consultant must
provide sufficient information at the time of purchase to verify that your
purchase qualifies for such treatment.
REDUCED SALES CHARGES
You may be eligible to buy Class A shares at reduced initial sales charge rates
under Rights of Accumulation or Letters of Intent under certain circumstances.
Rights of Accumulation
You may combine your new purchases of Class A shares with shares currently owned
(Class A, B or C) for the purpose of qualifying for the lower initial sales
charge rates that apply to larger purchases. The applicable initial sales charge
for the new purchase is based on the total of your current purchase and the
current value of all other shares you own.
Letters of Intent
Under a Letter of Intent (LOI), you commit to purchase a specified dollar amount
of Class A shares of AIM Funds during a 13-month period. The amount you agree to
purchase determines the initial sales charge you pay. If the full face amount of
the LOI is not invested by the end of the 13-month period, your account will be
adjusted to the higher initial sales charge level for the amount actually
invested.
Purchases of Class A shares of AIM Tax-Exempt Cash Fund, AIM Cash Reserve
Shares of AIM Money Market Fund and Class B and Class C shares of AIM Floating
Rate Fund will not be taken into account in determining whether a purchase
qualifies for a reduction in initial sales charges.
MCF--1/02 A-2
-------------
THE AIM FUNDS
-------------
INITIAL SALES CHARGE EXCEPTIONS
You will not pay initial sales charges
- - on shares purchased by reinvesting dividends and distributions;
- - when exchanging shares among certain AIM Funds;
- - when using the reinstatement privileges; and
- - when a merger, consolidation, or acquisition of assets of an AIM Fund occurs.
CONTINGENT DEFERRED SALES CHARGE (CDSC) EXCEPTIONS
You will not pay a CDSC
- - if you redeem Class B shares you held for more than six years;
- - if you redeem Class C shares you held for more than one year;
- - if you redeem shares acquired through reinvestment of dividends and
distributions; and
- - on increases in the net asset value of your shares.
There may be other situations when you may be able to purchase or redeem shares
at reduced or without sales charges. Consult the fund's Statement of Additional
Information for details.
PURCHASING SHARES
MINIMUM INVESTMENTS PER AIM FUND ACCOUNT
The minimum investments for AIM Fund accounts (except for investments in AIM
Large Cap Opportunities Fund, AIM Mid Cap Opportunities Fund and AIM Small Cap
Opportunities Fund) are as follows:
<Table>
<Caption>
INITIAL ADDITIONAL
TYPE OF ACCOUNT INVESTMENTS INVESTMENTS
- ----------------------------------------------------------------------------------------------------------------
Savings Plans (money-purchase/profit sharing $ 0 ($25 per AIM Fund investment for $25
plans, 401(k) plans, Simplified Employee Pension salary deferrals from Savings Plans)
(SEP) accounts, Salary Reduction (SARSEP)
accounts, Savings Incentive Match Plans for
Employee IRA (Simple IRA) accounts, 403(b) or
457 plans)
Automatic Investment Plans 50 25
IRA, Education IRA or Roth IRA 250 50
All other accounts 500 50
- ----------------------------------------------------------------------------------------------------------------
</Table>
The minimum initial investment for AIM Large Cap Opportunities Fund, AIM Mid Cap
Opportunities Fund and AIM Small Cap Opportunities Fund (the Special
Opportunities Funds) accounts is $10,000. The minimum subsequent investment is
$1,000. The maximum amount for a single purchase order of AIM Small Cap
Opportunities Fund is $250,000.
HOW TO PURCHASE SHARES
You may purchase shares using one of the options below. Purchase orders will not
be processed unless the account application and purchase payment are received in
good order.
<Table>
<Caption>
PURCHASE OPTIONS
- ----------------------------------------------------------------------------------------------------------
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
- ----------------------------------------------------------------------------------------------------------
Through a Financial Consultant Contact your financial consultant. Same
By Mail Mail completed account application Mail your check and the remittance
and check to the transfer agent, slip from your confirmation
A I M Fund Services, Inc., statement to the transfer agent.
P.O. Box 4739,
Houston, TX 77210-4739.
By Wire Mail completed account application Call the transfer agent to receive
to the transfer agent. Call the a reference number. Then, use the
transfer agent at (800) 959-4246 to wire instructions at left.
receive a reference number. Then,
use the following wire
instructions:
Beneficiary Bank ABA/Routing #:
113000609
Beneficiary Account Number:
00100366807
Beneficiary Account Name: A I M
Fund Services, Inc.
RFB: Fund Name, Reference #
OBI: Your Name, Account #
</Table>
A-3 MCF--1/02
-------------
THE AIM FUNDS
-------------
<Table>
<Caption>
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
- ----------------------------------------------------------------------------------------------------------
By AIM Bank Connection(SM) Open your account using one of the Select the AIM Bank Connection
methods described above. option on your completed account
application or complete an AIM Bank
Connection form. Mail the
application or form to the transfer
agent. Once the transfer agent has
received the form, call the
transfer agent to place your
purchase order.
By AIM Internet Connect(SM) Open your account using one of the Select the AIM Internet Connect
methods described above. option on your completed account
application or complete an AIM
Internet Connect Authorization
Form. Mail the application or form
to the transfer agent. Once your
request for this option has been
processed (which may take up to 10
days), you may place your purchase
order at www.aimfunds.com. You may
not purchase shares in AIM
prototype retirement accounts on
the internet.
- ----------------------------------------------------------------------------------------------------------
</Table>
SPECIAL PLANS
AUTOMATIC INVESTMENT PLAN
You can arrange for periodic investments in any of the AIM Funds by authorizing
the AIM Fund to withdraw the amount of your investment from your bank account on
a day or dates you specify and in an amount of at least $25 ($1,000 for any of
the Special Opportunities Funds). You may stop the Automatic Investment Plan at
any time by giving the transfer agent notice ten days prior to your next
scheduled withdrawal.
DOLLAR COST AVERAGING
Dollar Cost Averaging allows you to make automatic monthly or quarterly
exchanges, if permitted, from one AIM Fund account to one or more other AIM Fund
accounts with the identical registration. The account from which exchanges are
to be made must have a minimum balance of $5,000 before you can use this option.
Exchanges will occur on (or about) the 10th or 25th day of the month, whichever
you specify, in the amount you specify. The minimum amount you can exchange to a
Special Opportunities Fund is $1,000. The minimum amount you can exchange to
another AIM Fund is $25.
AUTOMATIC DIVIDEND INVESTMENT
All of your dividends and distributions may be paid in cash or invested in any
AIM Fund at net asset value. Unless you specify otherwise, your dividends and
distributions will automatically be reinvested in the same AIM Fund. You may
invest your dividends and distributions (1) into another AIM Fund in the same
class of shares; or (2) from Class A shares into AIM Cash Reserve Shares of AIM
Money Market Fund, or vice versa.
You must comply with the following requirements to be eligible to invest your
dividends and distributions in shares of another AIM Fund:
(1) Your account balance (a) in the AIM Fund paying the dividend must be at
least $5,000; or (b) in the AIM Fund receiving the dividend must be at least
$500;
(2) Both accounts must have identical registration information; and
(3) You must have completed an authorization form to reinvest dividends into
another AIM Fund.
PORTFOLIO REBALANCING PROGRAM
If you have at least $5,000 in your account, you may participate in the
Portfolio Rebalancing Program. Under this Program, you can designate how the
total value of your AIM Fund holdings should be rebalanced, on a percentage
basis, between two and ten of your AIM Funds on a quarterly, semiannual or
annual basis. Your portfolio will be rebalanced through the exchange of shares
in one or more of your AIM Funds for shares of the same class of one or more
other AIM Funds in your portfolio. If you wish to participate in the Program,
make changes or cancel the Program, the transfer agent must receive your request
to participate, changes, or cancellation in good order at least five business
days prior to the next rebalancing date, which is normally the 28th day of the
last month of the period you choose. You may realize taxable gains from these
exchanges. We may modify, suspend or terminate the Program at any time on 60
days' prior written notice.
RETIREMENT PLANS
Shares of most of the AIM Funds can be purchased through
tax-sheltered retirement plans made available to corporations, individuals and
employees of non-profit organizations and public schools. A plan document must
be adopted to establish a retirement plan. You may use AIM sponsored retirement
plans, which include IRAs, Education IRAs, Roth IRAs, 403(b) plans, 401(k)
plans, SIMPLE IRA plans, SEP/SARSEP plans and Money Purchase/Profit Sharing
plans, or another sponsor's retirement plan. The plan custodian of the AIM
sponsored retirement plan assesses an annual maintenance fee of $10. Contact
your financial consultant for details.
MCF--1/02 A-4
-------------
THE AIM FUNDS
-------------
REDEEMING SHARES
REDEMPTION FEES
Generally, we will not charge you any fees to redeem your shares. Your broker or
financial consultant may charge service fees for handling redemption
transactions. Your shares also may be subject to a contingent deferred sales
charge (CDSC).
REDEMPTION OF CLASS A SHARES AND AIM CASH
RESERVE SHARES ACQUIRED BY EXCHANGE FOR PURCHASES MADE PRIOR TO NOVEMBER 15,
2001.
If you purchased $1,000,000 or more of Class A shares of any AIM Fund or AIM
Cash Reserve Shares of AIM Money Market Fund at net asset value prior to
November 15, 2001, or entered into a Letter of Intent prior to November 15, 2001
to purchase $1,000,000 or more of Class A shares of a Category I, II or III Fund
at net asset value, your shares may be subject to a contingent deferred sales
charge (CDSC) upon redemption, as described below.
<Table>
<Caption>
SHARES
INITIALLY SHARES HELD AFTER AN CDSC APPLICABLE UPON
PURCHASED EXCHANGE REDEMPTION OF SHARES
- ------------ --------------------- ---------------------
- - Class A - Class A shares of - 1% if shares are
shares of Category I or II redeemed within 18
Category I Fund months of initial
or II Fund - Class A shares of purchase of
Category III Fund Category I or II
- AIM Cash Reserve Fund shares
Shares of AIM Money
Market Fund
- - Class A - Class A shares of - No CDSC
shares of Category III Fund
Category - Class A shares of
III Fund AIM Tax-Exempt Cash
Fund
- AIM Cash Reserve
Shares of AIM Money
Market Fund
</Table>
REDEMPTION OF CLASS A SHARES AND AIM CASH
RESERVE SHARES ACQUIRED BY EXCHANGE FOR PURCHASES MADE ON AND AFTER NOVEMBER 15,
2001
If you purchase $1,000,000 or more of Class A shares of any AIM Fund or AIM Cash
Reserve Shares of AIM Money Market Fund on and after November 15, 2001, or if
you make additional purchases of Class A shares or AIM Cash Reserve Shares on
and after November 15, 2001 at net asset value, your shares may be subject to a
CDSC upon redemption, as described below.
<Table>
<Caption>
SHARES
INITIALLY SHARES HELD AFTER AN CDSC APPLICABLE UPON
PURCHASED EXCHANGE REDEMPTION OF SHARES
- ------------ --------------------- ---------------------
- - Class A - Class A shares of - 1% if shares are
shares of Category I or II redeemed within 18
Category I Fund months of initial
or II Fund - Class A shares of purchase of
Category III Fund Category I or II
- AIM Cash Reserve Fund shares
Shares of AIM Money
Market Fund
- - Class A - Class A shares of - 1% if shares are
shares of Category I or II redeemed within 18
Category Fund months of initial
III Fund purchase of
Category III Fund
shares
- - Class A - Class A shares of - 0.25% if shares are
shares of Category III Fund redeemed within 12
Category - Class A shares of months of initial
III Fund AIM Tax-Exempt Cash purchase of
Fund Category III Fund
- AIM Cash Reserve shares
Shares of AIM Money
Market Fund
</Table>
REDEMPTION OF CLASS B SHARES ACQUIRED BY
EXCHANGE FROM AIM FLOATING RATE FUND
If you redeem Class B shares you acquired by exchange via a tender offer by AIM
Floating Rate Fund, the early withdrawal charge applicable to shares of AIM
Floating Rate Fund will be applied instead of the CDSC normally applicable to
Class B shares.
HOW TO REDEEM SHARES
- --------------------------------------------------------------------------------
<Table>
Through a Financial Contact your financial consultant.
Consultant
By Mail Send a written request to the transfer agent. Requests must
include (1) original signatures of all registered owners;
(2) the name of the AIM Fund and your account number; (3) if
the transfer agent does not hold your shares, endorsed share
certificates or share certificates accompanied by an
executed stock power; and (4) signature guarantees, if
necessary (see below). The transfer agent may require that
you provide additional information, such as corporate
resolutions or powers of attorney, if applicable. If you are
redeeming from an IRA account, you must include a statement
of whether or not you are at least 59 1/2 years old and
whether you wish to have federal income tax withheld from
your proceeds. The transfer agent may require certain other
information before you can redeem from an employer-sponsored
retirement plan. Contact your employer for details.
</Table>
A-5 MCF--1/02
-------------
THE AIM FUNDS
-------------
<Table>
By Telephone Call the transfer agent. You will be allowed to redeem by
telephone if (1) the proceeds are to be mailed to the
address on record (if there has been no change communicated
to us within the last 30 days) or transferred electronically
to a pre-authorized checking account; (2) you do not hold
physical share certificates; (3) you can provide proper
identification information; (4) the proceeds of the
redemption do not exceed $250,000; and (5) you have not
previously declined the telephone redemption privilege.
Certain accounts, including retirement accounts and 403(b)
plans, may not be redeemed by telephone. The transfer agent
must receive your call during the hours of the customary
trading session of the New York Stock Exchange (NYSE) in
order to effect the redemption at that day's closing price.
You may, with limited exceptions, redeem from an IRA account
by telephone. Redemptions from other types of retirement
accounts must be requested in writing.
By AIM Internet Connect Place your redemption request at www.aimfunds.com. You will
be allowed to redeem by internet if (1) you do not hold
physical share certificates; (2) you can provide proper
identification information; (3) the proceeds of the
redemption do not exceed $250,000; and (4) you have
established the internet trading option. AIM prototype
retirement accounts may not be redeemed on the internet. The
transfer agent must confirm your transaction during the
hours of the customary trading session of the NYSE in order
to effect the redemption at that day's closing price.
- ------------------------------------------------------------------------------------------
</Table>
TIMING AND METHOD OF PAYMENT
We normally will send out checks within one business day, and in any event no
more than seven days, after we accept your request to redeem. If you redeem
shares recently purchased by check, you will be required to wait up to ten
business days before we will send your redemption proceeds. This delay is
necessary to ensure that the purchase check has cleared.
REDEMPTION BY MAIL
If you mail us a request in good order to redeem your shares, we will mail you a
check in the amount of the redemption proceeds to the address on record with us.
If your request is not in good order, you may have to provide us with additional
documentation in order to redeem your shares.
REDEMPTION BY TELEPHONE
If you redeem by telephone, we will mail you a check in the amount of the
redemption proceeds to your address of record (if there has been no change
communicated to the transfer agent within the previous 30 days) or transmit them
electronically to your pre-authorized bank account. We use reasonable procedures
to confirm that instructions communicated by telephone are genuine and are not
liable for telephone instructions that are reasonably believed to be genuine.
REDEMPTION BY INTERNET
If you redeem by internet, we will transmit your redemption proceeds
electronically to your pre-authorized bank account. We use reasonable procedures
to confirm that instructions communicated by internet are genuine and are not
liable for internet instructions that are reasonably believed to be genuine.
PAYMENT FOR SYSTEMATIC WITHDRAWALS
You may arrange for regular monthly or quarterly withdrawals from your account
of at least $50. You also may make annual withdrawals if you own Class A shares.
We will redeem enough shares from your account to cover the amount withdrawn.
You must have an account balance of at least $5,000 to establish a Systematic
Withdrawal Plan. You can stop this plan at any time by giving ten days prior
notice to the transfer agent.
EXPEDITED REDEMPTIONS
(AIM Cash Reserve Shares of AIM Money Market Fund only)
If we receive your redemption order before 11:30 a.m. Eastern Time, we will try
to transmit payment of redemption proceeds on that same day. If we receive your
redemption order after 11:30 a.m. Eastern Time and before the close of the
customary trading session of the NYSE, we generally will transmit payment on the
next business day.
REDEMPTIONS BY CHECK
(Class A shares of AIM Tax-Exempt Cash Fund and AIM Cash Reserve Shares of AIM
Money Market Fund only)
You may redeem shares of these AIM Funds by writing checks in amounts of $250 or
more if you have completed an authorization form. Redemption by check is not
available for retirement accounts.
SIGNATURE GUARANTEES
We require a signature guarantee when you redeem by mail and
(1) the amount is greater than $250,000;
(2) you request that payment be made to someone other than the name registered
on the account;
(3) you request that payment be sent somewhere other than the bank of record on
the account; or
(4) you request that payment be sent to a new address or an address that changed
in the last 30 days.
The transfer agent will accept a guarantee of your signature by a number of
financial institutions. Call the transfer agent for additional information. Some
institutions have transaction amount maximums for these guarantees. Please check
with the guarantor institution.
MCF--1/02 A-6
-------------
THE AIM FUNDS
-------------
REINSTATEMENT PRIVILEGES
You may, within 120 days after you sell shares (except Class A shares of AIM
Tax-Exempt Cash Fund, AIM Cash Reserve Shares of AIM Money Market Fund and Class
A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate
Fund), reinvest all or part of your redemption proceeds in Class A shares of any
AIM Fund at net asset value in an identically registered account.
You may, within 120 days after you sell Class A shares of a Category III Fund,
reinvest all or part of your redemption proceeds in Class A shares of that same
Category III Fund at net asset value in an identically registered account.
The reinvestment amount must meet the subsequent investment minimum as
indicated in the section "Purchasing Shares".
If you paid a contingent deferred sales charge (CDSC) on any reinstated
amount, you will not be subject to a CDSC if you later redeem that amount.
You must notify the transfer agent in writing at the time you reinstate that
you are exercising your reinstatement privilege.
REDEMPTIONS BY THE AIM FUNDS
If your account has been open at least one year, you have not made an additional
purchase in the account during the past six calendar months, and the value of
your account falls below $500 for three consecutive months due to redemptions or
exchanges (excluding retirement accounts), the AIM Funds have the right to
redeem the account after giving you 60 days' prior written notice. You may avoid
having your account redeemed during the notice period by bringing the account
value up to $500 or by utilizing the Automatic Investment Plan.
If an AIM Fund determines that you have not provided a correct Social Security
or other tax ID number on your account application, the AIM Fund may, at its
discretion, redeem the account and distribute the proceeds to you.
EXCHANGING SHARES
You may, under certain circumstances, exchange shares in one AIM Fund for those
of another AIM Fund. Before requesting an exchange, review the prospectus of the
AIM Fund you wish to acquire. Exchange privileges also apply to holders of the
Connecticut General Guaranteed Account, established for tax-qualified group
annuities, for contracts purchased on or before June 30, 1992.
PERMITTED EXCHANGES
Except as otherwise stated below, you may exchange your shares for shares of the
same class of another AIM Fund. You may also exchange Class A shares of an AIM
Fund for AIM Cash Reserve Shares of AIM Money Market Fund. You may be required
to pay an initial sales charge when exchanging from a Fund with a lower initial
sales charge than the one into which you are exchanging. If you exchange into
shares that are subject to a CDSC, we will begin the holding period for purposes
of calculating the CDSC on the date you made your initial purchase.
EXCHANGES NOT SUBJECT TO A SALES CHARGE
You will not pay an initial sales charge when exchanging:
(1) Class A shares with an initial sales charge (except for Class A shares of
AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund) for
Class A shares of another AIM Fund or AIM Cash Reserve Shares of AIM Money
Market Fund;
(2) Class A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free
Intermediate Fund with an initial sales charge for
(a) one another;
(b) AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of
AIM Tax-Exempt Cash Fund; or
(c) Class A shares of another AIM Fund, but only if
(i) you acquired the original shares before May 1, 1994; or
(ii) you acquired the original shares on or after May 1, 1994 by way of
an exchange from shares with higher initial sales charges; or
(3) AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of AIM
Tax-Exempt Cash Fund for
(a) one another;
(b) Class A shares of an AIM Fund subject to an initial sales charge (except
for Class A shares of AIM Limited Maturity Treasury Fund and AIM
Tax-Free Intermediate Fund), but only if you acquired the original
shares
(i) prior to May 1, 1994 by exchange from Class A shares subject to an
initial sales charge;
(ii) on or after May 1, 1994 by exchange from Class A shares subject to
an initial sales charge (except for Class A shares of AIM Limited
Maturity Treasury Fund and AIM Tax-Free Intermediate Fund); or
(c) Class A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free
Intermediate Fund, but only if you acquired the original shares by
exchange from Class A shares subject to an initial sales charge.
You will not pay a CDSC or other sales charge when exchanging:
(1) Class A shares for other Class A shares;
(2) Class B shares for other Class B shares, and Class C shares for other Class
C shares; or
(3) AIM Cash Reserve Shares of AIM Money Market Fund for Class C shares.
A-7 MCF--1/02
-------------
THE AIM FUNDS
-------------
EXCHANGES NOT PERMITTED
Certain classes of shares are not covered by the exchange privilege.
For shares purchased prior to November 15, 2001, you may not exchange:
- - Class A shares of Category I or II Funds purchased at net asset value and
subject to a contingent deferred sales charge (CDSC) for Class A shares of AIM
Tax-Exempt Cash Fund;
- - Class A shares of Category III Funds purchased at net asset value for Class A
shares of a Category I or II Fund;
- - AIM Cash Reserve Shares of AIM Money Market Fund for Class B or Class C shares
of any AIM Fund;
- - AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of AIM
Tax-Exempt Cash Fund for Class A shares of Category I or II Funds that are
subject to a CDSC; or
- - on or after January 15, 2002, AIM Cash Reserve Shares of AIM Money Market Fund
or Class A shares of AIM Tax-Exempt Cash Fund for Class A shares of Category
III Funds that are subject to a CDSC.
For shares purchased on or after November 15, 2001, you may not exchange:
- - Class A shares of Category I or II Funds purchased at net asset value and
subject to a CDSC for Class A shares of AIM Tax-Exempt Cash Fund;
- - Class A shares of AIM Tax-Exempt Cash Fund for Class A shares of any other AIM
Fund that are subject to a CDSC or for AIM Cash Reserve Shares of AIM Money
Market Fund; or
- - AIM Cash Reserve Shares of AIM Money Market Fund for Class B or Class C shares
of any AIM Fund or for Class A shares of any AIM Fund that are subject to a
CDSC, however, if you originally purchased Class A shares of a Category I or
II Fund, and exchanged those shares for AIM Cash Reserve Shares of AIM Money
Market Fund, you may further exchange the AIM Cash Reserve Shares for Class A
shares of a Category I or II Fund.
EXCHANGE CONDITIONS
The following conditions apply to all exchanges:
- - You must meet the minimum purchase requirements for the AIM Fund into which
you are exchanging;
- - Shares of the AIM Fund you wish to acquire must be available for sale in your
state of residence;
- - Exchanges must be made between accounts with identical registration
information;
- - The account you wish to exchange from must have a certified tax identification
number (or the Fund has received an appropriate Form W-8 or W-9);
- - Shares must have been held for at least one day prior to the exchange;
- - If you have physical share certificates, you must return them to the transfer
agent prior to the exchange; and
- - You are limited to a maximum of 10 exchanges per calendar year, because
excessive short-term trading or market-timing activity can hurt fund
performance. If you exceed that limit, or if an AIM Fund or the distributor
determines, in its sole discretion, that your short-term trading is excessive
or that you are engaging in market-timing activity, it may reject any
additional exchange orders. An exchange is the movement out of (redemption)
one AIM Fund and into (purchase) another AIM Fund.
TERMS OF EXCHANGE
Under unusual market conditions, an AIM Fund may delay the purchase of shares
being acquired in an exchange for up to five business days if it determines that
it would be materially disadvantaged by the immediate transfer of exchange
proceeds. There is no fee for exchanges. The exchange privilege is not an option
or right to purchase shares. Any of the participating AIM Funds or the
distributor may modify or discontinue this privilege at any time.
BY MAIL
If you wish to make an exchange by mail, you must include original signatures of
each registered owner exactly as the shares are registered, the account
registration and account number, the dollar amount or number of shares to be
exchanged and the names of the AIM Funds from which and into which the exchange
is to be made.
BY TELEPHONE
Conditions that apply to exchanges by telephone are the same as redemptions by
telephone, including that the transfer agent must receive exchange requests
during the hours of the customary trading session of the NYSE; however, you
still will be allowed to exchange by telephone even if you have changed your
address of record within the preceding 30 days.
BY INTERNET
You will be allowed to exchange by internet if (1) you do not hold physical
share certificates; (2) you can provide proper identification information; and
(3) you have established the internet trading option.
MCF--1/02 A-8
-------------
THE AIM FUNDS
-------------
EXCHANGING CLASS B AND CLASS C SHARES
If you make an exchange involving Class B or Class C shares, the amount of time
you held the original shares will be added to the holding period of the Class B
or Class C shares, respectively, into which you exchanged for the purpose of
calculating contingent deferred sales charges (CDSC) if you later redeem the
exchanged shares. If you redeem Class B shares acquired by exchange via a tender
offer by AIM Floating Rate Fund, you will be credited with the time period you
held the shares of AIM Floating Rate Fund for the purpose of computing the early
withdrawal charge applicable to those shares.
- -------------------------------------------------------------------------------
EACH AIM FUND AND ITS AGENTS RESERVE THE RIGHT AT ANY TIME TO:
- REJECT OR CANCEL ALL OR ANY PART OF ANY PURCHASE OR EXCHANGE ORDER;
- MODIFY ANY TERMS OR CONDITIONS OF PURCHASE OF SHARES OF ANY AIM FUND;
- REJECT OR CANCEL ANY REQUEST TO ESTABLISH THE AUTOMATIC INVESTMENT PLAN AND
SYSTEMATIC WITHDRAWAL PLAN OPTIONS ON THE SAME ACCOUNT; OR
- WITHDRAW ALL OR ANY PART OF THE OFFERING MADE BY THIS PROSPECTUS.
- -------------------------------------------------------------------------------
PRICING OF SHARES
DETERMINATION OF NET ASSET VALUE
The price of each AIM Fund's shares is the fund's net asset value per share. The
AIM Funds value portfolio securities for which market quotations are readily
available at market value. The AIM Funds' short-term investments are valued at
amortized cost when the security has 60 days or less to maturity. AIM Money
Market Fund and AIM Tax-Exempt Cash Fund value all of their securities at
amortized cost. AIM High Income Municipal Fund, AIM Municipal Bond Fund and AIM
Tax-Free Intermediate Fund value variable rate securities that have an
unconditional demand or put feature exercisable within seven days or less at
par, which reflects the market value of such securities.
The AIM Funds value all other securities and assets at their fair value.
Securities and other assets quoted in foreign currencies are valued in U.S.
dollars based on the prevailing exchange rates on that day. In addition, if,
between the time trading ends on a particular security and the close of the
customary trading session of the NYSE, events occur that materially affect the
value of the security, the AIM Funds may value the security at its fair value as
determined in good faith by or under the supervision of the Board of Directors
or Trustees of the AIM Fund. The effect of using fair value pricing is that an
AIM Fund's net asset value will be subject to the judgment of the Board of
Directors or Trustees or its designee instead of being determined by the market.
Because some of the AIM Funds may invest in securities that are primarily listed
on foreign exchanges that trade on days when the AIM Funds do not price their
shares, the value of those funds' assets may change on days when you will not be
able to purchase or redeem fund shares.
Each AIM Fund determines the net asset value of its shares on each day the
NYSE is open for business, as of the close of the customary trading session, or
any earlier NYSE closing time that day. AIM Money Market Fund also determines
its net asset value as of 12:00 noon Eastern Time on each day the NYSE is open
for business.
TIMING OF ORDERS
You can purchase, exchange or redeem shares during the hours of the customary
trading session of the NYSE. The AIM Funds price purchase, exchange and
redemption orders at the net asset value calculated after the transfer agent
receives an order in good order. An AIM Fund may postpone the right of
redemption only under unusual circumstances, as allowed by the Securities and
Exchange Commission, such as when the NYSE restricts or suspends trading.
TAXES
In general, dividends and distributions you receive are taxable as ordinary
income or long-term capital gains for federal income tax purposes, whether you
reinvest them in additional shares or take them in cash. Distributions are
generally taxable to you at different rates depending on the length of time the
fund holds its assets. Different tax rates may apply to ordinary income and
long-term capital gain distributions, regardless of how long you have held your
shares. Every year, you will be sent information showing the amount of dividends
and distributions you received from each AIM Fund during the prior year.
Any long-term or short-term capital gains realized from redemptions of AIM
Fund shares will be subject to federal income tax. Exchanges of shares for
shares of another AIM Fund are treated as a sale, and any gain realized on the
transaction will generally be subject to federal income tax.
INVESTORS IN TAX-EXEMPT FUNDS SHOULD READ THE INFORMATION UNDER THE HEADING
"OTHER INFORMATION -- SPECIAL TAX INFORMATION REGARDING THE FUND" IN THEIR
PROSPECTUS.
The foreign, state and local tax consequences of investing in AIM Fund shares
may differ materially from the federal income tax consequences described above.
You should consult your tax advisor before investing.
A-9 MCF--1/02
-------------------------
AIM GLOBAL UTILITIES FUND
-------------------------
OBTAINING ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
More information may be obtained free of charge upon request. The Statement of
Additional Information (SAI), a current version of which is on file with the
Securities and Exchange Commission (SEC), contains more details about the fund
and is incorporated by reference into the prospectus (is legally a part of this
prospectus). Annual and semiannual reports to shareholders contain additional
information about the fund's investments. The fund's annual report also
discusses the market conditions and investment strategies that significantly
affected the fund's performance during its last fiscal year.
If you have questions about this fund, another fund in The AIM Family of
Funds--Registered Trademark-- or your account, or wish to obtain free copies of
the fund's current SAI or annual or semiannual reports, please contact us
<Table>
- --------------------------------------------------------
BY MAIL: A I M Fund Services, Inc.
P.O. Box 4739
Houston, TX 77210-4739
BY TELEPHONE: (800) 347-4246
ON THE INTERNET: You can send us a request
by e-mail or download
prospectuses, annual or
semiannual reports via
our website:
http://www.aimfunds.com
- --------------------------------------------------------
</Table>
You also can review and obtain copies of the fund's SAI, reports and other
information at the SEC's Public Reference Room in Washington, DC; on the EDGAR
database on the SEC's Internet website (http://www.sec.gov); or, after paying a
duplication fee, by sending a letter to the SEC's Public Reference Section,
Washington, DC 20549-0102 or by sending an electronic mail request to
publicinfo@sec.gov. Please call the SEC at 1-202-942-8090 for information about
the Public Reference Room.
- ------------------------------------
AIM Global Utilities Fund
SEC 1940 Act file number: 811-1540
- ------------------------------------
[AIM LOGO APPEARS HERE] www.aimfunds.com GLU-PRO-1 INVEST WITH DISCIPLINE
- --Registered Trademark-- --Registered Trademark--
APPENDIX III
UTILITIES SUFFER AS SLOWING ECONOMY STIFLES DEMAND
PORTFOLIO COMPOSITION
<Table>
<Caption>
================================================================================
TOP 10 HOLDINGS
- --------------------------------------------------------------------------------
1. SBC Communications Inc. 5.2%
2. Pinnacle West Capital Corporation 4.1
3. Allegheny Energy, Inc. 3.7
4. NiSource Inc. 3.6
5. FPL Group, Inc. 3.6
6. Niagara Mohawk Holdings Inc. 3.3
7. Energy East Corp. 3.3
8. BellSouth Corp. 2.9
9. Duke Energy Corp. 2.7
10. DTE Energy Co. 2.6
================================================================================
</Table>
HOW DID THE FUND PERFORM DURING THE GLOBAL ECONOMIC DOWNTURN?
Slower growth worldwide created a serious decline in the demand for utility
companies' products and services, depressing earnings and undermining stock
prices.
For the fiscal year ended December 31, 2001, the fund's per-share returns
(excluding sales charges) were -28.33% for Class A shares, -28.90% for Class B
shares and -28.88% for Class C shares, closely tracking the -26.27% return of
the Dow Jones Utilities Average. In a year when growth investments
underperformed value investments, the fund's focus on faster-growing utilities
operated to its disadvantage. The fund underperformed the Lipper Utility Fund
Index, which returned -21.35%. However, this growth focus may help AIM Global
Utilities Fund's performance as the economy recovers.
The fund's benchmark, the S&P 500, is a less appropriate fit for the fund's
portfolio because it includes a much broader range of stocks. It experienced a
return of -11.88% during 2001. Nearly all stock indexes ended the year with
negative returns.
While both the market and the fund trended upward somewhat during the fourth
quarter of 2001, the fundamentals underlying the poor performance (low
electricity prices, low gas prices, mild weather and weak demand) continued.
HOW WAS THE FUND AFFECTED BY MARKET AND ECONOMIC CONDITIONS?
As the global economic slump dragged on into its second year, many companies of
all kinds decreased production and laid off staff. With less equipment and fewer
workers requiring electricity and other utilities, usage dropped. Unseasonably
mild weather this winter further undercut the need for power or gas to run
heating systems. This oversupply tended to drive down prices. Declining revenues
and profits compressed utilities' stock values.
Even before the September terrorist attacks, major stock market indexes had
been declining for more than a year. After markets reopened on September 17, the
Dow Jones Industrial Average experienced its worst week in more than 60 years,
losing more than 14% of its value in just four days. After that week, however,
stock values began to recover and continued to rise through the fourth quarter
of 2001.
HOW ABOUT PROBLEMATIC FACTORS UNIQUE TO THE UTILITY INDUSTRY?
As many countries experiment with deregulation, utilities around the world are
going through significant restructuring, leading to shifts in capital and
assets. Deregulated environments give utility companies opportunities for higher
revenues and profits, but also expose them to higher risks, including greater
sensitivity to general economic conditions.
A prime example was the acrimonious confrontation in California over who was
responsible for the state's rolling blackouts early in 2001. The state
deregulated the wholesale power market but retained price caps at the retail
level. When a drought cut hydroelectric generating capacity at the same time
gas-fired plants faced soaring natural gas prices, the retail cap kept power
producers from passing on the increased costs to their customers, creating a
crisis.
[COVER PICTURE HERE]
FUND AT A GLANCE
AIM Global Utilities Fund seeks to achieve a high total return by investing in
securities of domestic and foreign utility companies.
INVESTMENT STYLE: GROWTH at a Reasonable Price--GARP (Draws on the strength of
both value and growth investing to identify companies with strong growth
prospects and attractive valuations)
o Invests in companies providing power generation and transmission,
telecommunications, natural gas and water to consumers
o Seeks to take advantage of the worldwide trend toward deregulation of the
utility industry
1
<Table>
<Caption>
================================================================================
TOP 10 COUNTRIES TOP 10 INDUSTRIES
- --------------------------------------------------------------------------------
1. U.S.A. 77.7% 1. Electric Utilities 42.8%
2. United Kingdom 4.4 2. Integrated Telecommunication Services 14.6
3. Spain 3.0 3. Multi-Utilities 11.4
4. Italy 1.9 4. Gas Utilities 10.5
5. France 1.7 5. Telecommunications Equipment 2.1
6. Brazil 1.1 6. Wireless Telecommunication Services 1.9
7. Germany 1.0 7. Industrial Conglomerates 1.9
8. Canada 0.9 8. Integrated Oil & Gas 1.4
9. Japan 0.8 9. Broadcasting & Cable TV 1.2
10. Finland 0.7 10. Oil & Gas Exploration & Production 1.1
The fund's portfolio is subject to change, and there is no guarantee that the
fund will continue to hold any particular security.
================================================================================
</Table>
PORTFOLIO COMPOSITION BY INVESTMENT
PIE CHART
Oil & Gas 3%
(Exploration & Production and Integrated)
Gas Utilities 11%
Other 13%
Multi-Utilities 11%
Telecommunications 19%
(Services and Equipment)
Electric Utilities 43%
WHAT STEPS DID THE FUND TAKE TO RESPOND TO THESE CIRCUMSTANCES?
Fund assets invested in foreign countries were increased slightly, while about
three-quarters of assets remained in the stocks of U.S. companies. Electric
power and telecommunications services, which are the largest segments of the
total utility sector, continue to make up the largest segments of the
portfolio. The fund bought stocks in electric companies that were more
regulated, because their revenues are less sensitive to pricing. Strong relative
performance increased the value of some of the telecommunications holdings.
Multi-utilities and gas utilities remained significant in the portfolio.
WHAT ARE SOME HOLDINGS THAT BENEFITED THE FUND?
o DTE Energy is engaged in the generation, purchase, transmission,
distribution and sale of electric energy in southeastern Michigan. Its
revenues rose substantially during the nine months ended September 30, 2001.
o Westcoast Energy generates power, distributes natural gas and provides
pipeline storage, transportation and services. Its earnings per common share
rose dramatically from third quarter 2000 to third quarter 2001, due partly
to the sale of two Canadian power generating facilities.
o Southern Co., a holding company for Alabama, Georgia, Gulf, Mississippi and
Savannah public utility companies, saw its stock appreciate substantially
this year.
WHAT WERE CONDITIONS LIKE AT THE CLOSE OF THE YEAR?
Inflation remained low and energy prices had dropped sharply, but the economy
remained in recession, continuing to depress utility usage. Utility companies'
earnings typically increase as prices rise for electricity, gas and
telecommunications. Whenever economic recovery begins, it is likely that
increasing demand will boost prices for utilities' services, improving earnings.
Unusually mild weather during the past year has also reduced the use of heating
and cooling systems. A return of more typical weather patterns could likewise
increase the demand for electricity and gas.
At year's end, utility stocks were at historically low valuations, providing
excellent buying opportunities among the securities of firms with good
fundamentals and strength enough to endure until a market turnaround. Many
analysts believe that the market has already factored into stock prices the poor
corporate earnings expected for the next quarter or so, allowing for a quick
rebound when earnings improve. Utilities are necessary services that are tied
directly to economic growth, so we consider it reasonable to anticipate that
utilities will see their stock values rise as the next economic upturn increases
the demand for their services.
See important fund and index disclosures inside front cover.
2
YOUR FUND'S LONG-TERM PERFORMANCE
AVERAGE ANNUAL TOTAL RETURNS
AS OF 12/31/01, including sales charges
================================================================================
CLASS A SHARES
10 Years 7.11%
5 Years 4.91
1 Year -32.28
CLASS B SHARES
Inception (9/1/93) 5.37%
5 Years 4.98
1 Year -32.39
CLASS C SHARES
Inception (8/4/97) 3.36%
1 Year -29.58
DUE TO RECENT SIGNIFICANT MARKET VOLATILITY, RESULTS OF AN INVESTMENT MADE TODAY
MAY DIFFER SUBSTANTIALLY FROM THE HISTORICAL PERFORMANCE SHOWN. CALL YOUR
FINANCIAL ADVISOR FOR MORE CURRENT PERFORMANCE.
================================================================================
RESULTS OF A $10,000 INVESTMENT
12/31/91-12/31/01
<Table>
<Caption>
================================================================================
AIM GLOBAL UTILITIES
FUND, CLASS A SHARES LIPPER S & P 500 INDEX
12/91 9450 10000 10000
12/92 10199 10886 10761
12/93 11455 12345 11844
12/94 10131 11199 11999
12/95 12974 14235 16502
12/96 14773 15566 20284
12/97 18273 19566 34778
12/98 21196 23166 36232
12/99 28429 26531 39973
12/00 27711 28805 39615
12/01 19869 22654 33723
MOUNTAIN CHART
Source: Lipper, Inc.
Past performance cannot guarantee comparable future results.
================================================================================
</Table>
This chart compares AIM Global Utilities Fund's Class A shares to benchmark
indexes. It is intended to give you an idea of how your fund performed compared
to those indexes over the period 12/31/91--12/31/01.
It is important to understand the differences between your fund and an
index. An index measures the performance of a hypothetical portfolio. A market
index such as the S&P 500 Index is unmanaged and incurs no sales charges,
expenses or fees. If you could buy all the securities that make up a market
index, you would incur expenses that would affect the return on your investment.
An index of funds such as the Lipper Utility Fund Index includes a number of
mutual funds grouped by investment objective. Each of those funds interprets
that objective differently, and each employs a different management style and
investment strategy.
Your fund's total return includes sales charges, expenses and management
fees. Performance of the fund's Class A, Class B and Class C shares will differ
due to different sales charge structures and class expenses. For fund
performance calculations and indexes used in this report, please see the inside
front cover.
Performance shown in the chart and table does not reflect taxes a
shareholder would pay on fund distributions or on redemption of fund shares.
Index performance does not reflect the effects of taxes either.
3
AIM GLOBAL UTILITIES FUND
A PORTFOLIO OF
AIM FUNDS GROUP
11 Greenway Plaza
Suite 100
Houston, Texas 77046-1173
Toll Free: (800) 347-4246
AIM GLOBAL INFRASTRUCTURE FUND
A PORTFOLIO OF
AIM GROWTH SERIES
11 Greenway Plaza
Suite 100
Houston, Texas 77046-1173
Toll Free: (800) 347-4246
STATEMENT OF ADDITIONAL INFORMATION
(September 4, 2002 Special Meeting of Shareholders of AIM Growth Series)
This Statement of Additional Information is not a prospectus but should
be read in conjunction with the Combined Proxy Statement and Prospectus dated
June __, 2002 of AIM Funds Group (the "Trust") for use in connection with the
Special Meeting of Shareholders of AIM Growth Series to be held on September 4,
2002. Copies of the Combined Proxy Statement and Prospectus may be obtained at
no charge by writing the Trust at the address shown above or by calling
1-800-347-4246. Unless otherwise indicated, capitalized terms used herein and
not otherwise defined have the same meanings as are given to them in the
Combined Proxy Statement and Prospectus.
A Statement of Additional Information for the Trust dated May 1, 2002,
as supplemented May 1, 2002, has been filed with the Securities and Exchange
Commission and is attached hereto as Appendix I which is incorporated herein by
this reference.
The date of this Statement of Additional Information is June __, 2002.
S-1
TABLE OF CONTENTS
<Table>
THE TRUST.....................................................................3
DESCRIPTION OF PERMITTED INVESTMENTS..........................................3
TRUSTEES AND OFFICERS OF THE TRUST............................................3
ADVISORY AND MANAGEMENT RELATED SERVICES AGREEMENTS AND
PLANS OF DISTRIBUTION.........................................................3
PORTFOLIO TRANSACTIONS........................................................3
DESCRIPTION OF SHARES.........................................................3
DETERMINATION OF NET ASSET VALUE..............................................4
TAXES.........................................................................4
PERFORMANCE DATA..............................................................4
FINANCIAL INFORMATION.........................................................4
Appendix I - AIM Funds Group Statement of Additional Information
Appendix II - Audited Financial Statements of AIM Global Infrastructure Fund
</Table>
S-2
THE TRUST
This Statement of Additional Information relates to AIM Funds Group (the
"Trust") and its investment portfolio, AIM Global Utilities Fund (the "Fund").
The Trust is registered as an open-end management investment company under the
Investment Company Act of 1940, as amended (the "1940 Act"). The Fund is a
separate series of shares of beneficial interest of the Trust. For additional
information about the Trust, see heading "General Information About the Trust"
in the Trust's Statement of Additional Information attached hereto as Appendix
I.
DESCRIPTION OF PERMITTED INVESTMENTS
For a discussion of the fundamental and nonfundamental investment policies of
the Fund adopted by the Trust's Board of Trustees, see heading "Description of
the Funds and Their Investments and Risks" in the Trust's Statement of
Additional Information attached hereto as Appendix I.
TRUSTEES AND OFFICERS OF THE TRUST
For a disclosure of the names and a brief occupational biography of each of the
Trust's trustees and executive officers identifying those who are interested
persons of the Trust as well as stating their aggregate remuneration, see
heading "Management of the Trust" in the Trust's Statement of Additional
Information attached hereto as Appendix I.
ADVISORY AND MANAGEMENT RELATED SERVICES AGREEMENTS AND PLANS OF DISTRIBUTION
For a discussion of the Trust's advisory and management-related services
agreements and plans of distribution, see headings "Investment Advisory and
Other Services" and "Distribution of Securities" in the Trust's Statement of
Additional Information attached hereto as Appendix I.
PORTFOLIO TRANSACTIONS
For a discussion of the Trust's brokerage policy, see heading "Brokerage
Allocation and Other Practices" in the Trust's Statement of Additional
Information attached hereto as Appendix I.
DESCRIPTION OF SHARES
For a discussion of the Trust's authorized securities and the characteristics of
the Trust's shares of beneficial interest, see heading "General Information
about the Trust" in the Trust's Statement of Additional Information attached
hereto as Appendix I.
S-3
DETERMINATION OF NET ASSET VALUE
For a discussion of the Trust's valuation and pricing procedures and a
description of its purchase and redemption procedures, see heading "Purchase,
Redemption and Pricing of Shares" in the Trust's Statement of Additional
Information attached hereto as Appendix I.
TAXES
For a discussion of any tax information relating to ownership of the Trust's
shares, see heading "Dividends, Distributions and Tax Matters" in the Trust's
Statement of Additional information attached hereto as Appendix I.
PERFORMANCE DATA
For a description and quotation of certain performance data used by the Trust,
see heading "Calculation of Performance Data" in the Trust's Statement of
Additional Information attached hereto as Appendix I.
FINANCIAL INFORMATION
The audited financial statements of the Fund and the report thereon by
PricewaterhouseCoopers LLP, are set forth under the heading "Financial
Statements" in the Trust's Statement of Additional Information attached hereto
as Appendix I.
The audited financial statements of AIM Global Infrastructure Fund and the
report thereon by PricewaterhouseCoopers LLP, are set forth in the Annual Report
of AIM Global Infrastructure Fund, dated October 31, 2001, which is incorporated
herein by reference and attached hereto as Appendix II.
S-4
APPENDIX I
AIM FUNDS GROUP
AIM BALANCED FUND
AIM BASIC BALANCED FUND
AIM EUROPEAN SMALL COMPANY FUND
AIM GLOBAL UTILITIES FUND
AIM INTERNATIONAL EMERGING GROWTH FUND
AIM MID CAP BASIC VALUE FUND
AIM NEW TECHNOLOGY FUND
AIM SELECT EQUITY FUND
AIM SMALL CAP EQUITY FUND
AIM VALUE FUND
AIM VALUE II FUND
AIM WORLDWIDE SPECTRUM FUND
Supplement dated May 1, 2002 to the
Statement of Additional Information dated May 1, 2002
The Securities and Exchange Commission ("SEC") has adopted a rule that generally
requires mutual funds with names suggesting a focus in a particular type of
investment, industry or geographic region to invest at least 80% of their assets
in such investment, industry or geographic region. In accordance with the
requirements of this new SEC rule and the underlying statutory purposes of the
rule, the Board of Trustees has approved the changes described in this
supplement:
At a meeting held on February 7, 2002, the Board of Trustees of AIM Funds Group,
on behalf of AIM Value Fund and AIM Value II Fund, voted to change those funds'
names to "AIM Premier Equity Fund" and AIM Premier Equity II Fund,"
respectively.
The Board of Trustees also approved the following new non-fundamental policies:
o "AIM European Small Company Fund normally invests at least 80% of its
net assets, plus the amount of any borrowings for investment purposes,
in securities of European small companies. The Fund will provide
written notice to its shareholders prior to any change to this policy,
as required by the 1940 Act Laws, Interpretations and Exemptions."
o "AIM Global Utilities Fund normally invests at least 80% of its net
assets, plus the amount of any borrowings for investment purposes, in
securities of domestic and foreign public utility companies. The Fund
will provide written notice to its shareholders prior to any change to
this policy, as required by the 1940 Act Laws, Interpretations and
Exemptions."
o "AIM New Technology Fund normally invests at least 80% of its net
assets, plus the amount of any borrowings for investment purposes, in
securities of technology and science companies that portfolio managers
believe are likely to benefit from new or innovative products,
services or processes. The Fund will provide written notice to its
shareholders prior to any change to this policy, as required by the
1940 Act Laws, Interpretations and Exemptions."
o "AIM Small Cap Equity Fund normally invests at least 80% of its net
assets, plus the amount of any borrowings for investment purposes, in
equity securities, including convertible securities, of small-cap
companies. The Fund will provide written notice to its shareholders
prior to any change to this policy, as required by the 1940 Act Laws,
Interpretations and Exemptions."
o "AIM Mid Cap Basic Value Fund normally invests at least 80% of its net
assets, plus the amount of any borrowings for investment purposes, in
securities of mid-cap companies that offer potential for capital
growth. The Fund will provide written notice to its shareholders prior
to any change to this policy, as required by the 1940 Act Laws,
Interpretations and Exemptions."
o "AIM Select Equity Fund normally invests at least 80% of its net
assets, plus the amount of any borrowings for investment purposes, in
equity securities, including convertible securities, with prospects
for above-average market returns, without regard to market
capitalization. The Fund will provide written notice to its
shareholders prior to any change to this policy, as required by the
1940 Act Laws, Interpretations and Exemptions."
o "AIM Premier Equity Fund normally invests at least 80% of its net
assets, plus the amount of any borrowings for investment purposes, in
equity securities, including convertible securities. The Fund will
provide written notice to its shareholders prior to any change to this
policy, as required by the 1940 Act Laws, Interpretations and
Exemptions."
o "AIM Premier Equity II Fund normally invests at least 80% of its net
assets, plus the amount of any borrowings for investment purposes, in
equity securities, including convertible securities. The Fund will
provide written notice to its shareholders prior to any change to this
policy, as required by the 1940 Act Laws, Interpretations and
Exemptions."
The changes noted above become effective July 1, 2002.
STATEMENT OF
ADDITIONAL INFORMATION
AIM FUNDS GROUP
11 GREENWAY PLAZA
SUITE 100
HOUSTON, TEXAS 77046-1173
(713) 626-1919
-------------------------
THIS STATEMENT OF ADDITIONAL INFORMATION RELATES TO THE CLASS A, CLASS B AND
CLASS C SHARES OF EACH PORTFOLIO (EACH A "FUND," COLLECTIVELY THE "FUNDS")
OF AIM FUNDS GROUP LISTED BELOW. THIS STATEMENT OF ADDITIONAL INFORMATION
IS NOT A PROSPECTUS, AND IT SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUSES
FOR THE FUNDS LISTED BELOW. YOU MAY OBTAIN A COPY OF ANY PROSPECTUS
FOR ANY FUND LISTED BELOW FROM AN AUTHORIZED DEALER OR BY WRITING TO:
A I M FUND SERVICES, INC.
P.O. BOX 4739
HOUSTON, TEXAS 77210-4739
OR BY CALLING (800) 347-4246
-------------------------
THIS STATEMENT OF ADDITIONAL INFORMATION, DATED MAY 1, 2002,
RELATES TO THE FOLLOWING PROSPECTUSES:
<Table>
<Caption>
FUND DATED
---- -----
AIM BALANCED FUND MAY 1, 2002
AIM BASIC BALANCED FUND MAY 1, 2002
AIM EUROPEAN SMALL COMPANY FUND MAY 1, 2002
AIM GLOBAL UTILITIES FUND MAY 1, 2002
AIM INTERNATIONAL EMERGING GROWTH FUND MAY 1, 2002
AIM MID CAP BASIC VALUE FUND MAY 1, 2002
AIM NEW TECHNOLOGY FUND MAY 1, 2002
AIM SELECT EQUITY FUND MAY 1, 2002
AIM SMALL CAP EQUITY FUND MAY 1, 2002
AIM VALUE FUND MAY 1, 2002
AIM VALUE II FUND MAY 1, 2002
AIM WORLDWIDE SPECTRUM FUND MAY 1, 2002
</Table>
AIM FUNDS GROUP
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
GENERAL INFORMATION ABOUT THE TRUST.............................................................1
Fund History...........................................................................1
Shares of Beneficial Interest..........................................................1
DESCRIPTION OF THE FUNDS AND THEIR INVESTMENTS AND RISKS........................................2
Classification.........................................................................2
Investment Strategies and Risks........................................................3
Equity Investments..........................................................8
Foreign Investments.........................................................8
Debt Investments...........................................................10
Other Investments..........................................................14
Investment Techniques......................................................15
Derivatives................................................................19
Fund Policies.........................................................................25
Temporary Defensive Positions.........................................................27
Portfolio Turnover....................................................................27
MANAGEMENT OF THE TRUST........................................................................28
Board of Trustees.....................................................................28
Management Information................................................................28
Trustee Ownership of Fund Shares...........................................29
Factors Considered in Approving the Investment Advisory Agreement..........29
Compensation..........................................................................29
Retirement Plan For Trustees...............................................30
Deferred Compensation Agreements...........................................30
Purchase of Class A Shares of the Funds at Net Asset Value.................30
Codes of Ethics.......................................................................31
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES............................................31
INVESTMENT ADVISORY AND OTHER SERVICES.........................................................31
Investment Advisor....................................................................31
Service Agreements....................................................................33
Other Service Providers...............................................................33
BROKERAGE ALLOCATION AND OTHER PRACTICES.......................................................34
Brokerage Transactions................................................................34
Commissions...........................................................................35
Brokerage Selection...................................................................35
Directed Brokerage (Research Services)................................................36
Regular Brokers or Dealers............................................................36
Allocation of Portfolio Transactions..................................................36
Allocation of Equity Offering Transactions............................................37
PURCHASE, REDEMPTION AND PRICING OF SHARES.....................................................37
Purchase and Redemption of Shares.....................................................37
Offering Price........................................................................52
Redemption In Kind....................................................................53
Backup Withholding....................................................................53
</Table>
i
<Table>
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS.......................................................54
Dividends and Distributions...........................................................54
Tax Matters...........................................................................55
DISTRIBUTION OF SECURITIES.....................................................................62
Distribution Plans....................................................................62
Distributor...........................................................................64
CALCULATION OF PERFORMANCE DATA................................................................65
APPENDICES:
RATINGS OF DEBT SECURITIES....................................................................A-1
TRUSTEES AND OFFICERS.........................................................................B-1
TRUSTEES COMPENSATION TABLE...................................................................C-1
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES...........................................D-1
MANAGEMENT FEES ..............................................................................E-1
ADMINISTRATIVE SERVICES FEES..................................................................F-1
BROKERAGE COMMISSIONS.........................................................................G-1
DIRECTED B ROKERAGE (RESEARCH SERVICES) AND PURCHASE OF SECURITIES OF
REGULAR BROKERS OR DEALERS....................................................................H-1
AMOUNTS PAID TO A I M DISTRIBUTORS, INC. PURSUANT TO DISTRIBUTION PLANS.......................I-1
ALLOCATION OF ACTUAL FEES PAID PURSUANT TO DISTRIBUTION PLANS.................................J-1
TOTAL SALES CHARGES...........................................................................K-1
PERFORMANCE DATA..............................................................................L-1
FINANCIAL STATEMENTS...........................................................................FS
</Table>
ii
GENERAL INFORMATION ABOUT THE TRUST
FUND HISTORY
AIM Funds Group (the "Trust") is a Delaware business trust which is
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management investment company. The Trust currently
consists of twelve separate portfolios: AIM Balanced Fund, AIM Basic Balanced
Fund, AIM European Small Company Fund, AIM Global Utilities Fund, AIM
International Emerging Growth Fund, AIM Mid Cap Basic Value Fund, AIM New
Technology Fund, AIM Select Equity Fund, AIM Small Cap Equity Fund, AIM Value
Fund, AIM Value II Fund and AIM Worldwide Spectrum Fund, (each a "Fund" and
collectively, the "Funds"). Under the Amended and Restated Agreement and
Declaration of Trust, dated November 5, 1998, as amended (the "Trust
Agreement"), the Board of Trustees is authorized to create new series of shares
without the necessity of a vote of shareholders of the Trust.
The Trust was originally organized on October 30, 1984, as a
Massachusetts business trust. The Trust reorganized as a Delaware business trust
on October 15, 1993. The following Funds were included in the reorganization:
AIM Global Utilities Fund, AIM Select Equity Fund and AIM Value Fund. In
addition, on October 15, 1993, AIM Balanced Fund acquired all the assets and
assumed all of the liabilities of AIM Convertible Securities Fund, Inc., a
Maryland corporation. All historical financial and other information contained
in this Statement of Additional Information for periods prior to October 15,
1993 relating to these Funds (or a class thereof) is that of the predecessor
funds (or the corresponding class thereof). Prior to May 1, 1995, AIM Global
Utilities Fund was known as AIM Utilities Fund. Prior to July 13, 2001, AIM
Select Equity Fund was known as AIM Select Growth Fund, and prior to May 1,
1998, such Fund was known as AIM Growth Fund. Each of the other Funds commenced
operations as a series of the Trust.
SHARES OF BENEFICIAL INTEREST
Shares of beneficial interest of the Trust are redeemable at their net
asset value (subject, in certain circumstances, to a contingent deferred sales
charge) at the option of the shareholder or at the option of the Trust in
certain circumstances.
The Trust allocates moneys and other property it receives from the
issue or sale of shares of each of its series of shares, and all income,
earnings and profits from such issuance and sales, subject only to the rights of
creditors, to the appropriate Fund. These assets constitute the underlying
assets of each Fund, are segregated on the Trust's books of account, and are
charged with the expenses of such Fund and its respective classes. The Trust
allocates any general expenses of the Trust not readily identifiable as
belonging to a particular Fund by or under the direction of the Board of
Trustees, primarily on the basis of relative net assets, or other relevant
factors.
Each share of each Fund represents an equal proportionate interest in
that Fund with each other share and is entitled to such dividends and
distributions out of the income belonging to such Fund as are declared by the
Board. Each Fund offers three separate classes of shares: Class A shares, Class
B shares and Class C shares. Each of AIM Balanced Fund and AIM Value Fund also
offers a fourth class of shares, Institutional Class shares. This Statement of
Additional Information relates solely to the Class A, Class B and Class C shares
of the Funds. Each class of shares represents interests in the same portfolio of
investments. Differing sales charges and expenses will result in differing net
asset values and dividends and distributions. Upon any liquidation of the Trust,
shareholders of each class are entitled to share pro rata in the net assets
belonging to the applicable Fund allocable to such class available for
distribution after satisfaction of outstanding liabilities of the Fund allocable
to such class.
Each share of a Fund has the same voting, dividend, liquidation and
other rights; however, each class of shares of a Fund is subject to different
sales loads, conversion features, exchange privileges and class-specific
expenses. Only shareholders of a specific class may vote on matters relating to
that class' distribution plan. Because Class B shares automatically convert to
Class A shares at month-end eight
1
years after the date of purchase, the Fund's distribution plan adopted pursuant
to Rule 12b-1 under the 1940 Act requires that Class B shareholders must also
approve any material increase in distribution fees submitted to Class A
shareholders of that Fund. A pro rata portion of shares from reinvested
dividends and distributions convert along with the Class B shares.
Except as specifically noted above, shareholders of each Fund are
entitled to one vote per share (with proportionate voting for fractional
shares), irrespective of the relative net asset value of the shares of a Fund.
However, on matters affecting an individual Fund or class of shares, a separate
vote of shareholders of that Fund or class is required. Shareholders of a Fund
or class are not entitled to vote on any matter which does not affect that Fund
or class but that requires a separate vote of another Fund or class. An example
of a matter that would be voted on separately by shareholders of each Fund is
the approval of the advisory agreement with A I M Advisors, Inc. ("AIM"), and an
example of a matter that would be voted on separately by shareholders of each
class of shares is approval of the distribution plans. When issued, shares of
each Fund are fully paid and nonassessable, have no preemptive or subscription
rights, and are freely transferable. Other than the automatic conversion of
Class B shares to Class A shares, there are no conversion rights. Shares do not
have cumulative voting rights, which means that in situations in which
shareholders elect trustees, holders of more than 50% of the shares voting for
the election of trustees can elect all of the trustees of the Trust, and the
holders of less than 50% of the shares voting for the election of trustees will
not be able to elect any trustees.
Under Delaware law, shareholders of a Delaware business trust shall be
entitled to the same limitations of liability extended to shareholders of
private for-profit corporations. There is a remote possibility, however, that
shareholders could, under certain circumstances, be held liable for the
obligations of the Trust to the extent the courts of another state which does
not recognize such limited liability were to apply the laws of such state to a
controversy involving such obligations. The Trust Agreement disclaims
shareholder liability for acts or obligations of the Trust and requires that
notice of such disclaimer be given in each agreement, obligation or instrument
entered into or executed by the Trust or the trustees to all parties, and each
party thereto must expressly waive all rights of action directly against
shareholders of the Trust. The Trust Agreement provides for indemnification out
of the property of a Fund for all losses and expenses of any shareholder of such
Fund held liable on account of being or having been a shareholder. Thus, the
risk of a shareholder incurring financial loss due to shareholder liability is
limited to circumstances in which a Fund is unable to meet its obligations and
the complaining party is not held to be bound by the disclaimer.
The trustees and officers of the Trust will not be liable for any act,
omission or obligation of the Trust or any trustee or officer; however, a
trustee or officer is not protected against any liability to the Trust or to the
shareholders to which a trustee or officer would otherwise be subject by reason
of willful misfeasance, bad faith, gross negligence, or reckless disregard of
the duties involved in the conduct of his or her office with the Trust
("Disabling Conduct"). The Trust Agreement provides for indemnification by the
Trust of the trustees, the officers and employees or agents of the Trust,
provided that such persons have not engaged in Disabling Conduct. The Trust
Agreement also authorizes the purchase of liability insurance on behalf of
trustees and officers.
SHARE CERTIFICATES. Each Fund will issue share certificates upon
written request to A I M Fund Services, Inc. ("AFS"). AFS will not issue
certificates for shares held in prototype retirement plans sponsored by AMVESCAP
National Trust Company, an affiliate of AIM.
DESCRIPTION OF THE FUNDS AND THEIR INVESTMENTS AND RISKS
CLASSIFICATION
The Trust is an open-end management investment company. Each of the
Funds other than AIM European Small Company Fund, AIM Global Utilities Fund and
AIM International Emerging Growth Fund is "diversified" for purposes of the 1940
Act.
2
INVESTMENT STRATEGIES AND RISKS
The table on the following pages identifies various securities and
investment techniques used by AIM in managing The AIM Family of
Funds--Registered Trademark--. The table has been marked to indicate those
securities and investment techniques that AIM may use to manage a Fund. A Fund
may not use all of these techniques at any one time. A Fund's transactions in a
particular security or use of a particular technique is subject to limitations
imposed by a Fund's investment objective, policies and restrictions described in
that Fund's Prospectus and/or this Statement of Additional Information, as well
as federal securities laws. The Funds' investment objectives, policies,
strategies and practices are non-fundamental unless otherwise indicated. A more
detailed description of the securities and investment techniques, as well as the
risks associated with those securities and investment techniques that the Funds
utilize, follows the table. The descriptions of the securities and investment
techniques in this section supplement the discussion of principal investment
strategies contained in each Fund's Prospectus; where a particular type of
security or investment technique is not discussed in a Fund's Prospectus, that
security or investment technique is not a principal investment strategy.
3
AIM FUNDS GROUP
SUMMARY OF SECURITIES AND INVESTMENT TECHNIQUES
<Table>
<Caption>
FUND AIM AIM BASIC AIM AIM AIM AIM MID AIM NEW AIM AIM
- ---------- BALANCED BALANCED EUROPEAN GLOBAL INTERNATIONAL CAP BASIC TECHNOLOGY SELECT SMALL
SECURITY/ FUND FUND SMALL UTILITIES EMERGING VALUE FUND FUND EQUITY CAP
INVESTMENT COMPANY FUND GROWTH FUND FUND EQUITY
TECHNIQUE FUND FUND
EQUITY INVESTMENTS
Common Stock X X X X X X X X X
Preferred Stock X X X X X X X X X
Convertible X X X X X X X X X
Securities
Alternative X X X X X X X X X
Entity Securities
FOREIGN INVESTMENTS
Foreign Securities X X X X X X X X X
Foreign Government X X X X X X X X X
Obligations
Foreign Exchange X X X X X X X X X
Transactions
DEBT INVESTMENTS
U.S. Government X X X X X X X X X
Obligations
Money Market X X X X X X X X X
Instruments
Mortgage-Backed and X X X X X X X X X
Asset-Backed
Securities
Collateralized X
Mortgage Obligations
Bank Instruments X X X X X X X X X
Commercial X X X X X X X X X
Instruments
Participation X X X X X X X X X
Interests
Municipal Securities
Municipal Lease X X X X X X X X X
Obligations
<Caption>
FUND AIM VALUE AIM AIM
- ---------- FUND VALUE II WORLDWIDE
SECURITY/ FUND SPECTRUM
INVESTMENT FUND
TECHNIQUE
Common Stock X X X
Preferred Stock X X X
Convertible X X X
Securities
Alternative X X X
Entity Securities
Foreign Securities X X X
Foreign Government X X X
Obligations
Foreign Exchange X X X
Transactions
U.S. Government X X X
Obligations
Money Market X X X
Instruments
Mortgage-Backed and X X X
Asset-Backed
Securities
Collateralized
Mortgage Obligations
Bank Instruments X X X
Commercial X X X
Instruments
Participation X X X
Interests
Municipal Securities
Municipal Lease X X X
Obligations
</Table>
4
<Table>
<Caption>
FUND AIM AIM BASIC AIM AIM AIM AIM MID AIM NEW AIM AIM
- ---------- BALANCED BALANCED EUROPEAN GLOBAL INTERNATIONAL CAP BASIC TECHNOLOGY SELECT SMALL
SECURITY/ FUND FUND SMALL UTILITIES EMERGING VALUE FUND FUND EQUITY CAP
INVESTMENT COMPANY FUND GROWTH FUND FUND EQUITY
TECHNIQUE FUND FUND
Investment Grade X X X X X X X X X
Corporate Debt
Obligations
Junk Bonds X
Liquid Assets X X X X X X X X X
OTHER INVESTMENTS
REITs X X X X X X X X X
Other Investment X X X X X X X X X
Companies
Defaulted Securities
Municipal Forward
Contracts
Variable or Floating
Rate Instruments
Indexed Securities
Zero-Coupon and
Pay-in-Kind
Securities
Synthetic Municipal
Instruments
INVESTMENT TECHNIQUES
Delayed Delivery X X X X X X X X X
Transactions
When-Issued X X X X X X X X X
Securities
Short Sales X X X X X X X X X
Margin Transactions
Swap Agreements X X X X X X X X X
Interfund Loans X X X X X X X X X
Borrowing X X X X X X X X X
<Caption>
FUND AIM VALUE AIM AIM
- ---------- FUND VALUE II WORLDWIDE
SECURITY/ FUND SPECTRUM
INVESTMENT FUND
TECHNIQUE
Investment Grade X X X
Corporate Debt
Obligations
Junk Bonds
Liquid Assets X X X
REITs X X X
Other Investment X X X
Companies
Defaulted Securities
Municipal Forward
Contracts
Variable or Floating
Rate Instruments
Indexed Securities
Zero-Coupon and
Pay-in-Kind
Securities
Synthetic Municipal
Instruments
Delayed Delivery X X X
Transactions
When-Issued X X X
Securities
Short Sales X X X
Margin Transactions
Swap Agreements X X X
Interfund Loans X X X
Borrowing X X X
</Table>
5
<Table>
<Caption>
FUND AIM AIM BASIC AIM AIM AIM AIM MID AIM NEW AIM AIM
- ---------- BALANCED BALANCED EUROPEAN GLOBAL INTERNATIONAL CAP BASIC TECHNOLOGY SELECT SMALL
SECURITY/ FUND FUND SMALL UTILITIES EMERGING VALUE FUND FUND EQUITY CAP
INVESTMENT COMPANY FUND GROWTH FUND FUND EQUITY
TECHNIQUE FUND FUND
Lending Portfolio X X X X X X X X X
Securities
Repurchase AgreementsX X X X X X X X X
Reverse Repurchase X X X X X X X X X
Agreements
Dollar Rolls X X
Illiquid Securities X X X X X X X X X
Rule 144A Securities X X X X X X X X X
Unseasoned Issuers X X X X X X X X X
Sale of Money Market
Securities
Standby Commitments
DERIVATIVES
Equity-Linked X X X X X X X X X
Derivatives
Put Options X X X X X X X X X
Call Options X X X X X X X X X
Straddles X X X X X X X X X
Warrants X X X X X X X X X
Futures Contracts X X X X X X X X X
and Options on
Futures Contracts
Forward Currency X X X X X X X X X
Contracts
Cover X X X X X X X X X
<Caption>
FUND AIM VALUE AIM AIM
- ---------- FUND VALUE II WORLDWIDE
SECURITY/ FUND SPECTRUM
INVESTMENT FUND
TECHNIQUE
Lending Portfolio X X X
Securities
Repurchase Agreements X X X
Reverse Repurchase X X X
Agreements
Dollar Rolls
Illiquid Securities X X X
Rule 144A Securities X X X
Unseasoned Issuers X X X
Sale of Money Market
Securities
Standby Commitments
Equity-Linked X X X
Derivatives
Put Options X X X
Call Options X X X
Straddles X X X
Warrants X X X
Futures Contracts X X X
and Options on
Futures Contracts
Forward Currency X X X
Contracts
Cover X X X
</Table>
6
<Table>
<Caption>
FUND AIM AIM BASIC AIM AIM AIM AIM MID AIM NEW AIM AIM
- ---------- BALANCED BALANCED EUROPEAN GLOBAL INTERNATIONAL CAP BASIC TECHNOLOGY SELECT SMALL
SECURITY/ FUND FUND SMALL UTILITIES EMERGING VALUE FUND FUND EQUITY CAP
INVESTMENT COMPANY FUND GROWTH FUND FUND EQUITY
TECHNIQUE FUND FUND
ADDITIONAL SECURITIES OR INVESTMENT TECHNIQUES
Loan Participations
and Assignments
Privatizations
Indexed Commercial
Paper
Samurai and Yankee
Bonds
Brady Bonds
Premium Securities
Structured
Investments
Stripped Income
Investments
Special Situations
<Caption>
FUND AIM VALUE AIM AIM
- ---------- FUND VALUE II WORLDWIDE
SECURITY/ FUND SPECTRUM
INVESTMENT FUND
TECHNIQUE
Loan Participations
and Assignments
Privatizations
Indexed Commercial
Paper
Samurai and Yankee
Bonds
Brady Bonds
Premium Securities
Structured
Investments
Stripped Income
Investments
Special Situations
</Table>
7
Equity Investments
COMMON STOCK. Common stock is issued by companies principally to raise
cash for business purposes and represents a residual interest in the issuing
company. A Fund participates in the success or failure of any company in which
it holds stock. The 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.
PREFERRED STOCK. Preferred stock, unlike common stock, often offers a
stated dividend rate payable from a corporation's earnings. If interest rates
rise, the fixed dividend on preferred stocks may be less attractive, causing the
price of preferred stocks to decline. Preferred stock may have mandatory sinking
fund provisions, as well as call/redemption provisions prior to maturity, a
negative feature when interest rates decline. Dividends on some preferred stock
may be "cumulative," requiring all or a portion of prior unpaid dividends to be
paid before dividends are paid on the issuer's common stock. Preferred stock
also generally has a preference over common stock on the distribution of a
corporation's assets in the event of liquidation of the corporation, and may be
"participating," which means that it may be entitled to a dividend exceeding the
stated dividend in certain cases. In some cases an issuer may offer auction rate
preferred stock, which means that the interest to be paid is set by auction and
will often be reset at stated intervals. The rights of preferred stocks on the
distribution of a corporation's assets in the event of a liquidation are
generally subordinate to the rights associated with a corporation's debt
securities.
CONVERTIBLE SECURITIES. Convertible securities include bonds,
debentures, notes, preferred stocks and other securities that may be converted
into a prescribed amount of common stock or other equity securities at a
specified price and time. The holder of convertible securities is entitled to
receive interest paid or accrued on debt, or dividends paid or accrued on
preferred stock, until the security matures or is converted.
The value of a convertible security depends on interest rates, the
yield of similar nonconvertible securities, the financial strength of the issuer
and the seniority of the security in the issuer's capital structure. Convertible
securities may be illiquid, and may be required to convert at a time and at a
price that is unfavorable to the Fund.
The Funds will invest in a convertible debt security based primarily on
the characteristics of the equity security into which it converts, and without
regard to the credit rating of the convertible security (even if the credit
rating is below investment grade). To the extent that a Fund invests in
convertible debt securities with credit ratings below investment grade, such
securities may have a higher likelihood of default, although this may be
somewhat offset by the convertibility feature. See also "Junk Bonds" below.
ALTERNATIVE ENTITY SECURITIES. Companies that are formed as limited
partnerships, limited liability companies, business trusts or other
non-corporate entities may issue equity securities that are similar to common or
preferred stock of corporations.
Foreign Investments
FOREIGN SECURITIES. Foreign securities are equity or debt securities
issued by issuers outside the United States, and include securities in the form
of American Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs"),
or other securities representing underlying securities of foreign issuers.
Depositary receipts are typically issued by a bank or trust company and evidence
ownership of underlying securities issued by foreign corporations.
Each Fund may invest up to 25% of its total assets (at least 65% for
AIM European Small Company Fund and AIM International Emerging Growth Fund, and
up to 80% for AIM Global Utilities Fund and AIM Worldwide Spectrum Fund) in
foreign securities.
8
Investments by a Fund in foreign securities, whether denominated in
U.S. dollars or foreign currencies, may entail all of the risks set forth below.
Investments by a Fund in ADRs, EDRs or similar securities also may entail some
or all of the risks described below.
Currency Risk. The value of the Funds' foreign investments will be
affected by changes in currency exchange rates. The U.S. dollar value of a
foreign security decreases when the value of the U.S. dollar rises against the
foreign currency in which the security is denominated, and increases when the
value of the U.S. dollar falls against such currency.
Political and Economic Risk. The economies of many of the countries in
which the Funds may invest may not be as developed as the United States' economy
and may be subject to significantly different forces. Political or social
instability, expropriation or confiscatory taxation, and limitations on the
removal of funds or other assets could also adversely affect the value of the
Funds' investments.
Regulatory Risk. Foreign companies are not registered with the
Securities and Exchange Commission ("SEC") and are generally not subject to the
regulatory controls imposed on United States issuers and, as a consequence,
there is generally less publicly available information about foreign securities
than is available about domestic securities. Foreign companies are not subject
to uniform accounting, auditing and financial reporting standards, corporate
governance practices and requirements comparable to those applicable to domestic
companies. Income from foreign securities owned by the Funds may be reduced by a
withholding tax at the source, which tax would reduce dividend income payable to
the Funds' shareholders.
Market Risk. The securities markets in many of the countries in which
the Funds invest will have substantially less trading volume than the major
United States markets. As a result, the securities of some foreign companies may
be less liquid and experience more price volatility than comparable domestic
securities. Increased custodian costs as well as administrative costs (such as
the need to use foreign custodians) may be associated with the maintenance of
assets in foreign jurisdictions. There is generally less government regulation
and supervision of foreign stock exchanges, brokers and issuers which may make
it difficult to enforce contractual obligations. In addition, transaction costs
in foreign securities markets are likely to be higher, since brokerage
commission rates in foreign countries are likely to be higher than in the United
States.
On January 1, 1999, certain members of the European Economic and
Monetary Union ("EMU") established a common European currency known as the
"euro" and each member's local currency became a denomination of the euro. Each
participating country (currently, Austria, Belgium, Finland, France, Germany,
Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, and Spain) has
replaced its local currency with the euro effective January 1, 2002. The
replacement of currencies with the euro may cause market disruptions and
adversely affect the value of securities held by a Fund.
Risks of Developing Countries. The AIM European Small Company Fund, AIM
Global Utilities Fund, AIM International Emerging Growth Fund and AIM Worldwide
Spectrum Fund may invest in securities of companies located in developing
countries. Investments in developing countries present risks greater than, and
in addition to, those presented by investments in foreign issuers in general. A
number of developing countries restrict, to varying degrees, foreign investment
in stocks. Repatriation of investment income, capital, and the proceeds of sales
by foreign investors may require governmental registration and/or approval in
some developing countries. A number of the currencies of developing countries
have experienced significant declines against the U.S. dollar in recent years,
and devaluation may occur subsequent to investments in these currencies by the
AIM International Value Fund. Inflation and rapid fluctuations in inflation
rates have had and may continue to have negative effects on the economies and
securities markets of certain emerging market countries. Many of the developing
securities markets are relatively small or less diverse, have low trading
volumes, suffer periods of relative illiquidity, and are characterized by
significant price volatility. There is a risk in developing countries that a
future economic or political crisis could lead to price controls, forced mergers
of companies, expropriation or confiscatory taxation, seizure, nationalization,
or creation of government monopolies, any of which may have a detrimental effect
on the Fund's investments.
9
FOREIGN GOVERNMENT OBLIGATIONS. Debt securities issued by foreign
governments involve the risks discussed above with respect to foreign
securities. Additionally, the issuer of the debt or the governmental authorities
that control repayment of the debt may be unwilling or unable to pay interests
or repay principal when due. Political or economic changes or the balance of
trade may affect a country's willingness or ability to service its debt
obligations. Periods of economic uncertainty may result in the volatility of
market prices of sovereign debt obligations, especially debt obligations issued
by the government of developing countries.
FOREIGN EXCHANGE TRANSACTIONS. Foreign exchange transactions include
direct purchases of futures contracts with respect to foreign currency, and
contractual agreements to purchase or sell a specified currency at a specified
future date (up to one year) at a price set at the time of the contract. Such
contractual commitments may be forward contracts entered into directly with
another party or exchange traded futures contracts.
Each Fund has authority to deal in foreign exchange between currencies
of the different countries in which it will invest as a hedge against possible
variations in the foreign exchange rates between those currencies. A Fund may
commit the same percentage of its total assets to foreign exchange hedges as it
can invest in foreign securities.
The Funds may utilize either specific transactions ("transaction
hedging") or portfolio positions ("position hedging") to hedge foreign currency
exposure through foreign exchange transactions. Transaction hedging is the
purchase or sale of foreign currency with respect to specific receivables or
payables of a Fund accruing in connection with the purchase or sale of its
portfolio securities, the sale and redemption of shares of the Fund, or the
payment of dividends and distributions by the Fund. Position hedging is the
purchase or sale of foreign currency with respect to portfolio security
positions (or underlying portfolio security positions, such as in an ADR)
denominated or quoted in a foreign currency. Additionally, foreign exchange
transactions may involve some of the risks of investments in foreign securities.
Debt Investments
U.S. GOVERNMENT OBLIGATIONS. Obligations issued or guaranteed by the
U.S. Government, its agencies and instrumentalities include bills, notes and
bonds issued by the U.S. Treasury, as well as "stripped" or "zero coupon" U.S.
Treasury obligations representing future interest or principal payments on U.S.
Treasury notes or bonds. Stripped securities are sold at a discount to their
"face value," and may exhibit greater price volatility than interest-bearing
securities since investors receive no payment until maturity. Obligations of
certain agencies and instrumentalities of the U.S. Government, such as the
Government National Mortgage Association ("GNMA"), are supported by the full
faith and credit of the U.S. Treasury; others, such as those of the Federal
National Mortgage Association ("FNMA"), are supported by the right of the issuer
to borrow from the U.S. Treasury; others, such as those of the Student Loan
Marketing Association ("SLMA"), are supported by the discretionary authority of
the U.S. Government to purchase the agency's obligations; still others, though
issued by an instrumentality chartered by the U.S. Government, like the Federal
Farm Credit Bureau ("FFCB"), are supported only by the credit of the
instrumentality. The U.S. Government may choose not to provide financial support
to U.S. Government-sponsored agencies or instrumentalities if it is not legally
obligated to do so.
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES - Mortgage backed
securities are mortgage-related securities issued or guaranteed by the U.S.
Government, its agencies and instrumentalities, or issued by nongovernment
entities. Mortgage-related securities represent pools of mortgage loans
assembled for sale to investors by various government agencies such as GNMA and
government-related organizations such as FNMA and the Federal Home Loan Mortgage
Corporation ("FHLMC"), as well as by nongovernment issuers such as commercial
banks, savings and loan institutions, mortgage bankers and private mortgage
insurance companies. Although certain mortgage-related securities are guaranteed
by a third party or otherwise similarly secured, the market value of the
security, which may fluctuate, is not so secured.
10
There are a number of important differences among the agencies and
instrumentalities of the U.S. Government that issue mortgage-related securities
and among the securities they issue. Mortgage-related securities issued by GNMA
include GNMA Mortgage Pass-Through Certificates (also known as "Ginnie Maes")
which are guaranteed as to the timely payment of principal and interest. That
guarantee is backed by the full faith and credit of the U.S. Treasury. GNMA is a
corporation wholly owned by the U.S. Government within the Department of Housing
and Urban Development. Mortgage-related securities issued by FNMA include FNMA
Guaranteed Mortgage Pass-Through Certificates (also known as "Fannie Maes") and
are guaranteed as to payment of principal and interest by FNMA itself and backed
by a line of credit with the U.S. Treasury. FNMA is a government-sponsored
entity wholly owned by public stockholders. Mortgage-related securities issued
by FHLMC include FHLMC Mortgage Participation Certificates (also known as
"Freddie Macs") guaranteed as to payment of principal and interest by FHLMC
itself and backed by a line of credit with the U.S. Treasury. FHLMC is a
government-sponsored entity wholly owned by public stockholders.
Other asset-backed securities are structured like mortgage-backed
securities, but instead of mortgage loans or interests in mortgage loans, the
underlying assets may include such items as motor vehicle installment sales or
installment loan contracts, leases of various types of real and personal
property, and receivables from credit card agreements. Regular payments received
in respect of such securities include both interest and principal. Asset-backed
securities typically have no U.S. Government backing. Additionally, the ability
of an issuer of asset-backed securities to enforce its security interest in the
underlying assets may be limited.
If a Fund purchases a mortgage-backed or other asset-backed security at
a premium, that portion may be lost if there is a decline in the market value of
the security whether resulting from changes in interest rates or prepayments in
the underlying collateral. As with other interest-bearing securities, the prices
of such securities are inversely affected by changes in interest rates. However,
though the value of a mortgage-backed or other asset-backed security may decline
when interest rates rise, the converse is not necessarily true, since in periods
of declining interest rates the mortgages and loans underlying the securities
are prone to prepayment, thereby shortening the average life of the security and
shortening the period of time over which income at the higher rate is received.
When interest rates are rising, though, the rate of prepayment tends to
decrease, thereby lengthening the period of time over which income at the lower
rate is received. For these and other reasons, a mortgage-backed or other
asset-backed security's average maturity may be shortened or lengthened as a
result of interest rate fluctuations and, therefore, it is not possible to
predict accurately the security's return.
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS"). The AIM Balanced Fund may
invest in CMOs. The Fund can also invest in mortgage-backed bonds and
asset-backed securities. A CMO is a hybrid between a mortgage-backed bond and a
mortgage pass-through security. Similar to a bond, interest and prepaid
principal is paid, in most cases, semiannually. CMOs may be collateralized by
whole mortgage loans, but are more typically collateralized by portfolios of
mortgage pass-through securities guaranteed by GNMA, FHLMC, or FNMA, and their
income streams.
CMOs are structured into multiple classes, each bearing a different
stated maturity. Actual maturity and average life will depend upon the
prepayment experience of the collateral. CMOs provide for a modified form of
call protection through a de facto breakdown of the underlying pool of mortgages
according to how quickly the loans are repaid. Monthly payment of principal
received from the pool of underlying mortgages, including prepayments, is first
returned to investors holding the shortest maturity class. Investors holding the
longer maturity classes receive principal only after the first class has been
retired. An investor is partially guarded against a sooner than desired return
of principal because of the sequential payments.
In a typical CMO transaction, a corporation ("issuer") issues multiple
series (e.g., A, B, C, Z) of CMO bonds ("Bonds"). Proceeds of the Bond offering
are used to purchase mortgages or mortgage pass-through certificates
("Collateral"). The Collateral is pledged to a third party trustee as security
for the Bonds. Principal and interest payments from the Collateral are used to
pay principal on the Bonds in
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the order A, B, C, Z. The Series A, B, and C Bonds all bear current interest.
Interest on Series Z Bond is accrued and added to principal and a like amount is
paid as principal on the Series A, B, or C Bond currently being paid off. When
the Series A, B, and C Bonds are paid in full, interest and principal on the
Series Z Bond begins to be paid currently. With some CMOs, the issuer serves as
a conduit to allow loan originators (primarily builders or savings and loan
associations) to borrow against their loan portfolios.
CMOs that are issued or guaranteed by the U.S. government or by any of
its agencies or instrumentalities will be considered U.S. government securities
by the Funds, while other CMOs, even if collateralized by U.S. government
securities, will have the same status as other privately issued securities for
purposes of applying the Fund's diversification tests.
FHLMC CMOs. FHLMC CMOs are debt obligations of FHLMC issued in multiple
classes having different maturity dates which are secured by the pledge of a
pool of conventional mortgage loans purchased by FHLMC. Unlike FHLMC PCs,
payments of principal and interest on the CMOs are made semiannually, as opposed
to monthly. The amount of principal payable on each semiannual payment date is
determined in accordance with FHLMC's mandatory sinking fund schedule, which, in
turn, is equal to approximately 100% of FHA prepayment experience applied to the
mortgage collateral pool. All sinking fund payments in the CMOs are allocated to
the retirement of the individual classes of bonds in the order of their stated
maturities. Payment of principal on the mortgage loans in the collateral pool in
excess of the amount of FHLMC's minimum sinking fund obligation for any payment
date are paid to the holders of the CMOs as additional sinking fund payments.
Because of the "pass-through" nature of all principal payments received on the
collateral pool in excess of FHLMC's minimum sinking fund requirement, the rate
at which principal of the CMOs is actually repaid is likely to be such that each
class of bonds will be retired in advance of its scheduled maturity date.
If collection of principal (including prepayments) on the mortgage
loans during any semiannual payment period is not sufficient to meet FHLMC's
minimum sinking fund obligation on the next sinking fund payment date, FHLMC
agrees to make up the deficiency from its general funds.
Risks of Mortgage-Related Securities. Investment in mortgage-backed
securities poses several risks, including prepayment, market, and credit risk.
Prepayment risk reflects the risk that borrowers may prepay their mortgages
faster than expected, thereby affecting the investment's average life and
perhaps its yield. Whether or not a mortgage loan is prepaid is almost entirely
controlled by the borrower. Borrowers are most likely to exercise prepayment
options at the time when it is least advantageous to investors, generally
prepaying mortgages as interest rates fall, and slowing payments as interest
rates rise. Besides the effect of prevailing interest rates, the rate of
prepayment and refinancing of mortgages may also be affected by home value
appreciation, ease of the refinancing process and local economic conditions.
Market risk reflects the risk that the price of the security may
fluctuate over time. The price of mortgage-backed securities may be particularly
sensitive to prevailing interest rates, the length of time the security is
expected to be outstanding, and the liquidity of the issue. In a period of
unstable interest rates, there may be decreased demand for certain types of
mortgage-backed securities, and the Fund invested in such securities wishing to
sell them may find it difficult to find a buyer, which may in turn decrease the
price at which they may be sold.
Credit risk reflects the risk that the Fund may not receive all or part
of its principal because the issuer or credit enhancer has defaulted on its
obligations. Obligations issued by U.S. government-related entities are
guaranteed as to the payment of principal and interest, but are not backed by
the full faith and credit of the U.S. government. The performance of private
label mortgage-backed securities, issued by private institutions, is based on
the financial health of those institutions. With respect to GNMA certificates,
although GNMA guarantees timely payment even if homeowners delay or default,
tracking the "pass-through" payments may, at times, be difficult.
BANK INSTRUMENTS. The Funds may invest in certificates of deposits,
time deposits, and bankers' acceptances from U.S. or foreign banks. A bankers'
acceptance is a bill of exchange or time draft drawn
12
on and accepted by a commercial bank. A certificate of deposit is a negotiable
interest-bearing instrument with a specific maturity. Certificates of deposit
are issued by banks and savings and loan institutions in exchange for the
deposit of funds, and normally can be traded in the secondary market prior to
maturity. A time deposit is a non-negotiable receipt issued by a bank in
exchange for the deposit of funds. Like a certificate of deposit, it earns a
specified rate of interest over a definite period of time; however, it cannot be
traded in the secondary market.
COMMERCIAL INSTRUMENTS. Each Fund may invest in commercial instruments,
including commercial paper, master notes and other short-term corporate
instruments, that are denominated in U.S. dollars. Commercial paper consists of
short-term promissory notes issued by corporations. Commercial paper may be
traded in the secondary market after its issuance. Master notes are demand notes
that permit the investment of fluctuating amounts of money at varying rates of
interest pursuant to arrangements with issuers who meet the quality criteria of
the Fund. The interest rate on a master note may fluctuate based upon changes in
specified interest rates or be reset periodically according to a prescribed
formula or may be a set rate. Although there is no secondary market in master
demand notes, if such notes have a demand feature, the payee may demand payment
of the principal amount of the note upon relatively short notice.
PARTICIPATION INTERESTS. Each Fund may purchase participations in
corporate loans. Participation interests generally will be acquired from a
commercial bank or other financial institution (a "Lender") or from other
holders of a participation interest (a "Participant"). The purchase of a
participation interest either from a Lender or a Participant will not result in
any direct contractual relationship with the borrowing company ("the Borrower").
Instead, the Fund will be required to rely on the Lender or the Participant that
sold the participation interest both for the enforcement of the Fund's rights
against the Borrower and for the receipt and processing of payments due to the
Fund under the loans. The Fund is thus subject to the credit risk of both the
Borrower and a Participant. Participation interests are generally subject to
restrictions on resale. The Fund considers participation interests to be
illiquid and therefore subject to the Fund's percentage limitation for
investments in illiquid securities.
MUNICIPAL LEASE OBLIGATIONS. Municipal lease obligations, a type of
Municipal Security, may take the form of a lease, an installment purchase or a
conditional sales contract. Municipal lease obligations are issued by state and
local governments and authorities to acquire land, equipment and facilities such
as state and municipal vehicles, telecommunications and computer equipment, and
other capital assets. Interest payments on qualifying municipal leases are
exempt from federal income taxes. Each Fund may purchase these obligations
directly, or it may purchase participation interests in such obligations.
Municipal leases are generally subject to greater risks than general obligation
or revenue bonds. State laws set forth requirements that states or
municipalities must meet in order to issue municipal obligations, and such
obligations may contain a covenant by the issuer to budget for, appropriate, and
make payments due under the obligation. However, certain municipal lease
obligations may contain "non-appropriation" clauses which provide that the
issuer is not obligated to make payments on the obligation in future years
unless funds have been appropriated for this purpose each year. Accordingly,
such obligations are subject to "non-appropriation" risk. While municipal leases
are secured by the underlying capital asset, it may be difficult to dispose of
such assets in the event of non-appropriation or other default. All direct
investments by each Fund in municipal lease obligations shall be deemed illiquid
and shall be valued according to the Fund's Procedures for Valuing Securities
current at the time of such valuation.
INVESTMENT GRADE CORPORATE DEBT OBLIGATIONS. Each Fund may invest in
U.S. dollar-denominated debt obligations issued or guaranteed by U.S.
corporations or U.S. commercial banks, U.S. dollar-denominated obligations of
foreign issuers and debt obligations of foreign issuers denominated in foreign
currencies. Such debt obligations include, among others, bonds, notes,
debentures and variable rate demand notes. In choosing corporate debt securities
on behalf of a Fund, its investment adviser may consider (i) general economic
and financial conditions; (ii) the specific issuer's (a) business and
management, (b) cash flow, (c) earnings coverage of interest and dividends, (d)
ability to operate under adverse economic conditions, (e) fair market value of
assets, and (f) in the case of foreign issuers, unique
13
political, economic or social conditions applicable to such issuer's country;
and, (iii) other considerations deemed appropriate.
JUNK BONDS. Junk bonds are lower-rated or non-rated debt securities.
Junk bonds are considered speculative with respect to their capacity to pay
interest and repay principal in accordance with the terms of the obligation.
While generally providing greater income and opportunity for gain,
non-investment grade debt securities are subject to greater risks than
higher-rated securities.
Companies that issue junk bonds are often highly leveraged, and may not
have more traditional methods of financing available to them. During an economic
downturn or recession, highly leveraged issuers of high yield securities may
experience financial stress, and may not have sufficient revenues to meet their
interest payment obligations. Economic downturns tend to disrupt the market for
junk bonds, lowering their values, and increasing their price volatility. The
risk of issuer default is higher with respect to junk bonds because such issues
are generally unsecured and are often subordinated to other creditors of the
issuer.
The credit rating of a junk bond does not necessarily address its
market value risk, and ratings may from time to time change to reflect
developments regarding the issuer's financial condition. The lower the rating of
a junk bond, the more speculative its characteristics.
AIM Global Utilities Fund may have difficulty selling certain junk
bonds because it may have a thin trading market. The lack of a liquid secondary
market may have an adverse effect on the market price and the Fund's ability to
dispose of particular issues and may also make it more difficult for the Fund to
obtain accurate market quotations of valuing these assets. In the event the Fund
experiences an unexpected level of net redemptions, the Fund could be forced to
sell its junk bonds at an unfavorable price. Prices of junk bonds have been
found to be less sensitive to fluctuations in interest rates, and more sensitive
to adverse economic changes and individual corporate developments than those of
higher-rated debt securities.
LIQUID ASSETS. In anticipation of or in response to adverse market or
other conditions, or atypical circumstances such as unusually large cash inflows
or redemptions, the Funds may temporarily hold all or a portion of their assets
in cash or the following liquid assets: money market instruments (such as
certificates of deposit, time deposits, banker's acceptances from U.S. or
foreign banks, and repurchase agreements), shares of affiliated money market
funds or high-quality debt obligations (such as U.S. Government obligations,
commercial paper, master notes and other short-term corporate instruments,
participation interests in corporate loans, and municipal obligations). For cash
management purposes, the Funds may also hold a portion of their assets in cash
or such liquid assets.
Descriptions of debt securities ratings are found in Appendix A.
Other Investments
REAL ESTATE INVESTMENT TRUSTS ("REITS"). REITs are trusts that sell
equity or debt securities to investors and use the proceeds to invest in real
estate or interests therein. A REIT may focus on particular projects, such as
apartment complexes, or geographic regions, such as the southeastern United
States, or both.
To the extent consistent with their respective investment objectives
and policies, each Fund may invest up to 15% of its total assets in equity
and/or debt securities issued by REITs.
To the extent that a Fund has the ability to invest in REITs, the Fund
could conceivably own real estate directly as a result of a default on the
securities it owns. A Fund, therefore, may be subject to certain risks
associated with the direct ownership of real estate including difficulties in
valuing and trading real estate, declines in the value of real estate, risks
related to general and local economic conditions, adverse changes in the climate
for real estate, environmental liability risks, increases in property taxes
14
and operating expenses, changes in zoning laws, casualty or condemnation losses,
limitations on rents, changes in neighborhood values, the appeal of properties
to tenants, and increases in interest rates.
In addition to the risks described above, equity REITs may be affected
by any changes in the value of the underlying property owned by the trusts,
while mortgage REITs may be affected by the quality of any credit extended.
Equity and mortgage REITs are dependent upon management skill, are not
diversified, and are therefore subject to the risk of financing single or a
limited number of projects. Such trusts are also subject to heavy cash flow
dependency, defaults by borrowers, self-liquidation, and the possibility of
failing to maintain an exemption from the 1940 Act. Changes in interest rates
may also affect the value of debt securities held by a Fund. By investing in
REITs indirectly through a Fund, a shareholder will bear not only his/her
proportionate share of the expenses of the Fund, but also, indirectly, similar
expenses of the REITs.
OTHER INVESTMENT COMPANIES. With respect to a Fund's purchase of shares
of another investment company, including Affiliated Money Market Funds (defined
below), the Fund will indirectly bear its proportionate share of the advisory
fees and other operating expenses of such investment company. The Funds have
obtained an exemptive order from the SEC allowing them to invest in money market
funds that have AIM or an affiliate of AIM as an investment advisor (the
"Affiliated Money Market Funds"), provided that investments in Affiliated Money
Market Funds do not exceed 25% of the total assets of the investing Fund.
The following restrictions apply to investments in other investment
companies other than Affiliated Money Market Funds: (i) a Fund may not purchase
more than 3% of the total outstanding voting stock of another investment
company; (ii) a Fund may not invest more than 5% of its total assets in
securities issued by another investment company; and (iii) a Fund may not invest
more than 10% of its total assets in securities issued by other investment
companies.
Investment Techniques
DELAYED DELIVERY TRANSACTIONS. Delayed delivery transactions or forward
commitments, involve commitments by a Fund to dealers or issuers to acquire or
sell securities at a specified future date beyond the customary settlement for
such securities. These commitments may fix the payment price and interest rate
to be received or paid on the investment. A Fund may purchase securities on a
delayed delivery to the extent it can anticipate having available cash on
settlement date. Delayed delivery agreements will not be used as a speculative
or leverage technique.
Investment in securities on a delayed delivery basis may increase a
Fund's exposure to market fluctuation and may increase the possibility that the
Fund will incur short-term gains subject to federal taxation or short-term
losses if the Fund must engage in portfolio transactions in order to honor a
delayed delivery commitment. Until the settlement date, a Fund will segregate
liquid assets of a dollar value sufficient at all times to make payment for the
delayed delivery transactions. Such segregated liquid assets will be
marked-to-market daily, and the amount segregated will be increased if necessary
to maintain adequate coverage of the delayed delivery commitments. No additional
delayed delivery agreements or when-issued commitments (as described below) will
be made by a Fund if, as a result, more than 25% of the Fund's total assets
would become so committed.
The delayed delivery securities, which will not begin to accrue
interest or dividends until the settlement date, will be recorded as an asset of
a Fund and will be subject to the risk of market fluctuation. The purchase price
of the delayed delivery securities is a liability of a Fund until settlement.
Absent extraordinary circumstances, a Fund will not sell or otherwise transfer
the delayed delivery securities prior to settlement.
WHEN-ISSUED SECURITIES. Purchasing securities on a "when-issued" basis
means that the date for delivery of and payment for the securities is not fixed
at the date of purchase, but is set after the securities are issued. The payment
obligation and, if applicable, the interest rate that will be received on the
securities are fixed at the time the buyer enters into the commitment. A Fund
will only make
15
commitments to purchase such securities with the intention of actually acquiring
such securities, but the Fund may sell these securities before the settlement
date if it is deemed advisable.
Securities purchased on a when-issued basis and the securities held in
a Fund's portfolio are subject to changes in market value based upon the
public's perception of the creditworthiness of the issuer and, if applicable,
changes in the level of interest rates. Therefore, if a Fund is to remain
substantially fully invested at the same time that it has purchased securities
on a when-issued basis, there will be a possibility that the market value of the
Fund's assets will fluctuate to a greater degree. Furthermore, when the time
comes for the Fund to meet its obligations under when-issued commitments, the
Fund will do so by using then available cash flow, by sale of the segregated
liquid assets, by sale of other securities or, although it would not normally
expect to do so, by directing the sale of the when-issued securities themselves
(which may have a market value greater or less than the Fund's payment
obligation).
Investment in securities on a when-issued basis may increase a Fund's
exposure to market fluctuation and may increase the possibility that the Fund
will incur short-term gains subject to federal taxation or short-term losses if
the Fund must sell another security in order to honor a when-issued commitment.
If a Fund purchases a when-issued security, the Fund's custodian bank will
segregate liquid assets in an amount equal to the when-issued commitment. If the
market value of such segregated assets declines, additional liquid assets will
be segregated on a daily basis so that the market value of the segregated assets
will equal the amount of the Fund's when-issued commitments. No additional
delayed delivery agreements (as described above) or when-issued commitments will
be made by a Fund if, as a result, more than 25% of the Fund's total assets
would become so committed.
SHORT SALES. In a short sale, a Fund does not immediately deliver the
securities sold and does not receive the proceeds from the sale. A Fund is said
to have a short position in the securities sold until it delivers the securities
sold, at which time it receives the proceeds of the sale. A Fund will make a
short sale, as a hedge, when it believes that the price of a security may
decline, causing a decline in the value of a security owned by the Fund or a
security convertible into or exchangeable for such security, or when the Fund
does not want to sell the security it owns, because it wishes to defer
recognition of gain or loss for federal income tax purposes. In such case, any
future losses in a Fund's long position should be reduced by a gain in the short
position. Conversely, any gain in the long position should be reduced by a loss
in the short position. The extent to which such gains or losses are reduced will
depend upon the amount of the security sold short relative to the amount a Fund
owns, either directly or indirectly, and, in the case where the Fund owns
convertible securities, changes in the conversion premium. In determining the
number of shares to be sold short against a Fund's position in a convertible
security, the anticipated fluctuation in the conversion premium is considered. A
Fund may also make short sales to generate additional income from the investment
of the cash proceeds of short sales.
A Fund will only make short sales "against the box," meaning that at
all times when a short position is open, the Fund owns an equal amount of such
securities or securities convertible into or exchangeable, without payment of
any further consideration, for securities of the same issue as, and equal in
amount to, the securities sold short. To secure its obligation to deliver the
securities sold short, a Fund will segregate with its custodian an equal amount
to the securities sold short or securities convertible into or exchangeable for
such securities. A Fund may pledge no more than 10% of its total assets as
collateral for short sales against the box.
MARGIN TRANSACTIONS. None of the Funds will purchase any security on
margin, except that each Fund may obtain such short-term credits as may be
necessary for the clearance of purchases and sales of portfolio securities. The
payment by a Fund of initial or variation margin in connection with futures or
related options transactions will not be considered the purchase of a security
on margin.
SWAP AGREEMENTS. Each Fund may enter into interest rate, index and
currency exchange rate swap agreements for purposes of attempting to obtain a
particular desired return at a lower cost to the Fund than if it had invested
directly in an instrument that yielded that desired return. Swap agreements are
two-party contracts entered into primarily by institutional investors for
periods ranging from a few
16
weeks to more than one year. In a standard "swap" transaction, two parties agree
to exchange the returns (or differentials in rates of return) earned or realized
on particular predetermined investments or instruments. The gross returns to be
exchanged or "swapped" between the parties are calculated with respect to a
"notional amount," i.e., the return on or increase in value of a particular
dollar amount invested at a particular interests rate, in a particular foreign
currency, or in a "basket" of securities representing a particular index.
Commonly used swap agreements include: (i) interest rate caps, under which, in
return for a premium, one party agrees to make payments to the other to the
extent that interest rates exceed a specified rate, or "cap"; (ii) interest rate
floors, under which, in return for a premium, one party agrees to make payments
to the other to the extent that interest rates fall below a specified level, or
"floor"; and (iii) interest rate collars, under which a party sells a cap and
purchases a floor or vice versa in an attempt to protect itself against interest
rate movements exceeding given minimum or maximum levels.
The "notional amount" of the swap agreement is only a fictitious basis
on which to calculate the obligations that the parties to a swap agreement have
agreed to exchange. Most swap agreements entered into by a Fund would calculate
the obligations on a "net basis." Consequently, a Fund's obligations (or rights)
under a swap agreement will generally be equal only to the net amount to be paid
or received under the agreement based on the relative values of the positions
held by each party to the agreement (the "net amount"). Obligations under a swap
agreement will be accrued daily (offset against amounts owing to the Fund) and
any accrued but unpaid net amounts owed to a swap counterparty will be covered
by segregating liquid assets to avoid any potential leveraging of the Fund. A
Fund will not enter into a swap agreement with any single party if the net
amount owed to or to be received under existing contracts with that party would
exceed 5% of the Fund's total assets. For a discussion of the tax considerations
relating to swap agreements, see "Dividends, Distributions and Tax Matters -
Swap Agreements."
INTERFUND LOANS. Each Fund may lend uninvested cash up to 15% of its
net assets to other AIM Funds and each Fund may borrow from other AIM Funds to
the extent permitted under such Fund's investment restrictions. During temporary
or emergency periods, the percentage of a Fund's net assets that may be loaned
to other AIM Funds may be increased as permitted by the SEC. If any interfund
loans are outstanding, the Fund cannot make any additional investments. If a
Fund has borrowed from other AIM Funds and has aggregate borrowings from all
sources that exceed 10% of such Fund's total assets, such Fund will secure all
of its loans from other AIM Funds. The ability of a Fund to lend its securities
to other AIM Funds is subject to certain other terms and conditions.
BORROWING. The Funds may borrow money to a limited extent for temporary
or emergency purposes. If there are unusually heavy redemptions because of
changes in interest rates or for any other reason, a Fund may have to sell a
portion of its investment portfolio at a time when it may be disadvantageous to
do so. Selling fund securities under these circumstances may result in a lower
net asset value per share or decreased dividend income, or both. The Trust
believes that, in the event of abnormally heavy redemption requests, the Fund's
borrowing ability would help to mitigate any such effects and could make the
forced sale of their portfolio securities less likely.
LENDING PORTFOLIO SECURITIES. The Funds may each lend their portfolio
securities (principally to broker-dealers) where such loans are callable at any
time and are continuously secured by segregated collateral equal to no less than
the market value, determined daily, of the loaned securities. Such collateral
will be cash, letters of credit, or debt securities issued or guaranteed by the
U.S. Government or any of its agencies. Each Fund may lend portfolio securities
to the extent of one-third of its total assets.
The Fund would continue to receive the income on loaned securities and
would, at the same time, earn interest on the loan collateral or on the
investment of any cash collateral. A Fund will not have the right to vote
securities while they are lent, but it can call a loan in anticipation of an
important vote. Any cash collateral pursuant to these loans would be invested in
short-term money market instruments or Affiliated Money Market Funds. Lending
securities entails a risk of loss to the Fund if and to the extent that the
market value of the securities loaned increases and the collateral is not
increased accordingly or in the event of default by the borrower. The Fund could
also experience delays and costs in gaining access to the collateral.
17
REPURCHASE AGREEMENTS. Repurchase agreements are agreements under which
a Fund acquires ownership of a security from a broker-dealer or bank that agrees
to repurchase the security at a mutually agreed upon time and price (which is
higher than the purchase price), thereby determining the yield during the Fund's
holding period. A Fund may, however, enter into a "continuing contract" or
"open" repurchase agreement under which the seller is under a continuing
obligation to repurchase the underlying obligation from the Fund on demand and
the effective interest rate is negotiated on a daily basis. Each of the Funds
may engage in repurchase agreement transactions involving the types of
securities in which it is permitted to invest.
If the seller of a repurchase agreement fails to repurchase the
security in accordance with the terms of the agreement, a Fund might incur
expenses in enforcing its rights, and could experience losses, including a
decline in the value of the underlying security and loss of income. The
securities underlying a repurchase agreement will be marked to market every
business day so that the value of such securities is at least equal to the
investment value of the repurchase agreement, including any accrued interest
thereon.
The Funds have obtained an exemptive order from the SEC allowing them
to invest their cash balances in joint accounts for the purpose of investing in
repurchase agreements with maturities not to exceed 60 days, and in certain
other money market instruments with remaining maturities not to exceed 90 days.
Repurchase agreements are considered loans by a Fund under the 1940 Act.
REVERSE REPURCHASE AGREEMENTS. Reverse repurchase agreements are
agreements which involve the sale of securities held by a Fund to financial
institutions such as banks and broker-dealers, with an agreement that the Fund
will repurchase the securities at an agreed upon price and date. A Fund may
employ reverse repurchase agreements (i) for temporary emergency purposes, such
as to meet unanticipated net redemptions so as to avoid liquidating other
portfolio securities during unfavorable market conditions; (ii) to cover
short-term cash requirements resulting from the timing of trade settlements; or
(iii) to take advantage of market situations where the interest income to be
earned from the investment of the proceeds of the transaction is greater than
the interest expense of the transaction. At the time it enters into a reverse
repurchase agreement, a Fund will segregate liquid assets having a dollar value
equal to the repurchase price, and will subsequently continually monitor the
account to ensure that such equivalent value is maintained at all times. Reverse
repurchase agreements involve the risk that the market value of securities to be
purchased by the Fund may decline below the price at which it is obligated to
repurchase the securities, or that the other party may default on its
obligation, so that the Fund is delayed or prevented from completing the
transaction. Reverse repurchase agreements are considered borrowings by a Fund
under the 1940 Act.
DOLLAR ROLLS. A dollar roll involves the sale by a Fund of a mortgage
security to a financial institution such as a broker-dealer or a bank, with an
agreement to repurchase a substantially similar security at an agreed upon price
and date. The mortgage securities that are purchased will bear the same interest
rate as those sold, but will generally be collateralized by different pools of
mortgages with different prepayment histories. During the period between the
sale and repurchase, the Fund will not be entitled to receive interest and
principal payments on the securities sold. Proceeds of the sale will be invested
in short-term instruments, and the income from these investments, together with
any additional fee income received on the sale, could generate income for the
Fund exceeding the yield on the sold security.
Dollar roll transactions involve the risk that the market value of the
securities retained by the Fund may decline below the price of the securities
that the Fund has sold but is obligated to repurchase under the agreement. In
the event the buyer of securities under a dollar roll transaction files for
bankruptcy or becomes insolvent, the Fund's use of the proceeds from the sale of
the securities may be restricted pending a determination by the other party, or
its trustee or receiver, whether to enforce the Fund's obligation to repurchase
the securities. At the time the Fund enters into a dollar roll, it will
segregate liquid assets having a dollar value equal to the repurchase price, and
will monitor the account to ensure that such equivalent value is maintained. The
Fund typically enters into dollar roll transactions to
18
enhance the Fund's return either on an income or total return basis or mortgage
pre-payment risk. Dollar rolls are considered borrowings by a Fund under the
1940 Act.
ILLIQUID SECURITIES. Illiquid securities are securities that cannot be
disposed of within seven days in the normal course of business at the price at
which they are valued. Illiquid securities may include securities that are
subject to restrictions on resale because they have not been registered under
the Securities Act of 1933 (the "1933 Act"). Restricted securities may, in
certain circumstances, be resold pursuant to Rule 144A, and thus may or may not
constitute illiquid securities.
Each Fund may invest up to 15% of its net assets in securities that are
illiquid. Limitations on the resale of restricted securities may have an adverse
effect on their marketability, which may prevent a Fund from disposing of them
promptly at reasonable prices. A Fund may have to bear the expense of
registering such securities for resale, and the risk of substantial delays in
effecting such registrations.
RULE 144A SECURITIES. Rule 144A securities are securities which, while
privately placed, are eligible for purchase and resale pursuant to Rule 144A
under the 1933 Act. This Rule permits certain qualified institutional buyers,
such as the Funds, to trade in privately placed securities even though such
securities are not registered under the 1933 Act. AIM, under the supervision of
the Board of Trustees, will consider whether securities purchased under Rule
144A are illiquid and thus subject to the Funds' restriction on investment in
illiquid securities. Determination of whether a Rule 144A security is liquid or
not is a question of fact. In making this determination AIM will consider the
trading markets for the specific security taking into account the unregistered
nature of a Rule 144A security. In addition, AIM could consider the (i)
frequency of trades and quotes, (ii) number of dealers and potential purchasers,
(iii) dealer undertakings to make a market, and (iv) nature of the security and
of market place trades (for example, the time needed to dispose of the security,
the method of soliciting offers and the mechanics of transfer). AIM will also
monitor the liquidity of Rule 144A securities and, if as a result of changed
conditions, AIM determines that a Rule 144A security is no longer liquid, AIM
will review a Fund's holdings of illiquid securities to determine what, if any,
action is required to assure that such Fund complies with its restriction on
investment in illiquid securities. Investing in Rule 144A securities could
increase the amount of each Fund's investments in illiquid securities if
qualified institutional buyers are unwilling to purchase such securities.
UNSEASONED ISSUERS. Investments in the equity securities of companies
having less than three years' continuous operations (including operations of any
predecessor) involve more risk than investments in the securities of more
established companies because unseasoned issuers have only a brief operating
history and may have more limited markets and financial resources. As a result,
securities of unseasoned issuers tend to be more volatile than securities of
more established companies.
Derivatives
The Funds may each invest in forward contracts, futures contracts,
options on securities, options on indices, options on currencies, and options on
futures contracts to attempt to hedge against the overall level of investment
and currency risk normally associated with each Fund's investments. The Funds
may also invest in equity-linked derivative products designed to replicate the
composition and performance of particular indices. These instruments are often
referred to as "derivatives," which may be defined as financial instruments
whose performance is derived, at least in part, from the performance of another
asset (such as a security, currency or an index of securities).
EQUITY-LINKED DERIVATIVES. Equity-Linked Derivatives are interests in a
securities portfolio designed to replicate the composition and performance of a
particular index. Equity-Linked Derivatives are exchange traded. The performance
results of Equity-Linked Derivatives will not replicate exactly the performance
of the pertinent index due to transaction and other expenses, including fees to
service providers, borne by the Equity-Linked Derivatives. Examples of such
products include S&P Depositary Receipts ("SPDRs"), World Equity Benchmark
Series ("WEBs"), NASDAQ 100 tracking shares ("QQQs"), Dow Jones Industrial
Average Instruments ("DIAMONDS") and Optimised Portfolios As Listed Securities
("OPALS"). Investments in Equity-Linked Derivatives involve the same risks
associated with a direct
19
investment in the types of securities included in the indices such products are
designed to track. There can be no assurance that the trading price of the
Equity-Linked Derivatives will equal the underlying value of the basket of
securities purchased to replicate a particular index or that such basket will
replicate the index. Investments in Equity-Linked Derivatives may constitute
investments in other investment companies and, therefore, a Fund may be subject
to the same investment restrictions with Equity-Linked Derivatives as with other
investment companies. See "Other Investment Companies."
PUT AND CALL OPTIONS. A call option gives the purchaser the right to
buy the underlying security, contract or foreign currency at the stated exercise
price at any time prior to the expiration of the option (or on a specified date
if the option is a European style option), regardless of the market price or
exchange rate of the security, contract or foreign currency, as the case may be
at the time of exercise. If the purchaser exercises the call option, the writer
of a call option is obligated to sell the underlying security, contract or
foreign currency. A put option gives the purchaser the right to write (sell) the
underlying security, contract or foreign currency at the stated exercise price
at any time prior to the expiration date of the option (or on a specified date
if the option is a European style option), regardless of the market price or
exchange rate of the security, contract or foreign currency, as the case may be
at the time of exercise. If the purchaser exercises the put option, the writer
of a put option is obligated to buy the underlying security, contract or foreign
currency. The premium paid to the writer is consideration for undertaking the
obligations under the option contract. Until an option expires or is offset, the
option is said to be "open." When an option expires or is offset, the option is
said to be "closed."
A Fund will not write (sell) options if, immediately after such sale,
the aggregate value of securities or obligations underlying the outstanding
options exceeds 20% of the Fund's total assets. A Fund will not purchase options
if, at any time of the investment, the aggregate premiums paid for the options
will exceed 5% of the Fund's total assets.
Pursuant to federal securities rules and regulations, if a Fund writes
options it may be required to set aside assets to reduce the risks associated
with writing those options. This process is described in more detail below in
the section "Cover."
Writing Options. A Fund may write put and call options in an attempt to
realize, through the receipt of premiums, a greater current return than would be
realized on the underlying security, contract, or foreign currency alone. In
return for the premium received for writing a call option, the Fund foregoes the
opportunity for profit from a price increase in the underlying security,
contract, or foreign currency above the exercise price so long as the option
remains open, but retains the risk of loss should the price of the security,
contract, or foreign currency decline. In return for the premium received for
writing a put option, the Fund assumes the risk that the price of the underlying
security, contract, or foreign currency will decline below the exercise price,
in which case the put would be exercised and the Fund would suffer a loss.
If an option that a Fund has written expires, it will realize a gain in
the amount of the premium; however, such gain may be offset by a decline in the
market value of the underlying security, contract or currency during the option
period. If the call option is exercised, a Fund will realize a gain or loss from
the sale of the underlying security, contract or currency, which will be
increased or offset by the premium received. A Fund would write a put option at
an exercise price that, reduced by the premium received on the option, reflects
the price it is willing to pay for the underlying security, contract or
currency. The obligation imposed upon the writer of an option is terminated upon
the expiration of the option, or such earlier time at which a Fund effects a
closing purchase transaction by purchasing an option (put or call as the case
may be) identical to that previously sold.
Writing call options can serve as a limited hedge because declines in
the value of the hedged investment would be offset to the extent of the premium
received for writing the option. Closing transactions may be effected in order
to realize a profit on an outstanding call option, to prevent an underlying
security, contract or currency from being called or to permit the sale of the
underlying security, contract or currency. Furthermore, effecting a closing
transaction will permit a Fund to write another call
20
option on the underlying security, contract or currency with either a different
exercise price or expiration date, or both.
Purchasing Options. A Fund may purchase a call option for the purpose
of acquiring the underlying security, contract or currency for its portfolio.
Utilized in this fashion, the purchase of call options would enable a Fund to
acquire the security, contract or currency at the exercise price of the call
option plus the premium paid. So long as it holds such a call option, rather
than the underlying security or currency itself, the Fund is partially protected
from any unexpected increase in the market price of the underlying security,
contract or currency. If the market price does not exceed the exercise price,
the Fund could purchase the security on the open market and could allow the call
option to expire, incurring a loss only to the extent of the premium paid for
the option. Each of the Funds may also purchase call options on underlying
securities, contracts or currencies against which it has written other call
options. For example, where a Fund has written a call option on an underlying
security, rather than entering a closing transaction of the written option, it
may purchase a call option with a different exercise strike and/or expiration
date that would eliminate some or all of the risk associated with the written
call. Used in combinations, these strategies are commonly referred to as "call
spreads."
A Fund may purchase a put option on an underlying security, contract or
currency ("protective put") owned by the Fund in order to protect against an
anticipated decline in the value of the security, contract or currency. Such
hedge protection is provided only during the life of the put option. The premium
paid for the put option and any transaction costs would reduce any profit
realized when the security, contract or currency is delivered upon the exercise
of the put option. Conversely, if the underlying security, contract or currency
does not decline in value, the option may expire worthless and the premium paid
for the protective put would be lost. A Fund may also purchase put options on
underlying securities, contracts or currencies against which it has written
other put options. For example, where a Fund has written a put option on an
underlying security, rather than entering a closing transaction of the written
option, it may purchase a put option with a different exercise price and/or
expiration date that would eliminate some or all of the risk associated with the
written put. Used in combinations, these strategies are commonly referred to as
"put spreads." Likewise, a Fund may write call options on underlying securities,
contracts or currencies against which it has purchased protective put options.
This strategy is commonly referred to as a "collar."
Over-The-Counter Options. Options may be either listed on an exchange
or traded in over-the-counter ("OTC") markets. Listed options are third-party
contracts (i.e., performance of the obligations of the purchaser and seller is
guaranteed by the exchange or clearing corporation) and have standardized strike
prices and expiration dates. OTC options are two-party contracts with negotiated
strike prices and expiration dates. A Fund will not purchase an OTC option
unless it believes that daily valuations for such options are readily
obtainable. OTC options differ from exchange-traded options in that OTC options
are transacted with dealers directly and not through a clearing corporation
(which guarantees performance). Consequently, there is a risk of non-performance
by the dealer. Since no exchange is involved, OTC options are valued on the
basis of an average of the last bid prices obtained from dealers, unless a
quotation from only one dealer is available, in which case only that dealer's
price will be used. In the case of OTC options, there can be no assurance that a
liquid secondary market will exist for any particular option at any specific
time. Because purchased OTC options in certain cases may be difficult to dispose
of in a timely manner, the Fund may be required to treat some or all of these
options (i.e., the market value) as illiquid securities. Although a Fund will
enter into OTC options only with dealers that are expected to be capable of
entering into closing transactions with it, there is no assurance that the Fund
will in fact be able to close out an OTC option position at a favorable price
prior to expiration. In the event of insolvency of the dealer, a Fund might be
unable to close out an OTC option position at any time prior to its expiration.
Index Options. Index options (or options on securities indices) are
similar in many respects to options on securities, except that an index option
gives the holder the right to receive, upon exercise, cash instead of
securities, if the closing level of the securities index upon which the option
is based is greater than, in the case of a call, or less than, in the case of a
put, the exercise price of the option. The
21
amount of cash is equal to the difference between the closing price of the index
and the exercise price of the call or put times a specified multiple (the
"multiplier"), which determines the total dollar value for each point of such
difference.
The risks of investment in index options may be greater than options on
securities. Because index options are settled in cash, when a Fund writes a call
on an index it cannot provide in advance for its potential settlement
obligations by acquiring and holding the underlying securities. A Fund can
offset some of the risk of writing a call index option position by holding a
diversified portfolio of securities similar to those on which the underlying
index is based. However, the Fund cannot, as a practical matter, acquire and
hold a portfolio containing exactly the same securities as underlie the index
and, as a result, bears a risk that the value of the securities held will not be
perfectly correlated with the value of the index.
Pursuant to federal securities rules and regulations, if a Fund writes
index options it may be required to set aside assets to reduce the risks
associated with writing those options. This process is described in more detail
below in the section "Cover."
STRADDLES. The Fund, for hedging purposes, may write straddles
(combinations of put and call options on the same underlying security) to adjust
the risk and return characteristics of the Fund's overall position. A possible
combined position would involve writing a covered call option at one strike
price and buying a call option at a lower price, in order to reduce the risk of
the written covered call option in the event of a substantial price increase.
Because combined options positions involve multiple trades, they result in
higher transaction costs and may be more difficult to open and close out.
WARRANTS. Warrants are, in effect, longer-term call options. They give
the holder the right to purchase a given number of shares of a particular
company at specified prices within certain periods of time. The purchaser of a
warrant expects that the market price of the security will exceed the purchase
price of the warrant plus the exercise price of the warrant, thus giving him a
profit. Since the market price may never exceed the exercise price before the
expiration date of the warrant, the purchaser of the warrant risks the loss of
the entire purchase price of the warrant. Warrants generally trade in the open
market and may be sold rather than exercised. Warrants are sometimes sold in
unit form with other securities of an issuer. Units of warrants and common stock
may be employed in financing young, unseasoned companies. The purchase price of
a warrant varies with the exercise price of the warrant, the current market
value of the underlying security, the life of the warrant and various other
investment factors.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. A Futures Contract
is a two party agreement to buy or sell a specified amount of a specified
security or currency (or delivery of a cash settlement price, in the case of an
index future) for a specified price at a designated date, time and place
(collectively, "Futures Contracts"). A stock index Futures Contract provides for
the delivery, at a designated date, time and place, of an amount of cash equal
to a specified dollar amount times the difference between the stock index value
at the close of trading on the contract and the price agreed upon in the Futures
Contract; no physical delivery of stocks comprising the index is made. Brokerage
fees are incurred when a Futures Contract is bought or sold, and margin deposits
must be maintained at all times when a Futures Contract is outstanding.
A Fund will enter into Futures Contracts for hedging purposes only;
that is, Futures Contracts will be sold to protect against a decline in the
price of securities or currencies that the Fund owns, or Futures Contracts will
be purchased to protect the Fund against an increase in the price of securities
or currencies it has committed to purchase or expects to purchase. A Fund's
hedging may include sales of Futures Contracts as an offset against the effect
of expected increases in interest rates, and decreases in currency exchange
rates and stock prices, and purchases of Futures Contracts as an offset against
the effect of expected declines in interest rates, and increases in currency
exchange rates or stock prices.
The Funds will only enter into Futures Contracts that are traded
(either domestically or internationally) on futures exchanges and are
standardized as to maturity date and underlying financial instrument. Futures
exchanges and trading thereon in the United States are regulated under the
22
Commodity Exchange Act and by the Commodity Futures Trading Commission ("CFTC").
Foreign futures exchanges and trading thereon are not regulated by the CFTC and
are not subject to the same regulatory controls. For a further discussion of the
risks associated with investments in foreign securities, see "Foreign
Investments" in this Statement of Additional Information.
Closing out an open Futures Contract is effected by entering into an
offsetting Futures Contract for the same aggregate amount of the identical
financial instrument or currency and the same delivery date. There can be no
assurance, however, that a Fund will be able to enter into an offsetting
transaction with respect to a particular Futures Contract at a particular time.
If a Fund is not able to enter into an offsetting transaction, it will continue
to be required to maintain the margin deposits on the Futures Contract.
"Margin" with respect to Futures Contracts is the amount of funds that
must be deposited by a Fund in order to initiate Futures Contracts trading and
maintain its open positions in Futures Contracts. A margin deposit made when the
Futures Contract is entered ("initial margin") is intended to ensure the Fund's
performance under the Futures Contract. The margin required for a particular
Futures Contract is set by the exchange on which the Futures Contract is traded
and may be significantly modified from time to time by the exchange during the
term of the Futures Contract.
Subsequent payments, called "variation margin," to and from the futures
commission merchant through which a Fund entered into the Futures Contract will
be made on a daily basis as the price of the underlying security, currency or
index fluctuates making the Futures Contract more or less valuable, a process
known as marking-to-market.
If a Fund were unable to liquidate a Futures Contract or an option on a
Futures Contract position due to the absence of a liquid secondary market or the
imposition of price limits, it could incur substantial losses. The Fund would
continue to be subject to market risk with respect to the position. In addition,
except in the case of purchased options, the Fund would continue to be required
to make daily variation margin payments and might be required to maintain the
position being hedged by the Futures Contract or option or to maintain cash or
securities in a segregated account.
Options on Futures Contracts. Options on Futures Contracts are similar
to options on securities or currencies except that options on Futures Contracts
give the purchaser the right, in return for the premium paid, to assume a
position in a Futures Contract (a long position if the option is a call and a
short position if the option is a put) at a specified exercise price at any time
during the period of the option. Upon exercise of the option, the delivery of
the Futures Contract position by the writer of the option to the holder of the
option will be accompanied by delivery of the accumulated balance in the
writer's Futures Contract margin account.
Limitations on Futures Contracts and Options on Futures Contracts and
on Certain Options on Currencies. To the extent that a Fund enters into Futures
Contracts, options on Futures Contracts and options on foreign currencies traded
on a CFTC-regulated exchange, in each case other than for bona fide hedging
purposes (as defined by the CFTC), the aggregate initial margin and premiums
required to establish those positions (excluding the amount by which options are
"in-the-money") will not exceed 5% of the total assets of the Fund, after taking
into account unrealized profits and unrealized losses on any contracts it has
entered into. This guideline may be modified by the Board, without a shareholder
vote. This limitation does not limit the percentage of the Fund's assets at risk
to 5%.
Pursuant to federal securities rules and regulations, a Fund's use of
Futures Contracts and options on Futures Contracts may require that Fund to set
aside assets to reduce the risks associated with using Futures Contracts and
options on Futures Contracts. This process is described in more detail below in
the section "Cover."
FORWARD CURRENCY CONTRACTS. A forward contract is an obligation,
usually arranged with a commercial bank or other currency dealer, to purchase or
sell a currency against another currency at a future date and price as agreed
upon by the parties. A Fund either may accept or make delivery of the
23
currency at the maturity of the forward contract. A Fund may also, if its contra
party agrees prior to maturity, enter into a closing transaction involving the
purchase or sale of an offsetting contract. Forward contracts are traded
over-the-counter, and not on organized commodities or securities exchanges. As a
result, it may be more difficult to value such contracts, and it may be
difficult to enter into closing transactions.
Each of the Funds may engage in forward currency transactions in
anticipation of, or to protect itself against, fluctuations in exchange rates. A
Fund may enter into forward contracts with respect to a specific purchase or
sale of a security, or with respect to its portfolio positions generally. When a
Fund purchases a security denominated in a foreign currency for settlement in
the near future, it may immediately purchase in the forward market the currency
needed to pay for and settle the purchase. By entering into a forward contract
with respect to the specific purchase or sale of a security denominated in a
foreign currency, the Fund can secure an exchange rate between the trade and
settlement dates for that purchase or sale transaction. This practice is
sometimes referred to as "transaction hedging." Position hedging is the purchase
or sale of foreign currency with respect to portfolio security positions
denominated or quoted in a foreign currency.
The cost to a Fund of engaging in forward contracts varies with factors
such as the currencies involved, the length of the contract period and the
market conditions then prevailing. Because forward contracts are usually entered
into on a principal basis, no fees or commissions are involved. The use of
forward contracts does not eliminate fluctuations in the prices of the
underlying securities a Fund owns or intends to acquire, but it does establish a
rate of exchange in advance. In addition, while forward contract sales limit the
risk of loss due to a decline in the value of the hedged currencies, they also
limit any potential gain that might result should the value of the currencies
increase.
Pursuant to federal securities rules and regulations, a Fund's use of
forward contracts may require that Fund to set aside assets to reduce the risks
associated with using forward contracts. This process is described in more
detail below in the section "Cover."
COVER. Transactions using forward contracts, futures contracts and
options (other than options purchased by a Fund) expose a Fund to an obligation
to another party. A Fund will not enter into any such transactions unless it
owns either (1) an offsetting ("covered") position in securities, currencies, or
other options, forward contracts or futures contracts or (2) cash, liquid assets
and/or short-term debt securities with a value sufficient at all times to cover
its potential obligations not covered as provided in (1) above. Each Fund will
comply with SEC guidelines regarding cover for these instruments and, if the
guidelines so require, set aside cash or liquid securities. To the extent that a
futures contract, forward contract or option is deemed to be illiquid, the
assets used to "cover" the Fund's obligation will also be treated as illiquid
for purposes of determining the Fund's maximum allowable investment in illiquid
securities.
Even though options purchased by the Funds do not expose the Funds to
an obligation to another party, but rather provide the Funds with a right to
exercise, the Funds intend to "cover" the cost of any such exercise. To the
extent that a purchased option is deemed illiquid, the Fund will treat the
market value of the option (i.e., the amount at risk to the Fund) as illiquid,
but will not treat the assets used as cover on such transactions as illiquid.
Assets used as cover cannot be sold while the position in the
corresponding forward contract, futures contract or option is open, unless they
are replaced with other appropriate assets. If a large portion of a Fund's
assets is used for cover or otherwise set aside, it could affect portfolio
management or the Fund's ability to meet redemption requests or other current
obligations.
GENERAL RISKS OF OPTIONS, FUTURES AND CURRENCY STRATEGIES. The use by
the Funds of options, futures contracts and forward currency contracts involves
special considerations and risks, as described below. Risks pertaining to
particular strategies are described in the sections that follow.
24
(1) Successful use of hedging transactions depends upon AIM's ability
to correctly predict the direction of changes in the value of the applicable
markets and securities, contracts and/or currencies. While AIM is experienced in
the use of these instruments, there can be no assurance that any particular
hedging strategy will succeed.
(2) There might be imperfect correlation, or even no correlation,
between the price movements of an instrument (such as an option contract) and
the price movements of the investments being hedged. For example, if a
"protective put" is used to hedge a potential decline in a security and the
security does decline in price, the put option's increased value may not
completely offset the loss in the underlying security. Such a lack of
correlation might occur due to factors unrelated to the value of the investments
being hedged, such as changing interest rates, market liquidity, and speculative
or other pressures on the markets in which the hedging instrument is traded.
(3) Hedging strategies, if successful, can reduce risk of loss by
wholly or partially offsetting the negative effect of unfavorable price
movements in the investments being hedged. However, hedging strategies can also
reduce opportunity for gain by offsetting the positive effect of favorable price
movements in the hedged investments.
(4) There is no assurance that a liquid secondary market will exist for
any particular option, futures contract or option thereon or, forward contract
at any particular time.
(5) As described above, a Fund might be required to maintain assets as
"cover," maintain segregated accounts or make margin payments when it takes
positions in instruments involving obligations to third parties. If a Fund were
unable to close out its positions in such instruments, it might be required to
continue to maintain such assets or accounts or make such payments until the
position expired or matured. The requirements might impair the Fund's ability to
sell a portfolio security or make an investment at a time when it would
otherwise be favorable to do so, or require that the Fund sell a portfolio
security at a disadvantageous time.
(6) There is no assurance that a Fund will use hedging transactions.
For example, if a Fund determines that the cost of hedging will exceed the
potential benefit to the Fund, the Fund will not enter into such transaction.
FUND POLICIES
FUNDAMENTAL RESTRICTIONS. Each Fund is subject to the following
investment restrictions, which may be changed only by a vote of a majority of
such Fund's outstanding shares, except that AIM European Small Company Fund and
AIM International Emerging Growth Fund are not subject to restriction (1) and
AIM Global Utilities Fund is not subject to restrictions (1) or (4). Fundamental
restrictions may be changed only by a vote of the lesser of (i) 67% or more of
the Fund's shares present at a meeting if the holders of more than 50% of the
outstanding shares are present in person or represented by proxy, or (ii) more
than 50% of the Fund's outstanding shares. Any investment restriction that
involves a maximum or minimum percentage of securities or assets (other than
with respect to borrowing) shall not be considered to be violated unless an
excess over or a deficiency under the percentage occurs immediately after, and
is caused by, an acquisition or disposition of securities or utilization of
assets by the Fund.
(1) The Fund is a "diversified company" as defined in the 1940 Act. The
Fund will not purchase the securities of any issuer if, as a result, the Fund
would fail to be a diversified company within the meaning of the 1940 Act, and
the rules and regulations promulgated thereunder, as such statute, rules and
regulations are amended from time to time or are interpreted from time to time
by the SEC staff (collectively, the "1940 Act Laws and Interpretations") or
except to the extent that the Fund may be permitted to do so by exemptive order
or similar relief (collectively, with the 1940 Act Laws and Interpretations, the
"1940 Act Laws, Interpretations and Exemptions"). In complying with this
restriction, however, the Fund may purchase securities of other investment
companies to the extent permitted by the 1940 Act Laws, Interpretations and
Exemptions.
25
(2) The Fund may not borrow money or issue senior securities, except as
permitted by the 1940 Act Laws, Interpretations and Exemptions.
(3) The Fund may not underwrite the securities of other issuers. This
restriction does not prevent the Fund from engaging in transactions involving
the acquisition, disposition or resale of its portfolio securities, regardless
of whether the Fund may be considered to be an underwriter under the 1933 Act.
(4) The Fund will not make investments that will result in the
concentration (as that term may be defined or interpreted by the 1940 Act Laws,
Interpretations and Exemptions) of its investments in the securities of issuers
primarily engaged in the same industry. This restriction does not limit the
Fund's investments in (i) obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, or (ii) tax-exempt obligations
issued by governments or political subdivisions of governments. In complying
with this restriction, the Fund will not consider a bank-issued guaranty or
financial guaranty insurance as a separate security.
(5) The Fund may not purchase real estate or sell real estate unless
acquired as a result of ownership of securities or other instruments. This
restriction does not prevent the Fund from investing in issuers that invest,
deal, or otherwise engage in transactions in real estate or interests therein,
or investing in securities that are secured by real estate or interests therein.
(6) The Fund may not purchase physical commodities or sell physical
commodities unless acquired as a result of ownership of securities or other
instruments. This restriction does not prevent the Fund from engaging in
transactions involving futures contracts and options thereon or investing in
securities that are secured by physical commodities.
(7) The Fund may not make personal loans or loans of its assets to
persons who control or are under common control with the Fund, except to the
extent permitted by 1940 Act Laws, Interpretations and Exemptions. This
restriction does not prevent the Fund from, among other things, purchasing debt
obligations, entering into repurchase agreements, loaning its assets to
broker-dealers or institutional investors, or investing in loans, including
assignments and participation interests.
(8) The Fund may, notwithstanding any other fundamental investment
policy or limitation, invest all of its assets in the securities of a single
open-end management investment company with substantially the same fundamental
investment objectives, policies and restrictions as the Fund.
AIM Global Utilities Fund will concentrate (as such term may be defined
or interpreted by the 1940 Act Laws, Interpretations and Exemptions) its
investments in the securities of domestic and foreign public utility companies.
The investment restrictions set forth above provide each of the Funds
with the ability to operate under new interpretations of the 1940 Act or
pursuant to exemptive relief from the SEC without receiving prior shareholder
approval of the change. Even though each of the Funds has this flexibility, the
Board of Trustees has adopted non-fundamental restrictions for each of the Funds
relating to certain of these restrictions which the advisor must follow in
managing the Funds. Any changes to these non-fundamental restrictions, which are
set forth below, require the approval of the Board of Trustees.
NON-FUNDAMENTAL RESTRICTIONS. The following non-fundamental investment
restrictions apply to each of the Funds, except AIM European Small Company Fund
and AIM International Emerging Growth Fund are not subject to restriction (1)
and AIM Global Utilities Fund is not subject to restrictions (1) or (3). They
may be changed for any Fund without approval of that Fund's voting securities.
(1) In complying with the fundamental restriction regarding issuer
diversification, the Fund will not, with respect to 75% of its total assets,
purchase the securities of any issuer (other than securities issued or
guaranteed by the U.S. Government or any of its agencies or instrumentalities),
if, as a result,
26
(i) more than 5% of the Fund's total assets would be invested in the securities
of that issuer, or (ii) the Fund would hold more than 10% of the outstanding
voting securities of that issuer. The Fund may (i) purchase securities of other
investment companies as permitted by Section 12(d)(1) of the 1940 Act and (ii)
invest its assets in securities of other money market funds and lend money to
other investment companies or their series portfolios that have AIM or an
affiliate of AIM as an investment advisor (an "AIM Advised Fund"), subject to
the terms and conditions of any exemptive orders issued by the SEC.
(2) In complying with the fundamental restriction regarding borrowing
money and issuing senior securities, the Fund may borrow money in an amount not
exceeding 331/3% of its total assets (including the amount borrowed) less
liabilities (other than borrowings). The Fund may borrow from banks,
broker-dealers or an AIM Advised Fund. The Fund may not borrow for leveraging,
but may borrow for temporary or emergency purposes, in anticipation of or in
response to adverse market conditions, or for cash management purposes. The Fund
may not purchase additional securities when any borrowings from banks exceed 5%
of the Fund's total assets or when any borrowings from an AIM Advised Fund are
outstanding.
(3) In complying with the fundamental restriction regarding industry
concentration, the Fund may invest up to 25% of its total assets in the
securities of issuers whose principal business activities are in the same
industry.
(4) In complying with the fundamental restriction with regard to making
loans, the Fund may lend up to 331/3% of its total assets and may lend money to
an AIM Advised Fund, on such terms and conditions as the SEC may require in an
exemptive order.
(5) Notwithstanding the fundamental restriction with regard to
investing all assets in an open-end fund, the Fund may not invest all of its
assets in the securities of a single open-end management investment company with
the same fundamental investment objectives, policies and restrictions as the
Fund.
For purposes of AIM Global Utilities Fund's fundamental restriction
regarding industry concentration, public utility companies shall consist of
companies that produce or supply electricity, natural gas, water, sanitary
services, and telephone, cable, satellite, telegraph or other communication or
information transmission services, as well as developing utility technology
companies and holding companies which derive at least 40% of their revenues from
utility-related activities.
TEMPORARY DEFENSIVE POSITIONS
In anticipation of or in response to adverse market conditions, or
atypical circumstances such as unusually large cash inflows or redemptions, the
Fund may temporarily hold all or a portion of its assets in cash, or the
following liquid assets: money market instruments, shares of affiliated money
market funds or high-quality debt obligations. As a result, the Fund may not
achieve its investment objective.
PORTFOLIO TURNOVER
The variation in the portfolio turnover rate for AIM Global Utility
Fund for the fiscal year 2001 as compared to the prior year was due to the Fund
repositioning a significant portion of its assets from investments in
telecommunications-related companies to investments in electric utilities and
energy-producing companies.
The variation in the portfolio turnover rate for AIM Select Equity Fund
for the fiscal year 2001 as compared to the prior year was due to a change in
the Fund's investment strategies that occurred during 2001.
27
MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES
The overall management of the business and affairs of the Funds and the
Trust is vested in the Board of Trustees. The Board of Trustees approves all
significant agreements between the Trust, on behalf of one or more of the Funds,
and persons or companies furnishing services to the Funds. The day-to-day
operations of each Fund are delegated to the officers of the Trust and to AIM,
subject always to the objective(s), restrictions and policies of the applicable
Fund and to the general supervision of the Board of Trustees. Certain trustees
and officers of the Trust are affiliated with AIM and A I M Management Group
Inc. ("AIM Management"), the parent corporation of AIM. All of the Trust's
executive officers hold similar offices with some or all of the other AIM Funds.
MANAGEMENT INFORMATION
The trustees and officers of the Trust and their principal occupations
during at least the last five years and certain other information concerning
them is set forth in Appendix B.
The standing committees of the Board of Trustees are the Audit
Committee, the Investments Committee, the Valuation Committee and the Committee
on Directors/Trustees.
The members of the Audit Committee are Frank S. Bayley, Bruce L.
Crockett, Albert R. Dowden (Vice Chair), Edward K. Dunn, Jr. (Chair), Jack M.
Fields, Carl Frischling (on leave of absence), Lewis F. Pennock and Louis S.
Sklar, Dr. Prema Mathai-Davis and Ruth H. Quigley. The Audit Committee is
responsible for: (i) considering management's recommendations of independent
accountants for each Fund and evaluating such accountants' performance, costs
and financial stability; (ii) with AIM, reviewing and coordinating audit plans
prepared by the Funds' independent accountants and management's internal audit
staff; and (iii) reviewing financial statements contained in periodic reports to
shareholders with the Funds' independent accountants and management. During the
fiscal year ended December 31, 2001, the Audit Committee held 9 meetings.
The members of the Investments Committee are Messrs. Bayley, Crockett,
Dowden, Dunn, Fields, Frischling, Pennock and Sklar (Chair), Dr. Mathai-Davis
(Vice Chair) and Miss Quigley. The Investments Committee is responsible for: (i)
overseeing AIM's investment-related compliance systems and procedures to ensure
their continued adequacy; and (ii) considering and acting, on an interim basis
between meetings of the full Board, on investment-related matters requiring
Board consideration, including dividends and distributions, brokerage policies
and pricing matters. During the fiscal year ended December 31, 2001, the
Investments Committee held 6 meetings.
The members of the Valuation Committee are Messrs. Dunn and Pennock
(Chair) and Miss Quigley (Vice Chair). The Valuation Committee is responsible
for: (i) periodically reviewing AIM's Procedures for Valuing Securities
("Procedures"), and making any recommendations to AIM with respect thereto; (ii)
reviewing proposed changes to the Procedures recommended by AIM from time to
time; (iii) periodically reviewing information provided by AIM regarding
industry developments in connection with valuation; (iv) periodically reviewing
information from AIM regarding fair value and liquidity determinations made
pursuant to the Procedures, and making recommendations to the full Board in
connection therewith (whether such information is provided only to the Committee
or to the Committee and the full Board simultaneously); and (v) if requested by
AIM, assisting AIM's internal valuation committee and/or the full Board in
resolving particular valuation anomalies. During the fiscal year ended December
31, 2001, the Valuation Committee held no meetings.
The members of the Committee on Directors/Trustees are Messrs. Bayley,
Crockett (Chair), Dowden, Dunn, Fields (Vice Chair), Pennock and Sklar, Dr.
Mathai-Davis and Miss Quigley. The Committee on Directors/Trustees is
responsible for: (i) considering and nominating individuals to stand for
election as dis-interested trustees as long as the Trust maintains a
distribution plan pursuant to Rule 12b-1 under the 1940 Act; (ii) reviewing from
time to time the compensation payable to the dis-interested
28
trustees; and (iii) making recommendations to the Board regarding matters
related to compensation, including deferred compensation plans and retirement
plans for the dis-interested trustees. During the fiscal year ended December 31,
2001, the Committee on Directors/Trustees held 6 meetings.
The Committee on Directors/Trustees will consider nominees recommended
by a shareholder to serve as trustees, provided: (i) that such person is a
shareholder of record at the time he or she submits such names and is entitled
to vote at the meeting of shareholders at which trustees will be elected; and
(ii) that the Committee on Directors/Trustees or the Board, as applicable, shall
make the final determination of persons to be nominated.
Trustee Ownership of Fund Shares
The dollar range of equity securities beneficially owned by each
trustee (i) in the Funds and (ii) on an aggregate basis, in all registered
investment companies overseen by the trustee within the AIM Funds complex, is
set forth in Appendix B.
Factors Considered in Approving the Investment Advisory Agreement
The advisory agreement with AIM was re-approved for each Fund by the
Trust's Board at a meeting held on May 8-9, 2001. In evaluating the fairness and
reasonableness of the advisory agreement, the Board of Trustees considered a
variety of factors for each Fund, including: the requirements of each Fund for
investment supervisory and administrative services; the quality of AIM's
services, including a review of each Fund's investment performance and AIM's
investment personnel; the size of the fees in relationship to the extent and
quality of the investment advisory services rendered; fees charged to AIM's
other clients; fees charged by competitive investment advisors; the size of the
fees in light of services provided other than investment advisory services; the
expenses borne by each Fund as a percentage of its assets and relationship to
contractual limitations; any fee waivers (or payments of Fund expenses) by AIM;
AIM's profitability; the benefits received by AIM from its relationship to each
Fund, including soft dollar arrangements, and the extent to which each Fund
shares in those benefits; the organizational capabilities and financial
condition of AIM and conditions and trends prevailing in the economy, the
securities markets and the mutual fund industry; and the historical relationship
between each Fund and AIM.
In considering the above factors, the Board also took into account the
fact that uninvested cash and cash collateral from securities lending
arrangements (collectively, "cash balances") of each Fund may be invested in
money market funds advised by AIM pursuant to the terms of an exemptive order.
The Board found that each Fund may realize certain benefits upon investing cash
balances in AIM advised money market funds, including a higher net return,
increased liquidity, increased diversification or decreased transaction costs.
The Board also found that each Fund will not receive reduced services if it
invests its cash balances in such money market funds. The Board further
determined that the proposed securities lending program and related procedures
with respect to each of the lending Funds is in the best interests of each
lending Fund and its respective shareholders. The Board therefore concluded that
the investment of cash collateral received in connection with the securities
lending program in the money market funds according to the procedures is in the
best interests of each lending Fund and its respective shareholders.
After consideration of these factors, the Board found that: (i) the
services provided to each Fund and its shareholders were adequate; (ii) the
agreements were fair and reasonable under the circumstances; and (iii) the fees
payable under the agreements would have been obtained through arm's length
negotiations. The Board therefore concluded that each Fund's advisory agreement
was in the best interests of such Fund and its shareholders and continued the
agreement for an additional year.
COMPENSATION
Each trustee who is not affiliated with AIM is compensated for his or
her services according to a fee schedule which recognizes the fact that such
trustee also serves as a director or trustee of other AIM
29
Funds. Each such trustee receives a fee, allocated among the AIM Funds for which
he or she serves as a director or trustee, which consists of an annual retainer
component and a meeting fee component.
Information regarding compensation paid or accrued for each trustee of
the Trust who was not affiliated with AIM during the year ended December 31,
2001 is found in Appendix C.
Retirement Plan For Trustees
The trustees have adopted a retirement plan for the trustees of the
Trust who are not affiliated with AIM. The retirement plan includes a retirement
policy as well as retirement benefits for the non-AIM-affiliated trustees.
The retirement policy permits each non-AIM-affiliated trustee to serve
until December 31 of the year in which the trustee turns 72. A majority of the
trustees may extend from time to time the retirement date of a trustee.
Annual retirement benefits are available to each non-AIM-affiliated
trustee of the Trust and/or the other AIM Funds (each, a "Covered Fund") who has
at least five years of credited service as a trustee (including service to a
predecessor fund) for a Covered Fund. The retirement benefit will equal 75% of
the trustee's annual retainer paid or accrued by any Covered Fund to such
trustee during the twelve-month period prior to retirement, including the amount
of any retainer deferred under a separate deferred compensation agreement
between the Covered Fund and the trustee. The annual retirement benefits are
payable in quarterly installments for a number of years equal to the lesser of
(i) ten or (ii) the number of such trustee's credited years of service. A death
benefit is also available under the plan that provides a surviving spouse with a
quarterly installment of 50% of a deceased trustee's retirement benefits for the
same length of time that the trustee would have received based on his or her
service. A trustee must have attained the age of 65 (55 in the event of death or
disability) to receive any retirement benefit.
Deferred Compensation Agreements
Messrs. Dunn, Fields, Frischling and Sklar and Dr. Mathai-Davis (for
purposes of this paragraph only, the "Deferring Trustees") have each executed a
Deferred Compensation Agreement (collectively, the "Compensation Agreements").
Pursuant to the Compensation Agreements, the Deferring Trustees have the option
to elect to defer receipt of up to 100% of their compensation payable by the
Trust, and such amounts are placed into a deferral account. Currently, the
Deferring Trustees have the option to select various AIM Funds in which all or
part of their deferral accounts shall be deemed to be invested. Distributions
from the Deferring Trustees' deferral accounts will be paid in cash, generally
in equal quarterly installments over a period of up to ten (10) years (depending
on the Compensation Agreement) beginning on the date selected under the
Compensation Agreement. The Board, in its sole discretion, may accelerate or
extend the distribution of such deferral accounts after the Deferring Trustee's
retirement benefits commence under the Plan. The Trust's Board of Trustees, in
its sole discretion, also may accelerate or extend the distribution of such
deferral accounts after the Deferring Trustee's termination of service as a
trustee of the Trust. If a Deferring Trustee dies prior to the distribution of
amounts in his or her deferral account, the balance of the deferral account will
be distributed to his or her designated beneficiary. The Compensation Agreements
are not funded and, with respect to the payments of amounts held in the deferral
accounts, the Deferring Trustees have the status of unsecured creditors of the
Trust and of each other AIM Fund from which they are deferring compensation.
Purchase of Class A Shares of the Funds at Net Asset Value
The trustees and other affiliated persons of the Trust may purchase
Class A shares of the Funds without paying an initial sales charge. AIM
Distributors permits such purchases because there is a reduced sales effort
involved in sales to such purchasers, thereby resulting in relatively low
expenses of distribution. For a complete description of the persons who will not
pay an initial sales charge on purchases of Class A shares of the Funds, see
"Purchase, Redemption and Pricing of Shares - Purchase
30
and Redemption of Shares - Purchases of Class A Shares and AIM Cash Reserve
Shares of AIM Money Market Fund - Purchases of Class A Shares at Net Asset
Value."
CODES OF ETHICS
AIM, the Trust and A I M Distributors, Inc. ("AIM Distributors") have
each adopted a Code of Ethics governing, as applicable, personal trading
activities of all directors/trustees, officers of the Trust, persons who, in
connection with their regular functions, play a role in the recommendation of
any purchase or sale of a security by any of the Funds or obtain information
pertaining to such purchase or sale, and certain other employees. The Codes of
Ethics are intended to prohibit conflicts of interest with the Trust that may
arise from personal trading. Personal trading, including personal trading
involving securities that may be purchased or held by a Fund, is permitted by
persons covered under the relevant Codes subject to certain restrictions;
however those persons are generally required to pre-clear all security
transactions with the Compliance Officer or his designee and to report all
transactions on a regular basis.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
Information about the ownership of each class of each Fund's shares by
beneficial or record owners of such Fund and by trustees and officers as a group
is found in Appendix D. A shareholder who owns beneficially 25% or more of the
outstanding shares of a Fund is presumed to "control" that Fund.
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISOR
AIM, the Funds' investment advisor, was organized in 1976, and along
with its subsidiaries, manages or advises over 150 investment portfolios
encompassing a broad range of investment objectives. AIM is a direct,
wholly-owned subsidiary of AIM Management, a holding company that has been
engaged in the financial services business since 1976. AIM Management is an
indirect, wholly-owned subsidiary of AMVESCAP PLC. AMVESCAP PLC and its
subsidiaries are an independent global investment management group. Certain of
the directors and officers of AIM are also executive officers of the Trust and
their affiliations are shown under "Management Information" herein.
As investment advisor, AIM supervises all aspects of the Funds'
operations and provides investment advisory services to the Funds. AIM obtains
and evaluates economic, statistical and financial information to formulate and
implement investment programs for the Funds.
AIM is also responsible for furnishing to each Fund, at AIM's expense,
the services of persons believed to be competent to perform all supervisory and
administrative services required by each Fund, in the judgment of the trustees,
to conduct their respective businesses effectively, as well as the offices,
equipment and other facilities necessary for their operations. Such functions
include the maintenance of each Fund's accounts and records, and the preparation
of all requisite corporate documents such as tax returns and reports to the SEC
and shareholders.
The Master Advisory Agreement provides that each Fund will pay or cause
to be paid all expenses of such Fund not assumed by AIM, including, without
limitation: brokerage commissions, taxes, legal, auditing or governmental fees,
the cost of preparing share certificates, custodian, transfer and shareholder
service agent costs, expenses of issue, sale, redemption, and repurchase of
shares, expenses of registering and qualifying shares for sale, expenses
relating to trustees and shareholder meetings, the cost of preparing and
distributing reports and notices to shareholders, the fees and other expenses
incurred by the Trust on behalf of each Fund in connection with membership in
investment company organizations, and the cost of printing copies of
prospectuses and statements of additional information distributed to the Funds'
shareholders.
31
AIM, at its own expense, furnishes to the Trust office space and
facilities. AIM furnishes to the Trust all personnel for managing the affairs of
the Trust and each of its series of shares.
Pursuant to its advisory agreement with the Trust, AIM receives a
monthly fee from each Fund calculated at the following annual rates, based on
the average daily net assets of each Fund during the year:
<Table>
<Caption>
FUND NAME NET ASSETS ANNUAL RATE
- ------------------------------------------------------------ ------------------------------------ --------------------
AIM Balanced Fund First $150 million 0.75%
Amount over $150 million 0.50%
AIM Basic Balanced Fund First $1 billion 0.65%
Next $4 billion 0.60%
Amount over $5 billion 0.55%
AIM European Small Company Fund All Assets 0.95%
AIM International Emerging Growth Fund
AIM Global Utilities Fund First $200 million 0.60%
Next $300 million 0.50%
Next $500 million 0.40%
Amount over $1 billion 0.30%
AIM Mid Cap Basic Value Fund First $1 billion 0.80%
Next $4 billion 0.75%
Over $5 billion 0.70%
AIM Select Equity Fund First $150 million 0.80%
AIM Value Fund* Amount over $150 million 0.625%
AIM New Technology Fund All Assets 1.00%
AIM Small Cap Equity Fund All Assets 0.85%
AIM Value II Fund All Assets 0.75%
AIM Worldwide Spectrum Fund First $1 billion 0.85%
Amount over $1 billion 0.80%
</Table>
* See AIM Value Fund voluntary fee waiver discussed below.
AIM may from time to time waive or reduce its fee. Voluntary fee
waivers or reductions may be rescinded at any time without further notice to
investors. During periods of voluntary fee waivers or reductions, AIM will
retain its ability to be reimbursed for such fee prior to the end of each fiscal
year. Contractual fee waivers or reductions set forth in the Fee Table in a
Prospectus may not be terminated or amended to the Funds' detriment during the
period stated in the agreement between AIM and the Fund.
32
AIM has voluntarily agreed, effective July 1, 2001, to waive a portion
of advisory fees payable by each Fund. The amount of the waiver will equal 25%
of the advisory fee AIM receives from the Affiliated Money Market Funds as a
result of each Fund's investment of uninvested cash in an Affiliated Money
Market Fund. See "Other Investments - Other Investment Companies."
AIM has voluntarily agreed, effective July 1, 2001, to waive advisory
fees payable by AIM Value Fund in an amount equal to 0.025% for each $5 billion
increment in net assets over $5 billion, up to a maximum waiver of 0.175% on net
assets in excess of $35 billion.
The management fees payable by each Fund, the amounts waived by AIM and
the net fees paid by each Fund for the last three fiscal years ended December
31, 2001 are found in Appendix E.
SECURITIES LENDING ARRANGEMENTS. If a Fund engages in securities
lending, AIM will provide the Fund investment advisory services and related
administrative services. The advisory agreement describes the administrative
services to be rendered by AIM if a Fund engages in securities lending
activities, as well as the compensation AIM may receive for such administrative
services. Services to be provided include: (a) overseeing participation in the
securities lending program to ensure compliance with all applicable regulatory
and investment guidelines; (b) assisting the securities lending agent or
principal (the agent) in determining which specific securities are available for
loan; (c) monitoring the agent to ensure that securities loans are effected in
accordance with AIM's instructions and with procedures adopted by the Board; (d)
preparing appropriate periodic reports for, and seeking appropriate approvals
from, the Board with respect to securities lending activities; (e) responding to
agent inquiries; and (f) performing such other duties as may be necessary.
AIM's compensation for advisory services rendered in connection with
securities lending is included in the advisory fee schedule. As compensation for
the related administrative services AIM will provide, a lending Fund will pay
AIM a fee equal to 25% of the net monthly interest or fee income retained or
paid to the Fund from such activities. AIM currently intends to waive such fee,
and has agreed to seek Board approval prior to its receipt of all or a portion
of such fee.
SERVICE AGREEMENTS
ADMINISTRATIVE SERVICES AGREEMENT. AIM and the Trust have entered into
a Master Administrative Services Agreement ("Administrative Services Agreement")
pursuant to which AIM may perform or arrange for the provision of certain
accounting and other administrative services to each Fund which are not required
to be performed by AIM under the advisory agreement. The Administrative Services
Agreement provides that it will remain in effect and continue from year to year
only if such continuance is specifically approved at least annually by the
Trust's Board of Trustees, including the independent trustees, by votes cast in
person at a meeting called for such purpose. Under the Administrative Services
Agreement, AIM is entitled to receive from the Funds reimbursement of its costs
or such reasonable compensation as may be approved by the Board of Trustees.
Currently, AIM is reimbursed for the services of the Trust's principal financial
officer and her staff, and any expenses related to fund accounting services.
Administrative services fees paid to AIM by each Fund for the last
three fiscal years ended December 31, 2001 are found in Appendix F.
OTHER SERVICE PROVIDERS
TRANSFER AGENT. A I M Fund Services, Inc. ("AFS"), 11 Greenway Plaza,
Suite 100, Houston, Texas 77046, a registered transfer agent and wholly-owned
subsidiary of AIM, acts as transfer and dividend disbursing agent for the Funds.
The Transfer Agency and Service Agreement between the Trust and AFS
provides that AFS will perform certain shareholder services for the Funds. The
Transfer Agency and Service Agreement
33
provides that AFS will receive a per account fee plus out-of-pocket expenses to
process orders for purchases, redemptions and exchanges of shares; prepare and
transmit payments for dividends and distributions declared by the Funds;
maintain shareholder accounts and provide shareholders with information
regarding the Funds and their accounts. AFS may impose certain copying charges
for requests for copies of shareholder account statements and other historical
account information older than the current year and the immediately preceding
year.
In addition, Merrill Lynch, Pierce, Fenner & Smith Incorporated
("MLPF&S"), 800 Scudders Mill Road, Plainsboro, New Jersey 08536, has entered
into an agreement with the Trust (and certain other AIM Funds), PFPC Inc.
(formerly known as First Data Investor Service Group) and Financial Data
Services, Inc., pursuant to which MLPF&S is paid a per account fee to perform
certain shareholder sub-accounting services for its customers who beneficially
own shares of the Fund(s).
CUSTODIAN. State Street Bank and Trust Company (the "Custodian"), 225
Franklin Street, Boston, Massachusetts 02110, is custodian of all securities and
cash of the Funds. Chase Bank of Texas, N.A., 712 Main, Houston, Texas 77002,
serves as Sub-Custodian for retail purchases. The Bank of New York, 100 Church
Street, New York, New York 10286, also serves as Sub-Custodian to facilitate
cash management.
The Custodian is authorized to establish separate accounts in foreign
countries and to cause foreign securities owned by the Funds to be held outside
the United States in branches of U.S. banks and, to the extent permitted by
applicable regulations, in certain foreign banks and securities depositories.
AIM is responsible for selecting eligible foreign securities depositories; the
Custodian is responsible for monitoring eligible foreign securities
depositories.
Under its contract with the Trust, the Custodian maintains the
portfolio securities of the Funds, administers the purchases and sales of
portfolio securities, collects interest and dividends and other distributions
made on the securities held in the portfolios of the Funds and performs other
ministerial duties. These services do not include any supervisory function over
management or provide any protection against any possible depreciation of
assets.
AUDITORS. The Funds' independent public accountants are responsible for
auditing the financial statements of the Funds. The Board of Trustees has
selected PricewaterhouseCoopers LLP, 1201 Louisiana, Suite 2900, Houston, Texas
77002, as the independent public accountants to audit the financial statements
of the Funds.
COUNSEL TO THE TRUST. Legal matters for the Trust have been passed upon
by Ballard Spahr Andrews & Ingersoll, LLP, 1735 Market Street, Philadelphia,
Pennsylvania 19103.
BROKERAGE ALLOCATION AND OTHER PRACTICES
BROKERAGE TRANSACTIONS
AIM makes decisions to buy and sell securities for each Fund, selects
broker-dealers, effects the Funds' investment portfolio transactions, allocates
brokerage fees in such transactions and, where applicable, negotiates
commissions and spreads on transactions. AIM's primary consideration in
effecting a security transaction is to obtain the most favorable execution of
the order, which includes the best price on the security and a low commission
rate. While AIM seeks reasonably competitive commission rates, the Funds may not
pay the lowest commission or spread available. See "Brokerage Selection" below.
Some of the securities in which the Funds invest are traded in
over-the-counter markets. Portfolio transactions placed in such markets may be
effected at either net prices without commissions, but which include
compensation to the broker-dealer in the form of a mark up or mark down, or on
an agency basis, which involves the payment of negotiated brokerage commissions.
34
Traditionally, commission rates have not been negotiated on stock
markets outside the United States. Although in recent years many overseas stock
markets have adopted a system of negotiated rates, a number of markets maintain
an established schedule of minimum commission rates.
Brokerage commissions paid by each of the Funds for the last three
fiscal years ended December 31, 2001 are found in Appendix G.
COMMISSIONS
During the last three fiscal years ended December 31, 2001, none of the
Funds paid brokerage commissions to brokers affiliated with the Funds, AIM, AIM
Distributors, or any affiliates of such entities.
The Funds may engage in certain principal and agency transactions with
banks and their affiliates that own 5% or more of the outstanding voting
securities of an AIM Fund, provided the conditions of an exemptive order
received by the AIM Funds from the SEC are met. In addition, a Fund may purchase
or sell a security from or to another AIM Fund or account (and may invest in
Affiliated Money Market Funds) provided the Funds follow procedures adopted by
the Boards of Directors/Trustees of the various AIM Funds, including the Trust.
These inter-fund transactions do not generate brokerage commissions but may
result in custodial fees or taxes or other related expenses.
BROKERAGE SELECTION
Section 28(e) of the Securities Exchange Act of 1934 provides that AIM,
under certain circumstances, lawfully may cause an account to pay a higher
commission than the lowest available. Under Section 28(e)(1), AIM must make a
good faith determination that the commissions paid are "reasonable in relation
to the value of the brokerage and research services provided ... viewed in terms
of either that particular transaction or [AIM's] overall responsibilities with
respect to the accounts as to which [it] exercises investment discretion." The
services provided by the broker also must lawfully and appropriately assist AIM
in the performance of its investment decision-making responsibilities.
Accordingly, in recognition of research services provided to it, a Fund may pay
a broker higher commissions than those available from another broker.
Research services received from broker-dealers supplement AIM's own
research (and the research of its affiliates), and may include the following
types of information: statistical and background information on the U.S. and
foreign economies, industry groups and individual companies; forecasts and
interpretations with respect to the U.S. and foreign economies, securities,
markets, specific industry groups and individual companies; information on
federal, state, local and foreign political developments; portfolio management
strategies; performance information on securities, indexes and investment
accounts; information concerning prices of securities; and information supplied
by specialized services to AIM and to the Trust's trustees with respect to the
performance, investment activities, and fees and expenses of other mutual funds.
Broker-dealers may communicate such information electronically, orally, in
written form or on computer software. Research services may also include the
providing of electronic communications of trade information and the providing of
custody services, as well as the providing of equipment used to communicate
research information, the providing of specialized consultations with AIM
personnel with respect to computerized systems and data furnished to AIM as a
component of other research services, the arranging of meetings with management
of companies, and the providing of access to consultants who supply research
information.
The outside research assistance is useful to AIM since the
broker-dealers used by AIM tend to follow a broader universe of securities and
other matters than AIM's staff can follow. In addition, the research provides
AIM with a diverse perspective on financial markets. Research services provided
to AIM by broker-dealers are available for the benefit of all accounts managed
or advised by AIM or by its affiliates. Some broker-dealers may indicate that
the provision of research services is dependent upon the generation of certain
specified levels of commissions and underwriting concessions by AIM's clients,
35
including the Funds. However, the Funds are not under any obligation to deal
with any broker-dealer in the execution of transactions in portfolio securities.
In some cases, the research services are available only from the
broker-dealer providing them. In other cases, the research services may be
obtainable from alternative sources in return for cash payments. AIM believes
that the research services are beneficial in supplementing AIM's research and
analysis and that they improve the quality of AIM's investment advice. The
advisory fee paid by the Funds is not reduced because AIM receives such
services. However, to the extent that AIM would have purchased research services
had they not been provided by broker-dealers, the expenses to AIM could be
considered to have been reduced accordingly.
AIM may determine target levels of commission business with various
brokers on behalf of its clients (including the Funds) over a certain time
period. The target levels will be based upon the following factors, among
others: (1) the execution services provided by the broker; (2) the research
services provided by the broker; and (3) the broker's interest in mutual funds
in general and in the Funds and other mutual funds advised by AIM or A I M
Capital Management, Inc. (collectively, the "AIM Funds") in particular,
including sales of the Funds and of the other AIM Funds. In connection with (3)
above, the Funds' trades may be executed directly by dealers that sell shares of
the AIM Funds or by other broker-dealers with which such dealers have clearing
arrangements, consistent with obtaining best execution. AIM will not use a
specific formula in connection with any of these considerations to determine the
target levels.
DIRECTED BROKERAGE (RESEARCH SERVICES)
Directed brokerage (research services) paid by each of the Funds during
the last fiscal year ended December 31, 2001 are found in Appendix H.
REGULAR BROKERS OR DEALERS
Information concerning the Funds' acquisition of securities of their
regular brokers or dealers during the last fiscal year ended December 31, 2001
is found in Appendix H.
ALLOCATION OF PORTFOLIO TRANSACTIONS
AIM and its affiliates manage numerous other investment accounts. Some
of these accounts may have investment objectives similar to the Funds.
Occasionally, identical securities will be appropriate for investment by one of
the Funds and by another Fund or one or more of these investment accounts.
However, the position of each account in the same securities and the length of
time that each account may hold its investment in the same securities may vary.
The timing and amount of purchase by each account will also be determined by its
cash position. If the purchase or sale of securities is consistent with the
investment policies of the Fund(s) and one or more of these accounts, and is
considered at or about the same time, AIM will fairly allocate transactions in
such securities among the Fund(s) and these accounts. AIM may combine such
transactions, in accordance with applicable laws and regulations, to obtain the
most favorable execution. Simultaneous transactions could, however, adversely
affect a Fund's ability to obtain or dispose of the full amount of a security
which it seeks to purchase or sell.
Sometimes the procedure for allocating portfolio transactions among the
various investment accounts advised by AIM results in transactions which could
have an adverse effect on the price or amount of securities available to a Fund.
In making such allocations, AIM considers the investment objectives and policies
of its advisory clients, the relative size of portfolio holdings of the same or
comparable securities, the availability of cash for investment, the size of
investment commitments generally held, and the judgments of the persons
responsible for recommending the investment. This procedure would apply to
transactions in both equity and fixed income securities.
36
ALLOCATION OF EQUITY OFFERING TRANSACTIONS
From time to time, certain of the AIM Funds or other accounts managed
by AIM may become interested in participating in equity security distributions
that are available in an equity "offering", which AIM defines as an IPO, a
secondary (follow-on offering), a private placement, a direct placement or a
PIPE (private investment in a public equity). Occasions may arise when purchases
of such securities by one AIM Fund or account may also be considered for
purchase by one or more other AIM Funds or accounts. In such cases, it shall be
AIM's practice to specifically combine or otherwise bunch indications of
interest for offerings for all AIM Funds and accounts participating in purchase
transactions for that offering, and to allocate such transactions in accordance
with the following procedures:
AIM will determine the eligibility of each AIM Fund and account that
seeks to participate in a particular offering by reviewing a number of factors,
including suitability of the investment with the AIM Fund's or account's
investment objective, policies and strategies, the liquidity of the AIM Fund or
account if such investment is purchased, and whether the portfolio manager
intends to hold the security as a long-term investment. The allocation of
limited supply securities issued in offerings will be made to eligible AIM Funds
and accounts in a manner designed to be fair and equitable for the eligible AIM
Funds and accounts, and so that there is equal allocation of offerings over the
longer term. Where multiple funds or accounts are eligible, rotational
participation may occur, based on the extent to which an AIM Fund or account has
participated in previous offerings as well as the size of the AIM Fund or
account. Each eligible AIM Fund and account with an asset level of less than
$500 million will be placed in one of three tiers, depending upon each AIM
Fund's or account's asset level. The AIM Funds and accounts in the tier
containing funds and accounts with the smallest asset levels will participate
first, each receiving a 40 basis point allocation (rounded to the nearest share
round lot that approximates 40 basis points) (the "Allocation"), based on that
AIM Fund's or account's net assets. This process continues until all of the AIM
Funds and accounts in the three tiers receive their Allocations, or until the
shares are all allocated. Should securities remain after this process, eligible
AIM Funds and accounts will receive their Allocations on a straight pro rata
basis. In addition, Incubator Funds, as described in AIM's Incubator and New
Fund Investment Policy, will each be limited to a 40 basis point allocation
only. Such allocations will be allocated to the nearest share round lot that
approximates 40 basis points.
When any AIM Funds and/or accounts with substantially identical
investment objectives and policies participate in offerings, they will do so in
amounts that are substantially proportionate to each other. In these cases, the
net assets of the largest participating AIM Fund will be used to determine in
which tier, as described in the paragraph above, such group of AIM Funds or
accounts will be placed. If no AIM Fund is participating, then the net assets of
the largest account will be used to determine tier placement. The price per
share of securities purchased in such offering transactions will be the same for
each AIM Fund and account.
PURCHASE, REDEMPTION AND PRICING OF SHARES
PURCHASE AND REDEMPTION OF SHARES
Purchases of Class A Shares and AIM Cash Reserve Shares of AIM Money Market Fund
INITIAL SALES CHARGES. Each AIM Fund (other than AIM Tax-Exempt Cash
Fund and AIM Money Market Fund) is grouped into one of three categories to
determine the applicable initial sales charge for its Class A Shares. The sales
charge is used to compensate AIM Distributors and participating dealers for
their expenses incurred in connection with the distribution of the Funds'
shares. You may also be charged a transaction or other fee by the financial
institution managing your account.
Class A Shares of AIM Tax-Exempt Cash Fund and AIM Cash Reserve Shares
of AIM Money Market Fund are sold without an initial sales charge.
37
CATEGORY I FUNDS
AIM Aggressive Growth Fund AIM Large Cap Core Equity Fund
AIM Asian Growth Fund AIM Large Cap Growth Fund
AIM Basic Value Fund AIM Large Cap Opportunities Fund
AIM Blue Chip Fund AIM Mid Cap Basic Value Fund
AIM Capital Development Fund AIM Mid Cap Equity Fund
AIM Charter Fund AIM Mid Cap Growth Fund
AIM Constellation Fund AIM Mid Cap Opportunities Fund
AIM Dent Demographic Trends Fund AIM New Technology Fund
AIM Emerging Growth Fund AIM Select Equity Fund
AIM European Development Fund AIM Small Cap Equity Fund
AIM European Small Company Fund AIM Small Cap Growth Fund
AIM Euroland Growth Fund AIM Small Cap Opportunities Fund
AIM Global Utilities Fund AIM Value Fund
AIM International Emerging Growth Fund AIM Value II Fund
AIM International Equity Fund AIM Weingarten Fund
AIM International Value Fund AIM Worldwide Spectrum Fund
AIM Large Cap Basic Value Fund
<Table>
<Caption>
Dealer
Investor's Sales Charge Concession
--------------------------- ----------
As a As a As a
Percentage Percentage Percentage
of the Public of the Net of the Public
Amount of Investment in Offering Amount Offering
Single Transaction(1) Price Invested Price
------------------------- ------------- ------------ ---------
Less than $ 25,000 5.50% 5.82% 4.75%
$ 25,000 but less than $ 50,000 5.25 5.54 4.50
$ 50,000 but less than $ 100,000 4.75 4.99 4.00
$ 100,000 but less than $ 250,000 3.75 3.90 3.00
$ 250,000 but less than $ 500,000 3.00 3.09 2.50
$ 500,000 but less than $ 1,000,000 2.00 2.04 1.60
</Table>
(1) AIM Small Cap Opportunities Fund will not accept any single purchase in
excess of $250,000
38
CATEGORY II FUNDS
AIM Balanced Fund AIM Global Trends Fund
AIM Basic Balanced Fund AIM High Income Municipal Fund
AIM Developing Markets Fund AIM High Yield Fund
AIM Global Aggressive Growth Fund AIM High Yield Fund II
AIM Global Energy Fund AIM Income Fund
AIM Global Financial Services Fund AIM Intermediate Government Fund
AIM Global Growth Fund AIM Municipal Bond Fund
AIM Global Health Care Fund AIM Real Estate Fund
AIM Global Income Fund AIM Strategic Income Fund
AIM Global Infrastructure Fund AIM Total Return Bond Fund
AIM Global Telecommunications and
Technology Fund
<Table>
<Caption>
Dealer
Investor's Sales Charge Concession
------------------------- ----------
As a As a As a
Percentage Percentage Percentage
of the Public of the Net of the Public
Amount of Investment in Offering Amount Offering
Single Transaction Price Invested Price
------------------------- ------------- ------------ ---------
Less than $ 50,000 4.75% 4.99% 4.00%
$ 50,000 but less than $ 100,000 4.00 4.17 3.25
$ 100,000 but less than $ 250,000 3.75 3.90 3.00
$ 250,000 but less than $ 500,000 2.50 2.56 2.00
$ 500,000 but less than $ 1,000,000 2.00 2.04 1.60
</Table>
CATEGORY III FUNDS
AIM Limited Maturity Treasury Fund
AIM Tax-Free Intermediate Fund
<Table>
<Caption>
Dealer
Investor's Sales Charge Concession
----------------------- ----------
As a As a As a
Percentage Percentage Percentage
of the Public of the Net of the Public
Amount of Investment in Offering Amount Offering
Single Transaction Price Invested Price
------------------------ ------------- ------------- -------------
Less than $ 100,000 1.00% 1.01% 0.75%
$100,000 but less than $ 250,000 0.75 0.76 0.50
$250,000 but less than $ 1,000,000 0.50 0.50 0.40
</Table>
LARGE PURCHASES OF CLASS A SHARES. Investors who purchase $1,000,000 or
more of Class A shares of a Category I, II or III Fund do not pay an initial
sales charge. In addition, investors who currently own Class A shares of
Category I, II, or III Funds and make additional purchases that result in
account balances of $1,000,000 or more do not pay an initial sales charge on the
additional purchases. The additional purchases, as well as initial purchases of
$1,000,000 or more, are referred to as Large Purchases ("Large Purchases"). If
an investor makes a Large Purchase of Class A shares of a Category I
39
or II Fund, however, the shares generally will be subject to a 1% contingent
deferred sales charge ("CDSC") if the investor redeems those shares within 18
months after purchase. Large Purchases of Class A shares of Category III Funds
made on or after November 15, 2001 will be subject to a 0.25% CDSC if the
investor redeems those shares within 12 months after purchase.
AIM Distributors may pay a dealer concession and/or advance a service
fee on Large Purchases, as set forth below. Exchanges between the AIM Funds may
affect total compensation paid.
For Large Purchases of Class A shares of Category I or II Funds, AIM
Distributors may make the following payments to dealers and institutions that
are dealers of record:
PERCENT OF SUCH PURCHASES
1% of the first $2 million
plus 0.80% of the next $1 million
plus 0.50% of the next $17 million
plus 0.25% of amounts in excess of $20 million
For Large Purchases of Class A shares of Category III Funds, AIM
Distributors may make the following payments to dealers and institutions that
are dealers of record:
Up to 0.10% of purchases of AIM Limited Maturity Treasury Fund; and Up
to 0.25% of purchases of AIM Tax-Free Intermediate Fund
If an investor makes a Large Purchase of Class A shares of a Category
III Fund on and after November 15, 2001 and exchanges those shares for Class A
shares of a Category I or II Fund, AIM Distributors will pay an additional
dealer concession of 0.75% upon exchange.
If an investor makes a Large Purchase of Class A shares of a Category I
or II Fund on and after November 15, 2001 and exchanges those shares for Class A
shares of a Category III Fund, AIM Distributors will not pay any additional
dealer compensation upon the exchange.
If an investor makes a Large Purchase of Class A shares of a Category
III Fund and exchanges those shares for Class A shares of another Category III
Fund, AIM Distributors will not pay any additional dealer concession upon the
exchange.
For annual purchases of Class A shares of Category I and II Funds, AIM
Distributors may make the following payments to investment dealers or other
financial service firms for sales of such shares at net asset value to employee
benefit plans:
PERCENT OF SUCH PURCHASES
1% of the first $2 million
plus 0.80% of the next $1 million
plus 0.50% of the next $17 million
plus 0.25% of amounts in excess of $20 million
For annual purchases of Class A Shares of AIM Limited Maturity Treasury
Fund, AIM Distributors may pay investment dealers or other financial service
firms up to 0.10% of the net asset value of such shares sold at net asset value.
40
PURCHASERS QUALIFYING FOR REDUCTIONS IN INITIAL SALES CHARGES. As shown
in the tables above, purchases of certain amounts of AIM Fund shares may reduce
the initial sales charges. These reductions are available to purchasers that
meet the qualifications listed below. We will refer to purchasers that meet
these qualifications as "Qualified Purchasers."
INDIVIDUALS
o an individual (including his or her spouse or domestic partner,
and children)
o any trust established exclusively for the benefit of an
individual
o a pension, profit-sharing, or other retirement plan established
exclusively for the benefit of an individual, such as:
a. an IRA
b. a Roth IRA
c. a single-participant money-purchase/profit-sharing plan
d. an individual participant in a 403(b) Plan (unless the 403(b)
plan itself qualifies as the purchaser,
as discussed below)
403(b) PLANS
o A 403(b) plan, the employer/sponsor of which is an organization
described under Section 501(c)(3) of the Internal Revenue Code of
1986, as amended (the "Code"), if:
a. the employer/sponsor must submit contributions for all
participating employees in a single contribution transmittal
(i.e., the Funds will not accept contributions submitted with
respect to individual participants);
b. each transmittal must be accompanied by a single check or wire
transfer; and
c. all new participants must be added to the 403(b) plan by
submitting an application on behalf of each new participant
with the contribution transmittal.
TRUSTEES AND FIDUCIARIES
o a trustee or fiduciary purchasing for a single trust, estate or
single fiduciary account
o a trustee or fiduciary purchasing for a pension, profit-sharing
or other employee benefit trust created pursuant to a plan
qualified under Section 401 of the Code
o a trustee or fiduciary purchasing for a 457 plan, even if more
than one beneficiary or participant is involved
LINKED EMPLOYEE PLANS
o Linked employee plans where the employer has notified AIM
Distributors in writing that all of its related employee accounts
should be linked, such as:
a. Simplified Employee Pension (SEP) Plans
41
b. Salary Reduction and other Elective Simplified Employee
Pension account (SAR-SEP) Plans
c. Savings Incentive Match Plans for Employees IRA (SIMPLE IRA)
OTHER GROUPS
o any other organized group of persons, whether incorporated or
not, provided that:
a. the organization has been in existence for at least six
months; and
b. the organization has some purpose other than the purchase at a
discount of redeemable securities of a registered investment
company.
HOW TO QUALIFY FOR REDUCTIONS IN INITIAL SALES CHARGES. The following
sections discuss different ways that a purchaser can qualify for a reduction in
the initial sales charges for purchases of Class A shares of the AIM Funds.
LETTERS OF INTENT
A Qualified Purchaser may pay reduced initial sales charges by:
o indicating on the account application that he or she intends to
provide a Letter of Intent ("LOI"); and
o fulfilling the conditions of that LOI.
The LOI confirms the total investment in shares of the AIM Funds that
the Qualified Purchaser intends to make within the next 13 months. By marking
the LOI section on the account application and by signing the account
application, the Qualified Purchaser indicates that he or she understands and
agrees to the terms of the LOI and is bound by the provisions described below:
Calculating the Initial Sales Charge
o Each purchase of fund shares normally subject to an initial sales
charge made during the 13-month period will be made at the public
offering price applicable to a single transaction of the total dollar
amount indicated by the LOI (to determine what the applicable public
offering price is, look at the sales charge table in the section on
"Initial Sales Charges" above).
o It is the purchaser's responsibility at the time of purchase to specify
the account numbers that should be considered in determining the
appropriate sales charge.
o The offering price may be further reduced as described below under
"Rights of Accumulation" if the Transfer Agent is advised of all other
accounts at the time of the investment.
o Shares acquired through reinvestment of dividends and capital gains
distributions will not be applied to the LOI.
Calculating the Number of Shares to be Purchased
o Purchases made within 90 days before signing an LOI will be applied
toward completion of the LOI. The LOI effective date will be the date
of the first purchase within the 90-day period.
42
o Purchases made more than 90 days before signing an LOI will be applied
toward the completion of the LOI based on the value of the shares
purchased that is calculated at the public offering price on the
effective date of the LOI.
o If a purchaser meets the original obligation at any time during the
13-month period, he or she may revise the intended investment amount
upward by submitting a written and signed request. This revision will
not change the original expiration date.
o The Transfer Agent will process necessary adjustments upon the
expiration or completion date of the LOI.
Fulfilling the Intended Investment
o By signing an LOI, a purchaser is not making a binding commitment to
purchase additional shares, but if purchases made within the 13-month
period do not total the amount specified, the purchaser will have to
pay the increased amount of sales charge.
o To assure compliance with the provisions of the 1940 Act, the Transfer
Agent will escrow in the form of shares an appropriate dollar amount
(computed to the nearest full share) out of the initial purchase (or
subsequent purchases if necessary). All dividends and any capital gain
distributions on the escrowed shares will be credited to the purchaser.
All shares purchased, including those escrowed, will be registered in
the purchaser's name. If the total investment specified under this LOI
is completed within the 13-month period, the escrowed shares will be
promptly released.
o If the intended investment is not completed, the purchaser will pay the
Transfer Agent the difference between the sales charge on the specified
amount and the sales charge on the amount actually purchased. If the
purchaser does not pay such difference within 20 days of the expiration
date, he or she irrevocably constitutes and appoints the Transfer Agent
as his attorney to surrender for redemption any or all shares, to make
up such difference within 60 days of the expiration date.
Canceling the LOI
o If at any time before completing the LOI Program, the purchaser wishes
to cancel the agreement, he or she must give written notice to AIM
Distributors.
o If at any time before completing the LOI Program the purchaser requests
the Transfer Agent to liquidate or transfer beneficial ownership of his
total shares, the LOI will be automatically canceled. If the total
amount purchased is less than the amount specified in the LOI, the
Transfer Agent will redeem an appropriate number of escrowed shares
equal to the difference between the sales charge actually paid and the
sales charge that would have been paid if the total purchases had been
made at a single time.
Other Persons Eligible for the LOI Privilege
The LOI privilege is also available to holders of the Connecticut
General Guaranteed Account, established for tax qualified group annuities, for
contracts purchased on or before June 30, 1992.
LOIs and Contingent Deferred Sales Charges
If an investor enters into an LOI to purchase $1,000,000 or more of
Class A shares of a Category III Fund on and after November 15, 2001, such
shares will be subject to a 12-month, 0.25% CDSC. Purchases of Class A shares of
a Category III Fund made pursuant to an LOI to purchase $1,000,000 or more of
shares entered into prior to November 15, 2001 will not be subject to this CDSC.
All LOIs to
43
purchase $1,000,000 or more of Class A Shares of Category I and II Funds are
subject to an 18-month, 1% CDSC.
RIGHTS OF ACCUMULATION
A Qualified Purchaser may also qualify for reduced initial sales
charges based upon his or her existing investment in shares of any of the AIM
Funds at the time of the proposed purchase. To determine whether or not a
reduced initial sales charge applies to a proposed purchase, AIM Distributors
takes into account not only the money which is invested upon such proposed
purchase, but also the value of all shares of the AIM Funds owned by such
purchaser, calculated at their then current public offering price.
If a purchaser qualifies for a reduced sales charge, the reduced sales
charge applies to the total amount of money being invested, even if only a
portion of that amount exceeds the breakpoint for the reduced sales charge. For
example, if a purchaser already owns qualifying shares of any AIM Fund with a
value of $20,000 and wishes to invest an additional $20,000 in a fund with a
maximum initial sales charge of 5.50%, the reduced initial sales charge of 5.25%
will apply to the full $20,000 purchase and not just to the $15,000 in excess of
the $25,000 breakpoint.
To qualify for obtaining the discount applicable to a particular
purchase, the purchaser or his dealer must furnish the Transfer Agent with a
list of the account numbers and the names in which such accounts of the
purchaser are registered at the time the purchase is made.
Rights of Accumulation are also available to holders of the Connecticut
General Guaranteed Account, established for tax-qualified group annuities, for
contract purchased on or before June 30, 1992.
If an investor's new purchase of Class A shares of a Category I, II or
III Fund is at net asset value, the newly purchased shares will be subject to a
contingent deferred sales charge if the investor redeems them prior to the end
of the applicable holding period (18 months for Category I and II Funds shares
and 12 months for Category III Fund shares). For Class A shares of Category III
Funds, the provisions of this paragraph apply only to new purchases made on and
after November 15, 2001.
OTHER REQUIREMENTS FOR REDUCTIONS IN INITIAL SALES CHARGES. As
discussed above, investors or dealers seeking to qualify orders for a reduced
initial sales charge must identify such orders and, if necessary, support their
qualification for the reduced charge. AIM Distributors reserves the right to
determine whether any purchaser is entitled to the reduced sales charge based on
the definition of a Qualified Purchaser listed above. No person or entity may
distribute shares of the AIM Funds without payment of the applicable sales
charge other than to Qualified Purchasers.
Purchases of Class A shares of AIM Tax-Exempt Cash Fund, AIM Cash
Reserve Shares of AIM Money Market Fund, and Class B and Class C shares of AIM
Floating Rate Fund will not be taken into account in determining whether a
purchase qualifies for a reduction in initial sales charges.
PURCHASES OF CLASS A SHARES AT NET ASSET VALUE. AIM Distributors
permits certain categories of persons to purchase Class A shares of AIM Funds
without paying an initial sales charge. These are typically categories of
persons whose transactions involve little expense, such as:
o Persons who have a relationship with the funds or with AIM and its
affiliates, and are therefore familiar with the funds, and who place
unsolicited orders directly with AIM Distributors; or
o programs for purchase that involve little expense because of the size
of the transaction and shareholder records required.
AIM Distributors believes that it is appropriate and in the Funds' best
interests that such persons, and certain other persons whose purchases result in
relatively low expenses of distribution, be permitted to purchase shares through
AIM Distributors without payment of a sales charge.
44
Accordingly, the following purchasers will not pay initial sales
charges on purchases of Class A shares because there is a reduced sales effort
involved in sales to these purchasers:
o AIM Management and its affiliates, or their clients;
o Any current or retired officer, director or employee (and members of
their immediate family) of AIM Management, its affiliates or The AIM
Family of Funds--Registered Trademark--, and any foundation, trust or
employee benefit plan established exclusively for the benefit of, or
by, such persons;
o Any current or retired officer, director, or employee (and members of
their immediate family), of PFPC Inc. (formerly known as First Data
Investor Services Group);
o Sales representatives and employees (and members of their immediate
family) of selling group members of financial institutions that have
arrangements with such selling group members;
o Purchases through approved fee-based programs;
o Employee benefit plans that are Qualified Purchasers, as defined above,
and non-qualified plans offered in conjunction with those employee
benefit plans, provided that:
a. the initial investment in the plan(s) is at least $1 million;
b. the sponsor signs a $1 million LOI;
c. the employer-sponsored plan has at least 100 eligible
employees; or
d. all plan transactions are executed through a single omnibus
account per Fund and the financial institution or service
organization has entered into the appropriate agreement with
the distributor.
Section 403(b) plans sponsored by public educational institutions are not
eligible for a sales charge exception based on the aggregate investment made by
the plan or the number of eligible employees. Purchases of AIM Small Cap
Opportunities Fund by such plans are subject to initial sales charges;
o Shareholders of record of Advisor Class shares of AIM International
Growth Fund or AIM Worldwide Growth Fund on February 12, 1999 who have
continuously owned shares of the AIM Funds;
o Shareholders of record or discretionary advised clients of any
investment advisor holding shares of AIM Weingarten Fund or AIM
Constellation Fund on September 8, 1986, or of AIM Charter Fund on
November 17, 1986, who have continuously owned shares having a market
value of at least $500 and who purchase additional shares of the same
Fund;
o Unitholders of G/SET series unit investment trusts investing proceeds
from such trusts in shares of AIM Weingarten Fund or AIM Constellation
Fund; provided, however, prior to the termination date of the trusts, a
unitholder may invest proceeds from the redemption or repurchase of his
units only when the investment in shares of AIM Weingarten Fund and AIM
Constellation Fund is effected within 30 days of the redemption or
repurchase;
o A shareholder of a fund that merges or consolidates with an AIM Fund or
that sells its assets to an AIM Fund in exchange for shares of an AIM
Fund;
o Shareholders of the GT Global funds as of April 30, 1987 who since that
date continually have owned shares of one or more of these funds;
45
o Certain former AMA Investment Advisers' shareholders who became
shareholders of the AIM Global Health Care Fund in October 1989, and
who have continuously held shares in the GT Global funds since that
time;
o Shareholders of record of Advisor Class shares of an AIM Fund on
February 11, 2000 who have continuously owned shares of that AIM Fund,
and who purchase additional shares of that AIM Fund;
o Qualified Tuition Programs created and maintained in accordance with
Section 529 of the Code; and
o Participants in select brokerage programs for defined contribution
plans and rollover IRAs (including rollover IRAs which accept annual
IRA contributions) who purchase shares through an electronic brokerage
platform offered by entities with which AIM Distributors has entered
into a written agreement.
As used above, immediate family includes an individual and his or her
spouse or domestic partner, children, parents and parents of spouse or domestic
partner.
In addition, an investor may acquire shares of any of the AIM Funds at
net asset value in connection with:
o the reinvestment of dividends and distributions from a Fund;
o exchanges of shares of certain Funds;
o use of the reinstatement privilege; or
o a merger, consolidation or acquisition of assets of a Fund.
PAYMENTS TO DEALERS. AIM Distributors may elect to re-allow the entire
initial sales charge to dealers for all sales with respect to which orders are
placed with AIM Distributors during a particular period. Dealers to whom
substantially the entire sales charge is re-allowed may be deemed to be
"underwriters" as that term is defined under the 1933 Act.
In addition to, or instead of, amounts paid to dealers as a sales
commission, AIM Distributors may, from time to time, at its expense or as an
expense for which it may be compensated under a distribution plan, if
applicable, pay a bonus or other consideration or incentive to dealers. The
total amount of such additional bonus payments or other consideration shall not
exceed 0.25% of the public offering price of the shares sold or of average daily
net assets of the AIM Fund attributable to that particular dealer. At the option
of the dealer, such incentives may take the form of payment for travel expenses,
including lodging, incurred in connection with trips taken by qualifying
registered representatives and their families to places within or outside the
United States. Any such bonus or incentive programs will not change the price
paid by investors for the purchase of the applicable AIM Fund's shares or the
amount that any particular AIM Fund will receive as proceeds from such sales.
Dealers may not use sales of the AIM Funds' shares to qualify for any incentives
to the extent that such incentives may be prohibited by the laws of any state.
Purchases of Class B Shares
Class B shares are sold at net asset value, and are not subject to an
initial sales charge. Instead, investors may pay a contingent deferred sales
charge if they redeem their shares within six years after purchase. See the
Prospectus for additional information regarding contingent deferred sales
charges. AIM Distributors may pay sales commissions to dealers and institutions
who sell Class B shares of the
46
AIM Funds at the time of such sales. Payments will equal 4.00% of the purchase
price and will consist of a sales commission equal to 3.75% plus an advance of
the first year service fee of 0.25%.
Purchases of Class C Shares
Class C shares are sold at net asset value, and are not subject to an
initial sales charge. Instead, investors may pay a contingent deferred sales
charge if they redeem their shares within the first year after purchase. See the
Prospectus for additional information regarding this contingent deferred sales
charge (CDSC). AIM Distributors may pay sales commissions to dealers and
institutions who sell Class C shares of the AIM Funds at the time of such sales.
Payments will equal 1.00% of the purchase price and will consist of a sales
commission of 0.75% plus an advance of the first year service fee of 0.25%.
These commissions are not paid on sales to investors exempt from the CDSC,
including shareholders of record of AIM Advisor Funds, Inc. on April 30, 1995,
who purchase additional shares in any of the Funds on or after May 1, 1995, and
in circumstances where AIM Distributors grants an exemption on particular
transactions.
Exchanges
TERMS AND CONDITIONS OF EXCHANGES. Normally, shares of an AIM Fund to
be acquired by exchange are purchased at their net asset value or applicable
offering price, as the case may be, determined on the date that such request is
received, but under unusual market conditions such purchases may be delayed for
up to five business days if it is determined that a fund would be materially
disadvantaged by an immediate transfer of the proceeds of the exchange. If a
shareholder is exchanging into a fund paying daily dividends, and the release of
the exchange proceeds is delayed for the foregoing five-day period, such
shareholder will not begin to accrue dividends until the sixth business day
after the exchange.
EXCHANGES BY TELEPHONE. AIM Distributors has made arrangements with
certain dealers and investment advisory firms to accept telephone instructions
to exchange shares between any of the AIM Funds. AIM Distributors reserves the
right to impose conditions on dealers or investment advisors who make telephone
exchanges of shares of the funds, including the condition that any such dealer
or investment advisor enter into an agreement (which contains additional
conditions with respect to exchanges of shares) with AIM Distributors. To
exchange shares by telephone, a shareholder, dealer or investment advisor who
has satisfied the foregoing conditions must call AFS at (800) 959-4246. If a
shareholder is unable to reach AFS by telephone, he may also request exchanges
by fax, telegraph or use overnight courier services to expedite exchanges by
mail, which will be effective on the business day received by AFS as long as
such request is received prior to the close of the customary trading session of
the NYSE. AFS and AIM Distributors may in certain cases be liable for losses due
to unauthorized or fraudulent transactions if they do not follow reasonable
procedures for verification of telephone transactions. Such reasonable
procedures may include recordings of telephone transactions (maintained for six
months), requests for confirmation of the shareholder's Social Security Number
and current address, and mailings of confirmations promptly after the
transaction.
Redemptions
GENERAL. Shares of the AIM Funds may be redeemed directly through AIM
Distributors or through any dealer who has entered into an agreement with AIM
Distributors. In addition to the Funds' obligation to redeem shares, AIM
Distributors may also repurchase shares as an accommodation to shareholders. To
effect a repurchase, those dealers who have executed Selected Dealer Agreements
with AIM Distributors must phone orders to the order desk of the Funds at (800)
959-4246 and guarantee delivery of all required documents in good order. A
repurchase is effected at the net asset value per share of the applicable Fund
next determined after the repurchase order is received. Such an arrangement is
subject to timely receipt by AFS, the Funds' transfer agent, of all required
documents in good order. If such documents are not received within a reasonable
time after the order is placed, the order is subject to cancellation. While
there is no charge imposed by a Fund or by AIM Distributors (other
47
than any applicable contingent deferred sales charge) when shares are redeemed
or repurchased, dealers may charge a fair service fee for handling the
transaction.
SUSPENSION OF REDEMPTIONS. The right of redemption may be suspended or
the date of payment postponed when (a) trading on the New York Stock Exchange
("NYSE") is restricted, as determined by applicable rules and regulations of the
SEC, (b) the NYSE is closed for other than customary weekend and holiday
closings, (c) the SEC has by order permitted such suspension, or (d) an
emergency as determined by the SEC exists making disposition of portfolio
securities or the valuation of the net assets of a Fund not reasonably
practicable.
REDEMPTIONS BY TELEPHONE. By signing an account application form, an
investor appoints AFS as his true and lawful attorney-in-fact to surrender for
redemption any and all unissued shares held by AFS in the designated account(s),
present or future, with full power of substitution in the premises. AFS and AIM
Distributors are thereby authorized and directed to accept and act upon any
telephone redemptions of shares held in any of the account(s) listed, from any
person who requests the redemption. An investor acknowledges by signing the form
that he understands and agrees that AFS and AIM Distributors may not be liable
for any loss, expense or cost arising out of any telephone redemption requests
effected in accordance with the authorization set forth in these instructions if
they reasonably believe such request to be genuine, but may in certain cases be
liable for losses due to unauthorized or fraudulent transactions. Procedures for
verification of telephone transactions may include recordings of telephone
transactions (maintained for six months), requests for confirmation of the
shareholder's Social Security Number and current address, and mailings of
confirmations promptly after the transactions. AFS reserves the right to cease
to act as attorney-in-fact subject to this appointment, and AIM Distributors
reserves the right to modify or terminate the telephone redemption privilege at
any time without notice. An investor may elect not to have this privilege by
marking the appropriate box on the application. Then any redemptions must be
effected in writing by the investor.
SYSTEMATIC WITHDRAWAL PLAN. A Systematic Withdrawal Plan permits a
shareholder of an AIM Fund to withdraw on a regular basis at least $50 per
withdrawal. Under a Systematic Withdrawal Plan, all shares are to be held by AFS
and all dividends and distributions are reinvested in shares of the applicable
AIM Fund by AFS. To provide funds for payments made under the Systematic
Withdrawal Plan, AFS redeems sufficient full and fractional shares at their net
asset value in effect at the time of each such redemption.
Payments under a Systematic Withdrawal Plan constitute taxable events.
Since such payments are funded by the redemption of shares, they may result in a
return of capital and in capital gains or losses, rather than in ordinary
income. Because sales charges are imposed on additional purchases of shares
(other than Class B or Class C Shares of the Funds), it is disadvantageous to
effect such purchases while a Systematic Withdrawal Plan is in effect.
Each AIM Fund bears its share of the cost of operating the Systematic
Withdrawal Plan.
Contingent Deferred Sales Charges Imposed upon Redemption of Shares
A contingent deferred sales charge ("CDSC") may be imposed upon the
redemption of Large Purchases of Class A shares of Category I and II Funds or
upon the redemption of Class B shares or Class C shares. On and after November
15, 2001, a CDSC also may be imposed upon the redemption of Large Purchases of
Class A Shares of Category III Funds. See the Prospectus for additional
information regarding CDSCs.
CONTINGENT DEFERRED SALES CHARGE EXCEPTIONS FOR LARGE PURCHASES OF
CLASS A SHARES. An investor who has made a Large Purchase of Class A shares of a
Category I, II or III Fund will not be subject to a CDSC upon the redemption of
those shares in the following situations:
o Redemptions of shares of Category I or II Funds held more than 18
months;
48
o Redemptions of shares of Category III Funds purchased prior to November
15, 2001;
o Redemptions of shares of Category III Funds purchased on or after
November 15, 2001 and held for more than 12 months;
o Redemptions from employee benefit plans designated as Qualified
Purchasers, as defined above, where the redemptions are in connection
with employee terminations or withdrawals, provided the total amount
invested in the plan is at least $1,000,000; the sponsor signs a $1
million LOI; or the employer-sponsored plan has at least 100 eligible
employees; provided, however, that 403(b) plans sponsored by public
educational institutions shall qualify for the CDSC waiver on the basis
of the value of each plan participant's aggregate investment in the AIM
Funds, and not on the aggregate investment made by the plan or on the
number of eligible employees;
o Redemptions from private foundations or endowment funds;
o Redemptions of shares by the investor where the investor's dealer
waives the amounts otherwise payable to it by the distributor and
notifies the distributor prior to the time of investment;
o Redemptions of shares of Category I, II or III Funds or AIM Cash
Reserve Shares of AIM Money Market Fund acquired by exchange from Class
A shares of a Category I or II Fund, unless the shares acquired by
exchange are redeemed within 18 months of the original purchase of the
exchanges of Category I or II Fund shares;
o Redemptions of shares of Category III Funds, shares of AIM Tax-Exempt
Cash Fund or AIM Cash Reserve Shares of AIM Money Market Fund acquired
by exchange from Class A shares of a Category III Fund purchased prior
to November 15, 2001;
o Redemptions of shares of Category I or II Funds acquired by exchange
from Class A shares of a Category III Fund purchased on and after
November 15, 2001, unless the shares acquired by exchange are redeemed
within 18 months of the original purchase of the exchanged Category III
Fund shares;
o Redemption of shares of Category III Funds, shares of AIM Tax-Exempt
Cash Fund or AIM Cash Reserve Shares of AIM Money Market Fund acquired
by exchange from Class A shares of a Category III Fund purchased on and
after November 15, 2001, unless the shares acquired by exchange are
redeemed within 12 months of the original purchase of the exchanged
Category III Fund shares; and
o Redemptions of shares of Category I or II Funds acquired by exchange on
and after November 15, 2001 from AIM Cash Reserve Shares of AIM Money
Market Fund if the AIM Cash Reserve Shares were acquired by exchange
from a Category I or II Fund, unless the Category I or II Fund shares
acquired by exchange are redeemed within 18 months of the original
purchase of the exchanged Category I or II Funds shares.
CONTINGENT DEFERRED SALES CHARGE EXCEPTIONS FOR CLASS B AND C SHARES.
Investors who purchased former GT Global funds Class B shares before June 1,
1998 are subject to the following waivers from the CDSC otherwise due upon
redemption:
o total or partial redemptions resulting from a distribution following
retirement in the case of a tax-qualified employer-sponsored
retirement;
49
o minimum required distributions made in connection with an IRA, Keogh
Plan or custodial account under Section 403(b) of the Code or other
retirement plan following attainment of age 70 1/2;
o redemptions pursuant to distributions from a tax-qualified
employer-sponsored retirement plan, which is invested in the former GT
Global funds, which are permitted to be made without penalty pursuant
to the Code, other than tax-free rollovers or transfers of assets, and
the proceeds of which are reinvested in the former GT Global funds;
o redemptions made in connection with participant-directed exchanges
between options in an employer-sponsored benefit plan;
o redemptions made for the purpose of providing cash to fund a loan to a
participant in a tax-qualified retirement plan;
o redemptions made in connection with a distribution from any retirement
plan or account that is permitted in accordance with the provisions of
Section 72(t)(2) of the Code, and the regulations promulgated
thereunder;
o redemptions made in connection with a distribution from a qualified
profit-sharing or stock bonus plan described in Section 401(k) of the
Code to a participant or beneficiary under Section 401(k)(2)(B)(IV) of
the Code upon hardship of the covered employee (determined pursuant to
Treasury Regulation Section 1.401(k)-1(d)(2));
o redemptions made by or for the benefit of certain states, counties or
cities, or any instrumentalities, departments or authorities thereof
where such entities are prohibited or limited by applicable law from
paying a sales charge or commission.
CDSCs will not apply to the following redemptions of Class B or Class C
shares, as applicable:
o Additional purchases of Class C shares of AIM International Value Fund
and AIM Real Estate Fund by shareholders of record on April 30, 1995,
of these Funds, except that shareholders whose broker-dealers maintain
a single omnibus account with AFS on behalf of those shareholders,
perform sub-accounting functions with respect to those shareholders,
and are unable to segregate shareholders of record prior to April 30,
1995, from shareholders whose accounts were opened after that date will
be subject to a CDSC on all purchases made after March 1, 1996;
o Redemptions following the death or post-purchase disability of (1) any
registered shareholders on an account or (2) a settlor of a living
trust, of shares held in the account at the time of death or initial
determination of post-purchase disability;
o Certain distributions from individual retirement accounts, Section
403(b) retirement plans, Section 457 deferred compensation plans and
Section 401 qualified plans, where redemptions result from (i) required
minimum distributions to plan participants or beneficiaries who are age
70 1/2 or older, and only with respect to that portion of such
distributions that does not exceed 12% annually of the participant's or
beneficiary's account value in a particular AIM Fund; (ii) in kind
transfers of assets where the participant or beneficiary notifies the
distributor of the transfer no later than the time the transfer occurs;
(iii) tax-free rollovers or transfers of assets to another plan of the
type described above invested in Class B or Class C shares of one or
more of the AIM Funds; (iv) tax-free returns of excess contributions or
returns of excess deferral amounts; and (v) distributions on the death
or disability (as defined in the Code) of the participant or
beneficiary;
50
o Amounts from a Systematic Withdrawal Plan of up to an annual amount of
12% of the account value on a per fund basis, at the time the
withdrawal plan is established, provided the investor reinvests his
dividends;
o Liquidation by the AIM Fund when the account value falls below the
minimum required account size of $500;
o Investment account(s) of AIM;
o Class C shares where the investor's dealer of record notifies the
distributor prior to the time of investment that the dealer waives the
payment otherwise payable to him; and
o Redemptions of Class C shares, where such redemptions are in connection
with employee terminations or withdrawals from (i) a pension,
profit-sharing or other employee benefit trust created pursuant to a
plan qualified under Section 401 of the Code; and (ii) a 457 plan, even
if more than one beneficiary or participant is involved.
General Information Regarding Purchases, Exchanges and Redemptions
GOOD ORDER. Purchase, exchange and redemption orders must be received
in good order. To be in good order, an investor must supply AFS with all
required information and documentation, including signature guarantees when
required. In addition, if a purchase of shares is made by check, the check must
be received in good order. This means that the check must be properly completed
and signed, and legible to AFS in its sole discretion.
TIMING OF PURCHASE ORDERS. It is the responsibility of the dealer or
other financial intermediary to ensure that all orders are transmitted on a
timely basis to AFS. Any loss resulting from the failure of the dealer or
financial intermediary to submit an order within the prescribed time frame will
be borne by that dealer or financial intermediary. If a check used to purchase
shares does not clear, or if any investment order must be canceled due to
nonpayment, the investor will be responsible for any resulting loss to an AIM
Fund or to AIM Distributors
SIGNATURE GUARANTEES. In addition to those circumstances listed in the
"Shareholder Information" section of each Fund's prospectus, signature
guarantees are required in the following situations: (1) requests to transfer
the registration of shares to another owner; (2) telephone exchange and
telephone redemption authorization forms; (3) changes in previously designated
wiring or electronic funds transfer instructions; and (4) written redemptions or
exchanges of shares previously reported as lost, whether or not the redemption
amount is under $250,000 or the proceeds are to be sent to the address of
record. AIM Funds may waive or modify any signature guarantee requirements at
any time.
Acceptable guarantors include banks, broker-dealers, credit unions,
national securities exchanges, savings associations and any other organization,
provided that such institution or organization qualifies as an "eligible
guarantor institution" as that term is defined in rules adopted by the SEC, and
further provided that such guarantor institution is listed in one of the
reference guides contained in AFS' current Signature Guarantee Standards and
Procedures, such as certain domestic banks, credit unions, securities dealers,
or securities exchanges. AFS will also accept signatures with either: (1) a
signature guaranteed with a medallion stamp of the STAMP Program, or (2) a
signature guaranteed with a medallion stamp of the NYSE Medallion Signature
Program, provided that in either event, the amount of the transaction involved
does not exceed the surety coverage amount indicated on the medallion. For
information regarding whether a particular institution or organization qualifies
as an "eligible guarantor institution," an investor should contact the Client
Services Department of AFS.
TRANSACTIONS BY TELEPHONE. By signing an account application form, an
investor appoints AFS as his true and lawful attorney-in-fact to surrender for
redemption any and all unissued shares held by AFS in the designated account(s),
or in any other account with any of the AIM Funds, present or future, which has
the identical registration as the designated account(s), with full power of
substitution in the
51
premises. AFS and AIM Distributors are thereby authorized and directed to accept
and act upon any telephone redemptions of shares held in any of the account(s)
listed, from any person who requests the redemption proceeds to be applied to
purchase shares in any one or more of the AIM Funds, provided that such fund is
available for sale and provided that the registration and mailing address of the
shares to be purchased are identical to the registration of the shares being
redeemed. An investor acknowledges by signing the form that he understands and
agrees that AFS and AIM Distributors may not be liable for any loss, expense or
cost arising out of any telephone exchange requests effected in accordance with
the authorization set forth in these instructions if they reasonably believe
such request to be genuine, but may in certain cases be liable for losses due to
unauthorized or fraudulent transactions. Procedures for verification of
telephone transactions may include recordings of telephone transactions
(maintained for six months), requests for confirmation of the shareholder's
Social Security Number and current address, and mailings of confirmations
promptly after the transactions. AFS reserves the right to modify or terminate
the telephone exchange privilege at any time without notice. An investor may
elect not to have this privilege by marking the appropriate box on the
application. Then any exchanges must be effected in writing by the investor.
INTERNET TRANSACTIONS. An investor may effect transactions in his
account through the internet by selecting the AIM Internet Connect option on his
completed account application form or completing an AIM Internet Connect
Authorization Form. By signing either form the investor acknowledges and agrees
that AFS and AIM Distributors will not be liable for any loss, expense or cost
arising out of any internet transaction effected in accordance with the
instructions set forth in the forms if they reasonably believe such request to
be genuine. Procedures for verification of internet transactions include
requests for confirmation of the shareholder's personal identification number
and mailing of confirmations promptly after the transactions. The investor also
acknowledges that (1) if he no longer wants the AIM Internet Connect option, he
will notify AFS in writing, and (2) the AIM Internet Connect option may be
terminated at any time by the AIM Funds.
OFFERING PRICE
The following formula may be used to determine the public offering
price per Class A share of an investor's investment:
Net Asset Value/(1 - Sales Charge as % of Offering Price ) = Offering
Price.
For example, at the close of business on December 31, 2001, AIM Value
Fund - Class A shares had a net asset value per share of $10.87. The offering
price, assuming an initial sales charge of 5.50%, therefore was $11.50.
Calculation of Net Asset Value
Each Fund determines its net asset value per share once daily as of the
close of the customary trading session of the NYSE (generally 4:00 p.m. Eastern
time) on each business day of the Fund. In the event the NYSE closes early
(i.e., before 4:00 p.m. Eastern time) on a particular day, each Fund determines
its net asset value per share as of the close of the NYSE on such day. For
purposes of determining net asset value per share, the Fund will generally use
futures and options contract closing prices which are available fifteen (15)
minutes after the close of the customary trading session of the NYSE. The Funds
determine net asset value per share by dividing the value of a Fund's
securities, cash and other assets (including interest accrued but not collected)
attributable to a particular class, less all its liabilities (including accrued
expenses and dividends payable) attributable to that class, by the total number
of shares outstanding of that class. Determination of a Fund's net asset value
per share is made in accordance with generally accepted accounting principles.
Each security (excluding convertible bonds) held by a Fund is valued at
its last sales price on the exchange where the security is principally traded
or, lacking any sales on a particular day, the security is valued at the closing
bid price on that day. Each security traded in the over-the-counter market (but
not including securities reported on the NASDAQ National Market System) is
valued at the closing bid price
52
furnished by independent pricing services or market makers. Each security
reported on the NASDAQ National Market System is valued at the last sales price
on the valuation date or absent a last sales price, at the closing bid price on
that day; option contracts are valued at the mean between the closing bid and
asked prices on the exchange where the contracts are principally traded; futures
contracts are valued at final settlement price quotations from the primary
exchange on which they are traded. Debt securities (including convertible bonds)
are valued on the basis of prices provided by an independent pricing service.
Prices 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 special securities, dividend rate, yield, quality, coupon rate, maturity,
type of issue, individual trading characteristics and other market data.
Securities for which market prices are not provided by any of the above methods
are valued based upon quotes furnished by independent sources and 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 ask prices. Securities for which
market quotations are not readily available or are questionable are valued at
fair value as determined in good faith by or under the supervision of the
Trust's officers in a manner specifically authorized by the Board of Trustees.
Short-term investments are valued at amortized cost when the security has 60
days or less to maturity.
Foreign securities are converted into U.S. dollars using exchange rates
as of the close of the NYSE. Generally, trading in foreign securities, corporate
bonds, U.S. Government securities and money market instruments is substantially
completed each day at various times prior to the close of the customary trading
session of the NYSE. The values of such securities used in computing the net
asset value of each Fund's shares are determined as of the close of the
respective markets. Occasionally, events affecting the values of such securities
may occur between the times at which such values are determined and the close of
the customary trading session of the NYSE which will not be reflected in the
computation of a Fund's net asset value. If a development/event has actually
caused that closing price to no longer reflect actual value, the closing prices,
as of the close of the applicable market, may be adjusted to reflect the fair
value of the affected securities as of the close of the NYSE as determined in
good faith by or under the supervision of the Board of Trustees.
Fund securities primarily traded in foreign markets may be traded in
such markets on days which are not business days of the Fund. Because the net
asset value per share of each Fund is determined only on business days of the
Fund, the net asset value per share of a Fund may be significantly affected on
days when an investor cannot exchange or redeem shares of the Fund.
REDEMPTION IN KIND
AIM intends to redeem all shares of the Funds in cash. It is possible
that future conditions may make it undesirable for a Fund to pay for redeemed
shares in cash. In such cases, the Fund may make payment in securities or other
property if the Fund has made an election under Rule 18f-1 under the 1940 Act.
Rule 18f-1 obligates a Fund to redeem for cash all shares presented to such Fund
for redemption by any one shareholder in an amount up to the lesser of $250,000
or 1% of that Fund's net assets in any 90-day period. Securities delivered in
payment of redemptions are valued at the same value assigned to them in
computing the applicable Fund's net asset value per share. Shareholders
receiving such securities are likely to incur brokerage costs on their
subsequent sales of such securities.
BACKUP WITHHOLDING
Accounts submitted without a correct, certified taxpayer identification
number or, alternatively, a completed Internal Revenue Service ("IRS") Form W-8
(for non-resident aliens) or Form W-9 (certifying exempt status) accompanying
the registration information will generally be subject to backup withholding.
Each AIM Fund, and other payers, generally must withhold as of January
1, 2002, 30% of redemption payments and reportable dividends (whether paid or
accrued) in the case of any shareholder who fails to provide the Fund with a
taxpayer identification number ("TIN") and a certification that he is not
subject to backup withholding; however, the backup withholding rate decreases in
phases to 28% for distributions made in the years 2006 and thereafter.
53
An investor is subject to backup withholding if:
1. the investor fails to furnish a correct TIN to the Fund, or
2. the IRS notifies the Fund that the investor furnished an
incorrect TIN, or
3. the investor or the Fund is notified by the IRS that the investor
is subject to backup withholding because the investor failed to
report all of the interest and dividends on such investor's tax
return (for reportable interest and dividends only), or
4. the investor fails to certify to the Fund that the investor is
not subject to backup withholding under (3) above (for reportable
interest and dividend accounts opened after 1983 only), or
5. the investor does not certify his TIN. This applies only to
non-exempt mutual fund accounts opened after 1983.
Interest and dividend payments are subject to backup withholding in all
five situations discussed above. Redemption proceeds and long-term gain
distributions are subject to backup withholding only if (1), (2) or (5) above
applies.
Certain payees and payments are exempt from backup withholding and
information reporting. AIM or AFS will not provide Form 1099 to those payees.
Investors should contact the IRS if they have any questions concerning
withholding.
IRS PENALTIES - Investors who do not supply the AIM Funds with a
correct TIN will be subject to a $50 penalty imposed by the IRS unless such
failure is due to reasonable cause and not willful neglect. If an investor
falsifies information on this form or makes any other false statement resulting
in no backup withholding on an account which should be subject to backup
withholding, such investor may be subject to a $500 penalty imposed by the IRS
and to certain criminal penalties including fines and/or imprisonment.
NONRESIDENT ALIENS - Nonresident alien individuals and foreign entities
are not subject to the backup withholding previously discussed, but must certify
their foreign status by attaching IRS Form W-8 to their application. Form W-8
generally remains in effect for a period starting on the date the Form is signed
and ending on the last day of the third succeeding calendar year. Such
shareholders may, however, be subject to federal income tax withholding at a 30%
rate on ordinary income dividends and other distributions. Under applicable
treaty law, residents of treaty countries may qualify for a reduced rate of
withholding or a withholding exemption.
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS
DIVIDENDS AND DISTRIBUTIONS
It is the present policy of the Funds to declare and pay annually net
investment income dividends and capital gain distributions, except for AIM
Balanced Fund, AIM Basic Balanced Fund and AIM Global Utilities Fund. It is the
Fund's intention to distribute substantially all of its net investment income
and realized net capital gains by the end of each taxable year. In determining
the amount of capital gains, if any, available for distribution, capital gains
will be offset against available net capital loss, if any, carried forward from
previous fiscal periods. All dividends and distributions will be automatically
reinvested in additional shares of the same class of each Fund unless the
shareholder has requested in writing to receive such dividends and distributions
in cash or that they be invested in shares of another AIM Fund, subject to the
terms and conditions set forth in the Prospectus under the caption "Special
Plans - Automatic Dividend Investment." Such dividends and distributions will be
reinvested at the net asset value per share determined on the ex-dividend date.
If a shareholder's account does not have any
54
shares in it on a dividend or capital gain distribution payment date, the
dividend or distribution will be paid in cash whether or not the shareholder has
elected to have such dividends or distributions reinvested.
It is the present policy of the AIM Balanced Fund, AIM Basic Balanced
Fund and AIM Global Utilities Fund to declare and pay quarterly net investment
income dividends and declare and pay annually capital gain distributions.
A dividend or distribution paid by a fund which does not declare
dividends daily has the effect of reducing the net asset value per share on the
ex-dividend date by the amount of the dividend or distribution. Therefore, a
dividend or distribution declared shortly after a purchase of shares by an
investor would represent, in substance, a return of capital to the shareholder
with respect to such shares even though it would be subject to income taxes.
Dividends on Class B and Class C shares are expected to be lower than
those for Class A shares because of higher distribution fees paid by Class B and
Class C shares. Other class-specific expenses may also affect dividends on
shares of those classes. Expenses attributable to a particular class ("Class
Expenses") include distribution plan expenses, which must be allocated to the
class for which they are incurred. Other expenses may be allocated as Class
Expenses, consistent with applicable legal principals under the 1940 Act and the
Code.
TAX MATTERS
The following is only a summary of certain additional tax
considerations generally affecting the Funds and their shareholders that are not
described in the Prospectus. No attempt is made to present a detailed
explanation of the tax treatment of each Fund or its shareholders, and the
discussion here and in the Prospectus is not intended as a substitute for
careful tax planning.
QUALIFICATION AS A REGULATED INVESTMENT COMPANY. Each Fund has elected
to be taxed as a regulated investment company under Subchapter M of the Code. As
a regulated investment company, `each Fund is not subject to federal income tax
on the portion of its net investment income (i.e., taxable interest, dividends
and other taxable ordinary income, net of expenses) and capital gain net income
(i.e., the excess of capital gains over capital losses) that it distributes to
shareholders, provided that it distributes (i) at least 90% of its investment
company taxable income (i.e., net investment income, net foreign currency
ordinary gain or loss and the excess of net short-term capital gain over net
long-term capital loss) and (ii) at least 90% of the excess of its tax-exempt
interest income under Code Section 103(a) over its deductions disallowed under
Code Sections 265 and 171(a)(2) for the taxable year (the "Distribution
Requirement"), and satisfies certain other requirements of the Code that are
described below. Distributions by a Fund made during the taxable year or, under
specified circumstances, within twelve months after the close of the taxable
year, will be considered distributions of income and gains of the taxable year
and can therefore satisfy the Distribution Requirement.
Each Fund may use "equalization accounting" in determining the portion
of its net investment income and capital gain net income that has been
distributed. A Fund that elects to use equalization accounting will allocate a
portion of its realized investment income and capital gain to redemptions of
Fund shares and will reduce the amount of such income and gain that it
distributes in cash. However, each Fund intends to make cash distributions for
each taxable year in an aggregate amount that is sufficient to satisfy the
Distribution Requirement without taking into account its use of equalization
accounting. The Internal Revenue Service has not published any guidance
concerning the methods to be used in allocating investment income and capital
gain to redemptions of shares. In the event that the Internal Revenue Service
determines that a Fund is using an improper method of allocation and has
underdistributed its net investment income and capital gain net income for any
taxable year, such Fund may be liable for additional federal income tax.
In addition to satisfying the Distribution Requirement, a regulated
investment company must derive at least 90% of its gross income from dividends,
interest, certain payments with respect to securities loans, gains from the sale
or other disposition of stock or securities or foreign currencies (to the
55
extent such currency gains are directly related to the regulated investment
company's principal business of investing in stock or securities) and other
income (including, but not limited to, gains from options, futures or forward
contracts) derived with respect to its business of investing in such stock,
securities or currencies (the "Income Requirement").
In addition to satisfying the requirements described above, each Fund
must satisfy an asset diversification test in order to qualify as a regulated
investment company (the "Asset Diversification Test"). Under this test, at the
close of each quarter of each Fund's taxable year, at least 50% of the value of
the Fund's assets must consist of cash and cash items, U.S. Government
securities, securities of other regulated investment companies, and securities
of other issuers, as to which the Fund has not invested more than 5% of the
value of the Fund's total assets in securities of such issuer and as to which
the Fund does not hold more than 10% of the outstanding voting securities of
such issuer, and no more than 25% of the value of its total assets may be
invested in the securities of any one issuer (other than U.S. Government
securities and securities of other regulated investment companies), or in two or
more issuers which the Fund controls and which are engaged in the same or
similar trades or businesses.
For purposes of the Asset Diversification Test, the IRS has ruled that
the issuer of a purchased listed call option on stock is the issuer of the stock
underlying the option. The IRS has also informally ruled that, in general, the
issuers of purchased or written call and put options on securities, of long and
short positions on futures contracts on securities and of options on such future
contracts are the issuers of the securities underlying such financial
instruments where the instruments are traded on an exchange.
Where the writer of a listed call option owns the underlying
securities, the IRS has ruled that the Asset Diversification Test will be
applied solely to such securities and not to the value of the option itself.
With respect to options on securities indexes, futures contracts on securities
indexes and options on such futures contracts, the IRS has informally ruled that
the issuers of such options and futures contracts are the separate entities
whose securities are listed on the index, in proportion to the weighing of
securities in the computation of the index. It is unclear under present law who
should be treated as the issuer of forward foreign currency exchange contracts,
of options on foreign currencies, or of foreign currency futures and related
options. It has been suggested that the issuer in each case may be the foreign
central bank or the foreign government backing the particular currency. Due to
this uncertainty and because the Funds may not rely on informal rulings of the
IRS, the Funds may find it necessary to seek a ruling from the IRS as to the
application of the Asset Diversification Test to certain of the foregoing types
of financial instruments or to limit its holdings of some or all such
instruments in order to stay within the limits of such test.
If for any taxable year a Fund does not qualify as a regulated
investment company, all of its taxable income (including its net capital gain)
will be subject to tax at regular corporate rates without any deduction for
distributions to shareholders, and such distributions will be taxable as
ordinary dividends to the extent of such Fund's current and accumulated earnings
and profits. Such distributions generally will be eligible for the dividends
received deduction in the case of corporate shareholders.
DETERMINATION OF TAXABLE INCOME OF A REGULATED INVESTMENT COMPANY. In
general, gain or loss recognized by a Fund on the disposition of an asset will
be a capital gain or loss. However, gain recognized on the disposition of a debt
obligation purchased by a Fund at a market discount (generally, at a price less
than its principal amount) will be treated as ordinary income to the extent of
the portion of the market discount which accrued during the period of time the
Fund held the debt obligation unless the Fund made an election to accrue market
discount into income. If a Fund purchases a debt obligation that was originally
issued at a discount, the Fund is generally required to include in gross income
each year the portion of the original issue discount which accrues during such
year. In addition, under the rules of Code Section 988, gain or loss recognized
on the disposition of a debt obligation denominated in a foreign currency or an
option with respect thereto (but only to the extent attributable to changes in
foreign currency exchange rates), and gain or loss recognized on the disposition
of a foreign currency forward contract or of foreign currency itself, will
generally be treated as ordinary income or loss.
56
Certain hedging transactions that may be engaged in by certain of the
Funds (such as short sales "against the box") may be subject to special tax
treatment as "constructive sales" under Section 1259 of the Code if a Fund holds
certain "appreciated financial positions" (defined generally as any interest
(including a futures or forward contract, short sale or option) with respect to
stock, certain debt instruments, or partnership interests if there would be a
gain were such interest sold, assigned, or otherwise terminated at its fair
market value). Upon entering into a constructive sales transaction with respect
to an appreciated financial position, a Fund will generally be deemed to have
constructively sold such appreciated financial position and will recognize gain
as if such position were sold, assigned, or otherwise terminated at its fair
market value on the date of such constructive sale (and will take into account
any gain for the taxable year which includes such date).
Some of the forward foreign currency exchange contracts, options and
futures contracts that certain of the Funds may enter into will be subject to
special tax treatment as "Section 1256 contracts." Section 1256 contracts that a
Fund holds are treated as if they are sold for their fair market value on the
last business day of the taxable year, regardless of whether a taxpayer's
obligations (or rights) under such contracts have terminated (by delivery,
exercise, entering into a closing transaction or otherwise) as of such date. Any
gain or loss recognized as a consequence of the year-end deemed disposition of
Section 1256 contracts is combined with any other gain or loss that was
previously recognized upon the termination of Section 1256 contracts during that
taxable year. The net amount of such gain or loss for the entire taxable year
(including gain or loss arising as a consequence of the year-end deemed sale of
such contracts) is deemed to be 60% long-term and 40% short-term gain or loss.
However, in the case of Section 1256 contracts that are forward foreign currency
exchange contracts, the net gain or loss is separately determined and (as
discussed above) generally treated as ordinary income or loss. If such a future
or option is held as an offsetting position and can be considered a straddle
under Section 1092 of the Code, such a straddle will constitute a mixed
straddle. A mixed straddle will be subject to both Section 1256 and Section 1092
unless certain elections are made by the Fund.
Other hedging transactions in which the Funds may engage may result in
"straddles" or "conversion transactions" for U.S. federal income tax purposes.
The straddle and conversion transaction rules may affect the character of gains
(or in the case of the straddle rules, losses) realized by the Funds. In
addition, losses realized by the Funds on positions that are part of a straddle
may be deferred under the straddle rules, rather than being taken into account
in calculating the taxable income for the taxable year in which the losses are
realized. Because only a few regulations implementing the straddle rules and the
conversion transaction rules have been promulgated, the tax consequences to the
Funds of hedging transactions are not entirely clear. The hedging transactions
may increase the amount of short-term capital gain realized by the Funds (and,
if they are conversion transactions, the amount of ordinary income) which is
taxed as ordinary income when distributed to shareholders.
Because application of any of the foregoing rules governing Section
1256 contracts, constructive sales, straddle and conversion transactions may
affect the character of gains or losses, defer losses and/or accelerate the
recognition of gains or losses from the affected investment or straddle
positions, the taxable income of a Fund may exceed its book income. Accordingly,
the amount which must be distributed to shareholders and which will be taxed to
shareholders as ordinary income or long-term capital gain may also differ from
the book income of the Fund and may be increased or decreased as compared to a
fund that did not engage in such transactions.
EXCISE TAX ON REGULATED INVESTMENT COMPANIES. A 4% non-deductible
excise tax is imposed on a regulated investment company that fails to distribute
in each calendar year an amount equal to 98% of ordinary taxable income for the
calendar year and 98% of capital gain net income (excess of capital gains over
capital losses) for the one-year period ended on October 31 of such calendar
year (or, at the election of a regulated investment company having a taxable
year ending November 30 or December 31, for its taxable year (a "taxable year
election")). The balance of such income must be distributed during the next
calendar year. For the foregoing purposes, a regulated investment company is
treated as having distributed any amount on which it is subject to income tax
for any taxable year ending in such calendar year.
57
For purposes of the exercise tax, a regulated investment company shall
(1) reduce its capital gain net income (but not below its net capital gain) by
the amount of any net ordinary loss for the calendar year and (2) exclude
Section 988 foreign currency gains and losses incurred after October 31 (or
after the end of its taxable year if it has made a taxable year election) in
determining the amount of ordinary taxable income for the current calendar year
(and, instead, include such gains and losses in determining ordinary taxable
income for the succeeding calendar year).
Each Fund generally intends to make sufficient distributions or deemed
distributions of its ordinary taxable income and capital gain net income prior
to the end of each calendar year to avoid liability for the excise tax. However,
in the event that the Internal Revenue Service determines that a Fund is using
an improper method of allocation for purposes of equalization accounting (as
discussed above), such Fund may be liable for excise tax. Moreover, investors
should note that a Fund may in certain circumstances be required to liquidate
portfolio investments to make sufficient distributions to avoid excise tax
liability. In addition, under certain circumstances, a Fund may elect to pay a
minimal amount of excise tax.
PFIC INVESTMENTS. Those Funds that are permitted to invest in foreign
equity securities may invest in stocks of foreign companies that are classified
under the Code as passive foreign investment companies ("PFICs"). In general, a
foreign company is classified as a PFIC if at least one-half of its assets
constitute investment-type assets or 75% or more of its gross income is
investment-type income.
The application of the PFIC rules may affect, among other things, the
character of gain, the amount of gain or loss and the timing of the recognition
of income with respect to PFIC stock, as well as subject the Funds themselves to
tax on certain income from PFIC stock. For these reasons the amount that must be
distributed to shareholders, and which will be taxed to shareholders as ordinary
income or long-term capital gain, may be increased or decreased substantially as
compared to a fund that did not invest in PFIC stock.
SWAP AGREEMENTS. Each Fund may enter into swap agreements. The rules
governing the tax aspects of swap agreements are in a developing stage and are
not entirely clear in certain respects. Accordingly, while a Fund intends to
account for such transactions in a manner deemed to be appropriate, the IRS
might not accept such treatment. If it did not, the status of a Fund as a
regulated investment company might be affected. Each Fund intends to monitor
developments in this area. Certain requirements that must be met under the Code
in order for the Trust to qualify as a regulated investment company may limit
the extent to which a Fund will be able to engage in swap agreements.
FUND DISTRIBUTIONS. Each Fund anticipates distributing substantially
all of its investment company taxable income for each taxable year. Such
distributions will be taxable to shareholders as ordinary income and treated as
dividends for federal income tax purposes, but they will qualify for the 70%
dividends received deduction for corporations only to the extent discussed
below.
A Fund may either retain or distribute to shareholders its net capital
gain (net long-term capital gain over net short-term capital loss) for each
taxable year. Each Fund currently intends to distribute any such amounts. If net
capital gain is distributed and designated as a capital gain dividend, it will
be taxable to shareholders as long-term capital gain (taxable at a maximum rate
of 20% for noncorporate shareholders) regardless of the length of time the
shareholder has held his shares or whether such gain was recognized by the Fund
prior to the date on which the shareholder acquired his shares. Conversely, if a
Fund elects to retain its net capital gain, the Fund will be taxed thereon
(except to the extent of any available capital loss carry forwards) at the 35%
corporate tax rate. If a Fund elects to retain its net capital gain, it is
expected that the Fund also will elect to have shareholders treated as if each
received a distribution of its pro rata share of such gain, with the result that
each shareholder will be required to report its pro rata share of such gain on
its tax return as long-term capital gain, will receive a refundable tax credit
for its pro rata share of tax paid by the Fund on the gain, and will increase
the tax basis for its shares by an amount equal to the deemed distribution less
the tax credit.
58
Legislation enacted in 1997 lowers the maximum capital gain tax rate
from 20% to 18% with respect to capital assets which are held for five years and
for which the holding period begins after December 31, 2000. In connection with
this new legislation, a Fund may make an election to treat any readily tradable
stock it holds on January 1, 2001 as having been sold and reacquired on January
2, 2001 at its closing market price on that date and to treat any other security
in its portfolio as having been sold and reacquired on January 1 for an amount
equal to its fair market value on that date. If a Fund makes any such election
(when it files its tax return), it will recognize gain, but not loss, on the
deemed sale, which may cause a Fund to increase the amount of distributions that
the Fund will make in comparison to a fund that did not make such an election.
The Funds have not yet determined whether they will make this election with
respect to any stock or securities in their respective portfolios.
Ordinary income dividends paid by a Fund with respect to a taxable year
will qualify for the 70% dividends received deduction generally available to
corporations (other than corporations, such as "S" corporations, which are not
eligible for the deduction because of their special characteristics and other
than for purposes of special taxes such as the accumulated earnings tax and the
personal holding company tax) to the extent of the amount of qualifying
dividends received by the Fund from domestic corporations for the taxable year.
However, the alternative minimum tax applicable to corporations may reduce the
value of the dividends received deduction.
Alternative minimum tax ("AMT") is imposed in addition to, but only to
the extent it exceeds, the regular tax and is computed at a maximum rate of 28%
for non-corporate taxpayers and 20% for corporate taxpayers on the excess of the
taxpayer's alternative minimum taxable income ("AMTI") over an exemption amount.
The corporate dividends received deduction is not itself an item of tax
preference that must be added back to taxable income or is otherwise disallowed
in determining a corporation's AMTI. However, corporate shareholders will
generally be required to take the full amount of any dividend received from the
Fund into account (without a dividend received deduction) in determining their
adjusted current earnings, which are used in computing an additional corporate
preference item (i.e., 75% of the excess of a corporate taxpayer's adjusted
current earnings over its AMTI (determined without regard to this item and the
AMTI net operating loss deduction)) that is includable in AMTI. However, certain
small corporations are wholly exempt from the AMT.
Distributions by a Fund that do not constitute earnings and profits
will be treated as a return of capital to the extent of (and in reduction of)
the shareholder's tax basis in his shares; any excess will be treated as gain
from the sale of his shares, as discussed below.
Distributions by a Fund will be treated in the manner described above
regardless of whether such distributions are paid in cash or reinvested in
additional shares of the Fund (or of another Fund). Shareholders receiving a
distribution in the form of additional shares will be treated as receiving a
distribution in an amount equal to the fair market value of the shares received,
determined as of the reinvestment date.
Ordinarily, shareholders are required to take distributions by a Fund
into account in the year in which the distributions are made. However, dividends
declared in October, November or December of any year and payable to
shareholders of record on a specified date in such a month will be deemed to
have been received by the shareholders (and made by the Fund) on December 31 of
such calendar year if such dividends are actually paid in January of the
following year. Shareholders will be advised annually as to the U.S. federal
income tax consequences of distributions made (or deemed made) during the year
in accordance with the guidance that has been provided by the IRS.
If the net asset value of shares is reduced below a shareholder's cost
as a result of a distribution by a Fund, such distribution generally will be
taxable even though it represents a return of invested capital. Investors should
be careful to consider the tax implications of buying shares of a Fund just
prior to a distribution. The price of shares purchased at this time may reflect
the amounts of the forthcoming distribution. Those purchasing just prior to a
distribution will receive a distribution which generally will be taxable to
them.
59
SALE OR REDEMPTION OF SHARES. A shareholder will recognize gain or loss
on the sale or redemption of shares of a Fund in an amount equal to the
difference between the proceeds of the sale or redemption and the shareholder's
adjusted tax basis in the shares. All or a portion of any loss so recognized may
be deferred if the shareholder purchases other shares of the Fund within thirty
(30) days before or after the sale or redemption. In general, any gain or loss
arising from (or treated as arising from) the sale or redemption of shares of a
Fund will be considered capital gain or loss and will be long-term capital gain
or loss if the shares were held for longer than one year. Currently, any
long-term capital gain recognized by a non-corporate shareholder will be subject
to tax at a maximum rate of 20%. However, any capital loss arising from the sale
or redemption of shares held for six months or less will be treated as a
long-term capital loss to the extent of the amount of capital gain dividends
received on such shares. Capital losses in any year are deductible only to the
extent of capital gains plus, in the case of a non-corporate taxpayer, $3,000 of
ordinary income.
If a shareholder (a) incurs a sales load in acquiring shares of a Fund,
(b) disposes of such shares less than 91 days after they are acquired, and (c)
subsequently acquires shares of the Fund or another fund at a reduced sales load
pursuant to a right to reinvest at such reduced sales load acquired in
connection with the acquisition of the shares disposed of, then the sales load
on the shares disposed of (to the extent of the reduction in the sales load on
the shares subsequently acquired) shall not be taken into account in determining
gain or loss on the shares disposed of, but shall be treated as incurred on the
acquisition of the shares subsequently acquired. The wash sale rules may also
limit the amount of loss that may be taken into account.
BACKUP WITHHOLDING. The Funds may be required to withhold, as of
January 1, 2002, 30% of distributions and/or redemption payments; however, this
rate is reduced in phases to 28% for distributions made in the year 2006 and
thereafter. For more information refer to "Purchase, Redemption and Pricing of
Shares - Backup Withholding."
FOREIGN SHAREHOLDERS. Taxation of a shareholder who, as to the United
States, is a nonresident alien individual, foreign trust or estate, foreign
corporation, or foreign partnership ("foreign shareholder"), depends on whether
the income from a Fund is "effectively connected" with a U.S. trade or business
carried on by such shareholder. If the income from a Fund is not effectively
connected with a U.S. trade or business carried on by a foreign shareholder,
distributions (other than distributions of long-term capital gain) will be
subject to U.S. withholding tax at the rate of 30% (or lower treaty rate) upon
the gross amount of the distribution. Such a foreign shareholder would generally
be exempt from U.S. federal income tax on gain realized on the redemption of
shares of a Fund, capital gain dividends and amounts retained by a Fund that are
designated as undistributed net capital gain.
If the income from a Fund is effectively connected with a U.S. trade or
business carried on by a foreign shareholder, then ordinary income dividends,
capital gain dividends and any gains realized upon the sale or redemption of
shares of the Fund will be subject to U.S. federal income tax at the rates
applicable to U.S. citizens or domestic corporations.
In the case of foreign non-corporate shareholders, a Fund may be
required to withhold U.S. federal income tax at a rate of 30% on distributions
made on or after January 1, 2002, that are otherwise exempt from withholding tax
(or taxable at a reduced treaty rate) unless such shareholders furnish the Fund
with proper notification of their foreign status; however, this rate is reduced
in phases to 28% for distributions made in the year 2006 and thereafter.
Foreign shareholders may be subject to U.S. withholding tax at a rate
of 30% on the income resulting from the Fund's election to treat any foreign
income tax paid by it as paid by its shareholders, but may not be able to claim
a credit or deduction with respect to the withholding tax for the foreign tax
treated as having been paid by them.
Foreign persons who file a United States tax return to obtain a U.S.
tax refund and who are not eligible to obtain a social security number must
apply to the IRS for an individual taxpayer identification
60
number, using IRS Form W-7. For a copy of the IRS Form W-7 and accompanying
instructions, please contact your tax advisor or the IRS.
Transfers by gift of shares of a Fund by a foreign shareholder who is a
nonresident alien individual will not be subject to U.S. federal gift tax. An
individual who, at the time of death, is a foreign shareholder will nevertheless
be subject to U.S. federal estate tax with respect to shares at the graduated
rates applicable to U.S. citizens and residents, unless a treaty exception
applies. In the absence of a treaty, there is a $13,000 statutory estate tax
credit.
The tax consequences to a foreign shareholder entitled to claim the
benefits of an applicable tax treaty may be different from those described
herein. Foreign shareholders are urged to consult their own tax advisers with
respect to the particular tax consequences to them of an investment in a Fund,
including the applicability of foreign tax.
FOREIGN INCOME TAX. Investment income received by each Fund from
sources within foreign countries may be subject to foreign income tax withheld
at the source. The United States has entered into tax treaties with many foreign
countries which entitle the Funds to a reduced rate of, or exemption from, tax
on such income. It is impossible to determine the effective rate of foreign tax
in advance since the amount of a Fund's assets to be invested in various
countries is not known.
If more than 50% of the value of a Fund's total assets at the close of
each taxable year consists of the stock or securities of foreign corporations,
the Fund may elect to "pass through" to the Fund's shareholders the amount of
foreign income tax paid by the Fund (the "Foreign Tax Election"). Pursuant to
the Foreign Tax Election, shareholders will be required (i) to include in gross
income, even though not actually received, their respective pro-rata shares of
the foreign income taxes paid by the Fund that are attributable to any
distributions they receive; and (ii) either to deduct their pro-rata share of
foreign tax in computing their taxable income, or to use it (subject to various
Code limitations) as a foreign tax credit against Federal income tax (but not
both). No deduction for foreign tax may be claimed by a non-corporate
shareholder who does not itemize deductions or who is subject to alternative
minimum tax.
Unless certain requirements are met, a credit for foreign tax is
subject to the limitation that it may not exceed the shareholder's U.S. tax
(determined without regard to the availability of the credit) attributable to
the shareholder's foreign source taxable income. In determining the source and
character of distributions received from a Fund for this purpose, shareholders
will be required to allocate Fund distributions according to the source of the
income realized by the Fund. Each Fund's gain from the sale of stock and
securities and certain currency fluctuation gain and loss will generally be
treated as derived from U.S. sources. In addition, the limitation on the foreign
tax credit is applied separately to foreign source "passive" income, such as
dividend income. Pursuant to the Taxpayer Relief Act of 1997, individuals who
have no more than $300 ($600 for married persons filing jointly) of creditable
foreign tax included on Form 1099 and whose foreign source income is all
"qualified passive income" may elect each year to be exempt from the foreign tax
credit limitation and will be able to claim a foreign tax credit without filing
Form 1116 with its corresponding requirement to report income and tax by
country. Moreover, no foreign tax credit will be allowable to any shareholder
who has not held his shares of the Fund for at least 16 days during the 30-day
period beginning 15 days before the day such shares become ex-dividend with
respect to any Fund distribution to which foreign income taxes are attributed
(taking into account certain holding period reduction requirements of the Code).
Because of these limitations, shareholders may be unable to claim a credit for
the full amount of their proportionate shares of the foreign income tax paid by
a Fund.
EFFECT OF FUTURE LEGISLATION; LOCAL TAX CONSIDERATIONS. The foregoing
general discussion of U.S. federal income tax consequences is based on the Code
and the regulations issued thereunder as in effect on the date of this Statement
of Additional Information. Future legislative or administrative changes or court
decisions may significantly change the conclusions expressed herein, and any
such changes or decisions may have a retroactive effect with respect to the
transactions contemplated herein.
61
Rules of state and local taxation for ordinary income dividends,
exempt-interest dividends and capital gain dividends from regulated investment
companies often differ from the rules for U.S. federal income taxation described
above. Distributions may also be subject to additional state, local and foreign
taxes depending on each shareholder's particular situation. Non-U.S.
shareholders may be subject to U.S. tax rules that differ significantly from
those summarized above. Shareholders are urged to consult their tax advisers as
to the consequences of these and other state and local tax rules affecting
investment in the Funds.
DISTRIBUTION OF SECURITIES
DISTRIBUTION PLANS
The Trust has adopted distribution plans pursuant to Rule 12b-1 under
the 1940 Act with respect to each Fund's Class A shares, Class B shares and
Class C shares (collectively the "Plans"). Each Fund, pursuant to the Plans,
pays AIM Distributors compensation at the annual rate, shown immediately below,
of the Fund's average daily net assets of Class A shares. Each Fund pays 1.00%
of the average daily net assets of Class B shares and of Class C shares.
<Table>
<Caption>
FUND CLASS A
---- -------
AIM Balanced Fund 0.25%
AIM Basic Balanced Fund 0.35
AIM European Small Company Fund 0.35
AIM Global Utilities Fund 0.25
AIM International Emerging Growth Fund 0.35
AIM Mid Cap Basic Value Fund 0.35
AIM New Technology Fund 0.35
AIM Select Equity Fund 0.25
AIM Small Cap Equity Fund 0.35
AIM Value Fund 0.25
AIM Value II Fund 0.35
AIM Worldwide Spectrum Fund 0.35
</Table>
All of the Plans compensate AIM Distributors for the purpose of
financing any activity which is primarily intended to result in the sale of
shares of the Funds. Such activities include, but are not limited to, the
following: printing of prospectuses and statements of additional information and
reports for other than existing shareholders; overhead; preparation and
distribution of advertising material and sales literature; expenses of
organizing and conducting sales seminars; supplemental payments to dealers and
other institutions such as asset-based sales charges or as payments of service
fees under shareholder service arrangements; and costs of administering each
Plan.
Amounts payable by a Fund under the Plans need not be directly related
to the expenses actually incurred by AIM Distributors on behalf of each Fund.
The Plans do not obligate the Funds to reimburse AIM Distributors for the actual
expenses AIM Distributors may incur in fulfilling its obligations under the
Plans. Thus, even if AIM Distributors' actual expenses exceed the fee payable to
AIM Distributors at any given time, the Funds will not be obligated to pay more
than that fee. If AIM Distributors' expenses are less than the fee it receives,
AIM Distributors will retain the full amount of the fee.
AIM Distributors may from time to time waive or reduce any portion of
its 12b-1 fee for Class A shares and Class C shares. Voluntary fee waivers or
reductions may be rescinded at any time without further notice to investors.
During periods of voluntary fee waivers or reductions, AIM Distributors will
retain its ability to be reimbursed for such fee prior to the end of each fiscal
year. Contractual fee waivers or reductions set forth in the Fee Table in a
Prospectus may not be terminated or amended to the Funds' detriment during the
period stated in the agreement between AIM Distributors and the Fund.
62
The Funds may pay a service fee of 0.25% of the average daily net
assets of the Class A, Class B or Class C shares to selected dealers and
financial institutions, including AIM Distributors, acting as principal, who
furnish continuing personal shareholder services to their customers who purchase
and own the applicable class of shares of the Fund. Under the terms of a
shareholder service agreement, such personal shareholder services include
responding to customer inquiries and providing customers with information about
their investments. Any amounts not paid as a service fee under each Plan would
constitute an asset-based sales charge.
Under a Shareholder Service Agreement, a Fund agrees to pay
periodically fees to selected dealers and other institutions who render the
foregoing services to their customers. The fees payable under a Shareholder
Service Agreement will be calculated at the end of each payment period for each
business day of the Funds during such period at the annual rate specified in
each agreement based on the average daily net asset value of the Funds' shares
purchased or acquired through exchange. Fees shall be paid only to those
selected dealers or other institutions who are dealers or institutions of record
at the close of business on the last business day of the applicable payment
period for the account in which such Fund's shares are held.
Selected dealers and other institutions entitled to receive
compensation for selling Fund shares may receive different compensation for
selling shares of one particular class over another. Under the Plans, certain
financial institutions which have entered into service agreements and which sell
shares of the Funds on an agency basis, may receive payments from the Funds
pursuant to the respective Plans. AIM Distributors does not act as principal,
but rather as agent for the Funds, in making dealer incentive and shareholder
servicing payments to dealers and other financial institutions under the Plans.
These payments are an obligation of the Funds and not of AIM Distributors.
Payments pursuant to the Plans are subject to any applicable
limitations imposed by rules of the National Association of Securities Dealers,
Inc. ("NASD").
See Appendix I for a list of the amounts paid by each class of shares
of each Fund to AIM Distributors pursuant to the Plans for the year, or period,
ended December 31, 2001 and Appendix J for an estimate by category of the
allocation of actual fees paid by each class of shares of each Fund pursuant to
its respective distribution plan for the year or period ended December 31, 2001.
As required by Rule 12b-1, the Plans and related forms of Shareholder
Service Agreements were approved by the Board of Trustees, including a majority
of the trustees who are not "interested persons" (as defined in the 1940 Act) of
the Trust and who have no direct or indirect financial interest in the operation
of the Plans or in any agreements related to the Plans (the "Rule 12b-1
Trustees"). In approving the Plans in accordance with the requirements of Rule
12b-1, the trustees considered various factors and determined that there is a
reasonable likelihood that the Plans would benefit each class of the Funds and
its respective shareholders.
The anticipated benefits that may result from the Plans with respect to
each Fund and/or the classes of each Fund and its shareholders include but are
not limited to the following: (1) rapid account access; (2) relatively
predictable flow of cash; and (3) a well-developed, dependable network of
shareholder service agents to help to curb sharp fluctuations in rates of
redemptions and sales, thereby reducing the chance that an unanticipated
increase in net redemptions could adversely affect the performance of each Fund.
Unless terminated earlier in accordance with their terms, the Plans
continue from year to year as long as such continuance is specifically approved,
in person, at least annually by the Board of Trustees, including a majority of
the Rule 12b-1 Trustees. A Plan may be terminated as to any Fund or class by the
vote of a majority of the Rule 12b-1 Trustees or, with respect to a particular
class, by the vote of a majority of the outstanding voting securities of that
class.
Any change in the Plans that would increase materially the distribution
expenses paid by the applicable class requires shareholder approval; otherwise,
the Plans may be amended by the trustees,
63
including a majority of the Rule 12b-1 Trustees, by votes cast in person at a
meeting called for the purpose of voting upon such amendment. As long as the
Plans are in effect, the selection or nomination of the Independent Trustees is
committed to the discretion of the Independent Trustees.
The Class B Plan obligates Class B shares to continue to make payments
to AIM Distributors following termination of the Class B shares Distribution
Agreement with respect to Class B shares sold by or attributable to the
distribution efforts of AIM Distributors or its predecessors, unless there has
been a complete termination of the Class B Plan (as defined in such Plan) and
the Class B Plan expressly authorizes AIM Distributors to assign, transfer or
pledge its rights to payments pursuant to the Class B Plan.
DISTRIBUTOR
The Trust has entered into master distribution agreements, as amended,
relating to the Funds (the "Distribution Agreements") with AIM Distributors, a
registered broker-dealer and a wholly-owned subsidiary of AIM, pursuant to which
AIM Distributors acts as the distributor of shares of the Funds. The address of
AIM Distributors is P.O. Box 4739, Houston, Texas 77210-4739. Certain trustees
and officers of the Trust are affiliated with AIM Distributors. See "Management
of the Trust."
The Distribution Agreements provide AIM Distributors with the exclusive
right to distribute shares of the Funds on a continuous basis directly and
through institutions with whom AIM Distributors has entered into selected dealer
agreements. AIM Distributors has not undertaken to sell any specified number of
shares of any classes of the Funds.
AIM Distributors expects to pay sales commissions from its own
resources to dealers and institutions who sell Class B and Class C shares of the
Funds at the time of such sales.
Payments with respect to Class B shares will equal 4.0% of the purchase
price of the Class B shares sold by the dealer or institution, and will consist
of a sales commission equal to 3.75% of the purchase price of the Class B shares
sold plus an advance of the first year service fee of 0.25% with respect to such
shares. The portion of the payments to AIM Distributors under the Class B Plan
which constitutes an asset-based sales charge (0.75%) is intended in part to
permit AIM Distributors to recoup a portion of such sales commissions plus
financing costs. In the future, if multiple distributors serve a Fund, each such
distributor (or its assignee or transferee) would receive a share of the
payments under the Class B Plan based on the portion of the Fund's Class B
shares sold by or attributable to the distribution efforts of that distributor.
AIM Distributors may pay sales commissions to dealers and institutions
who sell Class C shares of the AIM Funds at the time of such sales. Payments
with respect to Class C shares will equal 1.00% of the purchase price of the
Class C shares sold by the dealer or institution, and will consist of a sales
commission of 0.75% of the purchase price of the Class C shares sold plus an
advance of the first year service fee of 0.25% with respect to such shares. AIM
Distributors will retain all payments received by it relating to Class C shares
for the first year after they are purchased. The portion of the payments to AIM
Distributors under the Class A and C Plan attributable to Class C shares which
constitutes an asset-based sales charge (0.75%) is intended in part to permit
AIM Distributors to recoup a portion of on-going sales commissions to dealers
plus financing costs, if any. After the first full year, AIM Distributors will
make such payments quarterly to dealers and institutions based on the average
net asset value of Class C shares which are attributable to shareholders for
whom the dealers and institutions are designated as dealers of record.
The Trust (on behalf of any class of any Fund) or AIM Distributors may
terminate the Distribution Agreements on sixty (60) days' written notice without
penalty. The Distribution Agreements will terminate automatically in the event
of their assignment. In the event the Class B shares Distribution Agreement is
terminated, AIM Distributors would continue to receive payments of asset-based
distribution fees in respect of the outstanding Class B shares attributable to
the distribution efforts of AIM Distributors or its predecessors; provided,
however that a complete termination of the Class B Plan (as defined in such
64
Plan) would terminate all payments to AIM Distributors. Termination of the Class
B Plan or the Distribution Agreement for Class B shares would not affect the
obligation of Class B shareholders to pay contingent deferred sales charges.
Total sales charges (front end and contingent deferred sales charges)
paid in connection with the sale of shares of each class of each Fund, if
applicable, for the last three fiscal years ending December 31, 2001 are found
in Appendix K.
CALCULATION OF PERFORMANCE DATA
Although performance data may be useful to prospective investors when
comparing a Fund's performance with other funds and other potential investments,
investors should note that the methods of computing performance of other
potential investments are not necessarily comparable to the methods employed by
a Fund.
Average Annual Total Return Quotation
The standard formula for calculating average annual total return is as
follows:
n
P(1+T) =ERV
Where P = a hypothetical initial payment of $1,000.
T = average annual total return (assuming the
applicable maximum sales load is deducted at the
beginning of the 1, 5, or 10 year periods).
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000
payment at the end of the 1, 5, or 10 year periods
(or fractional portion of such period).
The average annual total returns for each Fund, with respect to its
Class A, Class B and Class C shares, for the one, five and ten year periods (or
since inception if less than ten years) ended December 31, 2001 are found in
Appendix L.
Total returns quoted in advertising reflect all aspects of a Fund's
return, including the effect of reinvesting dividends and capital gain
distributions, and any change in the Fund's net asset value per share over the
period. Cumulative total return reflects the performance of a Fund over a stated
period of time. Average annual total returns are calculated by determining the
growth or decline in value of a hypothetical investment in a Fund over a stated
period of time, and then calculating the annually compounded percentage rate
that would have produced the same result if the rate of growth or decline in
value had been constant over the period.
Each Fund's total return is calculated in accordance with a
standardized formula for computation of annualized total return. Standardized
total return for Class A shares reflects the deduction of a Fund's maximum
front-end sales charge at the time of purchase. Standardized total return for
Class B and Class C shares reflects the deduction of the maximum applicable
contingent deferred sales charge on a redemption of shares held for the period.
A Fund's total return shows its overall change in value, including
changes in share price and assuming all the Fund's dividends and capital gain
distributions are reinvested. A cumulative total return reflects the Fund's
performance over a stated period of time. An average annual total return
reflects the hypothetical compounded annual rate of return that would have
produced the same cumulative total return if the Fund's performance had been
constant over the entire period. Because average annual returns tend to even out
variations in the Fund's return, investors should recognize that such returns
are not the same as actual year-by-year results. To illustrate the components of
overall performance, a Fund may separate its cumulative and average annual
returns into income results and capital gains or losses.
65
Alternative Total Return Quotations
Standard total return quotes may be accompanied by total return figures
calculated by alternative methods. For example, average annual total return may
be calculated without assuming payment of the full sales load according to the
following formula:
n
P(1+U) =ERV
Where P = a hypothetical initial payment of $1,000.
U = average annual total return assuming payment of
only a stated portion of, or none of, the applicable
maximum sales load at the beginning of the stated
period.
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000
payment at the end of the stated period.
Cumulative total return across a stated period may be calculated as
follows:
P(1+V)=ERV
Where P = a hypothetical initial payment of $1,000.
V = cumulative total return assuming payment of all of,
a stated portion of, or none of, the applicable
maximum sales load at the beginning of the stated
period.
ERV = ending redeemable value of a hypothetical $1,000
payment at the end of the stated period.
The cumulative total returns for each Fund, with respect to its Class
A, Class B and Class C shares, for the one, five and ten year periods (or since
inception if less than ten years) ended December 31, 2001 are found in Appendix
L.
Average Annual Total Return (After Taxes on Distributions) Quotation
A Fund's average annual total return (after taxes on distributions)
shows its overall change in value, including changes in share price and assuming
all the Fund's dividends and capital gain distributions are reinvested. It
reflects the deduction of federal income taxes on distributions, but not on
redemption proceeds. Average annual total returns (after taxes on distributions)
are calculated by determining the after-tax growth or decline in value of a
hypothetical investment in a Fund over a stated period of time, and then
calculating the annually compounded percentage rate that would have produced the
same result if the rate of growth or decline in value had been constant over the
period. Because average annual total returns (after taxes on distributions) tend
to even out variations in the Fund's return, investors should recognize that
such returns are not the same as actual year-by-year results. To illustrate the
components of overall performance, a Fund may separate its average annual total
returns (after taxes on distributions) into income results and capital gains or
losses.
The standard formula for calculating average annual total return (after
taxes on distributions) is:
n
P(1+T) = ATV
DR
Where P = a hypothetical initial payment of $1,000;
T = average annual total return (after taxes on
distributions);
n = number of years; and
ATV = ending value of a hypothetical $1,000 payment made
DR at the beginning of the 1-, 5-, or 10-year periods
(or since inception, if applicable) at the end of
the 1-, 5-, or 10-year periods (or
since inception, if applicable), after taxes on
fund distributions but not after taxes on
redemption.
66
Standardized average annual total return (after taxes on distributions)
for Class A shares reflects the deduction of a Fund's maximum front-end sales
charge at the time of purchase.
The after-tax returns assume all distributions by a Fund, less the
taxes due on such distributions, are reinvested at the price calculated as
stated in the prospectus on the reinvestment dates during the period. Taxes on a
Fund's distributions are calculated by applying to each component of the
distribution (e.g., ordinary income and long-term capital gain) the highest
corresponding individual marginal federal income tax rates in effect on the
reinvestment date. The taxable amount and tax character of each distribution is
as specified by the Fund on the dividend declaration date, but reflects any
subsequent recharacterizations of distributions. The effect of applicable tax
credits, such as the foreign tax credit, are also taken into account. The
calculations only reflect federal taxes, and thus do not reflect state and local
taxes or the impact of the federal alternative minimum tax.
The average annual total returns (after taxes on distributions) for
each Fund, with respect to its Class A shares, Class B and Class C for the one,
five and ten year periods (or since inception if less than ten years) ended
December 31, 2001 are found in Appendix L.
Average Annual Total Return (After Taxes on Distributions and Sale of Fund
Shares) Quotation
A Fund's average annual total return (after taxes on distributions and
sale of Fund shares) shows its overall change in value, including changes in
share price and assuming all the Fund's dividends and capital gain distributions
are reinvested. It reflects the deduction of federal income taxes on both
distributions and proceeds. Average annual total returns (after taxes on
distributions and redemption) are calculated by determining the after-tax growth
or decline in value of a hypothetical investment in a Fund over a stated period
of time, and then calculating the annually compounded percentage rate that would
have produced the same result if the rate of growth or decline in value had been
constant over the period. Because average annual total returns (after taxes on
distributions and redemption) tend to even out variations in the Fund's return,
investors should recognize that such returns are not the same as actual
year-by-year results. To illustrate the components of overall performance, a
Fund may separate its average annual total returns (after taxes on distributions
and redemption) into income results and capital gains or losses.
The standard formula for calculating average annual total return (after
taxes on distributions and redemption) is:
n
P(1+T) = ATV
DR
Where P = a hypothetical initial payment of $1,000;
T = average annual total return (after taxes on
distributions and redemption);
n = number of years; and
ATV = ending value of a hypothetical $1,000 payment
DR made at the beginning of the 1-, 5-, or 10-year
periods (or since inception, if applicable) at the
end of the 1-, 5-, or 10-year periods (or since
inception, if applicable), after taxes on fund
distributions and redemption.
Standardized average annual total return (after taxes on distributions
and redemption) for Class A shares reflects the deduction of a Fund's maximum
front-end sales charge at the time of purchase.
The after-tax returns assume all distributions by a Fund, less the
taxes due on such distributions, are reinvested at the price calculated as
stated in the prospectus on the reinvestment dates during the period. Taxes due
on a Fund's distributions are calculated by applying to each component of the
distribution (e.g., ordinary income and long-term capital gain) the highest
corresponding individual marginal federal income tax rates in effect on the
reinvestment date. The taxable amount and tax character of each distribution is
as specified by the Fund on the dividend declaration date, but reflects any
subsequent recharacterizations of distributions. The effect of applicable tax
credits, such as the foreign
67
tax credit, are also taken into account. The calculations only reflect federal
taxes, and thus do not reflect state and local taxes or the impact of the
federal alternative minimum tax.
The ending values for each period assume a complete liquidation of all
shares. The ending values for each period are determined by subtracting capital
gains taxes resulting from the sale of Fund shares and adding the tax benefit
from capital losses resulting from the sale of Fund shares. The capital gain or
loss upon sale of Fund shares is calculated by subtracting the tax basis from
the proceeds. Capital gains taxes (or the benefit resulting from tax losses) are
calculated using the highest federal individual capital gains tax rate for gains
of the appropriate character (e.g., ordinary income or long-term) in effect on
the date of the sale of Fund shares and in accordance with federal tax law
applicable on that date. The calculations assume that a shareholder may deduct
all capital losses in full.
The basis of shares acquired through the $1,000 initial investment are
tracked separately from subsequent purchases through reinvested distributions.
The basis for a reinvested distribution is the distribution net of taxes paid on
the distribution. Tax basis is adjusted for any distributions representing
returns of capital and for any other tax basis adjustments that would apply to
an individual taxpayer.
The amount and character (i.e., short-term or long-term) of capital
gain or loss upon sale of Fund shares is determined separately for shares
acquired through the $1,000 initial investment and each subsequent purchase
through reinvested distributions. The tax character is determined by the length
of the measurement period in the case of the initial $1,000 investment and the
length of the period between reinvestment and the end of the measurement period
in the case of reinvested distributions.
The average annual total returns (after taxes on distributions and
redemption) for each Fund, with respect to its Class A, Class B and Class C
shares, for the one, five and ten year periods (or since inception if less than
ten years) ended December 31, 2001 are found in Appendix L.
Yield Quotation
Yield is a function of the type and quality of a Fund's investments,
the maturity of the securities held in a Fund's portfolio and the operating
expense ratio of the Fund. Yield is computed in accordance with standardized
formulas described below and can be expected to fluctuate from time to time and
is not necessarily indicative of future results. Accordingly, yield information
may not provide a basis for comparison with investments which pay a fixed rate
of interest for a stated period of time.
Income calculated for purposes of calculating a Fund's yield differs
from income as determined for other accounting purposes. Because of the
different accounting methods used, and because of the compounding assumed in
yield calculations, the yield quoted for a Fund may differ from the rate of
distributions from the Fund paid over the same period or the rate of income
reported in the Fund's financial statements.
The standard formula for calculating yield for each Fund is as follows:
6
YIELD = 2[((a-b)/(c x d)+1) -1]
Where a = dividends and interest earned during a stated 30-day
period. For purposes of this calculation, dividends are
accrued rather than recorded on the ex-dividend date.
Interest earned under this formula must generally be
calculated based on the yield to maturity of each
obligation (or, if more appropriate, based on yield to
call date).
b = expenses accrued during period (net of reimbursements).
c = the average daily number of shares outstanding during
the period.
d = the maximum offering price per share on the last day of
the period.
The yield for the AIM Balanced Fund, AIM Basic Balanced Fund and AIM
Global Utilities Fund are also found in Appendix L.
68
Performance Information
All advertisements of the Funds will disclose the maximum sales charge
(including deferred sales charges) imposed on purchases of a Fund's shares. If
any advertised performance data does not reflect the maximum sales charge (if
any), such advertisement will disclose that the sales charge has not been
deducted in computing the performance data, and that, if reflected, the maximum
sales charge would reduce the performance quoted. Further information regarding
each Fund's performance is contained in that Fund's annual report to
shareholders, which is available upon request and without charge.
From time to time, AIM or its affiliates may waive all or a portion of
their fees and/or assume certain expenses of any Fund. Fee waivers or reductions
or commitments to reduce expenses will have the effect of increasing that Fund's
yield and total return.
Certain Funds may participate in the initial public offering (IPO)
market in some market cycles. Because of these Funds' small asset bases, any
investment the Funds may make in IPOs may significantly increase these Funds'
total returns. As the Funds' assets grow, the impact of IPO investments will
decline, which may reduce the effect of IPO investments on the Funds' total
returns.
The performance of each Fund will vary from time to time and past
results are not necessarily indicative of future results.
Total return and yield figures for the Funds are neither fixed nor
guaranteed. The Funds may provide performance information in reports, sales
literature and advertisements. The Funds may also, from time to time, quote
information about the Funds published or aired by publications or other media
entities which contain articles or segments relating to investment results or
other data about one or more of the Funds. The following is a list of such
publications or media entities:
<Table>
Advertising Age Forbes Nation's Business
Barron's Fortune New York Times
Best's Review Hartford Courant Pension World
Broker World Inc. Pensions & Investments
Business Week Institutional Investor Personal Investor
Changing Times Insurance Forum Philadelphia Inquirer
Christian Science Monitor Insurance Week USA Today
Consumer Reports Investor's Business Daily U.S. News & World Report
Economist Journal of the American Wall Street Journal
FACS of the Week Society of CLU & ChFC Washington Post
Financial Planning Kiplinger Letter CNN
Financial Product News Money CNBC
Financial Services Week Mutual Fund Forecaster PBS
Financial World
</Table>
Each Fund may also compare its performance to performance data of
similar mutual funds as published by the following services:
Bank Rate Monitor Stanger
Donoghue's Weisenberger
Mutual Fund Values (Morningstar) Lipper, Inc.
69
Each Fund's performance may also be compared in advertising to the
performance of comparative benchmarks such as the following:
<Table>
Lipper Balanced Fund Index Russell 2000--Registered Trademark-- Index
Lipper European Fund Index Russell 3000--Registered Trademark-- Index
Lipper Global Fund Index Russell 3000 Growth Index
Lipper Utilities Fund Index Russell Mid CapTM Index
Lipper International Fund Index Lehman Aggregate Bond Index
Lipper International Fund Index Dow Jones Global Utilities Index
Lipper Multi Cap Core Fund Index MSCI All Country World Index
Lipper Multi Cap Growth Fund Index MSCI EAFE Index
Lipper Science & Technology Fund Index MSCI Europe Index
Lipper Small Cap Core Fund Index PSE Tech 100 Index
Lipper Small Cap Growth Fund Index Standard & Poor's 500 Stock Index
Lipper Large Cap Core Fund Index Wilshire 5000 Index
Russell 1000--Registered Trademark-- Index NASDAQ Index
Russell 1000 Value Index
</Table>
Each Fund may also compare its performance to rates on Certificates of
Deposit and other fixed rate investments such as the following:
10 year Treasury Notes
90 day Treasury Bills
Advertising for the Funds may from time to time include discussions of
general economic conditions and interest rates. Advertising for such Funds may
also include references to the use of those Funds as part of an individual's
overall retirement investment program. From time to time, sales literature
and/or advertisements for any of the Funds may disclose: (i) the largest
holdings in the Funds' portfolios; (ii) certain selling group members; (iii)
certain institutional shareholders; (iv) measurements of risk, including
standard deviation, Beta and Sharpe ratios; and/or (v) capitalization and sector
analyses of holdings in the Funds' portfolios.
From time to time, the Funds' sales literature and/or advertisements
may discuss generic topics pertaining to the mutual fund industry. This
includes, but is not limited to, literature addressing general information about
mutual funds, discussions regarding investment styles, such as the growth, value
or GARP (growth at a reasonable price) styles of investing, variable annuities,
dollar-cost averaging, stocks, bonds, money markets, certificates of deposit,
retirement, retirement plans, asset allocation, tax-free investing, college
planning and inflation.
70
APPENDIX A
RATINGS OF DEBT SECURITIES
The following is a description of the factors underlying the debt
ratings of Moody's, S&P and Fitch:
MOODY'S BOND RATINGS
Moody's describes its ratings for corporate bonds as follows:
Aaa: Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt-edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
AA: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. These are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risk appear somewhat larger than the Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper-medium-grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium-grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principal
or interest.
Ca: Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each generic
rating classification from Aa through Caa in its corporate bond rating system.
The modifier 1 indicates that the security ranks in
A-1
the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the issue ranks in the
lower end of its generic rating category.
MOODY'S MUNICIPAL BOND RATINGS
Aaa: Bonds rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa: Bonds rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
A: Bonds rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa: Bonds rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca: Bonds rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C: Bonds rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Note: Bonds in the Aa group which Moody's believes possess the
strongest investment attributes are designated by the symbol Aa1.
Note: Also, Moody's applies numerical modifiers 1, 2, and 3 in each
generic rating classification from Aa to B. The modifier indicates that the
issue ranks in the higher end of its generic rating category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates that the issue ranks
in the lower end of its generic category.
A-2
MOODY'S DUAL RATINGS
In the case of securities with a demand feature, two ratings are
assigned: one representing an evaluation of the degree of risk associated with
scheduled principal and interest payments, and the other representing an
evaluation of the degree of risk associated with the demand feature.
MOODY'S SHORT-TERM LOAN RATINGS
Moody's ratings for state and municipal short-term obligations will be
designated Moody's Investment Grade or (MIG). Such ratings recognize the
differences between short-term credit risk and long-term risk. Factors affecting
the liquidity of the borrower and short-term cyclical elements are critical in
short-term ratings, while other factors of major importance in bond risk,
long-term secular trends for example, may be less important over the short run.
A short-term rating may also be assigned on an issue having a demand
feature variable rate demand obligation (VRDO). Such ratings will be designated
as VMIG or, if the demand feature is not rated, as NR. Short-term ratings on
issues with demand features are differentiated by the use of the VMIG symbol to
reflect such characteristics as payment upon periodic demand rather than fixed
maturity dates and payment relying on external liquidity. Additionally,
investors should be alert to the fact that the source of payment may be limited
to the external liquidity with no or limited legal recourse to the issuer in the
event the demand is not met.
A VMIG rating may also be assigned to commercial paper programs. Such
programs are characterized as having variable short-term maturities but having
neither a variable rate nor demand feature.
Moody's short-term ratings are designated Moody's Investment Grade as
MIG 1 or VMIG 1 through MIG 4 or VMIG 4.
Gradations of investment quality are indicated by rating symbols, with
each symbol representing a group in which the quality characteristics are
broadly the same.
MIG 1/VMIG 1: This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
MIG 2/VMIG 2: This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.
MIG 3/VMIG 3: This designation denotes favorable quality. All security elements
are accounted for but there is lacking the undeniable strength of the preceding
grades. Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established.
MIG 4/VMIG 4: This designation denotes adequate quality. Protection commonly
regarded as required of an investment security is present and although not
distinctly or predominantly speculative, there is specific risk.
MOODY'S COMMERCIAL PAPER RATINGS
Moody's commercial paper ratings are opinions of the ability of
issuers to repay punctually promissory obligations not having an original
maturity in excess of nine months.
PRIME-1: Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. Prime-1
repayment capacity will normally be evidenced by the following characteristics:
leading market positions in well-established industries; high rates of return on
funds employed; conservative capitalization structures with moderate reliance on
debt and
A-3
ample asset protection; broad margins in earnings coverage of fixed financial
charges and high internal cash generation; and well-established access to a
range of financial markets and assured sources of alternate liquidity.
PRIME-2: Issuers rated Prime-2 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, will be more subject
to variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternate liquidity is maintained.
PRIME-3: Issuers rated Prime-3 (or related supported institutions) have an
acceptable capacity for repayment of short-term promissory obligations. The
effects of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and the requirement for relatively
high financial leverage. Adequate alternate liquidity is maintained.
NOT PRIME: Issuers rated Not Prime do not fall within any of the Prime rating
categories.
Note: A Moody's commercial paper rating may also be assigned as an
evaluation of the demand feature of a short-term or long-term security with a
put option.
S&P BOND RATINGS
S&P describes its ratings for corporate bonds as follows:
AAA: Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the highest rated issues only in a small degree.
A: Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB-B-CCC-CC-C: Debt rated BB, B, CCC, CC and C is regarded as having
predominantly speculative characteristics with respect to capacity to pay
interest and repay principal. BB indicates the lowest degree of speculation and
C the highest. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or large exposure
to adverse conditions.
S&P MUNICIPAL BOND RATINGS
An S&P municipal bond rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation. This
assessment may take into consideration obligors such as guarantors, insurers, or
lessees.
The ratings are based, in varying degrees, on the following
considerations: likelihood of default - capacity and willingness of the obligor
as to the timely payment of interest and repayment of principal in accordance
with the terms of the obligation; nature of and provisions of the obligation;
and protection
A-4
afforded by, and relative position of, the obligation in the event of
bankruptcy, reorganization, or other arrangement under the laws of bankruptcy
and other laws affecting creditors' rights.
AAA
Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA
Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in a small degree.
Note: Ratings within the AA and A major rating categories may be
modified by the addition of a plus (+) sign or minus (-) sign to show relative
standing.
S&P DUAL RATINGS
S&P assigns "dual" ratings to all debt issues that have a put option or
demand feature as part of their structure.
The first rating addresses the likelihood of repayment of principal and
interest as due, and the second rating addresses only the demand feature. The
long-term debt rating symbols are used for bonds to denote the long-term
maturity and the commercial paper rating symbols for the put option (for
example, AAA/A-1+). With short-term demand debt, the note rating symbols are
used with the commercial paper rating symbols (for example, SP-1+/A-1+).
S&P MUNICIPAL NOTE RATINGS
An S&P note rating reflects the liquidity factors and market-access
risks unique to notes. Notes maturing in three years or less will likely receive
a note rating. Notes maturing beyond three years will most likely receive a
long-term debt rating. The following criteria will be used in making that
assessment: amortization schedule (the larger the final maturity relative to
other maturities, the more likely the issue will be treated as a note); and
source of payment (the more the issue depends on the market for its refinancing,
the more likely it is to be treated as a note).
Note rating symbols and definitions are as follows:
SP-1: Strong capacity to pay principal and interest. Issues determined to
possess very strong characteristics are given a plus (+) designation.
SP-2: Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term of the
notes.
SP-3: Speculative capacity to pay principal and interest.
S&P COMMERCIAL PAPER RATINGS
An S&P commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days.
Rating categories are as follows:
A-5
A-1: This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
A-3: Issues carrying this designation have adequate capacity for timely payment.
They are, however, more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.
B: Issues with this rating are regarded as having only speculative capacity for
timely payment.
C: This rating is assigned to short-term debt obligations with a doubtful
capacity for payment.
D: Debt with this rating is in payment default. The D rating category is used
when interest payments or principal payments are not made on the date due, even
if the applicable grace period has not expired, unless it is believed that such
payments will be made during such grace period.
FITCH INVESTMENT GRADE BOND RATINGS
Fitch investment grade bond ratings provide a guide to investors in
determining the credit risk associated with a particular security. The ratings
represent Fitch's assessment of the issuer's ability to meet the obligations of
a specific debt issue in a timely manner.
The rating takes into consideration special features of the issue, its
relationship to other obligations of the issuer, the current and prospective
financial condition and operating performance of the issuer and any guarantor,
as well as the economic and political environment that might affect the issuer's
future financial strength and credit quality.
Fitch ratings do not reflect any credit enhancement that may be
provided by insurance policies or financial guaranties unless otherwise
indicated.
Bonds carrying the same rating are of similar but not necessarily
identical credit quality since the rating categories do not fully reflect small
differences in the degrees of credit risk.
Fitch ratings are not recommendations to buy, sell or hold any
security. Ratings do not comment on the adequacy of market price, the
suitability of any security for a particular investor, or the tax-exempt nature
of taxability of payments made in respect of any security.
Fitch ratings are based on information obtained from issuers, other
obligors, underwriters, their experts, and other sources Fitch believes to be
reliable. Fitch does not audit or verify the truth or accuracy of such
information. Ratings may be changed, suspended, or withdrawn as a result of
changes in, or the unavailability of, information or for other reasons.
AAA: Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA: Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated "AAA." Because bonds rated in the "AAA" and
"AA" categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated "F-1+."
A-6
A: Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB: Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds and, therefore, impair timely
payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
PLUS (+) MINUS (-): Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus and
minus signs, however, are not used in the "AAA" category.
NR: Indicates that Fitch does not rate the specific issue.
CONDITIONAL: A conditional rating is premised on the successful completion of a
project or the occurrence of a specific event.
SUSPENDED: A rating is suspended when Fitch deems the amount of information
available from the issuer to be inadequate for rating purposes.
WITHDRAWN: A rating will be withdrawn when an issue matures or is called or
refinanced, and, at Fitch's discretion, when an issuer fails to furnish proper
and timely information.
FITCHALERT: Ratings are placed on FitchAlert to notify investors of an
occurrence that is likely to result in a rating change and the likely direction
of such change. These are designated as "Positive," indicating a potential
upgrade, "Negative," for potential downgrade, or "Evolving," where ratings may
be raised or lowered. FitchAlert is relatively short-term, and should be
resolved within 12 months.
RATINGS OUTLOOK
An outlook is used to describe the most likely direction of any rating
change over the intermediate term. It is described as "Positive" or "Negative."
The absence of a designation indicates a stable outlook.
FITCH SPECULATIVE GRADE BOND RATINGS
Fitch speculative grade bond ratings provide a guide to investors in
determining the credit risk associated with a particular security. The ratings
("BB" to "C") represent Fitch's assessment of the likelihood of timely payment
of principal and interest in accordance with the terms of obligation for bond
issues not in default. For defaulted bonds, the rating ("DDD" to "D") is an
assessment of the ultimate recovery value through reorganization of liquidation.
The rating takes into consideration special features of the issue, its
relationship to other obligations of the issuer or possible recovery value in
bankruptcy, the current and prospective financial condition and operating
performance of the issuer and any guarantor, as well as the economic and
political environment that might affect the issuer's future financial strength.
Bonds that have the same rating are of similar but not necessarily
identical credit quality since rating categories cannot fully reflect the
differences in degrees of credit risk.
BB: Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified, which could assist the
obligor in satisfying its debt service requirements.
B: Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's
A-7
limited margin of safety and the need for reasonable business and economic
activity throughout the life of the issue.
CCC: Bonds have certain identifiable characteristics that, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC: Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C: Bonds are in imminent default in payment of interest or principal.
DDD, DD, AND D: Bonds are in default on interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. "DDD"
represents the highest potential for recovery on these bonds, and "D" represents
the lowest potential for recovery.
PLUS (+) MINUS (-): Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus and
minus signs, however, are not used in the "DDD," "DD," or "D" categories.
FITCH SHORT-TERM RATINGS
Fitch's short-term ratings apply to debt obligations that are payable
on demand or have original maturities of generally up to three years, including
commercial paper, certificates of deposit, medium-term notes, and municipal and
investment notes.
The short-term rating places greater emphasis than a long-term rating
on the existence of liquidity necessary to meet the issuer's obligations in a
timely manner.
Fitch short-term ratings are as follows:
F-1+: Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1: Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
"F-1+."
F-2: Good Credit Quality. Issues assigned this rating have a satisfactory degree
of assurance for timely payment, but the margin of safety is not as great as for
issues assigned "F-1+" and "F-1" ratings.
F-3: Fair Credit Quality. Issues assigned this rating have characteristics
suggesting that the degree of assurance for timely payment is adequate, however,
near-term adverse changes could cause these securities to be rated below
investment grade.
F-S: Weak Credit Quality. Issues assigned this rating have characteristics
suggesting a minimal degree of assurance for timely payment and are vulnerable
to near-term adverse changes in financial and economic conditions.
D: Default. Issues assigned this rating are in actual or imminent payment
default.
LOC: The symbol LOC indicates that the rating is based on a letter of credit
issued by a commercial bank.
A-8
APPENDIX B
TRUSTEES AND OFFICERS
As of December 31, 2001
================================================================================
The address of each trustee and officer is 11 Greenway Plaza, Suite 100,
Houston, Texas 77046. Each trustee oversees 86 portfolios in the
AIM Funds complex. Column two below includes length of time
served with any predecessor entities.
================================================================================
<Table>
<Caption>
TRUSTEE
NAME, YEAR OF BIRTH AND AND/OR OTHER
POSITION(s) HELD WITH THE OFFICER DIRECTORSHIP(S)
TRUST SINCE PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS HELD BY TRUSTEE
- ------------------------- -------- ------------------------------------------- ---------------
- -------------------------------- ----------- -------------------------------------------------- ---------------------
INTERESTED PERSON
- -------------------------------- ----------- -------------------------------------------------- ---------------------
Robert H. Graham* -- 1946 1992 Chairman, President and Chief Executive Officer, None
Trustee, Chairman and President A I M Management Group Inc. (financial services
holding company); Chairman and President, A I M
Advisors, Inc. (registered investment advisor);
Director and Senior Vice President, A I M
Capital Management, Inc. (registered investment
advisor); Chairman, A I M Distributors, Inc.
(registered broker dealer), A I M Fund Services,
Inc., (registered transfer agent), and Fund
Management Company (registered broker dealer);
and Director and Vice Chairman, AMVESCAP PLC
(parent of AIM and a global investment
management firm)
- -------------------------------- ----------- -------------------------------------------------- ---------------------
INDEPENDENT TRUSTEES
- -------------------------------- ----------- -------------------------------------------------- ---------------------
Frank S. Bayley -- 1939 2001 Of Counsel, law firm of Baker & McKenzie Badgley Funds, Inc.
Trustee (registered
investment company)
- -------------------------------- ----------- -------------------------------------------------- ---------------------
Bruce L. Crockett -- 1944 1987 Chairman, Crockett Technology Associates ACE Limited
Trustee (technology consulting company) (insurance
company); and
Captaris, Inc.
(unified messaging
provider)
- -------------------------------- ----------- -------------------------------------------------- ---------------------
Albert R. Dowden -- 1941 2000 Chairman, Cortland Trust, Inc. (registered None
Trustee investment company) and DHJ Media, Inc.;
Director, Magellan Insurance Company; Member of
Advisory Board of Rotary Power
International (designer,
manufacturer, and seller of rotary
power engines); formerly, Director,
President and CEO, Volvo Group
North America, Inc. and director of
various affiliated Volvo companies
- -------------------------------- ----------- -------------------------------------------------- ---------------------
</Table>
- --------
* Mr. Graham is considered an interested person of the Trust because he
is an officer and a director of the advisor to, and a director of the
principal underwriter of, the Trust.
B-1
<Table>
<Caption>
TRUSTEE
NAME, YEAR OF BIRTH AND AND/OR OTHER
POSITION(s) HELD WITH THE OFFICER DIRECTORSHIP(S)
TRUST SINCE PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS HELD BY TRUSTEE
- ------------------------- -------- ------------------------------------------- ---------------
INDEPENDENT TRUSTEES
- -------------------------------- ----------- -------------------------------------------------- ---------------------
Edward K. Dunn, Jr. -- 1935 1998 Formerly, Chairman, Mercantile Mortgage Corp.; None
Trustee Vice Chairman, President and Chief Operating
Officer, Mercantile-Safe Deposit & Trust Co.;
and President, Mercantile Bankshares Corp.
- -------------------------------- ----------- -------------------------------------------------- ---------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Century Administaff
Trustee Group, Inc. (government affairs company)
- -------------------------------- ----------- -------------------------------------------------- ---------------------
Carl Frischling** -- 1937 1993 Partner, law firm of Kramer Levin Naftalis and Cortland Trust,
Trustee Frankel LLP Inc. (registered
investment company)
- -------------------------------- ----------- -------------------------------------------------- ---------------------
Prema Mathai-Davis -- 1950 1998 Formerly, Chief Executive Officer, YWCA of the None
Trustee USA
- -------------------------------- ----------- -------------------------------------------------- ---------------------
Lewis F. Pennock -- 1942 1992 Partner, law firm of Pennock & Cooper None
Trustee
- -------------------------------- ----------- -------------------------------------------------- ---------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- -------------------------------- ----------- -------------------------------------------------- ---------------------
Louis S. Sklar -- 1939 1993 Executive Vice President, Development and None
Trustee Operations, Hines Interests Limited Partnership
(real estate development company)
- -------------------------------- ----------- -------------------------------------------------- ---------------------
OTHER OFFICERS
- -------------------------------- ----------- -------------------------------------------------- ---------------------
Gary T. Crum -- 1947 1992 Director and President of A I M Capital N/A
Senior Vice President Management, Inc.; Director and Executive Vice
President, A I M Management Group Inc.; Director
and Senior Vice President, A I M Advisors, Inc.;
and Director, A I M Distributors, Inc. and
AMVESCAP PLC
- -------------------------------- ----------- -------------------------------------------------- ---------------------
</Table>
B-2
<Table>
<Caption>
TRUSTEE
NAME, YEAR OF BIRTH AND AND/OR OTHER
POSITION(s) HELD WITH THE OFFICER DIRECTORSHIP(S)
TRUST SINCE PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS HELD BY TRUSTEE
- ------------------------- -------- ------------------------------------------- ---------------
OTHER OFFICERS
- -------------------------------- ----------- -------------------------------------------------- ---------------------
Carol F. Relihan -- 1954 1992 Director, Senior Vice President, General Counsel N/A
Senior Vice President and and Secretary, A I M Advisors, Inc. and A I M
Secretary Management Group Inc.; Director, Vice President
and General Counsel, Fund Management Company;
and Vice President, A I M Fund Services, Inc.,
A I M Capital Management, Inc. and A I M
Distributors, Inc.
- -------------------------------- ----------- -------------------------------------------------- ---------------------
Robert G. Alley -- 1948 1992 Senior Vice President, A I M Capital Management, N/A
Vice President Inc.; and Vice President, A I M Advisors, Inc.
- -------------------------------- ----------- -------------------------------------------------- ---------------------
Stuart W. Coco -- 1955 1992 Senior Vice President, A I M Capital Management, N/A
Vice President Inc.; and Vice President, A I M Advisors, Inc.
- -------------------------------- ----------- -------------------------------------------------- ---------------------
Melville B. Cox -- 1943 1992 Vice President and Chief Compliance Officer, A I M N/A
Vice President Advisors, Inc. and A I M Capital Management,
Inc.; and Vice President, A I M Fund Services,
Inc.
- -------------------------------- ----------- -------------------------------------------------- ---------------------
Karen Dunn Kelley -- 1960 1992 Senior Vice President, A I M Capital Management, N/A
Vice President Inc.; Director and President, Fund Management
Company; and Vice President, A I M Advisors, Inc.
- -------------------------------- ----------- -------------------------------------------------- ---------------------
Edgar M. Larsen -- 1940 1999 Vice President, A I M Advisors, Inc. and A I M N/A
Vice President Capital Management, Inc.
- -------------------------------- ----------- -------------------------------------------------- ---------------------
Dana R. Sutton -- 1959 1992 Vice President and Fund Treasurer, A I M N/A
Vice President and Treasurer Advisors, Inc.
- -------------------------------- ----------- -------------------------------------------------- ---------------------
</Table>
B-3
<Table>
<Caption>
TRUSTEE
OWNERSHIP OF FUND SHARES AS OF DECEMBER 31, 2001
- --------------------------------------------------------------------------------------------------------------------
NAME OF TRUSTEE DOLLAR RANGE OF EQUITY SECURITIES AGGREGATE DOLLAR RANGE OF EQUITY
PER FUND SECURITIES IN ALL REGISTERED
INVESTMENT COMPANIES OVERSEEN BY
TRUSTEE IN THE AIM FAMILY OF
Funds--Registered Trademark--
- --------------------------- -------------------------------------------------- -------------------------------------
Robert H. Graham Balanced Over $100,000 Over $100,000
Basic Balanced Over $100,000
Value Over $100,000
- --------------------------- -------------------------------------------------- -------------------------------------
Frank S. Bayley - 0 - $10,001 - $50,000
- --------------------------- -------------------------------------------------- -------------------------------------
Bruce L. Crockett Select Equity $1 - $10,000 $1 - $10,000
Value $1 - $10,000
- --------------------------- -------------------------------------------------- -------------------------------------
Owen Daly II(1) Balanced Over $100,000 Over $100,000(2)
European Small Company $10,001 - $50,000
New Technology $10,001 - $50,000
Select Equity $10,001 - $50,000
Small Cap Equity $50,001 - $100,000
- --------------------------- -------------------------------------------------- -------------------------------------
Albert R. Dowden Small Cap Equity $10,001 - $50,000 Over $100,000
- --------------------------- -------------------------------------------------- -------------------------------------
Edward K. Dunn, Jr. - 0 - Over $100,000(2)
- --------------------------- -------------------------------------------------- -------------------------------------
Jack M. Fields Value $50,001 - $100,000 Over $100,000(2)
- --------------------------- -------------------------------------------------- -------------------------------------
Carl Frischling Balanced $50,001 - $100,000 Over $100,000(2)
Value Over $100,000
- --------------------------- -------------------------------------------------- -------------------------------------
Prema Mathai-Davis - 0 - Over $100,000(2)
- --------------------------- -------------------------------------------------- -------------------------------------
Lewis F. Pennock Balanced $10,001 - $50,000 $10,001 - $50,000
- --------------------------- -------------------------------------------------- -------------------------------------
Ruth H. Quigley - 0 - $1 -$10,000
- --------------------------- -------------------------------------------------- -------------------------------------
Louis S. Sklar - 0 - Over $100,000(2)
- --------------------------- -------------------------------------------------- -------------------------------------
</Table>
- ----------
(1) Mr. Daly retired as a trustee on December 31, 2001.
(2) Includes the total amount of compensation deferred by the trustee at
his or her election pursuant to a deferred compensation plan. Such
deferred compensation is placed in a deferral account and deemed to be
invested in one or more of the AIM Funds.
B-4
APPENDIX C
TRUSTEE COMPENSATION TABLE
Set forth below is information regarding compensation paid or accrued
for each trustee of the Trust who was not affiliated with AIM during the year
ended December 31, 2001:
<Table>
<Caption>
RETIREMENT
AGGREGATE BENEFITS ESTIMATED ANNUAL TOTAL
COMPENSATION FROM ACCRUED BENEFITS UPON COMPENSATION
THE BY ALL RETIREMENT(3) FROM ALL AIM
TRUSTEE TRUST(1) AIM FUNDS(2) FUNDS(4)(5)
--------------------------------- ------------------- ----------------- ------------------- ---------------------
Frank S. Bayley(6) $ 4,839 -0- $75,000 $ 112,000
--------------------------------- ------------------- ----------------- ------------------- ---------------------
Bruce L. Crockett 20,374 $ 36,312 75,000 126,500
--------------------------------- ------------------- ----------------- ------------------- ---------------------
Owen Daly II(7) 20,374 33,318 75,000 126,500
--------------------------------- ------------------- ----------------- ------------------- ---------------------
Albert R. Dowden 20,374 3,193 75,000 126,500
--------------------------------- ------------------- ----------------- ------------------- ---------------------
Edward K. Dunn, Jr. 20,374 8,174 75,000 126,500
--------------------------------- ------------------- ----------------- ------------------- ---------------------
Jack M. Fields 20,300 19,015 75,000 126,000
--------------------------------- ------------------- ----------------- ------------------- ---------------------
Carl Frischling(8) 20,300 54,394 75,000 126,000
--------------------------------- ------------------- ----------------- ------------------- ---------------------
Prema Mathai-Davis 20,374 21,056 75,000 126,500
--------------------------------- ------------------- ----------------- ------------------- ---------------------
Lewis F. Pennock 20,374 37,044 75,000 126,500
--------------------------------- ------------------- ----------------- ------------------- ---------------------
Ruth H. Quigley(6) 4,913 -0- 75,000 112,500
--------------------------------- ------------------- ----------------- ------------------- ---------------------
Louis S. Sklar 19,770 53,911 75,000 123,000
--------------------------------- ------------------- ----------------- ------------------- ---------------------
</Table>
(1) The total amount of compensation deferred by all trustees of the Trust
during the fiscal year ended December 31, 2001, including earnings, was
$126,176.
(2) During the fiscal year ended December 31, 2001, the total amount of
expenses allocated to the Trust in respect of such retirement benefits was
$53,483.
(3) Amounts shown assume each trustee serves until his or her normal retirement
date.
(4) All trustees currently serve as directors or trustees of sixteen registered
investment companies advised by AIM.
(5) During the fiscal year ended December 31, 2001, the Trust received
reimbursement for compensation paid to the trustees of $5,400. During the
year ended December 31, 2001, all AIM Funds received reimbursement of total
compensation paid to trustees of $31,500.
(6) Mr. Bayley and Miss Quigley were elected to serve as trustees on September
28, 2001.
(7) Mr. Daly retired as trustee on December 31, 2001.
(8) During the fiscal year ended December 31, 2001, the Trust paid $91,630 in
legal fees to Kramer Levin Naftalis & Frankel LLP for services rendered by
such firm as counsel to the independent trustees of the Trust. Mr.
Frischling is a partner of such firm.
C-1
APPENDIX D
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
To the best knowledge of the Trust, the names and addresses of the
record and beneficial holders of 5% or more of the outstanding shares of each
class of the Trust's equity securities and the percentage of the outstanding
shares held by such holders are set forth below. Unless otherwise indicated
below, the Trust has no knowledge as to whether all or any portion of the shares
owned of record are also owned beneficially.
A shareholder who owns beneficially 25% or more of the outstanding
securities of a Fund is presumed to "control" that Fund as defined in the 1940
Act. Such control may affect the voting rights of other shareholders.
All information listed below is as of April 1, 2002.
AIM BALANCED FUND
<Table>
<Caption>
INSTITUTIONAL
CLASS A SHARES CLASS B SHARES CLASS C SHARES CLASS SHARES
----------------- -------------------- -------------------- -------------------
NAME AND ADDRESS OF PERCENTAGE OWNED PERCENTAGE OWNED OF PERCENTAGE OWNED OF PERCENTAGE OWNED
PRINCIPAL HOLDER OF RECORD RECORD OF
RECORD RECORD
- -------------------------------------- ------------------ -------------------- -------------------- -------------------
Merrill Lynch Pierce Fenner & Smith 9.54% 8.99% 16.48% N/A
FBO The Sole Benefit of Customers
ATTN: Fund Administration
4800 Deer Lake Dr., East, 2nd Floor
Jacksonville, FL 32246
- -------------------------------------- ------------------ -------------------- -------------------- -------------------
American Express Trust Co.
FBO American Express Trust
Retirement Service Plans
1200 Northstar 7.00% N/A N/A N/A
West P.O. Box 534
Minneapolis, MN 55440-0534
- -------------------------------------- ------------------ -------------------- -------------------- -------------------
A I M Advisors, Inc.*
ATTN: David Hessel
11 Greenway Plaza, Suite 100 N/A N/A N/A 100%
Houston, TX 77046
- -------------------------------------- ------------------ -------------------- -------------------- -------------------
</Table>
* Owned of record and beneficially.
D-1
AIM BASIC BALANCED FUND
<Table>
<Caption>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
------------------------- -------------------------- -------------------------
NAME AND ADDRESS OF PERCENTAGE OWNED OF PERCENTAGE OWNED OF PERCENTAGE OWNED OF
PRINCIPAL HOLDER RECORD RECORD RECORD
- ---------------------------------------- ------------------------- -------------------------- -------------------------
Merrill Lynch Pierce Fenner & Smith N/A N/A 7.52%
FBO The Sole Benefit of Customers
ATTN: Fund Administration
4800 Deer Lake Dr., East, 2nd Floor
Jacksonville, FL 32246
- ---------------------------------------- ------------------------- -------------------------- -------------------------
</Table>
AIM EUROPEAN SMALL COMPANY FUND
<Table>
<Caption>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
------------------------- -------------------------- -------------------------
NAME AND ADDRESS OF PERCENTAGE OWNED OF PERCENTAGE OWNED OF PERCENTAGE OWNED OF
PRINCIPAL HOLDER RECORD RECORD RECORD
- ---------------------------------------- ------------------------- -------------------------- -------------------------
RBC Dain Rauscher N/A N/A 5.38%
FBO Tobias Hlavinka
P.O. Box 1068
East Bernard, TX 77435-1068
- ---------------------------------------- ------------------------- -------------------------- -------------------------
Merrill Lynch Pierce Fenner & Smith
FBO The Sole Benefit of Customers
ATTN: Fund Administration N/A 16.95% 12.40%
4800 Deer Lake Dr., East, 2nd Floor
Jacksonville, FL 32246
- ---------------------------------------- ------------------------- -------------------------- -------------------------
Painewebber
FBO Painewebber CDN
FBO Glenda F. Cordts N/A N/A 5.50%
P.O. Box 1108
New York, NY 10268-1108
- ---------------------------------------- ------------------------- -------------------------- -------------------------
</Table>
D-2
AIM GLOBAL UTILITIES FUND
<Table>
<Caption>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
------------------------- -------------------------- -------------------------
NAME AND ADDRESS OF PERCENTAGE OWNED OF PERCENTAGE OWNED OF PERCENTAGE OWNED OF
PRINCIPAL HOLDER RECORD RECORD RECORD
- ---------------------------------------- ------------------------- -------------------------- -------------------------
Charles Schwab & Co., Inc. 16.43% N/A N/A
Reinvestment Account
101 Montgomery Street
San Francisco, CA 94104-0000
- ---------------------------------------- ------------------------- -------------------------- -------------------------
Merrill Lynch Pierce Fenner & Smith
FBO The Sole Benefit of Customers
ATTN: Fund Administration N/A 5.23% 11.51%
4800 Deer Lake Dr., East, 2nd Floor
Jacksonville, FL 32246
- ---------------------------------------- ------------------------- -------------------------- -------------------------
</Table>
AIM INTERNATIONAL EMERGING GROWTH FUND
<Table>
<Caption>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
------------------------- -------------------------- -------------------------
NAME AND ADDRESS OF PERCENTAGE OWNED OF PERCENTAGE OWNED OF PERCENTAGE OWNED OF
PRINCIPAL HOLDER RECORD RECORD RECORD
- ---------------------------------------- ------------------------- -------------------------- -------------------------
Merrill Lynch Pierce Fenner & Smith 8.29% 22.47% 18.95%
FBO The Sole Benefit of Customers
ATTN: Fund Administration
4800 Deer Lake Dr., East, 2nd Floor
Jacksonville, FL 32246
- ---------------------------------------- ------------------------- -------------------------- -------------------------
Joel and Holly Dobberpuhl*
1710 Lawrence Road 6.18% N/A N/A
Franklin, TN 37069-1700
- ---------------------------------------- ------------------------- -------------------------- -------------------------
Lanny H. Sachnowitz*
6317 Belmont Street 5.19% N/A N/A
Houston, TX 77005
- ---------------------------------------- ------------------------- -------------------------- -------------------------
</Table>
* Owned of record and beneficially.
D-3
AIM MID CAP BASIC VALUE FUND
<Table>
<Caption>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
------------------------- -------------------------- -------------------------
NAME AND ADDRESS OF PERCENTAGE OWNED OF PERCENTAGE OWNED OF PERCENTAGE OWNED OF
PRINCIPAL HOLDER RECORD RECORD RECORD
- ---------------------------------------- ------------------------- -------------------------- -------------------------
Merrill Lynch Pierce Fenner & Smith N/A 8.76% N/A
FBO The Sole Benefit of Customers
ATTN: Fund Administration
4800 Deer Lake Dr., East, 2nd Floor
Jacksonville, FL 32246
- ---------------------------------------- ------------------------- -------------------------- -------------------------
</Table>
AIM NEW TECHNOLOGY FUND
<Table>
<Caption>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
------------------------- -------------------------- -------------------------
NAME AND ADDRESS OF PERCENTAGE OWNED OF PERCENTAGE OWNED OF PERCENTAGE OWNED OF
PRINCIPAL HOLDER RECORD RECORD RECORD
- ---------------------------------------- ------------------------- -------------------------- -------------------------
Morgan Keegan & Company, Inc. 7.71% N/A N/A
1000 Uptown Park Blvd. Unit # 264
Houston, TX 77056
- ---------------------------------------- ------------------------- -------------------------- -------------------------
Merrill Lynch Pierce Fenner & Smith
FBO The Sole Benefit of Customers
ATTN: Fund Administration N/A N/A 5.36%
4800 Deer Lake Dr., East, 2nd Floor
Jacksonville, FL 32246
- ---------------------------------------- ------------------------- -------------------------- -------------------------
</Table>
AIM SELECT EQUITY FUND
<Table>
<Caption>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
------------------------- -------------------------- -------------------------
NAME AND ADDRESS OF PERCENTAGE OWNED OF PERCENTAGE OWNED OF PERCENTAGE OWNED OF
PRINCIPAL HOLDER RECORD RECORD RECORD
- ---------------------------------------- ------------------------- -------------------------- -------------------------
Merrill Lynch Pierce Fenner & Smith N/A 10.90% 12.42%
FBO The Sole Benefit of Customers
ATTN: Fund Administration
4800 Deer Lake Dr., East, 2nd Floor
Jacksonville, FL 32246
- ---------------------------------------- ------------------------- -------------------------- -------------------------
</Table>
D-4
AIM SMALL CAP EQUITY FUND
<Table>
<Caption>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
------------------------- -------------------------- -------------------------
NAME AND ADDRESS OF PERCENTAGE OWNED OF PERCENTAGE OWNED OF PERCENTAGE OWNED OF
PRINCIPAL HOLDER RECORD RECORD RECORD
- ---------------------------------------- ------------------------- -------------------------- -------------------------
Merrill Lynch Pierce Fenner & Smith 14.06% 10.48% 24.71%
FBO The Sole Benefit of Customers
ATTN: Fund Administration
4800 Deer Lake Dr., East, 2nd Floor
Jacksonville, FL 32246
- ---------------------------------------- ------------------------- -------------------------- -------------------------
</Table>
AIM VALUE FUND
<Table>
<Caption>
INSTITUTIONAL
CLASS A SHARES CLASS B SHARES CLASS C SHARES CLASS SHARES
------------------ -------------------- -------------------- -------------------
NAME AND ADDRESS OF PERCENTAGE OWNED PERCENTAGE OWNED OF PERCENTAGE OWNED OF PERCENTAGE OWNED
PRINCIPAL HOLDER OF RECORD RECORD OF
RECORD RECORD
- -------------------------------------- ------------------ -------------------- -------------------- -------------------
Merrill Lynch Pierce Fenner & Smith 9.99% 11.12% 22.53% N/A
FBO The Sole Benefit of Customers
ATTN: Fund Administration
4800 Deer Lake Dr., East, 2nd Floor
Jacksonville, FL 32246
- -------------------------------------- ------------------ -------------------- -------------------- -------------------
A I M Advisors, Inc.*
ATTN: David Hessel
11 Greenway Plaza, Suite 100 N/A N/A N/A 100%
Houston, TX 77046
- -------------------------------------- ------------------ -------------------- -------------------- -------------------
</Table>
AIM VALUE II FUND
<Table>
<Caption>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
------------------------- -------------------------- -------------------------
NAME AND ADDRESS OF PERCENTAGE OWNED OF PERCENTAGE OWNED OF PERCENTAGE OWNED OF
PRINCIPAL HOLDER RECORD RECORD RECORD
- ---------------------------------------- ------------------------- -------------------------- -------------------------
Merrill Lynch Pierce Fenner & Smith 6.44% 14.55% 22.30%
FBO The Sole Benefit of Customers
ATTN: Fund Administration
4800 Deer Lake Dr., East, 2nd Floor
Jacksonville, FL 32246
- ---------------------------------------- ------------------------- -------------------------- -------------------------
</Table>
* Owned of record and beneficially.
D-5
AIM WORLDWIDE SPECTRUM FUND
<Table>
<Caption>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
------------------------- -------------------------- -------------------------
NAME AND ADDRESS OF PERCENTAGE OWNED OF PERCENTAGE OWNED OF PERCENTAGE OWNED OF
PRINCIPAL HOLDER RECORD RECORD RECORD
- ---------------------------------------- ------------------------- -------------------------- -------------------------
Joel and Holly Dobberpuhl* 28.31% N/A N/A
1710 Lawrence Road
Franklin, TN 37069-1700
- ---------------------------------------- ------------------------- -------------------------- -------------------------
A I M Advisors, Inc.*
Attn: David Hessel
11 Greenway Plaza, Suite 100 11.64% N/A N/A
Houston, TX 77046
- ---------------------------------------- ------------------------- -------------------------- -------------------------
Merrill Lynch Pierce Fenner & Smith
FBO The Sole Benefit of Customers
ATTN: Fund Administration N/A N/A 8.23%
4800 Deer Lake Dr., East, 2nd Floor
Jacksonville, FL 32246
- ---------------------------------------- ------------------------- -------------------------- -------------------------
Joyce M. Kelso and
Jerry A. Kelso*
270 River Trace Dr. N/A N/A 9.83%
Marion, AR 72364
- ---------------------------------------- ------------------------- -------------------------- -------------------------
</Table>
* Owned of record and beneficially.
MANAGEMENT OWNERSHIP
As of April 1, 2002, the trustees and officers as a group owned less
than 1% of the outstanding shares of each class of AIM Balanced Fund, AIM Basic
Balanced Fund, AIM Global Utilities Fund, AIM International Emerging Growth
Fund, AIM Mid Cap Basic Value Fund, AIM Select Equity Fund, AIM Small Cap Equity
Fund, AIM Value Fund, AIM Value II Fund and AIM Worldwide Spectrum Fund. In
addition, as of April 1, 2002, the trustees and officers as a group owned 1.74%
of Class A shares of AIM European Small Company Fund and 1.30% of Class A shares
of AIM New Technology Fund.
D-6
APPENDIX E
MANAGEMENT FEES
For the last three fiscal years ended December 31, the management fees payable
by each Fund, the amounts waived by AIM and the net fees paid by each Fund were
as follows:
<Table>
<Caption>
FUND NAME 2001 2000
- --------------------- -------------- -------------- ------------------ -------------- -------------- ------------------
MANAGEMENT MANAGEMENT NET MANAGEMENT MANAGEMENT MANAGEMENT NET MANAGEMENT
FEE PAYABLE FEE WAIVERS FEE PAID FEE PAYABLE FEE WAIVERS FEE PAID
- --------------------- -------------- -------------- ------------------ -------------- -------------- ------------------
AIM Balanced Fund $ 20,891,477 $ 19,008 $ 20,872,469 $ 19,294,478 $ -0- $ 19,294,478
- --------------------- -------------- -------------- ------------------ -------------- -------------- ------------------
AIM Basic Balanced 29,174 29,174 -0- N/A N/A N/A
Fund*
- --------------------- -------------- -------------- ------------------ -------------- -------------- ------------------
AIM European Small 107,157 107,157 -0- 27,495 27,495 -0-
Company Fund**
- --------------------- -------------- -------------- ------------------ -------------- -------------- ------------------
AIM Global 2,017,671 1,934 2,015,737 2,457,103 -0- 2,457,103
Utilities Fund
- --------------------- -------------- -------------- ------------------ -------------- -------------- ------------------
AIM International
Emerging Growth 96,010 96,010 -0- 20,500 20,500 -0-
Fund**
- --------------------- -------------- -------------- ------------------ -------------- -------------- ------------------
AIM Mid Cap Basic 22 22 -0- N/A N/A N/A
Value Fund***
- --------------------- -------------- -------------- ------------------ -------------- -------------- ------------------
AIM New Technology 662,429 357,926 304,503 169,735 126,575 43,160
Fund**
- --------------------- -------------- -------------- ------------------ -------------- -------------- ------------------
AIM Select Equity 6,487,014 3,800 6,483,214 8,431,513 -0- 8,431,513
Fund
- --------------------- -------------- -------------- ------------------ -------------- -------------- ------------------
AIM Small Cap 997,232 714 996,518 89,083 89,083 -0-
Equity Fund**
- --------------------- -------------- -------------- ------------------ -------------- -------------- ------------------
AIM Value Fund 133,647,827 8,961,757 124,686,070 178,352,446 11,485,909 166,866,537
- --------------------- -------------- -------------- ------------------ -------------- -------------- ------------------
AIM Value II Fund** 1,259,835 42,306 1,217,529 184,046 146,253 37,793
- --------------------- -------------- -------------- ------------------ -------------- -------------- ------------------
AIM Worldwide 69,914 69,914 -0- 69 69 -0-
Spectrum Fund****
- --------------------- -------------- -------------- ------------------ -------------- -------------- ------------------
<Caption>
FUND NAME 1999
- --------------------- -------------- -------------- -------------------
MANAGEMENT MANAGEMENT NET MANAGEMENT
FEE PAYABLE FEE WAIVERS FEE PAID
- --------------------- -------------- -------------- -------------------
AIM Balanced Fund $13,624,208 $ -0- $ 13,624,208
- --------------------- -------------- -------------- -------------------
AIM Basic Balanced N/A N/A N/A
Fund*
- --------------------- -------------- -------------- -------------------
AIM European Small N/A N/A N/A
Company Fund**
- --------------------- -------------- -------------- -------------------
AIM Global 1,802,726 -0- 1,802,726
Utilities Fund
- --------------------- -------------- -------------- -------------------
AIM International
Emerging Growth N/A N/A N/A
Fund**
- --------------------- -------------- -------------- -------------------
AIM Mid Cap Basic N/A N/A N/A
Value Fund***
- --------------------- -------------- -------------- -------------------
AIM New Technology N/A N/A N/A
Fund**
- --------------------- -------------- -------------- -------------------
AIM Select Equity 5,507,389 -0- 5,507,389
Fund
- --------------------- -------------- -------------- -------------------
AIM Small Cap N/A N/A N/A
Equity Fund**
- --------------------- -------------- -------------- -------------------
AIM Value Fund 141,196,457 5,137,356 136,059,101
- --------------------- -------------- -------------- -------------------
AIM Value II Fund** N/A N/A N/A
- --------------------- -------------- -------------- -------------------
AIM Worldwide N/A N/A N/A
Spectrum Fund****
- --------------------- -------------- -------------- -------------------
</Table>
* Commenced operations on September 28, 2001.
** Commenced operations on August 31, 2000.
*** Commenced operations on December 31, 2001.
**** Commenced operations on December 29, 2000.
E-1
APPENDIX F
ADMINISTRATIVE SERVICES FEES
The Funds paid AIM the following amounts for administrative services for the
last three fiscal years ended December 31:
<Table>
<Caption>
FUND NAME 2001 2000 1999
- ---------------------------- ------------------------------ ------------------------------- --------------------------
AIM Balanced Fund $316,318 $219,636 $158,046
- ---------------------------- ------------------------------ ------------------------------- --------------------------
AIM Basic Balanced Fund* 12,603 N/A N/A
- ---------------------------- ------------------------------ ------------------------------- --------------------------
AIM European Small Company 50,000 16,667 N/A
Fund**
- ---------------------------- ------------------------------ ------------------------------- --------------------------
AIM Global Utilities Fund 92,707 111,177 8,999
- ---------------------------- ------------------------------ ------------------------------- --------------------------
AIM International Emerging 50,000 16,667 N/A
Growth Fund**
- ---------------------------- ------------------------------ ------------------------------- --------------------------
AIM Mid Cap Basic Value 137 N/A N/A
Fund***
- ---------------------------- ------------------------------ ------------------------------- --------------------------
AIM New Technology Fund** 50,000 16,667 N/A
- ---------------------------- ------------------------------ ------------------------------- --------------------------
AIM Select Equity Fund 148,860 144,211 110,205
- ---------------------------- ------------------------------ ------------------------------- --------------------------
AIM Small Cap Equity Fund** 50,000 16,667 N/A
- ---------------------------- ------------------------------ ------------------------------- --------------------------
AIM Value Fund 833,469 959,833 631,457
- ---------------------------- ------------------------------ ------------------------------- --------------------------
AIM Value II Fund** 50,000 16,667 N/A
- ---------------------------- ------------------------------ ------------------------------- --------------------------
AIM Worldwide Spectrum 50,000 410 N/A
Fund****
- ---------------------------- ------------------------------ ------------------------------- --------------------------
</Table>
* Commenced operations on September 28, 2001.
** Commenced operations on August 31, 2000.
*** Commenced operations on December 31, 2001.
**** Commenced operations on December 29, 2000.
F-1
APPENDIX G
BROKERAGE COMMISSIONS
Brokerage commissions paid by each of the Funds listed below during the last
three fiscal years were as follows:
<Table>
<Caption>
FUND 2001 2000 1999
---- ---------- ---------- ----------
AIM Balanced Fund(5) $ 2,814,996 $ 1,892,019 $ 1,595,462
AIM Basic Balanced Fund(1) 332,231 N/A N/A
AIM European Small Company Fund(2) 69,600 38,807 N/A
AIM Global Utilities Fund(6) 263,422 593,061 198,511
AIM International Emerging Growth Fund(2) 67,561 27,889 N/A
AIM Mid Cap Basic Value Fund(3) N/A N/A N/A
AIM New Technology Fund(2) 137,043 10,477 N/A
AIM Select Equity Fund(7) 2,341,424 1,152,944 592,091
AIM Small Cap Equity Fund(2) 493,853 65,567 N/A
AIM Value Fund(8) 19,870,430 34,775,189 23,804,242
AIM Value II Fund(2) 231,409 57,425 N/A
AIM Worldwide Spectrum Fund(4) 29,817 N/A N/A
</Table>
(1) Commenced operations on September 28, 2001.
(2) Commenced operations on August 31, 2000.
(3) Commenced operations on December 31, 2001.
(4) Commenced operations on December 29, 2000.
(5) The variation in brokerage commissions paid by the AIM Balanced Fund for
the fiscal year ended December 31, 2001, as compared to the prior fiscal
year was due to a significant fluctuation in asset levels.
(6) The variation in brokerage commissions paid by the AIM Global Utilities
Fund for the fiscal year ended December 31, 2001, as compared to the
prior fiscal year, was due to a significant fluctuation in asset levels
and a reduction in transactions on which commissions were paid.
(7) The variation in brokerage commissions paid by the AIM Select Equity Fund
for the fiscal year ended December 31, 2001, as compared to the prior
fiscal year, was due to a change in the Fund's investment strategies,
which in effect also resulted in an increase in transactions on which
commissions were paid.
(8) The variation in brokerage commissions paid by the AIM Value Fund for the
fiscal year ended December 31, 2001, as compared to the prior fiscal
year, was due to a significant fluctuation in asset levels and a
reduction in transactions on which commissions were paid.
G-1
APPENDIX H
DIRECTED BROKERAGE (RESEARCH SERVICES) AND PURCHASES OF
SECURITIES OF REGULAR BROKERS OR DEALERS
During the last fiscal year ended December 31, 2001, each Fund
allocated the following amount of transactions to broker-dealers that provided
AIM with certain research, statistics and other information:
<Table>
<Caption>
Related
Fund Transactions Brokerage Commissions
- ---- ------------ ---------------------
AIM Balanced Fund $ 190,962,040 $ 239,220
AIM Basic Balanced Fund N/A N/A
AIM European Small Company Fund 271,339 457
AIM Global Utilities Fund 12,268,708 20,325
AIM International Emerging Growth Fund 121,720 243
AIM Mid Cap Basic Value Fund* N/A N/A
AIM New Technology Fund 11,536,993 12,730
AIM Select Equity Fund 220,518,143 276,629
AIM Small Cap Equity Fund 11,559,784 21,470
AIM Value Fund 2,297,060,048 2,668,509
AIM Value II Fund 10,278,589 15,793
AIM Worldwide Spectrum Fund 440,920 510
</Table>
* Commenced operations on December 31, 2001.
During the last fiscal year ended December 31, 2001, the Funds held
securities issued by the following companies, which are "regular" brokers or
dealers of one or more of the Funds identified below:
<Table>
<Caption>
Fund Security Market Value
---- -------- ------------
AIM Balanced Fund
Goldman Sachs Group, Inc. (The) Common Stock $ 21,295,400
Merrill Lynch & Co., Inc. Common Stock 34,034,360
Morgan Stanley Dean Witter & Co. Common Stock 24,926,864
Bear Stearns Cos. Inc. Bonds/Notes 4,676,293
Lehman Brothers Holdings Inc. Bonds/Notes 6,501,967
Morgan Stanley Dean Witter & Co. Bonds/Notes 7,182,964
AIM Basic Balanced Fund
Morgan Stanley Dean Witter & Co. Common Stock 223,760
Lehman Brothers Holdings, Inc. Bonds/Notes 21,837
AIM Select Equity Fund
Lehman Brothers Holdings Inc. Common Stock 6,199,040
Merrill Lynch & Co., Inc. Common Stock 8,234,960
AIM Value Fund
Morgan Stanley Dean Witter & Co. Common Stock 391,580,000
AIM Value II Fund
Lehman Brothers Holdings Inc. Common Stock 1,837,000
Morgan Stanley Dean Witter & Co. Common Stock 1,342,560
</Table>
H-1
APPENDIX I
AMOUNTS PAID TO A I M DISTRIBUTORS, INC. PURSUANT TO DISTRIBUTION PLANS
List of amounts paid by each class of shares to AIM Distributors
pursuant to the Plans for the fiscal year or period ended December 31, 2001.
<Table>
<Caption>
CLASS A CLASS B CLASS C
FUND SHARES SHARES SHARES
- ---- ------------- ---------- ---------
AIM Balanced Fund $ 6,103,678 12,597,477 4,020,765
AIM Basic Balanced Fund* 5,240 22,783 7,127
AIM European Small Company Fund** 26,996 24,901 10,764
AIM Global Utilities Fund 543,963 1,309,131 150,360
AIM International Emerging Growth Fund** 19,636 19,061 25,899
AIM Mid Cap Basic Value Fund*** 4 8 8
AIM New Technology Fund** 129,174 197,761 95,599
AIM Select Equity Fund 1,072,072 5,043,700 627,234
AIM Small Cap Equity Fund** 216,534 382,833 171,712
AIM Value Fund 24,169,158 105,895,470 10,844,420
AIM Value II Fund** 224,258 712,565 326,478
AIM Worldwide Spectrum Fund**** 21,849 11,226 8,599
</Table>
* Commenced operations on September 28, 2001.
** Commenced operations on August 31, 2000.
*** Commenced operations on December 31, 2001.
**** Commenced operations on December 29, 2000.
I-1
APPENDIX J
ALLOCATION OF ACTUAL FEES PAID PURSUANT TO DISTRIBUTION PLANS
An estimate by category of the allocation of actual fees paid by Class
A Shares of the Funds during the year ended December 31, 2001, follows:
<Table>
<Caption>
PRINTING & UNDERWRITERS DEALERS
ADVERTISING MAILING SEMINARS COMPENSATION COMPENSATION
------------- --------- --------- ------------ ------------
AIM Balanced Fund $ 0 $ 0 $ 0 $ 6,103,678 $ 0
AIM Basic Balanced Fund* 565 77 0 0 4,598
AIM European Small Company Fund** 4,628 0 1,543 0 20,825
AIM Global Utilities Fund 18,119 1,575 6,127 0 518,142
AIM International Emerging Growth Fund** 5,610 0 0 0 14,026
AIM Mid Cap Basic Value Fund*** N/A N/A N/A N/A N/A
AIM New Technology Fund** 8,982 800 3,557 0 115,835
AIM Select Equity Fund 0 0 0 0 1,072,072
AIM Small Cap Equity Fund** 19,547 1,934 5,585 0 189,468
AIM Value Fund 0 0 0 0 24,169,158
AIM Value II Fund** 23,022 1,955 7,602 0 191,679
AIM Worldwide Spectrum Fund**** 2,066 204 568 0 19,011
</Table>
An estimate by category of the allocation of actual fees paid by Class
B Shares of the Funds during the year ended December 31, 2001, follows:
<Table>
<Caption>
PRINTING & UNDERWRITERS DEALERS
ADVERTISING MAILING SEMINARS COMPENSATION COMPENSATION
------------ --------- ---------- -------------- --------------
AIM Balanced Fund $ 249,000 $ 22,346 $ 83,355 $ 9,448,108 $ 2,794,668
AIM Basic Balanced Fund* 881 120 334 17,087 4,361
AIM European Small Company Fund** 3,596 0 0 18,676 2,629
AIM Global Utilities Fund 21,638 1,784 8,107 981,848 295,754
AIM International Emerging Growth Fund** 1,953 429 0 14,295 2,384
AIM Mid Cap Basic Value Fund*** N/A N/A N/A N/A N/A
AIM New Technology Fund** 13,377 1,038 4,325 148,321 30,700
AIM Select Equity Fund 86,226 7,774 29,640 3,782,775 1,137,285
AIM Small Cap Equity Fund** 21,069 1,789 6,957 287,125 65,893
AIM Value Fund 1,038,490 93,636 347,603 79,421,602 24,994,139
AIM Value II Fund** 32,152 2,607 11,586 534,424 131,796
AIM Worldwide Spectrum Fund**** 1,565 0 0 8,420 1,241
</Table>
An estimate by category of the allocation of actual fees paid by Class
C shares of the Funds during the year ended December 31, 2001, follows:
<Table>
<Caption>
PRINTING & UNDERWRITERS DEALERS
ADVERTISING MAILING SEMINARS COMPENSATION COMPENSATION
------------ --------- ---------- -------------- --------------
AIM Balanced Fund $ 108,680 $ 9,979 $ 35,987 $ 802,417 $ 3,063,702
AIM Basic Balanced Fund* 0 0 0 3,037 4,090
AIM European Small Company Fund** 0 0 0 5,194 5,570
AIM Global Utilities Fund 5,016 0 2,508 45,147 97,689
AIM International Emerging Growth Fund** 1,509 149 829 8,147 15,265
AIM Mid Cap Basic Value Fund*** N/A N/A N/A N/A N/A
AIM New Technology Fund** 7,072 699 2,590 50,506 34,732
AIM Select Equity Fund 29,303 2,520 10,183 213,852 371,376
AIM Small Cap Equity Fund** 9,757 965 3,829 75,820 81,341
AIM Value Fund 269,253 24,465 89,843 1,986,915 8,473,944
AIM Value II Fund** 22,821 2,093 6,643 154,458 140,463
AIM Worldwide Spectrum Fund**** 1,166 256 0 4,267 2,910
</Table>
* Commenced operations on September 28, 2001.
** Commenced operations on August 31, 2000.
*** Commenced operations on December 31, 2001.
**** Commenced operations on December 29, 2000.
J-1
APPENDIX K
TOTAL SALES CHARGES
The following chart reflects the total sales charges paid in connection with the
sale of Class A shares of each Fund and the amount retained by AIM Distributors
for the last three fiscal years ending December 31:
<Table>
<Caption>
2001 2000 1999
---- ---- ----
SALES AMOUNT SALES AMOUNT SALES AMOUNT
CHARGES RETAINED CHARGES RETAINED CHARGES RETAINED
----------- ----------- ----------- ---------- ---------- -----------
AIM Balanced Fund $ 3,691,146 $ 640,756 $ 7,582,977 $1,348,605 $4,738,340 $ 823,856
AIM Basic Balanced Fund* 112,507 19,234 N/A N/A N/A N/A
AIM European Small Company Fund** 28,534 4,738 127,183 18,828 N/A N/A
AIM Global Utilities Fund 427,191 69,443 1,102,169 174,240 363,844 56,996
AIM International Emerging Growth Fund** 26,026 4,181 52,378 8,538 N/A N/A
AIM Mid Cap Basic Value Fund*** N/A N/A N/A N/A N/A N/A
AIM New Technology Fund** 478,515 76,755 895,102 142,151 N/A N/A
AIM Select Equity Fund 1,293,861 205,791 3,195,845 511,968 1,100,704 176,131
AIM Small Cap Equity Fund** 819,222 129,827 421,500 66,008 N/A N/A
AIM Value Fund 13,060,057 2,026,998 44,597,613 6,912,097 47,407,647 7,218,373
AIM Value II Fund** 606,814 95,063 838,943 130,652 N/A N/A
AIM Worldwide Spectrum Fund**** 60,376 10,936 -0- -0- N/A N/A
</Table>
* Commenced operations on September 28, 2001.
** Commenced operations on August 31, 2000.
*** Commenced operations on December 31, 2001
**** Commenced operations on December 29, 2000.
The following chart reflects the contingent deferred sales charges paid
by Class A, Class B and Class C shareholders and retained by AIM Distributors
for the last three fiscal years ended December 31:
<Table>
<Caption>
2001 2000 1999
---- ---- ----
AIM Balanced Fund $ 139,887 $ 284,148 $ 150,341
AIM Basic Balanced Fund* 84 N/A N/A
AIM European Small Company Fund** 17,064 47 N/A
AIM Global Utilities Fund 9,778 16,641 67,367
AIM International Emerging Growth Fund** 29,308 364 N/A
AIM Mid Cap Basic Value Fund*** N/A N/A N/A
AIM New Technology Fund** 11,820 16,403 N/A
AIM Select Equity Fund 32,135 32,980 75,951
AIM Small Cap Equity Fund** 39,954 541 N/A
AIM Value Fund 502,677 1,003,943 1,053,955
AIM Value II Fund** 25,998 1,234 N/A
AIM Worldwide Spectrum Fund**** 2,126 -0- N/A
</Table>
* Commenced operations on September 28, 2001.
** Commenced operations on August 31, 2000.
*** Commenced operations on December 31, 2001.
**** Commenced operations on December 29, 2000.
K-1
APPENDIX L
PERFORMANCE DATA
AVERAGE ANNUAL TOTAL RETURNS
The average annual total returns (including sales loads) for each Fund, with
respect to its Class A shares, for the one, five and ten year periods (or since
inception if less than ten years) ended December 31, 2001, are as follows:
<Table>
<Caption>
PERIODS ENDED
DECEMBER 31, 2001 SINCE INCEPTION
CLASS A SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
-------------- ------ ------- -------- --------- ---------
AIM Balanced Fund -15.54% 6.14% 10.02% -- 03/31/78
AIM Basic Balanced Fund N/A N/A N/A 2.80% 09/28/01
AIM European Small Company Fund -25.88% N/A N/A -24.85% 08/31/00
AIM Global Utilities Fund -32.28% 4.91% 7.11% -- 01/19/88
AIM International Emerging Growth Fund -15.37% N/A N/A -25.57% 08/31/00
AIM Mid Cap Basic Value Fund N/A N/A N/A -5.48% 12/31/01
AIM New Technology Fund -46.14% N/A N/A -53.21% 08/31/00
AIM Select Equity Fund -29.73% 8.21% 8.83% -- 12/04/67
AIM Small Cap Equity Fund 2.98% N/A N/A -2.74% 08/31/00
AIM Value Fund -17.79% 8.38% 12.67% -- 05/01/84
AIM Value II Fund -22.64% N/A N/A -26.00% 08/31/00
AIM Worldwide Spectrum Fund -6.89% N/A N/A -6.86% 12/29/00
</Table>
The average annual total returns (including maximum applicable
contingent deferred sales charge) for each Fund, with respect to its Class B
shares, for the one, five and ten year periods (or since inception of less than
ten years) ended December 31, 2001, are as follows:
<Table>
<Caption>
PERIODS ENDED
DECEMBER 31, 2001 SINCE INCEPTION
CLASS B SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
-------------- ------ ------- -------- --------- ---------
AIM Balanced Fund -16.32% 6.02% N/A 8.53% 10/18/93
AIM Basic Balanced Fund N/A N/A N/A 2.76% 09/28/01
AIM European Small Company Fund -26.01% N/A N/A -24.37% 08/31/00
AIM Global Utilities Fund -32.39% 4.98 N/A 5.37% 09/01/93
AIM International Emerging Growth Fund -15.52% N/A N/A -25.21% 08/31/00
AIM Mid Cap Basic Value Fund N/A N/A N/A -5.00% 12/31/01
AIM New Technology Fund -46.22% N/A N/A -52.94% 08/31/00
AIM Select Equity Fund -29.87% 8.29% N/A 9.95% 09/01/93
AIM Small Cap Equity Fund 3.24% N/A N/A -2.18% 08/31/00
AIM Value Fund -17.92% 8.47% N/A 10.99% 10/18/93
AIM Value II Fund -22.83% N/A N/A -25.67% 08/31/00
AIM Worldwide Spectrum Fund -6.99% N/A N/A -5.98% 12/29/00
</Table>
L-1
The average annual total returns (including maximum applicable
contingent deferred sales charge) for each Fund, with respect to its Class C
shares, for the one, five and ten year periods (or since inception if less than
ten years) ended December 31, 2001, are as follows:
<Table>
<Caption>
PERIODS ENDED
DECEMBER 31, 2001 SINCE INCEPTION
CLASS C SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
-------------- ------ ------- -------- --------- ---------
AIM Balanced Fund -12.85% N/A N/A 3.31% 08/04/97
AIM Basic Balanced Fund N/A N/A N/A 6.76% 09/28/01
AIM European Small Company Fund -22.92% N/A N/A -22.12% 08/31/00
AIM Global Utilities Fund -29.58% N/A N/A 3.36% 08/04/97
AIM International Emerging Growth Fund -11.96% N/A N/A -22.88% 08/31/00
AIM Mid Cap Basic Value Fund N/A N/A N/A -1.00% 12/31/01
AIM New Technology Fund -43.95% N/A N/A -51.48% 08/31/00
AIM Select Equity Fund -26.95% N/A N/A 4.67% 08/04/97
AIM Small Cap Equity Fund 7.14% N/A N/A 0.75% 08/31/00
AIM Value Fund -14.46% N/A N/A 4.95% 08/04/97
AIM Value II Fund -19.58% N/A N/A -23.37% 08/31/00
AIM Worldwide Spectrum Fund -3.07% N/A N/A -2.08% 12/29/00
</Table>
CUMULATIVE TOTAL RETURNS
The cumulative total returns (including sales loads) for each Fund,
with respect to its Class A shares, for the one, five and ten year periods (or
since inception if less than ten years) ended December 31, 2001 are as follows:
<Table>
<Caption>
PERIODS ENDED
DECEMBER 31, 2001 SINCE INCEPTION
CLASS A SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
--------------- ------ ------- -------- --------- ---------
AIM Balanced Fund -15.54% 34.73% 159.78% -- 03/31/78
AIM Basic Balanced Fund N/A N/A N/A 2.80% 09/28/01
AIM European Small Company Fund -25.88% N/A N/A -31.70% 08/31/00
AIM Global Utilities Fund -32.28% 27.09% 98.68% -- 01/19/88
AIM International Emerging Growth Fund -15.37% N/A N/A -32.57% 08/31/00
AIM Mid Cap Basic Value Fund N/A N/A N/A -5.48% 12/31/01
AIM New Technology Fund -46.14% N/A N/A -63.71% 08/31/00
AIM Select Equity Fund -29.73% 48.36% 133.09% -- 12/04/67
AIM Small Cap Equity Fund 2.98% N/A N/A -3.64% 08/31/00
AIM Value Fund -17.79% 49.52% 229.54% -- 05/01/84
AIM Value II Fund -22.64% N/A N/A -33.09% 08/31/00
AIM Worldwide Spectrum Fund -6.89% N/A N/A -6.89% 12/29/00
</Table>
L-2
The cumulative total returns (including maximum applicable contingent
deferred sales charge) for each Fund, with respect to its Class B shares, for
the one, five and ten year periods (or since inception if less than ten years)
ended December 31, 2001 are as follows:
<Table>
<Caption>
PERIODS ENDED
DECEMBER 31, 2001 SINCE INCEPTION
CLASS B SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
------ ------- -------- --------- --------
AIM Balanced Fund -16.32% 33.97% N/A 95.64% 10/18/93
AIM Basic Balanced Fund N/A N/A N/A 2.76% 09/28/01
AIM European Small Company Fund -26.01% N/A N/A -31.12% 08/31/00
AIM Global Utilities Fund -32.39% 27.51% N/A 54.67% 09/01/93
AIM International Emerging Growth Fund -15.52% N/A N/A -32.13% 08/31/00
AIM Mid Cap Basic Value Fund N/A N/A N/A -5.00% 12/31/01
AIM New Technology Fund -46.22% N/A N/A -63.42% 08/31/00
AIM Select Equity Fund -29.87% 48.91% N/A 120.47% 09/01/93
AIM Small Cap Equity Fund 3.24% N/A N/A -2.90% 08/31/00
AIM Value Fund -17.92% 50.16% N/A 135.26% 10/18/93
AIM Value II Fund -22.83% N/A N/A -32.69% 08/31/00
AIM Worldwide Spectrum Fund -6.99% N/A N/A -6.01% 12/29/00
</Table>
The cumulative total returns (including maximum applicable contingent
deferred sales charge) for each Fund, with respect to its Class C shares, for
the one, five and ten year periods (or since inception if less than ten years)
ended December 31, 2001 are as follows:
<Table>
<Caption>
PERIODS ENDED
DECEMBER 31, 2001 SINCE INCEPTION
CLASS C SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
--------------- ------ ------- -------- --------- ---------
AIM Balanced Fund -12.85% N/A N/A 15.43% 08/04/97
AIM Basic Balanced Fund N/A N/A N/A 6.76% 09/28/01
AIM European Small Company Fund -22.92% N/A N/A -28.36% 08/31/00
AIM Global Utilities Fund -29.58% N/A N/A 15.70% 08/04/97
AIM International Emerging Growth Fund -11.96% N/A N/A -29.30% 08/31/00
AIM Mid Cap Basic Value Fund N/A N/A N/A -1.00% 12/31/01
AIM New Technology Fund -43.95% N/A N/A -61.90% 08/31/00
AIM Select Equity Fund -26.95% N/A N/A 22.31% 08/04/97
AIM Small Cap Equity Fund 7.14% N/A N/A 1.00% 08/31/00
AIM Value Fund -14.46% N/A N/A 23.71% 08/04/97
AIM Value II Fund -19.58% N/A N/A -29.89% 08/31/00
AIM Worldwide Spectrum Fund -3.07% N/A N/A -2.09% 12/29/00
</Table>
L-3
AVERAGE ANNUAL TOTAL RETURN (AFTER TAXES ON DISTRIBUTIONS)
The average annual total returns (after taxes on distributions and
including sales loads) for each Fund, with respect to its Class A shares, for
the one, five and ten year periods (or since inception if less then ten years)
ended December 31, 2001 are as follows:
<Table>
<Caption>
PERIODS ENDED
DECEMBER 31, 2001 SINCE INCEPTION
CLASS A SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
-------------- ------ ------- -------- --------- --------
AIM Balanced Fund -16.46% 4.81% 8.70% -- 03/31/78
AIM Basic Balanced Fund N/A N/A N/A 2.63% 09/28/01
AIM European Small Company Fund -25.88% N/A N/A -24.96% 08/31/00
AIM Global Utilities Fund -32.90% 2.96% 5.00% -- 01/19/88
AIM International Emerging Growth Fund -15.53% N/A N/A -25.68% 08/31/00
AIM Mid Cap Basic Value Fund N/A N/A N/A N/A 12/31/01
AIM New Technology Fund -46.14% N/A N/A -53.21% 08/31/00
AIM Select Equity Fund -29.74% 6.78% 6.78% -- 12/04/67
AIM Small Cap Equity Fund 2.96% N/A N/A -2.75% 08/31/00
AIM Value Fund -17.81% 6.53% 10.70% -- 05/01/84
AIM Value II Fund -22.69% N/A N/A -26.06% 08/31/00
AIM Worldwide Spectrum Fund -6.89% N/A N/A -6.86% 12/29/00
</Table>
The average annual total returns (after taxes on distributions and
including maximum applicable contingent deferred sales charge) for each Fund,
with respect to its Class B shares, for the one, five and ten year periods (or
since inception if less than ten years) ended December 31, 2001 are as follows:
<Table>
<Caption>
PERIODS ENDED
DECEMBER 31, 2001 SINCE INCEPTION
CLASS B SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
-------------- ------ ------- -------- --------- ---------
AIM Balanced Fund -17.01% 4.99% N/A 7.43% 10/18/93
AIM Basic Balanced Fund N/A N/A N/A 2.66% 09/28/01
AIM European Small Company Fund -26.01% N/A N/A -24.45% 08/31/00
AIM Global Utilities Fund -32.81% 3.28% N/A 3.73% 09/01/93
AIM International Emerging Growth Fund -15.52% N/A N/A -25.21% 08/31/00
AIM Mid Cap Basic Value Fund N/A N/A N/A N/A 12/31/01
AIM New Technology Fund -46.22% N/A N/A -52.94% 08/31/00
AIM Select Equity Fund -29.89% 6.76% N/A 8.03% 09/01/93
AIM Small Cap Equity Fund 3.24% N/A N/A -2.18% 08/31/00
AIM Value Fund -17.95% 6.58% N/A 9.14% 10/18/93
AIM Value II Fund -22.84% N/A N/A -25.71% 08/31/00
AIM Worldwide Spectrum Fund -6.99% N/A N/A -5.98% 12/29/00
</Table>
L-4
The average annual total returns (after taxes on distributions and
including maximum applicable contingent deferred sales charge) for each Fund,
with respect to its Class C shares, for the one, five and ten year periods (or
since inception if less than ten years) ended December 31, 2001 are as follows:
<Table>
<Caption>
PERIODS ENDED
DECEMBER 31, 2001 SINCE INCEPTION
CLASS C SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
-------------- ------ ------- -------- --------- ---------
AIM Balanced Fund -13.54% N/A N/A 2.25% 08/04/97
AIM Basic Balanced Fund N/A N/A N/A 6.66% 09/28/01
AIM European Small Company Fund -22.92% N/A N/A -22.19% 08/31/00
AIM Global Utilities Fund -30.01% N/A N/A 1.62% 08/04/97
AIM International Emerging Growth Fund -11.96% N/A N/A -22.88% 08/31/00
AIM Mid Cap Basic Value Fund N/A N/A N/A N/A 12/31/01
AIM New Technology Fund -43.95% N/A N/A -51.48% 08/31/00
AIM Select Equity Fund -26.96% N/A N/A 3.02% 08/04/97
AIM Small Cap Equity Fund 7.14% N/A N/A 0.75% 08/31/00
AIM Value Fund -14.49% N/A N/A 2.90% 08/04/97
AIM Value II Fund -19.59% N/A N/A -23.40% 08/31/00
AIM Worldwide Spectrum Fund -3.07% N/A N/A -2.08% 12/29/00
</Table>
AVERAGE ANNUAL TOTAL RETURNS (AFTER TAXES ON DISTRIBUTIONS AND REDEMPTIONS)
The average annual total returns (after taxes on distributions and
redemption and including sales loads) for each Fund, with respect to its Class A
shares, for the one, five and ten year periods (or since inception if less than
ten years) ended December 31, 2001 are as follows:
<Table>
<Caption>
PERIODS ENDED
DECEMBER 31, 2001 SINCE INCEPTION
CLASS A SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
-------------- ------ ------- -------- --------- ---------
AIM Balanced Fund -9.47% 4.40% 7.80% -- 03/31/78
AIM Basic Balanced Fund N/A N/A N/A 1.70% 09/28/01
AIM European Small Company Fund -15.76% N/A N/A -19.73% 08/31/00
AIM Global Utilities Fund -19.51% 3.54% 5.03% -- 01/19/88
AIM International Emerging Growth Fund -9.36% N/A N/A -20.30% 08/31/00
AIM Mid Cap Basic Value Fund N/A N/A N/A N/A 12/31/01
AIM New Technology Fund -28.10% N/A N/A -41.38% 08/31/00
AIM Select Equity Fund -18.09% 6.67% 6.62% -- 12/04/67
AIM Small Cap Equity Fund 1.81% N/A N/A -2.20% 08/31/00
AIM Value Fund -10.81% 6.51% 10.07% -- 05/01/84
AIM Value II Fund -13.79% N/A N/A -20.61% 08/31/00
AIM Worldwide Spectrum Fund -4.20% N/A N/A -5.49% 12/29/00
</Table>
L-5
The average annual total returns (after taxes on distributions and
redemption and including maximum applicable contingent deferred sales charge)
for each Fund, with respect to its Class B shares, for the one, five and ten
year periods (or since inception if less than ten years) ended December 31, 2001
are as follows:
<Table>
<Caption>
PERIODS ENDED
DECEMBER 31, 2001 SINCE INCEPTION
CLASS B SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
-------------- ------ ------- -------- --------- ---------
AIM Balanced Fund -9.94% 4.46% N/A 6.58% 10/18/93
AIM Basic Balanced Fund N/A N/A N/A 1.68% 09/28/01
AIM European Small Company Fund -15.84% N/A N/A -19.34% 08/31/00
AIM Global Utilities Fund -19.59% 3.74% N/A 3.84% 09/01/93
AIM International Emerging Growth Fund -9.45% N/A N/A -19.96% 08/31/00
AIM Mid Cap Basic Value Fund N/A N/A N/A N/A 12/31/01
AIM New Technology Fund -28.15% N/A N/A -41.18% 08/31/00
AIM Select Equity Fund -18.18% 6.76% N/A 7.78% 09/01/93
AIM Small Cap Equity Fund 1.98% N/A N/A -1.74% 08/31/00
AIM Value Fund -10.89% 6.62% N/A 8.67% 10/18/93
AIM Value II Fund -13.90% N/A N/A -20.34% 08/31/00
AIM Worldwide Spectrum Fund -4.26% N/A N/A -4.78% 12/29/00
</Table>
The average annual total returns (after taxes on distributions and
redemption and including maximum applicable contingent deferred sales charge)
for each Fund, with respect to its Class C shares, for the one, five and ten
year periods (or since inception if less than ten years) ended December 31, 2001
are as follows:
<Table>
<Caption>
PERIODS ENDED
DECEMBER 31, 2001 SINCE INCEPTION
CLASS C SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
-------------- ------ ------- -------- --------- ---------
AIM Balanced Fund -7.83% N/A N/A 2.22% 08/04/97
AIM Basic Balanced Fund N/A N/A N/A 4.11% 09/28/01
AIM European Small Company Fund -13.96% N/A N/A -17.57% 08/31/00
AIM Global Utilities Fund -17.88% N/A N/A 2.44% 08/04/97
AIM International Emerging Growth Fund -7.28% N/A N/A -18.14% 08/31/00
AIM Mid Cap Basic Value Fund N/A N/A N/A N/A 12/31/01
AIM New Technology Fund -26.77% N/A N/A -40.09% 08/31/00
AIM Select Equity Fund -16.40% N/A N/A 3.73% 08/04/97
AIM Small Cap Equity Fund 4.35% N/A N/A 0.60% 08/31/00
AIM Value Fund -8.78% N/A N/A 3.63% 08/04/97
AIM Value II Fund -11.93% N/A N/A -18.54% 08/31/00
AIM Worldwide Spectrum Fund -1.87% N/A N/A -1.67% 12/29/00
</Table>
The yields for each of the named Funds are as follows:
<Table>
<Caption>
30 DAY YIELD AS OF
DECEMBER 31, 2001
CLASS A CLASS B CLASS C
------- ------- -------
AIM Balanced Fund 2.06% 1.45% 1.45%
AIM Basic Balanced Fund 0.98% 0.39% 0.39%
AIM Global Utilities Fund 1.74% 1.11% 1.11%
</Table>
L-6
FINANCIAL STATEMENTS
FS
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees and Shareholders of
AIM Balanced Fund:
In our opinion, the accompanying statement of assets and
liabilities, including the schedule of investments, and
the related statements of operations and of changes in
net assets and the financial highlights present fairly,
in all material respects, the financial position of the
AIM Balanced Fund (one of the funds constituting AIM
Funds Group; hereafter referred to as the "Fund") at
December 31, 2001, the results of its operations for the
year then ended, and the changes in its net assets and
the financial highlights for each of the two years in the
period then ended, in conformity with accounting
principles generally accepted in the United States of
America. These financial statements and financial
highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion
on these financial statements based on our audits. We
conducted our audits of these financial statements in
accordance with auditing standards generally accepted in
the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance
about whether the financial statements are free of
material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made
by management, and evaluating the overall financial
statement presentation. We believe that our audits, which
included confirmation of securities at December 31, 2001
by correspondence with the custodian and brokers, provide
a reasonable basis for our opinion. The financial
highlights for each of the periods ended on or before
December 31, 1999 were audited by other independent
accountants whose report, dated February 14, 2000,
expressed an unqualified opinion thereon.
/s/ PRICEWATERHOUSECOOPERS LLP
February 14, 2002
Houston, Texas
FS-1
SCHEDULE OF INVESTMENTS
December 31, 2001
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
BONDS & NOTES-29.27%
ALTERNATIVE CARRIERS-0.35%
Intermedia Communications Inc., Series B, Sr.
Unsec. Notes, 9.50%, 03/01/09 $ 5,475,000 $ 5,844,562
- ---------------------------------------------------------------------------
Sr. Unsec. Notes, 8.60%, 06/01/08 7,675,000 7,809,312
===========================================================================
13,653,874
===========================================================================
AUTOMOBILE MANUFACTURERS-0.18%
Ford Holdings, Inc., Unsec. Gtd. Unsub. Deb.,
9.30%, 03/01/30 6,000,000 6,554,460
- ---------------------------------------------------------------------------
Ford Motor Co., Unsec. Bonds, 6.50%, 08/01/18 850,000 753,406
===========================================================================
7,307,866
===========================================================================
BANKS-3.34%
Bank of America Corp., Sub. Notes, 9.38%,
09/15/09 7,851,000 9,191,951
- ---------------------------------------------------------------------------
Bank United-Series A, Medium Term Notes,
8.00%, 03/15/09 8,890,000 9,575,330
- ---------------------------------------------------------------------------
BankBoston N.A., Unsec. Sub. Notes, 7.00%,
09/15/07 5,750,000 6,132,375
- ---------------------------------------------------------------------------
Bayerische Landesbank Girozentrale, Unsec.
Sub. Notes, 6.38%, 10/15/05 650,000 678,307
- ---------------------------------------------------------------------------
BB&T Corp., RAPS Sub. Notes, 6.38%, 06/30/05 7,245,000 7,459,524
- ---------------------------------------------------------------------------
Dresdner Bank New York, Unsec. Sub. Deb.,
7.25%, 09/15/15 9,232,000 9,652,979
- ---------------------------------------------------------------------------
Firstar Bank N.A., Unsec. Sub. Notes, 7.13%,
12/01/09 8,200,000 8,592,698
- ---------------------------------------------------------------------------
Midland Bank PLC (United Kingdom), Unsec.
Putable Sub. Yankee Notes, 7.65%, 05/01/25 3,825,000 4,044,402
- ---------------------------------------------------------------------------
NBD Bank N.A. Michigan, Unsec. Putable Sub.
Deb., 8.25%, 11/01/24 16,150,000 18,612,390
- ---------------------------------------------------------------------------
Regions Financial Corp., Putable Sub. Notes,
7.75%, 09/15/24 6,300,000 6,567,120
- ---------------------------------------------------------------------------
Southtrust Bank, N.A., Sub. Notes, 6.13%,
01/09/28 8,600,000 8,365,822
- ---------------------------------------------------------------------------
St. Paul Bancorp, Inc., Sr. Unsec. Unsub.
Notes, 7.13%, 02/15/04 5,500,000 5,736,830
- ---------------------------------------------------------------------------
Suntrust Bank, Sub. Notes, 6.38%, 04/01/11 5,515,000 5,563,256
- ---------------------------------------------------------------------------
Swiss Bank Corp.-NY, Sub. Notes, 7.38%,
06/15/17 6,065,000 6,408,704
- ---------------------------------------------------------------------------
U.S. Bancorp, Unsec. Putable Sub. Deb.,
7.50%, 06/01/26 10,000,000 10,769,500
- ---------------------------------------------------------------------------
Wachovia Corp.,
Unsec. Putable Sub. Deb., 6.55%, 10/15/35 9,680,000 10,106,114
- ---------------------------------------------------------------------------
Unsec. Putable Sub. Deb., 7.50%, 04/15/35 3,300,000 3,521,826
- ---------------------------------------------------------------------------
Unsec. Sub. Notes, 6.25%, 08/04/08 800,000 811,544
===========================================================================
131,790,672
===========================================================================
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
BROADCASTING & CABLE TV-3.06%
AT&T Corp.-Liberty Media Corp., Sr. Unsec.
Notes, 7.88%, 07/15/09 $ 8,550,000 $ 8,721,598
- ---------------------------------------------------------------------------
Comcast Cable Communications, Unsec. Notes,
8.88%, 05/01/17 6,545,000 7,460,122
- ---------------------------------------------------------------------------
Continental Cablevision, Inc., Sr. Deb.,
9.50%, 08/01/13 14,000,000 15,983,660
- ---------------------------------------------------------------------------
Cox Enterprises, Inc., Notes, 8.00%, 02/15/07
(Acquired 02/16/00-03/23/00; Cost
$6,279,912)(a) 6,300,000 6,777,792
- ---------------------------------------------------------------------------
Lenfest Communications, Inc., Sr. Unsec. Sub.
Notes, 8.25%, 02/15/08 2,550,000 2,701,954
- ---------------------------------------------------------------------------
Shaw Communications Inc. (Canada), Sr. Unsec.
Unsub. Yankee Notes, 8.25%, 04/11/10 4,095,000 4,334,025
- ---------------------------------------------------------------------------
TCA Cable TV, Inc., Sr. Unsec. Deb., 6.53%,
02/01/28 4,350,000 4,442,133
- ---------------------------------------------------------------------------
TCI Communications, Inc., Sr. Unsec. Deb.,
8.75%, 08/01/15 2,100,000 2,335,683
- ---------------------------------------------------------------------------
Tele-Communications, Inc., Sr. Deb., 9.80%,
02/01/12 16,650,000 19,934,379
- ---------------------------------------------------------------------------
Time Warner Inc., Notes,
Notes, 8.18%, 08/15/07 6,965,000 7,796,551
- ---------------------------------------------------------------------------
Sr. Unsec. Gtd. Deb., 7.57%, 02/01/24 8,440,000 8,601,879
- ---------------------------------------------------------------------------
Unsec. Deb., 8.05%, 01/15/16 16,545,000 18,724,473
- ---------------------------------------------------------------------------
Unsec. Deb., 9.15%, 02/01/23 6,000,000 7,144,080
- ---------------------------------------------------------------------------
Turner Broadcasting System, Inc.-Class A, Sr.
Notes, 8.38%, 07/01/13 5,100,000 5,673,291
===========================================================================
120,631,620
===========================================================================
CASINOS & GAMING-0.08%
MGM Mirage Inc., Sr. Unsec. Gtd. Notes,
8.50%, 09/15/10 3,000,000 3,083,790
===========================================================================
COMPUTER HARDWARE-0.05%
Candescent Technologies Corp.,
Sr. Conv. Unsec. Gtd. Sub. Deb., 8.00%,
05/01/03 (Acquired 03/07/00-04/19/01;
Cost $2,933,500)(a)(b)(c) 5,275,000 448,375
- ---------------------------------------------------------------------------
Sr. Conv. Unsec. Gtd. Sub. Deb., 8.00%,
05/01/03 (Acquired 04/17/98-04/19/01;
Cost $16,289,250)(a)(b)(c) 19,737,000 1,677,645
===========================================================================
2,126,020
===========================================================================
CONSUMER FINANCE-1.94%
Capital One Financial Corp., Unsec. Notes,
7.25%, 05/01/06 10,020,000 9,718,198
- ---------------------------------------------------------------------------
CitiFinancial Credit Co.,
Putable Notes, 6.63%, 06/01/15 3,125,000 3,180,469
- ---------------------------------------------------------------------------
Unsec. Putable Notes, 7.88%, 02/01/25 5,865,000 6,376,428
- ---------------------------------------------------------------------------
Ford Motor Credit Co.,
Notes, 7.88%, 06/15/10 13,215,000 13,467,274
- ---------------------------------------------------------------------------
Unsec. Notes, 6.88%, 02/01/06 5,100,000 5,096,583
- ---------------------------------------------------------------------------
Unsec. Notes, 7.38%, 10/28/09 7,305,000 7,228,371
- ---------------------------------------------------------------------------
</Table>
FS-2
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
CONSUMER FINANCE-(CONTINUED)
General Motors Acceptance Corp., Bonds,
8.00%, 11/01/31 $11,640,000 $ 11,765,130
- ---------------------------------------------------------------------------
Putable Notes, 9.00%, 10/15/02 4,175,000 4,343,461
- ---------------------------------------------------------------------------
Unsec. Unsub. Notes, 7.75%, 01/19/10 750,000 777,412
- ---------------------------------------------------------------------------
Household Finance Corp., Unsec. Notes, 8.00%,
07/15/10 13,280,000 14,409,597
===========================================================================
76,362,923
===========================================================================
DISTILLERS & VINTNERS-0.11%
Grand Metropolitan Investment Corp, Gtd.
Putable Bonds, 7.45%, 04/15/35 4,000,000 4,280,600
===========================================================================
DIVERSIFIED FINANCIAL SERVICES-3.69%
AIG SunAmerica Global Financing VI, Sr. Sec.
Notes, 6.30%, 05/10/11 (Acquired 05/24/01;
Cost $7,151,739)(a) 7,225,000 7,366,899
- ---------------------------------------------------------------------------
AIG SunAmerica Global Financing VII, Notes,
5.85%, 08/01/08 (Acquired 08/21/01-
08/22/01; Cost $13,141,722)(a) 13,115,000 13,267,265
- ---------------------------------------------------------------------------
Associates Corp. of North America, Sr. Deb.,
6.95%, 11/01/18 18,815,000 19,557,628
- ---------------------------------------------------------------------------
Auburn Hills Trust, Gtd. Deb., 12.00%,
05/01/20 7,805,000 10,868,775
- ---------------------------------------------------------------------------
Bear Stearns Cos., Inc., Notes, 7.80%,
08/15/07 4,350,000 4,676,293
- ---------------------------------------------------------------------------
Citigroup Inc., Unsec. Sub. Notes, 7.25%,
10/01/10 1,570,000 1,675,834
- ---------------------------------------------------------------------------
FMR Corp., Bonds, 7.57%, 06/15/29 (Acquired
04/10/01-09/28/01; Cost $9,029,603)(a) 8,605,000 9,297,272
- ---------------------------------------------------------------------------
General Electric Capital Corp., Gtd. Sub.
Notes, 8.13%, 05/15/12 6,425,000 7,374,101
- ---------------------------------------------------------------------------
Heller Financial, Inc., Unsec. Notes, 7.38%,
11/01/09 23,150,000 25,362,214
- ---------------------------------------------------------------------------
Lehman Brothers Holdings Inc., Sr. Bonds,
7.88%, 08/15/10 5,955,000 6,501,967
- ---------------------------------------------------------------------------
Morgan Stanley Dean Witter & Co., Unsec.
Unsub. Bonds, 6.75%, 04/15/11 6,950,000 7,182,964
- ---------------------------------------------------------------------------
National Rural Utilities Cooperative Finance
Corp., Sr. Notes, 6.00%, 05/15/06 7,100,000 7,226,167
- ---------------------------------------------------------------------------
Pinnacle Partners, Sr. Notes, 8.83%, 08/15/04
(Acquired 08/02/00; Cost $7,000,000)(a) 7,000,000 7,160,580
- ---------------------------------------------------------------------------
Qwest Capital Funding Inc.,
Gtd. Unsec. Notes, 7.63%, 08/03/21 9,000,000 8,469,540
- ---------------------------------------------------------------------------
Unsec. Gtd. Notes, 6.88%, 07/15/28 435,000 362,746
- ---------------------------------------------------------------------------
Tyco Capital Corp. (The) (Bermuda),
Notes, 6.50%, 02/07/06 2,160,000 2,236,205
- ---------------------------------------------------------------------------
Sr. Medium Term Notes, 5.91%, 11/23/05 6,800,000 6,904,856
===========================================================================
145,491,306
===========================================================================
ELECTRIC UTILITIES-3.54%
Arizona Public Service Co., Unsec. Notes,
6.25%, 01/15/05 5,000,000 5,065,050
- ---------------------------------------------------------------------------
CE Generation LLC, Sr. Sec. Sub. Notes,
7.42%, 12/15/18 7,351,500 6,491,595
- ---------------------------------------------------------------------------
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
ELECTRIC UTILITIES-(CONTINUED)
CILCORP, Inc., Sr. Unsec. Bonds, 9.38%,
10/15/29 $ 9,000,000 $ 8,899,470
- ---------------------------------------------------------------------------
Cleveland Electric Illuminating Co. (The),
First Mortgage Bonds, 6.86%, 10/01/08 6,080,000 6,086,566
- ---------------------------------------------------------------------------
Series D, Sec. Notes, 7.88%, 11/01/17 7,300,000 7,501,699
- ---------------------------------------------------------------------------
CMS Panhandle Holding Co., Sr. Notes, 6.13%,
03/15/04 6,600,000 6,663,162
- ---------------------------------------------------------------------------
Commonwealth Edison Co.,
Series 92, First Mortgage Bonds, 7.63%,
04/15/13 4,000,000 4,223,200
- ---------------------------------------------------------------------------
Series 94, First Mortgage Notes, 7.50%,
07/01/13 9,300,000 9,772,998
- ---------------------------------------------------------------------------
Dominion Resources, Inc.-Series A, Sr. Unsec.
Unsub. Notes, 8.13%, 06/15/10 450,000 493,960
- ---------------------------------------------------------------------------
El Paso Electric Co.,
Series D, Sec. First Mortgage Bonds, 8.90%,
02/01/06 13,570,000 14,700,245
- ---------------------------------------------------------------------------
Series E, Sec. First Mortgage Bonds, 9.40%,
05/01/11 5,438,000 5,766,999
- ---------------------------------------------------------------------------
Empire District Electric Co. (The), Sr.
Notes, 7.70%, 11/15/04 8,550,000 9,129,262
- ---------------------------------------------------------------------------
Indiana Michigan Power Co.-Series C, Sr.
Unsec. Notes, 6.13%, 12/15/06 5,700,000 5,657,820
- ---------------------------------------------------------------------------
Kincaid Generation LLC, Sec. Bonds, 7.33%,
06/15/20 (Acquired 04/30/98; Cost
$3,346,223)(a) 3,337,978 3,110,495
- ---------------------------------------------------------------------------
Mirant Corp., Sr. Notes, 7.90%, 07/15/09
(Acquired 02/11/00-09/28/01; Cost
$4,071,299)(a) 4,105,000 3,663,713
- ---------------------------------------------------------------------------
Niagara Mohawk Holdings Inc., First Mortgage
Notes, 7.75%, 05/15/06 3,700,000 3,956,040
- ---------------------------------------------------------------------------
Niagara Mohawk Power Corp.-Series H, Sr.
Unsec. Disc. Notes, 8.50%, 07/01/10(d) 11,900,000 10,891,951
- ---------------------------------------------------------------------------
NRG Energy, Inc., Sr. Unsec. Notes, 7.75%,
04/01/11 8,450,000 8,129,576
- ---------------------------------------------------------------------------
Panhandle Eastern Pipe Line, Notes, 7.88%,
08/15/04 1,500,000 1,565,535
- ---------------------------------------------------------------------------
Public Service Company of New Mexico- Series
A, Sr. Unsec. Notes, 7.10%, 08/01/05 7,850,000 8,072,626
- ---------------------------------------------------------------------------
Sutton Bridge Financing Ltd. (United
Kingdom), Gtd. Euro Bonds, 8.63%,
06/30/22(e) GBP 3,000,000 4,649,059
- ---------------------------------------------------------------------------
Texas-New Mexico Power Co., Sr. Sec. Notes,
6.25%, 01/15/09 5,800,000 5,252,190
===========================================================================
139,743,211
===========================================================================
GAS UTILITIES-0.84%
National Fuel Gas Co.-Series D, Medium Term
Notes, 6.30%, 05/27/08 8,600,000 8,405,726
- ---------------------------------------------------------------------------
Northern Border Partners, L.P., Sr. Unsec.
Gtd. Notes, 7.10%, 03/15/11 3,500,000 3,408,720
- ---------------------------------------------------------------------------
Nova Gas Transmission Ltd. (Canada), Yankee
Deb., 8.50%, 12/15/12 5,015,000 5,607,372
- ---------------------------------------------------------------------------
ONEOK, Inc., Unsec. Notes, 7.75%, 08/15/06 3,100,000 3,321,340
- ---------------------------------------------------------------------------
</Table>
FS-3
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
GAS UTILITIES-(CONTINUED)
Tennessee Gas Pipeline Co., Unsec. Deb.,
7.63%, 04/01/37 $11,000,000 $ 10,341,870
- ---------------------------------------------------------------------------
Westcoast Energy Inc. (Canada)-Series V,
Unsec. Deb., 6.45%, 12/18/06(e) CAD 3,000,000 1,987,114
===========================================================================
33,072,142
===========================================================================
INDUSTRIAL CONGLOMERATES-0.03%
Vodafone Finance B.V. (Netherlands), Unsec.
Unsub. Gtd. Euro Bonds, 4.75%,
05/27/09(e) EUR 1,300,000 1,100,895
===========================================================================
INTEGRATED OIL & GAS-1.02%
El Paso CGP Co., Sr. Putable Unsec. Deb.,
6.70%, 02/15/27 18,900,000 18,830,637
- ---------------------------------------------------------------------------
Occidental Petroleum Corp., Sr. Unsec. Notes,
7.38%, 11/15/08 7,360,000 7,653,885
- ---------------------------------------------------------------------------
7.65%, 02/15/06 2,635,000 2,807,276
- ---------------------------------------------------------------------------
Petro-Canada (Canada), Yankee Deb., 9.25%,
10/15/21 9,300,000 11,153,211
===========================================================================
40,445,009
===========================================================================
INTEGRATED TELECOMMUNICATION SERVICES-0.73%
AT&T Canada Inc. (Canada),
Sr. Disc. Yankee Notes, 9.95%, 06/15/08(d) 6,000,000 2,955,000
- ---------------------------------------------------------------------------
Sr. Unsec. Sub. Yankee Notes, 7.63%,
03/15/05 10,100,000 6,527,125
- ---------------------------------------------------------------------------
Sr. Unsec. Unsub. Notes, 7.15%,
09/23/04(e) CAD 1,200,000 491,958
- ---------------------------------------------------------------------------
Sr. Unsec. Yankee Notes, 7.65%, 09/15/06 5,200,000 3,308,500
- ---------------------------------------------------------------------------
MCI Communications Corp., Sr. Unsec. Putable
Deb., 7.13%, 06/15/27 3,650,000 3,792,898
- ---------------------------------------------------------------------------
Olivetti International Finance N.V.-Series E
(Netherlands), Gtd. Medium Term Euro Notes,
6.13%, 07/30/09(e) EUR 3,210,000 2,787,268
- ---------------------------------------------------------------------------
Sprint Corp., Deb., 9.00%, 10/15/19 2,200,000 2,352,570
- ---------------------------------------------------------------------------
Teleglobe Canada Inc. (Canada), Unsec. Deb.,
8.35%, 06/20/03(e) CAD 1,000,000 575,867
- ---------------------------------------------------------------------------
TELUS Corp. (Canada), Yankee Notes, 8.00%,
06/01/11 5,385,000 5,694,691
- ---------------------------------------------------------------------------
WorldCom, Inc.-WorldCom Group, Notes, 8.00%,
05/15/06 345,000 368,774
===========================================================================
28,854,651
===========================================================================
LIFE & HEALTH INSURANCE-1.32%
American General Corp.,
Sr. Notes, 6.63%, 02/15/29 7,030,000 6,941,492
- ---------------------------------------------------------------------------
Unsec. Notes, 7.50%, 07/15/25 4,395,000 4,804,966
- ---------------------------------------------------------------------------
American General Finance Corp.,
Sr. Putable Notes, 8.45%, 10/15/09 14,860,000 16,794,178
- ---------------------------------------------------------------------------
Sr. Unsec. Putable Notes, 8.13%, 08/15/09 7,205,000 7,987,823
- ---------------------------------------------------------------------------
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
LIFE & HEALTH INSURANCE-(CONTINUED)
Prudential Funding, LLC, Medium Term Notes,
6.60%, 05/15/08 (Acquired 05/09/01; Cost
$2,097,564)(a) $ 2,100,000 $ 2,133,180
- ---------------------------------------------------------------------------
Sun Canada Financial Co., Gtd. Sub. Bonds,
6.63%, 12/15/07 (Acquired 10/14/99; Cost
$1,402,095)(a) 1,500,000 1,472,793
- ---------------------------------------------------------------------------
Torchmark Corp., Notes,
7.38%, 08/01/13 3,000,000 2,998,260
- ---------------------------------------------------------------------------
7.88%, 05/15/23 9,200,000 9,145,628
===========================================================================
52,278,320
===========================================================================
MANAGED HEALTH CARE-0.26%
Wellpoint Health Networks Inc., Sr. Unsec.
Notes, 6.38%, 06/15/06 10,000,000 10,177,600
===========================================================================
MULTI-UTILITIES-0.76%
Dynegy-Roseton Danskamme, Gtd. Pass Through
Ctfs., 7.67%, 11/08/16 11,500,000 9,401,250
- ---------------------------------------------------------------------------
UtiliCorp United Inc., Sr. Unsec. Putable
Notes, 6.70%, 10/15/06 6,350,000 6,382,766
- ---------------------------------------------------------------------------
Williams Cos., Inc. (The), Sr. Unsec. PATS,
6.75%, 01/15/06 5,525,000 5,530,194
- ---------------------------------------------------------------------------
Williams Gas Pipeline Central Inc., Sr.
Notes, 7.38%, 11/15/06 (Acquired 02/15/01;
Cost $8,572,240)(a) 8,300,000 8,562,944
===========================================================================
29,877,154
===========================================================================
OIL & GAS-0.18%
Canadian Oil Sands Ltd., (Canada) Sr. Notes,
7.90%, 09/01/21 (Acquired 08/17/01; Cost
$7,162,659)(a) 7,175,000 7,171,484
===========================================================================
OIL & GAS DRILLING-0.29%
Global Marine Inc., Sr. Unsec. Notes, 7.13%,
09/01/07 11,100,000 11,440,104
===========================================================================
OIL & GAS EQUIPMENT & SERVICES-0.71%
Dynegy Holdings Inc., Sr. Unsec. Unsub.
Notes, 6.88%, 04/01/11 6,160,000 5,128,200
- ---------------------------------------------------------------------------
Kinder Morgan Energy Partners, L.P., Sr.
Unsec. Notes, 6.30%, 02/01/09 8,400,000 8,230,404
- ---------------------------------------------------------------------------
Kinder Morgan, Inc., Unsec. Putable Deb.,
7.35%, 08/01/26 7,800,000 8,318,154
- ---------------------------------------------------------------------------
National-Oilwell, Inc., Sr. Unsec. Notes,
6.50%, 03/15/11 2,750,000 2,689,088
- ---------------------------------------------------------------------------
Smith International, Inc., Notes, 6.75%,
02/15/11 3,750,000 3,649,088
===========================================================================
28,014,934
===========================================================================
OIL & GAS EXPLORATION & PRODUCTION-1.39%
Anadarko Petroleum Corp., Unsec. Putable
Deb., 7.73%, 09/15/26 8,250,000 8,706,225
- ---------------------------------------------------------------------------
Anderson Exploration Ltd. (Canada), Unsec.
Sub. Yankee Notes, 6.75%, 03/15/11 7,075,000 6,850,793
- ---------------------------------------------------------------------------
Canadian Natural Resources Ltd. (Canada),
Unsec. Yankee Notes, 6.70%, 07/15/11 6,850,000 6,696,081
- ---------------------------------------------------------------------------
</Table>
FS-4
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
OIL & GAS EXPLORATION & PRODUCTION-(CONTINUED)
Devon Financing Corp., Unsec. Gtd. Deb.,
7.88%, 09/30/31 (Acquired 09/28/01-
11/01/01; Cost $12,389,639)(a) $12,265,000 $ 12,448,852
- ---------------------------------------------------------------------------
Louis Dreyfus Natural Gas Corp., Unsec.
Notes, 6.88%, 12/01/07 6,470,000 6,578,308
- ---------------------------------------------------------------------------
Nexen Inc. (Canada), Unsec. Unsub. Yankee
Notes, 7.40%, 05/01/28 10,400,000 9,675,016
- ---------------------------------------------------------------------------
Noble Affiliates Inc., Sr. Unsec. Deb.,
7.25%, 08/01/97 2,600,000 2,212,756
- ---------------------------------------------------------------------------
Talisman Energy Inc. (Canada), Unsec. Unsub.
Yankee Deb., 7.13%, 06/01/07 1,500,000 1,539,945
===========================================================================
54,707,976
===========================================================================
OIL & GAS REFINING & MARKETING-0.55%
Petroleos Mexicanos (Mexico), Series P,
Unsec. Putable Unsub. Yankee Notes, 9.50%,
09/15/27 14,025,000 15,157,519
- ---------------------------------------------------------------------------
Sr. Unsec. Gtd. Yankee Bonds, 9.38%,
12/02/08 6,295,000 6,716,765
===========================================================================
21,874,284
===========================================================================
PACKAGED FOODS-0.35%
ConAgra, Inc., Sr. Unsec. Putable Notes,
7.13%, 10/01/26 12,755,000 13,667,110
===========================================================================
PHARMACEUTICALS-0.37%
Johnson & Johnson, Unsec. Deb., 6.95%,
09/01/29 5,080,000 5,414,264
- ---------------------------------------------------------------------------
Merck & Co., Inc., Unsec. Deb.,
5.95%, 12/01/28 4,255,000 4,023,017
- ---------------------------------------------------------------------------
6.40%, 03/01/28 5,080,000 5,094,783
===========================================================================
14,532,064
===========================================================================
PROPERTY & CASUALTY INSURANCE-0.91%
Allstate Financial Global Funding, Notes,
6.50%, 06/14/11 (Acquired 06/07/01; Cost
$11,297,688)(a) 11,315,000 11,476,578
- ---------------------------------------------------------------------------
Florida Windstorm Underwriting Association-
Series 1999A, Sr. Sec. Notes, 7.13%,
02/25/19 (Acquired 04/25/01-05/03/01; Cost
$14,660,688)(a) 14,635,000 14,970,727
- ---------------------------------------------------------------------------
Terra Nova Insurance (United Kingdom)
Holding, Sr. Unsec. Gtd. Yankee Notes,
7.00%, 05/15/08 2,350,000 2,089,197
- ---------------------------------------------------------------------------
7.20%, 08/15/07 7,000,000 6,461,840
- ---------------------------------------------------------------------------
Travelers Property Casualty Corp., Sr. Unsec.
Notes, 6.75%, 11/15/06 700,000 732,725
===========================================================================
35,731,067
===========================================================================
PUBLISHING & PRINTING-0.70%
News America Holdings, Inc.,
Notes, 8.45%, 08/01/34 3,325,000 3,582,122
- ---------------------------------------------------------------------------
Sr. Gtd. Deb., 9.25%, 02/01/13 8,250,000 9,498,555
- ---------------------------------------------------------------------------
Sr. Unsec. Gtd. Putable Bonds, 7.43%,
10/01/26 4,950,000 5,165,375
- ---------------------------------------------------------------------------
Unsec. Deb., 7.75%, 01/20/24 9,450,000 9,303,242
===========================================================================
27,549,294
===========================================================================
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
RAILROADS-0.56%
Consolidated Rail Corp., Deb., 9.75%,
06/15/20 $ 9,300,000 $ 11,508,006
- ---------------------------------------------------------------------------
Norfolk Southern Corp., Notes, 7.05%,
05/01/37 10,000,000 10,582,300
===========================================================================
22,090,306
===========================================================================
REAL ESTATE INVESTMENT TRUSTS-0.38%
ERP Operating L.P., Unsec. Notes, 7.13%,
10/15/17 3,250,000 3,047,590
- ---------------------------------------------------------------------------
Spieker Properties LP, Unsec. Deb., 7.50%,
10/01/27 7,800,000 7,489,950
- ---------------------------------------------------------------------------
Spieker Properties, Inc., Unsec. Unsub. Deb.,
7.35%, 12/01/17 4,600,000 4,439,644
===========================================================================
14,977,184
===========================================================================
REINSURANCE-0.43%
GE Global Insurance Holdings Corp., Unsec.
Notes, 7.75%, 06/15/30 15,225,000 17,112,291
===========================================================================
SOVEREIGN DEBT-0.52%
British Columbia (Province of) (Canada),
Unsec. Unsub. Yankee Notes, 5.38%, 10/29/08 2,750,000 2,740,045
- ---------------------------------------------------------------------------
Hydro-Quebec-Series B (Canada), Gtd. Medium
Term Yankee Notes, 8.62%, 12/15/11 5,000,000 5,948,350
- ---------------------------------------------------------------------------
Manitoba (Province of) (Canada)- Series EM,
Unsec. Unsub. Yankee Notes, 7.50%, 02/22/10 700,000 790,653
- ---------------------------------------------------------------------------
Ontario (Province of) (Canada), Sr. Unsec.
Unsub. Notes, 5.50%, 10/01/08 5,800,000 5,822,910
- ---------------------------------------------------------------------------
Quebec (Province of) (Canada), Yankee Deb.,
7.50%, 07/15/23 4,810,000 5,323,997
===========================================================================
20,625,955
===========================================================================
TELECOMMUNICATIONS EQUIPMENT-0.59%
Nortel Networks Corp. (Canada), Sr. Conv.
Unsec. Gtd. Yankee Notes, 4.25%, 09/01/08
(Acquired 08/09/01-08/15/01; Cost
$24,152,979)(a) 24,000,000 23,220,000
===========================================================================
WIRELESS TELECOMMUNICATION SERVICES-0.04%
Bell Mobility Cellular Inc. (Canada), Unsec.
Deb., 6.55%, 06/02/08(e) CAN 2,500,000 1,615,827
===========================================================================
Bonds & Notes (Cost $1,170,346,448) 1,154,607,533
===========================================================================
<Caption>
SHARES
STOCKS & OTHER EQUITY INTERESTS-56.24%
ADVERTISING-2.55%
Interpublic Group of Cos., Inc. (The) 810,000 23,927,400
- ---------------------------------------------------------------------------
Lamar Advertising Co.(f) 908,000 38,444,720
- ---------------------------------------------------------------------------
Omnicom Group Inc. 426,000 38,063,100
===========================================================================
100,435,220
===========================================================================
AEROSPACE & DEFENSE-0.62%
United Technologies Corp. 379,600 24,533,548
===========================================================================
</Table>
FS-5
<Table>
<Caption>
MARKET
SHARES VALUE
BANKS-1.74%
Bank of New York Co., Inc. (The) 603,000 $ 24,602,400
- ---------------------------------------------------------------------------
Mellon Financial Corp. 397,300 14,946,426
- ---------------------------------------------------------------------------
PNC Financial Services Group 516,700 29,038,540
===========================================================================
68,587,366
===========================================================================
BIOTECHNOLOGY-1.00%
Genzyme Corp.(f) 660,700 39,549,502
===========================================================================
BROADCASTING & CABLE TV-1.84%
Clear Channel Communications, Inc.(f) 450,000 22,909,500
- ---------------------------------------------------------------------------
Hispanic Broadcasting Corp.(f) 615,800 15,702,900
- ---------------------------------------------------------------------------
Univision Communications Inc.-Class A(f) 842,600 34,091,596
===========================================================================
72,703,996
===========================================================================
COMPUTER STORAGE & PERIPHERALS-0.28%
EMC Corp.(f) 827,000 11,114,880
===========================================================================
CONSTRUCTION & ENGINEERING-0.47%
Quanta Services, Inc.(f) 1,210,000 18,670,300
===========================================================================
DATA PROCESSING SERVICES-1.03%
Concord EFS, Inc.(f) 626,400 20,533,392
- ---------------------------------------------------------------------------
DST Systems, Inc.(f) 402,000 20,039,700
===========================================================================
40,573,092
===========================================================================
DIVERSIFIED FINANCIAL SERVICES-6.38%
American Express Co. 306,000 10,921,140
- ---------------------------------------------------------------------------
Citigroup Inc. 1,421,433 71,753,938
- ---------------------------------------------------------------------------
Fannie Mae 251,800 20,018,100
- ---------------------------------------------------------------------------
Freddie Mac 325,900 21,313,860
- ---------------------------------------------------------------------------
Goldman Sachs Group, Inc. (The) 229,600 21,295,400
- ---------------------------------------------------------------------------
J.P. Morgan Chase & Co. 430,300 15,641,405
- ---------------------------------------------------------------------------
Merrill Lynch & Co., Inc. 653,000 34,034,360
- ---------------------------------------------------------------------------
Morgan Stanley Dean Witter & Co. 445,600 24,926,864
- ---------------------------------------------------------------------------
State Street Corp. 297,900 15,565,275
- ---------------------------------------------------------------------------
Waddell & Reed Financial, Inc.-Class A 499,000 16,067,800
===========================================================================
251,538,142
===========================================================================
ELECTRIC UTILITIES-1.10%
AES Corp. (The)(f) 541,000 8,845,350
- ---------------------------------------------------------------------------
Calpine Corp.(f) 896,000 15,043,840
- ---------------------------------------------------------------------------
Duke Energy Corp. 358,000 14,055,080
- ---------------------------------------------------------------------------
Mirant Corp.(f) 331,390 5,308,868
===========================================================================
43,253,138
===========================================================================
ELECTRONIC EQUIPMENT & INSTRUMENTS-0.43%
Sanmina-SCI Corp.(f) 852,700 16,968,730
===========================================================================
FOOD RETAIL-0.51%
Safeway Inc.(f) 477,500 19,935,625
===========================================================================
GAS UTILITIES-0.35%
El Paso Corp. 314,000 14,007,540
===========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
GENERAL MERCHANDISE STORES-2.49%
BJ's Wholesale Club, Inc.(f) 415,600 $ 18,327,960
- ---------------------------------------------------------------------------
Target Corp. 1,011,300 41,513,865
- ---------------------------------------------------------------------------
Wal-Mart Stores, Inc. 669,000 38,500,950
===========================================================================
98,342,775
===========================================================================
HEALTH CARE DISTRIBUTORS & SERVICES-0.52%
Cardinal Health, Inc. 319,500 20,658,870
===========================================================================
HEALTH CARE EQUIPMENT-0.83%
Baxter International Inc. 610,800 32,757,204
===========================================================================
HEALTH CARE FACILITIES-1.13%
HCA Inc. 576,000 22,199,040
- ---------------------------------------------------------------------------
Tenet Healthcare Corp.(f) 381,000 22,372,320
===========================================================================
44,571,360
===========================================================================
HOME IMPROVEMENT RETAIL-1.56%
Home Depot, Inc. (The) 728,300 37,150,583
- ---------------------------------------------------------------------------
Lowe's Cos., Inc. 527,300 24,471,993
===========================================================================
61,622,576
===========================================================================
HOTELS-0.00%
Wyndham International, Inc. Voting Trust
(Acquired 08/27/99-12/04/01; Cost
$275,189)(a)(c) 3,167 103,233
===========================================================================
INDUSTRIAL CONGLOMERATES-3.01%
General Electric Co. 1,820,800 72,977,664
- ---------------------------------------------------------------------------
Tyco International Ltd. (Bermuda) 775,700 45,688,730
===========================================================================
118,666,394
===========================================================================
INSURANCE BROKERS-0.84%
Marsh & McLennan Cos., Inc. 307,800 33,073,110
===========================================================================
INTEGRATED OIL & GAS-1.67%
ChevronTexaco Corp. 282,400 25,305,864
- ---------------------------------------------------------------------------
Exxon Mobil Corp. 687,900 27,034,470
- ---------------------------------------------------------------------------
TotalFinaElf S.A. (France) 93,700 13,402,539
===========================================================================
65,742,873
===========================================================================
INTEGRATED TELECOMMUNICATION SERVICES-3.28%
BellSouth Corp. 737,300 28,127,995
- ---------------------------------------------------------------------------
Cypress Communications, Inc. Voting Trust
(Acquired 01/05/00; Cost $45,180)(a)(c)(f) 1,070 1,284
- ---------------------------------------------------------------------------
Qwest Communications International Inc. 725,040 10,244,815
- ---------------------------------------------------------------------------
SBC Communications Inc. 850,700 33,321,919
- ---------------------------------------------------------------------------
Telecom Italia S.p.A. (Italy) 2,642,300 14,137,626
- ---------------------------------------------------------------------------
Telefonica, S.A. (Spain)(f) 1,296,993 17,383,600
- ---------------------------------------------------------------------------
Verizon Communications Inc. 552,900 26,240,634
===========================================================================
129,457,873
===========================================================================
INTERNET SOFTWARE & SERVICES-0.89%
Check Point Software Technologies Ltd.
(Israel)(f) 621,000 24,771,690
- ---------------------------------------------------------------------------
</Table>
FS-6
<Table>
<Caption>
MARKET
SHARES VALUE
INTERNET SOFTWARE & SERVICES-(CONTINUED)
VeriSign, Inc.(f) 272,500 $ 10,365,900
===========================================================================
35,137,590
===========================================================================
IT CONSULTING & SERVICES-0.66%
SunGard Data Systems Inc.(f) 896,100 25,924,173
===========================================================================
LIFE & HEALTH INSURANCE-0.97%
AFLAC, Inc. 531,500 13,053,640
- ---------------------------------------------------------------------------
Prudential Financial, Inc.(f) 270,900 8,991,171
- ---------------------------------------------------------------------------
Sun Life Financial Services of Canada
(Canada) 756,800 16,143,101
===========================================================================
38,187,912
===========================================================================
MANAGED HEALTH CARE-0.32%
Anthem, Inc.(f) 253,300 12,538,350
===========================================================================
MOVIES & ENTERTAINMENT-1.40%
AOL Time Warner Inc.(f) 647,300 20,778,330
- ---------------------------------------------------------------------------
Viacom Inc.-Class B(f) 783,659 34,598,545
===========================================================================
55,376,875
===========================================================================
MULTI-LINE INSURANCE-1.82%
American International Group, Inc. 554,960 44,063,824
- ---------------------------------------------------------------------------
Hartford Financial Services Group, Inc. (The) 439,000 27,582,370
===========================================================================
71,646,194
===========================================================================
MULTI-UTILITIES-0.58%
Dynegy Inc.-Class A 321,000 8,185,500
- ---------------------------------------------------------------------------
Williams Cos., Inc. (The) 575,000 14,674,000
===========================================================================
22,859,500
===========================================================================
NETWORKING EQUIPMENT-0.77%
Cisco Systems, Inc.(f) 1,671,200 30,265,432
===========================================================================
OIL & GAS EXPLORATION & PRODUCTION-1.45%
Anadarko Petroleum Corp. 189,000 10,744,650
- ---------------------------------------------------------------------------
Apache Corp. 235,400 11,741,752
- ---------------------------------------------------------------------------
EOG Resources, Inc. 299,600 11,717,356
- ---------------------------------------------------------------------------
Kerr-McGee Corp. 156,700 8,587,160
- ---------------------------------------------------------------------------
Kerr-McGee Corp.-$1.83 Pfd. DECS 390,000 14,478,750
===========================================================================
57,269,668
===========================================================================
PACKAGED FOODS-0.41%
Kraft Foods, Inc.-Class A 480,700 16,358,221
===========================================================================
PHARMACEUTICALS-6.27%
Abbott Laboratories 564,000 31,443,000
- ---------------------------------------------------------------------------
Allergan, Inc. 324,000 24,316,200
- ---------------------------------------------------------------------------
American Home Products Corp. 306,600 18,812,976
- ---------------------------------------------------------------------------
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
PHARMACEUTICALS-(CONTINUED)
Bristol-Myers Squibb Co. 377,000 $ 19,227,000
- ---------------------------------------------------------------------------
Johnson & Johnson 598,200 35,353,620
- ---------------------------------------------------------------------------
Medicis Pharmaceutical Corp.-Class A(f) 314,800 20,332,932
- ---------------------------------------------------------------------------
Merck & Co., Inc. 409,800 24,096,240
- ---------------------------------------------------------------------------
Pfizer Inc. 1,057,100 42,125,435
- ---------------------------------------------------------------------------
Pharmacia Corp. 745,900 31,812,635
===========================================================================
247,520,038
===========================================================================
PROPERTY & CASUALTY INSURANCE-0.50%
MGIC Investment Corp. 322,000 19,873,840
===========================================================================
SEMICONDUCTOR EQUIPMENT-0.27%
Applied Materials, Inc.(f) 270,000 10,827,000
===========================================================================
SEMICONDUCTORS-2.23%
Analog Devices, Inc.(f) 688,300 30,553,637
- ---------------------------------------------------------------------------
Intel Corp. 1,146,700 36,063,715
- ---------------------------------------------------------------------------
Texas Instruments Inc. 760,700 21,299,600
===========================================================================
87,916,952
===========================================================================
SPECIALTY STORES-0.89%
Bed Bath & Beyond Inc.(f) 1,032,500 35,001,750
===========================================================================
SYSTEMS SOFTWARE-1.56%
Microsoft Corp.(f) 605,900 40,152,993
- ---------------------------------------------------------------------------
Oracle Corp.(f) 1,536,800 21,223,208
===========================================================================
61,376,201
===========================================================================
TELECOMMUNICATIONS EQUIPMENT-0.98%
Comverse Technology, Inc.(f) 614,000 13,735,180
- ---------------------------------------------------------------------------
JDS Uniphase Corp.(f) 664,520 5,801,260
- ---------------------------------------------------------------------------
Nokia Oyj-ADR (Finland) 775,000 19,010,750
===========================================================================
38,547,190
===========================================================================
WIRELESS TELECOMMUNICATION SERVICES-0.64%
NTT DoCoMo, Inc. (Japan) (Acquired
06/14/00-12/01/00; Cost $23,665,238)(a) 844 9,871,345
- ---------------------------------------------------------------------------
Vodafone Group PLC (United Kingdom) 5,907,285 15,460,310
===========================================================================
25,331,655
===========================================================================
Total Stocks & Other Equity Interests
(Cost $2,055,551,650) 2,218,825,888
===========================================================================
<Caption>
PRINCIPAL
AMOUNT
U.S. TREASURY SECURITIES-3.92%
U.S. TREASURY NOTES-3.19%
6.75%, 05/15/05 $24,900,000 27,088,959
- ---------------------------------------------------------------------------
</Table>
FS-7
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
U.S. TREASURY NOTES-(CONTINUED)
6.50%, 08/15/05 to 10/15/06(g) $27,700,000 $ 30,127,160
- ---------------------------------------------------------------------------
6.88%, 05/15/06 2,700,000 2,976,264
- ---------------------------------------------------------------------------
6.13%, 08/15/07(g) 6,150,000 6,618,261
- ---------------------------------------------------------------------------
5.75%, 08/15/10 39,375,000 41,352,412
- ---------------------------------------------------------------------------
5.00%, 08/15/11 17,455,000 17,414,679
===========================================================================
125,577,735
===========================================================================
U.S. TREASURY BONDS-0.68%
6.13%, 11/15/27 to 08/15/29 25,425,000 26,943,296
===========================================================================
U.S. TREASURY STRIPS-0.05%
5.81%, 05/15/20(h) 5,900,000 1,981,751
===========================================================================
Total U.S. Treasury Securities (Cost
$151,041,811) 154,502,782
===========================================================================
U.S. GOVERNMENT AGENCY SECURITIES-5.06%
FEDERAL HOME LOAN BANK-0.04%
Unsec. Bonds,
5.13%, 03/06/06 1,670,000 1,698,473
===========================================================================
FEDERAL HOME LOAN MORTGAGE CORP.
(FHLMC)-1.59%
Jr. Unsec. Sub. Notes,
5.88%, 03/21/11 9,000,000 8,922,240
- ---------------------------------------------------------------------------
Pass Through Ctfs.,
6.50%, 08/01/03 to 05/01/29 29,234 29,616
- ---------------------------------------------------------------------------
6.00%, 06/01/29 459,132 452,819
- ---------------------------------------------------------------------------
7.00%, 07/01/29 to 09/01/31 17,226,585 17,566,363
- ---------------------------------------------------------------------------
Pass Through Ctfs.-TBA,
6.00%, 02/01/31(i) 7,550,000 7,566,516
- ---------------------------------------------------------------------------
6.50%, 02/01/32(i) 3,290,000 3,297,197
- ---------------------------------------------------------------------------
Unsec. Notes,
6.88%, 01/15/05 1,910,000 2,059,572
- ---------------------------------------------------------------------------
5.50%, 09/15/11 9,410,000 9,231,492
- ---------------------------------------------------------------------------
Unsec. Sub. Notes,
6.38%, 08/01/11 13,605,000 13,542,825
===========================================================================
62,668,640
===========================================================================
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(FNMA)-2.79%
FNMA Grantor Trust-Series 2000-T7, Class A1,
Pass Through Ctfs.,
7.50%, 02/25/41 1,824,714 1,893,450
- ---------------------------------------------------------------------------
Pass Through Ctfs.,
8.50%, 03/01/10 to 02/01/28 10,842,972 11,685,217
- ---------------------------------------------------------------------------
6.50%, 04/01/14 to 07/01/16 14,797,246 15,107,941
- ---------------------------------------------------------------------------
7.50%, 02/01/16 to 07/01/31 10,503,748 10,866,394
- ---------------------------------------------------------------------------
7.00%, 07/01/16 to 12/01/31 4,733,651 4,880,064
- ---------------------------------------------------------------------------
6.50%, 10/01/16 2,361,388 2,409,707
- ---------------------------------------------------------------------------
8.00%, 12/01/23 7,931,323 8,414,579
- ---------------------------------------------------------------------------
6.00%, 05/01/31 12,423,636 12,163,485
- ---------------------------------------------------------------------------
Pass Through Ctfs.-TBA,
6.50%, 02/01/32(i) 14,860,000 14,878,575
- ---------------------------------------------------------------------------
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA)-(CONTINUED)
Unsec. Notes,
5.13%, 02/13/04 $ 1,915,000 $ 1,971,110
- ---------------------------------------------------------------------------
7.00%, 07/15/05 2,310,000 2,510,693
- ---------------------------------------------------------------------------
6.38%, 06/15/09 7,040,000 7,418,963
- ---------------------------------------------------------------------------
Unsec. Notes,
6.00%, 05/15/11 2,569,000 2,612,622
- ---------------------------------------------------------------------------
Unsec. Sub. Notes,
5.50%, 05/02/06 12,800,000 13,120,000
===========================================================================
109,932,800
===========================================================================
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(GNMA)-0.64%
Pass Through Ctfs.,
6.50%, 10/15/08 to 07/15/31 10,864,207 10,929,456
- ---------------------------------------------------------------------------
7.00%, 10/15/08 to 02/15/31 7,644,013 7,831,348
- ---------------------------------------------------------------------------
6.00%, 11/15/08 531,546 545,499
- ---------------------------------------------------------------------------
8.00%, 11/15/30 to 01/20/31 910,481 951,147
- ---------------------------------------------------------------------------
7.50%, 12/20/30 to 01/15/31 5,021,990 5,193,808
===========================================================================
25,451,258
===========================================================================
Total U.S. Government Agency Securities
(Cost $198,038,769) 199,751,171
===========================================================================
ASSET-BACKED SECURITIES-1.99%
AIRLINES-0.60%
American Airlines, Inc.-Class A2, Series
2001-01, Pass Through Ctfs., 6.82%,
05/23/11 (Acquired 06/28/01; Cost
$5,806,974)(a) 5,713,501 5,319,326
- ---------------------------------------------------------------------------
American Airlines, Inc.-Series 87-A,
Equipment Trust Ctfs., 9.90%, 01/15/11 2,955,000 2,916,792
- ---------------------------------------------------------------------------
Northwest Airlines Inc.-Series 971B, Pass
Through Ctfs., 7.25%, 01/02/12 3,964,736 3,294,438
- ---------------------------------------------------------------------------
United Air Lines, Inc.-Series 002-Class A2,
Sec. Pass Through Ctfs., 7.19%, 04/01/11 11,090,000 9,276,674
- ---------------------------------------------------------------------------
United Air Lines, Inc.-Series 95A2, Pass
Through Ctfs., 9.56%, 10/19/18 3,750,000 2,923,988
===========================================================================
23,731,218
===========================================================================
AUTOMOBILE MANUFACTURERS-0.11%
DaimlerChrysler N.A. Holding Corp., Gtd. Rocs
Series CHR-1998-1, Collateral Trust,
6.50%, 08/01/18 4,537,216 4,272,492
===========================================================================
BANKS-0.27%
Premium Asset Trust-Series 2001-6, Sec.
Notes, 5.25%, 07/19/04 (Acquired 07/11/01;
Cost $10,546,061)(a) 10,560,000 10,764,494
===========================================================================
DIVERSIFIED FINANCIAL SERVICES-0.53%
Citicorp Lease-Class A2, Series 1999-1, Pass
Through Ctfs., 8.04%, 12/15/19 (Acquired
06/01/00-01/25/01; Cost $19,745,712)(a) 19,600,000 21,072,352
===========================================================================
ELECTRIC UTILITIES-0.48%
Beaver Valley II Funding Corp., SLOBS, Deb.,
9.00%, 06/01/17 12,500,000 13,850,875
- ---------------------------------------------------------------------------
</Table>
FS-8
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
ELECTRIC UTILITIES-(CONTINUED)
Indiana Michigan Power Co.-Series F, SLOBS,
9.82%, 12/07/22 $ 4,468,421 $ 4,885,102
===========================================================================
18,735,977
===========================================================================
Total Asset-Backed Securities (Cost
$81,071,384) 78,576,533
===========================================================================
<Caption>
MARKET
SHARES VALUE
MONEY MARKET FUNDS-4.46%
STIC Liquid Assets Portfolio(j) 87,922,818 $ 87,922,818
- ---------------------------------------------------------------------------
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
STIC Prime Portfolio(j) 87,922,818 $ 87,922,818
===========================================================================
Total Money Market Funds (Cost
$175,845,636) 175,845,636
===========================================================================
TOTAL INVESTMENTS-100.94% (Cost
$3,831,895,698) 3,982,109,543
===========================================================================
OTHER ASSETS LESS LIABILITIES-(0.94%) (37,010,204)
===========================================================================
NET ASSETS-100.00% $3,945,099,339
___________________________________________________________________________
===========================================================================
</Table>
Investment Abbreviations:
<Table>
<Caption>
ADR - American Depositary Receipt
CAD - Canadian Dollars
Conv. - Convertible
Ctfs. - Certificates
Deb. - Debentures
DECS - Dividend Enhanced Convertible Stock
Disc. - Discounted
EUR - Euro
GBP - British Pound Sterling
Gtd. - Guaranteed
PATS - Putable Asset Term Securities
Pfd. - Preferred
RAPS - Redeemable and Putable Securities
Sec. - Secured
SLOBS - Secured Lease Obligation Securities
Sr. - Senior
STRIPS - Separately Traded Registered Interest and Principal Security
Sub. - Subordinated
TBA - To Be Announced
Unsec. - Unsecured
Unsub. - Unsubordinated
</Table>
Notes to Schedule of Investments:
(a) Restricted security. May be resold to qualified institutional buyers in
accordance with the provisions of Rule 144A under the Securities Act of
1933, as amended. The aggregate market value of these securities at
12/31/01 was $181,358,628, which represented 4.60% of the Fund's net
assets.
(b) Defaulted security. Currently, the issuer is in default with respect to
interest payments.
(c) Security fair valued in accordance with the procedures established by the
Board of Trustees.
(d) Discounted bond at issue. The interest rate represents the coupon rate at
which the bond will accrue at a specified future date.
(e) Foreign denominated security. Par value is denominated in currency
indicated.
(f) Non-income producing security.
(g) A portion of the principal balance was pledged as collateral to cover
margin requirements for open futures contracts. See Note 11.
(h) STRIPS are traded on a discount basis. In such cases, the interest rate
shown represents the rate of discount paid or received at the time of
purchase by the Fund.
(i) Security purchased on forward commitment basis. These securities are
subject to dollar roll transactions. See Note 1 Section B.
(j) The money market fund and the Fund are affiliated by having the same
investment advisor.
See Notes to Financial Statements.
FS-9
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2001
<Table>
ASSETS:
Investments, at market value (cost
$3,831,895,698)* $3,982,109,543
- -------------------------------------------------------------
Foreign currencies, at value (cost $102,344) 109,040
- -------------------------------------------------------------
Receivables for:
Investments sold 3,114,675
- -------------------------------------------------------------
Fund shares sold 5,815,017
- -------------------------------------------------------------
Dividends and interest 29,025,782
- -------------------------------------------------------------
Principal paydowns 1,995
- -------------------------------------------------------------
Investment for deferred compensation plan 115,083
- -------------------------------------------------------------
Collateral for securities loaned 381,254,853
- -------------------------------------------------------------
Other assets 68,678
=============================================================
Total assets 4,401,614,666
=============================================================
LIABILITIES:
Payables for:
Investments purchased 25,459,428
- -------------------------------------------------------------
Fund shares reacquired 39,209,359
- -------------------------------------------------------------
Amount due custodian 3,231,814
- -------------------------------------------------------------
Deferred compensation plan 115,082
- -------------------------------------------------------------
Collateral upon return of securities loaned 381,254,853
- -------------------------------------------------------------
Variation margin 1,487,225
- -------------------------------------------------------------
Accrued distribution fees 3,840,731
- -------------------------------------------------------------
Accrued trustees' fees 2,190
- -------------------------------------------------------------
Accrued transfer agent fees 1,473,994
- -------------------------------------------------------------
Accrued operating expenses 440,651
=============================================================
Total liabilities 456,515,327
=============================================================
Net assets applicable to shares outstanding $3,945,099,339
_____________________________________________________________
=============================================================
NET ASSETS:
Class A $2,284,776,256
_____________________________________________________________
=============================================================
Class B $1,176,678,875
_____________________________________________________________
=============================================================
Class C $ 483,644,208
_____________________________________________________________
=============================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE:
Class A 88,090,151
_____________________________________________________________
=============================================================
Class B 45,470,732
_____________________________________________________________
=============================================================
Class C 18,662,292
_____________________________________________________________
=============================================================
Class A:
Net asset value per share $ 25.94
- -------------------------------------------------------------
Offering price per share:
(Net asset value of $25.94 divided by
95.25%) $ 27.23
_____________________________________________________________
=============================================================
Class B:
Net asset value and offering price per
share $ 25.88
_____________________________________________________________
=============================================================
Class C:
Net asset value and offering price per
share $ 25.92
_____________________________________________________________
=============================================================
</Table>
* At December 31, 2001, securities with an aggregate market value of
$369,006,749 were on loan to brokers.
STATEMENT OF OPERATIONS
For the year ended December 31, 2001
<Table>
INVESTMENT INCOME:
Interest $ 115,900,232
- ------------------------------------------------------------
Dividends (net of foreign withholding tax of
$174,279) 18,723,340
- ------------------------------------------------------------
Dividends from affiliated money market funds 12,083,546
- ------------------------------------------------------------
Security lending income 1,456,640
============================================================
Total investment income 148,163,758
============================================================
EXPENSES:
Advisory fees 20,891,477
- ------------------------------------------------------------
Administrative services fees 316,318
- ------------------------------------------------------------
Custodian fees 377,960
- ------------------------------------------------------------
Distribution fees -- Class A 6,103,678
- ------------------------------------------------------------
Distribution fees -- Class B 12,597,477
- ------------------------------------------------------------
Distribution fees -- Class C 4,020,765
- ------------------------------------------------------------
Transfer agent fees -- Class A 5,209,102
- ------------------------------------------------------------
Transfer agent fees -- Class B 2,609,327
- ------------------------------------------------------------
Transfer agent fees -- Class C 832,825
- ------------------------------------------------------------
Trustees' fees 25,717
- ------------------------------------------------------------
Other 975,214
============================================================
Total expenses 53,959,860
============================================================
Less: Fees waived (19,008)
- ------------------------------------------------------------
Expenses paid indirectly (60,431)
============================================================
Net expenses 53,880,421
============================================================
Net investment income 94,283,337
============================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES, FOREIGN CURRENCIES,
FOREIGN CURRENCY CONTRACTS, FUTURES
CONTRACTS AND OPTION CONTRACTS:
Net realized gain (loss) from:
Investment securities (196,882,994)
- ------------------------------------------------------------
Foreign currencies 278,005
- ------------------------------------------------------------
Foreign currency contracts 40,485
- ------------------------------------------------------------
Futures contracts (95,970,910)
- ------------------------------------------------------------
Option contracts written 2,476,744
============================================================
(290,058,670)
============================================================
Change in net unrealized appreciation
(depreciation) of:
Investment securities (330,187,275)
- ------------------------------------------------------------
Foreign currencies (29,233)
- ------------------------------------------------------------
Foreign currency contracts 217,630
- ------------------------------------------------------------
Futures contracts 10,088,027
============================================================
(319,910,851)
============================================================
Net gain (loss) from investment securities,
foreign currencies, foreign currency
contracts, futures contracts and option
contracts (609,969,521)
============================================================
Net increase (decrease) in net assets
resulting from operations $(515,686,184)
____________________________________________________________
============================================================
</Table>
See Notes to Financial Statements.
FS-10
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2001 and 2000
<Table>
<Caption>
2001 2000
-------------- --------------
OPERATIONS:
Net investment income $ 94,283,337 $ 93,697,007
- ----------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities,
foreign currencies, foreign currency contracts, futures
contracts and option contracts (290,058,670) 8,037,010
- ----------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities, foreign currencies, foreign
currency contracts and futures contracts (319,910,851) (315,446,121)
==============================================================================================
Net increase (decrease) in net assets resulting from
operations (515,686,184) (213,712,104)
==============================================================================================
Distributions to shareholders from net investment income:
Class A (65,286,370) (54,663,293)
- ----------------------------------------------------------------------------------------------
Class B (24,128,931) (22,292,342)
- ----------------------------------------------------------------------------------------------
Class C (8,269,309) (5,320,796)
- ----------------------------------------------------------------------------------------------
Distributions to shareholders from net realized gains:
Class A -- (39,511,188)
- ----------------------------------------------------------------------------------------------
Class B -- (21,396,291)
- ----------------------------------------------------------------------------------------------
Class C -- (5,732,223)
- ----------------------------------------------------------------------------------------------
Share transactions-net:
Class A 149,008,588 922,806,014
- ----------------------------------------------------------------------------------------------
Class B 11,560,034 291,069,331
- ----------------------------------------------------------------------------------------------
Class C 165,927,647 196,576,584
==============================================================================================
Net increase (decrease) in net assets (286,874,525) 1,047,823,692
==============================================================================================
NET ASSETS:
Beginning of year 4,231,973,864 3,184,150,172
==============================================================================================
End of year $3,945,099,339 $4,231,973,864
______________________________________________________________________________________________
==============================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $4,131,589,736 $3,809,280,125
- ----------------------------------------------------------------------------------------------
Undistributed net investment income (loss) (3,258,853) 1,041,061
- ----------------------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment
securities, foreign currencies, foreign currency
contracts, futures contracts and option contracts (333,416,566) (36,532,402)
- ----------------------------------------------------------------------------------------------
Unrealized appreciation of investment securities, foreign
currencies, foreign currency contracts and futures
contracts 150,185,022 458,185,080
==============================================================================================
$3,945,099,339 $4,231,973,864
______________________________________________________________________________________________
==============================================================================================
</Table>
See Notes to Financial Statements.
FS-11
NOTES TO FINANCIAL STATEMENTS
December 31, 2001
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM Balanced Fund (the "Fund") is a series portfolio of AIM Funds Group (the
"Trust"). The Trust is a Delaware business trust registered under the Investment
Company Act of 1940, as amended (the "1940 Act"), as an open-end series
management investment company consisting of twelve separate portfolios, each
having an unlimited number of shares of beneficial interest. The Fund currently
offers three different classes of shares: Class A shares, Class B shares and
Class C shares. Class A shares are sold with a front-end sales charge. Class B
shares and Class C shares are sold with a contingent deferred sales charge.
Matters affecting each portfolio or class will be voted on exclusively by the
shareholders of such portfolio or class. The assets, liabilities and operations
of each portfolio are accounted for separately. Information presented in these
financial statements pertains only to the Fund. The Fund's investment objective
is to achieve as high a total return as possible, consistent with preservation
of capital.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. Security Valuations -- Securities, including restricted
securities, are valued according to the following policy. A security listed
or traded on an exchange (except convertible bonds) is valued at its last
sales price as of the close of the customary trading session on the exchange
where the security is principally traded, or lacking any sales on a
particular day, the security is valued at the closing bid price on that day.
Each security reported on the NASDAQ National Market System is valued at the
last sales price as of the close of the customary trading session on the
valuation date or absent a last sales price, at the closing bid price. Debt
obligations (including convertible bonds) are valued on the basis of prices
provided by an independent pricing service. Prices provided by the pricing
service may be determined without exclusive reliance on quoted prices, and
may reflect appropriate factors such as yield, type of issue, coupon rate and
maturity date. 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. Securities for which market quotations are not readily available or
are questionable are valued at fair value as determined in good faith by or
under the supervision of the Trust's officers in a manner specifically
authorized by the Board of Trustees. Short-term obligations having 60 days or
less to maturity are valued at amortized cost which approximates market
value. For purposes of determining net asset value per share, futures and
option contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Foreign securities are converted into U.S. dollar amounts using 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. Occasionally, 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 be
reflected in the computation of the Fund's net asset value. If a development/
event is so significant that there is a reasonably high degree of certainty
as to both the effect and the degree of effect that the development/event has
actually caused that closing price to no longer reflect actual value, the
closing prices, as determined at the close of the applicable foreign market,
may be adjusted to reflect the fair value of the affected foreign securities
as of the close of the NYSE as determined in good faith by or under the
supervision of the Board of Trustees.
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.
Premiums and discounts are amortized and/or accreted for financial reporting
purposes.
On December 31, 2001, undistributed net investment income (loss) was
increased by $2,709,385, undistributed net realized gains (losses) decreased
by $6,825,494 and paid in capital increased by $4,116,109 as a result of
foreign currency gain/loss reclassifications, bond premium catchup
reclassifications and other reclassifications. Net assets of the Fund were
unaffected by the reclassifications discussed above.
The Fund may engage in dollar roll transactions with respect to mortgage
backed securities issued by GNMA, FNMA and FHLMC. In a dollar roll
transaction, the Fund sells a mortgage backed security held in the Fund to a
financial institution such as a bank or broker-dealer, and simultaneously
agrees to repurchase a substantially similar security (same type, coupon and
maturity) from the institution at a later date at an agreed upon price. The
mortgage backed securities that are repurchased will bear the same interest
rate as those sold, but generally will be collateralized by different pools
of mortgages with different prepayment histories. During the period between
the sale and repurchase, the Fund will not be entitled to receive interest
and principal payments on securities sold. Proceeds of
FS-12
the sale will be invested in short-term instruments, and the income from
these investments, together with any additional fee income received on the
sale, could generate income for the Fund exceeding the yield on the security
sold.
Dollar roll transactions involve the risk that the market value of the
securities retained by the Fund may decline below the price of the securities
that the Fund has sold but is obligated to repurchase under the agreement. In
the event the buyer of securities in a dollar roll transaction files for
bankruptcy or becomes insolvent, the Fund's use of the proceeds from the sale
of the securities may be restricted pending a determination by the other
party, or its trustee or receiver, whether to enforce the Fund's obligation
to repurchase the securities.
C. Distributions -- Distributions from income are declared and
paid quarterly and are recorded on ex-dividend date. Distributions from net
realized capital gains, if any, are generally paid annually and recorded on
ex-dividend date. The Fund may elect to use a portion of the proceeds from
redemptions as distributions for federal income tax purposes.
D. Federal Income Taxes -- The Fund intends to comply with the
requirements of 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 gains) which is
distributed to shareholders. Therefore, no provision for federal income taxes
is recorded in the financial statements.
The Fund had a capital loss carryforward of $294,839,562 which expires
December 31, 2009. As of December 31, 2001 the Fund has a post-October
capital loss deferral of $33,763,389 which will be recognized in the
following tax year.
E. Foreign Currency Translations -- Portfolio securities and other
assets and liabilities denominated in foreign currencies are translated into
U.S. dollar amounts at date of valuation. Purchases and sales of portfolio
securities and income items denominated in foreign currencies are translated
into U.S. dollar amounts on the respective dates of such transactions. The
Fund does not separately account for the portion of the results of operations
resulting from changes in foreign exchange rates on investments and the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss
from investments.
F. Foreign Currency Contracts -- A foreign currency contract is
an obligation to purchase or sell a specific currency for an agreed-upon
price at a future date. The Fund may enter into a foreign currency contract
to attempt to minimize the risk to the Fund from adverse changes in the
relationship between currencies. The Fund may also enter into a foreign
currency contract for the purchase or sale of a security denominated in a
foreign currency in order to "lock in" the U.S. dollar price of that
security. The Fund could be exposed to risk if counterparties to the
contracts are unable to meet the terms of their contracts or if the value of
the foreign currency changes unfavorably.
G. Futures Contracts -- The Fund may purchase or sell futures
contracts as a hedge against changes in market conditions. Initial margin
deposits required upon entering into futures contracts are satisfied by the
segregation of specific securities as collateral for the account of the
broker (the Fund's agent in acquiring the futures position). During the
period the futures contracts are open, changes in the value of the contracts
are recognized as unrealized gains or losses by "marking to market" on a
daily basis to reflect the market value of the contracts at the end of each
day's trading. Variation margin payments are made or received depending upon
whether unrealized gains or losses are incurred. When the contracts are
closed, the Fund recognizes a realized gain or loss equal to the difference
between the proceeds from, or cost of, the closing transaction and the Fund's
basis in the contract. Risks include the possibility of an illiquid market
and that a change in value of the contracts may not correlate with changes in
the value of the securities being hedged.
H. Covered Call Options -- The Fund may write call options, on a
covered basis; that is, the Fund will own the underlying security. When the
Fund writes a covered call option, an amount equal to the premium received by
the Fund is recorded as an asset and an equivalent liability. The amount of
the liability is subsequently "marked-to-market" to reflect the current
market value of the option written. The current market value of a written
option is the mean between the last bid and asked prices on that day. If a
written call option expires on the stipulated expiration date, or if the Fund
enters into a closing purchase transaction, the Fund realizes a gain (or a
loss if the closing purchase transaction exceeds the premium received when
the option was written) without regard to any unrealized gain or loss on the
underlying security, and the liability related to such option is
extinguished. If a written option is exercised, the Fund realizes a gain or a
loss from the sale of the underlying security and the proceeds of the sale
are increased by the premium originally received.
I. Put Options -- The Fund may purchase put options. By
purchasing a put option, the Fund obtains the right (but not the obligation)
to sell the option's underlying instrument at a fixed strike price. In return
for this right, the Fund pays an option premium. The option's underlying
instrument may be a security or a futures contract. Put options may be used
by the Fund to hedge securities it owns by locking in a minimum price at
which the Fund can sell. If security prices fall, the put option could be
exercised to offset all or a portion of the Fund's resulting losses. At the
same time, because the maximum the Fund has at risk is the cost of the
option, purchasing put options does not eliminate the potential for the Fund
to profit from an increase in the value of the securities hedged.
J. Expenses -- Distribution expenses directly attributable to a
class of shares are charged to those classes' operations. All other expenses
which are attributable to more than one class are allocated among the classes
based on relative net assets.
NOTE 2-CHANGE IN ACCOUNTING PRINCIPLE
As required, effective January 1, 2001, the Fund adopted the provisions of the
AICPA Audit and Accounting Guide for Investment Companies and began amortizing
premiums on debt securities.
FS-13
Prior to January 1, 2001, the Fund did not amortize premiums on debt securities.
The cumulative effect of this accounting change had no impact on total net
assets of the Fund, but resulted in a $3,608,026 reduction in the cost of
securities and a corresponding $3,608,026 increase in net unrealized gains and
losses, based on securities held by the Fund on January 1, 2001.
The effect of this change in 2001 was to decrease net investment income by
$3,126,156, increase net unrealized gains and losses by $1,771,427, increase net
realized gains and losses by $1,354,729. As a result, the net investment income
per share was decreased by $0.02, the net realized and unrealized gains and
losses per share was increased by $0.02 and the ratio of net investment income
to average net assets was decreased by 0.07%.
NOTE 3-ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM at the annual rate of 0.75% of the first
$150 million of the Fund's average daily net assets, plus 0.50% of the Fund's
average daily net assets in excess of $150 million. Effective July 1, 2001, 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 fund of which
the Fund has invested. For the year ended December 31, 2001, AIM waived fees of
$19,008.
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. For the year ended December 31, 2001, AIM was
paid $316,318 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency and
shareholder services to the Fund. During the year ended December 31, 2001, AFS
was paid $2,696,880 for such services.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B and Class C shares of the Fund. The Trust has adopted plans
pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A
shares, Class B shares and Class C shares (collectively the "Plans"). The Fund,
pursuant to the Plans, pays AIM Distributors compensation at the annual rate of
0.25% of the Fund's average daily net assets of Class A shares and 1.00% of the
average daily net assets of Class B and C shares. Of these amounts, the Fund may
pay a service fee of 0.25% of the average daily net assets of the Class A, Class
B or Class C shares to selected dealers and financial institutions who furnish
continuing personal shareholder services to their customers who purchase and own
the appropriate class of shares of the Fund. Any amounts not paid as a service
fee under the Plans would constitute an asset-based sales charge. The Plans also
impose a cap on the total sales charges, including asset-based sales charges
that may be paid by the respective classes. For the year ended December 31,
2001, the Class A, Class B and Class C shares paid AIM Distributors $6,103,678,
$12,597,477 and $4,020,765, respectively, as compensation under the Plans.
AIM Distributors received commissions of $640,756 from sales of the Class A
shares of the Fund during the year ended December 31, 2001. Such commissions are
not an expense of the Fund. They are deducted from, and are not included in, the
proceeds from sales of Class A shares. During the year ended December 31, 2001,
AIM Distributors received $139,887 in contingent deferred sales charges imposed
on redemptions of Fund shares.
Certain officers and trustees of the Trust are officers and directors of AIM,
AFS and AIM Distributors.
During the year ended December 31, 2001, the Fund paid legal fees of $12,542
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Board of Trustees. A member of that firm is a trustee of the Trust.
NOTE 4-INDIRECT EXPENSES
For the year ended December 31, 2001, the Fund received reductions in transfer
agency fees from AFS (an affiliate of AIM) of $56,310 and reductions in
custodian fees of $4,121 under expense offset arrangements which resulted in a
reduction of the Fund's total expenses of $60,431.
NOTE 5-TRUSTEES' FEES
Trustees' fees represent remuneration paid to trustees who are not an
"interested person" of AIM. The Trust invests trustees' fees, if so elected by a
trustee, in mutual fund shares in accordance with a deferred compensation plan.
NOTE 6-BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by Citibank, N.A. The Fund may borrow up to the lesser of
(i) $1,000,000,000 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. During the year ended December 31,
2001, the Fund did not borrow under the line of credit agreement. The funds
which are party to the line of credit are charged a commitment fee of 0.09% on
the unused balance of the committed line. The commitment fee is allocated among
the funds based on their respective average net assets for the period.
NOTE 7-PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities to the extent of one-third of the Fund's
total assets. Such loans are secured by collateral equal to no less than the
market value, determined daily, of the loaned securities. Such collateral will
be cash or debt securities issued or guaranteed by the U.S. Government or any of
its agencies. Cash collateral pursuant to these loans is invested in short-term
money market instruments or affiliated money market funds. Lending securities
entails a risk of loss to the Fund if and to the extent that the market value of
the securities loaned were to increase and the borrower did not increase the
collateral accordingly, and the borrower fails to return the securities. It is
the Fund's policy to obtain additional collateral from or return excess
collateral to the borrower by the end of the next business day. Therefore, the
value
FS-14
of the collateral may be temporarily less than the value of the securities on
loan.
At December 31, 2001, securities with an aggregate value of $369,006,749 were
on loan to brokers. The loans were secured by cash collateral of $381,254,853,
received by the Fund and subsequently invested in affiliated money market funds
as follows: $190,627,426 in STIC Liquid Assets Portfolio and $190,627,427 in
STIC Prime Portfolio. For the year ended December 31, 2001, the Fund received
fees of $1,456,640 for securities lending.
NOTE 8-TAX COMPONENTS OF CAPITAL AND DISTRIBUTIONS TO SHAREHOLDERS
The tax character of distributions paid during 2001 and 2000 was a follows:
<Table>
<Caption>
2001 2000
----------- ------------
Distributions paid from:
Ordinary income $97,684,610 $ 82,276,431
- -----------------------------------------------------------
Long-term capital gain -- 66,639,702
===========================================================
$97,684,610 $148,916,133
___________________________________________________________
===========================================================
</Table>
As of December 31, 2001, the components of distributable earnings (accumulated
losses) on a tax basis were as follows:
<Table>
Undistributed ordinary income $ 86,177
- ---------------------------------------------------------
Capital loss carryforward (294,839,562)
- ---------------------------------------------------------
Unrealized appreciation $ 108,262,988
=========================================================
$(186,490,397)
_________________________________________________________
=========================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is attributable primarily to the tax deferral of losses on wash
sales, the deferral of capital losses incurred after October 31, the realization
for tax purposes of unrealized gains on certain forward foreign currency
contracts and futures contracts and other deferrals.
NOTE 9-INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund during the year ended December 31, 2001 was
$3,216,405,904 and $2,783,916,331, respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
for tax purposes, as of December 31, 2001 is as follows:
<Table>
<Caption>
Aggregate unrealized appreciation of
investment securities $377,282,297
- ----------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (235,070,286)
==========================================================
Net unrealized appreciation of investment
securities $142,212,011
__________________________________________________________
==========================================================
Cost of investments for tax purposes is $3,839,897,532.
</Table>
NOTE 10-CALL OPTION CONTRACTS
Transactions in call options written during the year ended December 31, 2001 are
summarized as follows:
<Table>
<Caption>
CALL OPTION CONTRACTS
------------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
--------- -----------
Beginning of year -- $ --
- ----------------------------------------------------------
Written 12,174 2,934,645
- ----------------------------------------------------------
Closed (4,440) (1,134,738)
- ----------------------------------------------------------
Exercised (1,194) (193,421)
- ----------------------------------------------------------
Expired (6,540) (1,606,486)
- ----------------------------------------------------------
End of year -- $ --
__________________________________________________________
==========================================================
</Table>
NOTE 11-FUTURES CONTRACTS
On December 31, 2001, $13,150,000 principal amount of U.S. Treasury obligations
were pledged as collateral to cover margin requirements for open futures
contracts. Open futures contracts as of December 31, 2001 were as follows:
<Table>
<Caption>
NO. OF MONTH/ UNREALIZED
CONTRACT CONTRACTS COMMITMENT MARKET VALUE DEPRECIATION
- -------- --------- ------------- ------------ ------------
S&P 500 Index 589 March-02/long $169,219,700 $(30,952)
______________________________________________________________________________
==============================================================================
</Table>
FS-15
NOTE 12-SHARE INFORMATION
Changes in shares outstanding during the years ended December 31, 2001 and 2000
were as follows:
<Table>
<Caption>
2001 2000
---------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------- ----------- --------------
Sold:
Class A 34,040,614 $ 943,182,575 44,686,844 $1,459,628,858
- ---------------------------------------------------------------------------------------------------------------------------
Class B 7,919,458 219,495,395 13,281,625 433,100,994
- ---------------------------------------------------------------------------------------------------------------------------
Class C 3,739,954 104,510,027 7,345,840 240,137,040
===========================================================================================================================
Issued as reinvestment of dividends:
Class A 2,389,321 61,645,850 2,771,578 87,115,195
- ---------------------------------------------------------------------------------------------------------------------------
Class B 842,160 21,707,525 1,260,443 39,350,153
- ---------------------------------------------------------------------------------------------------------------------------
Class C 287,483 7,300,252 313,857 9,736,859
===========================================================================================================================
Issued in connection with acquisitions:*
Class A 469,333 11,718,242 -- --
- ---------------------------------------------------------------------------------------------------------------------------
Class B 270,207 6,757,868 -- --
- ---------------------------------------------------------------------------------------------------------------------------
Class C 7,202,124 179,904,999 -- --
===========================================================================================================================
Reacquired:
Class A (32,130,426) (867,538,079) (19,211,948) (623,938,039)
- ---------------------------------------------------------------------------------------------------------------------------
Class B (8,836,782) (236,400,754) (5,548,847) (181,381,816)
- ---------------------------------------------------------------------------------------------------------------------------
Class C (4,731,502) (125,787,631) (1,639,854) (53,297,315)
===========================================================================================================================
11,461,944 $ 326,496,269 43,259,538 $1,410,451,929
___________________________________________________________________________________________________________________________
===========================================================================================================================
</Table>
* As of the close of business on September 08, 2001, the Fund acquired all of
the net assets of AIM Advisor Flex Fund pursuant to a plan of reorganization
approved by AIM Advisor Flex Fund shareholders on August 17, 2001. The
acquisition was accomplished by a tax-free exchange of 7,941,664 shares of the
Fund for 16,429,881 shares of AIM Advisor Flex Fund outstanding as of the
close of business on September 8, 2001. AIM Advisor Flex Fund net assets at
that date of $198,381,109 including $8,302,767 of unrealized appreciation,
were combined with those of the Fund. The aggregate net assets of the Fund
immediately before the acquisition were $3,725,556,722.
FS-16
NOTE 13-FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
--------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
2001(a) 2000(a) 1999(a) 1998(a) 1997
---------- ---------- ---------- ---------- --------
Net asset value, beginning of period $ 30.10 $ 32.69 $ 28.23 $ 25.78 $ 21.84
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.71(b) 0.92 0.82 0.71 0.60
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (4.14) (2.23) 4.46 2.45 4.66
=================================================================================================================================
Total from investment operations (3.43) (1.31) 5.28 3.16 5.26
=================================================================================================================================
Less distributions:
Dividends from net investment income (0.73) (0.79) (0.82) (0.65) (0.55)
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- (0.49) -- (0.06) (0.77)
=================================================================================================================================
Total distributions (0.73) (1.28) (0.82) (0.71) (1.32)
=================================================================================================================================
Net asset value, end of period $ 25.94 $ 30.10 $ 32.69 $ 28.23 $ 25.78
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) (11.36)% (4.18)% 19.04% 12.46% 24.41%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $2,284,776 $2,507,641 $1,800,350 $1,318,230 $683,633
=================================================================================================================================
Ratio of expenses to average net assets 1.01%(d) 0.96% 0.94% 0.95% 0.98%
=================================================================================================================================
Ratio of net investment income to average net assets 2.60%(b)(d) 2.80% 2.81% 2.81% 2.48%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 73% 55% 65% 43% 66%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) As required, effective January 1, 2001, the Fund has adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and began
amortizing premiums on debt securities. Had the Fund not amortized premiums
on debt securities, the net investment income per share would have been
$0.73 and the ratio of net investment income to average net assets would
have been 2.67%. In accordance with the AICPA Audit and Accounting Guide
for Investment Companies, per share and ratios for periods prior to January
1, 2001 have not been restated to reflect this change in presentation.
(c) Does not include sales charges.
(d) Ratios are based on average daily net assets of $2,441,471,059.
<Table>
<Caption>
CLASS B
------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
2001(a) 2000(a) 1999(a) 1998(a) 1997
---------- ---------- ---------- -------- --------
Net asset value, beginning of period $ 30.01 $ 32.61 $ 28.18 $ 25.75 $ 21.83
- --------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.50(b) 0.66 0.58 0.42 0.38
- --------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (4.11) (2.23) 4.45 2.51 4.68
================================================================================================================================
Total from investment operations (3.61) (1.57) 5.03 2.93 5.06
================================================================================================================================
Less distributions:
Dividends from net investment income (0.52) (0.54) (0.60) (0.44) (0.37)
- --------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- (0.49) -- (0.06) (0.77)
================================================================================================================================
Total distributions (0.52) (1.03) (0.60) (0.50) (1.14)
================================================================================================================================
Net asset value, end of period $ 25.88 $ 30.01 $ 32.61 $ 28.18 $ 25.75
________________________________________________________________________________________________________________________________
================================================================================================================================
Total return(c) (12.01)% (4.93)% 18.08% 11.53% 23.42%
________________________________________________________________________________________________________________________________
================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,176,679 $1,358,823 $1,183,215 $894,165 $486,506
================================================================================================================================
Ratio of expenses to average net assets 1.76%(d) 1.73% 1.75% 1.76% 1.79%
================================================================================================================================
Ratio of net investment income to average net assets 1.86%(b)(d) 2.03% 2.00% 2.00% 1.67%
________________________________________________________________________________________________________________________________
================================================================================================================================
Portfolio turnover rate 73% 55% 65% 43% 66%
________________________________________________________________________________________________________________________________
================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) As required, effective January 1, 2001, the Fund has adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and began
amortizing premiums on debt securities. Had the Fund not amortized premiums
on debt securities, the net investment income per share would have been
$0.52 and the ratio of net investment income to average net assets would
have been 1.93%. In accordance with the AICPA Audit and Accounting Guide
for Investment Companies, per share and ratios for periods prior to January
1, 2001 have not been restated to reflect this change in presentation.
(c) Does not include contingent deferred sales charges.
(d) Ratios are based on average daily net assets of $1,259,747,718.
FS-17
NOTE 13-FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
------------------------------------------------------------------
AUGUST 4, 1997
(DATE SALES
COMMENCED)
YEAR ENDED DECEMBER 31, TO
------------------------------------------------ DECEMBER 31,
2001(a) 2000(a) 1999(a) 1998(a) 1997
-------- -------- -------- -------- --------------
Net asset value, beginning of period $ 30.05 $ 32.65 $ 28.21 $ 25.76 $25.55
- --------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.50(b) 0.66 0.58 0.42 0.16
- --------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (4.11) (2.23) 4.46 2.53 1.01
================================================================================================================================
Total from investment operations (3.61) (1.57) 5.04 2.95 1.17
================================================================================================================================
Less distributions:
Dividends from net investment income (0.52) (0.54) (0.60) (0.44) (0.19)
- --------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- (0.49) -- (0.06) (0.77)
================================================================================================================================
Total distributions (0.52) (1.03) (0.60) (0.50) (0.96)
================================================================================================================================
Net asset value, end of period $ 25.92 $ 30.05 $ 32.65 $ 28.21 $25.76
________________________________________________________________________________________________________________________________
================================================================================================================================
Total return(c) (11.99)% (4.93)% 18.09% 11.60% 4.67%
________________________________________________________________________________________________________________________________
================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $483,644 $365,510 $200,585 $114,163 $9,394
================================================================================================================================
Ratio of expenses to average net assets 1.76%(d) 1.73% 1.75% 1.73% 1.78%(e)
================================================================================================================================
Ratio of net investment income to average net assets 1.85%(b)(d) 2.03% 2.00% 2.03% 1.68%(e)
________________________________________________________________________________________________________________________________
================================================================================================================================
Portfolio turnover rate 73% 55% 65% 43% 66%
________________________________________________________________________________________________________________________________
================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) As required, effective January 1, 2001, the Fund has adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and began
amortizing premiums on debt securities. Had the Fund not amortized premiums
on debt securities, the net investment income per share would have been
$0.52 and the ratio of net investment income to average net assets would
have been 1.92%. In accordance with the AICPA Audit and Accounting Guide
for Investment Companies, per share and ratios for periods prior to January
1, 2001 have not been restated to reflect this change in presentation.
(c) Does not include contingent deferred sales charges and is not annualized
for periods less than one year.
(d) Ratios are based on average daily net assets of $402,076,552.
(e) Annualized.
FS-18
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees and Shareholders of
AIM Basic Balanced Fund:
In our opinion, the accompanying statement of assets and
liabilities, including the schedule of investments, and
the related statements of operations and of changes in
net assets and the financial highlights present fairly,
in all material respects, the financial position of the
AIM Basic Balanced Fund (one of the funds constituting
AIM Funds Group; hereafter referred to as the "Fund") at
December 31, 2001, and the results of its operations, the
changes in its net assets and the financial highlights
for the period indicated, in conformity with accounting
principles generally accepted in the United States of
America. These financial statements and financial
highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion
on these financial statements based on our audit. We
conducted our audit of these financial statements in
accordance with auditing standards generally accepted in
the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance
about whether the financial statements are free of
material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made
by management, and evaluating the overall financial
statement presentation. We believe that our audit, which
included confirmation of securities at December 31, 2001
by correspondence with the custodian and brokers,
provides a reasonable basis for our opinion.
/s/ PRICEWATERHOUSECOOPERS LLP
February 14, 2002
Houston, Texas
FS-19
SCHEDULE OF INVESTMENTS
December 31, 2001
<Table>
<Caption>
MARKET
SHARES VALUE
COMMON STOCKS & OTHER EQUITY INTERESTS-61.95%
ADVERTISING-1.67%
Interpublic Group of Cos., Inc. (The) 18,100 $ 534,674
======================================================================
ALUMINUM-1.01%
Alcoa Inc. 9,100 323,505
======================================================================
APPAREL RETAIL-1.70%
Gap, Inc. (The) 39,000 543,660
======================================================================
BANKS-6.00%
Bank of America Corp. 10,300 648,385
- ----------------------------------------------------------------------
Bank One Corp. 16,000 624,800
- ----------------------------------------------------------------------
FleetBoston Financial Corp. 17,700 646,050
======================================================================
1,919,235
======================================================================
BUILDING PRODUCTS-2.01%
American Standard Cos. Inc.(a) 9,400 641,362
======================================================================
CONSTRUCTION & FARM MACHINERY-1.35%
Deere & Co. 9,900 432,234
======================================================================
CONSUMER ELECTRONICS-1.07%
Koninklijke (Royal) Philips Electronics
N.V.-ADR (Netherlands) 11,800 343,498
======================================================================
DATA PROCESSING SERVICES-3.55%
Ceridian Corp.(a) 33,000 618,750
- ----------------------------------------------------------------------
First Data Corp. 6,600 517,770
======================================================================
1,136,520
======================================================================
DIVERSIFIED CHEMICALS-1.30%
Du Pont (E. I.) de Nemours & Co. 9,800 416,598
======================================================================
DIVERSIFIED COMMERCIAL SERVICES-1.97%
H&R Block, Inc. 14,100 630,270
======================================================================
DIVERSIFIED FINANCIAL SERVICES-6.59%
American Express Co. 13,300 474,677
- ----------------------------------------------------------------------
Citigroup Inc. 9,900 499,752
- ----------------------------------------------------------------------
Freddie Mac 6,000 392,400
- ----------------------------------------------------------------------
J.P. Morgan Chase & Co. 11,200 407,120
- ----------------------------------------------------------------------
Morgan Stanley Dean Witter & Co. 4,000 223,760
- ----------------------------------------------------------------------
Stilwell Financial, Inc. 4,000 108,880
======================================================================
2,106,589
======================================================================
ELECTRIC UTILITIES-1.17%
PG&E Corp. 19,400 373,256
======================================================================
ENVIRONMENTAL SERVICES-2.22%
Waste Management, Inc. 22,200 708,402
======================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
FOOD RETAIL-1.95%
Kroger Co. (The)(a) 29,900 $ 624,013
======================================================================
GENERAL MERCHANDISE STORES-1.37%
Target Corp. 10,700 439,235
======================================================================
HEALTH CARE DISTRIBUTORS & SERVICES-1.04%
McKesson Corp. 8,900 332,860
======================================================================
HOTELS-0.97%
Starwood Hotels & Resorts Worldwide, Inc. 10,400 310,440
======================================================================
HOUSEHOLD APPLIANCES-1.72%
Black & Decker Corp. (The) 14,600 550,858
======================================================================
INDUSTRIAL CONGLOMERATES-2.88%
Textron, Inc. 6,300 261,198
- ----------------------------------------------------------------------
Tyco International Ltd. (Bermuda) 11,200 659,680
======================================================================
920,878
======================================================================
INTEGRATED TELECOMMUNICATION SERVICES-0.80%
AT&T Corp. 14,100 255,774
======================================================================
IT CONSULTING & SERVICES-1.05%
Electronic Data Systems Corp. 4,900 335,895
======================================================================
LIFE & HEALTH INSURANCE-1.94%
Prudential Financial, Inc.(a) 5,100 169,269
- ----------------------------------------------------------------------
UnumProvident Corp. 17,000 450,670
======================================================================
619,939
======================================================================
MANAGED HEALTH CARE-3.14%
Anthem, Inc.(a) 6,000 297,000
- ----------------------------------------------------------------------
CIGNA Corp. 3,900 361,335
- ----------------------------------------------------------------------
UnitedHealth Group Inc. 4,900 346,773
======================================================================
1,005,108
======================================================================
MOVIES & ENTERTAINMENT-1.29%
Walt Disney Co. (The) 19,900 412,328
======================================================================
OIL & GAS DRILLING-3.93%
Cooper Cameron Corp.(a) 10,800 435,888
- ----------------------------------------------------------------------
Pride International, Inc.(a) 20,600 311,060
- ----------------------------------------------------------------------
Transocean Sedco Forex Inc. 15,100 510,682
======================================================================
1,257,630
======================================================================
OIL & GAS EQUIPMENT & SERVICES-1.46%
Schlumberger Ltd. 8,500 467,075
======================================================================
PAPER PRODUCTS-0.87%
International Paper Co. 6,900 278,415
======================================================================
</Table>
FS-20
<Table>
<Caption>
MARKET
SHARES VALUE
PROPERTY & CASUALTY INSURANCE-1.63%
XL Capital Ltd.-Class A (Bermuda) 5,700 $ 520,752
======================================================================
REINSURANCE-0.98%
PartnerRe Ltd. (Bermuda) 5,800 313,200
======================================================================
SEMICONDUCTOR EQUIPMENT-0.80%
Applied Materials, Inc.(a) 6,400 256,640
======================================================================
SYSTEMS SOFTWARE-1.62%
Computer Associates International, Inc. 15,000 517,350
======================================================================
TELECOMMUNICATIONS EQUIPMENT-0.90%
Motorola, Inc. 19,100 286,882
======================================================================
Total Common Stocks & Other Equity
Interests (Cost $18,480,683) 19,815,075
======================================================================
<Caption>
PRINCIPAL
AMOUNT
U.S. DOLLAR DENOMINATED BONDS & NOTES-8.54%
BANKS-0.84%
Bank of America Corp., Sub. Notes, 9.38%,
09/15/09 $ 50,000 58,540
- ----------------------------------------------------------------------
Dresdner Bank New York, Unsec. Sub. Deb.,
7.25%, 09/15/15 100,000 104,560
- ----------------------------------------------------------------------
Firstar Bank N.A., Unsec. Sub. Notes, 7.13%,
12/01/09 100,000 104,789
======================================================================
267,889
======================================================================
BROADCASTING & CABLE TV-1.76%
Comcast Cable Communications, Unsec. Notes,
8.88%, 05/01/17 100,000 113,982
- ----------------------------------------------------------------------
Shaw Communications Inc. (Canada), Sr. Unsec.
Unsub. Yankee Notes, 8.25%, 04/11/10 175,000 185,215
- ----------------------------------------------------------------------
Time Warner Inc.,
Notes, 8.18%, 08/15/07 35,000 39,179
- ----------------------------------------------------------------------
Unsec. Deb., 8.05%, 01/15/16 150,000 169,759
- ----------------------------------------------------------------------
Turner Broadcasting System, Inc.-Class A, Sr.
Notes, 8.38%, 07/01/13 50,000 55,621
======================================================================
563,756
======================================================================
CONSUMER FINANCE-0.38%
Ford Motor Credit Co., Notes, 7.88%, 06/15/10 10,000 10,191
- ----------------------------------------------------------------------
General Motors Acceptance Corp., Bonds,
8.00%, 11/01/31 60,000 60,645
- ----------------------------------------------------------------------
Household Finance Corp., Unsec. Notes, 8.00%,
07/15/10 45,000 48,828
======================================================================
119,664
======================================================================
DIVERSIFIED FINANCIAL SERVICES-2.27%
AIG SunAmerica Global Financing VII, Notes,
5.85%, 08/01/08 (Acquired 09/28/01; Cost
$20,452)(b) 20,000 20,232
- ----------------------------------------------------------------------
Associates Corp. of North America, Sr. Deb.,
6.95%, 11/01/18 160,000 166,315
- ----------------------------------------------------------------------
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
DIVERSIFIED FINANCIAL SERVICES-(CONTINUED)
FMR Corp., Bonds, 7.57%, 06/15/29 (Acquired
09/28/01; Cost $26,939)(b) $ 25,000 $ 27,011
- ----------------------------------------------------------------------
Heller Financial, Inc., Unsec. Notes, 7.38%,
11/01/09 400,000 438,224
- ----------------------------------------------------------------------
Lehman Brothers Holdings Inc., Sr. Bonds,
7.88%, 08/15/10 20,000 21,837
- ----------------------------------------------------------------------
Qwest Capital Funding Inc., Gtd. Unsec.
Notes, 7.63%, 08/03/21 40,000 37,642
- ----------------------------------------------------------------------
Tyco Capital Corp. (The) (Bermuda), Notes,
6.50%, 02/07/06 15,000 15,529
======================================================================
726,790
======================================================================
ELECTRIC UTILITIES-0.30%
Indiana Michigan Power Co. -- Series C, Sr.
Unsec. Notes, 6.13%, 12/15/06 80,000 79,408
- ----------------------------------------------------------------------
Mirant Corp., Sr. Notes, 7.90%, 07/15/09
(Acquired 09/28/01; Cost $20,700)(b) 20,000 17,850
======================================================================
97,258
======================================================================
INTEGRATED OIL & GAS-0.10%
Occidental Petroleum Corp., Sr. Unsec. Notes,
7.38%, 11/15/08 30,000 31,198
======================================================================
INTEGRATED TELECOMMUNICATION SERVICES-0.28%
TELUS Corp. (Canada), Yankee Notes, 8.00%,
06/01/11 85,000 89,888
======================================================================
LIFE & HEALTH INSURANCE-0.68%
American General Corp.,
Sr. Notes, 6.63%, 02/15/29 120,000 118,489
- ----------------------------------------------------------------------
Unsec. Notes, 7.50%, 07/15/25 50,000 54,664
- ----------------------------------------------------------------------
American General Finance Corp., Sr. Unsec.
Putable Notes, 8.13%, 08/15/09 40,000 44,346
======================================================================
217,499
======================================================================
OIL & GAS EXPLORATION & PRODUCTION-0.57%
Devon Financing Corp., Unsec. Gtd. Deb.,
7.88%, 09/30/31 (Acquired
09/28/01-11/01/01; Cost $81,054)(b) 80,000 81,199
- ----------------------------------------------------------------------
Louis Dreyfus Natural Gas Corp., Unsec.
Notes, 6.88%, 12/01/07 100,000 101,674
======================================================================
182,873
======================================================================
PHARMACEUTICALS-0.66%
Johnson & Johnson, Unsec. Deb., 6.95%,
09/01/29 70,000 74,606
- ----------------------------------------------------------------------
Merck & Co., Inc., Unsec. Deb.,
5.95%, 12/01/28 70,000 66,184
- ----------------------------------------------------------------------
6.40%, 03/01/28 70,000 70,204
======================================================================
210,994
======================================================================
</Table>
FS-21
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
REINSURANCE-0.70%
GE Global Insurance Holdings Corp., Unsec.
Notes, 7.75%, 06/15/30 $ 200,000 $ 224,792
======================================================================
Total U.S. Dollar Denominated Non-
Convertible Bonds & Notes (Cost
$2,794,579) 2,732,601
======================================================================
U.S. GOVERNMENT AGENCY SECURITIES-19.13%
FEDERAL HOME LOAN BANK-0.64%
Unsec. Bonds,
5.13%, 03/06/06 200,000 203,410
======================================================================
FEDERAL HOME LOAN MORTGAGE CORP.
(FHLMC)-2.18%
Pass Through Ctfs.,
7.00%, 09/01/31 208,682 212,725
- ----------------------------------------------------------------------
Pass Through Ctfs.,
7.00%, 07/01/29 110,618 112,864
- ----------------------------------------------------------------------
Pass Through Ctfs.-TBA,
6.50%, 02/01/32(c) 370,000 370,809
======================================================================
696,398
======================================================================
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(FNMA)-16.00%
Pass Through Ctfs.,
6.50%, 10/01/16 282,660 288,452
- ----------------------------------------------------------------------
7.00%, 12/01/31 420,000 428,530
- ----------------------------------------------------------------------
Pass Through Ctfs.-TBA,
6.50%, 02/01/32(c) 800,000 801,000
- ----------------------------------------------------------------------
Unsec. Medium Term Notes,
6.87%, 07/17/07 2,250,000 2,397,578
- ----------------------------------------------------------------------
Unsec. Notes,
6.38%, 06/15/09 890,000 937,909
- ----------------------------------------------------------------------
Unsec. Notes,
6.00%, 05/15/11 260,000 264,415
======================================================================
5,117,884
======================================================================
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(GNMA)-0.31%
Pass Through Ctfs.-TBA,
6.50%, 02/01/32(c) $ 100,000 $ 100,469
======================================================================
Total U.S. Government Agency Securities
(Cost $6,208,747) 6,118,161
======================================================================
U.S. TREASURY SECURITIES-3.59%
U.S. TREASURY NOTES-3.28%
6.88%, 05/15/06 345,000 380,300
- ----------------------------------------------------------------------
5.75%, 08/15/10 175,000 183,788
- ----------------------------------------------------------------------
5.00%, 08/15/11 485,000 483,880
======================================================================
1,047,968
======================================================================
U.S. TREASURY BONDS-0.31%
6.13%, 08/15/29 95,000 100,804
======================================================================
Total U.S. Treasury Securities (Cost
$1,181,951) 1,148,772
======================================================================
<Caption>
SHARES
MONEY MARKET FUNDS-14.44%
STIC Liquid Assets Portfolio(d) 2,309,834 2,309,834
- ----------------------------------------------------------------------
STIC Prime Portfolio(d) 2,309,834 2,309,834
======================================================================
Total Money Market Funds (Cost
$4,619,668) 4,619,668
======================================================================
TOTAL INVESTMENTS-107.65% (Cost $33,285,628) 34,434,277
======================================================================
OTHER ASSETS LESS LIABILITIES-(7.65%) (2,446,644)
======================================================================
NET ASSETS-100.00% $31,987,633
______________________________________________________________________
======================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
Ctfs. - Certificates
Deb. - Debentures
Gtd. - Guaranteed
Sr. - Senior
Sub. - Subordinated
TBA - To Be Announced
Unsec. - Unsecured
Unsub. - Unsubordinated
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) Restricted security. May be resold to qualified institutional buyers in
accordance with the provisions of Rule 144A under the Securities Act of
1933, as amended. The aggregate market value of these securities at
12/31/01 was $146,292, which represented 0.46% of the Fund's net assets.
(c) Security purchased on forward commitment basis. These securities are
subject to dollar roll transactions. See Note 1 Section B.
(d) The money market fund and the Fund are affiliated by having the same
investment advisor.
See Notes to Financial Statements.
FS-22
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2001
<Table>
ASSETS:
Investments, at market value (cost $33,285,628) $34,434,277
- ------------------------------------------------------------
Receivables for:
Investments sold 255,231
- ------------------------------------------------------------
Fund shares sold 878,060
- ------------------------------------------------------------
Dividends and interest 176,475
- ------------------------------------------------------------
Investment for deferred compensation plan 1,093
- ------------------------------------------------------------
Other assets 15,446
============================================================
Total assets 35,760,582
============================================================
LIABILITIES:
Payables for:
Investments purchased 3,675,641
- ------------------------------------------------------------
Fund shares reacquired 18,911
- ------------------------------------------------------------
Deferred compensation plan 1,093
- ------------------------------------------------------------
Accrued distribution fees 26,516
- ------------------------------------------------------------
Accrued transfer agent fees 2,418
- ------------------------------------------------------------
Accrued operating expenses 48,370
============================================================
Total liabilities 3,772,949
============================================================
Net assets applicable to shares outstanding $31,987,633
============================================================
NET ASSETS:
Class A $10,752,672
____________________________________________________________
============================================================
Class B $16,067,349
____________________________________________________________
============================================================
Class C $ 5,167,612
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE:
Class A 1,000,690
____________________________________________________________
============================================================
Class B 1,495,156
____________________________________________________________
============================================================
Class C 480,819
____________________________________________________________
============================================================
Class A:
Net asset value per share $ 10.75
- ------------------------------------------------------------
Offering price per share:
(Net asset value of $10.75 divided by
95.25%) $ 11.29
____________________________________________________________
============================================================
Class B:
Net asset value and offering price per share $ 10.75
____________________________________________________________
============================================================
Class C:
Net asset value and offering price per share $ 10.75
____________________________________________________________
============================================================
</Table>
STATEMENT OF OPERATIONS
For the period September 28, 2001 (Date operations
commenced) through December 31, 2001
<Table>
INVESTMENT INCOME:
Interest $ 60,552
- ------------------------------------------------------------
Dividends 42,408
- ------------------------------------------------------------
Dividends from affiliated money market funds 13,417
============================================================
Total investment income 116,377
============================================================
EXPENSES:
Advisory fees 29,174
- ------------------------------------------------------------
Administrative services fees 12,603
- ------------------------------------------------------------
Custodian fees 12,168
- ------------------------------------------------------------
Distribution fees -- Class A 5,240
- ------------------------------------------------------------
Distribution fees -- Class B 22,783
- ------------------------------------------------------------
Distribution fees -- Class C 7,127
- ------------------------------------------------------------
Transfer agent fees -- Class A 2,069
- ------------------------------------------------------------
Transfer agent fees -- Class B 3,043
- ------------------------------------------------------------
Transfer agent fees -- Class C 952
- ------------------------------------------------------------
Trustees' fees 1,983
- ------------------------------------------------------------
Printing 17,644
- ------------------------------------------------------------
Professional fees 31,670
- ------------------------------------------------------------
Other 2,574
============================================================
Total expenses 149,030
============================================================
Less: Fees waived and expenses reimbursed (65,504)
- ------------------------------------------------------------
Expenses paid indirectly (17)
============================================================
Net expenses 83,509
============================================================
Net investment income 32,868
============================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES:
Net realized gain (loss) from investment
securities (124,267)
============================================================
Change in net unrealized appreciation of
investment securities 1,148,649
============================================================
Net gain from investment securities 1,024,382
============================================================
Net increase in net assets resulting from
operations $1,057,250
____________________________________________________________
============================================================
</Table>
See Notes to Financial Statements.
FS-23
STATEMENT OF CHANGES IN NET ASSETS
For the period September 28, 2001 (Date operations commenced) through December
31, 2001
<Table>
<Caption>
2001
-----------
OPERATIONS:
Net investment income $ 32,868
- ---------------------------------------------------------------------------
Net realized gain (loss) from investment securities (124,267)
- ---------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities 1,148,649
===========================================================================
Net increase in net assets resulting from operations 1,057,250
===========================================================================
Distributions to shareholders from net investment income:
Class A (37,235)
- ---------------------------------------------------------------------------
Class B (33,889)
- ---------------------------------------------------------------------------
Class C (8,848)
- ---------------------------------------------------------------------------
Share transactions-net:
Class A 10,423,697
- ---------------------------------------------------------------------------
Class B 15,589,686
- ---------------------------------------------------------------------------
Class C 4,996,972
===========================================================================
Net increase in net assets 31,987,633
===========================================================================
NET ASSETS:
Beginning of period --
===========================================================================
End of period $31,987,633
___________________________________________________________________________
===========================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $30,950,108
- ---------------------------------------------------------------------------
Undistributed net investment income 13,143
- ---------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment
securities (124,267)
- ---------------------------------------------------------------------------
Unrealized appreciation of investment securities 1,148,649
===========================================================================
$31,987,633
___________________________________________________________________________
===========================================================================
</Table>
See Notes to Financial Statements.
FS-24
NOTES TO FINANCIAL STATEMENTS
December 31, 2001
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM Basic Balanced Fund (the "Fund") is a series portfolio of AIM Funds Group
(the "Trust"). The Trust is a Delaware business trust registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of twelve separate portfolios,
each having an unlimited number of shares of beneficial interest. The Fund
currently offers three different classes of shares: Class A shares, Class B
shares and Class C shares. Class A shares are sold with a front-end sales
charge. Class B shares and Class C shares are sold with a contingent deferred
sales charge. Matters affecting each portfolio or class will be voted on
exclusively by the shareholders of such portfolio or class. The assets,
liabilities and operations of each portfolio are accounted for separately.
Information presented in these financial statements pertains only to the Fund.
The Fund's investment objective is long-term growth of capital and current
income. The Fund commenced operations on September 28, 2001.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. Security Valuations -- Securities, including restricted securities, are
valued according to the following policy. A security listed or traded on an
exchange (except convertible bonds) is valued at its last sales price as of
the close of the customary trading session on the exchange where the security
is principally traded, or lacking any sales on a particular day, the security
is valued at the closing bid price on that day. Each security reported on the
NASDAQ National Market System is valued at the last sales price as of the
close of the customary trading session on the valuation date or absent a last
sales price, at the closing bid price. Debt obligations (including
convertible bonds) are valued on the basis of prices provided by an
independent pricing service. Prices provided by the pricing service may be
determined without exclusive reliance on quoted prices, and may reflect
appropriate factors such as yield, type of issue, coupon rate and maturity
date. 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.
Securities for which market quotations are not readily available or are
questionable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers in a manner specifically authorized
by the Board of Trustees. Short-term obligations having 60 days or less to
maturity are valued at amortized cost which approximates market value. For
purposes of determining net asset value per share, futures and option
contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Foreign securities are converted into U.S. dollar amounts using 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. Occasionally, 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 be
reflected in the computation of the Fund's net asset value. If a development/
event is so significant that there is a reasonably high degree of certainty
as to both the effect and the degree of effect that the development/event has
actually caused that closing price to no longer reflect actual value, the
closing prices, as determined at the close of the applicable foreign market,
may be adjusted to reflect the fair value of the affected foreign securities
as of the close of the NYSE as determined in good faith by or under the
supervision of the Board of Trustees.
B. Securities Transactions and Investment Income -- Securities transactions are
accounted for on a trade date basis. Realized gains or losses on sales are
computed on the basis of specific identification of the securities sold.
Interest income is recorded on the accrual basis from settlement date.
Dividend income is recorded on the ex-dividend date. Bond premiums and
discounts are amortized and/or accreted for financial reporting purposes.
On December 31, 2001, undistributed net investment income was increased by
$60,247 and shares of beneficial interest decreased by $60,247 as a result of
nondeductible organizational expenses. Net assets of the Fund were unaffected
by the reclassifications discussed above.
The Fund may engage in dollar roll transactions with respect to mortgage
backed securities issued by GNMA, FNMA and FHLMC. In a dollar roll
transaction, the Fund sells a mortgage backed security held in the Fund to a
financial institution such as a bank or broker-dealer, and simultaneously
agrees to repurchase a substantially similar security (same type, coupon and
maturity) from the institution at a later date at an agreed upon price. The
mortgage backed securities that are repurchased will bear the same interest
rate as those sold, but generally will be collateralized by different pools
of mortgages with different prepayment histories. During the period between
the sale and repurchase, the Fund will not be entitled to receive interest
and principal payments on securities sold. Proceeds of the sale will be
invested in short-term instruments, and the
FS-25
income from these investments, together with any additional fee income
received on the sale, could generate income for the Fund exceeding the yield
on the security sold.
Dollar roll transactions involve the risk that the market value of the
securities retained by the Fund may decline below the price of the securities
that the Fund has sold but is obligated to repurchase under the agreement. In
the event the buyer of securities in a dollar roll transaction files for
bankruptcy or becomes insolvent, the Fund's use of the proceeds from the sale
of the securities may be restricted pending a determination by the other
party, or its trustee or receiver, whether to enforce the Fund's obligation
to repurchase the securities.
C. Distributions -- Distributions from income are declared and paid quarterly
and are recorded on ex-dividend date. Distributions from net realized capital
gains, if any, are generally paid annually and recorded on ex-dividend date.
The Fund may elect to use a portion of the proceeds from redemptions as
distributions for federal income tax purposes.
D. Federal Income Taxes -- The Fund intends to comply with the requirements of
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 gains) which is
distributed to shareholders. Therefore, no provision for federal income taxes
is recorded in the financial statements. The Fund had a capital loss
carryforward of $1,094 which expires December 31, 2009. As of December 31,
2001 the Fund has a post-October capital loss deferral of $123,172 which will
be recognized in the following tax year.
E. Foreign Currency Translations -- Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S. dollar
amounts at date of valuation. Purchases and sales of portfolio securities and
income items denominated in foreign currencies are translated into U.S.
dollar amounts on the respective dates of such transactions. The Fund does
not separately account for the portion of the results of operations resulting
from changes in foreign exchange rates on investments and the fluctuations
arising from changes in market prices of securities held. Such fluctuations
are included with the net realized and unrealized gain or loss from
investments.
F. Expenses -- Distribution expenses directly attributable to a class of shares
are charged to those classes' operations. All other expenses which are
attributable to more than one class are allocated among the classes based on
relative net assets.
NOTE 2-ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM at the annual rate of 0.65% of the first $1
billion of the Fund's average daily net assets, plus 0.60% of the Fund's average
daily net assets on the next $4 billion, plus 0.55% of the Fund's average daily
net assets in excess of $5 billion. AIM 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 fund of which the Fund has invested. For the period
September 28, 2001 (date operations commenced) through December 31, 2001, AIM
waived fees of $29,174 and reimbursed fees of $36,330.
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. For the period September 28, 2001 (date
operations commenced) through December 31, 2001, AIM was paid $12,603 for such
services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency and
shareholder services to the Fund. During the period September 28, 2001 (date
operations commenced) through December 31, 2001, AFS was paid $3,020 for such
services.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B and Class C shares of the Fund. The Trust has adopted plans
pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A
shares, Class B shares and Class C shares (collectively the "Plans"). The Fund,
pursuant to the Plans, pays AIM Distributors compensation at the annual rate of
0.35% of the Fund's average daily net assets of Class A shares and 1.00% of the
average daily net assets of Class B and C shares. Of these amounts, the Fund may
pay a service fee of 0.25% of the average daily net assets of the Class A, Class
B or Class C shares to selected dealers and financial institutions who furnish
continuing personal shareholder services to their customers who purchase and own
the appropriate class of shares of the Fund. Any amounts not paid as a service
fee under the Plans would constitute an asset-based sales charge. The Plans also
impose a cap on the total sales charges, including asset-based sales charges
that may be paid by the respective classes. For the period September 28, 2001
(date operations commenced) through December 31, 2001, the Class A, Class B and
Class C shares paid AIM Distributors $5,240, $22,783 and $7,127, respectively,
as compensation under the Plans.
AIM Distributors received commissions of $19,234 from sales of the Class A
shares of the Fund for the period September 28, 2001 (date operations commenced)
through December 31, 2001. Such commissions are not an expense of the Fund. They
are deducted from, and are not included in, the proceeds from sales of Class A
shares. For the same period, AIM Distributors received $84 in contingent
deferred sales charges imposed on redemptions of Fund shares.
Certain officers and trustees of the Trust are officers and directors of AIM,
AFS and AIM Distributors.
The law firm of Kramer, Levin, Naftalis & Frankel LLP, of which a trustee is a
member, is counsel to the Board of Trustees. During the period September 28,
2001 (date operations commenced) through December 31, 2001, the Fund paid legal
no expenses with respect to this firm.
FS-26
NOTE 3-INDIRECT EXPENSES
For the period September 28, 2001 (date operations commenced) through December
31, 2001, the Fund received reductions in custodian fees of $17 under an expense
offset arrangement which resulted in a reduction of the Fund's total expenses of
$17.
NOTE 4-TRUSTEES' FEES
Trustees' fees represent remuneration paid to trustees who are not an
"interested person" of AIM. The Trust invests trustees' fees, if so elected by a
trustee, in mutual fund shares in accordance with a deferred compensation plan.
NOTE 5-BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by Citibank, N.A. The Fund may borrow up to the lesser of
(i) $1,000,000,000 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. During the period September 28, 2001
(date operations commenced) through December 31, 2001, the Fund did not borrow
under the line of credit agreement. The funds which are party to the line of
credit are charged a commitment fee of 0.09% on the unused balance of the
committed line. The commitment fee is allocated among the funds based on their
respective average net assets for the period.
NOTE 6-DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF CAPITAL
The tax character of distributions paid during 2001 was as follows:
<Table>
<Caption>
2001
-------
Distributions paid from ordinary income $79,972
________________________________________________________
========================================================
</Table>
As of December 31, 2001, the components of distributable earnings on a tax
basis were as follows:
<Table>
Undistributed ordinary income $ 14,235
- ---------------------------------------------------------
Capital loss carryforward (1,094)
- ---------------------------------------------------------
Unrealized appreciation 1,024,384
=========================================================
$1,037,525
_________________________________________________________
=========================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation is
attributable primarily to the tax deferral losses on wash sales, the tax
deferral of capital losses incurred after October 31, and other deferrals.
NOTE 7-INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund during the period September 28, 2001 (date
operations commenced) through December 31, 2001 was $27,497,032 and $788,507,
respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
for tax purposes, as of December 31, 2001 is as follows:
<Table>
Aggregate unrealized appreciation of
investment securities $1,477,196
- ---------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (328,547)
=========================================================
Net unrealized appreciation of investment
securities $1,148,649
_________________________________________________________
=========================================================
Investments have the same cost for tax and financial
statement purposes.
</Table>
FS-27
NOTE 8-SHARE INFORMATION
Changes in shares outstanding during the period September 28, 2001 (date
operations commenced) through December 31, 2001 were as follows:
<Table>
<Caption>
2001
------------------------
SHARES AMOUNT
--------- -----------
Sold:
Class A 1,014,635 $10,570,925
- --------------------------------------------------------------------------------------
Class B 1,510,274 15,749,795
- --------------------------------------------------------------------------------------
Class C 511,202 5,323,113
======================================================================================
Issued as reinvestment of dividends:
Class A 3,464 36,336
- --------------------------------------------------------------------------------------
Class B 2,340 24,543
- --------------------------------------------------------------------------------------
Class C 810 8,499
======================================================================================
Reacquired:
Class A (17,409) (183,564)
- --------------------------------------------------------------------------------------
Class B (17,458) (184,652)
- --------------------------------------------------------------------------------------
Class C (31,193) (334,640)
======================================================================================
2,976,665 $31,010,355
______________________________________________________________________________________
======================================================================================
</Table>
NOTE 9-FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the period indicated.
<Table>
<Caption>
CLASS A
------------------
SEPTEMBER 28, 2001
(DATE OPERATIONS
COMMENCED) TO
DECEMBER 31,
2001(a)
------------------
Net asset value, beginning of period $ 10.00
- --------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.03
- --------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 0.76
================================================================================
Total from investment operations 0.79
================================================================================
Less distributions from net investment income (0.04)
================================================================================
Net asset value, end of period $ 10.75
________________________________________________________________________________
================================================================================
Total return(b) 7.94%
________________________________________________________________________________
================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $10,753
________________________________________________________________________________
================================================================================
Ratio of expenses to average net assets:
With fee waivers 1.43%(c)
- --------------------------------------------------------------------------------
Without fee waivers 2.89%(c)
================================================================================
Ratio of net investment income to average net assets 1.16%(c)
________________________________________________________________________________
================================================================================
Portfolio turnover rate 7%
________________________________________________________________________________
================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Does not include sales charges and is not annualized for periods less than
one year.
(c) Ratios are annualized and based on average net assets of $5,752,659.
FS-28
NOTE 9-FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B
------------------
SEPTEMBER 28, 2001
(DATE OPERATIONS
COMMENCED) TO
DECEMBER 31,
2001(a)
------------------
Net asset value, beginning of period $ 10.00
- --------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.01
- --------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 0.77
================================================================================
Total from investment operations 0.78
================================================================================
Less distributions from net investment income (0.03)
================================================================================
Net asset value, end of period $ 10.75
________________________________________________________________________________
================================================================================
Total return(b) 7.76%
________________________________________________________________________________
================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $16,067
________________________________________________________________________________
================================================================================
Ratio of expenses to average net assets:
With fee waivers 2.08%(c)
- --------------------------------------------------------------------------------
Without fee waivers 3.54%(c)
================================================================================
Ratio of net investment income to average net assets 0.52%(c)
________________________________________________________________________________
================================================================================
Portfolio turnover rate 7%
________________________________________________________________________________
================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Does not include contingent deferred sales charges and is not annualized
for periods less than one year.
(c) Ratios are annualized and based on average net assets of $8,753,540.
<Table>
<Caption>
CLASS C
------------------
SEPTEMBER 28, 2001
(DATE OPERATIONS
COMMENCED) TO
DECEMBER 31,
2001(a)
------------------
Net asset value, beginning of period $10.00
- --------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.01
- --------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 0.77
================================================================================
Total from investment operations 0.78
================================================================================
Less distributions from net investment income (0.03)
================================================================================
Net asset value, end of period $10.75
________________________________________________________________________________
================================================================================
Total return(b) 7.76%
________________________________________________________________________________
================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $5,168
________________________________________________________________________________
================================================================================
Ratio of expenses to average net assets:
With fee waivers 2.08%(c)
- --------------------------------------------------------------------------------
Without fee waivers 3.54%(c)
================================================================================
Ratio of net investment income to average net assets 0.52%(c)
________________________________________________________________________________
================================================================================
Portfolio turnover rate 7%
________________________________________________________________________________
================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Does not include contingent deferred sales charges and is not annualized
for periods less than one year.
(c) Ratios are annualized and based on average net assets of $2,738,134.
FS-29
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees and Shareholders of AIM European
Small Company Fund:
In our opinion, the accompanying statement of assets and
liabilities, including the schedule of investments, and
the related statements of operations and of changes in
net assets and the financial highlights present fairly,
in all material respects, the financial position of the
AIM European Small Company Fund (one of the funds
constituting AIM Funds Group; hereafter referred to as
the "Fund") at December 31, 2001, and the results of its
operations, the changes in its net assets and the
financial highlights for each of the periods indicated,
in conformity with accounting principles generally
accepted in the United States of America. These financial
statements and financial highlights (hereafter referred
to as "financial statements") are the responsibility of
the Fund's management; our responsibility is to express
an opinion on these financial statements based on our
audits. We conducted our audits of these financial
statements in accordance with auditing standards
generally accepted in the United States of America, which
require that we plan and perform the audit to obtain
reasonable assurance about whether the financial
statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant
estimates made by management, and evaluating the overall
financial statement presentation. We believe that our
audits, which included confirmation of securities at
December 31, 2001 by correspondence with the custodian
and brokers, provide a reasonable basis for our opinion.
/s/ PRICEWATERHOUSECOOPERS LLP
February 14, 2002
Houston, Texas
FS-30
SCHEDULE OF INVESTMENTS
December 31, 2001
<Table>
<Caption>
MARKET
SHARES VALUE
FOREIGN STOCKS & OTHER EQUITY
INTERESTS-93.92%
AUSTRIA-0.76%
Gericom A.G. (Computer Hardware) 2,900 $ 79,393
====================================================================
BELGIUM-2.18%
Omega Pharma S.A. (Health Care Supplies) 5,000 226,727
====================================================================
DENMARK-0.49%
Radiometer A/S-Class B (Health Care
Equipment)(a) 1,600 50,410
====================================================================
FINLAND-4.39%
Hartwall Oyj ABP (Brewers)(a) 11,300 230,758
- --------------------------------------------------------------------
Instrumentarium Corp.-Class B (Health Care
Equipment) 3,200 134,119
- --------------------------------------------------------------------
Lassila & Tikanoja PLC (Diversified
Commercial Services) 2,000 32,103
- --------------------------------------------------------------------
Vacon Oyj (Electrical Components & Equipment)
(Acquired 12/08/00; Cost $44,783)(b) 7,200 59,070
====================================================================
456,050
====================================================================
FRANCE-18.53%
AES Laboratoire Groupe (Health Care
Equipment) 1,300 132,737
- --------------------------------------------------------------------
Beneteau (Leisure Products) 350 27,201
- --------------------------------------------------------------------
Bigben Interactive (Distributors) 4,400 170,877
- --------------------------------------------------------------------
Bonduelle SCA (Packaged Foods) 3,450 144,290
- --------------------------------------------------------------------
Brime Technologies (Diversified Commercial
Services)(a) 3,400 104,602
- --------------------------------------------------------------------
Eurofins Scientific (Diversified Commercial
Services)(a) 6,200 90,397
- --------------------------------------------------------------------
Ioltech (Health Care Equipment)(a) 1,300 147,228
- --------------------------------------------------------------------
Marionnaud Parfumeries (Specialty Stores)(a) 4,080 197,926
- --------------------------------------------------------------------
MEDIDEP S.A. (Health Care Facilities)(a) 16,600 320,486
- --------------------------------------------------------------------
Neopost S.A. (Office Electronics)(a) 3,300 96,288
- --------------------------------------------------------------------
Penauille Polyservices (Diversified
Commercial Services) 1,500 52,836
- --------------------------------------------------------------------
Rodriguez Group (Specialty Stores) 1,000 57,072
- --------------------------------------------------------------------
Silicon-On-Insulator Technologies (SOITEC)
(Electronic Equipment & Instruments)(a) 11,170 221,629
- --------------------------------------------------------------------
UBI Soft Entertainment S.A. (Application
Software)(a) 4,850 162,187
====================================================================
1,925,756
====================================================================
GERMANY-8.40%
FJA A.G. (Electronic Equipment & Instruments) 1,980 90,049
- --------------------------------------------------------------------
IPC Archtec A.G. (Computer Hardware)(a) 1,700 53,590
- --------------------------------------------------------------------
Puma A.G. (Footwear) 8,300 251,652
- --------------------------------------------------------------------
Stada Arzneimittel A.G. (Pharmaceuticals) 7,200 252,009
- --------------------------------------------------------------------
Suess MicroTec A.G. (Semiconductor
Equipment)(a) 3,000 84,003
- --------------------------------------------------------------------
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
GERMANY-(CONTINUED)
Wedeco A.G. Water Technology (Water
Utilities)(a) 4,600 $ 141,521
====================================================================
872,824
====================================================================
GREECE-0.97%
Folli-Follie (Apparel & Accessories) 5,700 100,338
====================================================================
IRELAND-7.35%
Anglo Irish Bank Corp. PLC (Banks) 46,000 178,439
- --------------------------------------------------------------------
Grafton Group PLC (Trading Companies &
Distributors) 60,700 175,920
- --------------------------------------------------------------------
ICON PLC-ADR (Health Care Distributors &
Services)(a) 4,700 140,107
- --------------------------------------------------------------------
IFG Group PLC (Diversified Financial
Services) 32,000 95,596
- --------------------------------------------------------------------
Riverdeep Group PLC-ADR (Internet Software &
Services)(a) 6,500 109,265
- --------------------------------------------------------------------
United Drug PLC (Pharmaceuticals) 4,900 64,670
====================================================================
763,997
====================================================================
ITALY-4.04%
Merloni Elettrodomestici S.p.A. (Household
Appliances)(a) 25,500 134,164
- --------------------------------------------------------------------
Recordati S.p.A (Pharmaceuticals) 9,600 191,591
- --------------------------------------------------------------------
Tod's S.p.A. (Apparel & Accessories)(a) 2,300 94,347
====================================================================
420,102
====================================================================
NETHERLANDS-3.49%
ASM International N.V. (Semiconductor
Equipment)(a) 4,100 79,522
- --------------------------------------------------------------------
Heijmans N.V. (Construction & Engineering) 5,504 101,943
- --------------------------------------------------------------------
Teleplan International N.V. (Marine)(a) 5,200 78,367
- --------------------------------------------------------------------
Van der Moolen Holding N.V. (Diversified
Financial Services) 3,570 102,669
====================================================================
362,501
====================================================================
NORWAY-1.27%
Tandberg A.S.A. (Electronic Equipment &
Instruments)(a) 5,900 131,857
====================================================================
PORTUGAL-0.59%
Ibersol-SGPS, S.A. (Restaurants) 18,300 61,196
====================================================================
SPAIN-2.78%
Aurea Concesiones des Infrastructuras
S.A./concesionaria del Estado S.A.
(Highways & Railtracks) 2,670 54,548
- --------------------------------------------------------------------
Azkoyen S.A. (Industrial Machinery) 17,400 145,234
- --------------------------------------------------------------------
Prosegur, CIA de Seguridad S.A. (Diversified
Commercial Services) 6,600 89,107
====================================================================
288,889
====================================================================
</Table>
FS-31
<Table>
<Caption>
MARKET
SHARES VALUE
SWEDEN-11.54%
Axfood A.B. (Food Retail)(a) 11,800 $ 132,731
- --------------------------------------------------------------------
Biacore International A.B. (Health Care
Equipment)(a) 2,550 82,999
- --------------------------------------------------------------------
Clas Ohlson A.B.-Class B (Specialty Stores) 15,400 215,979
- --------------------------------------------------------------------
Elekta A.B.-Class B (Health Care
Equipment)(a) 21,800 177,390
- --------------------------------------------------------------------
Getinge Industrier A.B.-Class B (Health Care
Equipment) 4,700 77,389
- --------------------------------------------------------------------
Munters A.B. (Industrial Machinery) 4,500 75,173
- --------------------------------------------------------------------
Nobel Biocare (Health Care Supplies) 1,400 58,635
- --------------------------------------------------------------------
Perbio Science A.B. (Pharmaceuticals)(a) 12,500 204,027
- --------------------------------------------------------------------
Q-Med A.B. (Biotechnology)(a) 4,200 69,960
- --------------------------------------------------------------------
Swedish Match A.B. (Tobacco) 19,700 104,668
====================================================================
1,198,951
====================================================================
SWITZERLAND-0.38%
Converium Holding A.G. (Reinsurance)(a) 800 38,938
====================================================================
UNITED KINGDOM-26.76%
Alexon Group PLC (Apparel & Accessories) 59,400 151,351
- --------------------------------------------------------------------
Amey PLC (Diversified Commercial Services) 12,900 69,842
- --------------------------------------------------------------------
Anite Group PLC (IT Consulting & Services)(a) 46,500 116,112
- --------------------------------------------------------------------
Biotrace International PLC (Health Care
Equipment)(a) 26,300 52,745
- --------------------------------------------------------------------
Chemring Group PLC (Aerospace & Defense) 38,900 206,730
- --------------------------------------------------------------------
Chloride Group PLC (Electrical Components &
Equipment) 60,000 61,152
- --------------------------------------------------------------------
Electronics Boutique PLC (Computer &
Electronics Retail) 124,700 248,742
- --------------------------------------------------------------------
Enterprise Inns PLC (Restaurants) 22,300 202,605
- --------------------------------------------------------------------
Fitness First PLC (Diversified Commercial
Services)(a) 17,700 121,898
- --------------------------------------------------------------------
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
UNITED KINGDOM-(CONTINUED)
Geest PLC (Agricultural Products) 14,900 $ 160,055
- --------------------------------------------------------------------
Innovation Group (The) PLC (Application
Software) 14,800 78,653
- --------------------------------------------------------------------
iSOFT Group PLC (Application Software)
(Acquired 06/22/01; Cost $213,827)(b) 62,900 238,114
- --------------------------------------------------------------------
Jardine Lloyd Thompson Group PLC (Insurance
Brokers) 10,400 93,099
- --------------------------------------------------------------------
JJB Sports PLC (Apparel Retail) 20,000 133,952
- --------------------------------------------------------------------
John David Sports PLC (Apparel Retail) 20,010 88,715
- --------------------------------------------------------------------
Luminar PLC (Restaurants) 14,100 171,833
- --------------------------------------------------------------------
Nestor Healthcare Group PLC (Employment
Services) (Acquired 08/03/01-11/26/01; Cost
$157,784)(b) 22,500 178,542
- --------------------------------------------------------------------
PHS Group PLC (Diversified Commercial
Services) 59,020 76,480
- --------------------------------------------------------------------
PizzaExpress PLC (Restaurants) 8,600 111,693
- --------------------------------------------------------------------
Reliance Security Group PLC (Diversified
Commercial Services) 5,300 50,159
- --------------------------------------------------------------------
Torex PLC (IT Consulting & Services) 9,100 96,987
- --------------------------------------------------------------------
Vosper Thornycroft Holdings PLC (Aerospace &
Defense) 3,100 70,638
====================================================================
2,780,097
====================================================================
Total Foreign Stocks & Other Equity
Interests (Cost $8,824,931) 9,758,026
====================================================================
MONEY MARKET FUNDS-5.44%
STIC Liquid Assets Portfolio(c) 282,749 282,749
- --------------------------------------------------------------------
STIC Prime Portfolio(c) 282,749 282,749
====================================================================
Total Money Market Funds (Cost $565,498) 565,498
====================================================================
TOTAL INVESTMENTS-99.36% (Cost $9,390,429) 10,323,524
====================================================================
OTHER ASSETS LESS LIABILITIES-0.64% 66,520
====================================================================
NET ASSETS-100.00% $10,390,044
____________________________________________________________________
====================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) Restricted security. May be resold to qualified institutional buyers in
accordance with the provisions of Rule 144A under the Securities Act of
1933, as amended. The aggregate market value of these securities at
12/31/01 was $475,726, which represented 4.58% of the Fund's net assets.
(c) The money market fund and the Fund are affiliated by having the same
investment advisor.
See Notes to Financial Statements.
FS-32
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2001
<Table>
ASSETS:
Investments, at market value (cost $9,390,429) $10,323,524
- ------------------------------------------------------------
Foreign currencies, at value (cost $136,370) 139,154
- ------------------------------------------------------------
Receivables for:
Fund shares sold 80,257
- ------------------------------------------------------------
Dividends 16,803
- ------------------------------------------------------------
Investment for deferred compensation plan 9,077
- ------------------------------------------------------------
Other assets 13,463
============================================================
Total assets 10,582,278
============================================================
LIABILITIES:
Payables for:
Investments purchased 48,573
- ------------------------------------------------------------
Fund shares reacquired 82,106
- ------------------------------------------------------------
Deferred compensation plan 9,077
- ------------------------------------------------------------
Accrued distribution fees 9,168
- ------------------------------------------------------------
Accrued transfer agent fees 4,699
- ------------------------------------------------------------
Accrued operating expenses 38,611
============================================================
Total liabilities 192,234
============================================================
Net assets applicable to shares outstanding $10,390,044
____________________________________________________________
============================================================
NET ASSETS:
Class A $ 6,969,094
____________________________________________________________
============================================================
Class B $ 2,330,075
____________________________________________________________
============================================================
Class C $ 1,090,875
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE:
Class A 968,808
____________________________________________________________
============================================================
Class B 326,082
____________________________________________________________
============================================================
Class C 152,752
____________________________________________________________
============================================================
Class A:
Net asset value per share $ 7.19
- ------------------------------------------------------------
Offering price per share:
(Net asset value of $7.19 divided by
94.50%) $ 7.61
____________________________________________________________
============================================================
Class B:
Net asset value and offering price per share $ 7.15
____________________________________________________________
============================================================
Class C:
Net asset value and offering price per share $ 7.14
____________________________________________________________
============================================================
</Table>
STATEMENT OF OPERATIONS
For the year ended December 31, 2001
<Table>
<Caption>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of
$15,183) $ 130,234
- ------------------------------------------------------------
Dividends from affiliated money market funds 27,499
- ------------------------------------------------------------
Interest 633
============================================================
Total investment income 158,366
============================================================
EXPENSES:
Advisory fees 107,157
- ------------------------------------------------------------
Administrative services fees 50,000
- ------------------------------------------------------------
Custodian fees 89,340
- ------------------------------------------------------------
Distribution fees -- Class A 26,996
- ------------------------------------------------------------
Distribution fees -- Class B 24,901
- ------------------------------------------------------------
Distribution fees -- Class C 10,764
- ------------------------------------------------------------
Interest 1,142
- ------------------------------------------------------------
Transfer agent fees -- Class A 26,707
- ------------------------------------------------------------
Transfer agent fees -- Class B 10,040
- ------------------------------------------------------------
Transfer agent fees -- Class C 4,340
- ------------------------------------------------------------
Trustees' fees 8,277
- ------------------------------------------------------------
Registration and filing fees 110,195
- ------------------------------------------------------------
Professional fees 47,989
- ------------------------------------------------------------
Other 32,161
============================================================
Total expenses 550,009
============================================================
Less: Fees waived and expenses reimbursed (297,969)
- ------------------------------------------------------------
Expenses paid indirectly (131)
============================================================
Net expenses 251,909
============================================================
Net investment income (loss) (93,543)
============================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES AND FOREIGN CURRENCIES:
Net realized gain (loss) from:
Investment securities (3,820,862)
- ------------------------------------------------------------
Foreign currencies 5,135
============================================================
(3,815,727)
============================================================
Change in net unrealized appreciation of:
Investment securities 694,312
- ------------------------------------------------------------
Foreign currencies 3,378
============================================================
697,690
============================================================
Net gain (loss) from investment securities and
foreign currencies (3,118,037)
============================================================
Net increase (decrease) in net assets resulting
from operations $(3,211,580)
____________________________________________________________
============================================================
</Table>
See Notes to Financial Statements.
FS-33
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2001 and the period August 31, 2000 (date
operations commenced) through December 31, 2000
<Table>
<Caption>
2001 2000
----------- -----------
OPERATIONS:
Net investment income (loss) $ (93,543) $ (43,238)
- ----------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities and
foreign currencies (3,815,727) (588,978)
- ----------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities and foreign currencies 697,690 238,944
========================================================================================
Net increase (decrease) in net assets resulting from
operations (3,211,580) (393,272)
========================================================================================
Distributions to shareholders from net investment income:
Class A -- (38,008)
- ----------------------------------------------------------------------------------------
Class B -- (9,040)
- ----------------------------------------------------------------------------------------
Class C -- (3,158)
- ----------------------------------------------------------------------------------------
Share transactions-net:
Class A 647,205 8,921,798
- ----------------------------------------------------------------------------------------
Class B 168,698 2,932,808
- ----------------------------------------------------------------------------------------
Class C 256,409 1,118,184
========================================================================================
Net increase (decrease) in net assets (2,139,268) 12,529,312
========================================================================================
NET ASSETS:
Beginning of year 12,529,312 --
========================================================================================
End of year $10,390,044 $12,529,312
________________________________________________________________________________________
========================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $13,916,138 $12,962,197
- ----------------------------------------------------------------------------------------
Undistributed net investment income (loss) (9,077) (39,040)
- ----------------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment
securities and foreign currencies (4,453,651) (632,789)
- ----------------------------------------------------------------------------------------
Unrealized appreciation of investment securities and
foreign currencies 936,634 238,944
========================================================================================
$10,390,044 $12,529,312
________________________________________________________________________________________
========================================================================================
</Table>
See Notes to Financial Statements.
FS-34
NOTES TO FINANCIAL STATEMENTS
December 31, 2001
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM European Small Company Fund (the "Fund") is a series portfolio of AIM Funds
Group (the "Trust"). The Trust is a Delaware business trust registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of twelve separate portfolios,
each having an unlimited number of shares of beneficial interest. The Fund
currently offers three different classes of shares: Class A shares, Class B
shares and Class C shares. Class A shares are sold with a front-end sales
charge. Class B shares and Class C shares are sold with a contingent deferred
sales charge. Matters affecting each portfolio or class will be voted on
exclusively by the shareholders of such portfolio or class. The assets,
liabilities and operations of each portfolio are accounted for separately.
Information presented in these financial statements pertains only to the Fund.
The Fund's investment objective is to achieve long-term growth of capital.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. Security Valuations -- Securities, including restricted securities, are
valued according to the following policy. A security listed or traded on an
exchange (except convertible bonds) is valued at its last sales price as of
the close of the customary trading session on the exchange where the security
is principally traded, or lacking any sales on a particular day, the security
is valued at the closing bid price on that day. Each security reported on the
NASDAQ National Market System is valued at the last sales price as of the
close of the customary trading session on the valuation date or absent a last
sales price, at the closing bid price. Debt obligations (including
convertible bonds) are valued on the basis of prices provided by an
independent pricing service. Prices provided by the pricing service may be
determined without exclusive reliance on quoted prices, and may reflect
appropriate factors such as yield, type of issue, coupon rate and maturity
date. 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.
Securities for which market quotations are not readily available or are
questionable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers in a manner specifically authorized
by the Board of Trustees. Short-term obligations having 60 days or less to
maturity are valued at amortized cost which approximates market value. For
purposes of determining net asset value per share, futures and option
contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Foreign securities are converted into U.S. dollar amounts using 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. Occasionally, 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 be
reflected in the computation of the Fund's net asset value. If a development/
event is so significant that there is a reasonably high degree of certainty
as to both the effect and the degree of effect that the development/event has
actually caused that closing price to no longer reflect actual value, the
closing prices, as determined at the close of the applicable foreign market,
may be adjusted to reflect the fair value of the affected foreign securities
as of the close of the NYSE as determined in good faith by or under the
supervision of the Board of Trustees.
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.
On December 31, 2001, undistributed net investment income (loss) was
increased by $123,506, undistributed net realized gains (losses) decreased by
$5,135 and shares of beneficial interest decreased by $118,371 as a result of
differing book/tax treatment of foreign currency transactions, net operating
loss and other reclassifications. Net assets of the Fund were unaffected by
the reclassifications discussed above.
C. Distributions -- Distributions from income and net realized capital gains, if
any, are generally paid annually and recorded on ex-dividend date. The Fund
may elect to use a portion of the proceeds from redemptions as distributions
for federal income tax purposes.
D. Federal Income Taxes -- The Fund intends to comply with the requirements of
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 gains) which is
distributed to shareholders. Therefore, no provision for federal income taxes
is recorded in the financial statements.
FS-35
The Fund's capital loss carryforward of $4,147,930 is broken down by
expiration date as follows:
<Table>
<Caption>
CAPITAL LOSS
CARRYFORWARD EXPIRATION
------------ ----------
$ 220,935 December 31, 2008
-------------------------------
3,926,995 December 31, 2009
===============================
$4,147,930
______________________________
===============================
</Table>
As of December 31, 2001, the Fund has a post-October capital loss deferral of
$241,078, which will be recognized in the following tax year.
E. Foreign Currency Translations -- Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S. dollar
amounts at date of valuation. Purchases and sales of portfolio securities and
income items denominated in foreign currencies are translated into U.S.
dollar amounts on the respective dates of such transactions. The Fund does
not separately account for the portion of the results of operations resulting
from changes in foreign exchange rates on investments and the fluctuations
arising from changes in market prices of securities held. Such fluctuations
are included with the net realized and unrealized gain or loss from
investments.
F. Foreign Currency Contracts -- A foreign currency contract is an obligation to
purchase or sell a specific currency for an agreed-upon price at a future
date. The Fund may enter into a foreign currency contract to attempt to
minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency contract
for the purchase or sale of a security denominated in a foreign currency in
order to "lock in" the U.S. dollar price of that security. The Fund could be
exposed to risk if counterparties to the contracts are unable to meet the
terms of their contracts or if the value of the foreign currency changes
unfavorably.
G. Expenses -- Distribution expenses directly attributable to a class of shares
are charged to those classes' operations. All other expenses which are
attributable to more than one class are allocated among the classes based on
relative net assets.
NOTE 2-ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM at the annual rate of 0.95% of the Fund's
average daily net assets. Effective July 1, 2001, 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 fund of which the Fund has invested.
For the year ended December 31, 2001, AIM waived fees of $107,157 and reimbursed
expenses of $190,812.
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. For the year ended December 31, 2001, AIM was
paid $50,000 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency and
shareholder services to the Fund. During the year ended December 31, 2001, AFS
was paid $24,914 for such services.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B and Class C shares of the Fund. The Trust has adopted plans
pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A
shares, Class B shares and Class C shares (collectively the "Plans"). The Fund,
pursuant to the Plans, pays AIM Distributors compensation at the annual rate of
0.35% of the Fund's average daily net assets of Class A shares and 1.00% of the
average daily net assets of Class B and C shares. Of these amounts, the Fund may
pay a service fee of 0.25% of the average daily net assets of the Class A, Class
B or Class C shares to selected dealers and financial institutions who furnish
continuing personal shareholder services to their customers who purchase and own
the appropriate class of shares of the Fund. Any amounts not paid as a service
fee under the Plans would constitute an asset-based sales charge. The Plans also
impose a cap on the total sales charges, including asset-based sales charges
that may be paid by the respective classes. For the year ended December 31,
2001, the Class A, Class B and Class C shares paid AIM Distributors $26,996,
$24,901 and $10,764, respectively, as compensation under the Plans.
AIM Distributors received commissions of $4,738 from sales of the Class A
shares of the Fund during the year ended December 31, 2001. Such commissions are
not an expense of the Fund. They are deducted from, and are not included in, the
proceeds from sales of Class A shares. During the year ended December 31, 2001,
AIM Distributors received $17,064 in contingent deferred sales charges imposed
on redemptions of Fund shares.
Certain officers and trustees of the Trust are officers and directors of AIM,
AFS and AIM Distributors.
During the year ended December 31, 2001, the Fund paid legal fees of $3,529
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Board of Trustees. A member of that firm is a trustee of the Trust.
NOTE 3-INDIRECT EXPENSES
For the year ended December 31, 2001, the Fund received reductions in transfer
agency fees from AFS (an affiliate of AIM) of $131 under an expense offset
arrangement which resulted in a reduction of the Fund's total expenses of $131.
NOTE 4-TRUSTEES' FEES
Trustees' fees represent remuneration paid to trustees who are not an
"interested person" of AIM. The Trust invests trustees' fees, if so elected by a
trustee, in mutual fund shares in accordance with a deferred compensation plan.
NOTE 5-BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by Citibank, N.A. The Fund may borrow up to the lesser of
(i) $1,000,000,000 or (ii) the limits set by its
FS-36
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.
During the year ended December 31, 2001, the Fund did not borrow under the line
of credit agreement. The funds which are party to the line of credit are charged
a commitment fee of 0.09% on the unused balance of the committed line. The
commitment fee is allocated among the funds based on their respective average
net assets for the period.
NOTE 6-DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF CAPITAL
The tax character of distributions paid during 2001 and 2000 was as follows:
<Table>
<Caption>
2001 2000
------ -------
Distribution paid from ordinary income $ -- $50,206
_________________________________________________________
=========================================================
</Table>
As of December 31, 2001, the components of distributable earnings (accumulated
losses) on a tax basis were as follows:
<Table>
Capital loss carryforward $(4,147,930)
- ---------------------------------------------------------
Unrealized appreciation 621,836
=========================================================
$(3,526,094)
_________________________________________________________
=========================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation is
attributable primarily to the tax deferral of losses on wash sales, the tax
deferral of capital losses incurred after October 31, and other deferrals.
NOTE 7-INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund during the year ended December 31, 2001 was
$17,527,664 and $16,015,249, respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
for tax purposes, as of December 31, 2001 is as follows:
<Table>
Aggregate unrealized appreciation of
investment securities $958,986
- --------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (90,533)
========================================================
Net unrealized appreciation of investment
securities $868,453
________________________________________________________
========================================================
Cost of investments for tax purposes is $9,455,071.
</Table>
NOTE 8-SHARE INFORMATION
Changes in shares outstanding during the year ended December 31, 2001 and the
period August 31, 2000 (date operations commenced) through December 31, 2000:
<Table>
<Caption>
2001 2000
-------------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ --------- -----------
Sold:
Class A 1,443,910 $ 10,877,574 1,020,627 $ 9,668,343
- --------------------------------------------------------------------------------------------------------------------
Class B 87,474 690,405 314,840 2,969,953
- --------------------------------------------------------------------------------------------------------------------
Class C 275,312 2,057,628 119,558 1,140,988
====================================================================================================================
Issued as reinvestment of dividends:
Class A -- -- 4,177 37,222
- --------------------------------------------------------------------------------------------------------------------
Class B -- -- 1,014 9,037
- --------------------------------------------------------------------------------------------------------------------
Class C -- -- 353 3,141
====================================================================================================================
Reacquired:
Class A (1,413,403) (10,230,369) (86,503) (783,767)
- --------------------------------------------------------------------------------------------------------------------
Class B (72,117) (521,707) (5,129) (46,182)
- --------------------------------------------------------------------------------------------------------------------
Class C (239,549) (1,801,219) (2,922) (25,945)
====================================================================================================================
81,627 $ 1,072,312 1,366,015 $12,972,790
____________________________________________________________________________________________________________________
====================================================================================================================
</Table>
FS-37
NOTE 9-FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
--------------------------------
AUGUST 31, 2000
(DATE OPERATIONS
YEAR ENDED COMMENCED) TO
DECEMBER 31, DECEMBER 31,
2001(a) 2000(a)
------------ ----------------
Net asset value, beginning of period $ 9.17 $10.00
- ----------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.05) (0.04)
- ----------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (1.93) (0.74)
==============================================================================================
Total from investment operations (1.98) (0.78)
==============================================================================================
Less dividends from net investment income -- (0.05)
==============================================================================================
Net asset value, end of period $ 7.19 $ 9.17
______________________________________________________________________________________________
==============================================================================================
Total return(b) (21.59)% (7.84)%
______________________________________________________________________________________________
==============================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 6,969 $8,606
______________________________________________________________________________________________
==============================================================================================
Ratio of expenses to average net assets:
With fee waivers 2.01%(c) 2.07%(d)
- ----------------------------------------------------------------------------------------------
Without fee waivers 4.65%(c) 6.28%(d)
==============================================================================================
Ratio of net investment income (loss) to average net assets (0.61)%(c) (1.28)%(d)
______________________________________________________________________________________________
==============================================================================================
Portfolio turnover rate 152% 25%
______________________________________________________________________________________________
==============================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Does not include sales charges and is not annualized for periods less than
one year.
(c) Ratios are based on average daily net assets of $7,713,136.
(d) Annualized.
<Table>
<Caption>
CLASS B
--------------------------------
AUGUST 31, 2000
(DATE OPERATIONS
YEAR ENDED COMMENCED) TO
DECEMBER 31, DECEMBER 31,
2001(a) 2000(a)
------------ ----------------
Net asset value, beginning of period $ 9.17 $10.00
- ----------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.10) (0.06)
- ----------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (1.92) (0.74)
==============================================================================================
Total from investment operations (2.02) (0.80)
==============================================================================================
Less dividends from net investment income -- (0.03)
==============================================================================================
Net asset value, end of period $ 7.15 $ 9.17
______________________________________________________________________________________________
==============================================================================================
Total return(b) (22.03)% (7.99)%
______________________________________________________________________________________________
==============================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 2,330 $2,851
______________________________________________________________________________________________
==============================================================================================
Ratio of expenses to average net assets:
With fee waivers 2.71%(c) 2.77%(d)
- ----------------------------------------------------------------------------------------------
Without fee waivers 5.36%(c) 6.98%(d)
==============================================================================================
Ratio of net investment income (loss) to average net assets (1.31)%(c) (1.98)%(d)
______________________________________________________________________________________________
==============================================================================================
Portfolio turnover rate 152% 25%
______________________________________________________________________________________________
==============================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Does not include contingent deferred sales charges and is not annualized
for periods less than one year.
(c) Ratios are based on average daily net assets of $2,490,126.
(d) Annualized.
FS-38
NOTE 9-FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
--------------------------------
AUGUST 31, 2000
(DATE OPERATIONS
YEAR ENDED COMMENCED) TO
DECEMBER 31, DECEMBER 31,
2001(a) 2000(a)
------------ ----------------
Net asset value, beginning of period $ 9.17 $10.00
- ----------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.10) (0.06)
- ----------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (1.93) (0.74)
==============================================================================================
Total from investment operations (2.03) (0.80)
==============================================================================================
Less dividends from net investment income -- (0.03)
==============================================================================================
Net asset value, end of period $ 7.14 $ 9.17
______________________________________________________________________________________________
==============================================================================================
Total return(b) (22.14)% (7.99)%
______________________________________________________________________________________________
==============================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 1,091 $1,073
______________________________________________________________________________________________
==============================================================================================
Ratio of expenses to average net assets:
With fee waivers 2.71%(c) 2.77%(d)
- ----------------------------------------------------------------------------------------------
Without fee waivers 5.36%(c) 6.98%(d)
==============================================================================================
Ratio of net investment income (loss) to average net assets (1.31)%(c) (1.98)%(d)
______________________________________________________________________________________________
==============================================================================================
Portfolio turnover rate 152% 25%
______________________________________________________________________________________________
==============================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Does not include contingent deferred sales charges and is not annualized
for periods less than one year.
(c) Ratios are based on average daily net assets of $1,076,384.
(d) Annualized.
FS-39
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees and Shareholders of
AIM Global Utilities Fund:
In our opinion, the accompanying statement of assets and
liabilities, including the schedule of investments, and
the related statements of operations and of changes in
net assets and the financial highlights present fairly,
in all material respects, the financial position of the
AIM Global Utilities Fund (one of the funds constituting
AIM Funds Group; hereafter referred to as the "Fund") at
December 31, 2001, and the results of its operations for
the year then ended, and the changes in its net assets
and the financial highlights for each of the two years in
the period then ended, in conformity with accounting
principles generally accepted in the United States of
America. These financial statements and financial
highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion
on these financial statements based on our audits. We
conducted our audits of these financial statements in
accordance with auditing standards generally accepted in
the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance
about whether the financial statements are free of
material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made
by management, and evaluating the overall financial
statement presentation. We believe that our audits, which
included confirmation of securities at December 31, 2001
by correspondence with the custodian and brokers, provide
a reasonable basis for our opinion. The financial
highlights for each of the periods ended on or before
December 31, 1999 were audited by other independent
accountants whose report, dated February 14, 2000,
expressed an unqualified opinion thereon.
/s/ PRICEWATERHOUSECOOPERS LLP
February 14, 2002
Houston, Texas
FS-40
SCHEDULE OF INVESTMENTS
December 31, 2001
<Table>
<Caption>
MARKET
SHARES VALUE
DOMESTIC STOCKS-72.19%
BROADCASTING & CABLE TV-1.22%
Univision Communications Inc.-Class A(a) 84,100 $ 3,402,686
=========================================================================
CONSTRUCTION & ENGINEERING-0.97%
Quanta Services, Inc.(a) 175,300 2,704,879
=========================================================================
DIVERSIFIED METALS & MINING-0.62%
Peabody Energy Corp. 61,000 1,719,590
=========================================================================
ELECTRIC UTILITIES-35.41%
AES Corp. (The)(a) 62,800 1,026,780
- -------------------------------------------------------------------------
Allegheny Energy, Inc. 286,000 10,358,920
- -------------------------------------------------------------------------
Calpine Corp.(a) 132,000 2,216,280
- -------------------------------------------------------------------------
Constellation Energy Group, Inc. 114,000 3,026,700
- -------------------------------------------------------------------------
DTE Energy Co. 172,000 7,213,680
- -------------------------------------------------------------------------
Duke Energy Corp. 192,000 7,537,920
- -------------------------------------------------------------------------
Edison International(a) 51,000 770,100
- -------------------------------------------------------------------------
Exelon Corp. 68,500 3,279,780
- -------------------------------------------------------------------------
FirstEnergy Corp. 100,000 3,498,000
- -------------------------------------------------------------------------
FPL Group, Inc. 175,000 9,870,000
- -------------------------------------------------------------------------
Mirant Corp.(a) 193,850 3,105,477
- -------------------------------------------------------------------------
Mirant Trust I-Series A, $3.13 Conv. Pfd. 30,600 1,243,890
- -------------------------------------------------------------------------
Niagara Mohawk Holdings Inc.(a) 510,300 9,047,619
- -------------------------------------------------------------------------
NRG Energy, Inc.(a) 192,300 2,980,650
- -------------------------------------------------------------------------
PG&E Corp. 72,000 1,385,280
- -------------------------------------------------------------------------
Pinnacle West Capital Corp. 273,600 11,450,160
- -------------------------------------------------------------------------
PPL Corp. 83,000 2,892,550
- -------------------------------------------------------------------------
Public Service Enterprise Group Inc. 67,000 2,826,730
- -------------------------------------------------------------------------
Reliant Energy, Inc. 163,000 4,322,760
- -------------------------------------------------------------------------
Reliant Resources, Inc.(a) 56,000 924,560
- -------------------------------------------------------------------------
Southern Co. (The) 122,500 3,105,375
- -------------------------------------------------------------------------
Xcel Energy, Inc. 226,000 6,269,240
=========================================================================
98,352,451
=========================================================================
GAS UTILITIES-8.24%
El Paso Corp. 72,900 3,252,069
- -------------------------------------------------------------------------
El Paso Energy Cap Trust I-$2.38 Conv. Pfd. 74,500 4,162,687
- -------------------------------------------------------------------------
KeySpan Corp. 75,000 2,598,750
- -------------------------------------------------------------------------
NiSource Inc. 431,000 9,938,860
- -------------------------------------------------------------------------
Sempra Energy 119,000 2,921,450
=========================================================================
22,873,816
=========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
HEAVY ELECTRICAL EQUIPMENT-0.52%
Active Power, Inc.(a) 65,500 $ 445,400
- -------------------------------------------------------------------------
Global Power Equipment Group Inc.(a) 66,000 993,300
=========================================================================
1,438,700
=========================================================================
INDUSTRIAL CONGLOMERATES-1.87%
General Electric Co. 129,600 5,194,368
=========================================================================
INTEGRATED OIL & GAS-1.12%
ChevronTexaco Corp. 34,800 3,118,428
=========================================================================
INTEGRATED TELECOMMUNICATION SERVICES-10.87%
BellSouth Corp. 211,000 8,049,650
- -------------------------------------------------------------------------
Qwest Communications International Inc. 152,100 2,149,173
- -------------------------------------------------------------------------
SBC Communications Inc. 366,693 14,363,365
- -------------------------------------------------------------------------
Verizon Communications Inc. 118,462 5,622,207
=========================================================================
30,184,395
=========================================================================
MOVIES & ENTERTAINMENT-0.60%
Viacom Inc.-Class B(a) 38,000 1,677,700
=========================================================================
MULTI-UTILITIES-8.21%
Aquila, Inc.(a) 104,200 1,781,820
- -------------------------------------------------------------------------
Dynegy Inc.-Class A 272,000 6,936,000
- -------------------------------------------------------------------------
Energy East Corp. 475,200 9,024,048
- -------------------------------------------------------------------------
Williams Cos., Inc. (The) 198,700 5,070,824
=========================================================================
22,812,692
=========================================================================
NETWORKING EQUIPMENT-0.51%
Cisco Systems, Inc.(a) 77,700 1,407,147
=========================================================================
OIL & GAS EXPLORATION & PRODUCTION-1.14%
Anadarko Petroleum Corp. 19,500 1,108,575
- -------------------------------------------------------------------------
Apache Corp. 41,250 2,057,550
=========================================================================
3,166,125
=========================================================================
TELECOMMUNICATIONS EQUIPMENT-0.60%
Comverse Technology, Inc.(a) 35,000 782,950
- -------------------------------------------------------------------------
JDS Uniphase Corp.(a) 99,900 872,127
=========================================================================
1,655,077
=========================================================================
WIRELESS TELECOMMUNICATION SERVICES-0.29%
MediaOne Group, Inc.-$3.04 Conv. Pfd. 29,200 792,780
=========================================================================
Total Domestic Stocks (Cost $182,713,948) 200,500,834
=========================================================================
</Table>
FS-41
<Table>
<Caption>
MARKET
SHARES VALUE
FOREIGN STOCKS & OTHER EQUITY
INTERESTS-13.48%
BRAZIL-1.05%
Companhia Paranaense de Energia-Copel-ADR
(Electric Utilities) 370,000 $ 2,904,500
=========================================================================
CANADA-0.44%
Westcoast Energy Inc. (Gas Utilities) 46,300 1,223,709
=========================================================================
FINLAND-0.73%
Nokia Oyj-ADR (Telecommunications Equipment) 83,100 2,038,443
=========================================================================
FRANCE-1.66%
Suez S.A. (Multi-Utilities) 124,500 3,774,778
- -------------------------------------------------------------------------
TotalFinaElf S.A. (Integrated Oil & Gas) 5,800 829,613
=========================================================================
4,604,391
=========================================================================
GERMANY-0.95%
E.On A.G. (Electric Utilities) 50,560 2,633,074
=========================================================================
GREECE-0.32%
Public Power Corp.-GDR (Electric Utilities)
(Acquired 12/10/01; Cost $923,391)(a)(b) 81,800 875,342
=========================================================================
ITALY-1.92%
ACEA S.p.A. (Multi-Utilities)(c) 388,800 2,641,948
- -------------------------------------------------------------------------
Snam Rete Gas S.p.A. (Gas Utilities)(a)(c) 210,200 556,714
- -------------------------------------------------------------------------
Telecom Italia S.p.A. (Integrated
Telecommunication Services) 400,400 2,142,340
=========================================================================
5,341,002
=========================================================================
JAPAN-0.75%
NTT DoCoMo, Inc. (Wireless Telecommunication
Services) 179 2,093,567
=========================================================================
SPAIN-3.00%
Endesa, S.A. (Electric Utilities) 227,000 3,556,647
- -------------------------------------------------------------------------
Telefonica, S.A. (Integrated
Telecommunication Services)(a) 355,838 4,769,298
=========================================================================
8,325,945
=========================================================================
UNITED KINGDOM-2.66%
Kelda Group PLC (Water Utilities) 538,407 2,782,918
- -------------------------------------------------------------------------
National Grid Group PLC (Electric Utilities) 131,526 819,628
- -------------------------------------------------------------------------
United Utilities PLC (Multi-Utilities) 151,936 1,361,602
- -------------------------------------------------------------------------
Vodafone Group PLC (Wireless
Telecommunication Services) 930,665 2,435,699
=========================================================================
7,399,847
=========================================================================
Total Foreign Stocks & Other Equity
Interests (Cost $41,540,128) 37,439,820
=========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
U.S. DOLLAR DENOMINATED BONDS & NOTES-5.49%
COMPUTER HARDWARE-0.15%
Candescent Technologies Corp., Sr. Conv.
Unsec. Gtd. Sub. Deb., 8.00%, 05/01/03
(Acquired 04/19/01; Cost $34,200)(b)(d)(e) $ 190,000 $ 16,150
- -------------------------------------------------------------------------
Candescent Technologies Corp., Sr. Conv.
Unsec. Gtd. Sub. Deb., 8.00%, 05/01/03
(Acquired 04/17/98-04/19/01; Cost
$4,522,130)(b)(d)(e) 4,676,000 397,460
=========================================================================
413,610
=========================================================================
ELECTRIC UTILITIES-1.84%
Mirant Corp., Sr. Notes, 7.90%, 07/15/09
(Acquired 10/16/00; Cost $5,422,184)(b) 5,730,000 5,114,025
=========================================================================
GAS UTILITIES-1.67%
Limestone Electron Trust, Sr. Notes, 8.63%,
03/15/03 (Acquired 03/15/00; Cost
$4,550,000)(b) 4,550,000 4,632,901
=========================================================================
INTEGRATED TELECOMMUNICATION SERVICES-0.70%
AT&T Corp., Unsec. Notes, 7.75%, 03/01/07 1,850,000 1,945,127
=========================================================================
MULTI-UTILITIES-0.40%
Dynegy Inc., Sr. Unsec. Deb., 7.13%, 05/15/18 1,400,000 1,097,250
=========================================================================
TELECOMMUNICATIONS EQUIPMENT-0.73%
Nortel Networks Corp., Sr. Conv. Unsec. Gtd.
Yankee Notes, 4.25%, 09/01/08 (Acquired
08/09/01-08/15/01; Cost $2,108,799)(b) 2,100,000 2,031,750
=========================================================================
Total U.S. Dollar Denominated Bonds &
Notes (Cost $19,968,460) 15,234,663
=========================================================================
PRINCIPAL
AMOUNT(f)
oew
NON-U.S. DOLLAR DENOMINATED BONDS &
NOTES-2.20%
CANADA-0.50%
Teleglobe Canada Inc. (Integrated
Telecommunication Services), Unsec. Deb.
8.35%, 06/20/03 CAD 2,400,000 1,382,081
=========================================================================
UNITED KINGDOM-1.70%
National Grid Co. PLC (Electric Utilities),
Conv. Bonds, 4.25%, 02/17/08 (Acquired
02/05/98; Cost $4,574,700)(b) GBP 2,760,000 4,729,266
=========================================================================
Total Non-U.S. Dollar Denominated Bonds &
Notes (Cost $6,366,071) 6,111,347
=========================================================================
</Table>
FS-42
<Table>
<Caption>
MARKET
SHARES VALUE
<Caption>
MARKET
SHARES VALUE
MONEY MARKET FUNDS-7.26%
STIC Liquid Assets Portfolio(g) 10,073,857 $ 10,073,857
- -------------------------------------------------------------------------
STIC Prime Portfolio(g) 10,073,857 10,073,857
=========================================================================
Total Money Market Funds (Cost
$20,147,714) 20,147,714
=========================================================================
TOTAL INVESTMENTS-100.62% (Cost $270,736,321) 279,434,378
=========================================================================
OTHER ASSETS LESS LIABILITIES-(0.62%) (1,708,814)
=========================================================================
NET ASSETS-100.00% $277,725,564
_________________________________________________________________________
=========================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
CAD - Canadian Dollars
Conv. - Convertible
Deb. - Debentures
GBP - British Pound Sterling
GDR - Global Depositary Receipt
Gtd. - Guaranteed
Pfd. - Preferred
Sr. - Senior
Sub. - Subordinated
Unsec. - Unsecured
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) Restricted security. May be resold to qualified institutional buyers in
accordance with the provisions of Rule 144A under the Securities Act of
1933, as amended. The aggregate market value of these securities at
12/31/01 was $17,796,894, which represented 6.41% of the Fund's net assets.
(c) Represents a security sold under Rule 144A, which is exempt from
registration and may be resold to qualified institutional buyers in
accordance with the provisions of Rule 144A under the Securities Act of
1933, as amended.
(d) Defaulted security. Currently, the issuer is in default with respect to
interest payments.
(e) Security fair valued in accordance with the procedures established by the
Board of Trustees.
(f) Foreign denominated security. Par value is denominated in currency
indicated.
(g) The money market fund and the Fund are affiliated by having the same
investment advisor.
See Notes to Financial Statements.
FS-43
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2001
<Table>
<Caption>
ASSETS:
Investments, at market value (cost
$270,736,321)* $279,434,378
- ------------------------------------------------------------
Foreign currencies, at value (cost $63,696) 63,222
- ------------------------------------------------------------
Receivables for:
Fund shares sold 955,353
- ------------------------------------------------------------
Dividends and interest 936,407
- ------------------------------------------------------------
Investment for deferred compensation plan 47,160
- ------------------------------------------------------------
Collateral for securities loaned 43,287,594
- ------------------------------------------------------------
Other assets 19,288
============================================================
Total assets 324,743,402
============================================================
LIABILITIES:
Payables for:
Investments purchased 2,400,240
- ------------------------------------------------------------
Fund shares reacquired 869,228
- ------------------------------------------------------------
Dividends 1,884
- ------------------------------------------------------------
Deferred compensation plan 47,160
- ------------------------------------------------------------
Collateral upon return of securities loaned 43,287,594
- ------------------------------------------------------------
Accrued distribution fees 259,570
- ------------------------------------------------------------
Accrued transfer agent fees 83,917
- ------------------------------------------------------------
Accrued operating expenses 68,245
============================================================
Total liabilities 47,017,838
============================================================
Net assets applicable to shares outstanding $277,725,564
____________________________________________________________
============================================================
NET ASSETS:
Class A $171,431,993
____________________________________________________________
============================================================
Class B $ 94,614,911
____________________________________________________________
============================================================
Class C $ 11,678,660
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE:
Class A 10,960,466
____________________________________________________________
============================================================
Class B 6,065,482
____________________________________________________________
============================================================
Class C 748,962
____________________________________________________________
============================================================
Class A:
Net asset value per share $ 15.64
- ------------------------------------------------------------
Offering price per share:
(Net asset value of $15.64 divided
by 94.50%) $ 16.55
____________________________________________________________
============================================================
Class B:
Net asset value and offering price per share $ 15.60
____________________________________________________________
============================================================
Class C:
Net asset value and offering price per share $ 15.59
____________________________________________________________
============================================================
</Table>
* At December 31, 2001, securities with an aggregate market value of $41,953,857
were on loan to brokers.
STATEMENT OF OPERATIONS
For the year ended December 31, 2001
<Table>
<Caption>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of
$132,965) $ 6,989,312
- ------------------------------------------------------------
Dividends from affiliated money market funds 1,152,539
- ------------------------------------------------------------
Interest 1,505,757
- ------------------------------------------------------------
Security lending income 111,495
============================================================
Total investment income 9,759,103
============================================================
EXPENSES:
Advisory fees 2,017,671
- ------------------------------------------------------------
Administrative services fees 92,707
- ------------------------------------------------------------
Custodian fees 88,988
- ------------------------------------------------------------
Distribution fees -- Class A 543,963
- ------------------------------------------------------------
Distribution fees -- Class B 1,309,131
- ------------------------------------------------------------
Distribution fees -- Class C 150,360
- ------------------------------------------------------------
Transfer agent fees -- Class A 446,210
- ------------------------------------------------------------
Transfer agent fees -- Class B 278,443
- ------------------------------------------------------------
Transfer agent fees -- Class C 31,981
- ------------------------------------------------------------
Trustees' fees 9,188
- ------------------------------------------------------------
Other 219,507
============================================================
Total expenses 5,188,149
============================================================
Less: Fees waived (1,934)
- ------------------------------------------------------------
Expenses paid indirectly (5,313)
============================================================
Net expenses 5,180,902
============================================================
Net investment income 4,578,201
============================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES, FOREIGN CURRENCIES
AND OPTION CONTRACTS:
Net realized gain (loss) from:
Investment securities (27,084,087)
- ------------------------------------------------------------
Foreign currencies (101,277)
- ------------------------------------------------------------
Option contracts written 226,433
============================================================
(26,958,931)
============================================================
Change in net unrealized appreciation
(depreciation) of:
Investment securities (100,091,630)
- ------------------------------------------------------------
Foreign currencies (5,794)
============================================================
(100,097,424)
============================================================
Net gain (loss) from investment securities,
foreign currencies and option contracts (127,056,355)
============================================================
Net increase (decrease) in net assets
resulting from operations $(122,478,154)
____________________________________________________________
============================================================
</Table>
See Notes to Financial Statements.
FS-44
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2001 and 2000
<Table>
<Caption>
2001 2000
------------- ------------
OPERATIONS:
Net investment income $ 4,578,201 $ 4,203,120
- -------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities,
foreign currencies and option contracts (26,958,931) 45,142,732
- -------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities, and foreign currencies (100,097,424) (68,125,918)
===========================================================================================
Net increase (decrease) in net assets resulting from
operations (122,478,154) (18,780,066)
===========================================================================================
Distributions to shareholders from net investment income:
Class A (3,297,866) (2,905,816)
- -------------------------------------------------------------------------------------------
Class B (987,904) (587,054)
- -------------------------------------------------------------------------------------------
Class C (115,036) (56,822)
- -------------------------------------------------------------------------------------------
Distributions to shareholders from net realized gains:
Class A (1,890,557) (28,679,886)
- -------------------------------------------------------------------------------------------
Class B (1,101,351) (17,296,532)
- -------------------------------------------------------------------------------------------
Class C (130,115) (1,858,159)
- -------------------------------------------------------------------------------------------
Share transactions-net:
Class A (18,046,172) 70,873,896
- -------------------------------------------------------------------------------------------
Class B (19,327,801) 43,074,650
- -------------------------------------------------------------------------------------------
Class C (646,339) 14,197,274
===========================================================================================
Net increase (decrease) in net assets (168,021,295) 57,981,485
===========================================================================================
NET ASSETS:
Beginning of year 445,746,859 387,765,374
===========================================================================================
End of year $ 277,725,564 $445,746,859
___________________________________________________________________________________________
===========================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 295,785,459 $333,805,771
- -------------------------------------------------------------------------------------------
Undistributed net investment income 116,903 126,568
- -------------------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment
securities, foreign currencies and option contracts (26,875,713) 3,125,318
- -------------------------------------------------------------------------------------------
Unrealized appreciation of investment securities and
foreign currencies 8,698,915 108,689,202
===========================================================================================
$ 277,725,564 $445,746,859
___________________________________________________________________________________________
===========================================================================================
</Table>
NOTES TO FINANCIAL STATEMENTS
December 31, 2001
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM Global Utilities Fund (the "Fund") is a series portfolio of AIM Funds Group
(the "Trust"). The Trust is a Delaware business trust registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of twelve separate portfolios,
each having an unlimited number of shares of beneficial interest. The Fund
currently offers three different classes of shares: Class A shares, Class B
shares and Class C shares. Class A shares are sold with a front-end sales
charge. Class B shares and Class C shares are sold with a contingent deferred
sales charge. Matters affecting each portfolio or class will be voted on
exclusively by the shareholders of such portfolio or class. The assets,
liabilities and operations of each portfolio are accounted for separately.
Information presented in these financial statements pertains only to the Fund.
The Fund's investment objective is to achieve a high total return.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. Security Valuations -- Securities, including restricted
securities, are valued according to the following policy. A
FS-45
security listed or traded on an exchange (except convertible bonds) is valued
at its last sales price as of the close of the customary trading session on
the exchange where the security is principally traded, or lacking any sales
on a particular day, the security is valued at the closing bid price on that
day. Each security reported on the NASDAQ National Market System is valued at
the last sales price as of the close of the customary trading session on the
valuation date or absent a last sales price, at the closing bid price. Debt
obligations (including convertible bonds) are valued on the basis of prices
provided by an independent pricing service. Prices provided by the pricing
service may be determined without exclusive reliance on quoted prices, and
may reflect appropriate factors such as yield, type of issue, coupon rate and
maturity date. 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. Securities for which market quotations are not readily available or
are questionable are valued at fair value as determined in good faith by or
under the supervision of the Trust's officers in a manner specifically
authorized by the Board of Trustees. Short-term obligations having 60 days or
less to maturity are valued at amortized cost which approximates market
value. For purposes of determining net asset value per share, futures and
option contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Foreign securities are converted into U.S. dollar amounts using 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. Occasionally, 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 be
reflected in the computation of the Fund's net asset value. If a development/
event is so significant that there is a reasonably high degree of certainty
as to both the effect and the degree of effect that the development/event has
actually caused that closing price to no longer reflect actual value, the
closing prices, as determined at the close of the applicable foreign market,
may be adjusted to reflect the fair value of the affected foreign securities
as of the close of the NYSE as determined in good faith by or under the
supervision of the Board of Trustees.
B. Securities Transactions and Investment Income -- Securities
transactions are accounted for on a trade date basis. Realized gains or
losses on sales are computed on the basis of specific identification of the
securities sold. Interest income is recorded on the accrual basis from
settlement date. Dividend income is recorded on the ex-dividend date. Bond
premiums and discounts are amortized and/or accreted for financial reporting
purposes.
On December 31, 2001, undistributed net investment income was decreased and
undistributed net realized gains increased by $79,923 as a result of foreign
currency reclassifications, distribution reclassifications, differing
book/tax treatment of bond premium amortization, and other reclassifications.
Net assets of the Fund were unaffected by the reclassification discussed
above.
C. Distributions -- Distributions from income are declared and
paid quarterly and are recorded on ex-dividend date. Distributions from net
realized capital gains, if any, are generally paid annually and recorded on
ex-dividend date. The Fund may elect to use a portion of the proceeds from
redemptions as distributions for federal income tax purposes.
D. Federal Income Taxes -- The Fund intends to comply with the
requirements of 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 gains) which is
distributed to shareholders. Therefore, no provision for federal income taxes
is recorded in the financial statements.
The Fund has a capital loss carryforward of $16,817,392 as of December 31,
2001 which may be carried forward to offset future taxable gains, if any,
which expires, if not previously utilized, in the year 2009. As of December
31, 2001 the fund has a post-October capital loss deferral of $10,017,714
which will be recognized in the following tax year.
E. Foreign Currency Translations -- Portfolio securities and other
assets and liabilities denominated in foreign currencies are translated into
U.S. dollar amounts at date of valuation. Purchases and sales of portfolio
securities and income items denominated in foreign currencies are translated
into U.S. dollar amounts on the respective dates of such transactions. The
Fund does not separately account for the portion of the results of operations
resulting from changes in foreign exchange rates on investments and the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss
from investments.
F. Foreign Currency Contracts -- A foreign currency contract is
an obligation to purchase or sell a specific currency for an agreed-upon
price at a future date. The Fund may enter into a foreign currency contract
to attempt to minimize the risk to the Fund from adverse changes in the
relationship between currencies. The Fund may also enter into a foreign
currency contract for the purchase or sale of a security denominated in a
foreign currency in order to "lock in" the U.S. dollar price of that
security. The Fund could be exposed to risk if counterparties to the
contracts are unable to meet the terms of their contracts or if the value of
the foreign currency changes unfavorably.
G. Covered Call Options -- The Fund may write call options, on a
covered basis; that is, the Fund will own the underlying security. When the
Fund writes a covered call option, an amount equal to the premium received by
the Fund is recorded as an asset and an equivalent liability. The amount of
the liability is subsequently "marked-to-market" to reflect the
FS-46
current market value of the option written. The current market value of a
written option is the mean between the last bid and asked prices on that day.
If a written call option expires on the stipulated expiration date, or if the
Fund enters into a closing purchase transaction, the Fund realizes a gain (or
a loss if the closing purchase transaction exceeds the premium received when
the option was written) without regard to any unrealized gain or loss on the
underlying security, and the liability related to such option is
extinguished. If a written option is exercised, the Fund realizes a gain or a
loss from the sale of the underlying security and the proceeds of the sale
are increased by the premium originally received.
H. Expenses -- Distribution expenses directly attributable to a
class of shares are charged to those classes' operations. All other expenses
which are attributable to more than one class are allocated among the classes
based on relative net assets.
NOTE 2-CHANGE IN ACCOUNTING PRINCIPLE
As required, effective January 1, 2001, the Fund adopted the provisions of the
AICPA Audit and Accounting Guide for Investment Companies and began amortizing
premiums on debt securities. Prior to January 1, 2001, the Fund did not amortize
premiums on debt securities. The cumulative effect of this accounting change had
no impact on total net assets of the Fund, but resulted in a $107,137 reduction
in the cost of securities and a corresponding $107,137 increase in net
unrealized gains and losses, based on securities held by the Fund on January 1,
2001.
The effect of this change in 2001 was to decrease net investment income by
$14,448, increase net unrealized gains and losses by $13,095 and increase net
realized gains and losses by $1,353. As a result, the net investment income per
share decreased by $0.01, the net realized and unrealized gains and losses per
share increased by $0.01 and the ratio of net investment income to average net
assets decreased by 0.04%.
NOTE 3-ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM at an annual rate of 0.60% on the first
$200 million of the Fund's average daily net assets, plus 0.50% on the next $300
million of the Fund's average daily net assets, plus 0.40% on the next $500
million of the Fund's average daily net assets, plus 0.30% on the Fund's average
daily net assets in excess of $1 billion. 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 fund of which the Fund has invested. For the
year ended December 31, 2001, AIM waived fees of $1,934.
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. For the year ended December 31, 2001, AIM was
paid $92,707 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency and
shareholder services to the Fund. During the year ended December 31, 2001, AFS
was paid $401,224 for such services.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B and Class C shares of the Fund. The Trust has adopted plans
pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A
shares, Class B shares and Class C shares (collectively the "Plans"). The Fund,
pursuant to the Plans, pays AIM Distributors compensation at the annual rate of
0.25% of the Fund's average daily net assets of Class A shares and 1.00% of the
average daily net assets of Class B and C shares. Of these amounts, the Fund may
pay a service fee of 0.25% of the average daily net assets of the Class A, Class
B or Class C shares to selected dealers and financial institutions who furnish
continuing personal shareholder services to their customers who purchase and own
the appropriate class of shares of the Fund. Any amounts not paid as a service
fee under the Plans would constitute an asset-based sales charge. The Plans also
impose a cap on the total sales charges, including asset-based sales charges
that may be paid by the respective classes. For the year ended December 31,
2001, the Class A, Class B and Class C shares paid AIM Distributors $543,963,
$1,309,131 and $150,360, respectively, as compensation under the Plans.
AIM Distributors received commissions of $69,443 from sales of the Class A
shares of the Fund during the year ended December 31, 2001. Such commissions are
not an expense of the Fund. They are deducted from, and are not included in, the
proceeds from sales of Class A shares. During the year ended December 31, 2001,
AIM Distributors received $9,778 in contingent deferred sales charges imposed on
redemptions of Fund shares.
Certain officers and trustees of the Trust are officers and directors of AIM,
AFS and AIM Distributors.
During the year ended December 31, 2001, the Fund paid legal fees of $5,426
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Board of Trustees. A member of that firm is a trustee of the Trust.
NOTE 4-INDIRECT EXPENSES
For the year ended December 31, 2001, the Fund received reductions in transfer
agency fees from AFS (an affiliate of AIM) of $5,233 and reductions in custodian
fees of $80 under expense offset arrangements which resulted in a reduction of
the Fund's total expenses of $5,313.
NOTE 5-TRUSTEES' FEES
Trustees' fees represent remuneration paid to trustees who are not an
"interested person" of AIM. The Trust invests trustees' fees, if so elected by a
trustee, in mutual fund shares in accordance with a deferred compensation plan.
NOTE 6-BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by Citibank, N.A. The Fund may borrow up to the lesser of
(i) $1,000,000,000 or (ii) the limits set by its prospectus for borrowings. The
Fund and other funds advised by
FS-47
AIM which are parties to the line of credit may borrow on a first come, first
served basis. During the year ended December 31, 2001, the Fund did not borrow
under the line of credit agreement. The funds which are party to the line of
credit are charged a commitment fee of 0.09% on the unused balance of the
committed line. The commitment fee is allocated among the funds based on their
respective average net assets for the period.
NOTE 7-PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities to the extent of one-third of the Fund's
total assets. Such loans are secured by collateral equal to no less than the
market value, determined daily, of the loaned securities. Such collateral will
be cash or debt securities issued or guaranteed by the U.S. Government or any of
its agencies. Cash collateral pursuant to these loans is invested in short-term
money market instruments or affiliated money market funds. Lending securities
entails a risk of loss to the Fund if and to the extent that the market value of
the securities loaned were to increase and the borrower did not increase the
collateral accordingly, and the borrower fails to return the securities. It is
the Fund's policy to obtain additional collateral from or return excess
collateral to the borrower by the end of the next business day. Therefore, the
value of the collateral may be temporarily less than the value of the securities
on loan.
At December 31, 2001, securities with an aggregate value of $41,953,857 were
on loan to brokers. The loans were secured by cash collateral of $43,287,594
received by the Fund and subsequently invested in affiliated money market funds
as follows: $21,643,797 in STIC Liquid Assets Portfolio and $21,643,797 in STIC
Prime Portfolio. For the year ended December 31, 2001, the Fund received fees of
$111,495 for securities lending.
NOTE 8-DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF CAPITAL
The tax character of distributions paid during 2001 and 2000 was as follows:
<Table>
<Caption>
2001 2000
---------- -----------
Distributions paid from:
Ordinary income $4,851,946 $29,323,123
- -----------------------------------------------------------
Long-term capital gain 2,670,883 22,061,146
===========================================================
$7,522,829 $51,384,269
___________________________________________________________
===========================================================
</Table>
As of December 31, 2001, the components of distributable earnings (accumulated
losses) on a tax basis were as follows:
<Table>
<Caption>
Undistributed ordinary income $ 250,637
- ---------------------------------------------------------
Capital loss carryover (16,817,392)
- ---------------------------------------------------------
Unrealized depreciation (1,493,140)
=========================================================
$(18,059,895)
_________________________________________________________
=========================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation is
attributable primarily to the tax deferral of losses on wash sales, the tax
deferral of capital losses incurred after October 31, and other deferrals.
NOTE 9-INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund during the year ended December 31, 2001 was
$64,203,976 and $104,225,654, respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
for tax purposes, as of December 31, 2001 is as follows:
<Table>
<Caption>
Aggregate unrealized appreciation of
investment securities $ 39,756,018
- ---------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (31,175,217)
=========================================================
Net unrealized appreciation of investment
securities $ 8,580,801
_________________________________________________________
=========================================================
Cost of investments for tax purposes is $270,853,577.
</Table>
NOTE 10-CALL OPTION CONTRACTS
Transactions in call options written during the year ended December 31, 2001 are
summarized as follows:
<Table>
<Caption>
CALL OPTION CONTRACTS
----------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
--------- ---------
Beginning of year -- $ --
- ---------------------------------------------------------
Written 336 226,433
- ---------------------------------------------------------
Expired (336) (226,433)
=========================================================
End of year -- $ --
_________________________________________________________
=========================================================
</Table>
FS-48
NOTE 11-SHARE INFORMATION
Changes in shares outstanding during the years ended December 31, 2001 and 2000
were as follows:
<Table>
<Caption>
2001 2000
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
Sold:
Class A 1,794,576 $ 34,716,035 3,794,538 $106,076,315
- ----------------------------------------------------------------------------------------------------------------------
Class B 859,987 17,105,311 1,986,260 53,880,447
- ----------------------------------------------------------------------------------------------------------------------
Class C 226,533 4,463,280 558,391 15,179,433
======================================================================================================================
Issued as reinvestment of dividends:
Class A 283,142 4,686,155 1,299,861 29,276,481
- ----------------------------------------------------------------------------------------------------------------------
Class B 111,990 1,793,582 717,979 15,980,083
- ----------------------------------------------------------------------------------------------------------------------
Class C 12,912 207,366 81,046 1,800,992
======================================================================================================================
Reacquired:
Class A (3,018,253) (57,448,362) (2,334,702) (64,478,900)
- ----------------------------------------------------------------------------------------------------------------------
Class B (2,091,008) (38,226,694) (998,532) (26,785,880)
- ----------------------------------------------------------------------------------------------------------------------
Class C (282,906) (5,316,985) (104,539) (2,783,151)
======================================================================================================================
(2,103,027) $(38,020,312) 5,000,302 $128,145,820
______________________________________________________________________________________________________________________
======================================================================================================================
</Table>
NOTE 12-FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
----------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
2001(A) 2000(A) 1999(A) 1998 1997
-------- -------- -------- -------- --------
Net asset value, beginning of period $ 22.45 $ 26.08 $ 21.01 $ 19.26 $ 16.01
- ------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.29(b) 0.33 0.38 0.48 0.47
- ------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (6.63) (1.00) 6.60 2.53 3.26
========================================================================================================================
Total from investment operations (6.34) (0.67) 6.98 3.01 3.73
========================================================================================================================
Less distributions:
Dividends from net investment income (0.29) (0.28) (0.35) (0.46) (0.47)
- ------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.18) (2.68) (1.56) (0.80) (0.01)
========================================================================================================================
Total distributions (0.47) (2.96) (1.91) (1.26) (0.48)
========================================================================================================================
Net asset value, end of period $ 15.64 $ 22.45 $ 26.08 $ 21.01 $ 19.26
________________________________________________________________________________________________________________________
========================================================================================================================
Total return(c) (28.33)% (2.54)% 34.15% 16.01% 23.70%
________________________________________________________________________________________________________________________
========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $171,432 $267,200 $238,432 $196,665 $179,456
________________________________________________________________________________________________________________________
========================================================================================================================
Ratio of expenses to average net assets 1.12%(d) 1.03% 1.10% 1.06% 1.13%
========================================================================================================================
Ratio of net investment income to average net assets 1.53%(b)(d) 1.23% 1.69% 2.39% 2.79%
________________________________________________________________________________________________________________________
========================================================================================================================
Portfolio turnover rate 19% 52% 37% 38% 26%
________________________________________________________________________________________________________________________
========================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) As required, effective January 1, 2001, the Fund has adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and began
amortizing premiums on debt securities. Had the Fund not amortized premiums
on debt securities, the net investment income per share would have been
$0.30 and the ratio of net investment income to average net assets would
have been 1.57%. In accordance with the AICPA Audit and Accounting Guide
for Investment Companies, per share and ratios for periods prior to January
1, 2001 have not been restated to reflect this change in presentation.
(c) Does not include sales charges.
(d) Ratios are based on average daily net assets of $217,585,019.
FS-49
<Table>
<Caption>
CLASS B
--------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
2001(A) 2000(A) 1999(A) 1998 1997
------- -------- -------- -------- -------
Net asset value, beginning of period $22.38 $ 26.03 $ 20.98 $ 19.24 $ 16.01
- ----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.15(b) 0.13 0.21 0.33 0.34
- ----------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (6.60) (1.01) 6.59 2.53 3.25
======================================================================================================================
Total from investment operations (6.45) (0.88) 6.80 2.86 3.59
======================================================================================================================
Less distributions:
Dividends from net investment income (0.15) (0.09) (0.19) (0.32) (0.35)
- ----------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.18) (2.68) (1.56) (0.80) (0.01)
======================================================================================================================
Total distributions (0.33) (2.77) (1.75) (1.12) (0.36)
======================================================================================================================
Net asset value, end of period $15.60 $ 22.38 $ 26.03 $ 20.98 $ 19.24
______________________________________________________________________________________________________________________
======================================================================================================================
Total return(c) (28.87)% (3.28)% 33.16% 15.14% 22.74%
______________________________________________________________________________________________________________________
======================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $94,615 $160,820 $142,632 $111,866 $94,227
______________________________________________________________________________________________________________________
======================================================================================================================
Ratio of expenses to average net assets 1.88%(d) 1.80% 1.84% 1.81% 1.91%
======================================================================================================================
Ratio of net investment income to average net assets 0.78%(b)(d) 0.46% 0.95% 1.64% 2.01%
______________________________________________________________________________________________________________________
======================================================================================================================
Portfolio turnover rate 19% 52% 37% 38% 26%
______________________________________________________________________________________________________________________
======================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) As required, effective January 1, 2001, the Fund has adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and began
amortizing premiums on debt securities. Had the Fund not amortized premiums
on debt securities, the net investment income per share would have been the
same and the ratio of net investment income to average net assets would
have been 0.81%. In accordance with the AICPA Audit and Accounting Guide
for Investment Companies, per share and ratios for periods prior to January
1, 2001 have not been restated to reflect this change in presentation.
(c) Does not include contingent deferred sales charges.
(d) Ratios are based on average daily net assets of $130,913,088.
<Table>
<Caption>
CLASS C
-----------------------------------------------------------
AUGUST 4, 1997
(DATE SALES
YEAR ENDED DECEMBER 31, COMMENCED) TO
----------------------------------------- DECEMBER 31,
2001(A) 2000(A) 1999(A) 1998 1997
------- ------- ------- ------ --------------
Net asset value, beginning of period $22.37 $26.02 $20.97 $19.24 $ 17.67
- -------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.15(b) 0.13 0.21 0.33 0.13
- -------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (6.60) (1.01) 6.59 2.52 1.58
=========================================================================================================================
Total from investment operations (6.45) (0.88) 6.80 2.85 1.71
=========================================================================================================================
Less distributions:
Dividends from net investment income (0.15) (0.09) (0.19) (0.32) (0.13)
- -------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.18) (2.68) (1.56) (0.80) (0.01)
=========================================================================================================================
Total distributions (0.33) (2.77) (1.75) (1.12) (0.14)
=========================================================================================================================
Net asset value, end of period $15.59 $22.37 $26.02 $20.97 $ 19.24
_________________________________________________________________________________________________________________________
=========================================================================================================================
Total return(c) (28.88)% (3.28)% 33.18% 15.09% 9.74%
_________________________________________________________________________________________________________________________
=========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $11,679 $17,727 $6,702 $2,994 $ 1,183
_________________________________________________________________________________________________________________________
=========================================================================================================================
Ratio of expenses to average net assets 1.88%(d) 1.80% 1.84% 1.81% 1.90%(e)
=========================================================================================================================
Ratio of net investment income to average net assets 0.78%(b)(d) 0.46% 0.95% 1.64% 2.02%(e)
_________________________________________________________________________________________________________________________
=========================================================================================================================
Portfolio turnover rate 19% 52% 37% 38% 26%
_________________________________________________________________________________________________________________________
=========================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) As required, effective January 1, 2001, the Fund has adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and began
amortizing premiums on debt securities. Had the Fund not amortized premiums
on debt securities, the net investment income per share would have been the
same and the ratio of net investment income to average net assets would
have been 0.81%. In accordance with the AICPA Audit and Accounting Guide
for Investment Companies, per share and ratios for periods prior to January
1, 2001 have not been restated to reflect this change in presentation.
(c) Does not include contingent deferred sales charges and is not annualized
for periods less than one year.
(d) Ratios are based on average daily net assets of $15,035,993.
(e) Annualized.
FS-50
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees and Shareholders of
AIM International Emerging Growth Fund:
In our opinion, the accompanying statement of assets and
liabilities, including the schedule of investments, and
the related statements of operations and of changes in
net assets and the financial highlights present fairly,
in all material respects, the financial position of the
AIM International Emerging Growth Fund (one of the funds
constituting AIM Funds Group; hereafter referred to as
the "Fund") at December 31, 2001, and the results of its
operations, the changes in its net assets and the
financial highlights for each of the periods indicated,
in conformity with accounting principles generally
accepted in the United States of America. These financial
statements and financial highlights (hereafter referred
to as "financial statements") are the responsibility of
the Fund's management; our responsibility is to express
an opinion on these financial statements based on our
audits. We conducted our audits of these financial
statements in accordance with auditing standards
generally accepted in the United States of America, which
require that we plan and perform the audit to obtain
reasonable assurance about whether the financial
statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant
estimates made by management, and evaluating the overall
financial statement presentation. We believe that our
audits, which included confirmation of securities at
December 31, 2001 by correspondence with the custodian
and brokers, provide a reasonable basis for our opinion.
/s/ PRICEWATERHOUSECOOPERS LLP
February 14, 2002
Houston, Texas
FS-51
SCHEDULE OF INVESTMENTS
December 31, 2001
<Table>
<Caption>
MARKET
SHARES VALUE
FOREIGN STOCKS & OTHER EQUITY
INTERESTS-93.86%
AUSTRALIA-5.59%
Billabong International Ltd. (Movies &
Entertainment) 17,100 $ 73,204
- -------------------------------------------------------------------
Computershare Ltd. (Data Processing Services) 33,500 90,359
- -------------------------------------------------------------------
CSL Ltd. (Pharmaceuticals)(a) 5,100 134,149
- -------------------------------------------------------------------
ERG Ltd. (Electronic Equipment & Instruments) 91,000 25,568
- -------------------------------------------------------------------
Ramsay Health Care Ltd. (Health Care
Facilities) 27,600 64,576
- -------------------------------------------------------------------
Securenet Ltd. (Internet Software &
Services)(b) 36,700 25,685
- -------------------------------------------------------------------
Toll Holdings Ltd. (Trucking) 9,500 135,114
===================================================================
548,655
===================================================================
AUSTRIA-0.78%
Gericom A.G. (Computer Hardware) 2,800 76,655
===================================================================
BELGIUM-2.54%
Omega Pharma S.A. (Health Care Supplies) 5,500 249,400
===================================================================
CANADA-25.68%
A.L.I Technologies Inc. (Health Care
Distributors & Services)(b) 19,000 226,816
- -------------------------------------------------------------------
Alimentation Couche-Tard Inc.-Class B (Food
Retail)(b) 13,600 219,347
- -------------------------------------------------------------------
BW Technologies Ltd. (Electronic Equipment &
Instruments)(b) 9,900 104,001
- -------------------------------------------------------------------
Cognicase Inc. (Application Software)(b) 21,800 139,708
- -------------------------------------------------------------------
Connors Bros. Income Fund (Food Distributors) 13,500 101,360
- -------------------------------------------------------------------
CoolBrands International, Inc.
(Restaurants)(b) 29,200 64,212
- -------------------------------------------------------------------
Dynacare Inc. (Health Care Distributors &
Services)(b) 5,100 86,139
- -------------------------------------------------------------------
FirstService Corp. (Diversified Commercial
Services)(b) 7,700 217,367
- -------------------------------------------------------------------
Forzani Group Ltd. (The)-Class A (Specialty
Stores)(b) 30,200 290,312
- -------------------------------------------------------------------
Genesis Microchip Inc. (Semiconductors)(b) 2,000 132,240
- -------------------------------------------------------------------
Northside Group Inc. (Construction & Farm
Machinery)(b) 12,500 62,437
- -------------------------------------------------------------------
Paladin Labs, Inc. (Pharmaceuticals)(b) 12,400 63,885
- -------------------------------------------------------------------
PanGeo Pharma Inc. (Pharmaceuticals)(b) 79,200 149,284
- -------------------------------------------------------------------
Reitmans (Canada) Ltd.-Class A (Apparel
Retail) 9,800 138,540
- -------------------------------------------------------------------
Richelieu Hardware Ltd. (Distributors)(b) 23,400 147,022
- -------------------------------------------------------------------
SEAMARK Asset Management Ltd. (Diversified
Financial Services)(a) 12,200 142,190
- -------------------------------------------------------------------
SNC-Lavalin Group Inc. (Construction &
Engineering) 6,300 114,394
- -------------------------------------------------------------------
Vincor International Inc. (Brewers)(a)(b) 7,900 118,877
===================================================================
2,518,131
===================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
CHINA-1.85%
AsiaInfo Holdings, Inc. (Internet Software &
Services)(b) 6,400 $ 111,488
- -------------------------------------------------------------------
Travelsky Technology Ltd. (Diversified
Commercial Services)(a)(b) 91,000 70,013
===================================================================
181,501
===================================================================
FINLAND-3.88%
Hartwall Oyj ABP (Brewers) 9,900 202,169
- -------------------------------------------------------------------
Instrumentarium Corp.-Class B (Health Care
Equipment) 3,000 125,737
- -------------------------------------------------------------------
Vacon Oyj (Electrical Components &
Equipment)(a) 6,400 52,506
===================================================================
380,412
===================================================================
FRANCE-10.05%
AES Laboratoire Groupe (Health Care
Equipment) 1,200 122,526
- -------------------------------------------------------------------
Brime Technologies (Diversified Commercial
Services)(b) 3,100 95,373
- -------------------------------------------------------------------
Marionnaud Parfumeries (Specialty Stores)(b) 3,600 174,640
- -------------------------------------------------------------------
MEDIDEP S.A. (Health Care Facilities)(b) 13,140 253,686
- -------------------------------------------------------------------
Silicon-On-Insulator Technologies (SOITEC)
(Electronic Equipment & Instruments)(b) 10,355 205,458
- -------------------------------------------------------------------
UBI Soft Entertainment S.A. (Application
Software)(b) 4,000 133,763
===================================================================
985,446
===================================================================
GERMANY-4.61%
FJA A.G. (Electronic Equipment & Instruments) 1,850 84,137
- -------------------------------------------------------------------
Stada Arzneimittel A.G. (Pharmaceuticals) 5,100 178,506
- -------------------------------------------------------------------
Suess MicroTec A.G. (Semiconductor
Equipment)(b) 2,800 78,403
- -------------------------------------------------------------------
Wedeco A.G. Water Technology (Water
Utilities)(b) 3,600 110,755
===================================================================
451,801
===================================================================
GREECE-0.92%
Folli-Follie (Apparel & Accessories) 5,100 89,776
===================================================================
HONG KONG-5.72%
Asia Satellite Telecommunications Holdings
Ltd. (Alternative Carriers) 29,000 47,413
- -------------------------------------------------------------------
Clear Media Ltd. (Advertising)(a)(b) 152,000 111,098
- -------------------------------------------------------------------
Convenience Retail Asia Ltd. (Food
Retail)(a)(b) 184,000 59,576
- -------------------------------------------------------------------
Denway Motors Ltd. (Automobile Manufacturers) 146,400 45,524
- -------------------------------------------------------------------
Global Bio-chem Technology Co. Ltd.
(Agricultural Products) 276,000 96,442
- -------------------------------------------------------------------
Texwinca Holdings Ltd. (Textiles) 228,000 108,906
- -------------------------------------------------------------------
Tingyi (Cayman Islands) Holding Corp.
(Packaged Foods) 548,000 92,054
===================================================================
561,013
===================================================================
</Table>
FS-52
<Table>
<Caption>
MARKET
SHARES VALUE
INDIA-1.26%
Dr. Reddy's Laboratories Ltd.-ADR
(Pharmaceuticals) 3,200 $ 60,640
- -------------------------------------------------------------------
Satyam Computer Services Ltd.-ADR (IT
Consulting & Services) 5,700 62,586
===================================================================
123,226
===================================================================
IRELAND-4.57%
Anglo Irish Bank Corp. PLC (Banks) 41,200 159,819
- -------------------------------------------------------------------
ICON PLC-ADR (Health Care Distributors &
Services)(b) 3,100 92,411
- -------------------------------------------------------------------
IFG Group PLC (Diversified Financial
Services) 38,600 115,312
- -------------------------------------------------------------------
Riverdeep Group PLC-ADR (Internet Software &
Services)(b) 4,800 80,688
===================================================================
448,230
===================================================================
ISRAEL-4.70%
ECtel Ltd. (Telecommunications Equipment)(b) 10,200 176,664
- -------------------------------------------------------------------
Lumenis Ltd. (Health Care Equipment)(b) 2,100 41,370
- -------------------------------------------------------------------
Taro Pharmaceutical Industries Ltd.
(Pharmaceuticals)(b) 3,820 152,609
- -------------------------------------------------------------------
TTI Team Telecom International Ltd.
(Application Software)(b) 3,600 90,072
===================================================================
460,715
===================================================================
JAPAN-1.52%
Bellsystem24, Inc. (Diversified Commercial
Services) 400 148,857
===================================================================
NETHERLANDS-0.79%
ASM International N.V. (Semiconductor
Equipment)(b) 4,000 77,582
===================================================================
NEW ZEALAND-0.83%
Fisher & Paykel Healthcare Corp. Ltd.-ADR
(Health Care Equipment)(b) 2,900 81,635
===================================================================
SINGAPORE-0.52%
Sembcorp Logistics Ltd. (Marine Ports &
Services) 52,000 50,691
===================================================================
SWEDEN-4.08%
Biacore International A.B. (Health Care
Equipment)(b) 2,410 78,442
- -------------------------------------------------------------------
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
SWEDEN-(CONTINUED)
Elekta A.B.-Class B (Health Care
Equipment)(b) 21,100 $ 171,694
- -------------------------------------------------------------------
Nobel Biocare (Health Care Supplies) 2,000 83,765
- -------------------------------------------------------------------
Q-Med A.B. (Biotechnology)(b) 4,000 66,629
===================================================================
400,530
===================================================================
SWITZERLAND-0.35%
Converium Holding A.G. (Reinsurance)(b) 700 34,071
===================================================================
UNITED KINGDOM-13.62%
Biotrace International PLC (Health Care
Equipment)(b) 37,000 74,203
- -------------------------------------------------------------------
Chemring Group PLC (Aerospace & Defense) 26,500 140,832
- -------------------------------------------------------------------
Chloride Group PLC (Electrical Components &
Equipment) 55,000 56,056
- -------------------------------------------------------------------
Electronics Boutique PLC (Computer &
Electronics Retail) 120,600 240,563
- -------------------------------------------------------------------
Geest PLC (Agricultural Products) 9,900 106,345
- -------------------------------------------------------------------
Innovation Group (The) PLC (Application
Software) 14,100 74,933
- -------------------------------------------------------------------
iSOFT Group PLC (Application Software)(a) 46,300 175,273
- -------------------------------------------------------------------
John David Sports PLC (Apparel Retail) 17,200 76,257
- -------------------------------------------------------------------
Man Group PLC (Diversified Financial
Services) 13,400 232,564
- -------------------------------------------------------------------
PHS Group PLC (Diversified Commercial
Services) 37,880 49,086
- -------------------------------------------------------------------
Torex PLC (IT Consulting & Services) 10,300 109,777
===================================================================
1,335,889
===================================================================
Total Foreign Stocks & Other Equity
Interests (Cost $7,837,495) 9,204,216
===================================================================
MONEY MARKET FUNDS-5.89%
STIC Liquid Assets Portfolio(c) 288,573 288,573
- -------------------------------------------------------------------
STIC Prime Portfolio(c) 288,573 288,573
===================================================================
Total Money Market Funds (Cost $577,146) 577,146
===================================================================
TOTAL INVESTMENTS-99.75% (Cost $8,414,641) 9,781,362
===================================================================
OTHER ASSETS LESS LIABILITIES-0.25% 24,372
===================================================================
NET ASSETS-100.00% $9,805,734
___________________________________________________________________
===================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
</Table>
Notes to Schedule of Investments:
(a) Represents a security sold under Rule 144A, which is exempt from
registration and may be resold to qualified institutional buyers in
accordance with the provisions of Rule 144A under the Securities Act of
1933, as amended.
(b) Non-income producing security.
(c) The money market fund and the Fund are affiliated by having the same
investment advisor.
See Notes to Financial Statements.
FS-53
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2001
<Table>
ASSETS:
Investments, at market value (cost $8,414,641) $9,781,362
- ------------------------------------------------------------
Foreign currencies, at value (cost $147,455) 148,790
- ------------------------------------------------------------
Receivables for:
Fund shares sold 6,009
- ------------------------------------------------------------
Dividends 10,004
- ------------------------------------------------------------
Investment for deferred compensation plan 9,076
- ------------------------------------------------------------
Due from advisor 8,558
- ------------------------------------------------------------
Other assets 13,831
============================================================
Total assets 9,977,630
============================================================
LIABILITIES:
Payables for:
Investments purchased 53,637
- ------------------------------------------------------------
Fund shares reacquired 51,774
- ------------------------------------------------------------
Deferred compensation plan 9,076
- ------------------------------------------------------------
Accrued distribution fees 8,605
- ------------------------------------------------------------
Accrued transfer agent fees 5,372
- ------------------------------------------------------------
Accrued operating expenses 43,432
============================================================
Total liabilities 171,896
============================================================
Net assets applicable to shares outstanding $9,805,734
____________________________________________________________
============================================================
NET ASSETS:
Class A $5,202,143
____________________________________________________________
============================================================
Class B $2,016,073
____________________________________________________________
============================================================
Class C $2,587,518
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE:
Class A 732,800
____________________________________________________________
============================================================
Class B 285,132
____________________________________________________________
============================================================
Class C 366,162
____________________________________________________________
============================================================
Class A:
Net asset value per share $ 7.10
- ------------------------------------------------------------
Offering price per share:
(Net asset value of $7.10 divided by 94.50%) $ 7.51
____________________________________________________________
============================================================
Class B:
Net asset value and offering price per share $ 7.07
____________________________________________________________
============================================================
Class C:
Net asset value and offering price per share $ 7.07
____________________________________________________________
============================================================
</Table>
STATEMENT OF OPERATIONS
For the year ended December 31, 2001
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of
$7,548) $ 70,067
- ------------------------------------------------------------
Dividends from affiliated money market funds 20,377
- ------------------------------------------------------------
Interest 183
============================================================
Total investment income 90,627
============================================================
EXPENSES:
Advisory fees 96,010
- ------------------------------------------------------------
Administrative services fees 50,000
- ------------------------------------------------------------
Custodian fees 70,226
- ------------------------------------------------------------
Distribution fees -- Class A 19,636
- ------------------------------------------------------------
Distribution fees -- Class B 19,061
- ------------------------------------------------------------
Distribution fees -- Class C 25,899
- ------------------------------------------------------------
Interest 1,622
- ------------------------------------------------------------
Transfer agent fees -- Class A 20,462
- ------------------------------------------------------------
Transfer agent fees -- Class B 8,029
- ------------------------------------------------------------
Transfer agent fees -- Class C 10,910
- ------------------------------------------------------------
Trustees' fees 8,355
- ------------------------------------------------------------
Registration and filing fees 83,403
- ------------------------------------------------------------
Professional Fees 49,410
- ------------------------------------------------------------
Other 28,110
============================================================
Total expenses 491,133
============================================================
Less: Fees waived and expenses reimbursed (255,424)
- ------------------------------------------------------------
Expenses paid indirectly (142)
============================================================
Net expenses 235,567
============================================================
Net investment income (loss) (144,940)
============================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES, AND FOREIGN
CURRENCIES:
Net realized gain (loss) from:
Investment securities (3,434,001)
- ------------------------------------------------------------
Foreign currencies 7,533
============================================================
(3,426,468)
============================================================
Change in net unrealized appreciation of:
Investment securities 2,123,974
- ------------------------------------------------------------
Foreign currencies 3,212
============================================================
2,127,186
============================================================
Net gain (loss) from investment securities and
foreign currencies (1,299,282)
============================================================
Net increase (decrease) in net assets resulting
from operations $(1,444,222)
____________________________________________________________
============================================================
</Table>
See Notes to Financial Statements.
FS-54
STATEMENT OF CHANGES IN NET ASSETS
For the year ended December 31, 2001 and the period August 31, 2000 (date
operations commenced)
through December 31, 2001
<Table>
<Caption>
2001 2000
----------- -----------
OPERATIONS:
Net investment income (loss) $ (144,940) $ (29,949)
- ----------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities and
foreign currencies (3,426,468) (500,456)
- ----------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities and foreign currencies 2,127,186 (759,305)
========================================================================================
Net increase (decrease) in net assets resulting from
operations (1,444,222) (1,289,710)
========================================================================================
Distributions to shareholders from net investment income:
Class A (23,732) --
- ----------------------------------------------------------------------------------------
Share transactions-net:
Class A 479,977 6,385,964
- ----------------------------------------------------------------------------------------
Class B 279,960 2,274,262
- ----------------------------------------------------------------------------------------
Class C 247,353 2,895,882
========================================================================================
Net increase (decrease) in net assets (460,664) 10,266,398
========================================================================================
NET ASSETS:
Beginning of year 10,266,398 --
========================================================================================
End of year $ 9,805,734 $10,266,398
________________________________________________________________________________________
========================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $12,397,467 $11,550,792
- ----------------------------------------------------------------------------------------
Undistributed net investment income (loss) (9,076) (8,552)
- ----------------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment
securities and foreign currencies (3,950,538) (516,537)
- ----------------------------------------------------------------------------------------
Unrealized appreciation (depreciation) of investment
securities and foreign currencies 1,367,881 (759,305)
========================================================================================
$ 9,805,734 $10,266,398
________________________________________________________________________________________
========================================================================================
</Table>
See Notes to Financial Statements.
FS-55
NOTES TO FINANCIAL STATEMENTS
December 31, 2001
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM International Emerging Growth Fund (the "Fund") is a series portfolio of AIM
Funds Group (the "Fund"). The Trust is a Delaware business trust registered
under the Investment Company Act of 1940, as amended (the "1940 Act"), as an
open-end series management investment company consisting of twelve separate
portfolios, each having an unlimited number of shares of beneficial interest.
The Fund currently offers three different classes of shares: Class A shares,
Class B shares and Class C shares. Class A shares are sold with a front-end
sales charge. Class B shares and Class C shares are sold with a contingent
deferred sales charge. Matters affecting each portfolio or class will be voted
on exclusively by the shareholders of such portfolio or class. The assets,
liabilities and operations of each portfolio are accounted for separately.
Information presented in these financial statements pertains only to the Fund.
The Fund's investment objective is to achieve long-term growth of capital.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. Security Valuations -- Securities, including restricted securities, are
valued according to the following policy. A security listed or traded on an
exchange (except convertible bonds) is valued at its last sales price as of
the close of the customary trading session on the exchange where the security
is principally traded, or lacking any sales on a particular day, the security
is valued at the closing bid price on that day. Each security reported on the
NASDAQ National Market System is valued at the last sales price as of the
close of the customary trading session on the valuation date or absent a last
sales price, at the closing bid price. Debt obligations (including
convertible bonds) are valued on the basis of prices provided by an
independent pricing service. Prices provided by the pricing service may be
determined without exclusive reliance on quoted prices, and may reflect
appropriate factors such as yield, type of issue, coupon rate and maturity
date. 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.
Securities for which market quotations are not readily available or are
questionable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers in a manner specifically authorized
by the Board of Trustees. Short-term obligations having 60 days or less to
maturity are valued at amortized cost which approximates market value. For
purposes of determining net asset value per share, futures and option
contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Foreign securities are converted into U.S. dollar amounts using 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. Occasionally, 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 be
reflected in the computation of the Fund's net asset value. If a development/
event is so significant that there is a reasonably high degree of certainty
as to both the effect and the degree of effect that the development/event has
actually caused that closing price to no longer reflect actual value, the
closing prices, as determined at the close of the applicable foreign market,
may be adjusted to reflect the fair value of the affected foreign securities
as of the close of the NYSE as determined in good faith by or under the
supervision of the Board of Trustees.
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.
On December 31, 2001, undistributed net investment income was increased by
$168,148, undistributed net realized gains decreased by $7,533 and shares of
beneficial interest decreased by $160,615 as a result of differing book/tax
treatment of foreign currency transactions, net operating loss, and other
reclassifications. Net assets of the Fund were unaffected by the
reclassification discussed above.
C. Distributions -- Distributions from income and net realized capital gains, if
any, are generally paid annually and recorded on ex-dividend date. The Fund
may elect to use a portion of the proceeds from redemptions as distributions
for federal income tax purposes.
D. Federal Income Taxes -- The Fund intends to comply with the requirements of
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 gains) which is
distributed to shareholders. Therefore, no provision for federal income taxes
is recorded in the financial statements.
FS-56
The Fund's capital loss carryforward of $3,760,460 is broken down by
expiration date as follows:
<Table>
<Caption>
CAPITAL LOSS
CARRYFORWARD EXPIRATION
------------ ----------
$ 161,713 December 31, 2008
-------------------------------
3,598,747 December 31, 2009
===============================
$3,760,460
______________________________
===============================
</Table>
As of December 31, 2001 the fund has a post-October capital loss deferral of
$140,458 which will be recognized in the following tax year.
E. Foreign Currency Translations -- Portfolio securities and other
assets and liabilities denominated in foreign currencies are translated into
U.S. dollar amounts at date of valuation. Purchases and sales of portfolio
securities and income items denominated in foreign currencies are translated
into U.S. dollar amounts on the respective dates of such transactions. The
Fund does not separately account for the portion of the results of operations
resulting from changes in foreign exchange rates on investments and the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss
from investments.
F. Foreign Currency Contracts -- A foreign currency contract is
an obligation to purchase or sell a specific currency for an agreed-upon
price at a future date. The Fund may enter into a foreign currency contract
to attempt to minimize the risk to the Fund from adverse changes in the
relationship between currencies. The Fund may also enter into a foreign
currency contract for the purchase or sale of a security denominated in a
foreign currency in order to "lock in" the U.S. dollar price of that
security. The Fund could be exposed to risk if counterparties to the
contracts are unable to meet the terms of their contracts or if the value of
the foreign currency changes unfavorably.
G. Expenses -- Distribution expenses directly attributable to a
class of shares are charged to those classes' operations. All other expenses
which are attributable to more than one class are allocated among the classes
based on relative net assets.
NOTE 2-ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. (AIM). Under the terms of the investment advisory agreement, the
Fund pays an advisory fee to AIM at the annual rate of 0.95% of the Fund's
average daily net assets. Effective July 1, 2001, 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 fund of which the Fund has invested.
For the year ended December 31, 2001, AIM waived fees of $96,010 and reimbursed
expenses of $159,414.
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. For the year ended December 31, 2001, AIM was
paid $50,000 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay A I M Fund Services, Inc. (AIM) a fee for providing transfer agency and
shareholder services to the Fund. During the year ended December 31, 2001, AFS
was paid $21,921 for such services.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B and Class C shares of the Fund. The Trust has adopted plans
pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A
shares, Class B shares and Class C shares (collectively the "Plans"). The Fund,
pursuant to the Plans, pays AIM Distributors compensation at the annual rate of
0.35% of the Fund's average daily net assets of Class A shares and 1.00% of the
average daily net assets of Class B and C shares. Of these amounts, the Fund may
pay a service fee of 0.25% of the average daily net assets of the Class A, Class
B or Class C shares to selected dealers and financial institutions who furnish
continuing personal shareholder services to their customers who purchase and own
the appropriate class of shares of the Fund. Any amounts not paid as a service
fee under the Plans would constitute an asset-based sales charge. The Plans also
impose a cap on the total sales charges, including asset-based sales charges
that may be paid by the respective classes. For the year ended December 31,
2001, the Class A, Class B and Class C shares paid AIM Distributors $19,636,
$19,061 and $25,899, respectively, as compensation under the Plans.
AIM Distributors received commissions of $4,181 from sales of the Class A
shares of the Fund during the year ended December 31, 2001. Such commissions are
not an expense of the Fund. They are deducted from, and are not included in, the
proceeds from sales of Class A shares. During the year ended December 31, 2001,
AIM Distributors received $29,308 in contingent deferred sales charges imposed
on redemptions of Fund shares.
Certain officers and trustees of the Trust are officers and directors of AIM,
AFS and AIM Distributors.
During the year ended December 31, 2001, the Fund paid legal fees of $3,527
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Board of Trustees. A member of that firm is a trustee of the Trust.
NOTE 3-INDIRECT EXPENSES
For the year ended December 31, 2001, the Fund received reductions in transfer
agency fees from AFS (an affiliate of AIM) of $140 and reductions in custodian
fees of $2 under expense offset arrangements which resulted in a reduction of
the Fund's total expenses of $142.
NOTE 4-TRUSTEES' FEES
Trustees' fees represent remuneration paid to trustees who are not an interested
person of AIM. The Trust invests trustees' fees, if so elected by a trustee, in
mutual fund shares in accordance with a deferred compensation plan.
FS-57
NOTE 5-BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by Citibank, N.A. The Fund may borrow up to the lesser of
(i) $1,000,000,000 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. During the year ended December 31,
2001, the Fund did not borrow under the line of credit agreement. The funds
which are party to the line of credit are charged a commitment fee of 0.09% on
the unused balance of the committed line. The commitment fee is allocated among
the funds based on their respective average net assets for the period.
NOTE 6-DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF CAPITAL
The tax character of distributions paid during 2001 and 2000 was as follows:
<Table>
<Caption>
2001 2000
------- ----
Distributions paid from:
Ordinary income $23,732 $--
________________________________________________________
========================================================
</Table>
As of December 31, 2001, the components of distributable earnings (accumulated
losses) on a tax basis were as follows:
<Table>
Capital loss carryforward $(3,760,460)
- ---------------------------------------------------------
Unrealized appreciation 1,168,727
=========================================================
$(2,591,733)
_________________________________________________________
=========================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation is
attributable primarily to the tax deferral of losses on wash sales, the tax
deferral of capital losses incurred after October 31, and other deferrals.
NOTE 7-INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund during the year ended December 31, 2001 was
$15,428,239 and $13,891,979, respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
for tax purposes, as of December 31, 2001 is as follows:
<Table>
Aggregate unrealized appreciation of investment securities $1,694,217
- --------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (377,115)
==========================================================================
Net unrealized appreciation of investment securities $1,317,102
__________________________________________________________________________
==========================================================================
Cost of investments for tax purposes is $8,464,260
</Table>
NOTE 8-SHARE INFORMATION
Changes in shares outstanding during the year ended December 31, 2001 and the
period August 31, 2000 (date operations commenced) through December 31, 2000:
<Table>
<Caption>
2001 2000
----------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT
-------- ----------- --------- -----------
Sold:
Class A 993,758 $ 7,031,221 745,389 $ 6,717,335
- -----------------------------------------------------------------------------------------------------------------
Class B 109,838 803,969 271,186 2,438,175
- -----------------------------------------------------------------------------------------------------------------
Class C 515,389 3,642,409 339,960 2,953,136
=================================================================================================================
Issued as reinvestment of dividends:
Class A 3,265 22,694 -- --
=================================================================================================================
Reacquired:
Class A (970,367) (6,573,938) (39,245) (331,371)
- -----------------------------------------------------------------------------------------------------------------
Class B (75,401) (524,009) (20,491) (163,913)
- -----------------------------------------------------------------------------------------------------------------
Class C (482,373) (3,395,056) (6,814) (57,254)
=================================================================================================================
94,109 $ 1,007,290 1,289,985 $11,556,108
_________________________________________________________________________________________________________________
=================================================================================================================
</Table>
FS-58
NOTE 9-FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
--------------------------------
AUGUST 31, 2000
(DATE OPERATIONS
YEAR ENDED COMMENCED) TO
DECEMBER 31, DECEMBER 31,
2001(a) 2000(a)
------------ ----------------
Net asset value, beginning of period $ 7.97 $ 10.00
- ----------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.08) (0.03)
- ----------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (0.76) (2.00)
==============================================================================================
Total from investment operations (0.84) (2.03)
==============================================================================================
Less dividends from net investment income (0.03) --
==============================================================================================
Net asset value, end of period $ 7.10 $ 7.97
______________________________________________________________________________________________
==============================================================================================
Total return(b) (10.48)% (20.30)%
______________________________________________________________________________________________
==============================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 5,202 $ 5,625
______________________________________________________________________________________________
==============================================================================================
Ratio of expenses to average net assets (including interest
expense):
With fee waivers and expense reimbursements 2.02%(c) 2.11%(d)
- ----------------------------------------------------------------------------------------------
Without fee waivers and expense reimbursements 4.55%(c) 6.83%(d)
==============================================================================================
Ratio of expenses to average net assets (excluding interest
expense):
With fee waivers and expense reimbursements 2.00%(c) 2.11%(d)
- ----------------------------------------------------------------------------------------------
Without fee waivers and expense reimbursements 4.53%(c) 6.83%(d)
==============================================================================================
Ratio of net investment income (loss) to average net assets (1.12)%(c) (1.09)%(d)
==============================================================================================
Ratio of interest expense to average net assets 0.02%(c) --
______________________________________________________________________________________________
==============================================================================================
Portfolio turnover rate 145% 30%
______________________________________________________________________________________________
==============================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Does not include sales charges and is not annualized for periods less than
one year.
(c) Ratios are based on average daily net assets of $5,610,302.
(d) Annualized.
FS-59
NOTE 9-FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B
--------------------------------
AUGUST 31, 2000
(DATE OPERATIONS
YEAR ENDED COMMENCED) TO
DECEMBER 31, DECEMBER 31,
2001(a) 2000(a)
------------ ----------------
Net asset value, beginning of period $ 7.95 $ 10.00
- ----------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.13) (0.05)
- ----------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (0.75) (2.00)
==============================================================================================
Total from investment operations (0.88) (2.05)
==============================================================================================
Net asset value, end of period $ 7.07 $ 7.95
______________________________________________________________________________________________
==============================================================================================
Total return(b) (11.07)% (20.50)%
______________________________________________________________________________________________
==============================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 2,016 $ 1,992
______________________________________________________________________________________________
==============================================================================================
Ratio of expenses to average net assets (including interest
expense):
With fee waivers and expense reimbursements 2.72%(c) 2.81%(d)
- ----------------------------------------------------------------------------------------------
Without fee waivers and expense reimbursements 5.25%(c) 7.53%(d)
==============================================================================================
Ratio of expenses to average net assets (excluding interest
expense):
With fee waivers and expense reimbursements 2.70%(c) 2.81%(d)
- ----------------------------------------------------------------------------------------------
Without fee waivers and expense reimbursements 5.23%(c) 7.53%(d)
==============================================================================================
Ratio of net investment income (loss) to average net assets (1.83)%(c) (1.79)%(d)
==============================================================================================
Ratio of interest expense to average net assets 0.02%(c) --
______________________________________________________________________________________________
==============================================================================================
Portfolio turnover rate 145% 30%
______________________________________________________________________________________________
==============================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Does not include contingent deferred sales charges and is not annualized
for periods less than one year.
(c) Ratios are based on average daily net assets of $1,906,058.
(d) Annualized.
FS-60
NOTE 9-FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
--------------------------------
AUGUST 31, 2000
(DATE OPERATIONS
YEAR ENDED COMMENCED) TO
DECEMBER 31, DECEMBER 31,
2001(a) 2000(a)
------------ ----------------
Net asset value, beginning of period $ 7.95 $ 10.00
- ----------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.13) (0.05)
- ----------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (0.75) (2.00)
==============================================================================================
Total from investment operations (0.88) (2.05)
==============================================================================================
Net asset value, end of period $ 7.07 $ 7.95
______________________________________________________________________________________________
==============================================================================================
Total return(b) (11.07)% (20.50)%
______________________________________________________________________________________________
==============================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 2,588 $ 2,649
______________________________________________________________________________________________
==============================================================================================
Ratio of expenses to average net assets (including interest
expense):
With fee waivers and expense reimbursements 2.72%(c) 2.81%(d)
- ----------------------------------------------------------------------------------------------
Without fee waivers and expense reimbursements 5.25%(c) 7.53%(d)
==============================================================================================
Ratio of expenses to average net assets (excluding interest
expense):
With fee waivers and expense reimbursements 2.70%(c) 2.81%(d)
- ----------------------------------------------------------------------------------------------
Without fee waivers and expense reimbursements 5.23%(c) 7.53%(d)
==============================================================================================
Ratio of net investment income (loss) to average net assets (1.83)%(c) (1.79)%(d)
==============================================================================================
Ratio of interest expense to average net assets 0.02%(c) --
______________________________________________________________________________________________
==============================================================================================
Portfolio turnover rate 145% 30%
______________________________________________________________________________________________
==============================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Does not include contingent deferred sales charges and is not annualized
for periods less than one year.
(c) Ratios are based on average daily net assets of $2,589,920.
(d) Annualized.
FS-61
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees and Shareholders of AIM Mid Cap
Basic Value Fund:
In our opinion, the accompanying statement of assets and
liabilities, including the schedule of investments, and
the related statements of operations and of changes in
net assets and the financial highlights present fairly,
in all material respects, the financial position of the
AIM Mid Cap Basic Value Fund (one of the funds
constituting AIM Funds Group; hereafter referred to as
the "Fund") at December 31, 2001, and the results of its
operations, the changes in its net assets and the
financial highlights for the period indicated, in
conformity with accounting principles generally accepted
in the United States of America. These financial
statements and financial highlights (hereafter referred
to as "financial statements") are the responsibility of
the Fund's management; our responsibility is to express
an opinion on these financial statements based on our
audit. We conducted our audit of these financial
statements in accordance with auditing standards
generally accepted in the United States of America, which
require that we plan and perform the audit to obtain
reasonable assurance about whether the financial
statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant
estimates made by management, and evaluating the overall
financial statement presentation. We believe that our
audit, which included confirmation of securities at
December 31, 2001 by correspondence with the custodian
and brokers, provides a reasonable basis for our opinion.
/s/ PRICEWATERHOUSECOOPERS LLP
February 14, 2002
Houston, Texas
FS-62
SCHEDULE OF INVESTMENTS
December 31, 2001
<Table>
<Caption>
MARKET
SHARES VALUE
COMMON STOCKS & OTHER EQUITY INTERESTS-94.39%
ADVERTISING-2.60%
Interpublic Group of Cos., Inc. (The) 880 $ 25,995
======================================================================
APPAREL RETAIL-6.33%
Abercrombie & Fitch Co.-Class A(a) 500 13,265
- ----------------------------------------------------------------------
AnnTaylor Stores Corp.(a) 300 10,500
- ----------------------------------------------------------------------
Gap, Inc. (The) 1,500 20,910
- ----------------------------------------------------------------------
Men's Wearhouse, Inc. (The)(a) 900 18,585
======================================================================
63,260
======================================================================
AUTO PARTS & EQUIPMENT-1.36%
Visteon Corp. 900 13,536
======================================================================
BANKS-7.04%
AmSouth Bancorporation 1,000 18,900
- ----------------------------------------------------------------------
Cullen/Frost Bankers, Inc. 900 27,792
- ----------------------------------------------------------------------
Zions Bancorp 450 23,661
======================================================================
70,353
======================================================================
BUILDING PRODUCTS-2.53%
American Standard Cos. Inc.(a) 370 25,245
======================================================================
CONSUMER FINANCE-1.86%
AmeriCredit Corp.(a) 590 18,614
======================================================================
DATA PROCESSING SERVICES-4.12%
Ceridian Corp.(a) 1,400 26,250
- ----------------------------------------------------------------------
DST Systems, Inc.(a) 300 14,955
======================================================================
41,205
======================================================================
DIVERSIFIED COMMERCIAL SERVICES-1.86%
IMS Health Inc. 950 18,534
======================================================================
DIVERSIFIED FINANCIAL SERVICES-2.87%
Stilwell Financial, Inc. 700 19,054
- ----------------------------------------------------------------------
Waddell & Reed Financial, Inc.-Class A 300 9,660
======================================================================
28,714
======================================================================
DIVERSIFIED METALS & MINING-1.48%
Arch Coal, Inc. 650 14,755
======================================================================
ELECTRIC UTILITIES-3.84%
PG&E Corp. 1,000 19,240
- ----------------------------------------------------------------------
PPL Corp. 550 19,168
======================================================================
38,408
======================================================================
ELECTRICAL COMPONENTS & EQUIPMENT-1.61%
Rockwell International Corp. 900 16,074
======================================================================
ELECTRONIC EQUIPMENT & INSTRUMENTS-3.48%
Cognex Corp.(a) 700 17,927
- ----------------------------------------------------------------------
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
ELECTRONIC EQUIPMENT & INSTRUMENTS-(CONTINUED)
Amphenol Corp.-Class A(a) 350 $ 16,818
======================================================================
34,745
======================================================================
EMPLOYMENT SERVICES-3.74%
Korn/Ferry International(a) 2,000 21,300
- ----------------------------------------------------------------------
Robert Half International Inc.(a) 600 16,020
======================================================================
37,320
======================================================================
FOOD RETAIL-2.09%
Kroger Co. (The)(a) 1,000 20,870
======================================================================
FOREST PRODUCTS-1.61%
Louisiana-Pacific Corp. 1,900 16,036
======================================================================
HEALTH CARE SUPPLIES-2.15%
Bausch & Lomb, Inc. 570 21,466
======================================================================
HOTELS-1.79%
Starwood Hotels & Resorts Worldwide, Inc. 600 17,910
======================================================================
HOUSEHOLD APPLIANCES-2.19%
Black & Decker Corp. (The) 580 21,883
======================================================================
INDUSTRIAL CONGLOMERATES-1.87%
Textron, Inc. 450 18,657
======================================================================
INDUSTRIAL MACHINERY-3.39%
Kennametal Inc. 400 16,108
- ----------------------------------------------------------------------
SPX Corp.(a) 130 17,797
======================================================================
33,905
======================================================================
IT CONSULTING & SERVICES-1.57%
Acxiom Corp. 900 15,723
======================================================================
LEISURE PRODUCTS-2.18%
Brunswick Corp. 1,000 21,760
======================================================================
LIFE & HEALTH INSURANCE-4.54%
Nationwide Financial Services, Inc.-Class A 550 22,803
- ----------------------------------------------------------------------
UnumProvident Corp. 850 22,534
======================================================================
45,337
======================================================================
MANAGED HEALTH CARE-3.86%
Aetna Inc. 570 18,804
- ----------------------------------------------------------------------
Anthem, Inc.(a) 400 19,800
======================================================================
38,604
======================================================================
MULTI-LINE INSURANCE-0.98%
American Financial Group, Inc. 400 9,820
======================================================================
OIL & GAS DRILLING-5.18%
Cooper Cameron Corp.(a) 450 18,162
- ----------------------------------------------------------------------
Nabors Industries, Inc.(a) 450 15,449
- ----------------------------------------------------------------------
</Table>
FS-63
<Table>
<Caption>
MARKET
SHARES VALUE
OIL & GAS DRILLING-(CONTINUED)
Pride International, Inc.(a) 1,200 $ 18,120
======================================================================
51,731
======================================================================
OIL & GAS EQUIPMENT & SERVICES-2.15%
Smith International, Inc.(a) 400 21,448
======================================================================
OIL & GAS REFINING & MARKETING-1.14%
Valero Energy Corp. 300 11,436
======================================================================
PROPERTY & CASUALTY INSURANCE-3.53%
ACE Ltd. (Bermuda) 450 18,068
- ----------------------------------------------------------------------
Radian Group Inc. 400 17,180
======================================================================
35,248
======================================================================
RESTAURANTS-2.06%
Outback Steakhouse, Inc.(a) 600 20,550
======================================================================
SEMICONDUCTORS-4.29%
Integrated Device Technology, Inc.(a) 400 10,636
- ----------------------------------------------------------------------
Lattice Semiconductor Corp.(a) 800 16,456
- ----------------------------------------------------------------------
LSI Logic Corp.(a) 1,000 15,780
======================================================================
42,872
======================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
SPECIALTY CHEMICALS-1.46%
Great Lakes Chemical Corp. 600 $ 14,568
======================================================================
SYSTEMS SOFTWARE-1.64%
BMC Software, Inc.(a) 1,000 16,370
======================================================================
Total Common Stocks & Other Equity
Interests (Cost $943,966) 942,952
======================================================================
<Caption>
PRINCIPAL
AMOUNT
U.S. GOVERNMENT AGENCY SECURITIES-100.10%
FEDERAL HOME LOAN MORTGAGE CORP.
(FHLMC)-100.10%
Disc. Notes,
2.46%, 11/01/01 (Cost $999,959)(b) $1,000,000 999,959
======================================================================
TOTAL INVESTMENTS-194.49% (Cost $1,943,925) 1,942,911
======================================================================
OTHER ASSETS LESS LIABILITIES-(94.49%) (943,944)
======================================================================
NET ASSETS-100.00% $ 998,967
______________________________________________________________________
======================================================================
</Table>
Investment Abbreviations:
<Table>
Disc. - Discounted
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) The interest rate shown represents the rate of discount paid or received at
the time of purchase by the Fund.
See Notes to Financial Statements.
FS-64
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2001
<Table>
ASSETS:
Investments, at market value (cost $1,943,925) $1,942,911
- ------------------------------------------------------------
Cash 81
- ------------------------------------------------------------
Receivables due from advisor 5,416
============================================================
Total assets 1,948,408
============================================================
LIABILITIES:
Payables for investments purchased 943,965
- ------------------------------------------------------------
Accrued operating expenses 5,476
============================================================
Total liabilities 949,441
============================================================
Net assets applicable to shares outstanding $ 998,967
____________________________________________________________
============================================================
NET ASSETS:
Class A $ 399,591
____________________________________________________________
============================================================
Class B $ 299,688
____________________________________________________________
============================================================
Class C $ 299,688
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE:
Class A 40,000
____________________________________________________________
============================================================
Class B 30,000
____________________________________________________________
============================================================
Class C 30,000
____________________________________________________________
============================================================
Class A:
Net asset value per share $ 9.99
- ------------------------------------------------------------
Offering price per share:
(Net asset value of $9.99 divided by 94.50%) $ 10.57
____________________________________________________________
============================================================
Class B:
Net asset value and offering price per share $ 9.99
____________________________________________________________
============================================================
Class C:
Net asset value and offering price per share $ 9.99
____________________________________________________________
============================================================
</Table>
STATEMENT OF OPERATIONS
December 31, 2001 (date operations commenced)
<Table>
INVESTMENT INCOME:
Interest 41
===========================================================
EXPENSES:
Advisory fees 22
- -----------------------------------------------------------
Administrative services fees 137
- -----------------------------------------------------------
Custodian fees 250
- -----------------------------------------------------------
Transfer agent fees 47
- -----------------------------------------------------------
Distribution fees -- Class A 4
- -----------------------------------------------------------
Distribution fees -- Class B 8
- -----------------------------------------------------------
Distribution fees -- Class C 8
- -----------------------------------------------------------
Printing 3,000
- -----------------------------------------------------------
Professional Fees 2,000
===========================================================
Total expenses 5,476
===========================================================
Less: Fees waived and expenses reimbursed (5,416)
- -----------------------------------------------------------
Net expenses 60
===========================================================
Net investment income (loss) (19)
===========================================================
Change in net unrealized appreciation
(depreciation) of investment securities (1,014)
===========================================================
Net increase (decrease) in net assets resulting
from operations $(1,033)
___________________________________________________________
===========================================================
</Table>
See Notes to Financial Statements.
FS-65
STATEMENT OF CHANGES IN NET ASSETS
December 31, 2001 (date operations commenced)
<Table>
<Caption>
2001
--------
OPERATIONS:
Net investment income (loss) $ (19)
- ------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities (1,014)
========================================================================
Net increase (decrease) in net assets resulting from
operations (1,033)
========================================================================
Share transactions-net:
Class A 400,000
- ------------------------------------------------------------------------
Class B 300,000
- ------------------------------------------------------------------------
Class C 300,000
========================================================================
Net increase in net assets 998,967
========================================================================
NET ASSETS:
Beginning of year $ --
========================================================================
End of year $998,967
________________________________________________________________________
========================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $999,981
- ------------------------------------------------------------------------
Unrealized appreciation (depreciation) of investment
securities (1,014)
========================================================================
$998,967
________________________________________________________________________
========================================================================
</Table>
NOTES TO FINANCIAL STATEMENTS
December 31, 2001
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM Mid Cap Basic Value Fund (the "Fund") is a series portfolio of AIM Funds
Group (the "Trust"). The Trust is a Delaware business trust registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of twelve separate portfolios,
each having an unlimited number of shares of beneficial interest. The Fund
currently offers three different classes of shares: Class A shares, Class B
shares and Class C shares. Class A shares are sold with a front-end sales
charge. Class B shares and Class C shares are sold with a contingent deferred
sales charge. Matters affecting each portfolio or class will be voted on
exclusively by the shareholders of such portfolio or class. The assets,
liabilities and operations of each portfolio are accounted for separately.
Information presented in these financial statements pertains only to the Fund.
The Fund's investment objective is long-term growth of capital. The Fund
commenced operations on December 31, 2001.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. Security Valuations -- Securities, including restricted
securities, are valued according to the following policy. A security listed
or traded on an exchange (except convertible bonds) is valued at its last
sales price as of the close of the customary trading session on the exchange
where the security is principally traded, or lacking any sales on a
particular day, the security is valued at the closing bid price on that day.
Each security reported on the NASDAQ National Market System is valued at the
last sales price as of the close of the customary trading session on the
valuation date or absent a last sales price, at the closing bid price. Debt
obligations (including convertible bonds) are valued on the basis of prices
provided by an independent pricing service. Prices provided by the pricing
service may be determined without exclusive reliance on quoted prices, and
may reflect appropriate factors such as yield, type of issue, coupon rate and
maturity date. 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. Securities for which market quotations are not readily available or
are questionable are valued at fair value as determined in good faith by or
under the supervision of the Trust's officers in a manner specifically
authorized by the Board of Trustees. Short-term obligations having 60 days or
less to maturity are valued at amortized cost which approximates market
value. For
FS-66
purposes of determining net asset value per share, futures and option
contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Foreign securities are converted into U.S. dollar amounts using 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. Occasionally, 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 be
reflected in the computation of the Fund's net asset value. If a development/
event is so significant that there is a reasonably high degree of certainty
as to both the effect and the degree of effect that the development/event has
actually caused that closing price to no longer reflect actual value, the
closing prices, as determined at the close of the applicable foreign market,
may be adjusted to reflect the fair value of the affected foreign securities
as of the close of the NYSE as determined in good faith by or under the
supervision of the Board of Trustees.
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.
Premiums and discounts are amortized and/or accreted for financial reporting
purposes.
On December 31, 2001, undistributed net investment income was increased by
$19 and shares of beneficial interest was decreased by $19 as a result of net
operating loss reclassifications. Net assets of the Fund were unaffected by
the reclassifications discussed above.
C. Distributions -- Distributions from income and net realized
capital gains, if any, are generally paid annually and recorded on
ex-dividend date. The Fund may elect to use a portion of the proceeds from
redemptions as distributions for federal income tax purposes.
D. Federal Income Taxes -- The Fund intends to comply with the
requirements of 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 gains) which is
distributed to shareholders. Therefore, no provision for federal income taxes
is recorded in the financial statements.
E. Foreign Currency Translations -- Portfolio securities and other
assets and liabilities denominated in foreign currencies are translated into
U.S. dollar amounts at date of valuation. Purchases and sales of portfolio
securities and income items denominated in foreign currencies are translated
into U.S. dollar amounts on the respective dates of such transactions. The
Fund does not separately account for the portion of the results of operations
resulting from changes in foreign exchange rates on investments and the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss
from investments.
F. Expenses -- Distribution expenses directly attributable to a
class of shares are charged to those classes' operations. All other expenses
which are attributable to more than one class are allocated among the classes
based on relative net assets.
NOTE 2-ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM at the annual rate of 0.80% of the first $1
billion of the Fund's average daily net assets, plus 0.75% of the next $4
billion of the Fund's average daily net assets, plus 0.70% of the Fund's average
daily net assets in excess of $5 billion. 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 fund of which the Fund has invested. On
December 31, 2001 (date operations commenced), AIM waived fees of $22 and
reimbursed expenses of $5,394.
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. On December 31, 2001 (date operations
commenced), AIM was paid $137 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency and
shareholder services to the Fund. On December 31, 2001 (date operations
commenced) the Fund paid no expenses to AIM for such services.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B and Class C shares of the Fund. The Trust has adopted plans
pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A
shares, Class B shares and Class C shares (collectively the "Plans"). The Fund,
pursuant to the Plans, pays AIM Distributors compensation at the annual rate of
0.25% of the Fund's average daily net assets of Class A shares and 1.00% of the
average daily net assets of Class B and C shares. Of these amounts, the Fund may
pay a service fee of 0.25% of the average daily net assets of the Class A, Class
B or Class C shares to selected dealers and financial institutions who furnish
continuing personal shareholder services to their customers who purchase and own
the appropriate class of shares of the Fund. Any amounts not paid as a service
fee under the Plans would constitute an asset-based sales charge. The Plans also
impose a cap on the total sales charges, including asset-based sales charges
that may be paid by the respective classes. On December 31, 2001 (date
operations commenced), the Class A, Class B and Class C shares paid AIM
Distributors $4, $8 and $8, respectively, as compensation under the Plans.
Certain officers and trustees of the Trust are officers and directors of AIM,
AFS and AIM Distributors.
The law firm of Kramer, Levin, Naftalis & Frankel LLP, of which a trustee is a
member, is counsel to the Board of Trustees. For December 31, 2001 (date
operations commenced), the Fund paid no expenses with respect to this firm.
FS-67
NOTE 3-TRUSTEES' FEES
Trustees' fees represent remuneration paid to trustees who are not an
"interested person" of AIM. The Trust invests trustees' fees, if so elected by a
trustee, in mutual fund shares in accordance with a deferred compensation plan.
NOTE 4-TAX COMPONENTS OF CAPITAL
As of December 31, 2001, the components of distributable earnings (accumulated
losses) on a tax basis were as follows:
<Table>
Unrealized appreciation (depreciation) $(1,014)
________________________________________________________
========================================================
</Table>
NOTE 5-INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund December 31, 2001 (date operations commenced) was
$943,966 and $0, respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
for tax purposes, as of December 31, 2001 is as follows:
<Table>
Aggregate unrealized (depreciation) of
investment securities $(1,014)
========================================================
Net unrealized appreciation (depreciation) of
investment securities $(1,014)
________________________________________________________
========================================================
Investments have the same costs for tax and financial
statement purposes.
</Table>
NOTE 6-SHARE INFORMATION
Changes in shares outstanding on December 31, 2001 (date operations commenced)
were as follows:
<Table>
<Caption>
SHARES AMOUNT
------- ----------
Sold:
Class A 40,000 $ 400,000
- -----------------------------------------------------------------------------------
Class B 30,000 300,000
- -----------------------------------------------------------------------------------
Class C 30,000 300,000
===================================================================================
100,000 $1,000,000
___________________________________________________________________________________
===================================================================================
</Table>
NOTE 7-FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the period indicated.
<Table>
<Caption>
CLASS A
-----------------
DECEMBER 31, 2001
(DATE OPERATIONS
COMMENCED)
-----------------
Net asset value, beginning of period $ 10.00
- -------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.00
- -------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (0.01)
===============================================================================
Total from investment operations (0.01)
===============================================================================
Net asset value, end of period $ 9.99
_______________________________________________________________________________
===============================================================================
Total return(a) (0.10)%
_______________________________________________________________________________
===============================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 400
_______________________________________________________________________________
===============================================================================
Ratio of expenses to average net assets:
With fee waivers 1.80%(b)
- -------------------------------------------------------------------------------
Without fee waivers 199.49%(b)
===============================================================================
Ratio of net investment income (loss) to average net assets (0.31)%(b)
_______________________________________________________________________________
===============================================================================
</Table>
(a) Does not include sales charges and is not annualized for periods less than
one year.
(b) Ratios are annualized and based on average daily net assets of $400,000.
FS-68
NOTE 7-FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B
-----------------
DECEMBER 31, 2001
(DATE OPERATIONS
COMMENCED)
-----------------
Net asset value, beginning of period $ 10.00
- -------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.00
- -------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (0.01)
===============================================================================
Total from investment operations (0.01)
===============================================================================
Net asset value, end of period $ 9.99
_______________________________________________________________________________
===============================================================================
Total return(a) (0.10)%
_______________________________________________________________________________
===============================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 300
_______________________________________________________________________________
===============================================================================
Ratio of expenses to average net assets:
With fee waivers 2.45%(b)
- -------------------------------------------------------------------------------
Without fee waivers 200.14%(b)
===============================================================================
Ratio of net investment income (loss) to average net assets (0.96)%(b)
_______________________________________________________________________________
===============================================================================
</Table>
(a) Does not include contingent deferred sales charges and is not annualized
for periods less than one year.
(b) Ratios are annualized and based on average daily net assets of $300,000.
<Table>
<Caption>
CLASS C
-----------------
DECEMBER 31, 2001
(DATE OPERATIONS
COMMENCED)
-----------------
Net asset value, beginning of period $ 10.00
- -------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.00
- -------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (0.01)
===============================================================================
Total from investment operations (0.01)
===============================================================================
Net asset value, end of period $ 9.99
_______________________________________________________________________________
===============================================================================
Total return(a) (0.10)%
_______________________________________________________________________________
===============================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 300
_______________________________________________________________________________
===============================================================================
Ratio of expenses to average net assets:
With fee waivers 2.45%(b)
- -------------------------------------------------------------------------------
Without fee waivers 200.14%(b)
===============================================================================
Ratio of net investment income (loss) to average net assets (0.96)%(b)
_______________________________________________________________________________
===============================================================================
</Table>
(a) Does not include contingent deferred sales charges and is not annualized
for periods less than one year.
(b) Ratios are annualized and based on average daily net assets of $300,000.
FS-69
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees and Shareholders of
AIM New Technology Fund:
In our opinion, the accompanying statement of assets and
liabilities, including the schedule of investments, and
the related statements of operations and of changes in
net assets and the financial highlights present fairly,
in all material respects, the financial position of the
AIM New Technology Fund (one of the funds constituting
AIM Funds Group; hereafter referred to as the "Fund") at
December 31, 2001, and the results of its operations, the
changes in its net assets and the financial highlights
for each of the periods indicated are in conformity with
accounting principles generally accepted in the United
States of America. These financial statements and
financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion
on these financial statements based on our audits. We
conducted our audits of these financial statements in
accordance with auditing standards generally accepted in
the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance
about whether the financial statements are free of
material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made
by management, and evaluating the overall financial
statement presentation. We believe that our audits, which
included confirmation of securities at December 31, 2001
by correspondence with the custodian and brokers, provide
a reasonable basis for our opinion.
/s/ PRICEWATERHOUSECOOPERS LLP
February 14, 2002
Houston, Texas
FS-70
SCHEDULE OF INVESTMENTS
December 31, 2001
<Table>
<Caption>
MARKET
SHARES VALUE
DOMESTIC COMMON STOCKS-84.51%
AEROSPACE & DEFENSE-2.91%
Alliant Techsystems Inc.(a) 6,700 $ 517,240
- ----------------------------------------------------------------------
Engineered Support Systems, Inc. 20,700 708,147
- ----------------------------------------------------------------------
L-3 Communications Holdings, Inc.(a) 9,600 864,000
======================================================================
2,089,387
======================================================================
APPLICATION SOFTWARE-11.73%
Activision, Inc.(a) 22,300 580,023
- ----------------------------------------------------------------------
BEA Systems, Inc.(a) 20,400 314,364
- ----------------------------------------------------------------------
Cadence Design Systems, Inc.(a) 38,500 843,920
- ----------------------------------------------------------------------
Cerner Corp.(a) 8,900 444,377
- ----------------------------------------------------------------------
Fair, Issac and Co., Inc. 5,800 365,516
- ----------------------------------------------------------------------
Intuit Inc.(a) 22,900 979,204
- ----------------------------------------------------------------------
Kronos, Inc.(a) 30,200 1,461,076
- ----------------------------------------------------------------------
National Instruments Corp.(a) 5,600 209,776
- ----------------------------------------------------------------------
Numerical Technologies, Inc.(a) 22,500 792,000
- ----------------------------------------------------------------------
PeopleSoft, Inc.(a) 54,600 2,194,920
- ----------------------------------------------------------------------
SERENA Software, Inc.(a) 11,300 245,662
======================================================================
8,430,838
======================================================================
BIOTECHNOLOGY-7.42%
Cephalon, Inc.(a) 10,600 801,201
- ----------------------------------------------------------------------
Genzyme Corp.(a) 5,900 353,174
- ----------------------------------------------------------------------
Gilead Sciences, Inc.(a) 10,200 670,344
- ----------------------------------------------------------------------
Harvard Bioscience, Inc.(a) 40,900 406,546
- ----------------------------------------------------------------------
IDEC Pharmaceuticals Corp.(a) 29,700 2,047,221
- ----------------------------------------------------------------------
Invitrogen Corp.(a) 11,200 693,616
- ----------------------------------------------------------------------
OraSure Technologies, Inc.(a) 15,000 182,250
- ----------------------------------------------------------------------
Tanox, Inc.(a) 9,600 177,624
======================================================================
5,331,976
======================================================================
COMPUTER & ELECTRONICS RETAIL-1.19%
CDW Computer Centers, Inc.(a) 15,900 853,989
======================================================================
COMPUTER HARDWARE-1.04%
Dell Computer Corp.(a) 27,500 747,450
======================================================================
COMPUTER STORAGE & PERIPHERALS-1.39%
Network Appliance, Inc.(a) 20,000 437,400
- ----------------------------------------------------------------------
Storage Technology Corp.(a) 17,000 351,390
- ----------------------------------------------------------------------
Western Digital Corp.(a) 34,000 213,180
======================================================================
1,001,970
======================================================================
DATA PROCESSING SERVICES-1.65%
Concord EFS, Inc.(a) 36,200 1,186,636
======================================================================
<Caption>
MARKET
SHARES VALUE
ELECTRONIC EQUIPMENT & INSTRUMENTS-2.11%
Itron, Inc.(a) 25,100 760,530
- ----------------------------------------------------------------------
OSI Systems, Inc.(a) 16,800 $ 306,432
- ----------------------------------------------------------------------
Sanmina-SCI Corp.(a) 22,600 449,740
======================================================================
1,516,702
======================================================================
HEALTH CARE DISTRIBUTORS & SERVICES-1.45%
Accredo Health, Inc.(a) 17,100 678,870
- ----------------------------------------------------------------------
IMPATH Inc.(a) 8,200 364,982
======================================================================
1,043,852
======================================================================
HEALTH CARE EQUIPMENT-4.11%
Bruker Daltonics, Inc.(a) 23,000 376,050
- ----------------------------------------------------------------------
Cholestech Corp.(a) 8,300 164,423
- ----------------------------------------------------------------------
Closure Medical Corp.(a) 10,200 238,272
- ----------------------------------------------------------------------
Cytyc Corp.(a) 27,400 715,140
- ----------------------------------------------------------------------
Endocare, Inc.(a) 43,400 778,162
- ----------------------------------------------------------------------
Integra LifeSciences Holdings(a) 5,000 131,700
- ----------------------------------------------------------------------
Respironics, Inc.(a) 10,000 346,400
- ----------------------------------------------------------------------
Urologix, Inc.(a) 10,300 206,515
======================================================================
2,956,662
======================================================================
HEALTH CARE SUPPLIES-0.51%
ICU Medical, Inc.(a) 8,200 364,900
======================================================================
INTEGRATED TELECOMMUNICATION SERVICES-1.31%
Intrado Inc.(a) 35,000 938,000
======================================================================
INTERNET RETAIL-1.02%
eBay Inc.(a) 11,000 735,900
======================================================================
INTERNET SOFTWARE & SERVICES-8.42%
Internet Security Systems, Inc.(a) 21,000 673,260
- ----------------------------------------------------------------------
McAfee.com Corp.(a) 20,900 708,719
- ----------------------------------------------------------------------
PEC Solutions, Inc.(a) 11,400 428,754
- ----------------------------------------------------------------------
Retek Inc.(a) 22,200 663,114
- ----------------------------------------------------------------------
SonicWALL, Inc.(a) 60,300 1,172,232
- ----------------------------------------------------------------------
VeriSign, Inc.(a) 29,700 1,129,788
- ----------------------------------------------------------------------
WebEx Communications, Inc.(a) 28,700 713,195
- ----------------------------------------------------------------------
Websense, Inc.(a) 17,500 561,225
======================================================================
6,050,287
======================================================================
IT CONSULTING & SERVICES-1.03%
Affiliated Computer Services, Inc.-Class A(a) 7,000 742,910
======================================================================
NETWORKING EQUIPMENT-4.57%
Cisco Systems, Inc.(a) 27,900 505,269
- ----------------------------------------------------------------------
Emulex Corp.(a) 32,900 1,299,879
- ----------------------------------------------------------------------
McDATA Corp.-Class A(a) 44,200 1,082,900
- ----------------------------------------------------------------------
</Table>
FS-71
<Table>
<Caption>
MARKET
SHARES VALUE
NETWORKING EQUIPMENT-(CONTINUED)
NetScreen Technologies, Inc.(a) 18,000 $ 398,340
======================================================================
3,286,388
======================================================================
PHARMACEUTICALS-0.58%
PRAECIS Pharmaceutical Inc.(a) 72,100 419,622
======================================================================
SEMICONDUCTOR EQUIPMENT-1.39%
KLA-Tencor Corp.(a) 6,400 317,184
- ----------------------------------------------------------------------
Kulicke & Soffa Industries, Inc.(a) 11,000 188,650
- ----------------------------------------------------------------------
Novellus Systems, Inc.(a) 12,500 493,125
======================================================================
998,959
======================================================================
SEMICONDUCTORS-18.06%
Alpha Industries, Inc.(a) 32,000 697,600
- ----------------------------------------------------------------------
Analog Devices, Inc.(a) 27,600 1,225,164
- ----------------------------------------------------------------------
Broadcom Corp.-Class A(a) 11,200 458,976
- ----------------------------------------------------------------------
Elantec Semiconductor, Inc.(a) 27,900 1,071,360
- ----------------------------------------------------------------------
ESS Technology, Inc.(a) 33,600 714,336
- ----------------------------------------------------------------------
Integrated Circuit Systems, Inc.(a) 72,000 1,626,480
- ----------------------------------------------------------------------
Intersil Corp.-Class A(a) 16,800 541,800
- ----------------------------------------------------------------------
Microchip Technology Inc.(a) 26,900 1,042,106
- ----------------------------------------------------------------------
Microsemi Corp.(a) 43,900 1,303,830
- ----------------------------------------------------------------------
NVIDIA Corp.(a) 22,400 1,498,560
- ----------------------------------------------------------------------
QLogic Corp.(a) 13,200 587,532
- ----------------------------------------------------------------------
RF Micro Devices, Inc.(a) 51,400 988,422
- ----------------------------------------------------------------------
Semtech Corp.(a) 34,300 1,224,167
======================================================================
12,980,333
======================================================================
SPECIALTY STORES-0.57%
Blockbuster Inc.-Class A 16,100 405,720
======================================================================
SYSTEMS SOFTWARE-6.72%
Borland Software Corp.(a) 33,500 524,610
- ----------------------------------------------------------------------
Microsoft Corp.(a) 11,100 735,597
- ----------------------------------------------------------------------
Network Associates, Inc.(a) 52,500 1,357,125
- ----------------------------------------------------------------------
Symantec Corp.(a) 10,900 722,997
- ----------------------------------------------------------------------
VERITAS Software Corp.(a) 33,300 1,492,506
======================================================================
4,832,835
======================================================================
TELECOMMUNICATIONS EQUIPMENT-4.27%
Polycom, Inc.(a) 27,600 949,440
- ----------------------------------------------------------------------
QUALCOMM Inc.(a) 14,000 707,000
- ----------------------------------------------------------------------
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
TELECOMMUNICATIONS EQUIPMENT-(CONTINUED)
UTStarcom, Inc.(a) 49,600 $ 1,413,600
======================================================================
3,070,040
======================================================================
WIRELESS TELECOMMUNICATION SERVICES-1.06%
Metro One Telecommunications, Inc.(a) 25,100 759,275
======================================================================
Total Domestic Common Stocks (Cost
$53,899,519) 60,744,631
======================================================================
FOREIGN STOCKS & OTHER EQUITY INTERESTS-9.52%
BERMUDA-1.17%
Marvell Technology Group Ltd.
(Semiconductors)(a) 23,400 838,188
======================================================================
CANADA-5.67%
Biovail Corp. (Pharmaceuticals)(a) 13,100 736,875
- ----------------------------------------------------------------------
Celestica Inc. (Electronic Equipment &
Instruments)(a) 17,500 706,825
- ----------------------------------------------------------------------
Genesis Microchip Inc. (Semiconductors)(a) 30,200 1,996,824
- ----------------------------------------------------------------------
Optimal Robotics Corp.-Class A (Electronic
Equipment & Instruments)(a) 18,000 638,100
======================================================================
4,078,624
======================================================================
CHINA-0.46%
AsiaInfo Holdings, Inc. (Internet Software &
Services)(a) 19,000 330,980
======================================================================
ISRAEL-0.58%
Check Point Software Technologies Ltd.
(Internet Software & Services)(a) 10,500 418,845
======================================================================
TAIWAN-1.64%
Taiwan Semiconductor Manufacturing Co.
Ltd.-ADR (Semiconductors) 68,800 1,181,296
======================================================================
Total Foreign Stocks & Other Equity
Interests (Cost $4,987,859) 6,847,933
======================================================================
MONEY MARKET FUNDS-5.86%
STIC Liquid Assets Portfolio(b) 2,105,256 2,105,256
- ----------------------------------------------------------------------
STIC Prime Portfolio(b) 2,105,256 2,105,256
======================================================================
Total Money Market Funds (Cost
$4,210,512) 4,210,512
======================================================================
TOTAL INVESTMENTS-99.89% (Cost $63,097,890) 71,803,076
======================================================================
OTHER ASSETS LESS LIABILITIES-0.11% 76,427
======================================================================
NET ASSETS-100.00% $71,879,503
______________________________________________________________________
======================================================================
</Table>
Investment Abbreviations:
ADR - American Depositary Receipt
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) The money market fund and the Fund are affiliated by having the same
investment advisor.
See Notes to Financial Statements.
FS-72
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2001
<Table>
ASSETS:
Investments, at market value (cost $63,097,890) $71,803,076
- ------------------------------------------------------------
Receivables for:
Investments sold 1,195,679
- ------------------------------------------------------------
Fund shares sold 1,178,156
- ------------------------------------------------------------
Dividends 5,567
- ------------------------------------------------------------
Investment for deferred compensation plan 9,249
- ------------------------------------------------------------
Other assets 15,731
============================================================
Total assets 74,207,458
============================================================
LIABILITIES:
Payables for:
Investments purchased 609,611
- ------------------------------------------------------------
Fund shares reacquired 1,557,931
- ------------------------------------------------------------
Deferred compensation plan 9,249
- ------------------------------------------------------------
Accrued distribution fees 69,470
- ------------------------------------------------------------
Accrued transfer agent fees 43,850
- ------------------------------------------------------------
Accrued operating expenses 37,844
============================================================
Total liabilities 2,327,955
============================================================
Net assets applicable to shares outstanding $71,879,503
____________________________________________________________
============================================================
NET ASSETS:
Class A $40,097,050
____________________________________________________________
============================================================
Class B $21,317,573
____________________________________________________________
============================================================
Class C $10,464,880
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE:
Class A 10,432,232
____________________________________________________________
============================================================
Class B 5,595,466
____________________________________________________________
============================================================
Class C 2,745,032
____________________________________________________________
============================================================
Class A:
Net asset value per share $ 3.84
- ------------------------------------------------------------
Offering price per share:
(Net asset value of $3.84 divided by
94.50%) $ 4.06
____________________________________________________________
============================================================
Class B:
Net asset value and offering price per share $ 3.81
____________________________________________________________
============================================================
Class C:
Net asset value and offering price per share $ 3.81
____________________________________________________________
============================================================
</Table>
STATEMENT OF OPERATIONS
For the year ended December 31, 2001
<Table>
INVESTMENT INCOME:
Dividends $ 7,025
- ------------------------------------------------------------
Dividends from affiliated money market funds 212,535
- ------------------------------------------------------------
Interest 39
============================================================
Total investment income 219,599
============================================================
EXPENSES:
Advisory fees 662,429
- ------------------------------------------------------------
Administrative services fees 50,000
- ------------------------------------------------------------
Custodian fees 31,486
- ------------------------------------------------------------
Distribution fees -- Class A 129,174
- ------------------------------------------------------------
Distribution fees -- Class B 197,761
- ------------------------------------------------------------
Distribution fees -- Class C 95,599
- ------------------------------------------------------------
Transfer agent fees -- Class A 216,105
- ------------------------------------------------------------
Transfer agent fees -- Class B 115,097
- ------------------------------------------------------------
Transfer agent fees -- Class C 55,639
- ------------------------------------------------------------
Trustees' fees 8,720
- ------------------------------------------------------------
Registration and filing fees 119,636
- ------------------------------------------------------------
Other 97,664
============================================================
Total expenses 1,779,310
============================================================
Less: Fees waived (357,926)
- ------------------------------------------------------------
Expenses paid indirectly (2,145)
============================================================
Net expenses 1,419,239
============================================================
Net investment income (loss) (1,199,640)
============================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES AND OPTION CONTRACTS:
Net realized gain (loss) from:
Investment securities (57,065,660)
- ------------------------------------------------------------
Option contracts written 26,423
============================================================
(57,039,237)
============================================================
Change in net unrealized appreciation of
investment securities 19,156,038
============================================================
Net gain (loss) from investment securities and
option contracts (37,883,199)
============================================================
Net increase (decrease) in net assets
resulting from operations $(39,082,839)
____________________________________________________________
============================================================
</Table>
See Notes to Financial Statements.
FS-73
STATEMENT OF CHANGES IN NET ASSETS
For the year ended December 31, 2001 and the period August 31, 2000 (date
operations commenced) through December 31, 2000
<Table>
<Caption>
2001 2000
------------ ------------
OPERATIONS:
Net investment income (loss) $ (1,199,640) $ (160,198)
- ------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities and
option contracts (57,039,237) (11,533,886)
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities 19,156,038 (10,450,852)
==========================================================================================
Net increase (decrease) in net assets resulting from
operations (39,082,839) (22,144,936)
==========================================================================================
Share transactions-net:
Class A 18,653,815 56,708,694
- ------------------------------------------------------------------------------------------
Class B 11,339,309 27,020,002
- ------------------------------------------------------------------------------------------
Class C 5,592,841 13,792,617
==========================================================================================
Net increase (decrease) in net assets (3,496,874) 75,376,377
==========================================================================================
NET ASSETS:
Beginning of year 75,376,377 --
==========================================================================================
End of year $ 71,879,503 $ 75,376,377
__________________________________________________________________________________________
==========================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $131,756,854 $ 97,390,471
- ------------------------------------------------------------------------------------------
Undistributed net investment income (loss) (9,414) (29,356)
- ------------------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment
securities and option contracts (68,573,123) (11,533,886)
- ------------------------------------------------------------------------------------------
Unrealized appreciation (depreciation) of investment
securities 8,705,186 (10,450,852)
==========================================================================================
$ 71,879,503 $ 75,376,377
__________________________________________________________________________________________
==========================================================================================
</Table>
See Notes to Financial Statements.
FS-74
NOTES TO FINANCIAL STATEMENTS
December 31, 2001
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM New Technology Fund (the "Fund") is a series portfolio of AIM Funds Group
(the "Trust"). The Trust is a Delaware business trust registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of twelve separate portfolios,
each having an unlimited number of shares of beneficial interest. The Fund
currently offers three different classes of shares: Class A shares, Class B
shares and Class C shares. Class A shares are sold with a front-end sales
charge. Class B shares and Class C shares are sold with a contingent deferred
sales charge. Matters affecting each portfolio or class will be voted on
exclusively by the shareholders of such portfolio or class. The assets,
liabilities and operations of each portfolio are accounted for separately.
Information presented in these financial statements pertains only to the Fund.
The Fund's investment objective is to achieve long-term growth of capital.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. Security Valuations -- Securities, including restricted securities, are
valued according to the following policy. A security listed or traded on an
exchange (except convertible bonds) is valued at its last sales price as of
the close of the customary trading session on the exchange where the security
is principally traded, or lacking any sales on a particular day, the security
is valued at the closing bid price on that day. Each security reported on the
NASDAQ National Market System is valued at the last sales price as of the
close of the customary trading session on the valuation date or absent a last
sales price, at the closing bid price. Debt obligations (including
convertible bonds) are valued on the basis of prices provided by an
independent pricing service. Prices provided by the pricing service may be
determined without exclusive reliance on quoted prices, and may reflect
appropriate factors such as yield, type of issue, coupon rate and maturity
date. 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.
Securities for which market quotations are not readily available or are
questionable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers in a manner specifically authorized
by the Board of Trustees. Short-term obligations having 60 days or less to
maturity are valued at amortized cost which approximates market value. For
purposes of determining net asset value per share, futures and option
contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Foreign securities are converted into U.S. dollar amounts using 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. Occasionally, 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 be
reflected in the computation of the Fund's net asset value. If a development/
event is so significant that there is a reasonably high degree of certainty
as to both the effect and the degree of effect that the development/event has
actually caused that closing price to no longer reflect actual value, the
closing prices, as determined at the close of the applicable foreign market,
may be adjusted to reflect the fair value of the affected foreign securities
as of the close of the NYSE as determined in good faith by or under the
supervision of the Board of Trustees.
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.
On December 31, 2001, undistributed net investment income was increased by
$1,219,582 and shares of beneficial interest was decreased by $1,219,582 as a
result of differing book/tax treatment of net operating loss and
nondeductible stock issuance costs reclassifications. Net assets of the Fund
were unaffected by the reclassifications discussed above.
C. Distributions -- Distributions from income and net realized capital gains, if
any, are generally paid annually and recorded on ex-dividend date. The Fund
may elect to use a portion of the proceeds from redemptions as distributions
for federal income tax purposes.
D. Federal Income Taxes -- The Fund intends to comply with the requirements of
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 gains) which is
distributed to shareholders. Therefore, no provision for federal income taxes
is recorded in the financial statements.
FS-75
The Fund's capital loss carryforward of $66,633,491 is broken down by
expiration date as follows:
<Table>
<Caption>
CAPITAL LOSS
CARRYFORWARD EXPIRATION
------------ ----------
$ 1,713,194 December 31, 2008
-------------------------------------------
64,920,297 December 31, 2009
===========================================
$66,633,491
___________________________________________
===========================================
</Table>
As of December 31, 2001, the Fund has a post-October capital loss deferral of
$674,470, which will be recognized in the following tax year.
E. Covered Call Options -- The Fund may write call options, on a
covered basis; that is, the Fund will own the underlying security. When the
Fund writes a covered call option, an amount equal to the premium received by
the Fund is recorded as an asset and an equivalent liability. The amount of
the liability is subsequently "marked-to-market" to reflect the current
market value of the option written. The current market value of a written
option is the mean between the last bid and asked prices on that day. If a
written call option expires on the stipulated expiration date, or if the Fund
enters into a closing purchase transaction, the Fund realizes a gain (or a
loss if the closing purchase transaction exceeds the premium received when
the option was written) without regard to any unrealized gain or loss on the
underlying security, and the liability related to such option is
extinguished. If a written option is exercised, the Fund realizes a gain or a
loss from the sale of the underlying security and the proceeds of the sale
are increased by the premium originally received.
F. Expenses -- Distribution expenses directly attributable to a
class of shares are charged to those classes' operations. All other expenses
which are attributable to more than one class are allocated among the classes
based on relative net assets.
NOTE 2-ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM at the annual rate of 1.00% of the Fund's
average daily net assets. Effective July 1, 2001, 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 fund of which the Fund has invested.
For the year ended December 31, 2001, AIM waived fees of $357,926.
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. For the year ended December 31, 2001, AIM was
paid $50,000 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency and
shareholder services to the Fund. During the year ended December 31, 2001, AFS
was paid $227,983 for such services.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B and Class C shares of the Fund. The Trust has adopted plans
pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A
shares, Class B shares and Class C shares (collectively the "Plans"). The Fund,
pursuant to the Plans, pays AIM Distributors compensation at the annual rate of
0.35% of the Fund's average daily net assets of Class A shares and 1.00% of the
average daily net assets of Class B and C shares. Of these amounts, the Fund may
pay a service fee of 0.25% of the average daily net assets of the Class A, Class
B or Class C shares to selected dealers and financial institutions who furnish
continuing personal shareholder services to their customers who purchase and own
the appropriate class of shares of the Fund. Any amounts not paid as a service
fee under the Plans would constitute an asset-based sales charge. The Plans also
impose a cap on the total sales charges, including asset-based sales charges
that may be paid by the respective classes. For the year ended December 31,
2001, the Class A, Class B and Class C shares paid AIM Distributors $129,174,
$197,761 and $95,599, respectively, as compensation under the Plans.
AIM Distributors received commissions of $76,755 from sales of the Class A
shares of the Fund during the year ended December 31, 2001. Such commissions are
not an expense of the Fund. They are deducted from, and are not included in, the
proceeds from sales of Class A shares. During the year ended December 31, 2001,
AIM Distributors received $11,820 in contingent deferred sales charges imposed
on redemptions of Fund shares.
Certain officers and trustees of the Trust are officers and directors of AIM,
AFS and AIM Distributors.
During the year ended December 31, 2001, the Fund paid legal fees of $3,165
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Board of Trustees. A member of that firm is a trustee of the Trust.
NOTE 3-INDIRECT EXPENSES
For the year ended December 31, 2001, the Fund received reductions in transfer
agency fees from AFS (an affiliate of AIM) of $874 and reductions in custodian
fees of $1,271 under expense offset arrangements which resulted in a reduction
of the Fund's total expenses of $2,145.
NOTE 4-TRUSTEES' FEES
Trustees' fees represent remuneration paid to trustees who are not an
"interested person" of AIM. The Trust invests trustees' fees, if so elected by a
trustee, in mutual fund shares in accordance with a deferred compensation plan.
NOTE 5-BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by Citibank, N.A. The Fund may borrow up to the lesser of
(i) $1,000,000,000 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. During the year ended December 31,
2001, the Fund did not borrow under the line of credit agreement. The funds
which are party to the line of credit are charged a commitment fee of 0.09% on
the unused balance of the committed line. The commitment fee is allocated among
the funds based on their respective average net assets for the period.
FS-76
NOTES 6-DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF CAPITAL
As of December 31, 2001, the components of distributable earnings (accumulated
losses) on a tax basis were as follows:
<Table>
<Caption>
Capital loss carryforward $(66,633,491)
- ---------------------------------------------------------
Unrealized appreciation 6,756,140
=========================================================
$(59,877,351)
_________________________________________________________
=========================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation is
attributable primarily to the tax deferral of losses on wash sales, the tax
deferral of capital losses incurred after October 31, and other deferrals.
NOTE 7-INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund during the year ended December 31, 2001 was
$171,838,145 and $132,767,768, respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
for tax purposes, as of December 31, 2001 is as follows:
<Table>
Aggregate unrealized appreciation of
investment securities $12,098,334
- ---------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (4,658,310)
=========================================================
Net unrealized appreciation of investment
securities $ 7,440,024
_________________________________________________________
=========================================================
Cost of investments for tax purposes is $64,363,052.
</Table>
NOTE 8-CALL OPTION CONTRACTS
Transactions in call options written during the year ended December 31, 2001 are
summarized as follows:
<Table>
<Caption>
CALL OPTION CONTRACTS
----------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
--------- ---------
Beginning of year -- $ --
- ------------------------------------------------------------------------------------
Written 1,605 519,705
- ------------------------------------------------------------------------------------
Closed (1,183) (380,134)
- ------------------------------------------------------------------------------------
Exercised (352) (118,408)
- ------------------------------------------------------------------------------------
Expired (70) (21,163)
====================================================================================
End of year -- $ --
____________________________________________________________________________________
====================================================================================
</Table>
NOTE 9-SHARE INFORMATION
Changes in shares outstanding during the year ended December 31, 2001 and the
period August 31, 2000 (date operations commenced) through December 31, 2000:
<Table>
<Caption>
2001 2000
-------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- -----------
Sold:
Class A 10,000,780 $ 42,952,707 7,406,952 $63,371,172
- ---------------------------------------------------------------------------------------------------------------------
Class B 4,015,952 17,550,457 3,305,594 28,031,799
- ---------------------------------------------------------------------------------------------------------------------
Class C 2,552,966 10,916,402 1,784,951 15,613,560
=====================================================================================================================
Reacquired:
Class A (6,054,184) (24,298,892) (921,316) (6,662,478)
- ---------------------------------------------------------------------------------------------------------------------
Class B (1,587,360) (6,211,148) (138,720) (1,011,797)
- ---------------------------------------------------------------------------------------------------------------------
Class C (1,346,193) (5,323,561) (246,692) (1,820,943)
=====================================================================================================================
7,581,961 $ 35,585,965 11,190,769 $97,521,313
_____________________________________________________________________________________________________________________
=====================================================================================================================
</Table>
FS-77
NOTE 10-FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
--------------------------------
AUGUST 31, 2000
(DATE OPERATIONS
YEAR ENDED COMMENCED) TO
DECEMBER 31, DECEMBER 31,
2001(a) 2000(a)
------------ ----------------
Net asset value, beginning of period $ 6.74 $ 10.00
- ----------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.06) (0.02)
- ----------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (2.84) (3.24)
==============================================================================================
Total from investment operations (2.90) (3.26)
==============================================================================================
Net asset value, end of period $ 3.84 $ 6.74
______________________________________________________________________________________________
==============================================================================================
Total return(b) (43.03)% (32.60)%
______________________________________________________________________________________________
==============================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $40,097 $43,732
______________________________________________________________________________________________
==============================================================================================
Ratio of expenses to average net assets:
With fee waivers 1.86%(c) 1.72%(d)
- ----------------------------------------------------------------------------------------------
Without fee waivers 2.40%(c) 2.47%(d)
==============================================================================================
Ratio of net investment income (loss) to average net assets (1.52)%(c) (0.66)%(d)
______________________________________________________________________________________________
==============================================================================================
Portfolio turnover rate 215% 54%
______________________________________________________________________________________________
==============================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Does not include sales charge and is not annualized for periods less than
one year.
(c) Ratios are based on average daily net assets of $36,906,921.
(d) Annualized.
<Table>
<Caption>
CLASS B
--------------------------------
AUGUST 31, 2000
(DATE OPERATIONS
YEAR ENDED COMMENCED) TO
DECEMBER 31, DECEMBER 31,
2001(a) 2000(a)
------------ ----------------
Net asset value, beginning of period $ 6.72 $ 10.00
- ----------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.09) (0.04)
- ----------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (2.82) (3.24)
==============================================================================================
Total from investment operations (2.91) (3.28)
==============================================================================================
Net asset value, end of period $ 3.81 $ 6.72
______________________________________________________________________________________________
==============================================================================================
Total return(b) (43.30)% (32.80)%
______________________________________________________________________________________________
==============================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $21,318 $21,296
______________________________________________________________________________________________
==============================================================================================
Ratio of expenses to average net assets:
With fee waivers 2.51%(c) 2.41%(d)
- ----------------------------------------------------------------------------------------------
Without fee waivers 3.05%(c) 3.16%(d)
==============================================================================================
Ratio of net investment income (loss) to average net assets (2.17)%(c) (1.36)%(d)
______________________________________________________________________________________________
==============================================================================================
Portfolio turnover rate 215% 54%
______________________________________________________________________________________________
==============================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Does not include contingent deferred sales charge and is not annualized for
periods less than one year.
(c) Ratios are based on average daily net assets of $19,776,096.
(d) Annualized.
FS-78
NOTE 10-FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
--------------------------------
AUGUST 31, 2000
(DATE OPERATIONS
YEAR ENDED COMMENCED) TO
DECEMBER 31, DECEMBER 31,
2001(a) 2000(a)
------------ ----------------
Net asset value, beginning of period $ 6.73 $ 10.00
- ----------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.09) (0.04)
- ----------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (2.83) (3.23)
==============================================================================================
Total from investment operations (2.92) (3.27)
==============================================================================================
Net asset value, end of period $ 3.81 $ 6.73
______________________________________________________________________________________________
==============================================================================================
Total return(b) (43.39)% (32.70)%
______________________________________________________________________________________________
==============================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $10,465 $10,349
______________________________________________________________________________________________
==============================================================================================
Ratio of expenses to average net assets (including interest
expense):
With fee waivers 2.51%(c) 2.41%(d)
- ----------------------------------------------------------------------------------------------
Without fee waivers 3.05%(c) 3.16%(d)
==============================================================================================
Ratio of net investment income (loss) to average net assets (2.17)%(c) (1.35)%(d)
______________________________________________________________________________________________
==============================================================================================
Portfolio turnover rate 215% 54%
______________________________________________________________________________________________
==============================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Does not include contingent deferred sales charge and is not annualized for
periods less than one year.
(c) Ratios are based on average daily net assets of $9,559,894.
(d) Annualized.
FS-79
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees and Shareholders of
AIM Select Equity Fund:
In our opinion, the accompanying statement of assets and
liabilities, including the schedule of investments, and
the related statements of operations and of changes in
net assets and the financial highlights present fairly,
in all material respects, the financial position of the
AIM Select Equity Fund, formerly known as the AIM Select
Growth Fund, (one of the funds constituting AIM Funds
Group; hereafter referred to as the "Fund") at December
31, 2001, the results of its operations for the year then
ended, and the changes in its net assets and the
financial highlights for each of the two years in the
period then ended, in conformity with accounting
principles generally accepted in the United States of
America. These financial statements and financial
highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion
on these financial statements based on our audits. We
conducted our audits of these financial statements in
accordance with auditing standards generally accepted in
the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance
about whether the financial statements are free of
material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made
by management, and evaluating the overall financial
statement presentation. We believe that our audits, which
included confirmation of securities at December 31, 2001
by correspondence with the custodian and brokers, provide
a reasonable basis for our opinion. The financial
highlights for each of the periods ended on or before
December 31, 1999 were audited by other independent
accountants whose report, dated February 14, 2000,
expressed an unqualified opinion thereon.
/s/ PRICEWATERHOUSECOOPERS LLP
February 14, 2002
Houston, Texas
FS-80
SCHEDULE OF INVESTMENTS
December 31, 2001
<Table>
<Caption>
MARKET
SHARES VALUE
COMMON STOCKS & OTHER EQUITY INTERESTS-97.52%
ADVERTISING-1.96%
Interpublic Group of Cos., Inc. (The) 235,000 $ 6,941,900
- ------------------------------------------------------------------------
Lamar Advertising Co.(a) 248,000 10,500,320
========================================================================
17,442,220
========================================================================
AIRLINES-0.45%
AirTran Holdings, Inc.(a) 600,000 3,960,000
========================================================================
ALUMINUM-1.66%
Alcoa Inc. 415,000 14,753,250
========================================================================
APPAREL RETAIL-1.94%
Gap, Inc. (The) 735,000 10,245,900
- ------------------------------------------------------------------------
Ross Stores, Inc. 216,400 6,942,112
========================================================================
17,188,012
========================================================================
APPLICATION SOFTWARE-3.08%
Amdocs Ltd. (United Kingdom)(a) 178,000 6,046,660
- ------------------------------------------------------------------------
National Instruments Corp.(a) 316,000 11,837,360
- ------------------------------------------------------------------------
PeopleSoft, Inc.(a) 126,000 5,065,200
- ------------------------------------------------------------------------
Secure Computing Corp.(a) 214,500 4,407,975
========================================================================
27,357,195
========================================================================
BANKS-2.55%
Bank of America Corp. 359,100 22,605,345
========================================================================
BIOTECHNOLOGY-0.66%
Gilead Sciences, Inc.(a) 89,500 5,881,940
========================================================================
BROADCASTING & CABLE TV-4.54%
Charter Communications, Inc.-Class A(a) 350,000 5,750,500
- ------------------------------------------------------------------------
Clear Channel Communications, Inc.(a) 100,000 5,091,000
- ------------------------------------------------------------------------
Comcast Corp.-Class A(a) 241,000 8,676,000
- ------------------------------------------------------------------------
Cox Communications, Inc.-Class A(a) 215,000 9,010,650
- ------------------------------------------------------------------------
Hispanic Broadcasting Corp.(a) 276,000 7,038,000
- ------------------------------------------------------------------------
Univision Communications Inc.-Class A(a) 117,000 4,733,820
========================================================================
40,299,970
========================================================================
BUILDING PRODUCTS-3.80%
American Standard Cos. Inc.(a) 266,000 18,149,180
- ------------------------------------------------------------------------
Masco Corp. 636,000 15,582,000
========================================================================
33,731,180
========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
COMPUTER STORAGE & PERIPHERALS-0.50%
Electronics for Imaging, Inc.(a) 196,900 $ 4,392,839
========================================================================
CONSUMER ELECTRONICS-1.37%
Koninklijke (Royal) Philips Electronics
N.V.-ADR (Netherlands) 416,207 12,115,786
========================================================================
CONSUMER FINANCE-0.64%
AmeriCredit Corp.(a) 181,100 5,713,705
========================================================================
DATA PROCESSING SERVICES-6.12%
BISYS Group, Inc. (The)(a) 218,000 13,949,820
- ------------------------------------------------------------------------
Ceridian Corp.(a) 994,500 18,646,875
- ------------------------------------------------------------------------
First Data Corp. 163,000 12,787,350
- ------------------------------------------------------------------------
Fiserv, Inc.(a) 211,912 8,968,116
========================================================================
54,352,161
========================================================================
DIVERSIFIED COMMERCIAL SERVICES-2.85%
Equifax Inc. 117,000 2,825,550
- ------------------------------------------------------------------------
H&R Block, Inc. 502,000 22,439,400
========================================================================
25,264,950
========================================================================
DIVERSIFIED FINANCIAL SERVICES-8.50%
American Capital Strategies, Ltd. 199,600 5,658,660
- ------------------------------------------------------------------------
Citigroup Inc. 438,500 22,135,480
- ------------------------------------------------------------------------
Freddie Mac 259,860 16,994,844
- ------------------------------------------------------------------------
J.P. Morgan Chase & Co. 446,000 16,212,100
- ------------------------------------------------------------------------
Lehman Brothers Holdings Inc. 92,800 6,199,040
- ------------------------------------------------------------------------
Merrill Lynch & Co., Inc. 158,000 8,234,960
========================================================================
75,435,084
========================================================================
DRUG RETAIL-0.50%
Walgreen Co. 133,000 4,476,780
========================================================================
ELECTRIC UTILITIES-2.56%
Duke Energy Corp. 115,000 4,514,900
- ------------------------------------------------------------------------
Orion Power Holdings, Inc.(a) 164,000 4,280,400
- ------------------------------------------------------------------------
PG&E Corp. 722,000 13,891,280
========================================================================
22,686,580
========================================================================
ENVIRONMENTAL SERVICES-3.26%
Tetra Tech, Inc. 471,750 9,392,542
- ------------------------------------------------------------------------
Waste Management, Inc. 614,000 19,592,740
========================================================================
28,985,282
========================================================================
</Table>
FS-81
<Table>
<Caption>
MARKET
SHARES VALUE
FOOD RETAIL-1.59%
Kroger Co. (The)(a) 675,000 $ 14,087,250
========================================================================
GENERAL MERCHANDISE STORES-1.62%
Target Corp. 350,000 14,367,500
========================================================================
HEALTH CARE DISTRIBUTORS & SERVICES-4.79%
Express Scripts, Inc.(a) 240,000 11,222,400
- ------------------------------------------------------------------------
Laboratory Corp. of America Holdings(a) 100,000 8,085,000
- ------------------------------------------------------------------------
McKesson Corp. 368,000 13,763,200
- ------------------------------------------------------------------------
Quest Diagnostics Inc.(a) 132,000 9,465,720
========================================================================
42,536,320
========================================================================
HEALTH CARE EQUIPMENT-0.26%
Bruker Daltonics, Inc.(a) 140,000 2,289,000
========================================================================
HEALTH CARE FACILITIES-3.92%
Community Health Systems, Inc.(a) 150,000 3,825,000
- ------------------------------------------------------------------------
HCA Inc. 150,000 5,781,000
- ------------------------------------------------------------------------
Health Management Associates, Inc.-Class A(a) 249,800 4,596,320
- ------------------------------------------------------------------------
LifePoint Hospitals, Inc.(a) 193,600 6,590,144
- ------------------------------------------------------------------------
Province Healthcare Co.(a) 150,000 4,629,000
- ------------------------------------------------------------------------
Universal Health Services, Inc.-Class B(a) 220,000 9,411,600
========================================================================
34,833,064
========================================================================
INDUSTRIAL CONGLOMERATES-3.47%
General Electric Co. 318,000 12,745,440
- ------------------------------------------------------------------------
Tyco International Ltd. (Bermuda) 306,000 18,023,400
========================================================================
30,768,840
========================================================================
INSURANCE BROKERS-0.98%
Marsh & McLennan Cos., Inc. 81,000 8,703,450
========================================================================
IT CONSULTING & SERVICES-0.96%
Affiliated Computer Services, Inc.-Class A(a) 80,500 8,543,465
========================================================================
LEISURE PRODUCTS-1.52%
Mattel, Inc. 784,000 13,484,800
========================================================================
LIFE & HEALTH INSURANCE-1.74%
AFLAC, Inc. 273,500 6,717,160
- ------------------------------------------------------------------------
UnumProvident Corp. 328,000 8,695,280
========================================================================
15,412,440
========================================================================
MANAGED HEALTH CARE-2.02%
CIGNA Corp. 50,000 4,632,500
- ------------------------------------------------------------------------
UnitedHealth Group Inc. 188,200 13,318,914
========================================================================
17,951,414
========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
MOVIES & ENTERTAINMENT-2.76%
AOL Time Warner Inc.(a) 424,500 $ 13,626,450
- ------------------------------------------------------------------------
Macrovision Corp.(a) 175,000 6,163,500
- ------------------------------------------------------------------------
Viacom Inc.-Class B(a) 107,300 4,737,295
========================================================================
24,527,245
========================================================================
MULTI-LINE INSURANCE-0.58%
American International Group, Inc. 65,000 5,161,000
========================================================================
MULTI-UTILITIES-0.28%
Dynegy Inc.-Class A 97,000 2,473,500
========================================================================
NETWORKING EQUIPMENT-0.56%
Cisco Systems, Inc.(a) 275,000 4,980,250
========================================================================
OIL & GAS DRILLING-3.92%
ENSCO International Inc. 528,600 13,135,710
- ------------------------------------------------------------------------
Noble Drilling Corp.(a) 180,000 6,127,200
- ------------------------------------------------------------------------
Transocean Sedco Forex Inc. 459,210 15,530,482
========================================================================
34,793,392
========================================================================
OIL & GAS EXPLORATION & PRODUCTION-0.37%
Apache Corp. 66,220 3,303,054
========================================================================
PAPER PRODUCTS-1.50%
International Paper Co. 331,000 13,355,850
========================================================================
PHARMACEUTICALS-2.47%
Allergan, Inc. 63,000 4,728,150
- ------------------------------------------------------------------------
Forest Laboratories, Inc.(a) 77,000 6,310,150
- ------------------------------------------------------------------------
Pfizer Inc. 122,700 4,889,595
- ------------------------------------------------------------------------
Taro Pharmaceutical Industries Ltd.
(Israel)(a) 150,000 5,992,500
========================================================================
21,920,395
========================================================================
PROPERTY & CASUALTY INSURANCE-2.41%
Radian Group Inc. 141,000 6,055,950
- ------------------------------------------------------------------------
XL Capital Ltd.-Class A (Bermuda) 168,000 15,348,480
========================================================================
21,404,430
========================================================================
REINSURANCE-0.60%
Everest Re Group, Ltd. (Bermuda) 75,000 5,302,500
========================================================================
RESTAURANTS-0.97%
Jack in the Box Inc.(a) 313,400 8,631,036
========================================================================
SEMICONDUCTOR EQUIPMENT-2.47%
Applied Materials, Inc.(a) 300,000 12,030,000
- ------------------------------------------------------------------------
KLA-Tencor Corp.(a) 200,000 9,912,000
========================================================================
21,942,000
========================================================================
</Table>
FS-82
<Table>
<Caption>
MARKET
SHARES VALUE
SEMICONDUCTORS-1.68%
Intel Corp. 75,000 $ 2,358,750
- ------------------------------------------------------------------------
Microsemi Corp.(a) 50,000 1,485,000
- ------------------------------------------------------------------------
Texas Instruments Inc. 250,000 7,000,000
- ------------------------------------------------------------------------
Zoran Corp.(a) 125,000 4,080,000
========================================================================
14,923,750
========================================================================
SOFT DRINKS-0.94%
PepsiCo, Inc. 172,000 8,374,680
========================================================================
SYSTEMS SOFTWARE-3.88%
BMC Software, Inc.(a) 384,000 6,286,080
- ------------------------------------------------------------------------
Computer Associates International, Inc. 452,000 15,589,480
- ------------------------------------------------------------------------
Microsoft Corp.(a) 190,000 12,591,300
========================================================================
34,466,860
========================================================================
TELECOMMUNICATIONS EQUIPMENT-1.44%
UTStarcom, Inc.(a) 450,000 12,825,000
========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
WIRELESS TELECOMMUNICATION SERVICES-0.88%
Nextel Communications, Inc.-Class A(a) 367,000 $ 4,022,320
- ------------------------------------------------------------------------
Nextel Partners, Inc.-Class A(a) 319,000 3,828,000
========================================================================
7,850,320
========================================================================
Total Common Stocks & Other Equity
Interests (Cost $807,597,431) 865,855,084
========================================================================
MONEY MARKET FUNDS-4.47%
STIC Liquid Assets Portfolio(b) 19,855,197 19,855,197
- ------------------------------------------------------------------------
STIC Prime Portfolio(b) 19,855,197 19,855,197
========================================================================
Total Money Market Funds (Cost
$39,710,394) 39,710,394
========================================================================
TOTAL INVESTMENTS-101.99% (Cost $847,307,825) 905,565,478
========================================================================
OTHER ASSETS LESS LIABILITIES-(1.99%) (17,672,917)
========================================================================
NET ASSETS-100.00% $887,892,561
________________________________________________________________________
========================================================================
</Table>
Investment Abbreviations:
ADR - American Depositary Receipt
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) The money market fund and the Fund are affiliated by having the same
investment advisor.
See Notes to Financial Statements.
FS-83
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2001
<Table>
ASSETS:
Investments, at market value (cost
$847,307,825)* $905,565,478
- ------------------------------------------------------------
Receivables for:
Fund shares sold 964,687
- ------------------------------------------------------------
Dividends 292,975
- ------------------------------------------------------------
Investment for deferred compensation plan 80,091
- ------------------------------------------------------------
Collateral for securities loaned 20,804,775
- ------------------------------------------------------------
Other assets 31,279
============================================================
Total assets 927,739,285
============================================================
LIABILITIES:
Payables for:
Investments purchased 13,953,069
- ------------------------------------------------------------
Fund shares reacquired 3,662,953
- ------------------------------------------------------------
Deferred compensation plan 80,091
- ------------------------------------------------------------
Collateral upon return of securities loaned 20,804,775
- ------------------------------------------------------------
Accrued distribution fees 865,944
- ------------------------------------------------------------
Accrued transfer agent fees 367,879
- ------------------------------------------------------------
Accrued operating expenses 112,013
============================================================
Total liabilities 39,846,724
============================================================
Net assets applicable to shares outstanding $887,892,561
____________________________________________________________
============================================================
NET ASSETS:
Class A $396,778,567
____________________________________________________________
============================================================
Class B $432,002,178
____________________________________________________________
============================================================
Class C $ 59,111,816
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE:
Class A 23,333,935
____________________________________________________________
============================================================
Class B 27,803,405
____________________________________________________________
============================================================
Class C 3,808,999
____________________________________________________________
============================================================
Class A:
Net asset value per share $ 17.00
- ------------------------------------------------------------
Offering price per share:
(Net asset value of $17.00 divided by
94.50%) $ 17.99
____________________________________________________________
============================================================
Class B:
Net asset value and offering price per share $ 15.54
____________________________________________________________
============================================================
Class C:
Net asset value and offering price per share $ 15.52
____________________________________________________________
============================================================
</Table>
* At December 31, 2001, securities with an aggregate market value of $20,581,875
were on loan to brokers.
STATEMENT OF OPERATIONS
For the year ended December 31, 2001
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of
$13,367) $ 5,035,831
- ------------------------------------------------------------
Dividends from affiliated money market funds 2,791,822
- ------------------------------------------------------------
Interest 63,141
- ------------------------------------------------------------
Security lending income 29,769
============================================================
Total investment income 7,920,563
============================================================
EXPENSES:
Advisory fees 6,487,014
- ------------------------------------------------------------
Administrative services fees 148,860
- ------------------------------------------------------------
Custodian fees 112,232
- ------------------------------------------------------------
Distribution fees -- Class A 1,072,072
- ------------------------------------------------------------
Distribution fees -- Class B 5,043,700
- ------------------------------------------------------------
Distribution fees -- Class C 627,234
- ------------------------------------------------------------
Transfer agent fees -- Class A 1,145,962
- ------------------------------------------------------------
Transfer agent fees -- Class B 1,399,499
- ------------------------------------------------------------
Transfer agent fees -- Class C 174,042
- ------------------------------------------------------------
Trustees' fees 12,193
- ------------------------------------------------------------
Other 490,699
============================================================
Total expenses 16,713,507
============================================================
Less: Fees waived (3,800)
- ------------------------------------------------------------
Expenses paid indirectly (20,878)
============================================================
Net expenses 16,688,829
============================================================
Net investment income (loss) (8,768,266)
============================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES:
Net realized gain (loss) from investment
securities (63,074,168)
============================================================
Change in net unrealized appreciation
(depreciation) of investment securities (268,042,127)
============================================================
Net gain (loss) from investment securities (331,116,295)
============================================================
Net increase (decrease) in net assets
resulting from operations $(339,884,561)
____________________________________________________________
============================================================
</Table>
See Notes to Financial Statements.
FS-84
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2001 and 2000
<Table>
<Caption>
2001 2000
-------------- --------------
OPERATIONS:
Net investment income (loss) $ (8,768,266) $ (6,192,102)
- ----------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities and
futures contracts (63,074,168) 153,404,957
- ----------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities (268,042,127) (209,245,233)
==============================================================================================
Net increase (decrease) in net assets resulting from
operations (339,884,561) (62,032,378)
==============================================================================================
Distributions to shareholders from net realized gains:
Class A (302,937) (59,353,657)
- ----------------------------------------------------------------------------------------------
Class B (357,522) (80,285,223)
- ----------------------------------------------------------------------------------------------
Class C (50,347) (8,275,783)
- ----------------------------------------------------------------------------------------------
Share transactions-net:
Class A 6,643,157 150,959,050
- ----------------------------------------------------------------------------------------------
Class B (51,890,759) 181,653,821
- ----------------------------------------------------------------------------------------------
Class C 8,259,467 63,351,899
==============================================================================================
Net increase (decrease) in net assets (377,583,502) 186,017,729
==============================================================================================
NET ASSETS:
Beginning of year 1,265,476,063 1,079,458,334
==============================================================================================
End of year $ 887,892,561 $1,265,476,063
______________________________________________________________________________________________
==============================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 899,675,016 $ 945,455,716
- ----------------------------------------------------------------------------------------------
Undistributed net investment income (loss) (102,880) (101,758)
- ----------------------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment
securities and futures contracts (69,937,228) (6,177,675)
- ----------------------------------------------------------------------------------------------
Unrealized appreciation of investment securities 58,257,653 326,299,780
==============================================================================================
$ 887,892,561 $1,265,476,063
______________________________________________________________________________________________
==============================================================================================
</Table>
See Notes to Financial Statements.
FS-85
NOTES TO FINANCIAL STATEMENTS
December 31, 2001
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM Select Equity Fund, formerly AIM Select Growth Fund, (the "Fund") is a
series portfolio of AIM Funds Group (the "Trust"). The Trust is a Delaware
business trust registered under the Investment Company Act of 1940, as amended
(the "1940 Act"), as an open-end series management investment company consisting
of twelve separate portfolios, each having an unlimited number of shares of
beneficial interest. The Fund currently offers three different classes of
shares: Class A shares, Class B shares and Class C shares. Class A shares are
sold with a front-end sales charge. Class B shares and Class C shares are sold
with a contingent deferred sales charge. Matters affecting each portfolio or
class will be voted on exclusively by the shareholders of such portfolio or
class. The assets, liabilities and operations of each portfolio are accounted
for separately. Information presented in these financial statements pertains
only to the Fund. The Fund's investment objective is to achieve long-term growth
of capital.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. Security Valuations -- Securities, including restricted securities, are
valued according to the following policy. A security listed or traded on an
exchange (except convertible bonds) is valued at its last sales price as of
the close of the customary trading session on the exchange where the security
is principally traded, or lacking any sales on a particular day, the security
is valued at the closing bid price on that day. Each security reported on the
NASDAQ National Market System is valued at the last sales price as of the
close of the customary trading session on the valuation date or absent a last
sales price, at the closing bid price. Debt obligations (including
convertible bonds) are valued on the basis of prices provided by an
independent pricing service. Prices provided by the pricing service may be
determined without exclusive reliance on quoted prices, and may reflect
appropriate factors such as yield, type of issue, coupon rate and maturity
date. 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.
Securities for which market quotations are not readily available or are
questionable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers in a manner specifically authorized
by the Board of Trustees. Short-term obligations having 60 days or less to
maturity are valued at amortized cost which approximates market value. For
purposes of determining net asset value per share, futures and option
contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Foreign securities are converted into U.S. dollar amounts using 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. Occasionally, 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 be
reflected in the computation of the Fund's net asset value. If a development/
event is so significant that there is a reasonably high degree of certainty
as to both the effect and the degree of effect that the development/event has
actually caused that closing price to no longer reflect actual value, the
closing prices, as determined at the close of the applicable foreign market,
may be adjusted to reflect the fair value of the affected foreign securities
as of the close of the NYSE as determined in good faith by or under the
supervision of the Board of Trustees.
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.
On December 31, 2001, undistributed net investment income was increased by
$8,767,144, undistributed net realized gains increased by $25,421 and shares
of beneficial interest decreased by $8,792,565 as a result of net operating
loss reclassifications and other reclassifications. Net assets of the Fund
were unaffected by the reclassification discussed above.
C. Distributions -- Distributions from income and net realized capital gains, if
any, are generally paid annually and recorded on ex-dividend date. The Fund
may elect to use a portion of the proceeds from redemptions as distributions
for federal income tax purposes.
D. Federal Income Taxes -- The Fund intends to comply with the requirements of
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 gains) which is
distributed to shareholders. Therefore, no provision for federal income taxes
is recorded in the financial statements.
The Fund has as capital loss carryforward of $47,261,707 as of December 31,
2001 which may be carried forward to offset
FS-86
future taxable gains, if any, which expires, if not previously utilized, in
the year 2009. As of December 31, 2001 the Fund has a post-October capital
loss deferral of $22,675,519 which will be recognized in the following tax
year.
E. Futures Contracts -- The Fund may purchase or sell futures contracts as a
hedge against changes in market conditions. Initial margin deposits required
upon entering into futures contracts are satisfied by the segregation of
specific securities as collateral for the account of the broker (the Fund's
agent in acquiring the futures position). During the period the futures
contracts are open, changes in the value of the contracts are recognized as
unrealized gains or losses by "marking to market" on a daily basis to reflect
the market value of the contracts at the end of each day's trading. Variation
margin payments are made or received depending upon whether unrealized gains
or losses are incurred. When the contracts are closed, the Fund recognizes a
realized gain or loss equal to the difference between the proceeds from, or
cost of, the closing transaction and the Fund's basis in the contract. Risks
include the possibility of an illiquid market and that a change in value of
the contracts may not correlate with changes in the value of the securities
being hedged.
F. Expenses -- Distribution expenses directly attributable to a class of shares
are charged to those classes' operations. All other expenses which are
attributable to more than one class are allocated among the classes based on
relative net assets.
NOTE 2-ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM at the annual rate of 0.80% of the first
$150 million of the Fund's average daily net assets, plus 0.625% of the Fund's
average daily net assets in excess of $150 million. Effective July 1, 2001, 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 fund of which
the Fund has invested. For the year ended December 31, 2001, AIM waived fees of
$3,800.
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. For the year ended December 31, 2001, AIM was
paid $148,860 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency and
shareholder services to the Fund. During the year ended December 31, 2001, AFS
was paid $1,418,948 for such services.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B and Class C shares of the Fund. The Trust has adopted plans
pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A
shares, Class B shares and Class C shares (collectively the "Plans"). The Fund,
pursuant to the Plans, pays AIM Distributors compensation at the annual rate of
0.25% of the Fund's average daily net assets of Class A shares and 1.00% of the
average daily net assets of Class B and C shares. Of these amounts, the Fund may
pay a service fee of 0.25% of the average daily net assets of the Class A, Class
B or Class C shares to selected dealers and financial institutions who furnish
continuing personal shareholder services to their customers who purchase and own
the appropriate class of shares of the Fund. Any amounts not paid as a service
fee under the Plans would constitute an asset-based sales charge. The Plans also
impose a cap on the total sales charges, including asset-based sales charges
that may be paid by the respective classes. For the year ended December 31,
2001, the Class A, Class B and Class C shares paid AIM Distributors $1,072,072,
$5,043,700 and $627,234, respectively, as compensation under the Plans.
AIM Distributors received commissions of $205,791 from sales of the Class A
shares of the Fund during the year ended December 31, 2001. Such commissions are
not an expense of the Fund. They are deducted from, and are not included in, the
proceeds from sales of Class A shares. During the year ended December 31, 2001,
AIM Distributors received $32,135 in contingent deferred sales charges imposed
on redemptions of Fund shares.
Certain officers and trustees of the Trust are officers and directors of AIM,
AFS and AIM Distributors.
During the year ended December 31, 2001, the Fund paid legal fees of $6,615
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Board of Trustees. A member of that firm is a trustee of the Trust.
NOTE 3-INDIRECT EXPENSES
For the year ended December 31, 2001, the Fund received reductions in transfer
agency fees from AFS (an affiliate of AIM) of $14,056 and reductions in
custodian fees of $6,822 under expense offset arrangements which resulted in a
reduction of the Fund's total expenses of $20,878.
NOTE 4-TRUSTEES' FEES
Trustees' fees represent remuneration paid to trustees who are not an
"interested person" of AIM. The Trust invests trustees' fees, if so elected by a
trustee, in mutual fund shares in accordance with a deferred compensation plan.
NOTE 5-BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by Citibank, N.A. The Fund may borrow up to the lesser of
(i) $1,000,000,000 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. During the year ended December 31,
2001, the Fund did not borrow under the line of credit agreement. The funds
which are party to the line of credit are charged a commitment fee of 0.09% on
the unused balance of the committed line. The commitment fee is allocated among
the funds based on their respective average net assets for the period.
FS-87
NOTE 6-PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities to the extent of one-third of the Fund's
total assets. Such loans are secured by collateral equal to no less than the
market value, determined daily, of the loaned securities. Such collateral will
be cash or debt securities issued or guaranteed by the U.S. Government or any of
its agencies. Cash collateral pursuant to these loans is invested in short-term
money market instruments or affiliated money market funds. Lending securities
entails a risk of loss to the Fund if and to the extent that the market value of
the securities loaned were to increase and the borrower did not increase the
collateral accordingly, and the borrower fails to return the securities. It is
the Fund's policy to obtain additional collateral from or return excess
collateral to the borrower by the end of the next business day. Therefore, the
value of the collateral may be temporarily less than the value of the securities
on loan.
At December 31, 2001, securities with an aggregate value of $20,581,875 were
on loan to brokers. The loans were secured by cash collateral of $20,804,775
received by the Fund and subsequently invested in STIC Liquid Assets Portfolio,
an affiliated money market fund. For the year ended December 31, 2001, the Fund
received fees of $29,769 for securities lending.
NOTE 7-DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF CAPITAL
The tax character of distributions paid during 2001 and 2000 was as follows:
<Table>
<Caption>
2001 2000
-------- ------------
Distributions paid from
long-term capital gain $710,806 $147,914,663
__________________________________________________________
==========================================================
</Table>
As of December 31, 2001, the components of distributable earnings (accumulated
losses) on a tax basis were as follows:
<Table>
Capital loss carryforward $(47,261,707)
- ---------------------------------------------------------
Unrealized appreciation 35,479,252
=========================================================
$(11,782,455)
_________________________________________________________
=========================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation is
attributable primarily to the tax deferral of capital losses incurred after
October 31, and other deferrals.
NOTE 8-INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund during the year ended December 31, 2001 was
$1,115,924,913 and $1,113,910,482, respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
for tax purposes, as of December 31, 2001 is as follows:
<Table>
Aggregate unrealized appreciation of
investment securities $126,221,248
- ---------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (67,963,595)
=========================================================
Net unrealized appreciation of investment
securities $ 58,257,653
_________________________________________________________
=========================================================
Cost of investments for tax purposes is $847,307,825.
</Table>
FS-88
NOTE 9-SHARE INFORMATION
Changes in shares outstanding during the years ended December 31, 2001 and 2000
were as follows:
<Table>
<Caption>
2001 2000
--------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------- ---------- -------------
Sold:
Class A 6,672,144 $ 124,637,977 6,779,004 $ 198,529,121
- ------------------------------------------------------------------------------------------------------------------------
Class B 4,452,066 77,747,707 7,978,650 219,786,359
- ------------------------------------------------------------------------------------------------------------------------
Class C 1,686,037 28,895,794 2,377,973 64,756,969
========================================================================================================================
Issued as reinvestment of dividends:
Class A 17,383 291,047 2,458,664 56,574,104
- ------------------------------------------------------------------------------------------------------------------------
Class B 21,814 329,884 3,538,127 74,996,759
- ------------------------------------------------------------------------------------------------------------------------
Class C 3,040 46,562 377,111 7,983,463
========================================================================================================================
Reacquired:
Class A (6,609,149) (118,285,867) (3,586,000) (104,144,175)
- ------------------------------------------------------------------------------------------------------------------------
Class B (8,062,270) (129,968,351) (4,240,494) (113,129,297)
- ------------------------------------------------------------------------------------------------------------------------
Class C (1,300,657) (20,682,889) (364,164) (9,388,533)
========================================================================================================================
(3,119,592) $ (36,988,136) 15,318,871 $ 395,964,770
________________________________________________________________________________________________________________________
========================================================================================================================
</Table>
NOTE 10-FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
----------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
2001(a) 2000(a) 1999 1998 1997(a)
-------- -------- -------- -------- --------
Net asset value, beginning of period $ 22.88 $ 26.23 $ 19.35 $ 15.67 $ 14.78
- ------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.08) (0.01) (0.06) (0.04) 0.01
- ------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (5.79) (0.44) 8.00 4.24 2.82
========================================================================================================================
Total from investment operations (5.87) (0.45) 7.94 4.20 2.83
========================================================================================================================
Less distributions:
Dividends from net investment income -- -- -- -- (0.01)
- ------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.01) (2.90) (1.06) (0.52) (1.93)
========================================================================================================================
Total distributions (0.01) (2.90) (1.06) (0.52) (1.94)
========================================================================================================================
Net asset value, end of period $ 17.00 $ 22.88 $ 26.23 $ 19.35 $ 15.67
________________________________________________________________________________________________________________________
========================================================================================================================
Total return(b) (25.64)% (1.77)% 41.48% 27.09% 19.54%
________________________________________________________________________________________________________________________
========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $396,779 $532,042 $461,628 $320,143 $266,168
________________________________________________________________________________________________________________________
========================================================================================================================
Ratio of expenses to average net assets 1.24%(c) 1.07% 1.09% 1.11% 1.13%
========================================================================================================================
Ratio of net investment income (loss) to average net assets (0.45)%(c) (0.02)% (0.31)% (0.22)% 0.04%
________________________________________________________________________________________________________________________
========================================================================================================================
Portfolio turnover rate 117% 56% 31% 68% 110%
________________________________________________________________________________________________________________________
========================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Does not include sales charges.
(c) Ratios are based on average daily net assets of $428,828,804.
FS-89
NOTE 10-FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B
----------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
2001(a) 2000(a) 1999(a) 1998 1997(a)
-------- -------- -------- -------- --------
Net asset value, beginning of period $ 21.07 $ 24.57 $ 18.33 $ 14.98 $ 14.32
- ---------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.20) (0.22) (0.23) (0.17) (0.13)
- ---------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) (5.32) (0.38) 7.53 4.04 2.72
=========================================================================================================
Total from investment operations (5.52) (0.60) 7.30 3.87 2.59
=========================================================================================================
Less distributions from net realized gains (0.01) (2.90) (1.06) (0.52) (1.93)
=========================================================================================================
Net asset value, end of period $ 15.54 $ 21.07 $ 24.57 $ 18.33 $ 14.98
_________________________________________________________________________________________________________
=========================================================================================================
Total return(b) (26.19)% (2.50)% 40.29% 26.13% 18.50%
_________________________________________________________________________________________________________
=========================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $432,002 $661,445 $592,555 $428,002 $356,186
_________________________________________________________________________________________________________
=========================================================================================================
Ratio of expenses to average net assets 2.00%(c) 1.84% 1.90% 1.93% 1.99%
=========================================================================================================
Ratio of net investment income (loss) to
average net assets (1.21)%(c) (0.80)% (1.12)% (1.04)% (0.82)%
_________________________________________________________________________________________________________
=========================================================================================================
Portfolio turnover rate 117% 56% 31% 68% 110%
_________________________________________________________________________________________________________
=========================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Does not include contingent deferred sales charges.
(c) Ratios are based on average daily net assets of $504,370,050.
<Table>
<Caption>
CLASS C
--------------------------------------------------------------
AUGUST 4, 1997
(DATE OPERATIONS
YEAR ENDED DECEMBER 31, COMMENCED) TO
------------------------------------------ DECEMBER 31,
2001(a) 2000(a) 1999(a) 1998(a) 1997(a)
------- ------- ------- ------- ----------------
Net asset value, beginning of period $ 21.05 $ 24.55 $ 18.32 $ 14.98 $17.65
- ----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.20) (0.22) (0.23) (0.17) (0.04)
- ----------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (5.32) (0.38) 7.52 4.03 (0.70)
============================================================================================================================
Total from investment operations (5.52) (0.60) 7.29 3.86 (0.74)
============================================================================================================================
Less distributions from net realized gains (0.01) (2.90) (1.06) (0.52) (1.93)
============================================================================================================================
Net asset value, end of period $ 15.52 $ 21.05 $ 24.55 $ 18.32 $14.98
____________________________________________________________________________________________________________________________
============================================================================================================================
Total return(b) (26.21)% (2.50)% 40.26% 26.07% (3.86)%
____________________________________________________________________________________________________________________________
============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $59,112 $71,989 $25,275 $ 8,501 $1,189
____________________________________________________________________________________________________________________________
============================================================================================================================
Ratio of expenses to average net assets 2.00%(c) 1.84% 1.90% 1.93% 1.95%(d)
============================================================================================================================
Ratio of net investment income (loss) to average net assets (1.21)%(c) (0.80)% (1.12)% (1.04)% (0.77)%(d)
____________________________________________________________________________________________________________________________
============================================================================================================================
Portfolio turnover rate 117% 56% 31% 68% 110%
____________________________________________________________________________________________________________________________
============================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Does not include contingent deferred sales charges and is not annualized
for periods less than one year.
(c) Ratios are based on average daily net assets of $62,723,395.
(d) Annualized.
FS-90
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees and Shareholders of
AIM Small Cap Equity Fund:
In our opinion, the accompanying statement of assets and
liabilities, including the schedule of investments, and
the related statements of operations and of changes in
net assets and the financial highlights present fairly,
in all material respects, the financial position of the
AIM Small Cap Equity Fund (one of the funds constituting
AIM Funds Group; hereafter referred to as the "Fund") at
December 31, 2001, and the results of its operations, the
changes in its net assets and the financial highlights
for each of the periods indicated, in conformity with
accounting principles generally accepted in the United
States of America. These financial statements and
financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion
on these financial statements based on our audits. We
conducted our audits of these financial statements in
accordance with auditing standards generally accepted in
the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance
about whether the financial statements are free of
material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made
by management, and evaluating the overall financial
statement presentation. We believe that our audits, which
included confirmation of securities at December 31, 2001
by correspondence with the custodian and brokers, provide
a reasonable basis for our opinion.
/s/ PRICEWATERHOUSECOOPERS LLP
February 14, 2002
Houston, Texas
FS-91
SCHEDULE OF INVESTMENTS
December 31, 2001
<Table>
<Caption>
MARKET
SHARES VALUE
COMMON STOCKS & OTHER EQUITY INTERESTS-93.84%
AEROSPACE & DEFENSE-1.06%
United Defense Industries, Inc.(a) 100,000 $ 2,105,000
=======================================================================
AIR FREIGHT & COURIERS-0.70%
UTI Worldwide, Inc. 70,800 1,385,556
=======================================================================
AIRLINES-0.52%
AirTran Holdings, Inc.(a) 156,000 1,029,600
=======================================================================
APPAREL RETAIL-2.23%
Abercrombie & Fitch Co.-Class A(a) 69,500 1,843,835
- -----------------------------------------------------------------------
Genesco Inc.(a) 57,200 1,187,472
- -----------------------------------------------------------------------
Ross Stores, Inc. 43,400 1,392,272
=======================================================================
4,423,579
=======================================================================
APPLICATION SOFTWARE-4.20%
Eclipsys Corp.(a) 97,600 1,634,800
- -----------------------------------------------------------------------
MSC.Software Corp.(a) 73,000 1,138,800
- -----------------------------------------------------------------------
National Instruments Corp.(a) 45,900 1,719,414
- -----------------------------------------------------------------------
PLATO Learning, Inc.(a) 74,000 1,229,140
- -----------------------------------------------------------------------
Renaissance Learning, Inc.(a) 48,000 1,462,560
- -----------------------------------------------------------------------
Secure Computing Corp.(a) 56,400 1,159,020
=======================================================================
8,343,734
=======================================================================
AUTO PARTS & EQUIPMENT-0.76%
Tower Automotive, Inc.(a) 168,400 1,520,652
=======================================================================
BANKS-0.48%
TCF Financial Corp. 20,100 964,398
=======================================================================
BIOTECHNOLOGY-0.49%
Transkaryotic Therapies, Inc.(a) 23,000 984,400
=======================================================================
BROADCASTING & CABLE TV-3.36%
Cox Radio, Inc.-Class A(a) 27,300 695,604
- -----------------------------------------------------------------------
Entercom Communications Corp.(a) 22,200 1,110,000
- -----------------------------------------------------------------------
Entravision Communications Corp.-Class A(a) 140,700 1,681,365
- -----------------------------------------------------------------------
Hispanic Broadcasting Corp.(a) 46,600 1,188,300
- -----------------------------------------------------------------------
Mediacom Communications Corp.(a) 110,000 2,008,600
=======================================================================
6,683,869
=======================================================================
CATALOG RETAIL-2.30%
Insight Enterprises, Inc.(a) 96,250 2,367,750
- -----------------------------------------------------------------------
J. Jill Group Inc.(a) 102,600 2,208,978
=======================================================================
4,576,728
=======================================================================
COMPUTER STORAGE & PERIPHERALS-0.76%
Electronics for Imaging, Inc.(a) 67,400 1,503,694
=======================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
CONSTRUCTION & ENGINEERING-0.72%
Granite Construction Inc. 59,600 $ 1,435,168
=======================================================================
CONSTRUCTION & FARM MACHINERY-1.68%
AGCO Corp.(a) 100,000 1,578,000
- -----------------------------------------------------------------------
Terex Corp.(a) 100,000 1,754,000
=======================================================================
3,332,000
=======================================================================
CONSTRUCTION MATERIALS-1.04%
Florida Rock Industries, Inc. 56,300 2,059,454
=======================================================================
CONSUMER FINANCE-3.31%
AmeriCredit Corp.(a) 76,600 2,416,730
- -----------------------------------------------------------------------
Metris Cos. Inc. 80,100 2,059,371
- -----------------------------------------------------------------------
New Century Financial Corp. 103,000 1,393,590
- -----------------------------------------------------------------------
Saxon Capital Acquisition Corp. (Acquired
07/27/01; Cost $707,000)(a)(b) 70,000 708,750
=======================================================================
6,578,441
=======================================================================
DATA PROCESSING SERVICES-0.88%
Alliance Data Systems Corp.(a) 91,600 1,754,140
=======================================================================
DIVERSIFIED COMMERCIAL SERVICES-5.59%
Edison Schools Inc.(a) 103,560 2,034,954
- -----------------------------------------------------------------------
Iron Mountain Inc.(a) 18,000 788,400
- -----------------------------------------------------------------------
NCO Group, Inc.(a) 95,600 2,189,240
- -----------------------------------------------------------------------
Pre-Paid Legal Services, Inc.(a) 90,800 1,988,520
- -----------------------------------------------------------------------
Profit Recovery Group International, Inc.
(The)(a) 252,800 2,060,320
- -----------------------------------------------------------------------
Sylvan Learning Systems, Inc.(a) 92,600 2,043,682
=======================================================================
11,105,116
=======================================================================
DIVERSIFIED FINANCIAL SERVICES-2.55%
Affiliated Managers Group, Inc.(a) 27,200 1,917,056
- -----------------------------------------------------------------------
American Capital Strategies, Ltd. 46,700 1,323,945
- -----------------------------------------------------------------------
W.P. Stewart & Co., Ltd. (Bermuda) 70,000 1,834,000
=======================================================================
5,075,001
=======================================================================
DIVERSIFIED METALS & MINING-0.35%
Massey Energy Co. 33,500 694,455
=======================================================================
DRUG RETAIL-0.65%
Duane Reade Inc.(a) 42,600 1,292,910
=======================================================================
ELECTRICAL COMPONENTS & EQUIPMENT-0.69%
Wilson Greatbatch Technologies, Inc.(a) 38,000 1,371,800
=======================================================================
ELECTRONIC EQUIPMENT & INSTRUMENTS-5.85%
Amphenol Corp.-Class A(a) 31,400 1,508,770
- -----------------------------------------------------------------------
CTS Corp. 80,500 1,279,950
- -----------------------------------------------------------------------
DSP Group, Inc.(a) 67,600 1,572,376
- -----------------------------------------------------------------------
Garmin Ltd. (Cayman Islands)(a) 87,500 1,865,500
- -----------------------------------------------------------------------
</Table>
FS-92
<Table>
<Caption>
MARKET
SHARES VALUE
ELECTRONIC EQUIPMENT & INSTRUMENTS-(CONTINUED)
Technitrol, Inc. 59,000 $ 1,629,580
- -----------------------------------------------------------------------
Tektronix, Inc.(a) 76,000 1,959,280
- -----------------------------------------------------------------------
Varian Inc.(a) 55,800 1,810,152
=======================================================================
11,625,608
=======================================================================
ENVIRONMENTAL SERVICES-0.76%
Tetra Tech, Inc. 76,000 1,513,160
=======================================================================
FOOD RETAIL-0.85%
Casey's General Stores, Inc. 112,800 1,680,720
=======================================================================
GENERAL MERCHANDISE STORES-0.80%
Tuesday Morning Corp.(a) 88,300 1,597,347
=======================================================================
HEALTH CARE DISTRIBUTORS & SERVICES-4.34%
Apria Healthcare Group Inc.(a) 59,100 1,476,909
- -----------------------------------------------------------------------
D & K Healthcare Resources, Inc. 26,000 1,480,700
- -----------------------------------------------------------------------
First Horizon Pharmaceutical Corp.(a) 23,900 702,421
- -----------------------------------------------------------------------
Genesis Health Ventures, Inc.(a) 65,100 1,399,650
- -----------------------------------------------------------------------
MAXIMUS, Inc.(a) 44,000 1,850,640
- -----------------------------------------------------------------------
Option Care, Inc.(a) 88,100 1,722,355
=======================================================================
8,632,675
=======================================================================
HEALTH CARE EQUIPMENT-1.35%
Apogent Technologies Inc.(a) 56,300 1,452,540
- -----------------------------------------------------------------------
CardioDynamics International Corp.(a) 185,000 1,222,850
=======================================================================
2,675,390
=======================================================================
HEALTH CARE FACILITIES-2.13%
LifePoint Hospitals, Inc.(a) 40,200 1,368,408
- -----------------------------------------------------------------------
U.S. Physical Therapy, Inc.(a) 55,600 898,496
- -----------------------------------------------------------------------
VCA Antech, Inc.(a) 162,500 1,969,500
=======================================================================
4,236,404
=======================================================================
HOUSEHOLD APPLIANCES-0.93%
Snap-on Inc. 54,800 1,844,568
=======================================================================
HOUSEHOLD PRODUCTS-0.76%
Dial Corp. (The) 88,000 1,509,200
=======================================================================
INDUSTRIAL MACHINERY-0.92%
Flowserve Corp.(a) 69,100 1,838,751
=======================================================================
INSURANCE BROKERS-0.57%
Willis Group Holdings Ltd. (United
Kingdom)(a) 48,300 1,137,465
=======================================================================
INTERNET SOFTWARE & SERVICES-2.02%
Hotel Reservations Network, Inc.-Class A(a) 39,700 1,826,200
- -----------------------------------------------------------------------
Quovadx, Inc.(a) 119,500 1,093,425
- -----------------------------------------------------------------------
Stellent, Inc.(a) 37,200 1,099,632
=======================================================================
4,019,257
=======================================================================
IT CONSULTING & SERVICES-1.96%
Tier Technologies, Inc.-Class B(a) 100,000 2,156,000
- -----------------------------------------------------------------------
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
IT CONSULTING & SERVICES-(CONTINUED)
Titan Corp. (The)(a) 69,500 $ 1,734,025
=======================================================================
3,890,025
=======================================================================
LEISURE PRODUCTS-1.02%
Direct Focus, Inc.(a) 64,800 2,021,760
=======================================================================
LIFE & HEALTH INSURANCE-0.43%
Phoenix Cos., Inc. (The)(a) 45,700 845,450
=======================================================================
MANAGED HEALTH CARE-1.60%
Centene Corp.(a) 61,500 1,349,925
- -----------------------------------------------------------------------
Orthodontic Centers of America, Inc.(a) 59,700 1,820,850
=======================================================================
3,170,775
=======================================================================
MOVIES & ENTERTAINMENT-1.16%
Alliance Atlantis Communications Inc.-Class B
(Canada)(a) 105,000 1,186,629
- -----------------------------------------------------------------------
Championship Auto Racing Teams, Inc.(a) 69,000 1,110,210
=======================================================================
2,296,839
=======================================================================
MULTI-UTILITIES-0.98%
MDU Resources Group, Inc. 69,300 1,950,795
=======================================================================
MUTUAL FUNDS-0.97%
MCG Capital Corp.(a) 108,400 1,929,520
=======================================================================
NETWORKING EQUIPMENT-0.64%
Lantronix, Inc.(a) 200,000 1,264,000
=======================================================================
OFFICE ELECTRONICS-0.88%
IKON Office Solutions, Inc. 149,200 1,744,148
=======================================================================
OIL & GAS DRILLING-0.97%
Pride International, Inc.(a) 128,100 1,934,310
=======================================================================
OIL & GAS EQUIPMENT & SERVICES-1.64%
Core Laboratories N.V. (Netherlands)(a) 110,500 1,549,210
- -----------------------------------------------------------------------
Key Energy Services, Inc.(a) 185,800 1,709,360
=======================================================================
3,258,570
=======================================================================
OIL & GAS EXPLORATION & PRODUCTION-1.80%
Forest Oil Corp.(a) 50,450 1,423,194
- -----------------------------------------------------------------------
XTO Energy, Inc. 123,400 2,159,500
=======================================================================
3,582,694
=======================================================================
PACKAGED FOODS-1.43%
Hain Celestial Group, Inc.(a) 67,000 1,839,820
- -----------------------------------------------------------------------
Suprema Specialties, Inc.(a) 100,000 1,000,000
=======================================================================
2,839,820
=======================================================================
PHARMACEUTICALS-0.46%
ICN Pharmaceuticals, Inc. 27,100 907,850
=======================================================================
PROPERTY & CASUALTY INSURANCE-2.10%
PMA Capital Corp.-Class A 100,000 1,930,000
- -----------------------------------------------------------------------
Vesta Insurance Group, Inc. 94,200 753,600
- -----------------------------------------------------------------------
</Table>
FS-93
<Table>
<Caption>
MARKET
SHARES VALUE
PROPERTY & CASUALTY INSURANCE-(CONTINUED)
W. R. Berkley Corp. 27,800 $ 1,492,860
=======================================================================
4,176,460
=======================================================================
RAILROADS-1.07%
Genesee & Wyoming Inc.-Class A(a) 65,000 2,122,250
=======================================================================
REAL ESTATE INVESTMENT TRUSTS-4.30%
America First Mortgage Investments, Inc. 150,000 1,312,500
- -----------------------------------------------------------------------
Annaly Mortgage Management Inc. 111,000 1,776,000
- -----------------------------------------------------------------------
Anworth Mortgage Asset Corp. 200,000 1,820,000
- -----------------------------------------------------------------------
CarrAmerica Realty Corp. 65,900 1,983,590
- -----------------------------------------------------------------------
FBR Asset Investment Corp. 59,100 1,660,710
=======================================================================
8,552,800
=======================================================================
REINSURANCE-1.45%
Annuity and Life Reassurance Holdings, Ltd.
(Bermuda) 68,700 1,725,057
- -----------------------------------------------------------------------
PartnerRe Ltd. (Bermuda) 21,400 1,155,600
=======================================================================
2,880,657
=======================================================================
RESTAURANTS-3.40%
AFC Enterprises, Inc.(a) 75,000 2,129,250
- -----------------------------------------------------------------------
Jack in the Box Inc.(a) 43,700 1,203,498
- -----------------------------------------------------------------------
P.F. Chang's China Bistro, Inc.(a) 30,500 1,442,650
- -----------------------------------------------------------------------
Sonic Corp.(a) 54,900 1,976,400
=======================================================================
6,751,798
=======================================================================
SEMICONDUCTOR EQUIPMENT-1.53%
Brooks Automation, Inc.(a) 46,500 1,891,155
- -----------------------------------------------------------------------
Varian Semiconductor Equipment Associates,
Inc.(a) 33,500 1,158,765
=======================================================================
3,049,920
=======================================================================
SEMICONDUCTORS-1.86%
Alpha Industries, Inc.(a) 26,500 577,700
- -----------------------------------------------------------------------
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
SEMICONDUCTORS-(CONTINUED)
Fairchild Semiconductor Corp.-Class A(a) 72,500 $ 2,044,500
- -----------------------------------------------------------------------
Semtech Corp.(a) 30,000 1,070,700
=======================================================================
3,692,900
=======================================================================
SPECIALTY CHEMICALS-0.79%
International Flavors & Fragrances Inc. 52,600 1,562,746
=======================================================================
SPECIALTY STORES-3.12%
Foot Locker, Inc.(a) 49,400 773,110
- -----------------------------------------------------------------------
Rent-A-Center, Inc.(a) 49,700 1,668,429
- -----------------------------------------------------------------------
Sonic Automotive, Inc.(a) 78,400 1,837,696
- -----------------------------------------------------------------------
United Rentals, Inc.(a) 84,400 1,915,880
=======================================================================
6,195,115
=======================================================================
SYSTEMS SOFTWARE-1.77%
Borland Software Corp.(a) 58,200 911,412
- -----------------------------------------------------------------------
Moldflow Corp.(a) 59,900 857,768
- -----------------------------------------------------------------------
Wind River Systems, Inc.(a) 97,500 1,746,225
=======================================================================
3,515,405
=======================================================================
TRUCKING-0.91%
Landstar System, Inc.(a) 24,900 1,805,499
=======================================================================
Total Common Stocks & Other Equity
Interests (Cost $162,529,896) 186,472,346
=======================================================================
MONEY MARKET FUNDS-5.95%
STIC Liquid Assets Portfolio(c) 5,912,747 5,912,747
- -----------------------------------------------------------------------
STIC Prime Portfolio(c) 5,912,747 5,912,747
=======================================================================
Total Money Market Funds (Cost
$11,825,494) 11,825,494
=======================================================================
TOTAL INVESTMENTS-99.79% (Cost $174,355,390) 198,297,840
=======================================================================
OTHER ASSETS LESS LIABILITIES-0.21% 408,709
=======================================================================
NET ASSETS-100.00% $198,706,549
_______________________________________________________________________
=======================================================================
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) Restricted security. May be resold to qualified institutional buyers in
accordance with the provisions of Rule 144A under the Securities Act of
1933, as amended. The market value of this security at 12/31/01 represented
0.36% of the Fund's net assets.
(c) The money market fund and the Fund are affiliated by having the same
investment advisor.
See Notes to Financial Statements.
FS-94
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2001
<Table>
ASSETS:
Investments, at market value (cost
$174,355,390) $198,297,840
- ------------------------------------------------------------
Receivables for:
Fund shares sold 3,396,993
- ------------------------------------------------------------
Dividends 259,676
- ------------------------------------------------------------
Investment for deferred compensation plan 9,333
- ------------------------------------------------------------
Other assets 15,561
============================================================
Total assets 201,979,403
============================================================
LIABILITIES:
Payables for:
Investments purchased 2,027,702
- ------------------------------------------------------------
Fund shares reacquired 947,361
- ------------------------------------------------------------
Deferred compensation plan 9,333
- ------------------------------------------------------------
Accrued distribution fees 177,845
- ------------------------------------------------------------
Accrued transfer agent fees 59,085
- ------------------------------------------------------------
Accrued operating expenses 51,528
============================================================
Total liabilities 3,272,854
============================================================
Net assets applicable to shares outstanding $198,706,549
____________________________________________________________
============================================================
NET ASSETS:
Class A $105,146,051
____________________________________________________________
============================================================
Class B $ 64,012,241
____________________________________________________________
============================================================
Class C $ 29,548,257
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE:
Class A 10,316,603
____________________________________________________________
============================================================
Class B 6,334,462
____________________________________________________________
============================================================
Class C 2,924,367
____________________________________________________________
============================================================
Class A:
Net asset value per share $ 10.19
- ------------------------------------------------------------
Offering price per share:
(Net asset value of $10.19 divided by
94.50%) $ 10.78
____________________________________________________________
============================================================
Class B:
Net asset value and offering price per share $ 10.11
____________________________________________________________
============================================================
Class C:
Net asset value and offering price per share $ 10.10
____________________________________________________________
============================================================
</Table>
STATEMENT OF OPERATIONS
For the year ended December 31, 2001
<Table>
INVESTMENT INCOME:
Dividends $ 1,047,706
- ------------------------------------------------------------
Dividends from affiliated money market funds 369,276
- ------------------------------------------------------------
Interest 39
============================================================
Total investment income 1,417,021
============================================================
EXPENSES:
Advisory fees 997,232
- ------------------------------------------------------------
Administrative services fees 50,000
- ------------------------------------------------------------
Custodian fees 38,112
- ------------------------------------------------------------
Distribution fees -- Class A 216,534
- ------------------------------------------------------------
Distribution fees -- Class B 382,833
- ------------------------------------------------------------
Distribution fees -- Class C 171,712
- ------------------------------------------------------------
Transfer agent fees -- Class A 184,325
- ------------------------------------------------------------
Transfer agent fees -- Class B 118,756
- ------------------------------------------------------------
Transfer agent fees -- Class C 53,266
- ------------------------------------------------------------
Trustees' fees 8,725
- ------------------------------------------------------------
Registration and filing fees 132,293
- ------------------------------------------------------------
Other 101,128
============================================================
Total expenses 2,454,916
============================================================
Less: Fees waived (714)
- ------------------------------------------------------------
Expenses paid indirectly (1,858)
============================================================
Net expenses 2,452,344
============================================================
Net investment income (loss) (1,035,323)
============================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES, FOREIGN CURRENCIES AND
OPTION CONTRACTS:
Net realized gain (loss) from:
Investment securities (6,252,879)
- ------------------------------------------------------------
Foreign currencies 560
- ------------------------------------------------------------
Option contracts written 3,570
============================================================
(6,248,749)
============================================================
Change in net unrealized appreciation
(depreciation) of:
Investment securities 21,878,546
- ------------------------------------------------------------
Option contracts written (3,677)
============================================================
21,874,869
============================================================
Net gain from investment securities, foreign
currencies and option contracts 15,626,120
============================================================
Net increase in net assets resulting from
operations $14,590,797
____________________________________________________________
============================================================
</Table>
See Notes to Financial Statements.
FS-95
STATEMENT OF CHANGES IN NET ASSETS
For the year ended December 31, 2001 and the period August 31, 2000
(date operations commenced) through December 31, 2000
<Table>
<Caption>
2001 2000
------------ -----------
OPERATIONS:
Net investment income (loss) $ (1,035,323) $ (42,970)
- -----------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities,
foreign currencies, futures contracts and option
contracts (6,248,749) (3,388,953)
- -----------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities, and option contracts 21,874,869 2,067,581
=========================================================================================
Net increase (decrease) in net assets resulting from
operations 14,590,797 (1,364,342)
=========================================================================================
Distributions to shareholders from net investment income:
Class A (45,876) --
- -----------------------------------------------------------------------------------------
Share transactions-net:
Class A 64,401,893 33,716,692
- -----------------------------------------------------------------------------------------
Class B 43,327,916 16,719,812
- -----------------------------------------------------------------------------------------
Class C 18,212,944 9,146,713
=========================================================================================
Net increase in net assets 140,487,674 58,218,875
=========================================================================================
NET ASSETS:
Beginning of year 58,218,875 --
=========================================================================================
End of year $198,706,549 $58,218,875
_________________________________________________________________________________________
=========================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $184,411,918 $59,572,581
- -----------------------------------------------------------------------------------------
Undistributed net investment income (loss) (9,556) (32,334)
- -----------------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment
securities, foreign currencies, futures contracts and
option contracts (9,638,263) (3,388,953)
- -----------------------------------------------------------------------------------------
Unrealized appreciation of investment securities and
option contracts 23,942,450 2,067,581
=========================================================================================
$198,706,549 $58,218,875
_________________________________________________________________________________________
=========================================================================================
</Table>
See Notes to Financial Statements.
FS-96
NOTES TO FINANCIAL STATEMENTS
December 31, 2001
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM Small Cap Equity Fund (the "Fund") is a series portfolio of AIM Funds Group
(the "Trust"). The Trust is a Delaware business trust registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of twelve separate portfolios,
each having an unlimited number of shares of beneficial interest. The Fund
currently offers three different classes of shares: Class A shares, Class B
shares and Class C shares. Class A shares are sold with a front-end sales
charge. Class B shares and Class C shares are sold with a contingent deferred
sales charge. Matters affecting each portfolio or class will be voted on
exclusively by the shareholders of such portfolio or class. The assets,
liabilities and operations of each portfolio are accounted for separately.
Information presented in these financial statements pertains only to the Fund.
The Fund's investment objective is to achieve long-term growth of capital.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. Security Valuations -- Securities, including restricted securities, are
valued according to the following policy. A security listed or traded on an
exchange (except convertible bonds) is valued at its last sales price as of
the close of the customary trading session on the exchange where the security
is principally traded, or lacking any sales on a particular day, the security
is valued at the closing bid price on that day. Each security reported on the
NASDAQ National Market System is valued at the last sales price as of the
close of the customary trading session on the valuation date or absent a last
sales price, at the closing bid price. Debt obligations (including
convertible bonds) are valued on the basis of prices provided by an
independent pricing service. Prices provided by the pricing service may be
determined without exclusive reliance on quoted prices, and may reflect
appropriate factors such as yield, type of issue, coupon rate and maturity
date. 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.
Securities for which market quotations are not readily available or are
questionable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers in a manner specifically authorized
by the Board of Trustees. Short-term obligations having 60 days or less to
maturity are valued at amortized cost which approximates market value. For
purposes of determining net asset value per share, futures and option
contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Foreign securities are converted into U.S. dollar amounts using 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. Occasionally, 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 be
reflected in the computation of the Fund's net asset value. If a development/
event is so significant that there is a reasonably high degree of certainty
as to both the effect and the degree of effect that the development/event has
actually caused that closing price to no longer reflect actual value, the
closing prices, as determined at the close of the applicable foreign market,
may be adjusted to reflect the fair value of the affected foreign securities
as of the close of the NYSE as determined in good faith by or under the
supervision of the Board of Trustees.
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.
On December 31, 2001, undistributed net investment income (loss) was
increased by $1,103,977, undistributed net realized gains (losses) decreased
by $561 and shares of beneficial interest decreased by $1,103,416 as a result
of differing book/tax treatment of foreign currency transactions, net
operating loss, nondeductible stock issuance costs and other
reclassifications. Net assets of the Fund were unaffected by the
reclassifications discussed above.
C. Distributions -- Distributions from income and net realized capital gains, if
any, are generally paid annually and recorded on ex-dividend date. The Fund
may elect to use a portion of the proceeds from redemptions as distributions
for federal income tax purposes.
D. Federal Income Taxes -- The Fund intends to comply with the requirements of
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 gains) which is
distributed to shareholders. Therefore, no provision for federal income taxes
is recorded in the financial statements.
FS-97
The Fund's capital loss carryforward of $9,014,563 is broken down by
expiration date as follows:
<Table>
<Caption>
CAPITAL LOSS
CARRYFORWARD EXPIRATION
------------ ----------
$ 700,372 December 31, 2008
--------------------------------
8,314,191 December 31, 2009
================================
$9,014,563
________________________________
================================
</Table>
As of December 31, 2001, the Fund has a post-October capital loss deferral of
$231,927 which will be recognized in the following tax year.
E. Foreign Currency Translations -- Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S. dollar
amounts at date of valuation. Purchases and sales of portfolio securities and
income items denominated in foreign currencies are translated into U.S.
dollar amounts on the respective dates of such transactions. The Fund does
not separately account for the portion of the results of operations resulting
from changes in foreign exchange rates on investments and the fluctuations
arising from changes in market prices of securities held. Such fluctuations
are included with the net realized and unrealized gain or loss from
investments.
F. Foreign Currency Contracts -- A foreign currency contract is an obligation to
purchase or sell a specific currency for an agreed-upon price at a future
date. The Fund may enter into a foreign currency contract to attempt to
minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency contract
for the purchase or sale of a security denominated in a foreign currency in
order to "lock in" the U.S. dollar price of that security. The Fund could be
exposed to risk if counterparties to the contracts are unable to meet the
terms of their contracts or if the value of the foreign currency changes
unfavorably.
G. Covered Call Options -- The Fund may write call options, on a covered basis;
that is, the Fund will own the underlying security. When the Fund writes a
covered call option, an amount equal to the premium received by the Fund is
recorded as an asset and an equivalent liability. The amount of the liability
is subsequently "marked-to-market" to reflect the current market value of the
option written. The current market value of a written option is the mean
between the last bid and asked prices on that day. If a written call option
expires on the stipulated expiration date, or if the Fund enters into a
closing purchase transaction, the Fund realizes a gain (or a loss if the
closing purchase transaction exceeds the premium received when the option was
written) without regard to any unrealized gain or loss on the underlying
security, and the liability related to such option is extinguished. If a
written option is exercised, the Fund realizes a gain or a loss from the sale
of the underlying security and the proceeds of the sale are increased by the
premium originally received.
H. Expenses -- Distribution expenses directly attributable to a class of shares
are charged to those classes' operations. All other expenses which are
attributable to more than one class are allocated among the classes based on
relative net assets.
NOTE 2-ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM at the annual rate of 0.85% of the Fund's
average daily net assets. Effective July 1, 2001, AIM 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 fund of which the Fund has invested.
For the year ended December 31, 2001, AIM waived fees of $714.
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. For the year ended December 31, 2001, AIM was
paid $50,000 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency and
shareholder services to the Fund. During the year ended December 31, 2001, AFS
was paid $186,757 for such services.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B and Class C shares of the Fund. The Trust has adopted plans
pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A
shares, Class B shares and Class C shares (collectively the "Plans"). The Fund,
pursuant to the Plans, pays AIM Distributors compensation at the annual rate of
0.35% of the Fund's average daily net assets of Class A shares and 1.00% of the
average daily net assets of Class B and C shares. Of these amounts, the Fund may
pay a service fee of 0.25% of the average daily net assets of the Class A, Class
B or Class C shares to selected dealers and financial institutions who furnish
continuing personal shareholder services to their customers who purchase and own
the appropriate class of shares of the Fund. Any amounts not paid as a service
fee under the Plans would constitute an asset-based sales charge. The Plans also
impose a cap on the total sales charges, including asset-based sales charges
that may be paid by the respective classes. For the year ended December 31,
2001, the Class A, Class B and Class C shares paid AIM Distributors $216,534,
$382,833 and $171,712, respectively, as compensation under the Plans.
AIM Distributors received commissions of $129,827 from sales of the Class A
shares of the Fund during the year ended December 31, 2001. Such commissions are
not an expense of the Fund. They are deducted from, and are not included in, the
proceeds from sales of Class A shares. During the year ended December 31, 2001,
AIM Distributors received $39,954 in contingent deferred sales charges imposed
on redemptions of Fund shares.
Certain officers and trustees of the Trust are officers and directors of AIM,
AFS and AIM Distributors.
During the year ended December 31, 2001, the Fund paid legal fees of $4,503
for services rendered by Kramer, Levin, Naftalis &
FS-98
Frankel LLP as counsel to the Board of Trustees. A member of that firm is a
trustee of the Trust.
NOTE 3-INDIRECT EXPENSES
For the year ended December 31, 2001, the Fund received reductions in transfer
agency fees from AFS (an affiliate of AIM) of $1,341 and reductions in custodian
fees of $517 under expense offset arrangements which resulted in a reduction of
the Fund's total expenses of $1,858.
NOTE 4-TRUSTEES' FEES
Trustees' fees represent remuneration paid to trustees who are not an
"interested person" of AIM. The Trust invests trustees' fees, if so elected by a
trustee, in mutual fund shares in accordance with a deferred compensation plan.
NOTE 5-BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by Citibank, N.A. The Fund may borrow up to the lesser of
(i) $1,000,000,000 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. During the year ended December 31,
2001, the Fund did not borrow under the line of credit agreement. The funds
which are party to the line of credit are charged a commitment fee of 0.09% on
the unused balance of the committed line. The commitment fee is allocated among
the funds based on their respective average net assets for the period.
NOTE 6-DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF CAPITAL
The tax character of distributions paid during 2001 and 2000 was as follows:
<Table>
<Caption>
2001 2000
------- ------
Distribution paid from ordinary income $45,876 $ --
__________________________________________________________
==========================================================
</Table>
As of December 31, 2001, the components of distributable earnings on a tax
basis were as follows:
<Table>
Capital loss carryforward $(9,014,563)
- ---------------------------------------------------------
Unrealized appreciation 23,309,194
=========================================================
$14,294,631
_________________________________________________________
=========================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation is
attributable primarily to the tax deferral of losses on wash sales, the tax
deferral of capital losses incurred after October 31, and other deferrals.
NOTE 7-INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund during the year ended December 31, 2001 was
$251,361,454 and $134,509,390, respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
for tax purposes, as of December 31, 2001 is as follows:
<Table>
Aggregate unrealized appreciation of
investment securities $26,840,387
- ---------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (3,271,359)
=========================================================
Net unrealized appreciation of investment
securities $23,569,028
_________________________________________________________
=========================================================
Cost of investments for tax purposes is $174,728,812.
</Table>
NOTE 8-CALL OPTION CONTRACTS
Transactions in call options written during the year ended December 31, 2001 are
summarized as follows:
<Table>
<Caption>
CALL OPTION CONTRACTS
----------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
--------- ---------
Beginning of year 47 $ 8,084
- ---------------------------------------------------------
Written 683 324,300
- ---------------------------------------------------------
Closed (500) (129,496)
- ---------------------------------------------------------
Exercised (120) (172,314)
- ---------------------------------------------------------
Expired (110) (30,574)
=========================================================
End of year -- $ --
_________________________________________________________
=========================================================
</Table>
FS-99
NOTE 9-SHARE INFORMATION
Changes in shares outstanding during the year ended December 31, 2001 and the
period August 31, 2000 (date operations commenced) through December 31, 2000
were as follows:
<Table>
<Caption>
2001 2000
-------------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ --------- -----------
Sold:
Class A 9,399,572 $ 88,163,980 3,707,242 $35,554,951
- --------------------------------------------------------------------------------------------------------------------
Class B 5,648,744 52,902,323 1,851,798 17,580,252
- --------------------------------------------------------------------------------------------------------------------
Class C 3,099,967 29,048,663 1,021,221 9,654,027
====================================================================================================================
Issued as reinvestment of dividends:
Class A 3,879 37,431 -- --
====================================================================================================================
Reacquired:
Class A (2,593,418) (23,799,518) (200,672) (1,838,259)
- --------------------------------------------------------------------------------------------------------------------
Class B (1,069,688) (9,574,407) (96,392) (860,440)
- --------------------------------------------------------------------------------------------------------------------
Class C (1,142,623) (10,835,719) (54,198) (507,314)
====================================================================================================================
13,346,433 $125,942,753 6,228,999 $59,583,217
____________________________________________________________________________________________________________________
====================================================================================================================
</Table>
NOTE 10-FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
----------------------------------
AUGUST 31, 2000
(DATE OPERATIONS
YEAR ENDED COMMENCED) TO
DECEMBER 31, DECEMBER 31,
2001(a) 2000(a)
------------ ----------------
Net asset value, beginning of period $ 9.36 $ 10.00
- ------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.05) --
- ------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.88 (0.64)
================================================================================================
Total from investment operations 0.83 (0.64)
================================================================================================
Less dividends from net investment income 0.00 --
================================================================================================
Net asset value, end of period $ 10.19 $ 9.36
________________________________________________________________________________________________
================================================================================================
Total return(b) 8.92% (6.40)%
________________________________________________________________________________________________
================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $105,146 $32,805
________________________________________________________________________________________________
================================================================================================
Ratio of expenses to average net assets:
With fee waivers 1.78%(c) 1.78%(d)
- ------------------------------------------------------------------------------------------------
Without fee waivers 1.78%(c) 2.72%(d)
================================================================================================
Ratio of net investment income (loss) to average net assets (0.57)%(c) (0.12)%(d)
________________________________________________________________________________________________
================================================================================================
Portfolio turnover rate 123% 49%
________________________________________________________________________________________________
================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Does not include sales charges and is not annualized for periods less than
one year.
(c) Ratios are based on average daily net assets of $61,866,906.
(d) Annualized.
FS-100
NOTE 10-FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B
----------------------------------
AUGUST 31, 2000
(DATE OPERATIONS
YEAR ENDED COMMENCED) TO
DECEMBER 31, DECEMBER 31,
2001(a) 2000(a)
------------ ----------------
Net asset value, beginning of period $ 9.33 $ 10.00
- ------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.11) (0.03)
- ------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.89 (0.64)
================================================================================================
Total from investment operations 0.78 (0.67)
================================================================================================
Net asset value, end of period $ 10.11 $ 9.33
________________________________________________________________________________________________
================================================================================================
Total return(b) 8.36% (6.70)%
________________________________________________________________________________________________
================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $64,012 $16,385
________________________________________________________________________________________________
================================================================================================
Ratio of expenses to average net assets:
With fee waivers 2.44%(c) 2.49%(d)
- ------------------------------------------------------------------------------------------------
Without fee waivers 2.44%(c) 3.43%(d)
================================================================================================
Ratio of net investment income (loss) to average net assets (1.23)%(c) (0.83)%(d)
________________________________________________________________________________________________
================================================================================================
Portfolio turnover rate 123% 49%
________________________________________________________________________________________________
================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Does not include contingent deferred sales charges and is not annualized
for periods less than one year.
(c) Ratios are based on average daily net assets of $38,283,298.
(d) Annualized.
<Table>
<Caption>
CLASS C
--------------------------------
AUGUST 31, 2000
(DATE OPERATIONS
YEAR ENDED COMMENCED) TO
DECEMBER 31, DECEMBER 31,
2001(a) 2000(a)
------------ ----------------
Net asset value, beginning of period $ 9.34 $10.00
- ----------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.11) (0.03)
- ----------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.87 (0.63)
==============================================================================================
Total from investment operations 0.76 (0.66)
==============================================================================================
Net asset value, end of period $ 10.10 $ 9.34
______________________________________________________________________________________________
==============================================================================================
Total return(b) 8.14% (6.60)%
______________________________________________________________________________________________
==============================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $29,548 $9,028
______________________________________________________________________________________________
==============================================================================================
Ratio of expenses to average net assets:
With fee waivers 2.44%(c) 2.49%(d)
- ----------------------------------------------------------------------------------------------
Without fee waivers 2.44%(c) 3.43%(d)
==============================================================================================
Ratio of net investment income (loss) to average net assets (1.23)%(c) (0.83)%(d)
______________________________________________________________________________________________
==============================================================================================
Portfolio turnover rate 123% 49%
______________________________________________________________________________________________
==============================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Does not include contingent deferred sales charges and is not annualized
for periods less than one year.
(c) Ratios are based on average daily net assets of $17,171,230.
(d) Annualized.
FS-101
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees and Shareholders of
AIM Value Fund:
In our opinion, the accompanying statement of assets and
liabilities, including the schedule of investments, and
the related statements of operations and of changes in
net assets and the financial highlights present fairly,
in all material respects, the financial position of the
AIM Value Fund (one of the funds constituting AIM Funds
Group; hereafter referred to as the "Fund") at December
31, 2001, and the results of its operations for the year
then ended, and the changes in its net assets and the
financial highlights for each of the two years in the
period then ended, in conformity with accounting
principles generally accepted in the United States of
America. These financial statements and financial
highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion
on these financial statements based on our audits. We
conducted our audits of these financial statements in
accordance with auditing standards generally accepted in
the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance
about whether the financial statements are free of
material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made
by management, and evaluating the overall financial
statement presentation. We believe that our audits, which
included confirmation of securities at December 31, 2001
by correspondence with the custodian and brokers, provide
a reasonable basis for our opinion. The financial
highlights for each of the periods ended on or before
December 31, 1999 were audited by other independent
accountants whose report, dated February 14, 2000,
expressed an unqualified opinion thereon.
/s/ PRICEWATERHOUSECOOPERS LLP
February 14, 2002
Houston, Texas
FS-102
SCHEDULE OF INVESTMENTS
December 31, 2001
<Table>
<Caption>
MARKET
SHARES VALUE
COMMON STOCKS & OTHER EQUITY INTERESTS-94.51%
ADVERTISING-3.05%
Omnicom Group Inc. 6,350,000 $ 567,372,500
=============================================================================
APPLICATION SOFTWARE-1.38%
Amdocs Ltd. (United Kingdom)(a) 4,131,700 140,353,849
- -----------------------------------------------------------------------------
PeopleSoft, Inc.(a) 2,914,800 117,174,960
=============================================================================
257,528,809
=============================================================================
BANKS-1.58%
Bank of New York Co., Inc. (The) 7,199,500 293,739,600
=============================================================================
BROADCASTING & CABLE TV-6.14%
Comcast Corp.-Class A(a) 12,000,000 432,000,000
- -----------------------------------------------------------------------------
Cox Communications, Inc.-Class A(a) 17,000,000 712,470,000
=============================================================================
1,144,470,000
=============================================================================
COMPUTER & ELECTRONICS RETAIL-1.41%
Best Buy Co., Inc.(a) 3,525,600 262,586,688
=============================================================================
COMPUTER HARDWARE-2.11%
International Business Machines Corp. 3,250,000 393,120,000
=============================================================================
CONSUMER FINANCE-0.26%
Household International, Inc. 850,000 49,249,000
=============================================================================
DATA PROCESSING SERVICES-5.80%
Automatic Data Processing, Inc. 4,700,000 276,830,000
- -----------------------------------------------------------------------------
First Data Corp. 10,250,000 804,112,500
=============================================================================
1,080,942,500
=============================================================================
DIVERSIFIED FINANCIAL SERVICES-12.23%
American Express Co. 2,750,000 98,147,500
- -----------------------------------------------------------------------------
Citigroup Inc. 11,750,000 593,140,000
- -----------------------------------------------------------------------------
Fannie Mae 4,500,000 357,750,000
- -----------------------------------------------------------------------------
Freddie Mac 7,250,000 474,150,000
- -----------------------------------------------------------------------------
J.P. Morgan Chase & Co. 10,000,000 363,500,000
- -----------------------------------------------------------------------------
Morgan Stanley Dean Witter & Co. 7,000,000 391,580,000
=============================================================================
2,278,267,500
=============================================================================
DRUG RETAIL-1.26%
Walgreen Co. 7,000,000 235,620,000
=============================================================================
ELECTRIC UTILITIES-1.33%
Duke Energy Corp. 4,671,400 183,399,164
- -----------------------------------------------------------------------------
Mirant Corp.(a) 4,000,000 64,080,000
=============================================================================
247,479,164
=============================================================================
ELECTRONIC EQUIPMENT & INSTRUMENTS-1.84%
Celestica Inc. (Canada)(a) 8,500,000 343,315,000
=============================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
ENVIRONMENTAL SERVICES-0.56%
Waste Management, Inc. 3,250,000 $ 103,707,500
=============================================================================
FOOD RETAIL-2.34%
Kroger Co. (The)(a) 7,400,000 154,438,000
- -----------------------------------------------------------------------------
Safeway Inc.(a) 6,750,000 281,812,500
=============================================================================
436,250,500
=============================================================================
FOOTWEAR-0.65%
NIKE, Inc.-Class B 2,150,000 120,916,000
=============================================================================
GENERAL MERCHANDISE STORES-3.61%
Target Corp. 16,396,100 673,059,905
=============================================================================
HEALTH CARE EQUIPMENT-1.58%
Baxter International Inc. 5,500,000 294,965,000
=============================================================================
HEALTH CARE FACILITIES-1.97%
HCA Inc. 9,500,000 366,130,000
=============================================================================
HOUSEHOLD PRODUCTS-0.96%
Kimberly-Clark Corp. 3,000,000 179,400,000
=============================================================================
INDUSTRIAL CONGLOMERATES-5.63%
General Electric Co. 15,500,000 621,240,000
- -----------------------------------------------------------------------------
Tyco International Ltd. (Bermuda) 7,265,000 427,908,500
=============================================================================
1,049,148,500
=============================================================================
INTEGRATED OIL & GAS-5.51%
BP PLC-ADR (United Kingdom) 9,000,000 418,590,000
- -----------------------------------------------------------------------------
ChevronTexaco Corp. 2,725,000 244,187,250
- -----------------------------------------------------------------------------
Exxon Mobil Corp. 9,250,000 363,525,000
=============================================================================
1,026,302,250
=============================================================================
INTEGRATED TELECOMMUNICATION SERVICES-0.71%
AT&T Corp. 5,406,900 98,081,166
- -----------------------------------------------------------------------------
Qwest Communications International Inc. 2,363,000 33,389,190
=============================================================================
131,470,356
=============================================================================
INTERNET SOFTWARE & SERVICES-0.37%
Check Point Software Technologies Ltd.
(Israel)(a) 1,734,000 69,169,260
=============================================================================
MANAGED HEALTH CARE-3.11%
CIGNA Corp. 1,100,000 101,915,000
- -----------------------------------------------------------------------------
UnitedHealth Group Inc. 6,750,000 477,697,500
=============================================================================
579,612,500
=============================================================================
MOVIES & ENTERTAINMENT-2.28%
AOL Time Warner Inc.(a) 13,250,000 425,325,000
=============================================================================
</Table>
FS-103
<Table>
<Caption>
MARKET
SHARES VALUE
MULTI-LINE INSURANCE-4.50%
American International Group, Inc. 8,750,000 $ 694,750,000
- -----------------------------------------------------------------------------
Hartford Financial Services Group, Inc. (The) 2,300,000 144,509,000
=============================================================================
839,259,000
=============================================================================
MULTI-UTILITIES-1.50%
Dynegy Inc.-Class A 3,310,000 84,405,000
- -----------------------------------------------------------------------------
Williams Cos., Inc. (The) 7,625,000 194,590,000
=============================================================================
278,995,000
=============================================================================
NETWORKING EQUIPMENT-0.68%
Cisco Systems, Inc.(a) 7,000,000 126,770,000
=============================================================================
OIL & GAS DRILLING-0.54%
Transocean Sedco Forex Inc. 3,000,000 101,460,000
=============================================================================
OIL & GAS EQUIPMENT & SERVICES-0.69%
Baker Hughes Inc. 3,500,000 127,645,000
=============================================================================
PHARMACEUTICALS-8.47%
Abbott Laboratories 3,750,000 209,062,500
- -----------------------------------------------------------------------------
Allergan, Inc. 700,000 52,535,000
- -----------------------------------------------------------------------------
Bristol-Myers Squibb Co. 5,500,000 280,500,000
- -----------------------------------------------------------------------------
Johnson & Johnson 6,100,000 360,510,000
- -----------------------------------------------------------------------------
Pfizer Inc. 13,750,000 547,937,500
- -----------------------------------------------------------------------------
Schering-Plough Corp. 3,580,400 128,214,124
=============================================================================
1,578,759,124
=============================================================================
SEMICONDUCTOR EQUIPMENT-0.59%
Applied Materials, Inc.(a) 2,000,000 80,200,000
- -----------------------------------------------------------------------------
Teradyne, Inc.(a) 1,000,000 30,140,000
=============================================================================
110,340,000
=============================================================================
SEMICONDUCTORS-1.87%
Analog Devices, Inc.(a) 7,832,900 347,702,431
=============================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
SOFT DRINKS-1.28%
PepsiCo, Inc. 4,900,000 $ 238,581,000
=============================================================================
SYSTEMS SOFTWARE-3.26%
Microsoft Corp.(a) 7,500,000 497,025,000
- -----------------------------------------------------------------------------
Oracle Corp.(a) 8,000,000 110,480,000
=============================================================================
607,505,000
=============================================================================
TELECOMMUNICATIONS EQUIPMENT-0.82%
Nokia Oyj-ADR (Finland) 6,200,000 152,086,000
=============================================================================
WIRELESS TELECOMMUNICATION SERVICES-2.64%
Nextel Communications, Inc.-Class A(a) 16,000,000 175,360,000
- -----------------------------------------------------------------------------
Sprint Corp. (PCS Group)(a) 13,000,000 317,330,000
=============================================================================
492,690,000
=============================================================================
Total Common Stocks & Other Equity
Interests (Cost $16,074,880,269) 17,610,940,087
=============================================================================
<Caption>
PRINCIPAL
AMOUNT
U.S. TREASURY BILLS-0.27%
1.73%, 03/21/02 (Cost $49,821,153)(b) $50,000,000(c) 49,831,500
=============================================================================
<Caption>
SHARES
MONEY MARKET FUNDS-5.83%
STIC Liquid Assets Portfolio(d) 543,212,543 543,212,543
- -----------------------------------------------------------------------------
STIC Prime Portfolio(d) 543,212,543 543,212,543
=============================================================================
Total Money Market Funds (Cost
$1,086,425,086) 1,086,425,086
=============================================================================
TOTAL INVESTMENTS-100.61% (Cost
$17,211,126,508) 18,747,196,673
=============================================================================
OTHER ASSETS LESS LIABILITIES-(0.61%) (114,306,892)
=============================================================================
NET ASSETS-100.00% $18,632,889,781
_____________________________________________________________________________
=============================================================================
</Table>
Investment Abbreviations:
ADR - American Depositary Receipt
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) Security traded on a discount basis. The interest rate shown represents the
rate of discount at issue.
(c) A portion of the principal balance was pledged as collateral to cover
margin requirements for open futures contracts. See Note 9.
(d) The money market fund and the Fund are affiliated by having the same
investment advisor.
See Notes to Financial Statements.
FS-104
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2001
<Table>
ASSETS:
Investments, at market value (cost
$17,211,126,508)* $18,747,196,673
- -------------------------------------------------------------
Receivables for:
Foreign currency contracts closed 59,148
- -------------------------------------------------------------
Investments sold 18,029,129
- -------------------------------------------------------------
Fund shares sold 12,001,351
- -------------------------------------------------------------
Dividends 13,382,777
- -------------------------------------------------------------
Foreign currency contracts outstanding 225,622
- -------------------------------------------------------------
Investment for deferred compensation plan 351,580
- -------------------------------------------------------------
Collateral for securities loaned 306,480,800
=============================================================
Total assets 19,097,727,080
=============================================================
LIABILITIES:
Payables for:
Investments purchased 36,630,618
- -------------------------------------------------------------
Fund shares reacquired 94,076,582
- -------------------------------------------------------------
Deferred compensation plan 351,580
- -------------------------------------------------------------
Collateral upon return of securities
loaned 306,480,800
- -------------------------------------------------------------
Variation margin 1,941,819
- -------------------------------------------------------------
Accrued distribution fees 18,920,140
- -------------------------------------------------------------
Accrued trustees' fees 2,225
- -------------------------------------------------------------
Accrued transfer agent fees 4,806,271
- -------------------------------------------------------------
Accrued operating expenses 1,627,264
=============================================================
Total liabilities 464,837,299
=============================================================
Net assets applicable to shares outstanding $18,632,889,781
_____________________________________________________________
=============================================================
NET ASSETS:
Class A $ 8,502,698,600
_____________________________________________________________
=============================================================
Class B $ 9,186,979,708
_____________________________________________________________
=============================================================
Class C $ 943,211,473
_____________________________________________________________
=============================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE:
Class A 782,185,557
_____________________________________________________________
=============================================================
Class B 891,921,284
_____________________________________________________________
=============================================================
Class C 91,519,712
_____________________________________________________________
=============================================================
Class A:
Net asset value per share $ 10.87
- -------------------------------------------------------------
Offering price per share:
(Net asset value of $10.87 divided by
94.50%) $ 11.50
_____________________________________________________________
=============================================================
Class B:
Net asset value and offering price per
share $ 10.30
_____________________________________________________________
=============================================================
Class C:
Net asset value and offering price per
share $ 10.31
_____________________________________________________________
=============================================================
</Table>
* At December 31, 2001, securities with an aggregate market value of
$298,716,122 were on loan to brokers.
STATEMENT OF OPERATIONS
For the year ended December 31, 2001
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of
$1,456,867) $ 148,613,119
- -------------------------------------------------------------
Dividends from affiliated money market funds 72,431,045
- -------------------------------------------------------------
Interest 2,373,669
- -------------------------------------------------------------
Security lending income 520,323
=============================================================
Total investment income 223,938,156
=============================================================
EXPENSES:
Advisory fees 133,647,827
- -------------------------------------------------------------
Administrative services fees 833,469
- -------------------------------------------------------------
Custodian fees 1,018,061
- -------------------------------------------------------------
Distribution fees -- Class A 24,169,158
- -------------------------------------------------------------
Distribution fees -- Class B 105,895,470
- -------------------------------------------------------------
Distribution fees -- Class C 10,844,420
- -------------------------------------------------------------
Transfer agent fees -- Class A 20,064,494
- -------------------------------------------------------------
Transfer agent fees -- Class B 22,786,011
- -------------------------------------------------------------
Transfer agent fees -- Class C 2,333,443
- -------------------------------------------------------------
Trustees' fees 93,658
- -------------------------------------------------------------
Other 6,018,404
=============================================================
Total expenses 327,704,415
=============================================================
Less: Fees waived (8,961,757)
- -------------------------------------------------------------
Expenses paid indirectly (300,621)
=============================================================
Net expenses 318,442,037
=============================================================
Net investment income (loss) (94,503,881)
=============================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES, FOREIGN CURRENCY
CONTRACTS, FUTURES CONTRACTS AND OPTION
CONTRACTS:
Net realized gain (loss) from:
Investment securities (1,667,834,047)
- -------------------------------------------------------------
Foreign currency contracts 5,801,409
- -------------------------------------------------------------
Futures contracts (194,734,701)
- -------------------------------------------------------------
Option contracts written 48,068,160
=============================================================
(1,808,699,179)
=============================================================
Change in net unrealized appreciation
(depreciation) of:
Investment securities (1,374,928,457)
- -------------------------------------------------------------
Foreign currency contracts 30,399,250
- -------------------------------------------------------------
Futures contracts 14,725,637
- -------------------------------------------------------------
Option contracts written (49,439,506)
=============================================================
(1,379,243,076)
=============================================================
Net gain (loss) from investment securities,
foreign currency contracts, futures
contracts and option contracts (3,187,942,255)
=============================================================
Net increase (decrease) in net assets
resulting from operations $(3,282,446,136)
_____________________________________________________________
=============================================================
</Table>
See Notes to Financial Statements.
FS-105
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2001 and 2000
<Table>
<Caption>
2001 2000
--------------- ---------------
OPERATIONS:
Net investment income (loss) $ (94,503,881) $ (153,822,863)
- ------------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities,
foreign currency contracts, futures contracts and option
contracts (1,808,699,179) 1,802,222,254
- ------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities, foreign currency contracts,
futures contracts and option contracts (1,379,243,076) (6,293,440,690)
================================================================================================
Net increase (decrease) in net assets resulting from
operations (3,282,446,136) (4,645,041,299)
================================================================================================
Distributions to shareholders from net realized gains:
Class A (11,567,785) (1,074,794,698)
- ------------------------------------------------------------------------------------------------
Class B (13,103,850) (1,247,299,950)
- ------------------------------------------------------------------------------------------------
Class C (1,340,169) (126,240,715)
- ------------------------------------------------------------------------------------------------
Share transactions-net:
Class A (1,265,245,616) 1,670,331,026
- ------------------------------------------------------------------------------------------------
Class B (1,623,452,392) 1,786,995,772
- ------------------------------------------------------------------------------------------------
Class C (147,015,896) 774,093,169
================================================================================================
Net increase (decrease) in net assets (6,344,171,844) (2,861,956,695)
================================================================================================
NET ASSETS:
Beginning of year 24,977,061,625 27,839,018,320
================================================================================================
End of year $18,632,889,781 $24,977,061,625
________________________________________________________________________________________________
================================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $18,906,290,031 $22,036,509,303
- ------------------------------------------------------------------------------------------------
Undistributed net investment income (loss) (837,038) (751,164)
- ------------------------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment
securities, foreign currency contracts, futures
contracts and option contracts (1,812,776,568) 21,847,054
- ------------------------------------------------------------------------------------------------
Unrealized appreciation of investment securities, foreign
currency contracts, futures contracts and option
contracts 1,540,213,356 2,919,456,432
================================================================================================
$18,632,889,781 $24,977,061,625
________________________________________________________________________________________________
================================================================================================
</Table>
See Notes to Financial Statements.
FS-106
NOTES TO FINANCIAL STATEMENTS
December 31, 2001
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM Value Fund (the "Fund") is a series portfolio of AIM Funds Group (the
"Trust"). The Trust is a Delaware business trust registered under the Investment
Company Act of 1940, as amended (the "1940 Act"), as an open-end series
management investment company consisting of twelve separate portfolios, each
having an unlimited number of shares of beneficial interest. The Fund currently
offers three different classes of shares: Class A shares, Class B shares and
Class C shares. Class A shares are sold with a front-end sales charge. Class B
shares and Class C shares are sold with a contingent deferred sales charge.
Matters affecting each portfolio or class will be voted on exclusively by the
shareholders of such portfolio or class. The assets, liabilities and operations
of each portfolio are accounted for separately. Information presented in these
financial statements pertains only to the Fund. The Fund's investment objective
is to achieve long-term growth of capital. Income is a secondary objective.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. Security Valuations -- Securities, including restricted
securities, are valued according to the following policy. A security listed
or traded on an exchange (except convertible bonds) is valued at its last
sales price as of the close of the customary trading session on the exchange
where the security is principally traded, or lacking any sales on a
particular day, the security is valued at the closing bid price on that day.
Each security reported on the NASDAQ National Market System is valued at the
last sales price as of the close of the customary trading session on the
valuation date or absent a last sales price, at the closing bid price. Debt
obligations (including convertible bonds) are valued on the basis of prices
provided by an independent pricing service. Prices provided by the pricing
service may be determined without exclusive reliance on quoted prices, and
may reflect appropriate factors such as yield, type of issue, coupon rate and
maturity date. 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. Securities for which market quotations are not readily available or
are questionable are valued at fair value as determined in good faith by or
under the supervision of the Trust's officers in a manner specifically
authorized by the Board of Trustees. Short-term obligations having 60 days or
less to maturity are valued at amortized cost which approximates market
value. For purposes of determining net asset value per share, futures and
option contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Foreign securities are converted into U.S. dollar amounts using 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. Occasionally, 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 be
reflected in the computation of the Fund's net asset value. If a development/
event is so significant that there is a reasonably high degree of certainty
as to both the effect and the degree of effect that the development/event has
actually caused that closing price to no longer reflect actual value, the
closing prices, as determined at the close of the applicable foreign market,
may be adjusted to reflect the fair value of the affected foreign securities
as of the close of the NYSE as determined in good faith by or under the
supervision of the Board of Trustees.
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.
On December 31, 2001, undistributed net investment income was increased by
$94,418,007, undistributed net realized gains increased by $87,361 and shares
of beneficial interest decreased by $94,505,368 as a result of net operating
loss reclassifications, foreign currency reclassifications and other
reclassifications. Net assets of the Fund were unaffected by the
reclassifications discussed above.
C. Distributions -- Distributions from income and net realized
capital gains, if any, are generally paid annually and recorded on
ex-dividend date. The Fund may elect to use a portion of the proceeds from
redemptions as distributions for federal income tax purposes.
D. Federal Income Taxes -- The Fund intends to comply with the
requirements of 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 gains) which is
distributed to shareholders. Therefore, no provision for federal income taxes
is recorded in the financial statements.
The Fund has a capital loss carryforward of $1,670,556,615 as of December
31, 2001 which may be carried forward to
FS-107
offset future taxable gains, if any, which expires, if not previously
utilized, in the year 2009. As of December 31, 2001 the fund has a
post-October capital loss deferral of $103,779,442 which will be recognized
in the following tax year.
E. Foreign Currency Translations -- Portfolio securities and other
assets and liabilities denominated in foreign currencies are translated into
U.S. dollar amounts at date of valuation. Purchases and sales of portfolio
securities and income items denominated in foreign currencies are translated
into U.S. dollar amounts on the respective dates of such transactions. The
Fund does not separately account for the portion of the results of operations
resulting from changes in foreign exchange rates on investments and the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss
from investments.
F. Foreign Currency Contracts -- A foreign currency contract is
an obligation to purchase or sell a specific currency for an agreed-upon
price at a future date. The Fund may enter into a foreign currency contract
to attempt to minimize the risk to the Fund from adverse changes in the
relationship between currencies. The Fund may also enter into a foreign
currency contract for the purchase or sale of a security denominated in a
foreign currency in order to "lock in" the U.S. dollar price of that
security. The Fund could be exposed to risk if counterparties to the
contracts are unable to meet the terms of their contracts or if the value of
the foreign currency changes unfavorably.
Outstanding foreign currency contracts at December 31, 2001 were as follows:
<Table>
<Caption>
CONTRACT TO UNREALIZED
SETTLEMENT -------------------------- APPRECIATION
DATE CURRENCY DELIVER RECEIVE VALUE (DEPRECIATION)
---------- -------- ----------- ------------ ------------ --------------
02/28/02 CAD 438,750,000 $276,641,943 $275,563,529 $1,078,414
---------------------------------------------------------------------------------
02/28/02 EUR 140,300,000 123,970,996 124,823,788 (852,792)
=================================================================================
$400,612,939 $400,387,317 $ 225,622
_________________________________________________________________________________
=================================================================================
</Table>
G. Covered Call Options -- The Fund may write call options, on a
covered basis; that is, the Fund will own the underlying security. When the
Fund writes a covered call option, an amount equal to the premium received by
the Fund is recorded as an asset and an equivalent liability. The amount of
the liability is subsequently "marked-to-market" to reflect the current
market value of the option written. The current market value of a written
option is the mean between the last bid and asked prices on that day. If a
written call option expires on the stipulated expiration date, or if the Fund
enters into a closing purchase transaction, the Fund realizes a gain (or a
loss if the closing purchase transaction exceeds the premium received when
the option was written) without regard to any unrealized gain or loss on the
underlying security, and the liability related to such option is
extinguished. If a written option is exercised, the Fund realizes a gain or a
loss from the sale of the underlying security and the proceeds of the sale
are increased by the premium originally received.
H. Futures Contracts -- The Fund may purchase or sell futures
contracts as a hedge against changes in market conditions. Initial margin
deposits required upon entering into futures contracts are satisfied by the
segregation of specific securities as collateral for the account of the
broker (the Fund's agent in acquiring the futures position). During the
period the futures contracts are open, changes in the value of the contracts
are recognized as unrealized gains or losses by "marking to market" on a
daily basis to reflect the market value of the contracts at the end of each
day's trading. Variation margin payments are made or received depending upon
whether unrealized gains or losses are incurred. When the contracts are
closed, the Fund recognizes a realized gain or loss equal to the difference
between the proceeds from, or cost of, the closing transaction and the Fund's
basis in the contract. Risks include the possibility of an illiquid market
and that a change in value of the contracts may not correlate with changes in
the value of the securities being hedged.
I. Expenses -- Distribution expenses directly attributable to a
class of shares are charged to those classes' operations. All other expenses
which are attributable to more than one class are allocated among the classes
based on relative net assets.
NOTE 2-ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM at the annual rate of 0.80% of the first
$150 million of the Fund's average daily net assets, plus 0.625% of the Fund's
average daily net assets in excess of $150 million. Effective July 1, 2000, AIM
has agreed to waive advisory fees payable by the Fund to AIM at the annual rate
of 0.025% for each $5 billion increment in net assets over $5 billion, up to a
maximum waiver of 0.175% on net assets in excess of $35 billion. 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 fund of which the
Fund has invested. For the year ended December 31, 2001, AIM waived fees of
$8,961,757.
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. For the year ended December 31, 2001, AIM was
paid $833,469 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency and
shareholder services to the Fund. During the year ended December 31, 2001, AFS
was paid $22,072,135 for such services.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B and Class C shares of the Fund. The Trust has adopted plans
pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A
shares, Class B shares and Class C shares (collectively the "Plans"). The Fund,
pursuant to the Plans, pays AIM Distributors compensation at the annual rate of
0.25% of the Fund's average daily net assets of Class A shares
FS-108
and 1.00% of the average daily net assets of Class B and C shares. Of these
amounts, the Fund may pay a service fee of 0.25% of the average daily net assets
of the Class A, Class B or Class C shares to selected dealers and financial
institutions who furnish continuing personal shareholder services to their
customers who purchase and own the appropriate class of shares of the Fund. Any
amounts not paid as a service fee under the Plans would constitute an asset-
based sales charge. The Plans also impose a cap on the total sales charges,
including asset-based sales charges that may be paid by the respective classes.
For the year ended December 31, 2001, the Class A, Class B and Class C shares
paid AIM Distributors $24,169,158, $105,895,470 and $10,844,420, respectively,
as compensation under the Plans.
AIM Distributors received commissions of $2,026,998 from sales of the Class A
shares of the Fund during the year ended December 31, 2001. Such commissions are
not an expense of the Fund. They are deducted from, and are not included in, the
proceeds from sales of Class A shares. During the year ended December 31, 2001,
AIM Distributors received $502,677 in contingent deferred sales charges imposed
on redemptions of Fund shares.
Certain officers and trustees of the Trust are officers and directors of AIM,
AFS and AIM Distributors.
During the year ended December 31, 2001, the Fund paid legal fees of $44,446
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Board of Trustees. A member of that firm is a trustee of the Trust.
NOTE 3-INDIRECT EXPENSES
For the year ended December 31, 2001, the Fund received reductions in transfer
agency fees from AFS (an affiliate of AIM) of $300,621 which resulted in a
reduction of the Fund's total expenses of $300,621.
NOTE 4-TRUSTEES' FEES
Trustees' fees represent remuneration paid to trustees who are not an
"interested person" of AIM. The Trust invests trustees' fees, if so elected by a
trustee, in mutual fund shares in accordance with a deferred compensation plan.
NOTE 5-BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by Citibank, N.A. The Fund may borrow up to the lesser of
(i) $1,000,000,000 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. During the year ended December 31,
2001, the Fund did not borrow under the line of credit agreement. The funds
which are party to the line of credit are charged a commitment fee of 0.09% on
the unused balance of the committed line. The commitment fee is allocated among
the funds based on their respective average net assets for the period.
NOTE 6-PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities to the extent of one-third of the Fund's
total assets. Such loans are secured by collateral equal to no less than the
market value, determined daily, of the loaned securities. Such collateral will
be cash or debt securities issued or guaranteed by the U.S. Government or any of
its agencies. Cash collateral pursuant to these loans is invested in short-term
money market instruments or affiliated money market funds. Lending securities
entails a risk of loss to the Fund if and to the extent that the market value of
the securities loaned were to increase and the borrower did not increase the
collateral accordingly, and the borrower fails to return the securities. It is
the Fund's policy to obtain additional collateral from or return excess
collateral to the borrower by the end of the next business day. Therefore, the
value of the collateral may be temporarily less than the value of the securities
on loan.
At December 31, 2001, securities with an aggregate value of $298,716,122 were
on loan to brokers. The loans were secured by cash collateral of $306,480,800
received by the Fund and subsequently invested in the affiliated money market
fund STIC Liquid Assets Portfolio. For the year ended December 31, 2001, the
Fund received fees of $520,323 for securities lending.
NOTE 7-DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF CAPITAL
The tax character of distributions paid during 2001 and 2000 was as follows:
<Table>
<Caption>
2001 2000
----------- --------------
Distributions paid from:
Ordinary income $ -- $ 146,286,027
- ------------------------------------------------------------
Long-term capital gain 26,011,804 2,302,049,336
============================================================
$26,011,804 $2,448,335,363
____________________________________________________________
============================================================
</Table>
As of December 31, 2001, the components of distributable earnings (accumulated
losses) on a tax basis were as follows:
<Table>
Capital loss carryforward $(1,670,556,615)
- ----------------------------------------------------------
Unrealized appreciation 1,397,156,365
==========================================================
$ (273,400,250)
__________________________________________________________
==========================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation is
attributable primarily to the tax deferral of losses on wash sales, the tax
deferral of capital losses incurred after October 31, the realization for tax
purposes of unrealized gains on certain forward foreign currency contracts and
futures contracts, and other deferrals.
FS-109
NOTE 8-INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund during the year ended December 31, 2001 was
$7,489,205,596 and $9,521,891,583, respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
for tax purposes, as of December 31, 2001 is as follows:
<Table>
Aggregate unrealized appreciation of
investment securities $ 3,087,431,580
- ----------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (1,585,658,734)
==========================================================
Net unrealized appreciation of investment
securities $ 1,501,772,846
__________________________________________________________
==========================================================
Cost of investments for tax purposes is $17,245,423,827.
</Table>
NOTE 9-FUTURES CONTRACTS
On December 31, 2001, $19,103,864 principal amount of U.S. Treasury obligations
were pledged as collateral to cover margin requirements for open futures
contracts. Open futures contracts as of December 31, 2001 were as follows:
<Table>
<Caption>
NO. OF MONTH/ UNREALIZED
CONTRACT CONTRACTS COMMITMENT MARKET VALUE APPRECIATION
- -------- --------- ----------- ------------ ------------
S&P 500 Index 750 Mar-02/Long $215,475,000 $3,917,569
_____________________________________________________________________
=====================================================================
</Table>
NOTE 10-CALL OPTION CONTRACTS
Transactions in call options written during the year ended December 31, 2001 are
summarized as follows:
<Table>
<Caption>
CALL OPTION CONTRACTS
-------------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
--------- ------------
Beginning of year 86,390 $ 76,053,069
- ---------------------------------------------------------------------------------------
Closed (17,000) (10,569,566)
- ---------------------------------------------------------------------------------------
Exercised (32,000) (26,673,189)
- ---------------------------------------------------------------------------------------
Expired (37,390) (38,810,314)
=======================================================================================
End of year -- $ --
_______________________________________________________________________________________
=======================================================================================
</Table>
NOTE 11-SHARE INFORMATION
Changes in shares outstanding during the years ended December 31, 2001 and 2000
were as follows:
<Table>
<Caption>
2001 2000
------------------------------- -------------------------------
SHARES AMOUNT SHARES AMOUNT
------------ --------------- ------------ ---------------
Sold:
Class A 99,493,160 $ 1,142,786,605 630,010,408 $ 3,156,759,316
- -----------------------------------------------------------------------------------------------------------------------------
Class B 53,393,062 589,020,838 703,853,509 2,552,273,834
- -----------------------------------------------------------------------------------------------------------------------------
Class C 14,110,226 155,875,910 87,455,815 904,931,025
=============================================================================================================================
Issued as reinvestment of dividends:
Class A 1,047,730 11,046,064 83,714,399 1,028,837,590
- -----------------------------------------------------------------------------------------------------------------------------
Class B 1,221,981 12,181,662 99,085,297 1,163,271,351
- -----------------------------------------------------------------------------------------------------------------------------
Class C 126,038 1,257,875 10,150,935 119,273,711
=============================================================================================================================
Reacquired:
Class A (215,650,396) (2,419,078,285) (75,280,734) (2,515,265,880)
- -----------------------------------------------------------------------------------------------------------------------------
Class B (208,566,724) (2,224,654,892) (60,835,163) (1,928,549,413)
- -----------------------------------------------------------------------------------------------------------------------------
Class C (28,342,494) (304,149,681) (10,212,288) (250,111,567)
=============================================================================================================================
(283,167,417) $(3,035,713,904) 1,467,942,178 $ 4,231,419,967
_____________________________________________________________________________________________________________________________
=============================================================================================================================
</Table>
FS-110
NOTE 12-FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
--------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
2001 2000(a)(b) 1999(a) 1998(a) 1997(a)
---------- ----------- ----------- ---------- ----------
Net asset value, beginning of period $ 12.51 $ 16.28 $ 13.40 $ 10.81 $ 9.72
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) -- (0.04) (0.01) 0.03 0.05
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (1.63) (2.42) 3.97 3.46 2.26
=================================================================================================================================
Total from investment operations (1.63) (2.46) 3.96 3.49 2.31
=================================================================================================================================
Less distributions:
Dividends from net investment income -- -- -- (0.03) (0.01)
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.01) (1.31) (1.08) (0.87) (1.21)
=================================================================================================================================
Total distributions (0.01) (1.31) (1.08) (0.90) (1.22)
=================================================================================================================================
Net asset value, end of period $ 10.87 $ 12.51 $ 16.28 $ 13.40 $ 10.81
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) (12.99)% (14.95)% 29.95% 32.76% 23.95%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $8,502,699 $11,223,504 $12,640,073 $8,823,094 $6,745,253
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 1.08%(d) 1.00% 1.00% 1.00% 1.04%
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers 1.12%(d) 1.04% 1.02% 1.02% 1.06%
=================================================================================================================================
Ratio of net investment income (loss) to average net assets (0.03)%(d) (0.11)% (0.09)% 0.26% 0.57%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 38% 67% 66% 113% 137%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Per share information and shares have been restated to reflect a 3 for 1
stock split, effected in the form of a 200% stock dividend on November 10,
2000.
(b) Calculated using average shares outstanding.
(c) Does not include sales charges.
(d) Ratios are based on average daily net assets of $9,667,663,277.
<Table>
<Caption>
CLASS B
--------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
2001 2000(a)(b) 1999(a)(b) 1998(a) 1997(a)
---------- ----------- ----------- ---------- ----------
Net asset value, beginning of period $ 11.94 $ 15.73 $ 13.08 $ 10.63 $ 9.64
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.09) (0.31) (0.13) (0.06) (0.02)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (1.54) (2.17) 3.86 3.38 2.22
=================================================================================================================================
Total from investment operations (1.63) (2.48) 3.73 3.32 2.20
=================================================================================================================================
Less distributions from net realized gains: (0.01) (1.31) (1.08) (0.87) (1.21)
=================================================================================================================================
Net asset value, end of period $ 10.30 $ 11.94 $ 15.73 $ 13.08 $ 10.63
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) (13.61)% (15.65)% 28.94% 31.70% 22.96%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $9,186,980 $12,491,366 $14,338,087 $9,680,068 $6,831,796
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 1.84%(d) 1.77% 1.79% 1.80% 1.85%
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers 1.88%(d) 1.81% 1.81% 1.82% 1.87%
=================================================================================================================================
Ratio of net investment income (loss) to average net assets (0.79)%(d) (0.89)% (0.88)% (0.54)% (0.24)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 38% 67% 66% 113% 137%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Per share information and shares have been restated to reflect a 3 for 1
stock split, effected in the form of a 200% stock dividend on November 10,
2000.
(b) Calculated using average shares outstanding.
(c) Does not include contingent deferred sales charges.
(d) Ratios are based on average daily net assets of $10,589,546,984.
FS-111
NOTE 12-FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
----------------------------------------------------------------------
AUGUST 4, 1997
(DATE OPERATIONS
YEAR ENDED DECEMBER 31, COMMENCED)
-------------------------------------------------- TO DECEMBER 31,
2001 2000(a)(b) 1999(a)(b) 1998(a)(b) 1997(a)
-------- ---------- ---------- ---------- ----------------
Net asset value, beginning of period $ 11.95 $ 15.74 $ 13.09 $ 10.63 $ 11.86
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.09) (0.31) (0.13) (0.06) --
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (1.54) (2.17) 3.86 3.39 (0.02)
=================================================================================================================================
Total from investment operations (1.63) (2.48) 3.73 3.33 (0.02)
=================================================================================================================================
Less distributions from net realized gains: (0.01) (1.31) (1.08) (0.87) (1.21)
=================================================================================================================================
Net asset value, end of period $ 10.31 $ 11.95 $ 15.74 $ 13.09 $ 10.63
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) (13.60)% (15.62)% 28.92% 31.72% (0.08)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $943,211 $1,262,192 $860,859 $212,095 $32,900
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 1.84%(d) 1.77% 1.79% 1.80% 1.84%(e)
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers 1.88%(d) 1.81% 1.81% 1.82% 1.86%(e)
=================================================================================================================================
Ratio of net investment loss to average net assets (0.79)%(d) (0.88)% (0.88)% (0.54)% (0.23)%(e)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 38% 67% 66% 113% 137%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Per share information and shares have been restated to reflect a 3 for 1
stock split, effected in the form of a 200% stock dividend on November 10,
2000.
(b) Calculated using average shares outstanding.
(c) Does not include contingent deferred sales charges and is not annualized
for periods less than one year.
(d) Ratios are based on average daily net assets of $1,084,442,024.
(e) Annualized.
FS-112
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees and Shareholders of
AIM Value II Fund:
In our opinion, the accompanying statement of assets and
liabilities, including the schedule of investments, and
the related statements of operations and of changes in
net assets and the financial highlights present fairly,
in all material respects, the financial position of the
AIM Value II Fund (one of the funds constituting AIM
Funds Group; hereafter referred to as the "Fund") at
December 31, 2001, and the results of its operations, the
changes in its net assets and the financial highlights
for each of the periods indicated, in conformity with
accounting principles generally accepted in the United
States of America. These financial statements and
financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion
on these financial statements based on our audits. We
conducted our audits of these financial statements in
accordance with auditing standards generally accepted in
the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance
about whether the financial statements are free of
material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made
by management, and evaluating the overall financial
statement presentation. We believe that our audits, which
included confirmation of securities at December 31, 2001
by correspondence with the custodian and brokers, provide
a reasonable basis for our opinion.
/s/ PRICEWATERHOUSECOOPERS LLP
February 14, 2002
Houston, Texas
FS-113
SCHEDULE OF INVESTMENTS
December 31, 2001
<Table>
<Caption>
MARKET
SHARES VALUE
DOMESTIC COMMON STOCKS-72.28%
ADVERTISING-2.56%
Omnicom Group Inc. 44,400 $ 3,967,140
========================================================================
APPAREL & ACCESSORIES-1.16%
Coach, Inc.(a) 46,000 1,793,080
========================================================================
APPAREL RETAIL-0.74%
Abercrombie & Fitch Co.-Class A(a) 43,000 1,140,790
========================================================================
APPLICATION SOFTWARE-2.45%
Cadence Design Systems, Inc.(a) 100,000 2,192,000
- ------------------------------------------------------------------------
PeopleSoft, Inc.(a) 40,000 1,608,000
========================================================================
3,800,000
========================================================================
BANKS-1.55%
Bank of New York Co., Inc. (The) 59,000 2,407,200
========================================================================
BROADCASTING & CABLE TV-4.31%
Charter Communications, Inc.-Class A(a) 142,000 2,333,060
- ------------------------------------------------------------------------
Comcast Corp.-Class A(a) 49,000 1,764,000
- ------------------------------------------------------------------------
Univision Communications Inc.-Class A(a) 64,000 2,589,440
========================================================================
6,686,500
========================================================================
COMPUTER & ELECTRONICS RETAIL-0.90%
CDW Computer Centers, Inc.(a) 26,000 1,396,460
========================================================================
COMPUTER HARDWARE-1.01%
International Business Machines Corp. 13,000 1,572,480
========================================================================
CONSTRUCTION & ENGINEERING-1.99%
Jacobs Engineering Group Inc.(a) 32,500 2,145,000
- ------------------------------------------------------------------------
Shaw Group Inc. (The)(a) 40,000 940,000
========================================================================
3,085,000
========================================================================
CONSUMER FINANCE-1.22%
Capital One Financial Corp. 35,000 1,888,250
========================================================================
DATA PROCESSING SERVICES-7.08%
BISYS Group, Inc. (The)(a) 58,000 3,711,420
- ------------------------------------------------------------------------
Concord EFS, Inc.(a) 126,000 4,130,280
- ------------------------------------------------------------------------
First Data Corp. 40,100 3,145,845
========================================================================
10,987,545
========================================================================
DIVERSIFIED FINANCIAL SERVICES-9.37%
Ambac Financial Group, Inc. 48,500 2,806,210
- ------------------------------------------------------------------------
Citigroup Inc. 81,000 4,088,880
- ------------------------------------------------------------------------
Fannie Mae 29,000 2,305,500
- ------------------------------------------------------------------------
Freddie Mac 33,000 2,158,200
- ------------------------------------------------------------------------
Lehman Brothers Holdings Inc. 27,500 1,837,000
- ------------------------------------------------------------------------
Morgan Stanley Dean Witter & Co. 24,000 1,342,560
========================================================================
14,538,350
========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
ELECTRIC UTILITIES-2.79%
Calpine Corp.(a) 42,000 $ 705,180
- ------------------------------------------------------------------------
Duke Energy Corp. 65,000 2,551,900
- ------------------------------------------------------------------------
Reliant Resources, Inc.(a) 64,900 1,071,499
========================================================================
4,328,579
========================================================================
ELECTRONIC EQUIPMENT & INSTRUMENTS-1.00%
Waters Corp.(a) 40,000 1,550,000
========================================================================
GENERAL MERCHANDISE STORES-3.19%
BJ's Wholesale Club, Inc.(a) 37,000 1,631,700
- ------------------------------------------------------------------------
Target Corp. 81,000 3,325,050
========================================================================
4,956,750
========================================================================
HEALTH CARE DISTRIBUTORS & SERVICES-2.13%
Quest Diagnostics Inc.(a) 46,000 3,298,660
========================================================================
HEALTH CARE EQUIPMENT-3.11%
Baxter International Inc. 74,000 3,968,620
- ------------------------------------------------------------------------
Biomet, Inc.(a) 28,000 865,200
========================================================================
4,833,820
========================================================================
HEALTH CARE FACILITIES-3.49%
HCA Inc. 77,000 2,967,580
- ------------------------------------------------------------------------
LifePoint Hospitals, Inc.(a) 72,000 2,450,880
========================================================================
5,418,460
========================================================================
HOTELS-0.58%
Royal Caribbean Cruises Ltd. 56,000 907,200
========================================================================
INDUSTRIAL CONGLOMERATES-2.16%
General Electric Co. 83,800 3,358,704
========================================================================
IT CONSULTING & SERVICES-1.16%
Affiliated Computer Services, Inc.-Class A(a) 17,000 1,804,210
========================================================================
LIFE & HEALTH INSURANCE-0.51%
AFLAC, Inc. 32,000 785,920
========================================================================
MANAGED HEALTH CARE-1.43%
Wellpoint Health Networks Inc.(a) 19,000 2,220,150
========================================================================
MULTI-UTILITIES-1.02%
Dynegy Inc.-Class A 62,000 1,581,000
========================================================================
NETWORKING EQUIPMENT-0.53%
NetScreen Technologies, Inc.(a) 37,500 829,875
========================================================================
OIL & GAS DRILLING-2.00%
ENSCO International Inc. 94,000 2,335,900
- ------------------------------------------------------------------------
GlobalSantaFe Corp. 27,000 770,040
========================================================================
3,105,940
========================================================================
</Table>
FS-114
<Table>
<Caption>
MARKET
SHARES VALUE
OIL & GAS EQUIPMENT & SERVICES-2.90%
Baker Hughes Inc. 24,000 $ 875,280
- ------------------------------------------------------------------------
BJ Services Co.(a) 48,000 1,557,600
- ------------------------------------------------------------------------
Weatherford International, Inc.(a) 55,500 2,067,930
========================================================================
4,500,810
========================================================================
PHARMACEUTICALS-4.35%
Allergan, Inc. 28,800 2,161,440
- ------------------------------------------------------------------------
King Pharmaceuticals, Inc.(a) 38,000 1,600,940
- ------------------------------------------------------------------------
Pfizer Inc. 75,000 2,988,750
========================================================================
6,751,130
========================================================================
SEMICONDUCTORS-1.27%
Microchip Technology Inc.(a) 51,000 1,975,740
========================================================================
SYSTEMS SOFTWARE-1.03%
Microsoft Corp.(a) 24,000 1,590,480
========================================================================
WIRELESS TELECOMMUNICATION SERVICES-3.29%
Nextel Communications, Inc.-Class A(a) 61,000 668,560
- ------------------------------------------------------------------------
Nextel Partners, Inc.-Class A(a) 97,600 1,171,200
- ------------------------------------------------------------------------
Sprint Corp. (PCS Group)(a) 134,000 3,270,940
========================================================================
5,110,700
========================================================================
Total Domestic Common Stocks (Cost
$108,308,372) 112,170,923
========================================================================
FOREIGN STOCKS & OTHER EQUITY
INTERESTS-19.00%
BERMUDA-7.68%
ACE Ltd. (Property & Casualty Insurance) 40,000 1,606,000
- ------------------------------------------------------------------------
Everest Re Group, Ltd. (Reinsurance) 67,500 4,772,250
- ------------------------------------------------------------------------
Tyco International Ltd. (Industrial
Conglomerates) 94,000 5,536,600
========================================================================
11,914,850
========================================================================
CANADA-2.75%
Biovail Corp. (Pharmaceuticals)(a) 31,000 1,743,750
- ------------------------------------------------------------------------
Celestica Inc. (Electronic Equipment &
Instruments)(a) 62,500 2,524,375
========================================================================
4,268,125
========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
FINLAND-0.61%
Nokia Oyj-ADR (Telecommunications Equipment) 39,000 $ 956,670
========================================================================
IRELAND-1.48%
Elan Corp. PLC-ADR (Pharmaceuticals)(a) 51,000 2,298,060
========================================================================
ISRAEL-1.03%
Check Point Software Technologies Ltd.
(Internet Software & Services)(a) 40,000 1,595,600
========================================================================
NETHERLANDS-0.98%
ASM Lithography Holding N.V.-New York Shares
(Semiconductor Equipment)(a) 89,000 1,517,450
========================================================================
SINGAPORE-0.84%
Flextronics International Ltd. (Electronic
Equipment & Instruments)(a) 54,200 1,300,258
========================================================================
UNITED KINGDOM-3.63%
Amdocs Ltd. (Application Software)(a) 60,000 2,038,200
- ------------------------------------------------------------------------
BP PLC-ADR (Integrated Oil & Gas) 36,700 1,706,917
- ------------------------------------------------------------------------
Willis Group Holdings Ltd. (Insurance
Brokers)(a) 80,000 1,884,000
========================================================================
5,629,117
========================================================================
Total Foreign Stocks & Other Equity
Interests (Cost $32,761,602) 29,480,130
========================================================================
<Caption>
PRINCIPAL
AMOUNT
U.S. TREASURY BILLS-1.28%
1.73%, 03/21/02 (Cost $1,992,846)(b) $2,000,000(c) 1,993,260
========================================================================
SHARES
MONEY MARKET FUNDS-7.71%
STIC Liquid Assets Portfolio(d) 5,987,063 5,987,063
- ------------------------------------------------------------------------
STIC Prime Portfolio(d) 5,987,063 5,987,063
========================================================================
Total Money Market Funds (Cost
$11,974,126) 11,974,126
========================================================================
TOTAL INVESTMENTS-100.27% (Cost $155,036,946) 155,618,439
========================================================================
OTHER ASSETS LESS LIABILITIES-(0.27%) (426,727)
========================================================================
NET ASSETS-100.00% $155,191,712
________________________________________________________________________
========================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) Security traded on a discount basis. The interest rate shown represents the
rate of discount at issue.
(c) A portion of the principal balance was pledged as collateral to cover
margin requirements for open futures contracts. See Note 10.
(d) The money market fund and the Fund are affiliated by having the same
investment advisor.
See Notes to Financial Statements.
FS-115
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2001
<Table>
ASSETS:
Investments, at market value (cost
$155,036,946)* $155,618,439
- ------------------------------------------------------------
Receivables for:
Fund shares sold 742,143
- ------------------------------------------------------------
Dividends 100,811
- ------------------------------------------------------------
Investment for deferred compensation plan 9,519
- ------------------------------------------------------------
Collateral for securities loaned 16,268,246
- ------------------------------------------------------------
Other assets 17,838
============================================================
Total assets 172,756,996
============================================================
LIABILITIES:
Payables for:
Fund shares reacquired 974,020
- ------------------------------------------------------------
Deferred compensation plan 9,519
- ------------------------------------------------------------
Collateral upon return of securities loaned 16,268,246
- ------------------------------------------------------------
Variation margin 55,550
- ------------------------------------------------------------
Accrued distribution fees 161,907
- ------------------------------------------------------------
Accrued transfer agent fees 48,542
- ------------------------------------------------------------
Accrued operating expenses 47,500
============================================================
Total liabilities 17,565,284
============================================================
Net assets applicable to shares outstanding $155,191,712
____________________________________________________________
============================================================
NET ASSETS:
Class A $ 57,591,216
____________________________________________________________
============================================================
Class B $ 67,570,903
____________________________________________________________
============================================================
Class C $ 30,029,593
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE:
Class A 8,157,416
____________________________________________________________
============================================================
Class B 9,646,845
____________________________________________________________
============================================================
Class C 4,287,544
____________________________________________________________
============================================================
Class A:
Net asset value per share $ 7.06
- ------------------------------------------------------------
Offering price per share:
(Net asset value of $7.06 divided by
94.50%) $ 7.47
____________________________________________________________
============================================================
Class B:
Net asset value and offering price per share $ 7.00
____________________________________________________________
============================================================
Class C:
Net asset value and offering price per share $ 7.00
____________________________________________________________
============================================================
</Table>
* At December 31, 2001, securities with an aggregate market value of $15,577,615
were on loan to brokers.
STATEMENT OF OPERATIONS
For the year ended December 31, 2001
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of
$1,484) $ 629,979
- ------------------------------------------------------------
Dividends from affiliated money market funds 869,078
- ------------------------------------------------------------
Interest 68,243
- ------------------------------------------------------------
Security lending income 29,928
============================================================
Total investment income 1,597,228
============================================================
EXPENSES:
Advisory fees 1,259,835
- ------------------------------------------------------------
Administrative services fees 50,000
- ------------------------------------------------------------
Custodian fees 39,234
- ------------------------------------------------------------
Distribution fees -- Class A 224,258
- ------------------------------------------------------------
Distribution fees -- Class B 712,565
- ------------------------------------------------------------
Distribution fees -- Class C 326,478
- ------------------------------------------------------------
Transfer agent fees -- Class A 160,181
- ------------------------------------------------------------
Transfer agent fees -- Class B 187,023
- ------------------------------------------------------------
Transfer agent fees -- Class C 85,689
- ------------------------------------------------------------
Trustees' fees 9,085
- ------------------------------------------------------------
Other 223,146
============================================================
Total expenses 3,277,494
============================================================
Less: Fees waived (42,306)
- ------------------------------------------------------------
Expenses paid indirectly (6,155)
============================================================
Net expenses 3,229,033
============================================================
Net investment income (loss) (1,631,805)
============================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES, FUTURES CONTRACTS AND
OPTION CONTRACTS:
Net realized gain (loss) from:
Investment securities (41,579,790)
- ------------------------------------------------------------
Futures contracts (1,210,326)
- ------------------------------------------------------------
Option contracts written 128,996
============================================================
(42,661,120)
============================================================
Change in net unrealized appreciation of:
Investment securities 6,527,347
- ------------------------------------------------------------
Futures contracts 267,180
============================================================
6,794,527
============================================================
Net gain (loss) from investment securities,
futures contracts and option contracts (35,866,593)
============================================================
Net increase (decrease) in net assets
resulting from operations $(37,498,398)
____________________________________________________________
============================================================
</Table>
See Notes to Financial Statements.
FS-116
STATEMENT OF CHANGES IN NET ASSETS
For the year ended December 31, 2001 and the period August 31, 2000 (date
operations commenced) through December 31, 2000
<Table>
<Caption>
2001 2000
------------ ------------
OPERATIONS:
Net investment income (loss) $ (1,631,805) $ (77,478)
- ------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities,
futures contracts and option contracts (42,661,120) (2,436,640)
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities, and futures contracts 6,794,527 (6,097,963)
==========================================================================================
Net increase (decrease) in net assets resulting from
operations (37,498,398) (8,612,081)
==========================================================================================
Distributions to shareholders from net investment income:
Class A (64,952) --
- ------------------------------------------------------------------------------------------
Distributions to shareholders from net realized gains:
Class A (16,203) (62,905)
- ------------------------------------------------------------------------------------------
Class B (19,267) (71,403)
- ------------------------------------------------------------------------------------------
Class C (8,700) (35,183)
- ------------------------------------------------------------------------------------------
Share transactions-net:
Class A 16,139,168 59,053,644
- ------------------------------------------------------------------------------------------
Class B 20,998,585 66,427,674
- ------------------------------------------------------------------------------------------
Class C 6,902,879 32,058,854
==========================================================================================
Net increase in net assets 6,433,112 148,758,600
==========================================================================================
NET ASSETS:
Beginning of year 148,758,600 --
==========================================================================================
End of year $155,191,712 $148,758,600
__________________________________________________________________________________________
==========================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $199,816,729 $157,528,805
- ------------------------------------------------------------------------------------------
Undistributed net investment income (loss) (9,943) (26,778)
- ------------------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment
securities, futures contracts and option contracts (45,311,638) (2,645,464)
- ------------------------------------------------------------------------------------------
Unrealized appreciation (depreciation) of investment
securities and futures contracts 696,564 (6,097,963)
==========================================================================================
$155,191,712 $148,758,600
__________________________________________________________________________________________
==========================================================================================
</Table>
See Notes to Financial Statements.
FS-117
NOTES TO FINANCIAL STATEMENTS
December 31, 2001
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM Value II Fund (the "Fund") is a series portfolio of AIM Funds Group (the
"Trust"). The Trust is a Delaware business trust registered under the Investment
Company Act of 1940, as amended (the "1940 Act"), as an open-end series
management investment company consisting of twelve separate portfolios, each
having an unlimited number of shares of beneficial interest. The Fund currently
offers three different classes of shares: Class A shares, Class B shares and
Class C shares. Class A shares are sold with a front-end sales charge. Class B
shares and Class C shares are sold with a contingent deferred sales charge.
Matters affecting each portfolio or class will be voted on exclusively by the
shareholders of such portfolio or class. The assets, liabilities and operations
of each portfolio are accounted for separately. Information presented in these
financial statements pertains only to the Fund. The Fund's investment objective
is to achieve long-term growth of capital.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. Security Valuations -- Securities, including restricted securities, are
valued according to the following policy. A security listed or traded on an
exchange (except convertible bonds) is valued at its last sales price as of
the close of the customary trading session on the exchange where the security
is principally traded, or lacking any sales on a particular day, the security
is valued at the closing bid price on that day. Each security reported on the
NASDAQ National Market System is valued at the last sales price as of the
close of the customary trading session on the valuation date or absent a last
sales price, at the closing bid price. Debt obligations (including
convertible bonds) are valued on the basis of prices provided by an
independent pricing service. Prices provided by the pricing service may be
determined without exclusive reliance on quoted prices, and may reflect
appropriate factors such as yield, type of issue, coupon rate and maturity
date. 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.
Securities for which market quotations are not readily available or are
questionable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers in a manner specifically authorized
by the Board of Trustees. Short-term obligations having 60 days or less to
maturity are valued at amortized cost which approximates market value. For
purposes of determining net asset value per share, futures and option
contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Foreign securities are converted into U.S. dollar amounts using 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. Occasionally, 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 be
reflected in the computation of the Fund's net asset value. If a development/
event is so significant that there is a reasonably high degree of certainty
as to both the effect and the degree of effect that the development/event has
actually caused that closing price to no longer reflect actual value, the
closing prices, as determined at the close of the applicable foreign market,
may be adjusted to reflect the fair value of the affected foreign securities
as of the close of the NYSE as determined in good faith by or under the
supervision of the Board of Trustees.
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.
On December 31, 2001, undistributed net investment income was increased by
$1,713,592, undistributed net realized gains increased by $39,116 and shares
of beneficial interest decreased by $1,752,708 as a result of nondeductible
excise tax paid by the fund, reclassification of distributions, net operating
loss and other reclassifications. Net assets of the Fund were unaffected by
the reclassification discussed above.
C. Distributions -- Distributions from income and net realized capital gains, if
any, are generally paid annually and recorded on ex-dividend date. The Fund
may elect to use a portion of the proceeds from redemptions as distributions
for federal income tax purposes.
D. Federal Income Taxes -- The Fund intends to comply with the requirements of
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 gains) which is
distributed to shareholders. Therefore, no provision for federal income taxes
is recorded in the financial statements.
The Fund has a capital loss carryforward of $40,823,682 as of December 31,
2001 which may be carried forward to offset future taxable gains, if any,
which expires, if not previously
FS-118
utilized, in the year 2009. As of December 31, 2001 the fund has a
post-October capital loss deferral of $3,345,135 which will be recognized in
the following tax year.
E. Futures Contracts -- The Fund may purchase or sell futures contracts as a
hedge against changes in market conditions. Initial margin deposits required
upon entering into futures contracts are satisfied by the segregation of
specific securities as collateral for the account of the broker (the Fund's
agent in acquiring the futures position). During the period the futures
contracts are open, changes in the value of the contracts are recognized as
unrealized gains or losses by "marking to market" on a daily basis to reflect
the market value of the contracts at the end of each day's trading. Variation
margin payments are made or received depending upon whether unrealized gains
or losses are incurred. When the contracts are closed, the Fund recognizes a
realized gain or loss equal to the difference between the proceeds from, or
cost of, the closing transaction and the Fund's basis in the contract. Risks
include the possibility of an illiquid market and that a change in value of
the contracts may not correlate with changes in the value of the securities
being hedged.
F. Covered Call Options -- The Fund may write call options, on a covered basis;
that is, the Fund will own the underlying security. When the Fund writes a
covered call option, an amount equal to the premium received by the Fund is
recorded as an asset and an equivalent liability. The amount of the liability
is subsequently "marked-to-market" to reflect the current market value of the
option written. The current market value of a written option is the mean
between the last bid and asked prices on that day. If a written call option
expires on the stipulated expiration date, or if the Fund enters into a
closing purchase transaction, the Fund realizes a gain (or a loss if the
closing purchase transaction exceeds the premium received when the option was
written) without regard to any unrealized gain or loss on the underlying
security, and the liability related to such option is extinguished. If a
written option is exercised, the Fund realizes a gain or a loss from the sale
of the underlying security and the proceeds of the sale are increased by the
premium originally received.
G. Expenses -- Distribution expenses directly attributable to a class of shares
are charged to those classes' operations. All other expenses which are
attributable to more than one class are allocated among the classes based on
relative net assets.
NOTE 2-ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM at the annual rate of 0.75% of the Fund's
average daily net assets. Effective July 1, 2001, 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 fund of which the Fund has invested.
For the year ended December 31, 2001, AIM waived fees of $42,306.
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. For the year ended December 31, 2001, AIM was
paid $50,000 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency and
shareholder services to the Fund. During the year ended December 31, 2001, AFS
was paid $235,996 for such services.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B and Class C shares of the Fund. The Trust has adopted plans
pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A
shares, Class B shares and Class C shares (collectively the "Plans"). The Fund,
pursuant to the Plans, pays AIM Distributors compensation at the annual rate of
0.35% of the Fund's average daily net assets of Class A shares and 1.00% of the
average daily net assets of Class B and C shares. Of these amounts, the Fund may
pay a service fee of 0.25% of the average daily net assets of the Class A, Class
B or Class C shares to selected dealers and financial institutions who furnish
continuing personal shareholder services to their customers who purchase and own
the appropriate class of shares of the Fund. Any amounts not paid as a service
fee under the Plans would constitute an asset-based sales charge. The Plans also
impose a cap on the total sales charges, including asset-based sales charges
that may be paid by the respective classes. For the year ended December 31,
2001, the Class A, Class B and Class C shares paid AIM Distributors $224,258,
$712,565 and $326,478, respectively, as compensation under the Plans.
AIM Distributors received commissions of $95,063 from sales of the Class A
shares of the Fund during the year ended December 31, 2001. Such commissions are
not an expense of the Fund. They are deducted from, and are not included in, the
proceeds from sales of Class A shares. During the year ended December 31, 2001,
AIM Distributors received $25,998 in contingent deferred sales charges imposed
on redemptions of Fund shares.
Certain officers and trustees of the Trust are officers and directors of AIM,
AFS and AIM Distributors.
During the year ended December 31, 2001, the Fund paid legal fees of $4,640
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Board of Trustees. A member of that firm is a trustee of the Trust.
NOTE 3-INDIRECT EXPENSES
For the year ended December 31, 2001, the Fund received reductions in transfer
agency fees from AFS (an affiliate of AIM) of $2,287 and reductions in custodian
fees of $3,868 under expense offset arrangements which resulted in a reduction
of the Fund's total expenses of $6,155.
FS-119
NOTE 4-TRUSTEES' FEES
Trustees' fees represent remuneration paid to trustees who are not an
"interested person" of AIM. The Trust invests trustees' fees, if so elected by a
trustee, in mutual fund shares in accordance with a deferred compensation plan.
NOTE 5-BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by Citibank, N.A. The Fund may borrow up to the lesser of
(i) $1,000,000,000 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. During the year ended December 31,
2001, the Fund did not borrow under the line of credit agreement. The funds
which are party to the line of credit are charged a commitment fee of 0.09% on
the unused balance of the committed line. The commitment fee is allocated among
the funds based on their respective average net assets for the period.
NOTE 6-PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities to the extent of one-third of the Fund's
total assets. Such loans are secured by collateral equal to no less than the
market value, determined daily, of the loaned securities. Such collateral will
be cash or debt securities issued or guaranteed by the U.S. Government or any of
its agencies. Cash collateral pursuant to these loans is invested in short-term
money market instruments or affiliated money market funds. Lending securities
entails a risk of loss to the Fund if and to the extent that the market value of
the securities loaned were to increase and the borrower did not increase the
collateral accordingly, and the borrower fails to return the securities. It is
the Fund's policy to obtain additional collateral from or return excess
collateral to the borrower by the end of the next business day. Therefore, the
value of the collateral may be temporarily less than the value of the securities
on loan.
At December 31, 2001, securities with an aggregate value of $15,577,615 were
on loan to brokers. The loans were secured by cash collateral of $16,268,246
received by the Fund and invested subsequently in STIC Liquid Assets Portfolio,
an affiliated money market fund. For the year ended December 31, 2001, the Fund
received fees of $29,928 for securities lending.
NOTE 7-DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF CAPITAL
The tax character of distributions paid during 2001 and 2000 was as follows:
<Table>
<Caption>
2001 2000
-------- --------
Distributions paid from ordinary
income $109,122 $169,491
__________________________________________________________
==========================================================
</Table>
As of December 31, 2001, the components of distributable earnings on a tax
basis were as follows:
<Table>
Capital loss carryforward $(40,823,682)
- ---------------------------------------------------------
Unrealized depreciation (3,801,335)
=========================================================
$(44,625,017)
_________________________________________________________
=========================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation is
attributable primarily to the tax deferral of losses on wash sales, the tax
deferral of capital losses incurred after October 31, the realization for tax
purposes of unrealized gains on certain futures contracts, and other deferrals.
NOTE 8-INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund during the year ended December 31, 2001 was
$145,514,084 and $97,079,619, respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
for tax purposes, as of December 31, 2001 is as follows:
<Table>
Aggregate unrealized appreciation of
investment securities $ 13,369,508
- ---------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (13,815,764)
=========================================================
Net unrealized appreciation (depreciation)
of investment securities $ (446,256)
_________________________________________________________
=========================================================
Cost of investments for tax purposes is $156,064,695.
</Table>
NOTE 9-CALL OPTION CONTRACTS
Transactions in call options written during the year ended December 31, 2001 are
summarized as follows:
<Table>
<Caption>
CALL OPTION CONTRACTS
----------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
--------- ---------
Beginning of year -- $ --
- ---------------------------------------------------------
Written 250 128,996
- ---------------------------------------------------------
Expired (250) (128,996)
=========================================================
End of year -- $ --
_________________________________________________________
=========================================================
</Table>
NOTE 10-FUTURES CONTRACTS
On December 31, 2001, $425,000 principal amount of U.S. Treasury obligations
were pledged as collateral to cover margin requirements for open futures
contracts. Open futures contracts as of December 31, 2001 were as follows:
<Table>
<Caption>
NO. OF MONTH/ MARKET UNREALIZED
CONTRACT CONTRACTS COMMITMENT VALUE APPRECIATION
- -------- --------- ------------ ---------- ------------
S&P 500 Index 22 Mar. 02/Long $6,320,600 $115,071
___________________________________________________________________________
===========================================================================
</Table>
FS-120
NOTE 11-SHARE INFORMATION
Changes in shares outstanding during the year ended December 31, 2001 and the
period August 31, 2000 (date operations commenced) through December 31, 2000:
<Table>
<Caption>
2001 2000
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
Sold:
Class A 5,985,549 $ 48,356,484 6,803,909 $ 62,419,096
- ---------------------------------------------------------------------------------------------------------------------
Class B 5,412,852 43,258,374 7,466,598 67,975,309
- ---------------------------------------------------------------------------------------------------------------------
Class C 2,272,059 18,177,771 3,674,621 33,162,044
=====================================================================================================================
Issued as reinvestment of dividends:
Class A 11,649 78,507 7,039 59,975
- ---------------------------------------------------------------------------------------------------------------------
Class B 2,749 18,379 8,075 68,635
- ---------------------------------------------------------------------------------------------------------------------
Class C 1,235 8,260 3,982 33,851
=====================================================================================================================
Reacquired:
Class A (4,256,465) (32,295,823) (394,265) (3,425,427)
- ---------------------------------------------------------------------------------------------------------------------
Class B (3,057,696) (22,278,168) (185,733) (1,616,270)
- ---------------------------------------------------------------------------------------------------------------------
Class C (1,532,565) (11,283,152) (131,788) (1,137,041)
=====================================================================================================================
4,839,367 $ 44,040,632 17,252,438 $157,540,172
_____________________________________________________________________________________________________________________
=====================================================================================================================
</Table>
NOTE 12-FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
--------------------------------
YEAR ENDED AUGUST 31, 2000
DECEMBER 31, (DATE OPERATIONS
2001 COMMENCED) TO
------------ DECEMBER 31,
2000(a)
----------------
Net asset value, beginning of period $ 8.64 $ 10.00
- ----------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.04) --
- ----------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (1.53) (1.35)
==============================================================================================
Total from investment operations (1.57) (1.35)
==============================================================================================
Less distributions:
Dividends from net investment income (0.01) --
- ----------------------------------------------------------------------------------------------
Distributions from net realized gains 0.00 (0.01)
- ----------------------------------------------------------------------------------------------
Total distributions (0.01) (0.01)
==============================================================================================
Net asset value, end of period $ 7.06 $ 8.64
______________________________________________________________________________________________
==============================================================================================
Total return(b) (18.17)% (13.49)%
______________________________________________________________________________________________
==============================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $57,591 $55,409
______________________________________________________________________________________________
==============================================================================================
Ratio of expenses to average net assets:
With fee waivers 1.52%(c) 1.40%(d)
- ----------------------------------------------------------------------------------------------
Without fee waivers 1.54%(c) 2.00%(d)
==============================================================================================
Ratio of net investment income (loss) to average net assets (0.56)%(c) 0.10%(d)
______________________________________________________________________________________________
==============================================================================================
Portfolio turnover rate 67% 13%
______________________________________________________________________________________________
==============================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Does not include sales charges and is not annualized for periods less than
one year.
(c) Ratios are based on average daily net assets of $64,073,727.
(d) Annualized.
FS-121
NOTE 12-FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B
--------------------------------
YEAR ENDED AUGUST 31, 2000
DECEMBER 31, (DATE OPERATIONS
2001 COMMENCED) TO
------------ DECEMBER 31,
2000(a)
----------------
Net asset value, beginning of period $ 8.61 $ 10.00
- ----------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.09) (0.02)
- ----------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (1.52) (1.36)
==============================================================================================
Total from investment operations (1.61) (1.38)
==============================================================================================
Less distributions from net realized gains 0.00 (0.01)
==============================================================================================
Net asset value, end of period $ 7.00 $ 8.61
______________________________________________________________________________________________
==============================================================================================
Total return(b) (18.68)% (13.79)%
______________________________________________________________________________________________
==============================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $67,571 $62,792
______________________________________________________________________________________________
==============================================================================================
Ratio of expenses to average net assets:
With fee waivers 2.18%(c) 2.10%(d)
- ----------------------------------------------------------------------------------------------
Without fee waivers 2.20%(c) 2.70%(d)
==============================================================================================
Ratio of net investment income (loss) to average net assets (1.22)%(c) (0.60)%(d)
______________________________________________________________________________________________
==============================================================================================
Portfolio turnover rate 67% 13%
______________________________________________________________________________________________
==============================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Does not include contingent deferred sales charges and is not annualized
for periods less than one year.
(c) Ratios are based on average daily net assets of $71,256,489.
(d) Annualized.
<Table>
<Caption>
CLASS C
--------------------------------
YEAR ENDED AUGUST 31, 2000
DECEMBER 31, (DATE OPERATIONS
2001 COMMENCED) TO
------------ DECEMBER 31,
2000(a)
----------------
Net asset value, beginning of period $ 8.62 $ 10.00
- ----------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.09) (0.02)
- ----------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (1.53) (1.35)
==============================================================================================
Total from investment operations (1.62) (1.37)
==============================================================================================
Less distributions from net realized gains 0.00 (0.01)
==============================================================================================
Net asset value, end of period $ 7.00 $ 8.62
______________________________________________________________________________________________
==============================================================================================
Total return(b) (18.77)% (13.69)%
______________________________________________________________________________________________
==============================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $30,030 $30,557
______________________________________________________________________________________________
==============================================================================================
Ratio of expenses to average net assets:
With fee waivers 2.18%(c) 2.10%(d)
- ----------------------------------------------------------------------------------------------
Without fee waivers 2.20%(c) 2.70%(d)
==============================================================================================
Ratio of net investment income (loss) to average net assets (1.22)%(c) (0.60)%(d)
______________________________________________________________________________________________
==============================================================================================
Portfolio turnover rate 67% 13%
______________________________________________________________________________________________
==============================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Does not include contingent deferred sales charges and is not annualized
for periods less than one year.
(c) Ratios are based on average daily net assets of $32,647,782.
(d) Annualized.
FS-122
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees and Shareholders of AIM
Worldwide Spectrum Fund:
In our opinion, the accompanying statement of assets and
liabilities, including the schedule of investments, and
the related statements of operations and of changes in
net assets and the financial highlights present fairly,
in all material respects, the financial position of the
AIM Worldwide Spectrum Fund (one of the funds
constituting AIM Funds Group; hereafter referred to as
the "Fund") at December 31, 2001, and the results of its
operations, the changes in its net assets and the
financial highlights for each of the periods indicated,
in conformity with accounting principles generally
accepted in the United States of America. These financial
statements and financial highlights (hereafter referred
to as "financial statements") are the responsibility of
the Fund's management; our responsibility is to express
an opinion on these financial statements based on our
audits. We conducted our audits of these financial
statements in accordance with auditing standards
generally accepted in the United States of America, which
require that we plan and perform the audit to obtain
reasonable assurance about whether the financial
statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant
estimates made by management, and evaluating the overall
financial statement presentation. We believe that our
audits, which included confirmation of securities at
December 31, 2001 by correspondence with the custodian
and brokers, provide a reasonable basis for our opinion.
/s/ PRICEWATERHOUSECOOPERS LLP
February 14, 2002
Houston, Texas
FS-123
SCHEDULE OF INVESTMENTS
December 31, 2001
<Table>
<Caption>
MARKET
SHARES VALUE
DOMESTIC COMMON STOCKS-61.50%
AIRLINES-2.03%
Southwest Airlines Co. 15,000 $ 277,200
====================================================================
APPLICATION SOFTWARE-3.40%
Cadence Design Systems, Inc.(a) 7,000 153,440
- --------------------------------------------------------------------
Manugistics Group, Inc.(a) 9,000 189,720
- --------------------------------------------------------------------
PeopleSoft, Inc.(a) 3,000 120,600
====================================================================
463,760
====================================================================
AUTO PARTS & EQUIPMENT-0.89%
Johnson Controls, Inc. 1,500 121,125
====================================================================
BANKS-2.31%
Bank of America Corp. 5,000 314,750
====================================================================
BROADCASTING & CABLE TV-1.23%
Cox Communications, Inc.-Class A(a) 4,000 167,640
====================================================================
COMPUTER HARDWARE-4.35%
International Business Machines Corp. 1,600 193,536
- --------------------------------------------------------------------
Sun Microsystems, Inc.(a) 32,500 401,050
====================================================================
594,586
====================================================================
CONSTRUCTION & ENGINEERING-2.72%
Jacobs Engineering Group Inc.(a) 3,500 231,000
- --------------------------------------------------------------------
Shaw Group Inc. (The)(a) 6,000 141,000
====================================================================
372,000
====================================================================
DATA PROCESSING SERVICES-2.59%
Concord EFS, Inc.(a) 6,000 196,680
- --------------------------------------------------------------------
First Data Corp. 2,000 156,900
====================================================================
353,580
====================================================================
DIVERSIFIED COMMERCIAL SERVICES-1.11%
H&R Block, Inc. 3,400 151,980
====================================================================
DIVERSIFIED FINANCIAL SERVICES-7.70%
Citigroup Inc. 8,500 429,080
- --------------------------------------------------------------------
Fannie Mae 3,400 270,300
- --------------------------------------------------------------------
Freddie Mac 2,600 170,040
- --------------------------------------------------------------------
Gabelli Asset Management Inc.-Class A(a) 4,200 181,440
====================================================================
1,050,860
====================================================================
ELECTRIC UTILITIES-2.01%
Mirant Corp.(a) 17,100 273,942
====================================================================
ELECTRONIC EQUIPMENT & INSTRUMENTS-0.70%
Thermo Electron Corp.(a) 4,000 95,440
====================================================================
GENERAL MERCHANDISE STORES-1.80%
Target Corp. 6,000 246,300
====================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
HEALTH CARE DISTRIBUTORS & SERVICES-2.49%
Laboratory Corp. of America Holdings(a) 4,200 $ 339,570
====================================================================
HEALTH CARE EQUIPMENT-1.03%
Baxter International Inc. 2,400 128,712
- --------------------------------------------------------------------
Viasys Healthcare Inc.(a) 584 11,803
====================================================================
140,515
====================================================================
HEALTH CARE FACILITIES-2.12%
HCA Inc. 7,500 289,050
====================================================================
HOMEBUILDING-1.34%
NVR, Inc.(a) 900 183,600
====================================================================
HOTELS-1.14%
Starwood Hotels & Resorts Worldwide, Inc. 5,200 155,220
====================================================================
MANAGED HEALTH CARE-2.28%
UnitedHealth Group Inc. 4,400 311,388
====================================================================
MOVIES & ENTERTAINMENT-1.41%
AOL Time Warner Inc.(a) 6,000 192,600
====================================================================
MULTI-UTILITIES-1.49%
Dynegy Inc.-Class A 8,000 204,000
====================================================================
NETWORKING EQUIPMENT-1.05%
NetScreen Technologies, Inc.(a) 6,500 143,845
====================================================================
OIL & GAS DRILLING-3.25%
Nabors Industries, Inc.(a) 5,500 188,815
- --------------------------------------------------------------------
Noble Drilling Corp.(a) 7,500 255,300
====================================================================
444,115
====================================================================
PHARMACEUTICALS-1.30%
Johnson & Johnson 3,000 177,300
====================================================================
SEMICONDUCTORS-1.42%
Microchip Technology Inc.(a) 5,000 193,700
====================================================================
SOFT DRINKS-1.07%
PepsiCo, Inc. 3,000 146,070
====================================================================
SYSTEMS SOFTWARE-3.64%
Microsoft Corp.(a) 7,500 497,025
====================================================================
TELECOMMUNICATIONS EQUIPMENT-1.48%
QUALCOMM Inc.(a) 4,000 202,000
====================================================================
WIRELESS TELECOMMUNICATION SERVICES-2.15%
Sprint Corp. (PCS Group)(a) 12,000 292,920
====================================================================
Total Domestic Common Stocks (Cost
$7,816,607) 8,396,081
====================================================================
</Table>
FS-124
<Table>
<Caption>
MARKET
SHARES VALUE
FOREIGN STOCKS-28.27%
BERMUDA-6.41%
Accenture Ltd.-Class A (IT Consulting &
Services)(a) 6,000 $ 161,520
- --------------------------------------------------------------------
Everest Re Group, Ltd. (Reinsurance) 5,500 388,850
- --------------------------------------------------------------------
Tyco International Ltd. (Industrial
Conglomerates) 5,500 323,950
====================================================================
874,320
====================================================================
CANADA-5.55%
Biovail Corp. (Pharmaceuticals)(a) 6,400 360,000
- --------------------------------------------------------------------
Celestica Inc. (Electronic Equipment &
Instruments)(a) 4,200 169,638
- --------------------------------------------------------------------
Talisman Energy Inc. (Oil & Gas Exploration &
Production) 6,000 228,072
====================================================================
757,710
====================================================================
FRANCE-1.64%
Sanofi-Synthelabo S.A. (Pharmaceuticals) 3,000 224,186
====================================================================
GERMANY-4.84%
Altana A.G. (Pharmaceuticals) 8,000 398,791
- --------------------------------------------------------------------
Systeme, Anwendungen, Produkte in der
Datenvernabeitung (Application Software)(a) 2,000 262,549
====================================================================
661,340
====================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
IRELAND-2.48%
Ryanair Holdings PLC (Airlines)(a) 53,400 $ 338,098
====================================================================
ITALY-0.69%
Riunione Adriatica di Sicurta S.p.A
(Multi-Line Insurance) 8,000 94,383
====================================================================
UNITED KINGDOM-6.66%
ARM Holdings PLC (Semiconductors)(a) 28,000 146,357
- --------------------------------------------------------------------
New Look Group PLC (Apparel Retail) 70,000 167,353
- --------------------------------------------------------------------
Smith & Nephew PLC (Health Care Supplies) 36,169 218,547
- --------------------------------------------------------------------
Willis Group Holdings Ltd. (Insurance
Brokers)(a) 16,000 376,800
====================================================================
909,057
====================================================================
Total Foreign Stocks (Cost $3,239,710) 3,859,094
====================================================================
MONEY MARKET FUNDS-7.55%
STIC Liquid Assets Portfolio(b) 515,048 515,048
- --------------------------------------------------------------------
STIC Prime Portfolio(b) 515,048 515,048
====================================================================
Total Money Market Funds (Cost
$1,030,096) 1,030,096
====================================================================
TOTAL INVESTMENTS--97.32% (Cost $12,086,413) 13,285,271
====================================================================
OTHER ASSETS LESS LIABILITIES--2.68% 365,563
====================================================================
NET ASSETS-100.00% $13,650,834
____________________________________________________________________
====================================================================
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) The money market fund and the Fund are affiliated by having the same
investment advisor.
See Notes to Financial Statements.
FS-125
WORLDWIDE SPECTRUM FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2001
<Table>
ASSETS:
Investments, at market value (cost $12,086,413) $13,285,271
- ------------------------------------------------------------
Foreign currencies, at value (cost $46,947) 48,627
- ------------------------------------------------------------
Receivables for:
Fund shares sold 477,143
- ------------------------------------------------------------
Due from advisor 25,986
- ------------------------------------------------------------
Dividends 7,780
- ------------------------------------------------------------
Foreign currency contracts closed 1,313
- ------------------------------------------------------------
Investment for deferred compensation plan 5,790
- ------------------------------------------------------------
Other assets 21,339
============================================================
Total assets 13,873,249
============================================================
LIABILITIES:
Payables for:
Investments purchased 161,136
- ------------------------------------------------------------
Fund shares reacquired 1,360
- ------------------------------------------------------------
Foreign currency contracts outstanding 9,887
- ------------------------------------------------------------
Options written (premiums received $19,879) 2,100
- ------------------------------------------------------------
Deferred compensation plan 5,790
- ------------------------------------------------------------
Accrued distribution fees 11,156
- ------------------------------------------------------------
Accrued transfer agent fees 2,230
- ------------------------------------------------------------
Accrued operating expenses 28,756
============================================================
Total liabilities 222,415
============================================================
Net assets applicable to shares outstanding $13,650,834
============================================================
NET ASSETS:
Class A $ 8,725,382
____________________________________________________________
============================================================
Class B $ 3,613,018
____________________________________________________________
============================================================
Class C $ 1,312,434
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE:
Class A 886,102
____________________________________________________________
============================================================
Class B 369,011
____________________________________________________________
============================================================
Class C 134,028
____________________________________________________________
============================================================
Class A:
Net asset value per share $ 9.85
- ------------------------------------------------------------
Offering price per share:
(Net asset value of $9.85 divided by
94.50%) $ 10.42
____________________________________________________________
============================================================
Class B:
Net asset value and offering price per share $ 9.79
____________________________________________________________
============================================================
Class C:
Net asset value and offering price per share $ 9.79
____________________________________________________________
============================================================
</Table>
STATEMENT OF OPERATIONS
For the year ended December 31, 2001
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of
$3,388) $ 53,291
- ------------------------------------------------------------
Dividends from affiliated money market funds 19,098
- ------------------------------------------------------------
Interest 42,122
============================================================
Total investment income 114,511
============================================================
EXPENSES:
Advisory fees 69,914
- ------------------------------------------------------------
Administrative services fees 50,000
- ------------------------------------------------------------
Custodian fees 10,860
- ------------------------------------------------------------
Distribution fees -- Class A 21,849
- ------------------------------------------------------------
Distribution fees -- Class B 11,226
- ------------------------------------------------------------
Distribution fees -- Class C 8,599
- ------------------------------------------------------------
Printing 19,385
- ------------------------------------------------------------
Professional fees 60,448
- ------------------------------------------------------------
Registration and filing 94,917
- ------------------------------------------------------------
Transfer agent fees -- Class A 11,536
- ------------------------------------------------------------
Transfer agent fees -- Class B 2,228
- ------------------------------------------------------------
Transfer agent fees -- Class C 1,707
- ------------------------------------------------------------
Trustees' fees 8,290
- ------------------------------------------------------------
Other 7,210
============================================================
Total expenses 378,169
============================================================
Less: Fees waived and expenses reimbursed (207,946)
- ------------------------------------------------------------
Expenses paid indirectly (96)
============================================================
Net expenses 170,127
============================================================
Net investment income (loss) (55,616)
============================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES, FOREIGN CURRENCIES,
FOREIGN CURRENCY CONTRACTS, FUTURES CONTRACTS
AND OPTION CONTRACTS:
Net realized gain (loss) from:
Investment securities (1,162,298)
- ------------------------------------------------------------
Foreign currencies 591
- ------------------------------------------------------------
Foreign currency contracts (44,002)
- ------------------------------------------------------------
Futures contracts 26,574
- ------------------------------------------------------------
Option contracts written 15,021
============================================================
(1,164,114)
============================================================
Change in net unrealized appreciation
(depreciation) of:
Investment securities 1,198,858
- ------------------------------------------------------------
Foreign currencies 1,356
- ------------------------------------------------------------
Foreign currency contracts (9,887)
- ------------------------------------------------------------
Option contracts written 17,779
============================================================
1,208,106
============================================================
Net gain from investment securities, foreign
currencies, foreign currency contracts,
futures contracts and option contracts 43,992
============================================================
Net increase (decrease) in net assets resulting
from operations $ (11,624)
____________________________________________________________
============================================================
</Table>
See Notes to Financial Statements.
FS-126
STATEMENT OF CHANGES IN NET ASSETS
For the year ended December 31, 2001 and for the period December 29, 2000
(Date operations commenced) to December 31, 2000.
<Table>
<Caption>
2001 2000
----------- ----------
OPERATIONS:
Net investment income (loss) $ (55,616) $ 321
- ---------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities,
foreign currencies, foreign currency contracts, futures
contracts and option contracts (1,164,114) --
- ---------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities, foreign currencies, foreign currency
contracts and option contracts 1,208,106 --
=======================================================================================
Net increase (decrease) in net assets resulting from
operations (11,624) 321
=======================================================================================
Distributions to shareholders from net investment income:
Class A (673) --
- ---------------------------------------------------------------------------------------
Class B (285) --
- ---------------------------------------------------------------------------------------
Class C (94) --
- ---------------------------------------------------------------------------------------
Share transactions-net:
Class A 7,688,252 1,109,445
- ---------------------------------------------------------------------------------------
Class B 3,565,526 10
- ---------------------------------------------------------------------------------------
Class C 1,299,946 10
=======================================================================================
Net increase in net assets 12,541,048 1,109,786
=======================================================================================
NET ASSETS:
Beginning of year 1,109,786 --
=======================================================================================
End of year $13,650,834 $1,109,786
_______________________________________________________________________________________
=======================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $13,610,384 $1,106,465
- ---------------------------------------------------------------------------------------
Undistributed net investment income (loss) (2,951) 3,321
- ---------------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment
securities, foreign currencies, foreign currency
contracts, futures contracts and option contracts (1,164,705) --
- ---------------------------------------------------------------------------------------
Unrealized appreciation of investment securities, foreign
currencies, foreign currency contracts and option
contracts 1,208,106 --
=======================================================================================
$13,650,834 $1,109,786
_______________________________________________________________________________________
=======================================================================================
</Table>
See Notes to Financial Statements.
FS-127
WORLDWIDE SPECTRUM FUND
NOTES TO FINANCIAL STATEMENTS
December 31, 2001
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM Worldwide Spectrum Fund (the "Fund") is a series portfolio of AIM Funds
Group (the "Trust"). The Trust is a Delaware business trust registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of twelve separate portfolios,
each having an unlimited number of shares of beneficial interest. The Fund
currently offers three different classes of shares: Class A shares, Class B
shares and Class C shares. Class A shares are sold with a front-end sales
charge. Class B shares and Class C shares are sold with a contingent deferred
sales charge. Matters affecting each portfolio or class will be voted on
exclusively by the shareholders of such portfolio or class. The assets,
liabilities and operations of each portfolio are accounted for separately.
Information presented in these financial statements pertains only to the Fund.
The Fund's investment objective is to achieve long-term growth of capital.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. Security Valuations -- Securities, including restricted securities, are
valued according to the following policy. A security listed or traded on an
exchange (except convertible bonds) is valued at its last sales price as of
the close of the customary trading session on the exchange where the security
is principally traded, or lacking any sales on a particular day, the security
is valued at the closing bid price on that day. Each security reported on the
NASDAQ National Market System is valued at the last sales price as of the
close of the customary trading session on the valuation date or absent a last
sales price, at the closing bid price. Debt obligations (including
convertible bonds) are valued on the basis of prices provided by an
independent pricing service. Prices provided by the pricing service may be
determined without exclusive reliance on quoted prices, and may reflect
appropriate factors such as yield, type of issue, coupon rate and maturity
date. 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.
Securities for which market quotations are not readily available or are
questionable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers in a manner specifically authorized
by the Board of Trustees. Short-term obligations having 60 days or less to
maturity are valued at amortized cost which approximates market value. For
purposes of determining net asset value per share, futures and option
contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Foreign securities are converted into U.S. dollar amounts using 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. Occasionally, 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 be
reflected in the computation of the Fund's net asset value. If a development/
event is so significant that there is a reasonably high degree of certainty
as to both the effect and the degree of effect that the development/event has
actually caused that closing price to no longer reflect actual value, the
closing prices, as determined at the close of the applicable foreign market,
may be adjusted to reflect the fair value of the affected foreign securities
as of the close of the NYSE as determined in good faith by or under the
supervision of the Board of Trustees.
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.
On December 31, 2001, undistributed net investment income was increased by
$50,396, undistributed net realized gain was decreased by $591 and shares of
beneficial interest decreased by $49,805 as a result of nondeductible
organization/stock issue expenses, differing book/tax treatment of foreign
currency transactions and other reclassifications. Net assets of the Fund
were unaffected by the reclassification discussed above.
C. Distributions -- Distributions from income and net realized capital gains, if
any, are generally paid annually and recorded on ex-dividend date. The Fund
may elect to use a portion of the proceeds from redemptions as distributions
for federal income tax purposes.
D. Federal Income Taxes -- The Fund intends to comply with the requirements of
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 gains) which is
distributed to shareholders. Therefore, no provision for federal income taxes
is recorded in the financial statements.
FS-128
The Fund has a capital loss carryforward of $1,171,360 as of December 31,
2001 which may by carried forward to offset future taxable gains, if any,
which expires, if not previously utilized, in the year 2009.
E. Foreign Currency Translations -- Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S. dollar
amounts at date of valuation. Purchases and sales of portfolio securities and
income items denominated in foreign currencies are translated into U.S.
dollar amounts on the respective dates of such transactions. The Fund does
not separately account for the portion of the results of operations resulting
from changes in foreign exchange rates on investments and the fluctuations
arising from changes in market prices of securities held. Such fluctuations
are included with the net realized and unrealized gain or loss from
investments.
F. Foreign Currency Contracts -- A foreign currency contract is an obligation to
purchase or sell a specific currency for an agreed-upon price at a future
date. The Fund may enter into a foreign currency contract to attempt to
minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency contract
for the purchase or sale of a security denominated in a foreign currency in
order to "lock in" the U.S. dollar price of that security. The Fund could be
exposed to risk if counterparties to the contracts are unable to meet the
terms of their contracts or if the value of the foreign currency changes
unfavorably.
Outstanding foreign currency contracts at December 31, 2001 were as follows:
<Table>
<Caption>
CONTRACT TO UNREALIZED
SETTLEMENT ---------------------- APPRECIATION
DATE CURRENCY DELIVER RECEIVE VALUE (DEPRECIATION)
---------- -------- --------- ---------- ---------- --------------
02/28/02 CAD 962,000 $ 605,737 $ 604,199 $ 1,538
---------------------------------------------------------------------------
02/28/02 EUR 1,168,000 1,034,788 1,039,160 (4,372)
---------------------------------------------------------------------------
02/28/02 GBP 263,000 374,565 381,618 (7,053)
===========================================================================
$2,015,090 $2,024,977 $(9,887)
___________________________________________________________________________
===========================================================================
</Table>
G. Futures Contracts -- The Fund may purchase or sell futures contracts as a
hedge against changes in market conditions. Initial margin deposits required
upon entering into futures contracts are satisfied by the segregation of
specific securities as collateral for the account of the broker (the Fund's
agent in acquiring the futures position). During the period the futures
contracts are open, changes in the value of the contracts are recognized as
unrealized gains or losses by "marking to market" on a daily basis to reflect
the market value of the contracts at the end of each day's trading. Variation
margin payments are made or received depending upon whether unrealized gains
or losses are incurred. When the contracts are closed, the Fund recognizes a
realized gain or loss equal to the difference between the proceeds from, or
cost of, the closing transaction and the Fund's basis in the contract. Risks
include the possibility of an illiquid market and that a change in value of
the contracts may not correlate with changes in the value of the securities
being hedged.
H. Covered Call Options -- The Fund may write call options, on a covered basis;
that is, the Fund will own the underlying security. When the Fund writes a
covered call option, an amount equal to the premium received by the Fund is
recorded as an asset and an equivalent liability. The amount of the liability
is subsequently "marked-to-market" to reflect the current market value of the
option written. The current market value of a written option is the mean
between the last bid and asked prices on that day. If a written call option
expires on the stipulated expiration date, or if the Fund enters into a
closing purchase transaction, the Fund realizes a gain (or a loss if the
closing purchase transaction exceeds the premium received when the option was
written) without regard to any unrealized gain or loss on the underlying
security, and the liability related to such option is extinguished. If a
written option is exercised, the Fund realizes a gain or a loss from the sale
of the underlying security and the proceeds of the sale are increased by the
premium originally received.
I. Expenses -- Distribution expenses directly attributable to a class of shares
are charged to those classes' operations. All other expenses which are
attributable to more than one class are allocated among the classes based on
relative net assets.
NOTE 2-ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM at the annual rate of 0.85% of the first $1
billion of the Fund's average daily net assets, plus 0.80% of the Fund's average
daily net assets in excess of $1 billion. Effective July 1, 2001, 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 fund of which the
Fund has invested. For the year ended December 31, 2001, AIM waived fees of
$69,914 and reimbursed expenses of $138,032.
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. For the year ended December 31, 2001, AIM was
paid $50,000 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency and
shareholder services to the Fund. During the year ended December 31, 2001, AFS
was paid $8,549 for such services.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B and Class C shares of the Fund. The Trust has adopted plans
pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A
shares, Class B shares and Class C shares (collectively the "Plans"). The Fund,
pursuant to the Plans, pays AIM Distributors compensation at the annual rate of
0.35% of the Fund's average daily net assets of Class A shares and 1.00% of the
average daily net assets of Class B and C shares. Of these amounts, the Fund may
pay a service fee of 0.25% of the average daily net assets of the Class A, Class
B or Class C shares to
FS-129
selected dealers and financial institutions who furnish continuing personal
shareholder services to their customers who purchase and own the appropriate
class of shares of the Fund. Any amounts not paid as a service fee under the
Plans would constitute an asset-based sales charge. The Plans also impose a cap
on the total sales charges, including asset-based sales charges that may be paid
by the respective classes. For the year ended December 31, 2001, the Class A,
Class B and Class C shares paid AIM Distributors $21,849, $11,226 and $8,599,
respectively, as compensation under the Plans.
AIM Distributors received commissions of $10,936 from sales of the Class A
shares of the Fund during the year ended December 31, 2001. Such commissions are
not an expense of the Fund. They are deducted from, and are not included in, the
proceeds from sales of Class A shares. During the year ended December 31, 2001,
AIM Distributors received $2,126 in contingent deferred sales charges imposed on
redemptions of Fund shares.
Certain officers and trustees of the Trust are officers and directors of AIM,
AFS and AIM Distributors.
During the year ended December 31, 2001, the Fund paid legal fees of $3,237
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Board of Trustees. A member of that firm is a trustee of the Trust.
NOTE 3-INDIRECT EXPENSES
For the year ended December 31, 2001, the Fund received reductions in transfer
agency fees from AFS (an affiliate of AIM) of $96 under an expense offset
arrangement which resulted in a reduction of the Fund's total expenses of $96.
NOTE 4-TRUSTEES' FEES
Trustees' fees represent remuneration paid to trustees who are not an
"interested person" of AIM. The Trust invests trustees' fees, if so elected by a
trustee, in mutual fund shares in accordance with a deferred compensation plan.
NOTE 5-BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by Citibank, N.A. The Fund may borrow up to the lesser of
(i) $1,000,000,000 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. During the year ended December 31,
2001, the Fund did not borrow under the line of credit agreement. The funds
which are party to the line of credit are charged a commitment fee of 0.09% on
the unused balance of the committed line. The commitment fee is allocated among
the funds based on their respective average net assets for the period.
NOTE 6-DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF CAPITAL
The tax character of distributions paid during 2001 and 2000 was as follows:
<Table>
<Caption>
2001 2000
------ -----
Distributions paid from ordinary income $1,052 $ --
_________________________________________________________
=========================================================
</Table>
As of December 31, 2001, the components of distributable earnings on a tax
basis were as follows:
<Table>
Undistributed ordinary income $ 2,838
- ---------------------------------------------------------
Capital loss carryforward (1,171,360)
- ---------------------------------------------------------
Unrealized appreciation 1,208,972
=========================================================
$ 40,450
_________________________________________________________
=========================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation is
attributable primarily to the tax deferral of losses on wash sales, the
realization for tax purposes of unrealized gains (losses) on certain forward
foreign currency contracts and other deferrals.
NOTE 7-INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund during the year ended December 31, 2001 was
$23,544,142 and $11,325,528, respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
for tax purposes, as of December 31, 2001 is as follows:
<Table>
Aggregate unrealized appreciation of
investment securities $1,570,416
- ---------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (374,789)
=========================================================
Net unrealized appreciation of investment
securities $1,195,627
_________________________________________________________
=========================================================
Cost of investments for tax purposes is $12,089,644.
</Table>
NOTE 8-CALL OPTION CONTRACTS
Transactions in call options written during the year ended December 31, 2001 are
summarized as follows:
<Table>
<Caption>
CALL OPTION CONTRACTS
---------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
--------- --------
Beginning of year -- $ --
- --------------------------------------------------------
Written 136 64,817
- --------------------------------------------------------
Closed (15) (13,140)
- --------------------------------------------------------
Exercised (75) (25,897)
- --------------------------------------------------------
Expired (6) (5,901)
========================================================
End of year 40 $ 19,879
________________________________________________________
========================================================
</Table>
Open call options written at December 31, 2001 were as follows:
<Table>
<Caption>
DECEMBER 31,
CONTRACT STRIKE NUMBER OF PREMIUMS 2001 UNREALIZED
ISSUE MONTH PRICE CONTRACTS RECEIVED MARKET VALUE APPRECIATION
- ----- -------- ------ --------- -------- ------------ ------------
Dynegy, Inc. Mar-02 $40 40 $19,879 $2,100 $17,779
____________________________________________________________________________________
====================================================================================
</Table>
FS-130
NOTE 9-SHARE INFORMATION
Changes in shares outstanding during the year ended December 31, 2001 and the
period December 29, 2000 (date operations commenced) through December 31, 2000
were as follows:
<Table>
<Caption>
2001 2000
------------------------ ---------------------
SHARES AMOUNT SHARES AMOUNT
--------- ----------- ------- ----------
Sold:
Class A 872,405 $ 8,569,590 110,945 $1,109,445
- ---------------------------------------------------------------------------------------------------------------
Class B 389,269 3,753,828 1 10
- ---------------------------------------------------------------------------------------------------------------
Class C 183,610 1,766,611 1 10
===============================================================================================================
Issued as reinvestment of dividends:
Class A 70 670 -- --
- ---------------------------------------------------------------------------------------------------------------
Class B 29 277 -- --
- ---------------------------------------------------------------------------------------------------------------
Class C 9 90 -- --
===============================================================================================================
Reacquired:
Class A (97,318) (882,008) -- --
- ---------------------------------------------------------------------------------------------------------------
Class B (20,288) (188,579) -- --
- ---------------------------------------------------------------------------------------------------------------
Class C (49,592) (466,755) -- --
===============================================================================================================
1,278,194 $12,553,724 110,947 $1,109,465
_______________________________________________________________________________________________________________
===============================================================================================================
</Table>
NOTE 10-FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
---------------------------------
DECEMBER 29, 2000
(DATE OPERATIONS
YEAR ENDED COMMENCED) TO
DECEMBER 31, DECEMBER 31,
2001(A) 2000
------------ -----------------
Net asset value, beginning of period $10.00 $10.00
- -----------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.05) --
- -----------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (0.10) --
===============================================================================================
Total from investment operations (0.15) --
===============================================================================================
Less distributions from net investment income (0.00) --
===============================================================================================
Net asset value, end of period $ 9.85 $10.00
_______________________________________________________________________________________________
===============================================================================================
Total return(b) (1.49)% --
_______________________________________________________________________________________________
===============================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $8,725 $1,110
_______________________________________________________________________________________________
===============================================================================================
Ratio of expenses to average net assets:
With fee waivers 1.91%(c) 1.80%(d)
- -----------------------------------------------------------------------------------------------
Without fee waivers 4.44%(c) 76.90%(d)
===============================================================================================
Ratio of net investment income (loss) to average net assets (0.52)%(c) 3.91%(d)
_______________________________________________________________________________________________
===============================================================================================
Portfolio turnover rate 168% --
_______________________________________________________________________________________________
===============================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Does not include sales charges and is not annualized for periods less than
one year.
(c) Ratios are based on average daily net assets of $6,242,607.
(d) Annualized.
FS-131
NOTE 10-FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B
---------------
JANUARY 2, 2001
(DATE SALES
COMMENCED) TO
DECEMBER 31,
2001(a)
---------------
Net asset value, beginning of period $10.00
- -----------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.11)
- -----------------------------------------------------------------------------
Net losses on securities (both realized and unrealized) (0.10)
=============================================================================
Total from investment operations (0.21)
=============================================================================
Less distributions from net investment income (0.00)
=============================================================================
Net asset value, end of period $ 9.79
_____________________________________________________________________________
=============================================================================
Total return(b) (2.09)%
_____________________________________________________________________________
=============================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $3,613
_____________________________________________________________________________
=============================================================================
Ratio of expenses to average net assets:
With fee waivers 2.57%(c)
- -----------------------------------------------------------------------------
Without fee waivers 5.10%(c)
=============================================================================
Ratio of net investment income (loss) to average net assets (1.18)%(c)
_____________________________________________________________________________
=============================================================================
Portfolio turnover rate 168%
_____________________________________________________________________________
=============================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Does not include contingent deferred sales charges and is not annualized
for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of $1,125,683.
<Table>
<Caption>
CLASS C
----------------
JANUARY 11, 2001
(DATE SALES
COMMENCED) TO
DECEMBER 31,
2001(a)
----------------
Net asset value, beginning of period $10.00
- ------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.11)
- ------------------------------------------------------------------------------
Net losses on securities (both realized and unrealized) (0.10)
==============================================================================
Total from investment operations (0.21)
==============================================================================
Less distributions from net investment income (0.00)
==============================================================================
Net asset value, end of period $ 9.79
______________________________________________________________________________
==============================================================================
Total return(b) (2.09)%
______________________________________________________________________________
==============================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,312
______________________________________________________________________________
==============================================================================
Ratio of expenses to average net assets:
With fee waivers 2.57%(c)
- ------------------------------------------------------------------------------
Without fee waivers 5.10%(c)
==============================================================================
Ratio of net investment income (loss) to average net assets (1.18)%(c)
______________________________________________________________________________
==============================================================================
Portfolio turnover rate 168%
______________________________________________________________________________
==============================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Does not include contingent deferred sales charges and is not annualized
for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of $884,117.
FS-132
APPENDIX II
ANNUAL REPORT / OCTOBER 31, 2001
AIM GLOBAL INFRASTRUCTURE FUND
[COVER IMAGE]
[AIM FUNDS LOGO]
-Registered Trademark--
[COVER IMAGE]
-------------------------------------
L'ECLUSE DE LA MONNAIE BY PAUL SIGNAC
THROUGHOUT HISTORY, MAJOR INFRASTRUCTURE PROJECTS SUCH AS BRIDGES, CANALS AND
ROADS HAVE BEEN VITAL TO THE NATION'S SUCCESS. NOW, THE DEFINITION OF
"INFRASTRUCTURE" HAS EXPANDED TO INCLUDE TELECOMMUNICATIONS, ELECTRICITY AND
HIGH TECHNOLOGY-THE INTANGIBLE BRICKS AND MORTAR OF THE MODERN ECONOMY.
-------------------------------------
ABOUT FUND PERFORMANCE AND PORTFOLIO DATA THROUGHOUT THIS REPORT:
o AIM Global Infrastructure Fund's performance figures are historical, and
they reflect fund expenses, the reinvestment of distributions and changes in
net asset value.
o Had the advisor not waived fees during the reporting period, returns would
have been lower.
o When sales charges are included in performance figures, Class A share
performance reflects the maximum 4.75% 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 Class A, Class B and Class C shares will
differ due to different sales charge structures and class expenses.
o International investing presents certain risks not associated with investing
solely in the United States. These include risks relating to fluctuations in
the value of the U.S. dollar relative to the values of other currencies, the
custody arrangements made for the fund's foreign holdings, differences in
accounting, political risks and the lesser degree of public information
required to be provided by non-U.S. companies.
o The fund participates in the initial public offering (IPO) market, and a
significant portion of the fund's returns is attributable to its investment
in IPOs, which had a magnified impact when the fund's asset base was
relatively small. There is no guarantee that, with a larger asset base, the
fund will continue to experience substantially similar performance by
investing in IPOs.
o Investing in a single-sector mutual fund may involve greater risk and
potential reward than investing in a more diversified fund.
o The fund's investment return and principal value will fluctuate, so an
investor's shares, when redeemed, may be worth more or less than their
original cost.
ABOUT INDEXES AND OTHER PERFORMANCE BENCHMARKS CITED IN THIS REPORT:
o The unmanaged MSCI All Country (AC) World Free Index tracks the performance
of approximately 50 developed and emerging countries covered by Morgan
Stanley Capital International. The free index represents actual buyable
opportunities for global investors.
o The unmanaged MSCI All Country (AC) World Index tracks the performance of
approximately 50 developed and emerging countries covered by Morgan Stanley
Capital International. The growth portion measures performance of companies
with higher price/earnings ratios and higher forecasted growth values. The
unmanaged MSCI World Value Index is a group of global securities tracked by
Morgan Stanley Capital International. The value portion measures performance
of companies with lower price/earnings ratios and lower forecasted growth
values.
o The unmanaged Dow Jones Industrial Average (the Dow) is a price-weighted
average of 30 actively traded blue chip stocks.
o The unmanaged Standard & Poor's Composite Index of 500 Stocks (the S&P 500)
is an index of common stocks frequently used as a general measure of U.S.
stock market performance.
o The National Association of Securities Dealers Automated Quotation System
Composite Index (the Nasdaq) is a market-value-weighted index comprising all
domestic and non-U.S.-based common stocks listed on the Nasdaq system.
o The unmanaged MSCI World Index is a group of global securities tracked by
Morgan Stanley Capital International. An investment cannot be made in an
index. Unless otherwise indicated, index results include reinvested
dividends, and they do not include sales charges or fund expenses.
AN INVESTMENT IN THE FUND IS NOT A DEPOSIT OF A BANK AND IS NOT INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENT AGENCY. THERE IS A RISK THAT YOU COULD LOSE SOME OR ALL OF
YOUR MONEY.
This report may be distributed only to current shareholders or to persons
who have received a current prospectus of the fund.
DEAR FELLOW SHAREHOLDER:
[PHOTO OF We understand how challenging the fiscal year covered by this
ROBERT H. report--October 31, 2000, to October 31, 2001--has been. Even
GRAHAM] before September's terrorist attacks, the slowdown in the
economy and equity markets had been more persistent than
anyone anticipated. Domestically, the S&P 500 lost 24.89%
over the year while the Nasdaq Composite fell 49.84%. There
was no comfort overseas--the MSCI World Index declined
25.51%. Growth-oriented investing was particularly out of
favor, but value-oriented investing also ended up with
negative returns.
As usually occurs during difficult stock markets, fixed-
income investments, particularly high-quality ones, did well.
The broad-based Lehman Aggregate Bond Index was up 14.56% for
the year.
To give you some idea of how harsh the equity
environment has been, for major domestic and global
benchmarks--the S&P 500, the Dow Jones Industrials, the Nasdaq and the MSCI
World--the year ended October 31 was the worst one since the famous bear market
of 1973-74. It was also the first year since 1990 during which both the S&P 500
and the MSCI World declined.
YOUR FUND'S PERFORMANCE
Both the fund's growth at a reasonable price (GARP) investment style and
infrastructure stocks in general were out of favor during this fiscal year, and
this negatively affected your fund. For example, Class A shares of AIM Global
Infrastructure Fund returned -47.96% at net asset value. Of course, this was a
very disappointing result, but it is worth noting that during both of the two
previous fiscal years, the fund produced solid double-digit returns. We are
confident that the growth investing style will return to favor, though of course
we cannot say when.
The following pages contain your portfolio managers' discussion of how they
managed the portfolio, how markets affected the fund, and the fund's long-term
record. If you have questions or comments, please contact us through our
Website, www.aimfunds.com.
NATIONAL AND MARKET RESILIENCE: GOOD REASONS FOR OPTIMISM
Into the trying economic environment of 2001 came the unthinkable attacks of
September 11. Our stock markets closed for nearly a week, and consumer
confidence was rattled. As the fiscal year closed, the United States was at war
and markets were in a cautious mood.
But as I write, about 12 weeks after the attacks and just over a month
after the fiscal year closed, the war is going very well indeed, and the main
domestic benchmarks--the Dow Industrials, the S&P 500 and the Nasdaq--are
rebounding. All three had reached their year-to-date low for 2001 on September
21. From that low, as of December 7 the Dow was up more than 22%, the S&P more
than 20%. The Nasdaq, typically subject to wider swings, was up more than 42%.
Historically, a rising stock market has presaged better times in the
economy. So all in all, there is good reason to believe 2002, and the years
ahead, will prove more agreeable than 2001 has been. The market we have just
been through is unlike anything we have seen in a generation, but our long-term
economic story is a resounding success, and America's potential remains
unlimited.
WHAT SHOULD INVESTORS DO NOW?
In view of the September 11 events and the bear market in equities, many of our
shareholders have asked us what they should do about their investments. We at
AIM intend to stay concentrated on the long term--which we consider the most
advisable course for our shareholders too.
Abruptly changing your portfolio on the basis of short-term events and
market moves is rarely beneficial. As we have reminded shareholders on many
occasions, if you pull out of the market for a short period and miss a few of
its best days, odds are your long-term returns will be adversely affected. And
portfolio diversification, as the disparate performance of equity and
fixed-income investments during this fiscal year shows, remains critical to any
investment plan. Now more than ever, we encourage you to stay in touch with your
financial advisor, who is familiar with your goals and time horizon and can help
you stay focused on those goals.
We understand that our shareholders are relying on us for the growth of
their investments, and we want you to know that all of us are working diligently
to that end. Thank you for your continued participation in The AIM Family of
Funds--Registered Trademark--.
Sincerely,
/s/ ROBERT H. GRAHAM
Robert H. Graham
Chairman
December 10, 2001
FUND STRUGGLES UNDER DIFFICULT MARKET CONDITIONS
HOW DID AIM GLOBAL INFRASTRUCTURE FUND PERFORM DURING THE REPORTING PERIOD?
Markets around the world declined and few stocks or industries were spared.
Infrastructure stocks were particularly hard hit. Given this environment, for
the fiscal year ended October 31, 2001, the AIM Global Infrastructure Fund
returned -47.96% for Class A shares, -48.28% for Class B shares and -48.27% for
Class C shares, excluding sales charges. The fund's growth at a reasonable price
(GARP) investment style and infrastructure stocks in general were out of favor
for most of the fiscal year.
Historically, however, no one style or sector remains in favor or out of
favor--indefinitely. Just a year ago, results were quite different. For example,
for the fiscal year ended October 31, 2000, the fund returned 25.71% for Class A
shares, 25.09% for Class B shares and 24.94% for Class C shares, excluding sales
charges. Also, both market performance and fund performance belie a growth stock
rally in October. For the month of October, the fund returned 2.45% for Class A
shares, 2.29% for Class B shares and 2.43% for Class C shares, excluding sales
charges.
WHAT FACTORS MADE THE PERIOD DIFFICULT?
Concern over deteriorating corporate earnings and slowing economies caused major
market indexes around the world to deteriorate. Company after company reported
declining earnings as formerly robust economic expansion stalled. The terrorist
attacks of September 11 only exacerbated the situation.
Following the attacks, stock markets in the United States were closed for
nearly a week--the longest suspension of trading activity since the Great
Depression of the 1930s. After markets reopened on September 17, the Dow
experienced its worst week in more than 60 years, losing more than 14% of its
value in just a few days. Markets, however, recouped their losses in October as
the Federal Reserve Board (the Fed) approved its ninth interest rate cut of
2001, reducing the key federal funds rate to 2.5%--its lowest level since 1962.
Following the Fed's lead, major central banks around the world also cut rates
after the attacks. The continued threat of terrorism caused world markets to
remain volatile through the end of the fiscal year.
HOW DID INVESTOR STYLE PREFERENCE AFFECT THE FUND?
For most of the reporting period, U.S. value stocks outperformed U.S. growth
stocks. The fund's GARP investment style and the fact that 65% of its assets
were invested in U.S. securities proved a drag on fund returns. But growth
stocks were clearly out of favor worldwide. The MSCI World Value Index, for
example, outperformed the MSCI World Growth Index by more than 12 percentage
points for the fiscal year. There were bright spots, however, for growth stocks.
In October, growth stocks rallied sharply. But the fiscal year was the
worst for U.S. growth stocks since the aftermath of the market crash of 1929 and
the bear market of 1973-74. In the U.S., small-cap value stocks were the market
leaders and were one of the few equity classes to record positive returns. On
the opposite end of the spectrum, U.S. large-, mid- and small-cap growth stocks
posted negative returns in the 30-40% range. The majority of the fund's assets
were in large-cap stocks.
INFRASTRUCTURE STOCKS DECLINED DURING THE FISCAL YEAR. HOW DID YOU MANAGE THE
FUND IN THIS ENVIRONMENT?
Infrastructure stocks, often known as the "necessary building blocks of an
economy" have struggled over the last year. As
FUND AT A GLANCE
AIM Global Infrastructure Fund seeks to provide long-term growth of capital. The
fund invests in equity securities of companies in established and emerging
economies throughout the world that design, develop or provide products and
services necessary for creating and maintaining a country's infrastructure.
INVESTMENT STYLE: GARP OR GROWTH-AT-A-REASONABLE-PRICE (Draws on the strength of
both value and growth investing to identify companies with strong growth
prospects and attractive valuation)
o Invests in both traditional infrastructure for stability-- such as airports
and roads--and new infrastructure for growth-such as wireless and software
2
PORTFOLIO COMPOSITION
As of 10/31/01, based on total net assets
<Table>
<Caption>
============================================================================================================================
TOP 10 HOLDINGS TOP 10 INDUSTRIES TOP 10 COUNTRIES
- ----------------------------------------------------------------------------------------------------------------------------
1. SBC Communications Inc. 5.3% 1. Electric Utilities 24.8% 1. U.S.A. 65.0%
2. Pinnacle West Capital Corp. 4.4 2. Integrated Telecommunication Services 14.0 2. United Kingdom 6.2
3. FPL Group, Inc. 3.7 3. Multi-Utilities 9.6 3. Spain 6.1
4. Vodafone Group PLC (United Kingdom) 3.1 4. Wireless Telecom Services 5.8 4. France 5.0
5. Telecom Italia S.p.A. (Italy) 2.7 5. Industrial Conglomerates 4.7 5. Italy 3.9
6. NTT Docomo, Inc. (Japan) 2.7 6. Networking Equipment 4.2 6. Japan 2.7
7. Cisco Systems, Inc. 2.7 7. Movies & Entertainment 3.6 7. Bermuda 2.3
8. Endesa - S.A. ADR (Spain) 2.6 8. Gas Utilities 3.4 8. Germany 1.9
9. Suez S.A. (France) 2.5 9. Integrated Oil & Gas 3.0 9. Israel 1.1
10. General Electric Co. 2.4 10. Oil & Gas Exploration & Production 2.5 10. Finland 1.0
The fund's portfolio is subject to change, and there is no assurance that the
fund will continue to hold any particular security.
============================================================================================================================
</Table>
AIM Global Infrastructure Fund invests primarily in infrastructure stocks, the
fund could not rotate out of the sector and into better-performing areas, as a
broader-based fund might do. The utility and telecommunication sectors, in
particular, have performed poorly and the fund's sector focus on these areas
hurt results. The telecommunications industry suffered from excess capacity
concerns and lowered earnings expectations.
The utility sector--which witnessed great results last year--has been under
pressure this year from lowered anticipated growth rates following reduced long-
term earnings expectations, notwithstanding their brief spike during the "power
crisis." In addition, the situation with the California utilities has added to
the uncertainty surrounding the sector all year and has hurt the overall
performance of the group.
In some cases, investors have ignored solid fundamentals and simply sold
off any names vaguely involved in the sector. This was despite the fact that
most companies met or exceeded their targets.
Indeed, many of the utility stocks the fund invested in sold off merely
because they were associated with the utility sector. These companies, however,
had good earnings and we believe that ultimately those earnings will be
reflected in their stock prices.
The following utility stocks are just some of the fund's top holdings that
had encouraging third-quarter earnings:
o Pinnacle West Capital Corp. is the holding company for Arizona's largest
electric utility, Arizona Public Service, which provides electricity to
more than 850,000 customers.
o FPL Group has energy operations across the country, but most of its
revenues are produced by its utility subsidiary, Florida Power and Light.
o Endesa S.A., Spain's largest utility, has a large generating capacity,
mostly from hydroelectric and fossil fuel plants. Endesa also has interests
in gas, water and telecommunications companies.
ANY FINAL THOUGHTS?
Although the fiscal year was a trying one for most investors, there was a spate
of good news at the end of the reporting period. Congress and the White House
were working on an economic stimulus package, the Fed was maintaining a bias
toward cutting interest rates, and markets were higher in October.
Moreover, stocks were favorably priced, and there was a considerable amount
of cash in money market accounts that could potentially be deployed back into
equities.
The fund's GARP strategy and focus on infrastructure companies makes it
well suited for a general market rebound both domestically and internationally.
Domestically, existing infrastructure needs constant repair and maintenance, and
may have been neglected in many areas of the country. Overseas, many countries
are attempting to expand their infrastructure in pursuit of higher living
standards and economic development.
See important fund and index disclosures inside front cover.
3
YOUR FUND'S LONG-TERM PERFORMANCE
AVERAGE ANNUAL TOTAL RETURNS
As of 10/31/01, including sales charges
================================================================================
CLASS A SHARES
Inception (5/31/94) 0.05%
Five year -4.46
1 year -50.44
CLASS B SHARES
Inception (5/31/94) 0.19%
Five year -4.28
1 year -50.41
CLASS C SHARES
Inception (3/1/99) -10.83%
1 year -48.70
The fund's average annual returns as of the close of the reporting period are
shown in the table above. In addition, industry regulations require us to
provide average annual total returns (including sales charges) as of 9/30/01,
the most recent calendar quarter-end, which were: Class A shares, one year,
- -55.66%; five years, -5.17; inception (5/31/94); -0.28%. Class B shares, one
year, -55.58%; five years, -4.98; inception (5/31/94), -0.11%. Class C shares,
one year, -54.11%; inception (3/1/99), -11.99%.
DUE TO RECENT SIGNIFICANT MARKET VOLATILITY, RESULTS OF AN INVESTMENT MADE TODAY
MAY DIFFER SUBSTANTIALLY FROM THE HISTORICAL PERFORMANCE SHOWN. CALL YOUR
FINANCIAL ADVISOR FOR MORE CURRENT PERFORMANCE.
================================================================================
RESULTS OF A $10,000 INVESTMENT
5/31/94-10/31/01
<Table>
<Caption>
=========================================================================================
AIM GLOBAL AIM GLOBAL
INFRASTRUCTURE FUND INFRASTRUCTURE FUND, MSCI ALL COUNTRY MSCI ALL COUNTRY
CLASS B SHARES CLASS A SHARES WORLD INDEX WORLD FREE INDEX
5/94 10000 9525 10000 10000
10482 9992 10187 10171
10/94 10894 10393 10575 10549
10020 9567 9927 9920
10062 9625 10844 10867
11226 10751 11467 11521
10/95 10526 10092 11329 11386
11164 10725 12261 12368
12214 11741 12857 12918
12101 11649 12439 12516
10/96 12459 12008 13099 13190
13723 13248 13818 13924
13180 12732 14180 14276
15129 14640 16502 16621
10/97 13557 13134 15161 15309
13290 12888 15923 16094
14911 14484 17898 18097
14439 14043 17862 18078
10/98 12836 12500 17094 17303
14535 14174 19351 19596
14514 14164 20600 20826
15233 14888 20799 21005
10/99 15676 15338 21607 21804
20060 19658 22886 23042
20498 20108 23350 23533
20508 20140 22835 23001
10/00 19607 19281 21792 21975
17070 16816 21316 21490
14737 14536 19532 19694
12364 12216 18423 18581
10/01 10143 10036 16309 16450
Source: Lipper, Inc.
Past performance cannot guarantee comparable future results.
=========================================================================================
</Table>
The chart compares AIM Global Infrastructure Fund to a benchmark index. It is
intended to give you a general idea of how your fund performed compared to this
index over the period 5/31/94-10/31/01.
It is important to understand the difference between your fund and an
index. An index measures the performance of a hypothetical portfolio. Market
indexes such as the MSCI All Country World Free Index or the MSCI All Country
(AC) World Index are not managed, and incur no sales charges, expenses or fees.
If you could buy all the securities that make up a market index, you would incur
expenses that would affect your investment return.
Your fund's total return includes sales charges, expenses and management
fees. Performance of the fund's Class A, B and C shares will differ due to
different sales charge structures and class expenses. For fund performance
calculations and indexes used in this report, please see the inside front cover.
Performance shown in the chart and table does not reflect taxes a
shareholder would pay on fund distributions or on redemption of fund shares.
Index performance does not reflect the effects of taxes, either.
Beginning with this reporting period, performance of AIM Global
Infrastructure Fund will be compared to the MSCI AC World Free Index. The fund
will no longer measure its performance against the MSCI AC World Index, the
index published in previous reports to shareholders. Morgan Stanley no longer
supports the MSCI AC World Index; a "Free" index represents actual buyable
opportunities for global investors. Because this is the first reporting period
using the new index, SEC guidelines require that we compare the fund's
performance to both the old and the new index.
4
AIM PRIVACY POLICY
We are always aware that when you invest in an AIM fund, you entrust us with
more than your money. You also share personal and financial information with us
that is necessary for your transactions and your account records. We take very
seriously the obligation to keep that information confidential and private.
AIM collects nonpublic personal information about you from applications or
other forms you complete and from your transactions with us or our affiliates.
We do not disclose information about you, or our former customers, to our
affiliates or to service providers or other third parties except on the limited
basis permitted by law.
For example, we use this information to administer your accounts with us
through such activities as sending you transaction confirmations, annual
reports, prospectuses and tax forms. Even within AIM, only people involved with
servicing your accounts have access to your information.
To ensure the highest level of confidentiality and security, AIM maintains
physical, electronic and procedural safeguards that meet or exceed federal
standards. Special measures, such as data encryption and authentication, apply
to your communications with us on our Web site--www.aimfunds.com. More detail is
available to you at that site.
A I M Capital Management, Inc. o A I M Distributors, Inc. o The AIM Family of
Funds--Registered Trademark-- o AMVESCAP National Trust Company
AIM eDELIVERY CAN REDUCE YOUR PAPER MAIL
You can have fund reports and prospectuses delivered electronically! When you
sign up for eDelivery, we will e-mail you a link, and you will not receive a
paper copy by mail. You may cancel the service at any time by visiting our Web
site.
To enroll, go to www.aimfunds.com, select "Your AIM Account," long in,
click on the "Account Options" dropdown menu and select "eDelivery."
If you receive your account statements, fund reports and prospectuses from
your financial advisor, rather than directly from AIM, eDelivery is not
accessible to you. Ask your financial advisor if his or her firm offers
electronic delivery.
5
SCHEDULE OF INVESTMENTS
October 31, 2001
<Table>
<Caption>
MARKET
SHARES VALUE
DOMESTIC STOCKS & OTHER EQUITY
INTERESTS-62.20%
AEROSPACE & DEFENSE-0.82%
United Technologies Corp. 3,500 $ 188,615
=====================================================================
APPLICATION SOFTWARE-0.75%
Henry (Jack) & Associates, Inc. 7,000 172,620
=====================================================================
BROADCASTING & CABLE TV-0.90%
Univision Communications Inc.-Class A(a) 8,300 207,500
=====================================================================
COMPUTER STORAGE & PERIPHERALS-0.58%
EMC Corp.(a) 10,800 133,056
=====================================================================
CONSTRUCTION & ENGINEERING-0.81%
Quanta Services, Inc.(a) 12,200 185,440
=====================================================================
DATA PROCESSING SERVICES-1.31%
Concord EFS, Inc.(a) 11,000 301,070
=====================================================================
DIVERSIFIED METALS & MINING-0.75%
Peabody Energy Corp. 5,700 171,000
=====================================================================
ELECTRIC UTILITIES-15.18%
AES Corp. (The)(a) 9,276 128,473
- ---------------------------------------------------------------------
Calpine Corp.(a) 8,000 198,000
- ---------------------------------------------------------------------
Duke Energy Corp. 5,500 211,255
- ---------------------------------------------------------------------
Edison International(a) 4,500 63,945
- ---------------------------------------------------------------------
FPL Group, Inc. 16,000 849,600
- ---------------------------------------------------------------------
Mirant Corp.(a) 17,264 448,864
- ---------------------------------------------------------------------
NRG Energy, Inc.(a) 12,000 212,040
- ---------------------------------------------------------------------
PG&E Corp.(a) 5,000 90,300
- ---------------------------------------------------------------------
Pinnacle West Capital Corp. 24,000 1,011,600
- ---------------------------------------------------------------------
Reliant Resources, Inc.(a) 7,000 109,550
- ---------------------------------------------------------------------
Southern Co. (The) 6,700 160,130
=====================================================================
3,483,757
=====================================================================
ELECTRONIC EQUIPMENT & INSTRUMENTS-0.75%
Sanmina Corp.(a) 11,300 171,082
=====================================================================
GAS UTILITIES-3.37%
El Paso Corp. 10,000 490,600
- ---------------------------------------------------------------------
KeySpan Corp. 8,500 282,030
=====================================================================
772,630
=====================================================================
HEAVY ELECTRICAL EQUIPMENT-1.46%
Active Power, Inc.(a) 14,000 72,940
- ---------------------------------------------------------------------
Global Power Equipment Group Inc.(a) 11,300 169,387
- ---------------------------------------------------------------------
Proton Energy Systems, Inc.(a) 13,700 92,475
=====================================================================
334,802
=====================================================================
INDUSTRIAL CONGLOMERATES-2.40%
General Electric Co. 15,100 549,791
=====================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
INTEGRATED OIL & GAS-2.27%
ChevronTexaco Corp. 3,400 $ 301,070
- ---------------------------------------------------------------------
Exxon Mobil Corp. 5,600 220,920
=====================================================================
521,990
=====================================================================
INTEGRATED TELECOMMUNICATION SERVICES-9.85%
BellSouth Corp. 12,100 447,700
- ---------------------------------------------------------------------
Qwest Communications International Inc. 6,600 85,470
- ---------------------------------------------------------------------
SBC Communications Inc. 32,000 1,219,520
- ---------------------------------------------------------------------
Verizon Communications Inc. 10,200 508,062
=====================================================================
2,260,752
=====================================================================
INTERNET SOFTWARE & SERVICES-0.69%
VeriSign, Inc.(a) 4,100 158,711
=====================================================================
IT CONSULTING & SERVICES-1.04%
SunGard Data Systems Inc.(a) 9,500 239,400
=====================================================================
MOVIES & ENTERTAINMENT-1.76%
AOL Time Warner Inc.(a) 5,000 156,050
- ---------------------------------------------------------------------
Viacom Inc.-Class B(a) 6,800 248,268
=====================================================================
404,318
=====================================================================
MULTI-UTILITIES-5.91%
Aquila, Inc.(a) 8,200 150,470
- ---------------------------------------------------------------------
Dynegy Inc.-Class A 10,800 387,720
- ---------------------------------------------------------------------
Enron Corp. 30,000 417,000
- ---------------------------------------------------------------------
Mirant Trust I-Series A, $3.13 Conv. Pfd 3,700 220,520
- ---------------------------------------------------------------------
NewPower Holdings, Inc.(a) 10,700 9,844
- ---------------------------------------------------------------------
Williams Cos., Inc. (The) 5,900 170,333
=====================================================================
1,355,887
=====================================================================
NETWORKING EQUIPMENT-4.24%
Brocade Communications Systems, Inc.(a) 6,700 164,485
- ---------------------------------------------------------------------
Cisco Systems, Inc.(a) 35,968 608,578
- ---------------------------------------------------------------------
Juniper Networks, Inc.(a) 9,000 200,610
=====================================================================
973,673
=====================================================================
OIL & GAS EQUIPMENT & SERVICES-0.76%
BJ Services Co.(a) 6,800 174,012
=====================================================================
OIL & GAS EXPLORATION & PRODUCTION-2.50%
Anadarko Petroleum Corp. 1,800 102,690
- ---------------------------------------------------------------------
Apache Corp. 3,300 170,280
- ---------------------------------------------------------------------
Devon Energy Corp. 2,300 88,090
- ---------------------------------------------------------------------
Kerr-McGee Corp. 3,700 213,120
=====================================================================
574,180
=====================================================================
SEMICONDUCTORS-1.47%
Analog Devices, Inc.(a) 6,000 228,000
- ---------------------------------------------------------------------
Intel Corp. 4,500 109,890
=====================================================================
337,890
=====================================================================
</Table>
6
<Table>
<Caption>
MARKET
SHARES VALUE
SYSTEMS SOFTWARE-2.03%
Microsoft Corp.(a) 2,900 $ 168,635
- ----------------------------------------------------------------------
Oracle Corp.(a) 22,000 298,320
======================================================================
466,955
======================================================================
TELECOMMUNICATIONS EQUIPMENT-0.60%
Comverse Technology, Inc.(a) 5,700 107,217
- ----------------------------------------------------------------------
JDS Uniphase Corp.(a) 3,700 29,563
======================================================================
136,780
======================================================================
Total Domestic Stocks & Other Equity
Interests (Cost $18,467,818) 14,275,911
======================================================================
FOREIGN STOCKS & OTHER EQUITY INTERESTS-31.28%
BERMUDA-2.27%
Tyco International Ltd. (Industrial
Conglomerates) 10,600 520,884
======================================================================
BRAZIL-0.94%
Companhia Paranaense de Energia-Copel-ADR
(Electric Utilities) 45,000 216,000
======================================================================
CANADA-0.23%
Stuart Energy Systems Corp. (Electrical
Components & Equipment)(a) 13,300 53,578
======================================================================
FINLAND-0.98%
Nokia Oyj-ADR (Telecommunications Equipment) 11,000 225,610
======================================================================
FRANCE-5.03%
Suez S.A. (Multi-Utilities) 18,250 573,821
- ----------------------------------------------------------------------
TotalFinaElf S.A. (Integrated Oil & Gas) 1,100 154,466
- ----------------------------------------------------------------------
Vivendi Universal S.A. (Movies &
Entertainment) 9,100 425,132
======================================================================
1,153,419
======================================================================
GERMANY-1.89%
E.On A.G. (Electric Utilities) 8,320 434,376
======================================================================
ISRAEL-1.13%
Check Point Software Technologies Ltd.
(Internet Software & Services)(a) 8,800 259,776
======================================================================
ITALY-3.86%
ACEA S.p.A. (Multi-Utilities) (Acquired
07/12/99; Cost $364,730)(b) 40,000 275,446
- ----------------------------------------------------------------------
Telecom Italia S.p.A. (Integrated
Telecommunication Services) 126,300 611,647
======================================================================
887,093
======================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
JAPAN-2.66%
NTT DoCoMo, Inc. (Wireless Telecommunication
Services) (Acquired 11/09/98; Cost
$337,868)(b) 45 $ 610,095
======================================================================
SPAIN-6.05%
Endesa S.A.-ADR (Electric Utilities) 39,600 605,880
- ----------------------------------------------------------------------
Telefonica, S.A. (Integrated
Telecommunication Services)(a) 28,006 336,296
- ----------------------------------------------------------------------
Union Fenosa, S.A. (Electric Companies) 30,000 445,844
======================================================================
1,388,020
======================================================================
UNITED KINGDOM-6.24%
Amdocs Ltd. (Application Software)(a) 8,300 216,713
- ----------------------------------------------------------------------
National Grid Group PLC (Electric Utilities) 71,000 504,198
- ----------------------------------------------------------------------
Vodafone Group PLC (Wireless
Telecommunication Services) 307,314 711,053
======================================================================
1,431,964
======================================================================
Total Foreign Stocks & Other Equity
Interests (Cost $7,435,566) 7,180,815
======================================================================
<Caption>
PRINCIPAL
AMOUNT
CONVERTIBLE NOTES-0.65%
TELECOMMUNICATIONS EQUIPMENT-0.65%
Nortel Network Corp. (Canada), Sr. Unsec.
Gtd. Conv. Notes, 4.25%, 09/01/08 (Acquired
08/09/01-08/15/01; Cost $175,723)(b) $175,000 149,188
======================================================================
U.S. TREASURY SECURITIES-2.17%
U.S. TREASURY BILLS
2.08%, 12/20/01 (Cost $498,550)(c) 500,000 498,550
======================================================================
<Caption>
SHARES
MONEY MARKET FUNDS-3.61%
STIC Liquid Assets Portfolio(d) 413,896 413,896
- ----------------------------------------------------------------------
STIC Prime Portfolio(d) 413,896 413,896
======================================================================
Total Money Market Funds (Cost $827,792) 827,792
======================================================================
TOTAL INVESTMENTS-99.91% (Cost $27,405,449) 22,932,256
======================================================================
OTHER ASSETS LESS LIABILITIES-0.09% 21,123
======================================================================
NET ASSETS-100.00% $22,953,379
______________________________________________________________________
======================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
Conv. - Convertible
Gtd. - Guaranteed
Pfd. - Preferred
Sr. - Senior
Unsec. - Unsecured
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) Restricted security. May be resold to qualified institutional buyers in
accordance with the provisions of Rule 144A under the Securities Act of
1933, as amended. The aggregate market value of these securities at
10/31/01 was $1,034,729, which represented 4.51% of the Fund's net assets.
(c) U.S. Treasury bills are traded on a discount basis. In such cases the
interest rate shown represents the rate of discount paid or received at the
time of purchase by the Fund.
(d) The money market fund and the Fund are affiliated by having the same
investment advisor.
See Notes to Financial Statements.
7
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2001
<Table>
ASSETS:
Investments, at market value (cost
$27,405,449)* $22,932,256
- ------------------------------------------------------------
Receivables for:
Fund shares sold 126,200
- ------------------------------------------------------------
Dividends and interest 40,262
- ------------------------------------------------------------
Collateral for securities loaned 957,785
- ------------------------------------------------------------
Other assets 11,619
============================================================
Total assets 24,068,122
============================================================
LIABILITIES:
Payables for:
Fund shares reacquired 67,551
- ------------------------------------------------------------
Collateral upon return of securities loaned 957,785
- ------------------------------------------------------------
Accrued distribution fees 19,592
- ------------------------------------------------------------
Accrued trustees' fees 172
- ------------------------------------------------------------
Accrued transfer agent fees 16,182
- ------------------------------------------------------------
Accrued operating expenses 53,461
============================================================
Total liabilities 1,114,743
============================================================
Net assets applicable to shares outstanding $22,953,379
____________________________________________________________
============================================================
NET ASSETS:
Class A $11,826,233
____________________________________________________________
============================================================
Class B $10,868,526
____________________________________________________________
============================================================
Class C $ 258,620
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE:
Class A 1,486,507
____________________________________________________________
============================================================
Class B 1,427,565
____________________________________________________________
============================================================
Class C 34,042
____________________________________________________________
============================================================
Class A:
Net asset value and per share $ 7.96
- ------------------------------------------------------------
Offering price per share:
(Net asset value of $7.96 divided by
95.25%) $ 8.36
____________________________________________________________
============================================================
Class B:
Net asset value and offering price per share $ 7.61
____________________________________________________________
============================================================
Class C:
Net asset value and offering price per share $ 7.60
____________________________________________________________
============================================================
</Table>
* At October 31, 2001, securities with an aggregate market value of $934,944
were on loan to brokers.
STATEMENT OF OPERATIONS
For the year ended October 31, 2001
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of
$16,524) $ 391,404
- ------------------------------------------------------------
Dividends from affiliated money market funds 120,560
- ------------------------------------------------------------
Interest 14,077
- ------------------------------------------------------------
Security lending income 51,031
============================================================
Total investment income 577,072
============================================================
EXPENSES:
Advisory fees 349,137
- ------------------------------------------------------------
Administrative services fees 50,000
- ------------------------------------------------------------
Custodian fees 14,054
- ------------------------------------------------------------
Distribution fees -- Class A 84,049
- ------------------------------------------------------------
Distribution fees -- Class B 185,514
- ------------------------------------------------------------
Distribution fees -- Class C 4,477
- ------------------------------------------------------------
Transfer agent fees 154,300
- ------------------------------------------------------------
Trustees' fees 10,198
- ------------------------------------------------------------
Other 107,308
============================================================
Total expenses 959,037
============================================================
Less: Fees waived (147,772)
- ------------------------------------------------------------
Expenses paid indirectly (666)
============================================================
Net expenses 810,599
============================================================
Net investment income (loss) (233,527)
============================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES, FOREIGN CURRENCIES,
FUTURES CONTRACTS AND OPTION CONTRACTS:
Net realized gain (loss) from:
Investment securities (1,004,538)
- ------------------------------------------------------------
Foreign currencies (9,953)
- ------------------------------------------------------------
Futures contracts (93,685)
- ------------------------------------------------------------
Option contracts written 53,736
============================================================
(1,054,440)
============================================================
Change in net unrealized appreciation
(depreciation) of:
Investment securities (22,628,593)
- ------------------------------------------------------------
Foreign currencies 5,412
============================================================
(22,623,181)
============================================================
Net gain (loss) from investment securities,
foreign currencies, futures contracts and
option contracts (23,677,621)
============================================================
Net increase (decrease) in net assets
resulting from operations $(23,911,148)
____________________________________________________________
============================================================
</Table>
See Notes to Financial Statements.
8
STATEMENT OF CHANGES IN NET ASSETS
For the years ended October 31, 2001 and 2000
<Table>
<Caption>
2001 2000
------------ -----------
OPERATIONS:
Net investment income (loss) $ (233,527) $ (580,057)
- -----------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities,
foreign currencies, futures contracts and option
contracts (1,054,440) 10,080,580
- -----------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities and foreign currencies (22,623,181) 1,680,128
=========================================================================================
Net increase (decrease) in net assets resulting from
operations (23,911,148) 11,180,651
=========================================================================================
Distributions to shareholders from net realized gains:
Class A (3,585,321) (2,273,919)
- -----------------------------------------------------------------------------------------
Class B (4,318,690) (2,931,748)
- -----------------------------------------------------------------------------------------
Class C (69,526) (1,316)
- -----------------------------------------------------------------------------------------
Advisor Class* -- (2,002)
- -----------------------------------------------------------------------------------------
Share transactions-net:
Class A 1,728,484 1,980,892
- -----------------------------------------------------------------------------------------
Class B (617,197) 30,946
- -----------------------------------------------------------------------------------------
Class C 191,125 450,664
- -----------------------------------------------------------------------------------------
Advisor Class* -- (22,973)
=========================================================================================
Net increase (decrease) in net assets (30,582,273) 8,411,195
=========================================================================================
NET ASSETS:
Beginning of year 53,535,652 45,124,457
=========================================================================================
End of year $ 22,953,379 $53,535,652
_________________________________________________________________________________________
=========================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 28,471,713 $27,414,002
- -----------------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment
securities, foreign currencies, futures contracts and
option contracts (1,044,485) 7,972,318
- -----------------------------------------------------------------------------------------
Unrealized appreciation (depreciation) of investment
securities and foreign currencies (4,473,849) 18,149,332
=========================================================================================
$ 22,953,379 $53,535,652
_________________________________________________________________________________________
=========================================================================================
</Table>
* Advisor Class shares were converted to Class A shares effective as of the
close of business on February 11, 2000.
See Notes to Financial Statements.
9
NOTES TO FINANCIAL STATEMENTS
October 31, 2001
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM Global Infrastructure Fund (the "Fund") is a separate series of AIM
Investment Funds (the "Trust"). The Trust is organized as a Delaware business
trust and is registered under the Investment Company Act of 1940, as amended
(the "1940 Act"), as an open-end series management investment company consisting
of seven separate series portfolios, each having an unlimited number of shares
of beneficial interest. The Fund currently offers three different classes of
shares: Class A shares, Class B shares and Class C shares. Class A shares are
sold with a front-end sales charge. Class B shares and Class C shares are sold
with a contingent deferred sales charge. Matters affecting each portfolio or
class will be voted on exclusively by the shareholders of such portfolio or
class. The assets, liabilities and operations of each portfolio are accounted
for separately. Information presented in these financial statements pertains
only to the Fund. The Fund's investment objective is long-term growth of
capital.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. Security Valuations -- Securities, including restricted securities, are
valued according to the following policy. A security listed or traded on an
exchange (except convertible bonds) is valued at its last sales price as of
the close of the customary trading session on the exchange where the security
is principally traded, or lacking any sales on a particular day, the security
is valued at the closing bid price on that day. Each security reported on the
NASDAQ National Market System is valued at the last sales price as of the
close of the customary trading session on the valuation date or absent a last
sales price, at the closing bid price. Debt obligations (including
convertible bonds) are valued on the basis of prices provided by an
independent pricing service. Prices provided by the pricing service may be
determined without exclusive reliance on quoted prices, and may reflect
appropriate factors such as yield, type of issue, coupon rate and maturity
date. 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.
Securities for which market quotations are not readily available or are
questionable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers in a manner specifically authorized
by the Board of Trustees. Short-term obligations having 60 days or less to
maturity are valued at amortized cost which approximates market value. For
purposes of determining net asset value per share, futures and option
contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Foreign securities are converted into U.S. dollar amounts using 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. Occasionally, 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 be
reflected in the computation of the Fund's net asset value. If a development/
event is so significant that there is a reasonably high degree of certainty
as to both the effect and the degree of effect that the development/event has
actually caused that closing price to no longer reflect actual value, the
closing prices, as determined at the close of the applicable foreign market,
may be adjusted to reflect the fair value of the affected foreign securities
as of the close of the NYSE as determined in good faith by or under the
supervision of the Board of Trustees.
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.
On October 31, 2001, undistributed net investment income was increased by
$233,527, undistributed net realized gains increased by $11,174 and shares of
beneficial interest decreased by $244,701 as a result of book/tax differences
due to foreign currency transactions, net operating loss reclassifications
and other reclassification. Net assets of the Fund were unaffected by the
reclassification discussed above.
C. Distributions -- Distributions from income and net realized
capital gains, if any, are generally paid annually and recorded on
ex-dividend date. The Fund may elect to use a portion of the proceeds from
redemptions as distributions for federal income tax purposes.
D. Federal Income Taxes -- The Fund intends to comply with the requirements of
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 gains) which is
distributed to shareholders. Therefore, no provision for federal income taxes
is recorded in the financial statements.
The fund has a capital loss carryforward of $1,028,523 as of October 31,
2001 which may be carried forward to offset future taxable gains, if any,
which expires, if not previously utilized, in the year 2009.
10
E. Foreign Currency Translations -- Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S. dollar
amounts at date of valuation. Purchases and sales of portfolio securities and
income items denominated in foreign currencies are translated into U.S.
dollar amounts on the respective dates of such transactions. The Fund does
not separately account for the portion of the results of operations resulting
from changes in foreign exchange rates on investments and the fluctuations
arising from changes in market prices of securities held. Such fluctuations
are included with the net realized and unrealized gain or loss from
investments.
F. Foreign Currency Contracts -- A foreign currency contract is an obligation to
purchase or sell a specific currency for an agreed-upon price at a future
date. The Fund may enter into a foreign currency contract to attempt to
minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency contract
for the purchase or sale of a security denominated in a foreign currency in
order to "lock in" the U.S. dollar price of that security. The Fund could be
exposed to risk if counterparties to the contracts are unable to meet the
terms of their contracts or if the value of the foreign currency changes
unfavorably.
G. Put Options -- The Fund may purchase put options. By purchasing a put option,
the Fund obtains the right (but not the obligation) to sell the option's
underlying instrument at a fixed strike price. In return for this right, the
Fund pays an option premium. The option's underlying instrument may be a
security or a futures contract. Put options may be used by the Fund to hedge
securities it owns by locking in a minimum price at which the Fund can sell.
If security prices fall, the put option could be exercised to offset all or a
portion of the Fund's resulting losses. At the same time, because the maximum
the Fund has at risk is the cost of the option, purchasing put options does
not eliminate the potential for the Fund to profit from an increase in the
value of the securities hedged.
H. Covered Call Options -- The Fund may write call options, on a covered basis;
that is, the Fund will own the underlying security. When the Fund writes a
covered call option, an amount equal to the premium received by the Fund is
recorded as an asset and an equivalent liability. The amount of the liability
is subsequently "marked-to-market" to reflect the current market value of the
option written. The current market value of a written option is the mean
between the last bid and asked prices on that day. If a written call option
expires on the stipulated expiration date, or if the Fund enters into a
closing purchase transaction, the Fund realizes a gain (or a loss if the
closing purchase transaction exceeds the premium received when the option was
written) without regard to any unrealized gain or loss on the underlying
security, and the liability related to such option is extinguished. If a
written option is exercised, the Fund realizes a gain or a loss from the sale
of the underlying security and the proceeds of the sale are increased by the
premium originally received.
I. Futures Contracts -- The Fund may purchase or sell futures contracts as a
hedge against changes in market conditions. Initial margin deposits required
upon entering into futures contracts are satisfied by the segregation of
specific securities as collateral for the account of the broker (the Fund's
agent in acquiring the futures position). During the period the futures
contracts are open, changes in the value of the contracts are recognized as
unrealized gains or losses by "marking to market" on a daily basis to reflect
the market value of the contracts at the end of each day's trading. Variation
margin payments are made or received depending upon whether unrealized gains
or losses are incurred. When the contracts are closed, the Fund recognizes a
realized gain or loss equal to the difference between the proceeds from, or
cost of, the closing transaction and the Fund's basis in the contract. Risks
include the possibility of an illiquid market and that a change in value of
the contracts may not correlate with changes in the value of the securities
being hedged.
J. Bond Premiums -- It has been the policy of the Fund not to amortize market
premiums on bonds for financial reporting purposes. In November 2000, a
revised AICPA Audit and Accounting Guide, Audits of Investment Companies, was
issued and is effective for fiscal years beginning after December 15, 2000.
The revised Guide will require the Fund to amortize premium and discount on
all fixed-income securities by the cumulative amount of amortization that
would have been recognized had amortization been in effect from the purchase
date of each holding. Adopting this accounting principle will not effect the
Fund's net asset value, but will change the classification of certain amounts
between interest income and realized and unrealized gain/loss in the
Statement of Operations. The Fund expects that the impact of the adoption of
this principle will not be material to the financial statements.
K. Expenses -- Distribution expenses directly attributable to a class of shares
are charged to that class' operations. All other expenses which are
attributable to more than one class are allocated among the classes based on
relative net assets.
NOTE 2-ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
A I M Advisors, Inc. ("AIM") is the Fund's investment manager and administrator.
The Fund pays AIM investment management and administration fees at an annual
rate of 0.975% on the first $500 million of the Fund's average daily net assets,
plus 0.95% on the next $500 million of the Fund's average daily net assets, plus
0.925% on the next $500 million of the Fund's average daily net assets, plus
0.90% on the Fund's average daily net assets exceeding $1.5 billion. AIM has
contractually agreed to limit total annual operating expenses (excluding
interest, taxes, dividends on short sales, extraordinary items and increases in
expenses due to expense offset arrangements, if any) for Class A, Class B and
Class C shares to 2.00%, 2.50% and 2.50%, respectively. Effective July 1, 2001,
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 fund of
which the Fund has invested. During the year ended October 31, 2001, AIM waived
fees of $147,772.
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. For the year ended October 31, 2001, AIM was
paid $50,000 for such services.
11
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency and
shareholder services to the Fund. During the year ended October 31, 2001, AFS
was paid $98,455 for such services.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B and Class C shares of the Fund. The Trust has adopted plans
pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A
shares, Class B shares and Class C shares (collectively the "Plans"). The Fund,
pursuant to the Plans, pays AIM Distributors compensation at the annual rate of
0.50% of the Fund's average daily net assets of Class A shares and 1.00% of the
average daily net assets of Class B and C shares. Of these amounts, the Fund may
pay a service fee of 0.25% of the average daily net assets of the Class A, Class
B or Class C shares to selected dealers and financial institutions who furnish
continuing personal shareholder services to their customers who purchase and own
the appropriate class of shares of the Fund. Any amounts not paid as a service
fee under the Plans would constitute an asset-based sales charge. The Plans also
impose a cap on the total sales charges, including asset-based sales charges
that may be paid by the respective classes. For the year ended October 31, 2001,
the Class A, Class B and Class C shares paid AIM Distributors $84,049, $185,514
and $4,477, respectively, as compensation under the Plans.
AIM Distributors received commissions of $5,630 from sales of the Class A
shares of the Fund during the year ended October 31, 2001. Such commissions are
not an expense of the Fund. They are deducted from, and are not included in, the
proceeds from sales of Class A shares. During the year ended October 31, 2001,
AIM Distributors received $20,450 in contingent deferred sales charges imposed
on redemptions of Fund shares.
Certain officers and trustees of the Trust are officers and directors of AIM,
AFS and AIM Distributors.
The law firm Kramer, Levin, Naftalis & Frankel LLP of which a trustee is a
member became counsel to the Trustees on August 17, 2001. During the year ended
October 31, 2001, the Fund paid no expenses with respect to this firm.
NOTE 3-INDIRECT EXPENSES
For the year ended October 31, 2001, the Fund received reductions in transfer
agency fees from AFS (an affiliate of AIM) of $645 and reductions in custodian
fees of $21 under expense offset arrangements which resulted in a reduction of
the Fund's total expenses of $666.
NOTE 4-BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by Citibank, N.A. The Fund may borrow up to the lesser of
(i) $1,000,000,000 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. During the year ended October 31,
2001, the Fund did not borrow under the line of credit agreement. The funds
which are party to the line of credit are charged a commitment fee of 0.09% on
the unused balance of the committed line. The commitment fee is allocated among
the funds based on their respective average net assets for the period.
NOTE 5-PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities to the extent of one-third of the Fund's
total assets. Such loans are secured by collateral equal to no less than the
market value, determined daily, of the loaned securities. Such collateral will
be cash or debt securities issued or guaranteed by the U.S. Government or any of
its agencies. Cash collateral pursuant to these loans is invested in short-term
money market instruments or affiliated money market funds. Lending securities
entails a risk of loss to the Fund if and to the extent that the market value of
the securities loaned were to increase and the borrower did not increase the
collateral accordingly, and the borrower fails to return the securities. It is
the Fund's policy to obtain additional collateral from or return excess
collateral to the borrower by the end of the next business day. Therefore, the
value of the collateral may be temporarily less than the value of the securities
on loan.
At October 31, 2001, securities with an aggregate value of $934,944 were on
loan to brokers. The loans were secured by cash collateral of $957,785 received
by the Fund and subsequently invested in affiliated money market funds as
follows: $478,893 in STIC Liquid Assets Portfolio and $478,892 in STIC Prime
Portfolio. For the year ended October 31, 2001, the Fund received fees of
$51,031 for securities lending.
NOTE 6-INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund during the year ended October 31, 2001 was
$15,747,820 and $21,021,273, respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
for tax purposes, as of October 31, 2001 is as follows:
<Table>
Aggregate unrealized appreciation of
investment securities $ 1,922,892
- ---------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities $(6,412,047)
=========================================================
Net unrealized appreciation (depreciation)
of investment securities $(4,489,155)
_________________________________________________________
=========================================================
Cost of investments for tax purposes is $27,421,411.
</Table>
NOTE 7-CALL OPTION CONTRACTS
Transactions in call options written during the year ended October 31, 2001 are
summarized as follows:
<Table>
<Caption>
CALL OPTION CONTRACTS
---------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
--------- --------
Beginning of year -- $ --
- --------------------------------------------------------
Written 133 55,476
- --------------------------------------------------------
Closed (80) (19,759)
- --------------------------------------------------------
Expired (53) (35,717)
========================================================
End of year -- $ --
________________________________________________________
========================================================
</Table>
12
NOTE 8-SHARE INFORMATION
Changes in shares outstanding during the years ended October 31, 2001 and 2000
were as follows:
<Table>
<Caption>
2001 2000
-------------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ -------- ------------
Sold:
Class A 1,099,171 $ 13,061,631 661,981 $ 12,809,797
- --------------------------------------------------------------------------------------------------------------------
Class B 85,594 1,045,861 222,164 4,334,670
- --------------------------------------------------------------------------------------------------------------------
Class C 112,704 1,254,797 32,764 654,226
- --------------------------------------------------------------------------------------------------------------------
Advisor Class* -- -- 1 15
====================================================================================================================
Issued as reinvestment of dividends:
Class A 253,715 3,427,689 128,271 2,153,369
- --------------------------------------------------------------------------------------------------------------------
Class B 308,008 3,997,954 164,254 2,682,268
- --------------------------------------------------------------------------------------------------------------------
Class C 5,299 68,675 81 1,316
- --------------------------------------------------------------------------------------------------------------------
Advisor Class* -- -- 51 875
====================================================================================================================
Issued in connection with acquisitions:**
Class A -- -- 1,119 23,863
- --------------------------------------------------------------------------------------------------------------------
Advisor Class -- -- (1,094) (23,863)
====================================================================================================================
Reacquired:
Class A (1,209,489) (14,760,836) (670,570) (13,006,137)
- --------------------------------------------------------------------------------------------------------------------
Class B (556,495) (5,661,012) (372,887) (6,985,992)
- --------------------------------------------------------------------------------------------------------------------
Class C (107,089) (1,132,347) (10,693) (204,878)
====================================================================================================================
(8,582) $ 1,302,412 155,442 $ 2,439,529
____________________________________________________________________________________________________________________
====================================================================================================================
</Table>
* Advisor Class share activity for the period November 1, 1999 through February
11, 2000 (date of conversion).
** Effective as of the close of business February 11, 2000, pursuant to approval
by the Board of Trustees on November 3, 1999, all outstanding shares of
Advisor Class shares were converted to Class A shares of the fund.
NOTE 9-FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
-----------------------------------------------------
YEAR ENDED OCTOBER 31,
-----------------------------------------------------
2001 2000(a) 1999 1998(a) 1997(a)
------- ------- ------- ------- -------
Net asset value, beginning of period $ 18.42 $ 16.33 $ 14.18 $ 15.01 $ 14.42
- -------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.04) (0.15) -- 0.07 (0.01)
- -------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (7.66) 4.16 3.07 (0.79) 1.32
===================================================================================================================
Total from investment operations (7.70) 4.01 3.07 (0.72) 1.31
===================================================================================================================
Less distributions:
Dividends from net investment income -- -- (0.07) -- --
- -------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (2.76) (1.92) (0.85) (0.11) (0.72)
===================================================================================================================
Total distributions (2.76) (1.92) (0.92) (0.11) (0.72)
===================================================================================================================
Net asset value, end of period $ 7.96 $ 18.42 $ 16.33 $ 14.18 $ 15.01
___________________________________________________________________________________________________________________
===================================================================================================================
Total return(b) (47.96)% 25.71% 22.72% (4.82)% 9.38%
___________________________________________________________________________________________________________________
===================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $11,826 $24,745 $19,958 $23,531 $38,281
___________________________________________________________________________________________________________________
===================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 2.00%(c) 2.00% 2.00% 1.99% 2.00%
- -------------------------------------------------------------------------------------------------------------------
Without fee waivers 2.41%(c) 2.21% 2.22% 2.23% 2.08%
===================================================================================================================
Ratio of net investment income (loss) to average net assets (0.39)%(c) (0.75)% 0.09% 0.52% (0.09)%
___________________________________________________________________________________________________________________
===================================================================================================================
Portfolio turnover rate 47% 66% 49% 96% 41%
___________________________________________________________________________________________________________________
===================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Does not include sales charges.
(c) Ratios are based on average daily net assets of $16,809,863.
13
NOTE 9-FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B
---------------------------------------------------
YEAR ENDED OCTOBER 31,
---------------------------------------------------
2001 2000(a) 1999(a) 1998(a) 1997(a)
------- ------- ------- ------- -------
Net asset value, beginning of period $ 17.84 $ 15.94 $ 13.87 $ 14.75 $ 14.24
- -----------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.12) (0.24) (0.06) -- (0.09)
- -----------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (7.35) 4.06 2.98 (0.77) 1.32
=================================================================================================================
Total from investment operations (7.47) 3.82 2.92 (0.77) 1.23
=================================================================================================================
Less distributions from net realized gains (2.76) (1.92) (0.85) (0.11) (0.72)
=================================================================================================================
Net asset value, end of period $ 7.61 $ 17.84 $ 15.94 $ 13.87 $ 14.75
_________________________________________________________________________________________________________________
=================================================================================================================
Total return(b) (48.28)% 25.09% 22.03% (5.31)% 8.83%
_________________________________________________________________________________________________________________
=================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $10,869 $28,378 $25,134 $32,349 $57,199
_________________________________________________________________________________________________________________
=================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 2.50%(c) 2.50% 2.50% 2.49% 2.50%
- -----------------------------------------------------------------------------------------------------------------
Without fee waivers 2.91%(c) 2.71% 2.72% 2.73% 2.58%
=================================================================================================================
Ratio of net investment income (loss) to average net assets (0.89)%(c) (1.25)% (0.41)% 0.02% (0.59)%
_________________________________________________________________________________________________________________
=================================================================================================================
Portfolio turnover rate 47% 66% 49% 96% 41%
_________________________________________________________________________________________________________________
=================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Does not include contingent deferred sales charges.
(c) Ratios are based on average daily net assets of $18,551,351.
<Table>
<Caption>
CLASS C
----------------------------------------------
YEAR ENDED MARCH 1, 1999
OCTOBER 31, (DATE SALES COMMENCED)
-------------------- TO OCTOBER 31,
2001 2000(a) 1999(a)
------- ------- ----------------------
Net asset value, beginning of period $ 17.82 $15.94 $13.99
- ------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.12) (0.24) (0.03)
- ------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (7.34) 4.04 1.98
============================================================================================================
Total from investment operations (7.46) 3.80 1.95
============================================================================================================
Less distributions from net realized gains (2.76) (1.92) --
============================================================================================================
Net asset value, end of period $ 7.60 $17.82 $15.94
____________________________________________________________________________________________________________
============================================================================================================
Total return(b) (48.27)% 24.94% 13.94%
____________________________________________________________________________________________________________
============================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 259 $ 412 $ 16
____________________________________________________________________________________________________________
============================================================================================================
Ratio of expenses to average net assets:
With fee waivers 2.50%(c) 2.50% 2.50%(d)
- ------------------------------------------------------------------------------------------------------------
Without fee waivers 2.91%(c) 2.71% 2.72%(d)
============================================================================================================
Ratio of net investment income (loss) to average net assets (0.89)%(c) (1.25)% (0.41)%(d)
____________________________________________________________________________________________________________
============================================================================================================
Portfolio turnover rate 47% 66% 49%
____________________________________________________________________________________________________________
============================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Does not include contingent deferred sales charges and is not annualized
for periods less than one year.
(c) Ratios are based on average daily net assets of $447,703.
(d) Annualized.
14
GLOBAL INFRASTRUCTURE FUND
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees and Shareholders of AIM Global
Infrastructure Fund:
In our opinion, the accompanying statement of assets and
liabilities, including the schedule of investments, and
the related statements of operations and of changes in
net assets and the financial highlights present fairly,
in all material respects, the financial position of the
AIM Global Infrastructure Fund (one of the funds
constituting AIM Investment Funds; hereafter referred to
as the "Fund") at October 31, 2001, the results of its
operations for the year then ended, the changes in its
net assets for each of the two years in the period then
ended and the financial highlights for the periods
indicated, in conformity with accounting principles
generally accepted in the United States of America. These
financial statements and financial highlights (hereafter
referred to as "financial statements") are the
responsibility of the Fund's management; our
responsibility is to express an opinion on these
financial statements based on our audits. We conducted
our audits of these financial statements in accordance
with auditing standards generally accepted in the United
States of America, which require that we plan and perform
the audit to obtain reasonable assurance about whether
the financial statements are free of material
misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting
principles used and significant estimates made by
management, and evaluating the overall financial
statement presentation. We believe that our audits, which
included confirmation of securities at October 31, 2001
by correspondence with the custodian, provide a
reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
December 12, 2001
Houston, Texas
15
GLOBAL INFRASTRUCTURE FUND
PROXY RESULTS (UNAUDITED)
A Special Meeting of Shareholders of AIM Global Infrastructure Fund (the
"Fund"), a portfolio of AIM Investment Funds, a Delaware business trust (the
"Trust"), was held on August 17, 2001. The meeting was held for the following
purposes:
(1)* To elect the following Trustees: Robert H. Graham, Frank S. Bayley, Ruth H.
Quigley, Bruce L. Crockett, Owen Daly II, Albert R. Dowden, Edward K. Dunn,
Jr., Jack M. Fields, Carl Frischling, Prema Mathai-Davis, Lewis F. Pennock
and Louis S. Sklar.
(2) To ratify the selection of PricewaterhouseCoopers LLP as independent
accountants of the Fund for the fiscal year ending in 2001.
The results of the voting on the above matters were as follows:
<Table>
<Caption>
Withheld/
Trustees/Matter Votes For Abstentions
--------------- --------- -----------
(1)* Robert H. Graham............................................ 104,314,837 3,884,079
Frank S. Bayley............................................. 104,294,972 3,903,944
Ruth H. Quigley............................................. 104,221,667 3,977,249
Bruce L. Crockett........................................... 104,316,746 3,882,170
Owen Daly II................................................ 104,133,611 4,065,305
Albert R. Dowden............................................ 104,333,638 3,865,278
Edward K. Dunn, Jr. ........................................ 104,246,262 3,952,654
Jack M. Fields.............................................. 104,345,696 3,853,220
Carl Frischling............................................. 104,193,869 4,005,047
Prema Mathai-Davis.......................................... 104,249,127 3,949,789
Lewis F. Pennock............................................ 104,311,203 3,887,713
Louis S. Sklar.............................................. 104,300,433 3,898,483
</Table>
<Table>
<Caption>
Withheld/
Matter Votes For Votes Against Abstentions
------ --------- ------------- -----------
(2) Ratification of the selection of PricewaterhouseCoopers LLP
as Independent Accountants of the Fund...................... 2,181,151 10,755 24,367
</Table>
* Proposal 1 required approval by a combined vote of all of the portfolios of
AIM Investment Funds
16
GLOBAL INFRASTRUCTURE FUND
<Table>
<Caption>
BOARD OF TRUSTEES OFFICERS OFFICE OF THE FUND
Robert H. Graham Robert H. Graham 11 Greenway Plaza
Chairman, President and Chairman and President Suite 100
Chief Executive Officer Houston, TX 77046
A I M Management Group Inc. Carol F. Relihan
Vice President and Secretary INVESTMENT MANAGER
Frank S. Bayley
Partner, Baker & McKenzie Dana R. Sutton A I M Advisors, Inc.
Vice President and Treasurer 11 Greenway Plaza
Bruce L. Crockett Suite 100
Director Melville B. Cox Houston, TX 77046
ACE Limited; Vice President
Formerly Director, President, and TRANSFER AGENT
Chief Executive Officer Gary T. Crum
COMSAT Corporation Vice President A I M Fund Services, Inc.
P.O. Box 4739
Owen Daly II Mary J. Benson Houston, TX 77210-4739
Formerly, Director Assistant Vice President and
Cortland Trust, Inc. Assistant Treasurer CUSTODIAN
Albert R. Dowden Sheri Morris State Street Bank and Trust Company
Chairman, Assistant Vice President and 225 Franklin Street
The Cortland Trust, Inc. and Assistant Treasurer Boston, MA 02110
DHJ Media, Inc.; and
Director, Magellan Insurance Company, COUNSEL TO THE FUND
Formerly Director, President and
Chief Executive Officer, Ballard Spahr
Volvo Group North America, Inc.; and Andrews & Ingersoll, LLP
Senior Vice President, AB Volvo 1735 Market Street
Philadelphia, PA 19103
Edward K. Dunn Jr.
Formerly, Chairman, Mercantile Mortgage Corp.; COUNSEL TO THE TRUSTEES
Vice Chairman and President,
Mercantile-Safe Deposit & Trust Co.; and Kramer, Levin, Naftalis & Frankel LLP
President, Mercantile Bankshares 919 Third Avenue
New York, NY 10022
Jack M. Fields
Chief Executive Officer DISTRIBUTOR
Twenty First Century Group, Inc.;
Formerly Member A I M Distributors, Inc.
of the U.S. House of Representatives 11 Greenway Plaza
Suite 100
Carl Frischling Houston, TX 77046
Partner
Kramer, Levin, Naftalis & Frankel LLP AUDITORS
Prema Mathai-Davis PricewaterhouseCoopers LLP
Member, Visiting Committee, 1201 Louisiana, Suite 2900
Harvard University Graduate School Houston, TX 77002
of Education, New School University;
Formerly Chief Executive Officer,
YWCA of the U.S.A.
Lewis F. Pennock
Partner, Pennock & Cooper
Ruth H. Quigley
Private Investor
Louis S. Sklar
Executive Vice President
Hines Interests
Limited Partnership
</Table>
REQUIRED FEDERAL INCOME TAX INFORMATION (UNAUDITED)
Of ordinary dividends paid to shareholders during the Fund's tax year ended
October 31, 2001, 5.65% is eligible for the dividends received deduction for
corporations. The Fund distributed long-term capital gains of $3,765,250 for the
Fund's tax year ended October 31, 2001, which will be taxed as long-term gain.
<Table>
EQUITY FUNDS
DOMESTIC EQUITY FUNDS INTERNATIONAL/GLOBAL EQUITY FUNDS A I M Management Group Inc. has provided
leadership in the mutual fund industry since
MORE AGGRESSIVE MORE AGGRESSIVE 1976 and managed approximately $141 billion
in assets for 10.1 million shareholders,
AIM Small Cap Opportunities(1) AIM Developing Markets including individual investors, corporate
AIM Mid Cap Opportunities(1) AIM European Small Company clients and financial institutions, as of
AIM Large Cap Opportunities(1) AIM Asian Growth September 30, 2001.
AIM Emerging Growth AIM International Emerging Growth The AIM Family of Funds--Registered
AIM Small Cap Growth AIM Global Aggressive Growth Trademark-- is distributed nationwide, and
AIM Aggressive Growth AIM European Development AIM today is the tenth-largest mutual fund
AIM Mid Cap Growth AIM Euroland Growth complex in the United States in assets under
AIM Dent Demographic Trends AIM International Equity management, according to Strategic Insight,
AIM Constellation AIM Global Growth an independent mutual fund monitor. AIM is a
AIM Large Cap Growth AIM Worldwide Spectrum subsidiary of AMVESCAP PLC, one of the
AIM Weingarten AIM Global Trends world's largest independent financial
AIM Small Cap Equity AIM International Value(3) services companies with $361 billion in
AIM Capital Development assets under management as of September 30,
AIM Charter MORE CONSERVATIVE 2001.
AIM Mid Cap Equity
AIM Select Equity(2) SECTOR EQUITY FUNDS
AIM Value II
AIM Value MORE AGGRESSIVE
AIM Blue Chip
AIM Basic Value AIM New Technology
AIM Large Cap Basic Value AIM Global Telecommunications and Technology
AIM Balanced AIM Global Energy4
AIM Basic Balanced AIM Global Infrastructure
AIM Global Financial Services
MORE CONSERVATIVE AIM Global Health Care
AIM Global Utilities
AIM Real Estate(5)
MORE CONSERVATIVE
FIXED-INCOME FUNDS
TAXABLE FIXED-INCOME FUNDS TAX-FREE FIXED-INCOME FUNDS
MORE AGGRESSIVE MORE AGGRESSIVE
AIM High Yield II AIM High Income Municipal
AIM High Yield AIM Municipal Bond
AIM Strategic Income AIM Tax-Free Intermediate
AIM Income AIM Tax-Exempt Cash
AIM Global Income
AIM Intermediate Government MORE CONSERVATIVE
AIM Floating Rate
AIM Limited Maturity Treasury
AIM Money Market
MORE CONSERVATIVE
</Table>
When assessing the degree of risk, AIM considered the following three factors:
the funds' portfolio holdings, volatility patterns over time and diversification
permitted within the fund. Fund rankings are relative to one another within the
particular group of The AIM Family of Funds--Registered Trademark-- and should
not be compared with other investments. There is no guarantee that any one AIM
fund will be less volatile than any other. This order is subject to change.
(1)Closed to new investors. (2)On July 13, 2001, AIM Select Growth Fund was
renamed AIM Select Equity Fund. (3)On July 1, 2001, AIM Advisor International
Value Fund was renamed AIM International Value Fund. (4)On September 1, 2001,
AIM Global Resources Fund was renamed AIM Global Energy Fund. (5)On July 1,
2001, AIM Advisor Real Estate Fund was renamed AIM Real Estate Fund. FOR MORE
COMPLETE INFORMATION ABOUT ANY AIM FUND, INCLUDING THE RISKS, SALES CHARGES AND
EXPENSES, OBTAIN THE APPROPRIATE PROSPECTUS(ES) FROM YOUR FINANCIAL ADVISOR.
PLEASE READ THE PROSPECTUS(ES) CAREFULLY BEFORE YOU INVEST OR SEND MONEY. If
used as sales material after January 20, 2002, this report must be accompanied
by a fund Performance & Commentary or by an AIM Quarterly Review of Performance
for the most recent quarter-end.
[DALBAR AWARD LOGO APPEARS HERE] [AIM LOGO APPEARS HERE]
--Registered Trademark--
INVEST WITH DISCIPLINE
--Registered Trademark--
GIF-AR-1
A I M DISTRIBUTORS, INC.
PART C. OTHER INFORMATION
Item 15. Indemnification
The Registrant's Amended and Restated Agreement and Declaration of Trust, dated
May 15, 2002, provides, among other things (i) that trustees shall not be liable
for any act or omission or any conduct whatsoever (except for liabilities to the
Registrant or its shareholders by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of duty); (ii) for the indemnification by
the Registrant of the trustees and officers to the fullest extent permitted by
the Delaware Business Trust Act and Bylaws; and (iii) that the shareholders and
former shareholders of the Registrant are held harmless by the Registrant (or
applicable portfolio or class) from personal liability arising from their status
as such, and are indemnified by the Registrant (or applicable portfolio or
class) against all loss and expense arising from such personal liability in
accordance with the Registrant's Bylaws and applicable law. A I M Advisors,
Inc., the Registrant and other investment companies managed by A I M Advisors,
Inc., their respective officers, trustees, directors and employees (the "Insured
Parties") are insured under a joint Mutual Fund and Investment Advisory
Professional and Directors and Officers Liability Policy, issued by ICI Mutual
Insurance Company, with a $35,000,000 limit of liability.
Section 16 of the Master Investment Advisory Agreement between the Registrant
and AIM provides that in the absence of willful misfeasance, bad faith, gross
negligence or reckless disregard of obligations or duties hereunder on the part
of AIM or any of its officers, directors or employees, that AIM shall not be
subject to liability to the Registrant or to any series of the Registrant, or to
any shareholder of any series of the Registrant for any act or omission in the
course of, or connected with, rendering services hereunder or for any losses
that may be sustained in the purchase, holding or sale of any security. Any
liability of AIM to any series of the Registrant shall not automatically impart
liability on the part of AIM to any other series of the Registrant. No series of
the Registrant shall be liable for the obligations of any other series of the
Registrant.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to Trustees, officers and controlling persons of the
Registrant pursuant to the foregoing provisions or otherwise, the Registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a Trustee, officer or controlling person of the Registrant in
connection with the successful defense of any action suit or proceeding) is
asserted by such Trustee, officer or controlling person in connection with the
shares being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy, as expressed in the Act and be governed by final
adjudication of such issue.
Item 16. Exhibits.
1 Amended and Restated Agreement and Declaration of Trust
of the Registrant, dated May 15, 2002, is filed herewith
electronically.
2 Amended and Restated Bylaws of the Registrant, dated May
15, 2002, is filed herewith electronically.
3 Voting Trust Agreements - None
4 Form of Agreement and Plan of Reorganization between the
Registrant and AIM Investment Funds is attached as
Appendix I to the Combined Proxy Statement and
Prospectus contained in this Registration Statement.
5 Articles II, VI, VII, VIII and IX of the Amended and
Restated Agreement and Declaration of Trust and Articles
IV, V and VI of the Amended and Restated Bylaws,
attached as Exhibit 1 and 2, respectively, to this
Registration Statement, define the rights of holders of
shares.
1
6 (a) (1) Master Investment Advisory Agreement, dated June 1,
2000, between the Registrant and A I M Advisors, Inc.
was filed electronically as an Exhibit to Post-effective
Amendment No. 80 on June 15, 2000, and is hereby
incorporated by reference.
(2) Amendment No. 1, dated August 30, 2000, to the
Master Investment Advisory Agreement, dated June 1,
2000, between Registrant and A I M Advisors, Inc. was
filed electronically as an Exhibit to Post-effective
Amendment No. 81 on September 29, 2000, and is hereby
incorporated by reference.
(3) Amendment No. 2, dated December 27, 2000, to the
Master Investment Advisory Agreement, dated June 1,
2000, between Registrant and A I M Advisors, Inc. was
filed electronically as an Exhibit to Post-effective
Amendment No. 84 on April 27, 2001, and is hereby
incorporated by reference.
(4) Amendment No. 3, dated September 28, 2001, to the
Master Investment Advisory Agreement, dated June 1,
2000, between Registrant and A I M Advisors, Inc. was
filed electronically as an Exhibit to Post-effective
Amendment No. 86 on October 12, 2001, and is hereby
incorporated by reference.
(5) Amendment No. 4 dated December 27, 2001, to the
Master Investment Advisory Agreement, dated June 1,
2000, between Registrant and A I M Advisors, Inc. was
filed electronically as an Exhibit to Post-effective
Amendment No. 89 on April 26, 2002, and is hereby
incorporated by reference.
7 (a) (1) Second Amended and Restated Master Distribution
Agreement, dated July 1, 2000, between Registrant (on
behalf of its Class A Shares and Class C Shares) and A I
M Distributors, Inc. was filed electronically as an
Exhibit to Post-effective Amendment No. 81 on September
29, 2000, and is hereby incorporated by reference.
(2) Amendment No. 1, dated August 30, 2000, to the
Second Amended and Restated Master Distribution
Agreement between Registrant (on behalf of its Class A
Shares and Class C Shares) and A I M Distributors, Inc.
was filed electronically as an Exhibit to Post-effective
Amendment No. 81 on September 29, 2000, and is hereby
incorporated by reference.
(3) Amendment No. 2, dated December 27, 2000, to the
Second Amended and Restated Master Distribution
Agreement between Registrant (on behalf of its Class A
Shares and Class C Shares) and A I M Distributors, Inc.
was filed electronically as an Exhibit to Post-effective
Amendment No. 84 on April 27, 2001, and is hereby
incorporated by reference.
(4) Amendment No. 3, dated September 28, 2001, to the
Second Amended and Restated Master Distribution
Agreement, dated July 1, 2000, between Registrant (with
respect to its Class A Shares and Class C Shares) and A
I M Distributors, Inc. was filed electronically as an
Exhibit to Post-effective Amendment No. 86 on October
12, 2001, and is hereby incorporated by reference.
(5) Amendment No. 4, dated December 27, 2001, to the
Second Amended and Restated Master Distribution
Agreement, dated July 1, 2000, between Registrant (with
respect to its Class A and Class C Shares) and A I M
Distributors, Inc. was filed electronically as an
Exhibit to Post-effective Amendment No. 89 on April 26,
2002, and is hereby incorporated by reference.
2
(6) Amendment No. 5, dated March 15, 2002, to the Second
Amended and Restated Master Distribution Agreement,
dated July 1, 2000, between Registrant (with respect to
its Class A, Class C and Institutional Class Shares) and
A I M Distributors, Inc. was filed electronically as an
Exhibit to Post-effective Amendment No. 89 on April 26,
2002, and is hereby incorporated by reference.
(b) (1) First Amended and Restated Master Distribution
Agreement, dated December 31, 2000, between Registrant
(on behalf of Registrant's Class B shares) and A I M
Distributors, Inc. was filed electronically as an
Exhibit to Post-effective Amendment No. 84 on Apri1 27,
2001, and is hereby incorporated by reference.
(2) Amendment No. 1, dated September 28, 2001, to the
First Amended and Restated Master Distribution
Agreement, dated December 31, 2000, between Registrant
(with respect to its Class B Shares) and A I M
Distributors, Inc. was filed electronically as an
Exhibit to Post-effective Amendment No. 86 on October
12, 2001, and is hereby incorporated by reference
(3) Amendment No. 2, dated December 27, 2001, to the
First Amended and Restated Master Distribution
Agreement, dated December 31, 2000, between Registrant
(with respect to Class B Shares) and A I M Advisors,
Inc. was filed electronically as an Exhibit to
Post-effective Amendment No. 89 on April 26, 2002, and
is hereby incorporated by reference
(c) Form of Selected Dealer Agreement between A I M
Distributors, Inc. and selected dealers was filed
electronically as an Exhibit to Post-effective Amendment
No. 84 on April 27, 2001, and is hereby incorporated by
reference.
(d) Form of Bank Selling Group Agreement between A I M
Distributors, Inc. and banks was filed electronically as
an Exhibit to Post-effective Amendment No. 75 on
February 12, 1999, and is hereby incorporated by
reference.
8 (a) AIM Funds Retirement Plan for Eligible
Directors/Trustees, effective as of March 8, 1994, as
restated September 11, 1995, as restated March 7, 2000,
and as restated October 1, 2001, was filed
electronically as an Exhibit to Post-effective Amendment
No. 87 on January 2, 2002, and is hereby incorporated by
reference.
(b) Form of Director Deferred Compensation Agreement for
Registrant's Non-Affiliated Directors, as amended March
7, 2000 and September 28, 2001, was filed electronically
as an Exhibit to Post-effective Amendment No. 87 on
January 2, 2002, and is hereby incorporated by
reference.
9 (a) (1) Master Custodian Contract, dated May 1, 2000,
between the Registrant and State Street Bank and Trust
Company was filed electronically as an Exhibit to
Post-effective Amendment No. 81 on September 29, 2000,
and is hereby incorporated by reference.
(2) Amendment, dated May 1, 2000, to the Master
Custodian Contract, dated May 1, 2000, between
Registrant and State Street Bank and Trust Company was
filed electronically as an Exhibit to Post-effective
Amendment No. 81 on September 29, 2000, and is hereby
incorporated by reference.
(3) Amendment, dated June 29, 2001, to the Master
Custodian Contract, dated May 1, 2000, between
Registrant and State Street Bank and Trust Company was
filed electronically as an Exhibit to Post-effective
Amendment No. 87 on January 2, 2002, and is hereby
incorporated by reference.
3
(4) Amendment, dated April 2, 2002, to the Custodian
Contract, dated May 1, 2000 between Registrant and State
Street Bank and Trust Company was filed electronically
as an Exhibit to Post-effective Amendment No. 89 on
April 26. 2002, and is hereby incorporated by reference.
(b) (1) Subcustodian Agreement, dated September 9, 1994,
among the Registrant, Texas Commerce Bank National
Association, State Street Bank and Trust Company and A I
M Fund Services, Inc., was filed electronically as an
Exhibit to Post-effective Amendment No. 71 on April 26,
1996, and is hereby incorporated by reference.
(2) Amendment No. 1, dated October 2, 1998 to
Subcustodian Agreement, dated September 9, 1994, among
the Registrant, Chase Bank of Texas N.A. (formerly Texas
Commerce Bank), State Street Bank and Trust Company and
A I M Fund Services, Inc., was filed electronically as
an Exhibit to Post-effective Amendment No. 77 on March
9, 2000, and is hereby incorporated by reference.
(c) Foreign Assets Delegation Agreement, dated June 29,
2001, between A I M Advisors, Inc. and Registrant was
filed electronically as an Exhibit to Post-effective
Amendment No. 87 on January 2, 2002, and is hereby
incorporated by reference.
10 (a) (1) Fifth Amended and Restated Master Distribution Plan,
dated July 1, 2000, for Registrant's Class A Shares and
Class C Shares was filed electronically as an Exhibit to
Post-effective Amendment No. 81 on September 29, 2000,
and is hereby incorporated by reference.
(2) Amendment No. 1, dated August 30, 2000, to the Fifth
Amended and Restated Master Distribution Plan for
Registrant's Class A Shares and Class C Shares was filed
electronically as an Exhibit to Post-effective Amendment
No. 81 on September 29, 2000, and is hereby incorporated
by reference.
(3) Amendment No. 2, dated December 27, 2000, to the
Fifth Amended and Restated Master Distribution Plan for
Registrant's Class A Shares and Class C Shares was filed
electronically as an Exhibit to Post-effective Amendment
No. 84 on April 27, 2001, and is hereby incorporated by
reference.
(4) Amendment No. 3, dated September 28, 2001, to the
Fifth Amended and Restated Master Distribution Plan,
dated July 1, 2000, for Registrant's Class A Shares and
Class C Shares was filed electronically as an Exhibit to
Post-effective Amendment No. 86 on October 12, 2001, and
is hereby incorporated by reference.
(b) (1) Third Amended and Restated Master Distribution Plan,
dated December 31, 2000, for Registrant's Class B Shares
was filed electronically as an Exhibit to Post-effective
Amendment No. 84 on April 27, 2001, and is hereby
incorporated by reference.
(2) Amendment No. 1, dated September 28, 2001, to the
Third Amended and Restated Master Distribution Plan,
dated December 31, 2000, for Registrant's Class B Shares
was filed electronically as an Exhibit to Post-effective
Amendment No. 86 on October 12, 2001, and is hereby
incorporated by reference.
(3) Amendment No. 2, dated December 27, 2001, to the
Third Amended and Restated Master Distribution Plan,
dated December 31, 2000, for Registrant's Class B Shares
was filed electronically as an Exhibit to Post-effective
Amendment No. 89 on April 26, 2002, and is hereby
incorporated by reference.
(c) Form of Shareholder Service Agreement to be used in
connection with Registrant's Master Distribution Plan
was filed electronically as an Exhibit to Post-effective
Amendment No. 86 on October 12, 2001, and is hereby
incorporated by reference.
4
(d) Form of Bank Shareholder Service Agreement to be used in
connection with Registrant's Master Distribution Plan
was filed electronically as an Exhibit to Post-effective
Amendment No. 86 on October 12, 2001, and is hereby
incorporated by reference.
(e) Form of Variable Group Annuity Contractholder Service
Agreement to be used in connection with Registrant's
Master Distribution Plan was filed electronically as an
Exhibit to Post-effective Amendment No. 86 on October
12, 2001, and is hereby incorporated by reference.
(f) Form of Agency Pricing Agreement to be used in
connection with Registrant's Master Distribution Plan
was filed electronically as an Exhibit to Post-effective
Amendment No. 86 on October 12, 2001, and is hereby
incorporated by reference.
(g) Forms of Service Agreement for Bank Trust Departments
and for Brokers for Bank Trust Departments to be used in
connection with Registrant's Master Distribution Plan
were filed electronically as an Exhibit to
Post-effective Amendment No. 86 on October 12, 2001, and
is hereby incorporated by reference.
(h) Form of Shareholder Service Agreement for Shares of the
AIM Mutual Funds was filed electronically as an Exhibit
to Post-effective Amendment No. 86 on October 12, 2001,
and is hereby incorporated by reference.
(i) First Amended and Restated Multiple Class Plan of The
AIM Family of Funds(R), effective December 12, 2001, as
amended and restated March 4, 2002 was filed
electronically as an Exhibit to Post-effective Amendment
No. 89 on April 26, 2002, and is hereby incorporated by
reference.
11 Opinion of Counsel and Consent of Ballard Spahr Andrews
& Ingersoll, LLP, as to the legality of the securities
being registered is filed herewith electronically.
12 Opinion of Ballard Spahr Andrews & Ingersoll, LLP,
supporting the tax matters and consequences to
shareholders will be filed as part of a Post-effective
Amendment to this Registration Statement.
13 (a) (1) Transfer Agency and Service Agreement, dated
November 1, 1994, between the Registrant and A I M Fund
Services, Inc. was filed electronically as an Exhibit to
Post-effective Amendment No. 70 on November 17, 1995,
and is hereby incorporated by reference.
(2) Amendment No. 1, dated August 4, 1997, to the
Transfer Agency and Service Agreement, dated as of
November 1, 1994, between Registrant and A I M Fund
Services, Inc. was filed electronically as an Exhibit to
Post-effective Amendment No. 74 on February 27, 1998,
and is hereby incorporated by reference.
(3) Amendment No. 2, dated January 1, 1999, to the
Transfer Agency and Service Agreement, dated as of
November 1, 1994, between Registrant and A I M Fund
Services, Inc. was filed electronically as an Exhibit to
Post-effective Amendment No. 77 on March 9, 2000, and is
hereby incorporated by reference.
(4) Amendment No. 3, dated July 1, 2000, to the Transfer
Agency and Service Agreement, dated as of November 1,
1994, between Registrant and A I M Fund Services, Inc.
was filed electronically as an Exhibit to Post-effective
Amendment No. 81 on September 29, 2000, and is hereby
incorporated by reference.
5
(b) (1) Remote Access and Related Service Agreement, dated
as of December 23, 1994, between the Registrant and
First Data Investor Services Group, Inc. (formerly, The
Shareholder Services Group, Inc.) was filed
electronically as an Exhibit to Post-effective Amendment
No. 71 on April 26, 1996, and is hereby incorporated by
reference.
(2) Amendment No. 1, effective October 4, 1995, to the
Remote Access and Related Services Agreement, dated as
of December 23, 1994, between the Registrant and First
Data Investor Services Group, Inc. was filed
electronically as an Exhibit to Post-effective Amendment
No. 71 on April 26, 1996, and is hereby incorporated by
reference.
(3) Addendum No. 2, effective October 12, 1995, to the
Remote Access and Related Services Agreement, dated as
of December 23, 1994, between the Registrant and First
Data Investor Services Group, Inc. was filed
electronically as an Exhibit to Post-effective Amendment
No. 71 on April 26, 1996, and is hereby incorporated by
reference.
(4) Amendment No. 3, effective February 1, 1997, to the
Remote Access and Related Services Agreement, dated
December 23, 1994, between the Registrant and First Data
Investor Services Group, Inc. was filed electronically
as an Exhibit to Post-effective Amendment No. 73 on July
25, 1997, and is hereby incorporated by reference.
(5) Amendment No. 4, dated June 30, 1998, to the Remote
Access and Related Services Agreement, dated December
23, 1994, between Registrant and First Data Investor
Services Group, Inc. was filed electronically as an
Exhibit to Post-effective Amendment No. 75 on February
12, 1999, and is hereby incorporated by reference.
(6) Amendment No. 5, dated July 1, 1998, to the Remote
Access and Related Services Agreement, dated December
23, 1994, between Registrant and First Data Investor
Services Group, Inc. was filed electronically as an
Exhibit to Post-effective Amendment No. 75 on February
12, 1999, and is hereby incorporated by reference.
(7) Exhibit 1, effective as of August 4, 1997, to the
Remote Access and Related Services Agreement, dated
December 23, 1994, between the Registrant and First Data
Investor Services Group, Inc. was filed electronically
as an Exhibit to Post-effective Amendment No. 74 on
February 27, 1998, and is hereby incorporated by
reference.
(8) Amendment No. 6, dated August 30, 1999, to the
Remote Access and Related Services Agreement, dated
December 23, 1994, between Registrant and First Data
Investor Services Group, Inc. was filed electronically
as an Exhibit to Post-effective Amendment No. 77 on
March 9, 2000, and is hereby incorporated by reference.
(9) Amendment No. 7, dated February 29, 2000, to the
Remote Access and Related Services Agreement, dated
December 23, 1994, between Registrant and First Data
Investor Services Group, Inc. was filed electronically
as an Exhibit to Post-effective Amendment No. 81 on
September 29, 2000, and is hereby incorporated by
reference.
(10) Amendment No. 8, dated June 26, 2000, to the Remote
Access and Related Services Agreement for AccessTA
Services, dated December 23, 1994, between Registrant
and PFPC Inc. (formerly known as First Data Investor
Services Group, Inc.) was filed electronically as an
Exhibit to Post-effective Amendment No. 85 on July 13,
2001, and is hereby incorporated by reference.
6
(11) Amendment No. 9, dated June 26, 2000, to the Remote
Access and Related Services Agreement for
IMPRESS(TM)Services, dated December 23, 1994, between
Registrant and PFPC Inc. was filed electronically as an
Exhibit to Post-effective Amendment No. 85 on July 13,
2001, and is hereby incorporated by reference.
(12) Amendment No. 10, dated July 28, 2000, to the
Remote Access and Related Services Agreement, dated
December 23, 1994, between Registrant and PFPC Inc. was
filed electronically as an Exhibit to Post-effective
Amendment No. 85 on July 13, 2001, and is hereby
incorporated by reference.
(c) Preferred Registration Technology Escrow Agreement,
dated September 10, 1997, between the Registrant and
First Data Investor Services Group, Inc. was filed
electronically as an Exhibit to Post-effective Amendment
No. 74 on February 27, 1998, and is hereby incorporated
by reference.
(d) Shareholder Sub-Accounting Services Agreement, dated
October 1, 1993, between the Registrant and First Data
Investor Services Group, Inc., Financial Data Services,
Inc. and Merrill, Lynch, Pierce, Fenner & Smith
Incorporated was filed electronically as an Exhibit to
Post-effective Amendment No. 71 on April 26, 1996, and
is hereby incorporated by reference.
(e) (1) Master Administrative Services Agreement, dated June
1, 2000, between the Registrant and A I M Advisors, Inc.
was filed electronically as an Exhibit to Post-effective
Amendment No. 80 on June 15, 2000, and is hereby
incorporated by reference.
(2) Amendment No. 1, dated August 30, 2000, to the
Master Administrative Services Agreement, dated June 1,
2000, between Registrant and A I M Advisors, Inc. was
filed electronically as an Exhibit to Post-effective
Amendment No. 81 on September 29, 2000, and is hereby
incorporated by reference.
(3) Amendment No. 2, dated December 27, 2000, to the
Master Administrative Services Agreement, dated June 1,
2000, between Registrant and A I M Advisors, Inc. was
filed electronically as an Exhibit to Post-effective
Amendment No. 84 on April 27, 2001, and is hereby
incorporated by reference.
(4) Amendment No. 3, dated September 28, 2001, to the
Master Administrative Services Agreement, dated June 1,
2000, between Registrant and A I M Advisors, Inc. was
filed electronically as an Exhibit to Post-effective
Amendment No. 86 on October 12, 2001, and is hereby
incorporated by reference
(5) Amendment No. 4, dated December 27, 2001, to the
Master Administrative Services Agreement, dated June 1,
2000, between Registrant and A I M Advisors, Inc. was
filed electronically as an Exhibit to Post-effective
Amendment No. 89 on April 26, 2002, and is hereby
incorporated by reference
(f) Memorandum of Agreement, regarding securities lending,
dated June 1, 2000, between Registrant, on behalf of all
Funds, and A I M Advisors, Inc. was filed electronically
as an Exhibit to Post-effective Amendment No. 84 on
April 27, 2001, and is hereby incorporated by reference.
(g) Interfund Loan Agreement, dated September 18, 2001,
between Registrant and A I M Advisors, Inc. was filed
electronically as an Exhibit to Post-effective Amendment
No. 86 on October 12, 2001, and is hereby incorporated
by reference.
14 Consent of PricewaterhouseCoopers, LLP, is filed
herewith electronically.
15 Financial Statements omitted - None.
7
16 Manually signed copies of any power of attorney pursuant
to which the name of any person has been signed to the
registration statement - None.
17 Form of Proxy related to the Special Meeting of
Shareholders of AIM Global Infrastructure Fund is filed
herewith electronically.
Item 17. Undertakings
(1) The undersigned registrant agrees that prior to any public
reoffering of the securities registered through the use of a prospectus which is
a part of this registration statement by any person or party who is deemed to be
an underwriter within the meaning of Rule 145(c) of the Securities Act [17 CRF
203.145c], the reoffering prospectus will contain the information called for by
the applicable registration form for reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items of
the applicable form.
(2) The undersigned registrant agrees that every prospectus that
is filed under paragraph (1) above will be filed as a part of an amendment to
the registration statement and will not be used until the amendment is
effective, and that, in determining any liability under the 1933 Act, each
post-effective amendment shall be deemed to be a new registration statement for
the securities offered therein, and the offering of the securities at that time
shall be deemed to be the initial bona fide offering of them.
(3) The undersigned registrant undertakes to file an opinion of
counsel supporting the tax matters and consequences to shareholders discussed in
the prospectus in a post-effective amendment to this registration statement.
8
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant has duly caused this Registration Statement on Form N-14 to be
signed on its behalf by the undersigned, thereto duly authorized, in the City of
Houston, State of Texas, on the 17th day of May, 2002.
REGISTRANT: AIM FUNDS GROUP
By: /s/ ROBERT H. GRAHAM
------------------------------
Robert H. Graham, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form N-14 has been signed below by the following
persons in the capacities and on the dates indicated.
<Table>
<Caption>
SIGNATURES TITLE DATE
---------- ----- ----
/s/ ROBERT H. GRAHAM Chairman, Trustee & President May 17, 2002
- ---------------------------------- (Principal Executive Officer)
(Robert H. Graham)
/s/ FRANK S. BAYLEY Trustee May 17, 2002
- ----------------------------------
(Frank S. Bayley)
/s/ BRUCE L. CROCKETT Trustee May 17, 2002
- ----------------------------------
(Bruce L. Crockett)
/s/ ALBERT R. DOWDEN Trustee May 17, 2002
- ----------------------------------
(Albert R. Dowden)
/s/ EDWARD K. DUNN, JR. Trustee May 17, 2002
- ----------------------------------
(Edward K. Dunn, Jr.)
/s/ JACK M. FIELDS Trustee May 17, 2002
- ----------------------------------
(Jack M. Fields)
/s/ CARL FRISCHLING Trustee May 17, 2002
- ----------------------------------
(Carl Frischling)
/s/ PREMA MATHAI-DAVIS Trustee May 17, 2002
- ----------------------------------
(Prema Mathai-Davis)
/s/ LEWIS F. PENNOCK Trustee May 17, 2002
- ----------------------------------
(Lewis F. Pennock)
/s/ RUTH H. QUIGLEY Trustee May 17, 2002
- ----------------------------------
(Ruth H. Quigley)
/s/ LOUIS S. SKLAR Trustee May 17, 2002
- ----------------------------------
(Louis S. Sklar)
/s/ DANA R. SUTTON Vice President & Treasurer May 17, 2002
- ---------------------------------- (Principal Financial and
(Dana R. Sutton) Accounting Officer)
</Table>
EXHIBIT INDEX
<Table>
<Caption>
Exhibit No. Description
- ----------- -----------
1 Amended and Restated Agreement and Declaration of Trust dated May 15, 2002
2 Amended and Restated Bylaws dated May 15, 2002
11 Opinion of Counsel and Consent of Ballard Spahr Andrews & Ingersoll, LLP as to the legality of
the securities being registered
14 Consent of PricewaterhouseCoopers LLP
17 Form of Proxy
</Table>