As filed with the Securities and Exchange Commission on February 12, 2003
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 INVESTMENT FUNDS
--------------------------------------------------
(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:
JOHN H. LIVELY, 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 March 14, 2003
pursuant to Rule 488.
The title of the securities being registered is AIM Global Science and
Technology 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 NEW TECHNOLOGY FUND
A PORTFOLIO OF
AIM FUNDS GROUP
11 GREENWAY PLAZA, SUITE 100
HOUSTON, TEXAS 77046-1173
March __, 2003
Dear Shareholder:
Enclosed is a combined proxy statement and prospectus seeking your approval of a
proposed combination of AIM New Technology Fund with AIM Global Science and
Technology Fund. AIM New Technology Fund ("New Technology Fund") is an
investment portfolio of AIM Funds Group, a Delaware statutory trust. AIM Global
Science and Technology Fund ("Global Science Fund") is an investment portfolio
of AIM Investment Funds, a Delaware statutory trust.
New Technology Fund and Global Science Fund have the same investment objective
and they both invest, normally, at least 80% of their assets in securities of
science and technology industry companies. The two funds currently hold many of
the same securities. A I M Advisors, Inc. serves as the investment adviser to
New Technology Fund and Global Science Fund. New Technology Fund is a relatively
new fund that has not attracted significant assets. Global Science Fund is
substantially larger than New Technology Fund, and the combined assets of the
two funds should provide a more stable asset base for management of the assets
of New Technology 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 New
Technology Fund and Global Science Fund. You should review the enclosed
materials carefully.
Shareholders of New Technology Fund are being asked to approve an Agreement and
Plan of Reorganization by and among AIM Funds Group, AIM Investment Funds, and A
I M Advisors, Inc., that will govern the reorganization of New Technology Fund
into Global Science Fund. After careful consideration, the Board of Trustees of
AIM Funds Group 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 Funds Group
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. 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.aiminvestments.com by following the instructions that appear on the
enclosed proxy materials.
Sincerely,
/s/ Robert H. Graham
Robert H. Graham
Chairman
AIM NEW TECHNOLOGY FUND
A PORTFOLIO OF
AIM FUNDS GROUP
11 GREENWAY PLAZA, SUITE 100
HOUSTON, TEXAS 77046-1173
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 4, 2003
TO THE SHAREHOLDERS OF AIM NEW TECHNOLOGY FUND:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of AIM
New Technology Fund ("New Technology Fund"), an investment portfolio of AIM
Funds Group ("AFG"), will be held at 11 Greenway Plaza, Suite 100, Houston, TX
77046-1173 on June 4, 2003, 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 AFG, acting on behalf of New Technology Fund, AIM Investment Funds
("AIF"), acting on behalf of AIM Global Science and Technology Fund ("Global
Science Fund"), and A I M Advisors, Inc. The Agreement provides for the
combination of New Technology Fund with Global Science Fund (the
"Reorganization"). Pursuant to the Agreement, all of the assets of New
Technology Fund will be transferred to Global Science Fund. Global Science Fund
will assume all of the liabilities of New Technology Fund, and AIF will issue
Class A shares of Global Science Fund to New Technology Fund's Class A
shareholders, Class B shares of Global Science Fund to New Technology Fund's
Class B shareholders, and Class C shares of Global Science Fund to New
Technology Fund's Class C shareholders. The value of each New Technology Fund
shareholder's account with Global Science Fund immediately after the
Reorganization will be the same as the value of such shareholder's account with
New Technology 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 March 10, 2003,
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 BOARD
OF TRUSTEES OF AFG. 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 AFG OR BY VOTING IN PERSON AT THE SPECIAL MEETING.
/s/
--------------------
Secretary
LOGO
March ___, 2003
AIM NEW TECHNOLOGY AIM GLOBAL SCIENCE
FUND AND TECHNOLOGY FUND
A PORTFOLIO OF A PORTFOLIO OF
AIM FUNDS GROUP AIM INVESTMENT FUNDS
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: MARCH ___, 2003
This document is being furnished in connection with a special meeting
of shareholders of AIM New Technology Fund ("New Technology Fund"), an
investment portfolio of AIM Funds Group ("AFG"), a Delaware statutory trust, to
be held on June 4, 2003, (the "Special Meeting"). At the Special Meeting, the
shareholders of New Technology Fund are being asked to consider and approve an
Agreement and Plan of Reorganization (the "Agreement") by and among AFG, acting
on behalf of New Technology Fund, AIM Investment Funds ("AIF"), acting on behalf
of AIM Global Science and Technology Fund ("Global Science Fund"), and A I M
Advisors, Inc., ("AIM Advisors"). The Agreement provides for the combination of
New Technology Fund with Global Science Fund (the "Reorganization"). THE BOARD
OF TRUSTEES OF AFG HAS UNANIMOUSLY APPROVED THE AGREEMENT AND THE REORGANIZATION
AS BEING IN THE BEST INTERESTS OF THE SHAREHOLDERS OF NEW TECHNOLOGY FUND.
Global Science Fund is an investment portfolio of AIF, an open-end,
series management investment company. Pursuant to the Agreement, all of the
assets of New Technology Fund will be transferred to Global Science Fund, Global
Science Fund will assume all of the liabilities of New Technology Fund, and AIF
will issue Class A shares of Global Science Fund to New Technology Fund's Class
A shareholders, Class B shares of Global Science Fund to New Technology Fund's
Class B shareholders, and Class C shares of Global Science Fund to New
Technology Fund's Class C shareholders. The value of each New Technology Fund
shareholder's account with Global Science Fund immediately after the
Reorganization will be the same as the value of such shareholder's account with
New Technology 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 objectives of Global Science Fund and New Technology
Fund are the same. Both funds seek long-term capital growth. In addition, both
funds seek to achieve their investment objective by investing at least 80% of
their total assets in portfolios of securities of science and technology
industry companies. See "Comparison of Investment Objectives and Policies."
This Combined Proxy Statement and Prospectus ("Proxy
Statement/Prospectus") sets forth the information that a shareholder of New
Technology Fund should know before voting on the Agreement. It should be read
and retained for future reference.
i
The current Prospectus of New Technology Fund, dated May 1, 2002, (the
"New Technology Fund Prospectus"), as supplemented May 1, 2002, June 7, 2002 and
December 31, 2002, together with the related Statement of Additional Information
dated December 20, 2002, as supplemented January 24, 2003, are on file with the
Securities and Exchange Commission (the "SEC") and are incorporated by reference
herein. The Prospectus of Global Science Fund dated March 3, 2003, (the "Global
Science Fund Prospectus"), and the related Statement of Additional Information
dated March 3, 2003, have been filed with the SEC and are incorporated by
reference herein. A copy of the Global Science 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 AFG and AIF. 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 New
Technology Fund and Global Science Fund may also be obtained on the internet at
http://www.aiminvestments.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.
ii
[AIMLOGO]
TABLE OF CONTENTS
<Table>
<Caption>
Page
----
INTRODUCTION .......................................................................... 1
SYNOPSIS .............................................................................. 3
The Reorganization ........................................................... 3
Reasons for the Reorganization ............................................... 3
Comparison of Global Science Fund and New Technology Fund .................... 4
RISK FACTORS .......................................................................... 9
Comparative Risks ............................................................ 9
Risks Associated with Global Science Fund ................................... 10
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES ..................................... 11
Investment Objectives of Global Science Fund and New Technology Fund ........ 11
Investment Policies of Global Science Fund .................................. 11
Investment Policies of New Technology Fund .................................. 12
Global Science Fund Portfolio Management .................................... 13
Management's Discussion and Analysis of Performance ......................... 13
FINANCIAL HIGHLIGHTS ................................................................. 14
ADDITIONAL INFORMATION ABOUT THE AGREEMENT ........................................... 16
Terms of the Reorganization ................................................. 16
The Reorganization .......................................................... 16
Board Considerations ........................................................ 16
Other Terms ................................................................. 18
Federal Income Tax Consequences ............................................. 19
Accounting Treatment ........................................................ 20
ADDITIONAL INFORMATION ABOUT GLOBAL SCIENCE FUND AND NEW TECHNOLOGY FUND ............. 20
RIGHTS OF SHAREHOLDERS ............................................................... 21
OWNERSHIP OF NEW TECHNOLOGY FUND AND GLOBAL SCIENCE FUND SHARES ...................... 22
Significant Holders ......................................................... 22
Share Ownership by Executive Officers and Trustees .......................... 23
CAPITALIZATION ....................................................................... 23
LEGAL MATTERS ........................................................................ 24
INFORMATION FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ........................ 24
APPENDIX I ......................................... Agreement and Plan of Reorganization
APPENDIX II ........................................... Prospectus of Global Science Fund
APPENDIX III ................... Global Science Fund Discussion & Analysis of Performance
</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, Invest
with DISCIPLINE, Invierta con DISCIPLINA, La Familia AIM de Fondos, and La
Familia AIM de Fondos and
iii
Design 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, AIM Investments,
AIM Investments 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.
iv
INTRODUCTION
This Proxy Statement/Prospectus is furnished in connection with the
solicitation of proxies by the Board of Trustees of AFG for use at the Special
Meeting of Shareholders to be held at 11 Greenway Plaza, Suite 100, Houston, TX
77046-1173, on June 4, 2003, 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.
At the Special Meeting, the shareholders of New Technology Fund must
approve the Agreement with all of the classes of shares of New Technology Fund
voting together and with each class of shares voting separately as a class. For
purposes of the vote by all of New Technology Fund's classes of shares voting
together, the presence in person or by proxy of one-third of all of the
outstanding shares of beneficial interest in New Technology Fund will constitute
a quorum. For purposes of each class's separate vote, the presence in person or
by proxy of one-third of the issued and outstanding shares of beneficial
interest of each class of shares will constitute a quorum for such class of
shares.
At the Special Meeting, approval of the Agreement by all of New
Technology Fund's classes of shares voting together requires the affirmative
vote of a majority of the outstanding voting securities of New Technology Fund.
Under the Investment Company Act of 1940, as amended (the "1940 Act"), the vote
of a majority of outstanding voting securities means the affirmative vote of the
lesser of (a) 67% or more of the shares present at the meeting or represented by
proxy if the holders of more than 50% of the outstanding shares are present or
represented by proxy, or (b) more than 50% of the outstanding shares. The
separate approval of the Agreement by the Class A, Class B and Class C shares of
New Technology Fund requires the affirmative vote of a majority of shares cast
of each such class of shares.
Abstentions and broker non-votes will be counted as shares present at
the Special Meeting for quorum purposes, and may have the effect of votes
against the proposal 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 AFG. 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 March 10, 2003
(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
1
shares of New Technology Fund outstanding. Each share is entitled to one vote
for each full share held, and a fractional vote for a fractional share held.
AFG has engaged the services of Georgeson Shareholder Communications,
Inc. ("GSC") to assist it in the solicitation of proxies for the Special
Meeting. AFG expects to solicit proxies principally by mail, but AFG or GSC may
also solicit proxies by telephone, facsimile or personal interview. AFG's
officers will not receive any additional or special compensation for any such
solicitation. The cost of shareholder solicitation is anticipated to be
approximately $17,200. New Technology Fund and Global Science Fund will bear
their own costs and expenses incurred in connection with the Reorganization.
However, AIM Advisors has agreed to reimburse expenses and waive certain of its
fees so that the specified expense caps for the funds are not exceeded. As a
result, AIM Advisors will effectively bear all of the expenses associated with
the Reorganization for New Technology Fund and Global Science Fund.
AFG intends to mail this Proxy Statement/Prospectus and the
accompanying proxy on or about March ___, 2003.
2
SYNOPSIS
THE REORGANIZATION
The Reorganization will result in the combination of New Technology
Fund with Global Science Fund. New Technology Fund is a portfolio of AFG, a
Delaware statutory trust. Global Science Fund is a portfolio of AIF, a Delaware
statutory trust.
If shareholders of New Technology Fund approve the Agreement and other
closing conditions are satisfied, all of the assets of New Technology Fund will
be transferred to Global Science Fund, Global Science Fund will assume all of
the liabilities of New Technology Fund, and AIF will issue Class A shares of
Global Science Fund to New Technology Fund's Class A shareholders, Class B
shares of Global Science Fund to New Technology Fund's Class B shareholders and
Class C shares of Global Science Fund to New Technology Fund's Class C
shareholders. The shares of Global Science Fund issued in the Reorganization
will have an aggregate net asset value equal to the value of New Technology
Fund's net assets transferred to Global Science Fund. Shareholders will not pay
any initial sales charge for shares of Global Science Fund received in
connection with the Reorganization. The value of each shareholder's account with
Global Science Fund immediately after the Reorganization will be the same as the
value of such shareholder's account with New Technology 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.
New Technology 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 additional Federal income tax as a result of the Reorganization. See
"Additional Information About the Agreement -- Federal Income Tax Consequences"
below.
REASONS FOR THE REORGANIZATION
The Board of Trustees of AFG, including the independent trustees, has
determined that the reorganization of New Technology Fund into Global Science
Fund is in the best interests of New Technology Fund and its shareholders and
that the interests of the shareholders of New Technology Fund will not be
diluted as a result of the Reorganization.
In evaluating the proposed Reorganization, the Board of Trustees
considered a number of factors, including:
o The investment objective and principal investment strategies
of the funds.
o The comparative expenses and performance of the two funds.
o The consequences of the Reorganization for Federal income tax
purposes.
o Any fees or expenses that will be borne directly or indirectly
by the funds in connection with the Reorganization.
3
The Board of Trustees noted that the two funds' investment objectives
are the same. Both funds seek to provide long-term growth of capital by
investing, normally, at least 80% of their assets in securities of science and
technology industry companies. As a result, as of December 31, 2002,
approximately 73% of the total net assets of New Technology Fund were invested
in securities that were also held by Global Science Fund.
The Board of Trustees noted that New Technology Fund was introduced in
August 2000 as a smaller capitalization, domestic technology fund designed to
compliment Global Science Fund. Since August 2000, however, New Technology Fund
has been unable to attract and retain sufficient assets to remain viable as a
separate fund. Global Science Fund is significantly larger than New Technology
Fund and the combined assets of the two funds should provide a more stable asset
base for management of the assets of New Technology Fund. For the year ended
December 31, 2002, Global Science Fund has provided a better total return to its
shareholders. The Board also noted that total operating expenses of New
Technology Fund, expressed as a percentage of assets, were higher than total
operating expenses of Global Science Fund after existing fee waivers for Class B
and Class C shares, while total operating expenses for Class A shares of each
fund were the same.
The Reorganization will be tax-free for Federal income tax purposes,
and New Technology will receive an opinion of counsel of Ballard Spahr Andrews &
Ingersoll, LLP to that effect prior to the completion of the Reorganization.
Each fund will bear its own expenses in connection with the transaction. Because
the total operating expenses of New Technology Fund and Global Science Fund
currently exceed the limitations agreed to by AIM Advisors, the expenses
incurred by New Technology Fund and Global Science Fund in connection with the
preparation of this Proxy Statement/Prospectus and the solicitation of proxies
will effectively be borne by AIM Advisors.
For additional information concerning the deliberations of the Board of
Trustees on the Plan of Reorganization see "Additional Information About the
Agreement - Board Considerations."
COMPARISON OF GLOBAL SCIENCE FUND AND NEW TECHNOLOGY FUND
Investment Objective and Policies of Global Science Fund
Global Science Fund seeks long-term growth of capital by investing,
normally, at least 80% of its assets in securities of science and technology
industry companies. Science and technology industry companies are those that
develop, manufacture or sell computer and electronic components and equipment,
software, semiconductors, Internet technology, communications services and
equipment, mobile communications, broadcasting, biotechnology, healthcare,
medical equipment and devices, aerospace and defense, media, and environmental
services.
In complying with the 80% investment requirement, Global Science Fund
will invest primarily in marketable equity securities, including convertible
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. The fund
4
may also invest in debt securities issued by science and technology industry
companies, or in equity and debt securities of other companies the portfolio
managers believe will benefit from developments in the science and technology
industry.
Global Science Fund will normally invest in the securities of companies
located in at least three 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 40% of its total assets in the securities of
issuers in any one country, other than the U.S.
Global Science Fund may invest in companies located in developing
countries, i.e., those countries that are in the initial stages of their
industrial cycles. The fund may also invest up to 5% of its total assets in
lower-quality debt securities, i.e., "junk bonds."
Investment Objective and Policies of New Technology Fund
New Technology Fund seeks long-term growth of capital by investing,
normally, at least 80% of its net assets, plus the amount of any borrowings for
investment purposes, in securities of technology and science companies that the
portfolio managers believe are likely to benefit from new or innovative
products, services or processes. In complying with this 80% investment
requirement, the Fund will invest primarily in marketable equity securities,
including convertible 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. While New Technology Fund will invest without regard to
market capitalization, the fund expects to invest a significant portion of its
assets in securities of small cap companies. Under normal conditions, the top 10
holdings may comprise up to one third of the fund's total assets. The fund may
also invest up to 25% of its total assets in foreign securities.
Investment Advisory Services
AIM Advisors serves as investment adviser to both New Technology Fund
and Global Science Fund
5
Performance
Average annual total returns for the periods indicated for Class A
shares of Global Science Fund and New Technology Fund, including sales charges,
are shown below. Past performance cannot guarantee comparable future results.
<Table>
<Caption>
Global Science Fund Class A Shares(1)
(for the periods ended December 31, 2002) 1-year 5-year 10-year
- ----------------------------------------- ------ ------ -------
Return Before Taxes -46.69 -18.14 -3.91
Return After Taxes on Distributions -46.69 -19.18 -5.23
Return After Taxes on Distributions
and Sale of Fund Shares -28.67 -11.34 -1.64
S&P500(2) (reflects redemptions for fees, expenses or taxes) -22.09 -0.58 9.34
</Table>
- ----------
(1) Inception date for Global Science Fund Class A shares is January 27, 1992.
(2) 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.
<Table>
<Caption>
New Technology Fund Class A Shares
(for the periods ended December 31, 2002) 1-year Since Inception(1)
- ----------------------------------------- ------ ------------------
Return Before Taxes -48.28 -49.98
Return After Taxes on Distributions -48.28 -49.98
Return After Taxes on Distributions
and Sale of Fund Shares -29.64 -35.54
S&P500(2) (reflects redemptions for fees, expenses or taxes) -22.09 -19.69(3)
</Table>
- ----------
(1) Inception date for New Technology Fund Class A shares is August 31, 2000.
(2) 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.
(3) The average annual total return is given since August 31, 2000.
After-tax returns are calculated using the historical highest
individual federal marginal income tax rates and do not reflect the input 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 above 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.
Fund Expenses
A comparison of annual operating expenses expressed as a percentage of
net assets ("Expense Ratio"), for the Class A, Class B and Class C shares of New
Technology Fund and for the Class A, Class B and Class C shares of Global
Science Fund are shown below. Pro forma estimated Expense Ratios of Global
Science Fund giving effect to the Reorganization are also provided.
6
<Table>
<Caption>
GLOBAL SCIENCE FUND
NEW TECHNOLOGY FUND GLOBAL SCIENCE FUND PRO FORMA ESTIMATED
DECEMBER 31, 2002 OCTOBER 31, 2002 OCTOBER 31, 2002
------------------------------ ---------------------------- --------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
SHARES SHARES SHARES SHARES SHARES SHARES SHARES SHARES SHARES
------- ------- ------- ------- ------- ------- ------- ------- ------
SHAREHOLDER TRANSACTION
EXPENSES
Maximum sales load imposed on
purchase of shares (as a
percentage of offering price) ..... 5.50% None None 4.75% None None 4.75% None None
Deferred Sales Load (as a
percentage of original
purchase price or
redemption proceeds, as
applicable) ....................... None(1) 5.00% 1.00% None(1) 5.00% 1.00% None(1) 5.00% 1.00%
ANNUAL OPERATING EXPENSES
(AS A % OF NET ASSETS)(5)
Management fees ..................... 1.00% 1.00% 1.00% 0.97% 0.97% 0.97% 0.97% 0.97% 0.97%
Distribution and/or Service
(12b-1)Fees ....................... 0.35% 1.00% 1.00% 0.50% 1.00% 1.00% 0.50% 1.00% 1.00%
Other expenses(2) ................... 1.31% 1.31% 1.31% 1.09% 1.09% 1.09% 1.09% 1.09% 1.09%
----- ----- ----- ----- ----- ----- ----- ----- -----
Total fund operating
expenses .................. 2.66% 3.31% 3.31% 2.56% 3.06% 3.06% 2.56% 3.06% 3.06%
Fee waiver .......................... 0.66% 0.66% 0.66% 0.55% 0.55% 0.55% 0.55% 0.55% 0.55%
----- ----- ----- ----- ----- ----- ----- ----- -----
Net expenses(3)(4) .................. 2.00% 2.65% 2.65% 2.01% 2.51% 2.51% 2.01% 2.51% 2.51%
===== ===== ===== ===== ===== ===== ===== ===== =====
</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) AIM Advisors has contractually agreed to waive fees and/or reimburse
expenses (excluding interest, taxes, dividend expenses on short sales,
extraordinary items and increases due to expense offset arrangements, if
any) of New Technology Fund for Class A, Class B and Class C shares to the
extent necessary to limit the Total Annual Fund Operating Expenses of
Class A shares to 2.00% (e.g., if AIM waives 0.66% of Class A expenses,
AIM will also waive 0.66% of Class B and Class C expenses).
(4) AIM Advisors has contractually agreed to limit Total Annual Fund Operating
Expenses (excluding interest, taxes, dividend expense on short sales,
extraordinary items and increases in expenses due to offset arrangements,
if any) of Global Science Fund on Class A, Class B and Class C shares to
2.00%, 2.50% and 2.50%, respectively.
(5) There is no guarantee that actual expenses will be the same as those shown
in the table.
If the Reorganization is consummated, Class A shareholders of New
Technology Fund will pay a 12b-1 fee of 0.50% on Global Science Fund Class A
shares issued in connection with the Reorganization. The 12b-1 fee payable on
Global Science Fund Class A shares is 0.15% higher than the 12b-1 fee currently
assessed on New Technology Fund Class A shares. The initial sales charge
assessed on purchases of additional Global Science Fund Class A shares will be
4.75%, as compared to 5.50% currently applicable to New Technology Fund Class A
shares, and the Total Annual Operating Expenses of Global Science Fund Class A
shares after the Reorganization are expected to be the same as those for New
Technology Fund, after fee waivers.
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.
7
<Table>
<Caption>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
------ ------ ------ ------
NEW TECHNOLOGY FUND
Class A shares(1) ........................................ $ 804 $1,331 $1,882 $3,378
Class B shares:
Assuming complete redemption at end of period(2) .... $ 834 $1,318 $1,926 $3,456
Assuming no redemption .............................. $ 334 $1,018 $1,726 $3,456
Class C shares:
Assuming complete redemption at end of period(2) .... $ 434 $1,018 $1,726 $3,604
Assuming no redemption .............................. $ 334 $1,018 $1,726 $3,604
Global Science Fund
Class A shares(1) ........................................ $ 722 $1,234 $1,771 $3,233
Class B shares:
Assuming complete redemption at end of period(2) .... $ 809 $1,245 $1,806 $3,258
Assuming no redemption .............................. $ 309 $ 945 $1,606 $3,258
Class C shares:
Assuming complete redemption at end of period(2) .... $ 409 $ 945 $1,606 $3,374
Assuming no redemption .............................. $ 309 $ 945 $1,606 $3,374
Combined Fund
Class A shares(1) ........................................ $ 722 $1,234 $1,771 $3,233
Class B shares:
Assuming complete redemption at end of period(2) .... $ 809 $1,245 $1,806 $3,258
Assuming no redemption .............................. $ 309 $ 945 $1,606 $3,258
Class C shares:
Assuming complete redemption at end of period(2) .... $ 409 $ 945 $1,606 $3,374
Assuming no redemption .............................. $ 309 $ 945 $1,606 $3,374
</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 Global Science Fund
received in connection with the Reorganization.
Global Science Fund Class A shares, which will be issued to New
Technology Fund Class A shareholders pursuant to the Agreement, are sold at net
asset value plus an initial sales charge of 4.75%. Global Science 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.
Global Science 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.
Global Science Fund pays a fee in the amount of 0.50% of the average
daily net assets of Class A shares to A I M Distributors, Inc. ("AIM
Distributors") for distribution services. Global
8
Science 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 under the
heading "Shareholder Information-Distribution and Service (12b-1) Fees" in the
Global Science Fund Prospectus attached as Appendix II to this Proxy
Statement/Prospectus.
The Class A shares of New Technology Fund are sold at net asset value
plus an initial sales charge of 5.50%. New Technology 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. New Technology 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 New Technology Fund a fee
in the amount of 0.35% of average daily net assets of the Class A shares for
distribution services. New Technology 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 Global Science Fund and New Technology 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 Global Science Fund is contained in
this Proxy Statement/Prospectus and in the current prospectus for Global Science
Fund that is attached hereto as Appendix II. Further information concerning New
Technology 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
Global Science Fund and New Technology Fund both invest at least 80% of
their assets in securities of science and technology industry companies. Science
and technology industry companies are those that develop, manufacture or sell
computer and electronic components and equipment, software, semiconductors,
Internet technology, communications services and equipment, mobile
communications, broadcasting, biotechnology, healthcare, medical equipment and
devices, aerospace and defense, media and environmental services. Accordingly,
many of the risks associated with an investment in Global Science Fund are the
same as the risks associated with an investment in New Technology Fund.
9
However, Global Science Fund will normally invest in the securities of
companies located in at least three countries including the United States. The
fund will invest no more than 40% of its total assets in the securities of
issuers in any one country, other than the U.S. New Technology Fund may invest
up to 25% of its total assets in foreign securities. As a result, Global Science
Fund may, at any given time, have more exposure to foreign securities markets
and the risks affecting those markets than New Technology Fund. In addition,
under normal market conditions, New Technology Fund's top ten holdings may
comprise up to one third of the fund's total assets and a significant portion of
its assets may be invested in securities of small capitalization companies. The
New Technology Fund's focus on a smaller number of securities may result in the
price change of a single security having a greater impact on its net asset
value. Similarly, New Technology Fund's investments in small capitalization
companies may cause it to be more volatile than if it invested in larger
capitalization companies.
RISKS ASSOCIATED WITH GLOBAL SCIENCE FUND
There is a risk that you could lose all or a portion of your investment
in Global Science Fund. 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.
Because the fund focuses its investment in the science and technology
industries, the value of Global Science Fund shares may rise and fall more than
the value of shares of a fund that invests more broadly.
The value of Global Science Fund's shares is particularly vulnerable to
factors affecting the science and technology industries, such as substantial
government regulations and the need for governmental approvals, dependency on
consumer and business acceptance as new technologies evolve, and large and rapid
price movements resulting from, among other things, fierce competition in these
industries. Additional factors affecting the technology industry and the value
of your shares include rapid obsolescence of products and services, short
product cycles, and aggressive pricing. Many technology companies are small and
at an earlier state of development and, therefore, may be subject to risks such
as those arising out of limited product lines, markets, and financial and
managerial resources.
The prices of foreign securities may be further affected by other
factors, including:
o 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 traded.
o Political and economic conditions - The value of the fund's
foreign investments may be adversely affected by political and
social instability in their home countries and by changes in
economic taxation policies in those countries.
o Regulations - Foreign companies generally are subject to less
stringent regulations, including financial and accounting
controls, than are U.S. companies. As a
10
result, there generally is less publicly available information
about foreign companies than about U.S. companies.
o 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 and governments 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.
An investment in the Global Science Fund is not a deposit in a bank and
is not insured or guaranteed by the Federal Deposit Insurance Corporation or any
other government agency.
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES
INVESTMENT OBJECTIVES OF GLOBAL SCIENCE FUND AND NEW TECHNOLOGY FUND
The investment objectives of Global Science Fund and New Technology
Fund are the same. Both funds seek long-term growth of capital.
INVESTMENT POLICIES OF GLOBAL SCIENCE FUND
Global Science Fund seeks to meet its objective by investing, normally,
at least 80% of its assets in securities of science and technology industry
companies. Science and technology industry companies are those that develop,
manufacture or sell computer and electronic components and equipment, software,
semiconductors, Internet technology, communications services and equipment,
mobile communications, broadcasting, biotechnology, healthcare, medical
equipment and devices, aerospace and defense, media and environmental services.
In complying with the 80% investment requirement, Global Science Fund
invests primarily in marketable equity securities, including convertible
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. The fund may also
invest in debt securities issued by science and technology industry companies,
or in equity and debt securities of other companies the portfolio managers
believe will benefit from developments in the science and technology industry.
Global Science Fund normally invests in the securities of companies
located in at least three 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 40% of its total assets in the securities of
issuers in any one country, other than the U.S.
Global Science Fund may invest in companies located in developing
countries, i.e., those countries that are in the initial stages of their
industrial cycles. The fund may also invest up to
11
5% of its total assets in lower quality debt securities, i.e., "junk bonds." For
cash management purposes, the fund may also hold a portion of its assets in cash
or cash equivalents, including shares of affiliated money market funds. Any
percentage limitations with respect to assets of the fund are applied at the
time of purchase.
The portfolio managers allocate the fund's assets among securities of
countries and in currency denominations that are expected to provide the best
opportunities for meeting the fund's investment objective. In analyzing specific
companies for possible investment, the portfolio managers ordinarily look for
several of the following characteristics: above-average per share earnings
growth; high return on invested capital; a healthy balance sheet; sound
financial and accounting policies and overall financial strength; strong
competitive advantages; effective research and product development and
marketing; development of new technologies; efficient service; pricing
flexibility; strong management; and general operating characteristics that will
enable the companies to compete successfully in their respective markets. 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 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, cash equivalents or high-quality debt instruments. As a result, the fund
may not achieve its investment objective.
Global Science Fund may engage in active and frequent trading of
portfolio securities to achieve its investment objective. For the fiscal year
ended October 31, 2002, Global Science Fund's portfolio turnover rate was 115%.
If the fund continues to trade in this way, it may incur increased transaction
costs, which can lower the actual return on your investment. Active trading may
also increase short-term gains and losses, which may affect the taxes you have
to pay.
INVESTMENT POLICIES OF NEW TECHNOLOGY FUND
New Technology 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 technology and science companies that the portfolio
managers believe are likely to benefit from new or innovative products, services
or processes. In complying with this 80% investment requirement, the fund
invests primarily in marketable equity securities, including convertible
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 Depository
Receipts. While New Technology Fund will invest without regard to market
capitalization, the fund expects to invest a significant portion of its assets
in securities of small cap companies. Under normal conditions, the top 10
holdings may comprise up to one third of the fund's total assets. The fund may
also invest up to 25% of it total assets in foreign securities. Any percentage
limitations with respect to assets of the fund are applied at the time of
purchase.
12
GLOBAL SCIENCE 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 Global Science Fund's portfolio are
o Abel Garcia (lead manager), Senior Portfolio Manager, who has
been responsible for the fund since 2000 and has been
associated with the advisor and/or its affiliates since 2000.
From 1984 to 2000, he was a Senior Portfolio Manager for
Waddell & Reed.
o Warren Tennant, Analyst, who has been responsible for the fund
since 2002 and has been associated with the advisor and/or its
affiliates since 2000. From 1998 to 2000 he attended graduate
school at the University of Texas where he earned his M.B.A.
From 1993 to 1998, he worked as a lead auditor for Exxon.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF PERFORMANCE
A discussion of the performance of Global Science Fund taken from its
annual report to shareholders for the fiscal year ended October 31, 2002, is set
forth in Appendix III to this Proxy Statement/Prospectus.
13
FINANCIAL HIGHLIGHTS
Shown below are financial highlights for a Class A and a Class B share
of Global Science Fund outstanding during each of the five fiscal years ended
October 31, 1998 through October 31, 2002 and a Class C share of Global Science
Fund outstanding during each of the fiscal years ended October 31, 2000 through
2002, and for the period beginning March 1, 1999 and ended October 31, 1999.
This information has been audited by AIF's independent accountants whose
unqualified report on the financial statements of Global Science Fund is
included in its annual report to shareholders for the fiscal year ended October
31, 2002. Global Science Fund's annual report to shareholders dated October 31,
2002, is available without charge upon request made to AIF at the address or
telephone number appearing on the cover page of this Proxy Statement/Prospectus.
GLOBAL SCIENCE FUND CLASS A SHARES
<Table>
<Caption>
CLASS A
YEAR ENDED OCTOBER 31,
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
Net asset value, beginning of period $ 7.41 $ 30.61 $ 26.44 $ 16.28 $ 18.04
- -----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.12)(a) (0.20)(a) 0.06(a)(b) (0.25) (0.17)(a)
- -----------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) (2.40) (19.12) 7.23 10.97 (0.39)
=======================================================================================================================
Total from investment operations (2.52) (19.32) 7.29 10.72 (0.56)
=======================================================================================================================
Less distributions from net realized gains -- (3.88) (3.12) (0.56) (1.20)
- -----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 4.89 $ 7.41 $ 30.61 $ 26.44 $ 16.28
=======================================================================================================================
Total return(c) (34.01)% (71.16)% 27.52% 67.63% (3.16)%
=======================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 280,426 438,702 $1,513,595 $1,023,124 $713,904
- -----------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets: 2.01(d) 1.98% 1.63% 1.77% 1.88%
With fee waivers 2.56(d) 2.03% 1.63% 1.77% 1.88%
Without fee waivers
- -----------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to
average net assets (1.76)%(b) (1.57)%(d) 0.16% (1.11)% (0.93)%
=======================================================================================================================
Portfolio turnover rate 115% 173% 111% 122% 75%
=======================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Net investment income per share reflects dividend income of
$0.49 per share recognized from the spin-off of Nortel
Networks Corp. from BCE, Inc.
(c) Includes adjustments in accordance with generally accepted
accounting principles and does not includes sales charges.
(d) Ratios are based on average daily net assets of $393,080,194.
14
GLOBAL SCIENCE FUND CLASS B SHARES
<Table>
<Caption>
CLASS B
YEAR ENDED OCTOBER 31,
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
Net asset value, beginning of period $ 6.96 $ 29.17 $ 25.43 $ 15.76 $ 17.58
- -----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.14)(a) (0.25)(a) (0.11)(a)(b) (0.35) (0.25)(a)
- -----------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) (2.26) (18.08) 6.97 10.58 (0.37)
=======================================================================================================================
Total from investment operations (2.40) (18.33) 6.86 10.23 (0.62)
=======================================================================================================================
Less distributions from net realized gain -- (3.88) (3.12) (0.56) (1.20)
- -----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 4.56 $ 6.96 $ 29.17 $ 25.43 $ 15.76
=======================================================================================================================
Total return(c) (34.48)% (71.30)% 26.87% 66.84% (3.67)%
=======================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 102,470 $ 287,394 $1,414,915 $ 898,400 $ 614,715
- -----------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets:
With fee waivers 2.51%(d) 2.48% 2.13% 2.28% 2.38%
Without fee waivers 3.06%(d) 2.53% 2.13% 2.28% 2.38%
- -----------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to
average net assets (2.26)%(d) (2.07)% (0.34)% (1.62)% (1.43)%
=======================================================================================================================
Portfolio turnover rate 115% 173% 111% 122% 75%
=======================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Net investment income per share reflects dividend income of
$0.49 per share recognized from the spin-off of Nortel
Networks Corp. from BCE, Inc.
(c) Includes adjustments in accordance with generally accepted
accounting principles and does not include contingent deferred
sales charges.
(d) Ratios are based on average daily net assets of $195,277,846.
GLOBAL SCIENCE FUND CLASS C SHARES
<Table>
<Caption>
CLASS C
-------
MARCH 1, 1999
(DATE SALES
YEAR ENDED OCTOBER 31, COMMENCED TO
---------------------- OCTOBER 31,
2002 2001 2000 1999
---- ---- ---- ----
Net asset value, beginning of period $ 6.96 $ 29.16 $ 25.43 $ 19.23
- -----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.14)(a) (0.25)(a) (0.11)(a)(b) (0.11)
- -----------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) (2.26) (18.07) 6.96 6.31
=======================================================================================================================
Total from investment operations (2.40) (18.32) 6.85 6.20
=======================================================================================================================
Less distributions from net realized gain -- (3.88) (3.12) --
- -----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 4.56 $ 6.96 $ 29.16 $25.43
=======================================================================================================================
Total return(c) (34.48)% (71.29)% 27.52% 32.24%
=======================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $15,961 $28,652 $114,667 $12,352
- -----------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets:
With fee waivers 2.51%(d) 2.48% 2.13% 2.28%
Without fee waivers 3.06%(d) 2.53% 2.13% 2.28%
- -----------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to
average net assets (2.26)%(d) (2.07)% (0.34)% (1.62)%
=======================================================================================================================
Portfolio turnover rate 115% 173% 111% 122%
=======================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Net investment income per share reflects dividend income of
$0.49 per share recognized from the spin-off of Nortel
Networks Corp. from BCE, Inc.
(c) Includes adjustments in accordance with generally accepted
accounting principles and does not include contingent deferred
sales charges.
(d) Ratios are based on average daily net assets of $24,228,588.
15
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
Global Science Fund will acquire all of the assets of New Technology
Fund in exchange for shares of Global Science Fund and the assumption by Global
Science Fund of the liabilities of New Technology Fund. Consummation of the
Reorganization (the "Closing") is expected to occur on June 23, 2003, 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 June 20, 2003.
At the Effective Time, all of the assets of New Technology Fund shall
be delivered to the Custodian for the account of Global Science Fund in exchange
for the assumption by Global Science Fund of all of the liabilities of any kind
of New Technology Fund and delivery by AIF directly to (i) New Technology Fund
Class A shareholders of a number of Global Science Fund Class A shares and to
(ii) New Technology Fund Class B shareholders of a number of Global Science Fund
Class B shares and to (iii) New Technology Fund Class C shareholders of a number
of Global Science Fund Class C shares, having an aggregate net asset value equal
to the value of the assets of New Technology Fund transferred.
BOARD CONSIDERATIONS
The Board of Trustees of AFG has determined that the Reorganization of
New Technology Fund is in the best interests of the shareholders of New
Technology Fund and will not dilute the interests of New Technology Fund's
shareholders. The Board of Trustees recommends approval of the Agreement by the
shareholders of New Technology 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 February 6, 2003, AIM
Advisors proposed that the Board of Trustees consider the Reorganization of New
Technology Fund into Global Science Fund. The Trustees received from AIM
Advisors written materials that contained information concerning New Technology
Fund and Global Science Fund, including comparative total return and fee and
expense information, a comparison of the investment objective and policies of
New Technology Fund and Global Science Fund and pro forma expense ratios of
Global Science Fund. AIM Advisors also provided the trustees with written
materials concerning the structure of the proposed Reorganization and the
Federal income tax consequences of the Reorganization.
In considering the Reorganization, the Board of Trustees noted that New
Technology Fund and Global Science Fund have the same investment objective of
seeking long-term growth
16
of capital. Both funds invest at least 80% of their assets in securities of
science and technology industry companies. As a result, as of December 31, 2002,
73% of the total net assets of New Technology Fund were invested in securities
that were also held by Global Science Fund.
The Board noted that New Technology Fund commenced operations August
31, 2000 as a smaller capitalization, domestic technology fund. From August 31,
2000 until January 31, 2001, its net assets grew to approximately $82 million.
However, from February 2001 until December 31, 2002, New Technology Fund's asset
base has decreased to approximately $35 million. Global Science Fund is
significantly larger than New Technology Fund. It had total net assets at
December 31, 2002, of approximately $371 million. The combined assets of the two
funds involved in the reorganization should provide a more stable base for
management of the assets of New Technology Fund because daily purchases and
redemptions of shares should have a less significant impact on the size of the
combined fund.
The Board of Trustees considered the performance of New Technology Fund
in relation to the performance of Global Science Fund, noting that Global
Science Fund has recently provided a higher total return to its shareholders.
For the one-year period ended December 31, 2002, Global Science Fund's Class A
shares total return was -44.00% at net asset value as compared to -45.31% for
New Technology Fund Class A shares at net asset value.
The Board also considered the expenses incurred by the two funds. The
Board noted that after the Reorganization Class A shareholders of New Technology
Fund would pay a higher 12b-1 fee than they pay currently. As of November 30,
2002, New Technology Fund had an annual operating expense ratio that was higher
than that of Global Science Fund, after existing fee waivers, for Class B and
Class C shares while the total operating expense ratio for Class A shares of
each fund were the same. After giving effect to existing fee waivers and expense
reimbursements, the total operating expenses of Global Science Fund Class B and
Class C shares are expected to be 15 basis points lower than those of Class B
and Class C shares of New Technology Fund, and the total operating expenses of
Class A shares of New Technology Fund are expected to remain the same after the
Reorganization.
The Reorganization may result in reduced revenues for AIM Advisors,
since AIM Advisors receives lower management fees on the assets presently held
by Global Science 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.
Each Fund has agreed to pay its own expenses in connection with the
Reorganization. Because the total operating expenses of New Technology Fund and
Global Science Fund currently exceed the limitations agreed to by AIM Advisors,
the expenses incurred by New Technology Fund and Global Science Fund in
connection with the Reorganization will effectively be borne by AIM Advisors.
In addition, the Board of Trustees noted that no initial sales or other
charges would be imposed on any of the shares of Global Science Fund issued to
the shareholders of New Technology Fund in connection with the Reorganization.
Finally, the Board of Trustees reviewed the proposed structure of the
Reorganization. The Board of Trustees noted that New Technology
17
Fund would be provided with an opinion of counsel that the Reorganization would
be tax-free as to New Technology Fund and its shareholders.
Based on the foregoing, and the information presented to them at its
meeting on February 6, 2003, the Board of Trustees determined that the
Reorganization will not dilute the interests of the shareholders of New
Technology Fund and is in the best interests of the New Technology Fund
shareholders in view of the factors described above. Therefore, the Board of
Trustees recommended the approval of the Reorganization by the shareholders of
New Technology Fund.
At a meeting of the Board of Trustees of Global Science Fund held on
February 6, 2003, the Board of Trustees of Global Science Fund also approved the
Reorganization and determined that the Reorganization was in the best interests
of Global Science Fund shareholders and will not dilute the interests of the
shareholders of Global Science Fund.
OTHER TERMS
The Agreement may be amended without shareholder approval by mutual
agreement of AFG and AIF. 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 AFG and AIF has made representations and warranties in the
Agreement that are customary in matters such as the Reorganization. The
obligations of AFG and AIF pursuant to the Agreement with respect to New
Technology Fund or Global Science Fund are subject to various conditions,
including the following:
o the assets of New Technology Fund to be acquired by Global
Science 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 New Technology Fund
immediately prior to the Reorganization;
o AIF'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 New Technology Fund shall have approved
the Agreement; and
o AFG and AIF 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 New Technology Fund, Global Science Fund or their
shareholders.
18
New Technology Fund and Global Science Fund have agreed to bear their
own expenses in connection with the Reorganization. However, AIM Advisors has
agreed to reimburse expenses and waive certain of its fees so that specified
expense caps for the funds are not exceeded. As a result, AIM Advisors will
effectively bear all of the expenses associated with the Reorganization.
The Board of Trustees of AFG may waive without shareholder approval any
default by AIF or any failure by AIF to satisfy any of the conditions to AFG'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 New Technology
Fund. The Agreement may be terminated and the Reorganization may be abandoned by
either AFG or AIF at any time by mutual agreement of AFG and AIF, or by either
party in the event that New Technology Fund shareholders do not approve the
Agreement or if the Closing does not occur on or before September 1, 2003.
FEDERAL INCOME 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 New Technology Fund upon
the transfer of its assets to Global Science Fund;
o no gain or loss will be recognized by any shareholder of New
Technology Fund upon the exchange of shares of New Technology
Fund solely for shares of Global Science Fund;
o the tax basis of the shares of Global Science Fund to be
received by a shareholder of New Technology Fund will be the
same as the tax basis of the shares of New Technology Fund
surrendered in exchange therefor;
o the holding period of the shares of Global Science Fund to be
received by a shareholder of New Technology Fund will include
the holding period for which such shareholder held the shares
of New Technology Fund exchanged therefor, provided that such
shares of New Technology Fund are capital assets in the hands
of such shareholder as of the Closing;
o no gain or loss will be recognized by Global Science Fund on
the receipt of assets of New Technology Fund in exchange for
shares of Global Science Fund and Global Science Fund's
assumption of New Technology Fund's liabilities;
19
o the tax basis of the assets of New Technology Fund in the
hands of Global Science Fund will be the same as the tax basis
of such assets in the hands of New Technology Fund immediately
prior to the Reorganization;
o the holding period of the assets of New Technology Fund to be
received by Global Science Fund will include the holding
period of such assets in the hands of New Technology Fund
immediately prior to the Reorganization; and
o the tax year of New Technology Fund will end on the date of
the closing, and Global Science Fund will thereafter succeed
to and take into account the capital loss carryover and
certain other tax attributes of New Technology Fund, subject
to all relevant conditions and limitations on the use of such
tax benefits.
Neither AFG nor AIF has requested or will request an advance ruling
from the IRS as to the Federal tax consequences of the Reorganization. As a
condition to Closing, Ballard Spahr Andrews & Ingersoll, LLP will render a
favorable opinion to AFG and AIF 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 AFG and AIF
upon which Ballard Spahr Andrews & Ingersoll, LLP will rely in rendering its
opinion. The conclusions reached in that opinion could be jeopardized if the
representations of AFG or AIF are incorrect in any material respect.
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 NEW TECHNOLOGY FUND. NEW TECHNOLOGY 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 Global Science Fund of the assets of New
Technology Fund will be the same as the book cost basis of such assets to New
Technology Fund.
ADDITIONAL INFORMATION ABOUT GLOBAL SCIENCE FUND AND NEW TECHNOLOGY FUND
For more information with respect to AIF and Global Science Fund
concerning the following topics, please refer to the Global Science Fund
Prospectus as indicated: (i) see "Investment Objective and Strategies" and "Fund
Management" for further information regarding AIF and Global Science Fund; (ii)
see "Investment Objective and Strategies," "Fund Management," and "Other
Information" for further information regarding management of AIF and Global
Science Fund; (iii) see "Fund Management" and "Other Information" for further
information regarding the shares of AIF and Global Science Fund; (iv) see "Fund
Management," "Other Information," and "Shareholder Information" for further
information regarding the purchase, redemption and repurchase of shares of AIF
and Global Science Fund.
20
For more information with respect to AFG and New Technology Fund
concerning the following topics, please refer to the New Technology Fund
Prospectus as indicated: (i) see "Investment Objective and Strategies" and "Fund
Management" for further information regarding AFG and New Technology Fund; (ii)
see discussion in "Investment Objective and Strategies," "Fund Management," and
"Other Information" for further information regarding the shares of AFG and New
Technology Fund; (iii) see "Fund Management," "Other Information," and
"Shareholder Information" for further information regarding the purchase,
redemption and repurchase of AFG and New Technology Fund.
RIGHTS OF SHAREHOLDERS
AFG and AIF are both Delaware statutory trusts. Generally, there will
be no material differences between the rights of shareholders under the
Agreement and the Declaration of Trust of AFG and the rights of shareholders
under the Agreement and the Declaration of Trust of AIF.
21
OWNERSHIP OF NEW TECHNOLOGY FUND AND GLOBAL SCIENCE FUND SHARES
SIGNIFICANT HOLDERS
Listed below is the name, address and percent ownership of each person
who as of ________, 2003, to the knowledge of AFG, owned 5% or more of any class
of the outstanding shares of New Technology 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.
Listed below is the name, address and percent ownership of each person
who as of ________, 2003 to the knowledge of AIF, owned 5% or more of any class
of the outstanding shares of Global Science Fund:
22
<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.
SHARE OWNERSHIP BY EXECUTIVE OFFICERS AND TRUSTEES
To the best of the knowledge of AIF, the ownership of shares of Global
Science Fund by executive officers and trustees of AIF as a group constituted
less than 1% of the outstanding shares of each class of such fund as of
_____________, 2003. To the best of the knowledge of AFG, the ownership of
shares of New Technology Fund by executive officers or trustees of AFG as a
group constituted less than 1% of the outstanding shares of each class of such
fund as of _____________, 2003.
CAPITALIZATION
The following table sets forth as of October 31, 2002, (i) the
capitalization of New Technology Fund Class A, Class B and Class C shares, (ii)
the capitalization of Global Science Fund Class A, Class B and Class C Shares,
and (iii) the pro forma capitalization of Global Science Fund Class A, Class B,
and Class C shares as adjusted to give effect to the transactions contemplated
by the Agreement.
23
NEW TECHNOLOGY FUND AND GLOBAL SCIENCE FUND
<Table>
<Caption>
PRO FORMA
NEW TECHNOLOGY GLOBAL SCIENCE GLOBAL SCIENCE FUND
FUND FUND CLASS A SHARES
CLASS A SHARES CLASS A SHARES AS ADJUSTED
-------------- -------------- ------------------
Net Assets ................... $ 18,148,863 $280,426,370 $298,575,233
Shares Outstanding ........... 8,310,312 57,390,013 61,094,815
Net Asset Value Per Share .... $ 2.18 $ 4.89 $ 4.89
</Table>
<Table>
<Caption>
PRO FORMA
NEW TECHNOLOGY GLOBAL SCIENCE GLOBAL SCIENCE FUND
FUND FUND CLASS B SHARES
CLASS B SHARES CLASS B SHARES AS ADJUSTED
-------------- -------------- ------------------
Net Assets ................... $ 11,698,901 $102,469,882 $114,168,783
Shares Outstanding ........... 5,432,118 22,452,284 25,013,480
Net Asset Value Per Share .... $ 2.15 $ 4.56 $ 4.56
</Table>
<Table>
<Caption>
PRO FORMA
NEW TECHNOLOGY GLOBAL SCIENCE GLOBAL SCIENCE FUND
FUND FUND CLASS C SHARES
CLASS C SHARES CLASS C SHARES AS ADJUSTED
-------------- -------------- ------------------
Net Assets ................... $ 6,420,416 $ 15,960,996 $ 22,381,412
Shares Outstanding ........... 2,979,060 3,497,045 4,908,179
Net Asset Value Per Share .... $ 2.16 $ 4.56 $ 4.56
</Table>
LEGAL MATTERS
Certain legal matters concerning AIF and its participation in the
Reorganization, the issuance of shares of Global Science 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 AFG and
AIF 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 AFG's
registration statement containing the Prospectus and Statement of Additional
Information relating to New Technology Fund is Registration No. 811-01540. Such
Prospectus and Statement of Additional Information are incorporated herein by
reference. The SEC file number for AIF's registration statement containing the
Prospectus and Statement of Additional Information relating to Global Science
Fund is Registration No. 811-06463. Such Prospectus and Statement of Additional
Information are incorporated herein by reference.
AIF and AFG 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 AFG and AIF (including the Registration Statement of AIF relating to Global
Science 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
24
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 AIF, AFG and other registrants that file
electronically with the SEC.
25
APPENDIX I
AGREEMENT
and
PLAN OF REORGANIZATION
for
AIM NEW TECHNOLOGY FUND
a separate portfolio of
AIM FUNDS GROUP
February 6, 2003
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 New Technology 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 Global Science Fund Shares.................................................6
Section 2.7. Investment Securities..................................................................7
Section 2.8. Liabilities............................................................................7
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF AFG...................................................................7
Section 3.1. Organization; Authority................................................................7
Section 3.2. Registration and Regulation of AFG.....................................................7
Section 3.3. Financial Statements...................................................................8
Section 3.4. No Material Adverse Changes; Contingent Liabilities....................................8
Section 3.5. New Technology 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.............................................................................11
Section 3.13. Properties and Assets.................................................................11
Section 3.14. Taxes.................................................................................11
Section 3.15. Benefit and Employment Obligations....................................................12
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.......................................................................13
Section 3.22. Liabilities of New Technology Fund....................................................13
Section 3.23. Value of Shares.......................................................................13
Section 3.24. Shareholder Expenses..................................................................13
Section 3.25. Intercompany Indebtedness.............................................................13
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF AIF..................................................................13
Section 4.1. Organization; Authority...............................................................13
Section 4.2. Registration and Regulation of AIF....................................................13
</Table>
i
<Table>
Section 4.3. Financial Statements..................................................................14
Section 4.4. No Material Adverse Changes; Contingent Liabilities...................................14
Section 4.5. Registration of Global Science Fund Class A Shares, Global Science Fund Class B
Shares and Global Science 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............................................................16
Section 4.10. Permits...............................................................................16
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....................................18
Section 4.16. Value of Shares.......................................................................18
Section 4.17. Intercompany Indebtedness; Consideration..............................................18
ARTICLE 5 COVENANTS..............................................................................................18
Section 5.1. Conduct of Business...................................................................18
Section 5.2. Announcements.........................................................................19
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.......................................................20
Section 5.8. Submission of Agreement to Shareholders...............................................20
ARTICLE 6 CONDITIONS PRECEDENT TO THE REORGANIZATION.............................................................20
Section 6.1. Conditions Precedent of AIF...........................................................20
Section 6.2. Mutual Conditions.....................................................................21
Section 6.3. Conditions Precedent of AFG...........................................................22
ARTICLE 7 TERMINATION OF AGREEMENT...............................................................................23
Section 7.1. Termination...........................................................................23
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.........................................................................24
Section 8.3. Binding Effect, Persons Benefiting, No Assignment.....................................24
Section 8.4. Obligations of AIF and AFG............................................................24
Section 8.5. Amendments............................................................................24
Section 8.6. Enforcement...........................................................................24
Section 8.7. Interpretation........................................................................25
Section 8.8. Counterparts..........................................................................25
Section 8.9. Entire Agreement; Schedules...........................................................25
Section 8.10. Notices...............................................................................25
</Table>
ii
<Table>
Section 8.11. Representations by AIM Advisors.......................................................26
</Table>
Schedule 6.1(d) Opinion of Counsel to AFG
Schedule 6.2(g) Tax Opinions
Schedule 6.3(d) Opinion of Counsel to AIF
iii
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION, dated as of February 6,
2003 (this "Agreement"), by and among AIM Funds Group, a Delaware statutory
trust ("AFG"), acting on behalf of AIM New Technology Fund ("New Technology
Fund"), a separate series of AFG, AIM Investment Funds, a Delaware statutory
trust ("AIF"), acting on behalf of AIM Global Science and Technology Fund
("Global Science Fund"), a separate series of AIF, and A I M Advisors, Inc.
("AIM Advisors"), a Delaware corporation.
WITNESSETH
WHEREAS, AFG 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 New Technology
Fund, for sale to the public; and
WHEREAS, AIF 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 Global Science
Fund, for sale to the public; and
WHEREAS, AIM Advisors provides investment advisory services to
both AFG and AIF; and
WHEREAS, New Technology Fund desires to provide for its
reorganization through the transfer of all of its assets to Global Science Fund
in exchange for the assumption by Global Science Fund of all of the liabilities
of New Technology Fund and the issuance by AIF of shares of Global Science 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, AFG, AIF 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 statutory trust.
"AFG Registration Statement" means the registration statement
on Form N-1A of AFG, as amended, 1940 Act Registration No. 881-01540.
"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 statutory trust.
"AIF Registration Statement" means the registration statement
on Form N-1A of AIF, as amended, 1940 Act Registration No. 881-05426.
"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 AFG on behalf of
New Technology Fund, or otherwise providing benefits to any current or former
employee, officer or trustee of AFG.
"Closing" means the transfer of the assets of New Technology
Fund to Global Science Fund, the assumption of all of New Technology Fund's
liabilities by Global Science Fund and the issuance of Global Science Fund
Shares directly to New Technology Fund Shareholders as described in Section 2.1
of this Agreement.
"Closing Date" means June 23, 2003 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 Global Science Fund and New
Technology 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.
"Global Science Fund" means AIM Global Science and Technology
Fund, a separate series of AIF.
2
"Global Science Fund Class A Shares" means Class A Shares of
beneficial interest of Global Science Fund issued by AIF.
"Global Science Fund Class B Shares" means Class B Shares of
beneficial interest of Global Science Fund issued by AIF.
"Global Science Fund Class C Shares" means Class C Shares of
beneficial interest of Global Science Fund issued by AIF.
"Global Science Fund Financial Statements" shall have the
meaning set forth in Section 4.3 of this Agreement.
"Global Science Fund Shares" means shares of beneficial
interest of Global Science Fund issued pursuant to Section 2.6 of this
Agreement.
"Governmental Authority" means any foreign, United States or
state government, government agency, department, board, commission (including
the SEC) or instrumentality, and 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).
"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.
"New Technology Fund" means AIM New Technology Fund, a
separate series of AFG.
"New Technology Fund Class A Shares" means Class A shares of
beneficial interest of New Technology Fund issued by AFG.
"New Technology Fund Class B Shares" means Class B shares of
beneficial interest of New Technology Fund issued by AFG.
"New Technology Fund Class C Shares" means Class C shares of
beneficial interest of New Technology Fund issued by AFG.
"New Technology Fund Financial Statements" shall have the
meaning set forth in Section 3.3 of this Agreement.
3
"New Technology Fund Shareholders" means the holders of record
as of the Effective Time of the issued and outstanding shares of beneficial
interest in New Technology Fund.
"New Technology Fund Shareholders Meeting" means a meeting of
the shareholders of New Technology Fund convened in accordance with applicable
law and the Agreement and Declaration of Trust of AFG to consider and vote upon
the approval of this Agreement and the Reorganization of New Technology Fund
contemplated by this Agreement.
"New Technology Fund Shares" means the issued and outstanding
shares of beneficial interest in New Technology Fund.
"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 New
Technology Fund by Global Science Fund in consideration of the assumption by
Global Science Fund of all of the liabilities of New Technology Fund and the
issuance by AIF of Global Science Fund Shares directly to New Technology Fund
Shareholders as described in this Agreement, and the termination of New
Technology Fund's status as a designated series of shares of AFG.
"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.
"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 New Technology Fund. At the Effective
Time, all of the assets of New Technology Fund shall be delivered to the
Custodian for the account of Global Science Fund in exchange for the assumption
by Global Science Fund of all of the liabilities of any kind of New Technology
Fund and delivery by AIF directly to (i) the holders of record as of the
Effective Time of the issued and outstanding Class A shares of New Technology
Fund of a number of Global Science 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 New Technology Fund of a number of Global Science 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 New Technology Fund of a number of Global Science
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 New Technology Fund so transferred, assigned and delivered, all
determined and adjusted as provided in Section 2.2 below. Upon delivery of such
assets, Global Science 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 Global Science Fund Shares, and the
net value of the assets of New Technology Fund, shall, in each case, be
determined as of the close of regular trading on the NYSE on the Valuation Date.
(b) The net asset value of Global Science Fund Shares shall be
computed in accordance with the policies and procedures of Global Science Fund
as described in the AIF Registration Statement.
(c) The net value of the assets of New Technology Fund to be
transferred to Global Science Fund pursuant to this Agreement shall be computed
in accordance with the policies and procedures of New Technology Fund as
described in the AFG Registration Statement.
(d) All computations of value regarding the net assets of New
Technology Fund and the net asset value of Global Science Fund Shares to be
issued pursuant to this Agreement shall be made by agreement of AFG and AIF. 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 New Technology Fund and the
net asset value per share of Global Science 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 New Technology
Fund will be permanently closed as of the close of business on the Valuation
Date and only requests for the redemption of shares of New
5
Technology Fund received in proper form prior to the close of regular trading on
the NYSE on the Valuation Date shall be accepted by New Technology Fund.
Redemption requests thereafter received by New Technology Fund shall be deemed
to be redemption requests for Global Science Fund Class A Shares, Global Science
Fund Class B Shares or Global Science Fund Class C Shares, as applicable
(assuming that the transactions contemplated by this Agreement have been
consummated), to be distributed to New Technology Fund Shareholders under this
Agreement.
Section 2.4. Delivery.
(a) Assets held by New Technology Fund shall be delivered by
AFG to the Custodian on the Closing Date. No later than three (3) business days
preceding the Closing Date, AFG shall instruct the Custodian to transfer such
assets to the account of Global Science 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 New Technology 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 Global Science
Fund at the Custodian.
(b) If, on the Closing Date, New Technology Fund is unable to
make delivery in the manner contemplated by Section 2.4(a) of securities held by
New Technology Fund for the reason that any of such securities purchased prior
to the Closing Date have not yet been delivered to New Technology Fund or its
broker, then AIF shall waive the delivery requirements of Section 2.4(a) with
respect to said undelivered securities if New Technology 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 AIF 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 New Technology Fund as a designated series
of shares of AFG shall be terminated; provided, however, that the termination of
the status of New Technology Fund as a series of shares of AFG shall not be
required if the Reorganization shall not have been consummated.
Section 2.6. Issuance of Global Science Fund Shares. At the Effective
Time, New Technology Fund Shareholders of record as of the close of regular
trading on the NYSE on the Valuation Date holding New Technology Fund Class A
shares shall be issued that number of full and fractional Class A shares of
Global Science Fund having a net asset value equal to the net asset value of New
Technology Fund Class A shares held by New Technology Fund Shareholders on the
Valuation Date, New Technology Fund Shareholders of record as of the Valuation
Date holding New Technology Fund Class B shares shall be issued that number of
full and fractional Class B shares of Global Science Fund having a net asset
value equal to the net asset value of New Technology Fund Class B Shares held by
New Technology Fund Shareholders on the Valuation Date, and New Technology Fund
Shareholders of record as of the Valuation Date holding New Technology Fund
Class C shares shall be issued that number of full and fractional
6
Class C shares of Global Science Fund having a net asset value equal to the net
asset value of New Technology Fund Class C shares held by New Technology Fund
Shareholders on the Valuation Date. All issued and outstanding shares of
beneficial interest in New Technology Fund shall thereupon be canceled on the
books of AFG. AFG shall provide instructions to the transfer agent of AIF with
respect to Global Science Fund Class A Shares, Global Science Fund Class B
Shares and Global Science Fund Class C Shares to be issued to New Technology
Fund Shareholders. AIF 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. AIF shall record on
its books the ownership of Global Science Fund Class A, Global Science Fund
Class B and Global Science Fund Class C Shares by New Technology Fund
Shareholders and shall forward a confirmation of such ownership to New
Technology Fund Shareholders. No redemption or repurchase of such shares
credited to former New Technology Fund Shareholders in respect of New Technology
Fund shares represented by unsurrendered share certificates shall be permitted
until such certificates have been surrendered to AIF for cancellation, or if
such certificates are lost or misplaced, until lost certificate affidavits have
been executed and delivered to AIF.
Section 2.7. Investment Securities. On or prior to the Valuation Date,
AFG shall deliver a list setting forth the securities New Technology Fund then
owned together with the respective Federal income tax bases thereof. AFG shall
provide to AIF 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 Global Science Fund hereunder. Such records shall be made available by AFG
prior to the Valuation Date for inspection by the Treasurer (or his or her
designee) or the auditors of AIF upon reasonable request.
Section 2.8. Liabilities. New Technology 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 AFG
AFG, on behalf of New Technology Fund, represents and warrants
to AIF that:
Section 3.1. Organization; Authority. AFG is duly organized, validly
existing and in good standing under the Delaware Statutory 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 AFG. AFG is duly registered
with the SEC as an investment company under the Investment Company Act and all
New Technology 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 AFG to revoke or rescind
any such registration or qualification. New Technology Fund is in compliance in
all material
7
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. New Technology Fund is in compliance in
all material respects with the investment policies and restrictions applicable
to it set forth in the AFG Registration Statement currently in effect. The value
of the net assets of New Technology 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 New Technology Fund and all purchases
and redemptions of New Technology 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 New Technology 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, 2002] of New Technology Fund previously
delivered to AIF (the "New Technology Fund Financial Statements") present fairly
in all material respects the financial position of New Technology Fund as at the
dates indicated and the results of operations and changes in net assets for the
periods then ended in accordance with generally accepted accounting principles
applied on a consistent basis for the periods then ended.
Section 3.4. No Material Adverse Changes; Contingent Liabilities. Since
[December 31, 2002], no material adverse change has occurred in the financial
condition, results of operations, business, assets or liabilities of New
Technology Fund or the status of New Technology 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 New Technology Fund or occurring in the ordinary course of
business of New Technology Fund or AFG. There are no contingent liabilities of
New Technology Fund not disclosed in the New Technology Fund Financial
Statements which are required to be disclosed in accordance with generally
accepted accounting principles.
Section 3.5. New Technology Fund Shares; Liabilities; Business
Operations.
(a) New Technology Fund Shares have been duly authorized and
validly issued and are fully paid and non-assessable.
(b) Since its inception, neither New Technology Fund nor any
person related to New Technology 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 New Technology Fund for consideration other
than shares of New Technology Fund, except for shares redeemed in the ordinary
course of New Technology Fund's business as an open-end investment company as
required by the Investment Company Act, or (ii) made distributions with respect
to New Technology 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
8
distributions do not exceed 50 percent of the value (without giving effect to
such distributions) of the proprietary interest in New Technology Fund on the
Effective Date.
(c) At the time of its Reorganization, New Technology Fund
shall not have outstanding any warrants, options, convertible securities or any
other type of right pursuant to which any Person could acquire New Technology
Fund Shares, except for the right of investors to acquire New Technology Fund
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) From the date it commenced operations and ending on the
Closing Date, New Technology 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, New Technology 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 Global Science Fund.
(e) AFG 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, which has
reported upon the New Technology Fund Financial Statements for the fiscal year
ended December 31, 2002, is the independent public accountant as required by the
Securities Act and the Exchange Act.
Section 3.7. Binding Obligation. This Agreement has been duly
authorized, executed and delivered by AFG on behalf of New Technology Fund and,
assuming this Agreement has been duly executed and delivered by AIF and approved
by New Technology Fund Shareholders, 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 New Technology 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 AFG on behalf of New Technology Fund and performance by AFG of
its obligations hereunder has been duly authorized by all necessary trust action
on the part of AFG, other than New Technology 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 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
New Technology Fund (except for such breaches or defaults or Liens that would
not
9
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 New Technology Fund or to which any
property of New Technology 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 AFG or any
property of New Technology 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 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 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 3.10. Permits. AFG 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
New Technology 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 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 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
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
AFG, threatened in writing or, if probable of assertion, orally, against AFG
affecting any property, asset, interest or right of New Technology Fund, that
could reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect with respect to New Technology 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 New Technology 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 New Technology Fund.
10
Section 3.12. Contracts. AFG 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 New
Technology Fund, by which the assets, business, or operations of New Technology
Fund may be bound or affected, or under which it or the assets, business or
operations of New Technology 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 AFG there has not occurred any event
that, with the lapse of time or the giving of notice or both, would constitute
such a default.
Section 3.13. Properties and Assets. New Technology Fund has good and
marketable title to all properties and assets reflected in the New Technology
Fund Financial Statements as owned by it, free and clear of all Liens, except as
described in New Technology Fund Financial Statements.
Section 3.14. Taxes.
(a) New Technology 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. New Technology
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. New Technology 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 New Technology Fund as a "regulated investment company" for tax purposes and
(ii) eliminate any tax liability of New Technology Fund arising by reason of
undistributed investment company taxable income or net capital gain, AFG will
declare prior to the Valuation Date to the shareholders of New Technology Fund a
dividend or dividends that, together with all previous such dividends, shall
have the effect of distributing (A) all of New Technology Fund's investment
company taxable income (determined without regard to any deductions for
dividends paid) for its taxable year ended December 31, 2002 and for the short
taxable year beginning on January 1, 2003 and ending on the Closing Date and (B)
all of New Technology Fund's net capital gain recognized in its taxable year
ended December 31, 2002 and in such short taxable year (after reduction for any
capital loss carryover).
(b) New Technology 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 New Technology 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 New Technology 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
11
any written requests for such waivers pending and no Returns of New Technology
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.
Section 3.15. Benefit and Employment Obligations. On or prior to the
Closing Date, New Technology 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 Person,
except that New Technology 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 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 3.17. Voting Requirements. At the New Technology Fund
Shareholders Meeting, approval of this Agreement and the Reorganization of New
Technology Fund contemplated by this Agreement requires the affirmative vote of
a majority of the outstanding voting securities of New Technology Fund. Under
the Investment Company Act, the vote of a majority of outstanding voting
securities of New Technology Fund means the affirmative vote of the lesser of
(a) 67% or more of the shares of New Technology Fund present at the meeting or
represented by proxy if the holders of more than 50% of the outstanding shares
of New Technology Fund are present or represented by proxy, or (b) more than 50%
of the outstanding shares of New Technology Fund. Approval of this Agreement and
the Reorganization of New Technology Fund contemplated by this Agreement also
requires the affirmative vote of a majority of shares cast of each of the Class
A, Class B and Class C shares of New Technology Fund, voting separately by
class.
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 AFG relating
to New Technology Fund, reflecting, among other things, the purchase and sale of
New Technology Fund Shares, the number of issued and outstanding shares owned by
each New Technology Fund Shareholder 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 New Technology
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.
12
Section 3.21. No Distribution. Global Science 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 New Technology Fund. The liabilities of
New Technology Fund that are to be assumed by Global Science Fund in connection
with the Reorganization, or to which the assets of New Technology Fund to be
transferred in the Reorganization are subject, were incurred by New Technology
Fund in the ordinary course of its business. The fair market value of the assets
of New Technology Fund to be transferred to Global Science Fund in the
Reorganization will equal or exceed the sum of the liabilities to be assumed by
Global Science 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 Global Science
Fund Class A Shares received by New Technology Fund Shareholders in the
Reorganization will be approximately equal to the fair market value of New
Technology Fund Class A shares constructively surrendered in exchange therefor,
the fair market value of Global Science Fund Class B Shares received by New
Technology Fund Shareholders in the Reorganization will be approximately equal
to the fair market value of New Technology Fund Class B shares constructively
surrendered in exchange therefor, and the fair market value of Global Science
Fund Class C Shares received by New Technology Fund Shareholders in the
Reorganization will be approximately equal to the fair market value of New
Technology Fund Class C shares constructively surrendered in exchange therefor.
Section 3.24. Shareholder Expenses. New Technology 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 AFG and AIF that was issued or acquired, or will be
settled, at a discount.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF AIF
AIF, on behalf of Global Science Fund, represents and warrants
to AFG as follows:
Section 4.1. Organization; Authority. AIF is duly organized, validly
existing and in good standing under the Delaware Statutory 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 AIF. AIF is duly registered
with the SEC as an investment company under the Investment Company Act. Global
Science 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. Global Science Fund is in compliance in all material respects with the
applicable investment policies and restrictions set forth in the AIF
Registration Statement. The value of the net assets of Global Science Fund is
determined using portfolio
13
valuation methods that comply in all material respects with the requirements of
the Investment Company Act and the policies of Global Science Fund and all
purchases and redemptions of Global Science 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 Global Science 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, 2002, of Global Science Fund previously
delivered to AFG (the "Global Science Fund Financial Statements") present fairly
in all material respects the financial position of Global Science Fund as at the
dates indicated and the results of operations and changes in net assets for the
periods then ended in accordance with generally accepted accounting principles
applied on a consistent basis for the periods then ended.
Section 4.4. No Material Adverse Changes; Contingent Liabilities. Since
October 31, 2002, no material adverse change has occurred in the financial
condition, results of operations, business, assets or liabilities of Global
Science Fund or the status of Global Science 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 Global Science Fund or occurring in the ordinary course of
business of Global Science Fund or AIF. There are no contingent liabilities of
Global Science Fund not disclosed in the Global Science Fund Financial
Statements which are required to be disclosed in accordance with generally
accepted accounting principles.
Section 4.5. Registration of Global Science Fund Class A Shares, Global
Science Fund Class B Shares and Global Science Fund Class C Shares.
(a) The shares of beneficial interest of AIF are divided into
eight portfolios, including Global Science Fund. Global Science Fund currently
has three classes of shares, Class A shares, Class B shares and Class C shares.
Under its Agreement and Declaration of Trust, AIF is authorized to issue an
unlimited number of Class A, Class B and Class C Shares of Global Science Fund.
(b) Global Science 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 AIF then in effect.
(c) Global Science 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, Global Science Fund shall not have outstanding any
warrants, options, convertible securities or any other type of right pursuant to
which any Person could acquire Global Science Fund Class A, Global Science Fund
Class B or Global Science Fund Class C shares, except for the right of investors
to acquire Global Science Fund Class A Shares, Global Science Fund Class B
Shares or Global Science Fund Class C Shares at
14
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 AIF's Registration Statement
on Form N-14 shall be furnished to New Technology Fund Shareholders entitled to
vote at the New Technology Fund Shareholders Meeting. The Combined Proxy
Statement/Prospectus and related Statement of Additional Information of Global
Science 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 AFG for inclusion in the Combined
Proxy Statement/Prospectus.
(e) The shares of Global Science Fund which have been or are
being offered for sale (other than the Global Science Fund Shares to be issued
in connection with the Reorganization) have been duly registered under the
Securities Act by the AIF 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 offered for sale, and no action has been taken by AIF to revoke or rescind
any such registration or qualification.
Section 4.6. Accountants. PricewaterhouseCoopers LLP, which has
reported upon the Global Science Fund Financial Statements for the period ended
October 31, 2002, 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 AIF on behalf of Global Science Fund and,
assuming this Agreement has been duly executed and delivered by AFG, 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
Global Science 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 AIF on behalf of Global Science Fund and performance by AIF of
its obligations hereunder have been duly authorized by all necessary trust
action on the part of AIF 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 Global Science Fund (except for such breaches or
defaults or Liens that would not reasonably be expected, individually or in the
aggregate, to have a Material
15
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 Global Science Fund or to which any
properties of Global Science 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 AIF or any property of Global
Science 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.
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 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 4.10. Permits. AIF has in full force and effect all Permits
necessary for it to conduct its business as presently conducted as it relates to
Global Science 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 4.11. No Actions, Suits or Proceedings.
(a) There is no pending action, suit 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
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
AIF, threatened in writing or, if probable of assertion, orally, against AIF,
affecting any property, asset, interest or right of Global Science Fund, that
could reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect with respect to Global Science 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 AIF's conduct of the business
of Global Science 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 Global Science Fund.
Section 4.12. Taxes.
(a) Global Science 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
16
Section 851(g)(1) of the Code. Global Science 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. Global
Science 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) Global Science 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 Global Science 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 Global Science 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 Global Science 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.
Section 4.13. 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 4.14. Representations Concerning the Reorganization.
(a) AIF has no plan or intention to reacquire any Global
Science Fund Shares issued in the Reorganization, except to the extent that
Global Science 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) Global Science Fund has no plan or intention to sell or
otherwise dispose of any of the assets of New Technology 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, Global Science Fund will
continue an "historic business" (within the meaning of Section 1.368-1(d) of the
Income Tax Regulations under the Code) of New Technology Fund or use a
significant portion of New Technology Fund's historic business assets in a
business.
(d) Prior to or in the Reorganization, neither Global Science
Fund nor any person related to Global Science Fund (for purposes of this
paragraph as defined in section 1.368-1(e)(3)
17
of the Treasury Regulations) will have acquired directly or through any
transaction, agreement or arrangement with any other person, shares of New
Technology Fund with consideration other than shares of Global Science Fund.
There is no plan or intention by Global Science Fund or any person related to
Global Science Fund to acquire or redeem any of the Global Science 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 Global Science 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 Global Science
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 Global Science
Fund Class A Shares received by New Technology Fund Shareholders in the
Reorganization will be approximately equal to the fair market value of New
Technology Fund Class A shares constructively surrendered in exchange therefor,
the fair market value of Global Science Fund Class B Shares received by New
Technology Fund Shareholders in the Reorganization will be approximately equal
to the fair market value of New Technology Fund Class B shares constructively
surrendered therefor, and the fair market value of Global Science Fund Class C
Shares received by New Technology Fund Shareholders in the Reorganization will
be approximately equal to the fair market value of New Technology Fund Class C
shares constructively surrendered therefor.
Section 4.17. Intercompany Indebtedness; Consideration. There is no
intercompany indebtedness between AFG and AIF that was issued or acquired, or
will be settled, at a discount. No consideration other than Global Science Fund
Shares (and Global Science Fund's assumption of New Technology Fund's
liabilities, including for this purpose all liabilities to which the assets of
New Technology Fund are subject) will be issued in exchange for the assets of
New Technology Fund acquired by Global Science Fund in connection with the
Reorganization. The fair market value of the assets of New Technology Fund
transferred to Global Science Fund in the Reorganization will equal or exceed
the sum of the liabilities assumed by Global Science 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), AFG shall conduct the business of New Technology Fund
only in the ordinary course and substantially in accordance with past practices,
and shall use its reasonable best efforts to preserve intact its
18
business organization and material assets and maintain the rights, franchises
and business and customer relations necessary to conduct the business of New
Technology 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), AIF shall conduct the business of Global Science 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 Global
Science Fund in the ordinary course in all material respects.
Section 5.2. Announcements. AFG and AIF 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 AFG nor AIF 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.
Section 5.3. Expenses. New Technology Fund and Global Science Fund
shall each, respectively, bear the expenses they incur in connection with this
Agreement and the 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. AIF shall give prompt notice to AFG, and
AFG shall give prompt notice to AIF, of (a) the occurrence or non-occurrence of
any event which to the knowledge of AIF or to the knowledge of AFG, the
occurrence or non-occurrence of which would be likely to result in any of the
conditions specified in (i) in the case of AFG, Sections 6.1 and 6.2 or (ii) in
the case of AIF, 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) 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
19
AFG pertaining to the assets of New Technology 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.
(b) 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 Global Science 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.
Section 5.7. Consents, Approvals and Filings. Each of AFG and AIF 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 AFG and AIF 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 consents of all third
parties necessary for the consummation of the Reorganization and the other
transactions contemplated herein. Each of AFG and AIF 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. AFG shall take
all action necessary in accordance with applicable law and its Agreement and
Declaration of Trust and by-laws to convene the New Technology Fund Shareholders
Meeting. AFG shall, through its Board of Trustees, recommend to New Technology
Fund Shareholders approval of this Agreement and the transactions contemplated
by this Agreement. AFG shall use its reasonable best efforts to hold a New
Technology Fund Shareholders Meeting as soon as practicable after the date
hereof.
ARTICLE 6
CONDITIONS PRECEDENT TO THE REORGANIZATION
Section 6.1. Conditions Precedent of AIF. The obligation of AIF 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 AIF.
(a) The representations and warranties of AFG on behalf of New
Technology 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.
20
(b) AFG shall have complied with and satisfied in all material
respects all agreements and conditions relating to New Technology 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 at 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 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 AFG certifying as to the accuracy and
completeness of the attached Agreement and Declaration of Trust and by-laws 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 in Schedule 6.1(d).
(e) The dividend or dividends described in the last sentence
of Section 3.14(a) shall have been declared.
Section 6.2. Mutual Conditions. The obligations of AFG and AIF 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 of
which may be waived in writing by AFG and AIF, 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 AFG and AIF 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 New Technology Fund
and related matters shall have been approved and adopted at the New Technology
Fund Shareholders Meeting by the shareholders of New Technology Fund on the
record date by the Required Shareholder Vote.
(c) The assets of New Technology Fund to be acquired by Global
Science 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 New
Technology Fund immediately prior to the Reorganization. For purposes of this
Section 6.2(c), assets used by New Technology 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 New Technology
21
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 New Technology 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 AIF with
respect to Global Science Fund Shares to be issued to New Technology 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) AFG and AIF 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 AFG, and AIF, as to the matters set forth on
Schedule 6.2(f). In rendering such opinion, BSA&I may request and rely upon
representations contained in certificates of officers of AFG, AIF and others,
and the officers of AFG and AIF shall use their best efforts to make available
such truthful certificates.
Section 6.3. 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
Global Science 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 Global Science 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 on 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 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 AIF certifying as to the accuracy and
completeness of the attached Agreement and Declaration of Trust and by-laws, as
amended, 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.
22
(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
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 AFG and AIF; or
(ii) at the election of AFG or AIF:
(A) if the Closing Date shall not be on or
before September 1, 2003, or such later date as the
parties hereto may agree upon, unless the failure to
consummate the Reorganization is 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 the New Technology
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 New
Technology Fund is not consummated, this Agreement shall become void and of no
further force and effect with respect to such Reorganization and the respective
New Technology 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
23
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 AIF and AFG.
(a) AFG and AIF hereby acknowledge and agree that Global
Science Fund is a separate investment portfolio of AIF, that AIF is executing
this Agreement on behalf of Global Science 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 Global Science 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 or obligations of AIF incurred hereunder.
(b) AFG and AIF hereby acknowledge and agree that New
Technology Fund is a separate investment portfolio of AFG, that AFG is executing
this Agreement on behalf of New Technology Fund and that any amounts payable by
AFG under or in connection with this Agreement shall be payable solely from the
revenues and assets of New Technology 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 of AFG incurred hereunder.
Section 8.5. Amendments. This Agreement may not be amended, altered or
modified except by a written instrument executed by AFG and AIF.
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.
24
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.
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 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
25
(b) 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
Section 8.11. Representations by AIM Advisors. 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 New Technology Fund
contained in this Agreement are true and correct as of the date of this
Agreement. 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 Global Science Fund contained in this Agreement are true and correct as
of the date of this Agreement. 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 AFG and AIF 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 FUNDS GROUP, acting
on behalf of AIM New Technology Fund
By: /s/ ROBERT H. GRAHAM
-----------------------------------------
AIM INVESTMENT FUNDS, acting on behalf of
AIM Global Science and Technology Fund
By: /s/ ROBERT H. GRAHAM
-----------------------------------------
A I M Advisors, Inc.
By: /s/ MARK H. WILLIAMSON
-----------------------------------------
27
Schedule 6.1(d)
Opinion of Counsel to AFG
1. AFG is validly existing as a statutory trust under the
Delaware Statutory Trust Act.
2. AFG 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 acting on behalf of New Technology
Fund.
4. New Technology Fund Shares outstanding on the date hereof have
been duly authorized and validly issued, and assuming that the
consideration described in the New Technology Fund prospectus
was received in connection therewith, are fully paid and are
non-assessable.
5. To the best of our knowledge, New Technology Fund is not
required to submit any notice, report or other filing with or
obtain any authorization, consent or approval from any
governmental authority of the United States or self regulatory
organization prior to the consummation of the transactions
contemplated by the Agreement other than such notices, reports
or other filings as have previously been made or such
authorizations, consents or approvals as have been previously
obtained.
We confirm to you that to our knowledge, no litigation or governmental
proceeding is pending or threatened in writing against Global Science 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 New Technology Fund to
Global Science Fund in exchange for Global Science Fund Shares distributed
directly to New Technology Fund Shareholders, as provided in the Agreement, will
constitute a "reorganization" within the meaning of Section 368(a) of the Code
and that New Technology Fund and Global Science 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 New Technology Fund on the
transfer of its assets to Global Science Fund solely in exchange for Global
Science Fund Class A Shares, Global Science Fund Class B Shares and Global
Science Fund Class C Shares or on the distribution of Global Science Fund Class
A Shares, Global Science Fund Class B Shares and Global Science Fund Class C
Shares to New Technology Fund Shareholders.
(iii) In accordance with Section 1032 of the Code, no gain or
loss will be recognized by Global Science Fund upon the receipt of assets of New
Technology Fund in exchange for Global Science Fund Class A Shares, Global
Science Fund Class B Shares and Global Science Fund Class C Shares issued
directly to New Technology Fund Shareholders.
(iv) In accordance with Section 354(a)(1) of the Code, no gain
or loss will be recognized by New Technology Fund Shareholders on the receipt of
Global Science Fund Class A Shares, Global Science Fund Class B Shares and
Global Science Fund Class C Shares in exchange for New Technology Fund Shares.
(v) In accordance with Section 362(b) of the Code, the basis
to Global Science Fund of the assets of New Technology Fund will be the same as
the basis of such assets in the hands of New Technology Fund immediately prior
to the Reorganization.
(vi) In accordance with Section 358(a) of the Code, a New
Technology Fund Shareholder's basis for Global Science Fund Class A Shares,
Global Science Fund Class B Shares or Global Science Fund Class C Shares
received by the New Technology Fund Shareholder will be the same as his basis
for New Technology Fund Shares exchanged therefor.
(vii) In accordance with Section 1223(1) of the Code, a New
Technology Fund Shareholder's holding period for Global Science Fund Class A
Shares, Global Science Fund Class B Shares or Global Science Fund Class C Shares
will be determined by including New Technology Fund Shareholder's holding period
for New Technology Fund Shares exchanged therefor, provided that the New
Technology Fund Shareholder held New Technology 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 New Technology Fund transferred to
Global Science Fund in the
Reorganization will include the holding period for such assets in the hands of
New Technology Fund.
Schedule 6.3(d)
Opinion of Counsel to AIF
1. AIF is validly existing as a statutory trust under the
Delaware Statutory 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 acting on behalf of Global Science
Fund.
4. Class A shares, Class B shares and Class C shares of Global
Science Fund to be issued pursuant to the Agreement have been
duly authorized, and upon completion of the transactions
described in the Agreement, will be validly issued, fully paid
and non-assessable.
5. To the best of our knowledge, Global Science Fund is not
required to submit any notice, report or other filing with or
obtain any authorization, consent or approval from any
governmental authority of the United States or self regulatory
organization prior to the consummation of the transactions
contemplated by the Agreement other than such notices, reports
or other filings as have previously been made or such
authorizations, consents or approvals as have been previously
obtained.
We confirm to you that to our knowledge, no litigation or governmental
proceeding is pending or threatened in writing against Global Science Fund (i)
with respect to the Agreement or (ii) which involves in excess of $500,000 in
damages.
AIM GLOBAL SCIENCE AND TECHNOLOGY FUND
March 3, 2003
Prospectus
AIM Global Science and Technology Fund seeks to provide
long-term growth of capital.
--------------------------------------------------------
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.
An investment in the fund:
- is not FDIC insured;
- may lose value; and
- is not guaranteed by a bank.
INVEST WITH DISCIPLINE [AIM LOGO APPEARS HERE]
- --Registered Trademark-- --Registered Trademark--
--------------------------------------
AIM GLOBAL SCIENCE AND TECHNOLOGY 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-10
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, AIM
Investments, AIM Investments 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 SCIENCE AND TECHNOLOGY FUND
--------------------------------------
INVESTMENT OBJECTIVE AND STRATEGIES
- --------------------------------------------------------------------------------
The fund's investment objective is long-term growth of capital. 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 80% of
its assets in securities of science and technology industry companies. Science
and technology industry companies are those that develop, manufacture or sell
computer and electronic components and equipment, software, semiconductors,
Internet technology, communications services and equipment, mobile
communications, broadcasting, biotechnology, healthcare, medical equipment and
devices, aerospace and defense, media, and environmental services.
In complying with the 80% investment requirement, the fund will invest
primarily in marketable equity securities, including convertible 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. The fund may also invest in debt securities
issued by science and technology industry companies, or in equity and debt
securities of other companies the portfolio managers believe will benefit from
developments in the science and technology industry.
The fund will normally invest in the securities of companies located in at
least three 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 40% 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 countries that are in the initial stages of their industrial cycles. The
fund may also invest up to 5% of its total assets in lower-quality debt
securities, i.e., "junk bonds." For cash management purposes, the fund may also
hold a portion of its assets in cash or cash equivalents, including shares of
affiliated money market funds. Any percentage limitations with respect to assets
of the fund are applied at the time of purchase.
The portfolio managers focus on companies that have experienced
above-average, long-term growth in earnings and have strong prospects for future
growth. In selecting countries in which the fund will invest, the fund's
portfolio managers also consider such factors as the prospect for relative
economic growth among countries or regions, economic or political conditions,
currency exchange fluctuations, tax considerations and the liquidity of a
particular security. The fund's 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 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, cash
equivalents or high-quality debt instruments. As a result, the fund may not
achieve its investment objective.
The fund may engage in active and frequent trading of portfolio securities
to achieve its investment objective. If the fund does trade in this way, it may
incur increased transaction costs, which can lower the actual return on your
investment. Active trading may also increase short-term gains and losses, which
may affect the taxes you have to pay.
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. 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.
Because the fund focuses its investments in the science and technology
industries, the value of your fund shares may rise and fall more than the value
of shares of a fund that invests more broadly.
The value of the fund's shares is particularly vulnerable to factors
affecting the science and technology industries, such as substantial government
regulations and the need for governmental approvals, dependency on consumer and
business acceptance as new technologies evolve, and large and rapid price
movements resulting from, among other things, fierce competition in these
industries. Additional factors affecting the technology industry and the value
of your shares include rapid obsolescence of products and services, short
product cycles, and aggressive pricing. Many technology companies are small and
at an earlier state of development and, therefore, may be subject to risks such
as those arising out of limited product lines, markets, and financial and
managerial resources.
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 traded.
- - Political and economic conditions--The value of the fund's foreign investments
may be adversely affected by political and social
1
--------------------------------------
AIM GLOBAL SCIENCE AND TECHNOLOGY FUND
--------------------------------------
instability in their home 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 and governments 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 affect 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 in a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
2
--------------------------------------
AIM GLOBAL SCIENCE AND TECHNOLOGY 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
- --------------------------------------------------------------------------------
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
- ----------- -------
1993.................................................................. 47.66%
1994.................................................................. -4.40%
1995.................................................................. 8.59%
1996.................................................................. 5.24%
1997.................................................................. 13.18%
1998.................................................................. 18.14%
1999.................................................................. 108.08%
2000.................................................................. -38.86%
2001.................................................................. -54.15%
2002.................................................................. -44.00%
</Table>
During the periods shown in the bar chart, the highest quarterly return was
62.18% (quarter ended December 31, 1999) and the lowest quarterly return was
- -50.36% (quarter ended March 31, 2001).
PERFORMANCE TABLE
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 December 31, SINCE INCEPTION
2002) 1 YEAR 5 YEARS 10 YEARS INCEPTION(1) DATE
- ------------------------------------------------------------------------------------------
Class A 01/27/92
Return Before Taxes (46.69)% (18.14)% (3.91)% --
Return After Taxes on
Distributions (46.69) (19.18) (5.23) --
Return After Taxes on
Distributions and Sale
of Fund Shares (28.67) (11.34) (1.64) --
Class B 04/01/93
Return Before Taxes (47.03) (18.00) -- (4.61)
Class C 03/01/99
Return Before Taxes (44.80) -- -- (26.84)
- ------------------------------------------------------------------------------------------
S&P 500(2) (reflects no deduction
for fees, expenses, or taxes) (22.09) (0.58) 9.34 --
- ------------------------------------------------------------------------------------------
</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) Since Inception performance is only provided for a class with less than ten
calendar years of performance.
(2) 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.
3
--------------------------------------
AIM GLOBAL SCIENCE AND TECHNOLOGY 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) 4.75% None None
Maximum Deferred
Sales Charge (Load)
(as a percentage of
original purchase price
or redemption proceeds,
whichever is less) None(1,2) 5.00% 1.00%
- --------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
ANNUAL FUND OPERATING EXPENSES(3)
- --------------------------------------------------------------------------------
(expenses that are deducted
from fund assets) CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
Management Fees 0.97% 0.97% 0.97%
Distribution and/or Service (12b-1) Fees 0.50 1.00 1.00
Other Expenses 1.09 1.09 1.09
Total Annual Fund Operating Expenses 2.56 3.06 3.06
Fee Waivers(4) 0.55 0.55 0.55
Net Expenses 2.01 2.51 2.51
- --------------------------------------------------------------------------------
</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) Effective November 1, 2002, if you are a retirement plan participant and you
bought $1,000,000 or more of Class A shares, you may pay a 1.00% CDSC if a
total redemption of the retirement plan assets occurs within 12 months from
the date of the retirement plan's initial purchase.
(3) There is no guarantee that actual expenses will be the same as those shown
in the table.
(4) The investment advisor has contractually agreed to limit Total Annual Fund
Operating Expenses (excluding interest, taxes, dividend expense on short
sales, extraordinary items and increases in expenses 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. The expense limitation agreement is in effect from
July 1, 2002 through June 30, 2003.
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 $722 $1,234 $1,771 $3,233
Class B 809 1,245 1,806 3,258
Class C 409 945 1,606 3,374
- --------------------------------------------------------------------------------
</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 $722 $1,234 $1,771 $3,233
Class B 309 945 1,606 3,258
Class C 309 945 1,606 3,374
- --------------------------------------------------------------------------------
</Table>
4
--------------------------------------
AIM GLOBAL SCIENCE AND TECHNOLOGY 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 190 investment portfolios, including the fund, encompassing a broad range
of investment objectives.
ADVISOR COMPENSATION
During the fiscal year ended October 31, 2002, the advisor received compensation
of 0.42% 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 management of the
fund's portfolio are
- - Abel Garcia (lead manager) Senior Portfolio Manager, who has been responsible
for the fund since 2000 and has been associated with the advisor and/or its
affiliates since 2000. From 1984 to 2000, he was a Senior Portfolio Manager
for Waddell & Reed.
- - Warren Tennant, Senior Analyst, who has been responsible for the fund since
2002 and has been associated with the advisor and/or its affiliates since
2000. From 1998 to 2000 he attended graduate school at the University of Texas
where he earned his M.B.A. From 1993 to 1998, he worked as a lead auditor for
Exxon.
More information on the fund's management team may be found on our website
(http://www.aiminvestments.com).
OTHER INFORMATION
- --------------------------------------------------------------------------------
SALES CHARGES
Purchases of Class A shares of AIM Global Science and Technology Fund are
subject to the maximum 4.75% initial sales charge as listed under the heading
"CATEGORY II Initial Sales Charges" in the "Shareholder Information--Choosing a
Share Class" section of this prospectus. Certain purchases of Class A shares at
net asset value may be subject to the contingent deferred sales charge listed in
that section. 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 primarily of
capital gains.
DIVIDENDS
The fund generally declares and pays dividends, if any, annually.
CAPITAL GAINS DISTRIBUTIONS
The fund generally distributes long-term and short-term capital gains, if any,
annually.
5
--------------------------------------
AIM GLOBAL SCIENCE AND TECHNOLOGY 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).
This information 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.
<Table>
<Caption>
CLASS A
-------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
-------------------------------------------------------------------------
2002 2001 2000 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 7.41 $ 30.61 $ 26.44 $ 16.28 $ 18.04
- -----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.12)(a) (0.20)(a) 0.06(a)(b) (0.25) (0.17)(a)
- -----------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) (2.40) (19.12) 7.23 10.97 (0.39)
=============================================================================================================================
Total from investment operations (2.52) (19.32) 7.29 10.72 (0.56)
=============================================================================================================================
Less distributions from net realized gains -- (3.88) (3.12) (0.56) (1.20)
=============================================================================================================================
Net asset value, end of period $ 4.89 $ 7.41 $ 30.61 $ 26.44 $ 16.28
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Total return(c) (34.01)% (71.16)% 27.52% 67.63% (3.16)%
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $280,426 $438,702 $1,513,595 $1,023,124 $713,904
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 2.01%(d) 1.98% 1.63% 1.77% 1.88%
- -----------------------------------------------------------------------------------------------------------------------------
Without fee waivers 2.56%(d) 2.03% 1.63% 1.77% 1.88%
=============================================================================================================================
Ratio of net investment income (loss) to average
net assets (1.76)%(d) (1.57)% 0.16% (1.11)% (0.93)%
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Portfolio turnover rate 115% 173% 111% 122% 75%
_____________________________________________________________________________________________________________________________
=============================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Net investment income per share reflects dividend income of $0.49 per share
recognized from the spin-off of Nortel Networks Corp. from BCE, Inc.
(c) Includes adjustments in accordance with generally accepted accounting
principals and does not include sales charges.
(d) Ratios are based on average daily assets of $393,080,194.
6
--------------------------------------
AIM GLOBAL SCIENCE AND TECHNOLOGY FUND
--------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
<Table>
<Caption>
CLASS B
----------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
----------------------------------------------------------------------
2002 2001 2000 1999 1998
--------- -------- ---------- --------- --------
Net asset value, beginning of period $ 6.96 $ 29.17 $ 25.43 $ 15.76 $ 17.58
- -------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.14)(a) (0.25)(a) (0.11)(a)(b) (0.35) (0.25)(a)
- -------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized
and unrealized) (2.26) (18.08) 6.97 10.58 (0.37)
=========================================================================================================================
Total from investment operations (2.40) (18.33) 6.86 10.23 (0.62)
=========================================================================================================================
Less distributions from net realized gains -- (3.88) (3.12) (0.56) (1.20)
=========================================================================================================================
Net asset value, end of period $ 4.56 $ 6.96 $ 29.17 $ 25.43 $ 15.76
_________________________________________________________________________________________________________________________
=========================================================================================================================
Total return(c) (34.48)% (71.30)% 26.87% 66.84% (3.67)%
_________________________________________________________________________________________________________________________
=========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $102,470 $287,394 $1,414,915 $898,400 $614,715
_________________________________________________________________________________________________________________________
=========================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 2.51%(d) 2.48% 2.13% 2.28% 2.38%
- -------------------------------------------------------------------------------------------------------------------------
Without fee waivers 3.06%(d) 2.53% 2.13% 2.28% 2.38%
=========================================================================================================================
Ratio of net investment income (loss) to average
net assets (2.26)%(d) (2.07)% (0.34)% (1.62)% (1.43)%
_________________________________________________________________________________________________________________________
=========================================================================================================================
Portfolio turnover rate 115% 173% 111% 122% 75%
_________________________________________________________________________________________________________________________
=========================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Net investment income per share reflects dividend income of $0.49 per share
recognized from the spin-off of Nortel Networks Corp. from BCE, Inc.
(c) Includes adjustments in accordance with generally accepted accounting
principals and does not include contingent deferred sales charges.
(d) Ratios are based on average daily net assets of $195,277,846.
<Table>
<Caption>
CLASS C
--------------------------------------------------------------------
MARCH 1, 1999
(DATE SALES
YEAR ENDED OCTOBER 31, COMMENCED) TO
-------------------------------------------- OCTOBER 31,
2002 2001 2000 1999
-------- ------- -------- --------------
Net asset value, beginning of period $ 6.96 $ 29.16 $ 25.43 $ 19.23
- ----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.14)(a) (0.25)(a) (0.11)(a)(b) (0.11)
- ----------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) (2.26) (18.07) 6.96 6.31
======================================================================================================================
Total from investment operations (2.40) (18.32) 6.85 6.20
======================================================================================================================
Less distributions from net realized gains -- (3.88) (3.12) --
======================================================================================================================
Net asset value, end of period $ 4.56 $ 6.96 $ 29.16 $ 25.43
______________________________________________________________________________________________________________________
======================================================================================================================
Total return(c) (34.48)% (71.29)% 26.83% 32.24%
______________________________________________________________________________________________________________________
======================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $15,961 $28,652 $114,667 $12,352
______________________________________________________________________________________________________________________
======================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 2.51%(d) 2.48% 2.13% 2.28%(e)
- ----------------------------------------------------------------------------------------------------------------------
Without fee waivers 3.06%(d) 2.53% 2.13% 2.28%(e)
======================================================================================================================
Ratio of net investment income (loss) to average
net assets (2.26)%(d) (2.07)% (0.34)% (1.62)%(e)
______________________________________________________________________________________________________________________
======================================================================================================================
Portfolio turnover rate 115% 173% 111% 122%
______________________________________________________________________________________________________________________
======================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Net investment income per share reflects dividend income of $0.49 per share
recognized from the spin-off of Nortel Networks Corp. from BCE, Inc.
(c) Includes adjustments in accordance with generally accepted accounting
principals and 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 $24,228,588.
(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 consult your financial advisor as to which class is most suitable for
you. In addition, you should consider the factors below:
<Table>
<Caption>
CLASS A(1) CLASS A3 CLASS B CLASS C
- ----------------------------------------------------------------------------------------------------------
- - Initial sales charge - No initial sales charge - No initial sales charge - No initial sales charge
- - Reduced or waived - No contingent deferred - Contingent deferred - Contingent deferred
initial sales charge sales charge sales charge on sales charge on
for certain redemptions within six redemptions within one
purchases(2,3) years year(5)
- - Generally, lower - 12b-1 fee of 0.35% - 12b-1 fee of 1.00% - 12b-1 fee of 1.00%
distribution and
service (12b-1) fee
than Class B, Class C
or Class R shares (See
"Fee Table and Expense
Example")
- Does not convert to - Converts to Class A - Does not convert to
Class A shares shares at the end of Class A shares
the month which is
eight years after the
date on which shares
were purchased along
with a pro rata portion
of its reinvested
dividends and
distributions(4)
- - Generally more - Generally more - Purchase orders limited - Generally more
appropriate for appropriate for to amounts less than appropriate for
long-term investors short-term investors $250,000 short-term investors
- ----------------------------------------------------------------------------------------------------------
<Caption>
CLASS A(1) CLASS R
- -------------------------
- - Initial sales charge - No initial sales charge
- - Reduced or waived - Generally, no
initial sales charge contingent deferred
for certain sales charge(2)
purchases(2,3)
- - Generally, lower - 12b-1 fee of 0.50%
distribution and
service (12b-1) fee
than Class B, Class C
or Class R shares (See
"Fee Table and Expense
Example")
- Does not convert to
Class A shares
- - Generally more - Generally, only
appropriate for available to the
long-term investors following types of
retirement plans: (i)
all section 401 and 457
plans, (ii) section 403
plans sponsored by
section 501(c)(3)
organizations, and
(iii) IRA rollovers
from such plans if an
AIM Fund was offered
- ------------------------------------------------------------------------------
</Table>
Certain AIM Funds also offer Institutional Class shares to certain eligible
institutional investors; consult the fund's Statement of Additional Information
for details.
(1) As of the close of business on October 30, 2002, Class A shares of AIM
Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund were
closed to new investors.
(2) A contingent deferred sales charge may apply in some cases.
(3) AIM Opportunities I Fund will not accept any single purchase order in excess
of $250,000.
(4) 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.
(5) A contingent deferred sales charge (CDSC) does not apply to redemption of
Class C shares of AIM Short Term Bond Fund unless you exchange Class C
shares of another AIM Fund that are subject to a CDSC into AIM Short Term
Bond Fund.
DISTRIBUTION AND SERVICE (12b-1) FEES
Each AIM Fund (except AIM Tax-Free Intermediate Fund with respect to its Class A
shares) 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.
MCF--12/02
A-1
------------------
THE AIM FUNDS
------------------
SHAREHOLDER INFORMATION (CONTINUED)
- --------------------------------------------------------------------------------
<Table>
<Caption>
CATEGORY I INITIAL SALES CHARGES
- ---------------------------------------------------------------
- -------------------------------------------------------------
<Caption>
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 Opportunities I Fund will not accept any single purchase order in excess
of $250,000.
<Table>
<Caption>
CATEGORY II INITIAL SALES CHARGES
- -----------------------------------------------------------
- -------------------------------------------------------------
<Caption>
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
- -----------------------------------------------------------
- -------------------------------------------------------------
<Caption>
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 A 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.
You will not pay an initial sales charge or a contingent deferred sales
charge (CDSC) on Class A3 shares of AIM Limited Maturity Treasury Fund and AIM
Tax-Free Intermediate 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 CDSC of
1%.
If you made a Large Purchase of Class A shares of Category III Funds at net
asset value during the period November 15, 2001 through October 30, 2002, such
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 (through October 30, 2002 for Category III Funds only) 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% 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 or after October 30, 2002.
Some retirement plans can purchase Class A shares at their net asset value
per share. Effective November 1, 2002, if the distributor paid a concession to
the dealer of record in connection with a Large Purchase of Class A shares by a
retirement plan, the Class A shares may be subject to a 1% CDSC at the time of
redemption if all retirement plan assets are redeemed within one year from the
date of the plan's initial purchase.
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 and purchases by certain retirement plans.
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>
You can purchase Class C shares of AIM Short Term Bond Fund at their net asset
value and not subject to a CDSC. However, you may be charged a CDSC when you
redeem Class C shares of AIM Short Term Bond Fund if you acquired those shares
through an exchange, and the shares originally purchased were subject to a CDSC.
CONTINGENT DEFERRED SALES CHARGES FOR CLASS R SHARES
You can purchase Class R shares at their net asset value per share. If the
distributor pays a concession to the dealer of record, however, the Class R
shares are subject to a 0.75% CDSC at the time of
MCF--12/02
A-2
------------------
THE AIM FUNDS
------------------
SHAREHOLDER INFORMATION (CONTINUED)
- --------------------------------------------------------------------------------
redemption if all retirement plan assets are redeemed within 12 months from the
date of the retirement plan's initial purchase.
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, C or R) 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, Class A3 shares of
AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate 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 pursuant to Rights
of Accumulation or Letters of Intent.
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 Class C shares of an AIM Fund other than AIM Short Term Bond
Fund and you received such Class C shares by exchanging Class C shares of AIM
Short Term Bond Fund;
- - if you redeem Class C shares of AIM Short Term Bond Fund unless you received
such Class C shares by exchanging Class C shares of another AIM Fund and the
original purchase was subject to a CDSC;
- - if you are a participant in a retirement plan and your plan redeems, at any
time, less than all of the Class R shares held through such plan that would
otherwise be subject to a CDSC;
- - if you are a participant in a retirement plan and your plan redeems, after
having held them for more than one year from the date of the plan's initial
purchase, all of the Class R shares held through such plan that would
otherwise be subject to a CDSC;
- - 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.
MCF--12/02
A-3
------------------
THE AIM FUNDS
------------------
SHAREHOLDER INFORMATION (CONTINUED)
- --------------------------------------------------------------------------------
PURCHASING SHARES
MINIMUM INVESTMENTS PER AIM FUND ACCOUNT
There are no minimum investments with respect to Class R shares for AIM Fund
accounts. The minimum investments with respect to Class A, A3, B and C shares
for AIM Fund accounts (except for investments in AIM Opportunities I Fund, AIM
Opportunities II Fund and AIM Opportunities III Fund) are as follows:
<Table>
<Caption>
INITIAL ADDITIONAL
TYPE OF ACCOUNT INVESTMENTS INVESTMENTS
- -------------------------------------------------------------------------------------------------------------------------
Savings Plans (money-purchase/profit sharing plans, 401(k) $ 0 ($25 per AIM Fund investment for $25
plans, Simplified Employee Pension (SEP) accounts, Salary salary deferrals from Savings
Reduction (SARSEP) accounts, Savings Incentive Match Plans 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 Opportunities I Fund, AIM Opportunities
II Fund and AIM Opportunities III 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 Opportunities I 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. In accordance with the USA PATRIOT Act, if you fail to provide all
the required information requested in the current account application, your
purchase order will not be processed.
PURCHASE OPTIONS
- --------------------------------------------------------------------------------
<Table>
<Caption>
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
- -------------------------------------------------------------------------------------------------------------------------
Through a Financial Consultant Contact your financial consultant. Same
By Mail Mail completed account application and Mail your check and the remittance slip
check to the transfer agent, A I M Fund from your confirmation statement to the
Services, Inc., P.O. Box 4739, Houston, transfer agent.
TX 77210-4739.
By Wire Mail completed account application to Call the transfer agent to receive a
the transfer agent. Call the transfer reference number. Then, use the wire
agent at (800) 959-4246 to receive a instructions at left.
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 #
By AIM Bank Connection--Servicemark-- Open your account using one of the Select the AIM Bank Connection option
methods described above. 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 Open your account using one of the Select the AIM Internet Connect option
Connect--Servicemark-- methods described above. 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.AIMinvestments.com. You may not
purchase shares in AIM prototype
retirement accounts on the internet.
- -------------------------------------------------------------------------------------------------------------------------
</Table>
MCF--12/02
A-4
------------------
THE AIM FUNDS
------------------
SHAREHOLDER INFORMATION (CONTINUED)
- --------------------------------------------------------------------------------
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.
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 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
PURCHASED AFTER AN EXCHANGE CDSC APPLICABLE UPON
--------- ----------------- REDEMPTION OF SHARES
- - Class A shares of - Class A shares of - 1% if shares are
Category I or II Category I or II Fund redeemed within 18
Fund - Class A shares of months of initial
Category III Fund(1) purchase of Category
- AIM Cash Reserve I or II Fund shares
Shares of AIM
Money Market Fund
- - Class A shares of - Class A shares of - No CDSC
Category III Category III Fund(1)
Fund(1) - Class A shares of
AIM Tax-Exempt
Cash Fund
- AIM Cash Reserve
Shares of AIM
Money Market Fund
</Table>
(1) Beginning on February 17, 2003, Class A shares of a Category I, II or III
Fund may not be exchanged for Class A shares of a Category III Fund.
MCF--12/02
A-5
------------------
THE AIM FUNDS
------------------
SHAREHOLDER INFORMATION (CONTINUED)
- --------------------------------------------------------------------------------
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 on and
after November 15, 2001 (and through October 30, 2002 with respect to Class A
shares of Category III Funds), or if you make additional purchases of Class A
shares on and after November 15, 2001 (and through October 30, 2002 with respect
to Class A shares of Category III Funds) at net asset value, your shares may be
subject to a CDSC upon redemption, as described below.
<Table>
<Caption>
SHARES
INITIALLY SHARES HELD CDSC APPLICABLE UPON
PURCHASED AFTER AN EXCHANGE REDEMPTION OF SHARES
--------- ----------------- --------------------
- - Class A - Class A shares of - 1% if shares are
shares of Category I or II Fund redeemed within 18
Category I - Class A shares of months of initial
or II Fund Category III Fund(1) purchase of Category
- AIM Cash Reserve I or II Fund shares
Shares of AIM
Money Market Fund
- - Class A - Class A shares of - 1% if shares are
shares of Category I or II Fund redeemed within 18
Category 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(1) redeemed within 12
Category - Class A shares of months of initial
III Fund AIM Tax-Exempt purchase of Category
Cash Fund III Fund shares
- AIM Cash Reserve
Shares of AIM
Money Market Fund
</Table>
(1) Beginning on February 17, 2003, Class A shares of a Category I, II or III
Fund may not be exchanged for Class A shares of a Category III Fund.
REDEMPTION OF CLASS A SHARES AND AIM CASH RESERVE SHARES ACQUIRED BY EXCHANGE
FOR PURCHASES MADE AFTER OCTOBER 30, 2002
If you purchase $1,000,000 or more of Class A shares of any AIM Fund on or after
October 31, 2002, or if you make additional purchases of Class A shares on and
after October 31, 2002 at net asset value, your shares may be subject to a CDSC
upon redemption as described below.
<Table>
<Caption>
SHARES
INITIALLY SHARES HELD CDSC APPLICABLE UPON
PURCHASED AFTER AN EXCHANGE REDEMPTION OF SHARES
--------- ----------------- --------------------
- - Class A - Class A shares of - 1% if shares are
shares of Category I or II Fund redeemed within 18
Category I - Class A shares of months of initial
or II Fund Category III Fund(2) purchase of Category
- AIM Cash Reserve I or II Fund shares
Shares of AIM Money
Market Fund
- - Class A - Class A shares of - 1% if shares are
shares of Category I or II Fund redeemed within 18
Category months of initial
III purchase of Category
Fund(1) III Fund shares
- - Class A - Class A shares of - No CDSC
shares of Category III Fund(2)
Category III - Class A shares of AIM
Fund(1) Tax-Exempt Cash Fund
- AIM Cash Reserve
Shares of AIM Money
Market
</Table>
(1) As of the close of business on October 30, 2002, only existing shareholders
of Class A shares of a Category III Fund may purchase such shares.
(2) Beginning on February 17, 2003, Class A shares of a Category I, II or III
Fund may not be exchanged for Class A shares of Category III Fund.
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.
MCF--12/02
A-6
------------------
THE AIM FUNDS
------------------
SHAREHOLDER INFORMATION (CONTINUED)
- --------------------------------------------------------------------------------
HOW TO REDEEM SHARES
- --------------------------------------------------------------------------------
<Table>
Through a Financial Consultant Contact your financial 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.
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.AIMinvestments.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.
MCF--12/02
A-7
------------------
THE AIM FUNDS
------------------
SHAREHOLDER INFORMATION (CONTINUED)
- --------------------------------------------------------------------------------
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.
REINSTATEMENT PRIVILEGES
You may, within 120 days after you sell shares (except Class R shares, Class A
shares of AIM Tax-Exempt Cash Fund, AIM Cash Reserve Shares of AIM Money Market
Fund and Class A shares and Class A3 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 Category I or II AIM Fund at net
asset value in an identically registered account.
You may, within 120 days after you sell some but not all of your 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 an initial sales charge on any reinstated amount, you will
receive credit on purchases of Class A shares of a Category I or II Fund.
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 (Class A, Class A3, Class B and Class C shares only) 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 under "Exchanges Not Permitted," you generally may
exchange your shares for shares of the same class of another AIM Fund.
You may also exchange:
(1) Class A shares of an AIM Fund for AIM Cash Reserve Shares of AIM Money
Market Fund;
(2) Class A shares of an AIM Fund (excluding AIM Limited Maturity Treasury Fund,
AIM Tax-Exempt Cash Fund and AIM Tax-Free Intermediate Fund) for Class A3
shares of an AIM Fund;
(3) Class A3 shares of an AIM Fund for AIM Cash Reserve shares of AIM Money
Market Fund;
(4) Class A3 shares of an AIM Fund for Class A shares of any AIM Fund (excluding
AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund);
(5) AIM Cash Reserve Shares of AIM Money Market Fund for Class A3 shares of an
AIM Fund;
(6) AIM Cash Reserve Shares of AIM Money Market Fund for Class A shares of any
AIM Fund (excluding AIM Limited Maturity Treasury Fund and AIM Tax-Free
Intermediate Fund, effective February 17, 2003, and AIM Tax-Exempt Cash
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.
MCF--12/02
A-8
------------------
THE AIM FUNDS
------------------
SHAREHOLDER INFORMATION (CONTINUED)
- --------------------------------------------------------------------------------
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 (excluding Class A shares of AIM
Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund) for
(a) Class A shares of another AIM Fund;
(b) AIM Cash Reserve Shares of AIM Money Market Fund; or
(c) Class A3 shares of AIM Limited Maturity Treasury Fund or AIM Tax-Free
Intermediate 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) Class A shares of an AIM Fund subject to an initial sales charge
(excluding 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 (excluding Class A shares of AIM Limited
Maturity Treasury Fund and AIM Tax-Free Intermediate Fund); or
(4) Class A3 shares of AIM Limited Maturity Treasury Fund or AIM Tax-Free
Intermediate Fund for
(a) AIM Cash Reserve Shares of AIM Money Market Fund; or
(b) Class A shares of AIM Tax-Exempt Cash Fund.
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;
(3) Class C shares for other Class C shares; or
(4) Class R shares for other Class R shares.
EXCHANGES NOT PERMITTED
Certain classes of shares are not covered by the exchange privilege.
You may not exchange:
(1) Class A shares of a Category I or II Fund for Class A shares of a Category
III Fund after February 16, 2003
(2) Class A shares of a Category III Fund for Class A shares of another Category
III Fund after February 16, 2003
For shares purchased prior to November 15, 2001, you may not exchange:
(1) Class A shares of Category I or II Funds (i) subject to an initial sales
charge or (ii) purchased at net asset value and subject to a contingent
deferred sales charge (CDSC) for Class A shares of AIM Tax-Exempt Cash Fund;
(2) Class A shares of Category III Funds purchased at net asset value for Class
A shares of a Category I or II Fund;
(3) AIM Cash Reserve Shares of AIM Money Market Fund for Class B or Class C
shares of any AIM Fund;
(4) 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
(5) 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:
(1) Class A shares of Category I or II Funds (i) subject to an initial sales
charge or (ii) purchased at net asset value and subject to a CDSC for Class
A shares of AIM Tax-Exempt Cash Fund;
(2) Class A shares of AIM Tax-Exempt Cash Fund for Class A shares of any other
AIM Fund (i) subject to an initial sales charge or (ii) purchased at net
asset value and subject to a CDSC or for AIM Cash Reserve Shares of AIM
Money Market Fund; or
(3) 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;
MCF--12/02
A-9
------------------
THE AIM FUNDS
------------------
SHAREHOLDER INFORMATION (CONTINUED)
- --------------------------------------------------------------------------------
- - 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 terminate this privilege at any time. The AIM Fund or
the distributor will provide you with notice of such modification or termination
whenever it is required to do so by applicable law, but may impose changes at
any time for emergency purposes.
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.
EXCHANGING CLASS B, CLASS C AND CLASS R SHARES
If you make an exchange involving Class B or Class C shares or Class R shares
subject to a CDSC, the amount of time you held the original shares will be
credited to the holding period of the Class B, Class C or Class R 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
- SUSPEND, CHANGE 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 may 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
MCF--12/02
A-10
------------------
THE AIM FUNDS
------------------
SHAREHOLDER INFORMATION (CONTINUED)
- --------------------------------------------------------------------------------
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. In addition, the preceding discussion concerning the taxability of fund
dividends and distributions and of redemptions and exchanges of AIM Fund shares
is inapplicable to investors that are generally exempt from federal income tax,
such as retirement plans that are qualified under Section 401 of the Internal
Revenue Code, individual retirement accounts (IRAs) and Roth IRAs. You should
consult your tax advisor before investing.
MCF--12/02
A-11
--------------------------------------
AIM GLOBAL SCIENCE AND TECHNOLOGY 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.aiminvestments.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 SCIENCE AND TECHNOLOGY FUND
SEC 1940 Act file number: 811-05426
- ----------------------------------------
AIMinvestments.com GST-PRO-1
APPENDIX III
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
TECHNOLOGY STOCKS AND FUND STAGE SMALL RALLY LATE IN FISCAL YEAR
HOW DID AIM GLOBAL SCIENCE AND TECHNOLOGY FUND PERFORM?
After struggling through the protracted bear market over the past two years, AIM
Global Science and Technology Fund began to find more solid footing late in the
reporting period.
The fund's Class A shares had returns of -34.01% for the fiscal year ending
October 31, 2002. Class B and Class C shares returned -34.48% for the year.
(Returns are at net asset value and do not include sales charges.)
The benchmark index, the S&P 500, returned -15.10% for the fiscal year. (The
S&P 500 is more diversified than the fund and is not specifically a technology
index.) Also, the Lipper Science & Technology Fund Index returned -33.00% for
the year, and the PSE Technology 100 Index returned -24.86% for the year. Like
the fund, all these indexes rebounded to positive ground in October 2002.
Net assets in the fund were $398.9 million, and the number of holdings was
63.
WHAT ECONOMIC TRENDS AFFECTED EQUITY MARKETS?
Stocks remained in the grip of a protracted bear market for most of the fiscal
year. Concerns about the accounting practices of a number of high-profile
companies, mixed economic signals, and anemic company earnings weighed heavily
on investors' minds for the final months of the reporting period.
Markets rebounded during the final weeks of the fiscal year, as several
major companies reported better-than-expected earnings, and there were
indications the Federal Reserve Board (the Fed) planned to cut the federal funds
rate, which stood at 1.75% on October 31, 2002--its lowest level since 1961.
WHAT HAPPENED TO TECHNOLOGY STOCKS DURING THE PERIOD?
The technology sector remained depressed for most of the fiscal year. However,
late in the fiscal year, many firms' earnings reports began to improve. They
lacked the negative, cautious tone of earlier quarters.
Not only were current earnings frequently on target, many companies also
provided upward projections for the next quarter and next year.
Most importantly, corporate spending on technology seemed headed toward a
modest recovery. While spending is nowhere near the record levels seen in 1999
and 2000, companies are beginning to resume or increase information technology
spending.
HOW DID YOU MANAGE THE PORTFOLIO IN THIS ENVIRONMENT?
Dominant economic trends were largely negative for much of the fiscal year.
Consumers still were fearful of a double-dip recession, while consumer spending
held up well, consumer
================================================================================
...CORPORATE SPENDING
ON TECHNOLOGY SEEMED
HEADED TOWARD A
MODEST RECOVERY.
================================================================================
PORTFOLIO COMPOSITION
AS OF 10/31/02, based on total net assets
<Table>
<Caption>
==================================================================================================================================
TOP COUNTRIES TOP 10 HOLDINGS TOP 10 INDUSTRIES
==================================================================================================================================
[PIE CHART] 1. Samsung Electronics Co., Ltd. 5.3% 1. Semiconductors 15.6%
OTHERS 1% 2. Nextel Communications, Inc.-Class A 4.2 2. Aerospace & Defense 9.8
SWITZERLAND 1% 3. L-3 Communications Holdings, Inc. 4.0 3. Semiconductor Equipment 7.4
CANADA 1% 4. Microchip Technology Inc. 3.7 4. Systems Software 7.3
SOUTH KOREA 5% 5. Texas Instruments Inc. 3.7 5. Application Software 7.0
U.S.A. 92% 6. Dell Computer Corp. 3.6 6. Biotechnology 6.7
7. Microsoft Corp. 3.4 7. Electronic Equipment & Instruments 5.3
8. Symantec Corp. 3.2 8. Wireless Telecommunication Services 5.2
9. Lockheed Martin Corp. 3.1 9. Computer Storage & Peripherals 4.6
10. Gilead Sciences, Inc. 2.8 10. Internet Software & Services 4.0
The fund's holdings are subject to change, and there is no assurance that the fund will continue to hold any particular security.
===================================================================================================================================
</Table>
1
confidence was down heading into the fourth quarter and Christmas.
In this environment, our two best industries were wireless and defense.
Wireless rebounded as companies reduced debt and returned to profitability.
Defense continued to be a strong story as concerns about conflict in Iraq
continued, and the need for technologically advanced weapons systems
intensified.
CAN YOU DISCUSS SOME STOCK HOLDINGS?
o Microsoft, the world's top software company, provides a variety of products
and services, including its Windows operating systems and Office software
suite. The company has expanded into markets such as video game consoles,
interactive television, and Internet access. The firm has resolved its legal
problems, and its share price moved higher.
o Nextel has blossomed into a digital mobile phone operator. Already providing
business users with wireless phone service, two-way radio dispatch, paging,
and text messaging on one handset, Nextel has added wireless Internet access
and international roaming. The company continues to show improving cash
flows and earnings.
WHAT WERE CONDITIONS LIKE AT THE CLOSE OF THE PERIOD?
Economic and market conditions remained uncertain. Inflation and interest rates
were low. Preliminary figures indicated the nation's gross domestic product
(GDP) grew at an annualized rate of 4.0% in the third quarter of 2002 compared
to 1.3% in the second quarter of the year.
Healthy consumer spending, which accounts for about two-thirds of economic
activity, accounted for much of the third-quarter economic expansion.
However, a weak job market threatened consumer spending as companies were
reluctant to hire new employees amid concerns about the strength of the economy.
In this environment, the stock market remained volatile and its direction
unpredictable. While stock valuations were more attractive than in recent years,
investors continued to be cautious because of economic uncertainties, lackluster
corporate earnings, continued threats of terror attacks, and the prospects of
war with Iraq.
TECHNOLOGY EARNINGS AND REVENUES BEGINNING TO GROW AGAIN, COMMERCE SAYS
Fund managers believe there are tangible signs that prospects for technology
stocks are improving, according to a recent report from the U.S. Department of
Commerce. Revenue and earnings growth are beginning to turn positive after many
quarters of declining growth.
These diagrams show the average revenue and earnings change in the S&P 500
technology companies. Continued improvement should boost the attractiveness of
technology stocks as business spending on technology begins to grow again,
Investors Business Daily reported on October 21, 2002.
Driving fundamental changes are subtle changes in two key metrics.
Inventories of technology products are declining, indicating that companies are
trying to improve the efficiency of their businesses. New orders are stable, but
above the lows seen in September 2001. We believe our bottom up approach to
finding stocks for the fund is particularly helpful in this market.
================================================================================
AVERAGE REVENUE CHANGE OF S&P TECH FIRMS
[LINE CHART]
3/01 -40
6/01 -70
9/01 -75
12/01 -55
3/02 -30
6/02 0
9/02 15
================================================================================
================================================================================
AVERAGE EARNINGS CHANGE OF S&P TECH FIRMS
[LINE CHART]
3/01 4
6/01 -10
9/01 -16
12/01 -18
3/02 -13
6/02 -12
9/02 -2
Source: First Call Financial, Precursor Group
================================================================================
================================================================================
PORTFOLIO MANAGEMENT TEAM
AS OF 10/31/02
DAVID P. BARNARD, CO-MANAGER
ABEL GARCIA, CO-MANAGER
ROBERT LLOYD, CO-MANAGER
ASSISTED BY THE TECHNOLOGY TEAM
See important fund and index
disclosures inside front cover.
[GRAPHIC]
For More Information Visit
AIMinvestments.com
================================================================================
2
FUND PERFORMANCE
================================================================================
RESULTS OF A $10,000 INVESTMENT
1/27/92-10/31/02
DATE AIM GLOBAL SCIENCE S&P 500 INDEX
& TECHNOLOGY FUND
CLASS A SHARES
01/27/92 9525 10000
10/92 9300 10476
10/93 14284 12039
10/94 15286 12504
10/95 14848 15804
10/96 15887 19606
10/97 18702 25895
10/98 18110 31593
10/99 30357 39696
10/00 38713 42111
10/01 11166 31636
10/02 7367 26860
Source: Lipper Inc.
Past performance cannot guarantee comparable future results.
================================================================================
The chart compares AIM Global Science & Technology Fund Class A Shares 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 1/27/92-10/31/02. Please note:
Index performance is for the period 1/31/92-10/31/02. It is important to
understand the difference between your fund and an index. Market indexes, such
as the S&P 500 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, 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, see the inside front
cover.
Performance shown in the chart does not reflect deduction of taxes a
shareholder would pay on fund distributions or sale of fund shares. Performance
for the index does not reflect the effects of taxes.
This growth chart uses a logarithmic scale, which means the price scale
(vertical axis) is structured so that a given distance always represents the
same percent change in price, rather than the same absolute change in price. For
example, the distance from one to 10 is the same as the distance from 10 to 100
on a logarithmic chart, but the latter distance is 10 times greater on a linear
chart. A logarithmic scale better illustrates performance in the fund's early
years before reinvested distributions and compounding create the potential for
the original investment to grow to very large numbers.
FUND RETURNS as of 10/31/02
================================================================================
AVERAGE ANNUAL TOTAL RETURNS
including sales charges
CLASS A SHARES
Inception (1/27/92) -2.80%
10 Years -2.78
5 Years -17.80
1 Year -37.15
CLASS B SHARES
Inception (4/1/93) -4.23%
5 Years -17.67
1 Year -37.76
CLASS C SHARES
Inception (3/1/99) -26.98%
1 Year -35.14
In addition to returns as of the close of the reporting period, industry
regulations require us to provide average annual total returns (including sales
charges) as of 9/30/02, the most recent calendar quarter-end, which were: Class
A Shares, inception (1/27/92) -3.78%, 10 years, -3.53%, five years, -21.27%, one
year, -35.39%. Class B shares, inception (4/1/93) -5.32%, five years, -21.09%,
one year, -35.84%. Class C shares, inception (3/1/99) -29.60%, one year,
- -33.30%.
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.
3
AIM GLOBAL SCIENCE AND TECHNOLOGY FUND
A PORTFOLIO OF
AIM INVESTMENT FUNDS
11 Greenway Plaza
Suite 100
Houston, Texas 77046-1173
Toll Free: (800) 347-4246
AIM NEW TECHNOLOGY FUND
A PORTFOLIO OF
AIM FUNDS GROUP
11 Greenway Plaza
Suite 100
Houston, Texas 77046-1173
Toll Free: (800) 347-4246
STATEMENT OF ADDITIONAL INFORMATION
(June 4, 2003 Special Meeting of Shareholders of AIM Funds Group)
This Statement of Additional Information is not a prospectus but should
be read in conjunction with the Combined Proxy Statement and Prospectus dated
March ________, 2003 of AIM Investment Funds (the "Trust") for use in connection
with the Special Meeting of Shareholders of AIM Funds Group to be held on June
4, 2003. 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 March 3,
2003, to be 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 March ____,
2003.
S-1
TABLE OF CONTENTS
<Table>
THE TRUST ......................................................... S-3
DESCRIPTION OF PERMITTED INVESTMENTS .............................. S-3
TRUSTEES AND OFFICERS OF THE TRUST ................................ S-3
ADVISORY AND MANAGEMENT RELATED SERVICES AGREEMENTS
AND PLANS OF DISTRIBUTION ................................ S-3
PORTFOLIO TRANSACTIONS ............................................ S-3
DESCRIPTION OF SHARES ............................................. S-3
DETERMINATION OF NET ASSET VALUE .................................. S-4
TAXES ............................................................. S-4
PERFORMANCE DATA .................................................. S-4
FINANCIAL INFORMATION ............................................. S-4
</Table>
Appendix I - AIM Investment Funds Statement of Additional Information
Appendix II - Unaudited Financial Statements of AIM New Technology Fund
(dated 6/30/02)
Appendix III - Audited Financial Statements of AIM New Technology Fund
(dated 12/31/01)
S-2
THE TRUST
This Statement of Additional Information relates to AIM Investment Funds (the
"Trust") and its investment portfolio, AIM Global Science and Technology 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 unaudited financial statements of AIM New Technology Fund and the report
thereon by PricewaterhouseCoopers LLP, are set forth in the Annual Report of AIM
New Technology Fund, dated June 30, 2002, which is incorporated herein by
reference and attached hereto as Appendix II.
The audited financial statements of AIM New Technology Fund and the report
thereon by PricewaterhouseCoopers LLP, are set forth in the Annual Report of AIM
New Technology Fund, dated December 31, 2001, which is incorporated herein by
reference and attached hereto as Appendix III.
S-4
APPENDIX I
STATEMENT OF
ADDITIONAL INFORMATION
AIM INVESTMENT FUNDS
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 INVESTMENT FUNDS 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 MARCH 3,2003 RELATES TO THE
FOLLOWING PROSPECTUSES:
<Table>
<Caption>
FUND DATED
---- -----
AIM DEVELOPING MARKETS FUND MARCH 3, 2003
AIM GLOBAL ENERGY FUND MARCH 3, 2003
AIM GLOBAL FINANCIAL SERVICES FUND MARCH 3, 2003
AIM GLOBAL HEALTH CARE FUND MARCH 3, 2003
AIM GLOBAL SCIENCE AND MARCH 3, 2003
TECHNOLOGY FUND
AIM LIBRA FUND MARCH 3, 2003
AIM STRATEGIC INCOME FUND MARCH 3, 2003
</Table>
AIM INVESTMENT FUNDS
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..........................................................................2
Equity Investments..............................................................................8
Foreign Investments.............................................................................8
Debt Investments...............................................................................10
Other Investments..............................................................................12
Investment Techniques..........................................................................14
Derivatives....................................................................................18
Fund Policies...........................................................................................26
Concentration of Investments............................................................................29
Temporary Defensive Positions...........................................................................30
Portfolio Turnover......................................................................................30
MANAGEMENT OF THE TRUST..........................................................................................30
Board of Trustees.......................................................................................30
Management Information..................................................................................30
Trustee Ownership of Fund Shares...............................................................31
Factors Considered in Approving the Investment Advisory Agreement..............................31
Compensation............................................................................................32
Retirement Plan For Trustees...................................................................32
Deferred Compensation Agreements...............................................................32
Purchase of Class A Shares of the Funds at Net Asset Value.....................................33
Codes of Ethics.........................................................................................33
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES..............................................................33
INVESTMENT ADVISORY AND OTHER SERVICES...........................................................................33
Investment Advisor......................................................................................33
Investment Sub-Advisor..................................................................................35
Service Agreements......................................................................................36
Other Service Providers.................................................................................36
BROKERAGE ALLOCATION AND OTHER PRACTICES.........................................................................37
Brokerage Transactions..................................................................................37
Commissions.............................................................................................38
Brokerage Selection.....................................................................................38
Directed Brokerage (Research Services)..................................................................39
Regular Brokers or Dealers..............................................................................39
Allocation of Portfolio Transactions....................................................................39
Allocation of Initial Public Offering ("IPO") Transactions..............................................39
PURCHASE, REDEMPTION AND PRICING OF SHARES.......................................................................40
Purchase and Redemption of Shares.......................................................................40
Offering Price..........................................................................................57
</Table>
i
<Table>
Redemption In Kind......................................................................................58
Backup Withholding......................................................................................58
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS.........................................................................59
Dividends and Distributions.............................................................................59
Tax Matters.............................................................................................59
DISTRIBUTION OF SECURITIES.......................................................................................66
Distribution Plans......................................................................................66
Distributor.............................................................................................68
CALCULATION OF PERFORMANCE DATA..................................................................................69
APPENDICES:
RATINGS OF DEBT SECURITIES......................................................................................A-1
TRUSTEES AND OFFICERS...........................................................................................B-1
TRUSTEE 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 BROKERAGE (RESEARCH SERVICES) AND PURCHASES 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 Investment Funds (the "Trust") is a Delaware statutory trust and 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 seven separate portfolios: AIM Developing Markets Fund, AIM Global
Energy Fund, AIM Global Financial Services Fund, AIM Global Health Care Fund,
AIM Global Science and Technology Fund (formerly, AIM Global Telecommunications
and Technology Fund), AIM Libra Fund and AIM Strategic Income Fund (each a
"Fund" and collectively, the "Funds"). Under the Amended and Restated Agreement
and Declaration of Trust, dated May 15, 2002, 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 29, 1987, as a Maryland
corporation. The Trust reorganized as a Delaware business trust on May 7, 1998.
All historical financial and other information contained in this Statement of
Additional Information for periods prior to September 8, 1998 relating to these
Funds (or a class thereof), is that of AIM Investment Funds, Inc. (or the
corresponding class thereof).
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 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 generally 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 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.
1
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 statutory 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. Shareholders of the Funds do not have the right to demand or
require the Trust to issue share certificates, although the Trust in its sole
discretion may issue them. A I M Fund Services, Inc. ("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 Developing Markets Fund and AIM Strategic Income Fund is
"diversified" for purposes of the 1940 Act.
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
2
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 INVESTMENT FUNDS
SUMMARY OF SECURITIES AND INVESTMENT TECHNIQUES
<Table>
<Caption>
AIM GLOBAL AIM GLOBAL AIM GLOBAL
AIM DEVELOPING AIM GLOBAL FINANCIAL HEALTH CARE SCIENCE AND AIM STRATEGIC
FUND MARKETS FUND ENERGY FUND SERVICES FUND FUND TECHNOLOGY FUND AIM LIBRA FUND INCOME FUND
---- -------------- ----------- ------------- ----------- --------------- -------------- -------------
SECURITY/
INVESTMENT
TECHNIQUE
EQUITY INVESTMENTS
Common Stock X X X X X X X
Preferred Stock X X X X X X X
Convertible X X X X X X X
Securities
Alternative Entity X X X X X X X
Securities
FOREIGN INVESTMENTS
Foreign Securities X X X X X X X
Foreign Government X X X X X X
Obligations
Foreign Exchange X X X X X X X
Transactions
DEBT INVESTMENTS
U.S. Government X X X X X X X
Obligations
Liquid Assets X X X X X X X
Rule 2a-7
Requirements
Mortgage-Backed and X
Asset-Backed
Securities
Collateralized
Mortgage
Obligations
Bank Instruments
Commercial
Instruments
Participation
Interests
Municipal Securities
</Table>
4
AIM INVESTMENT FUNDS
SUMMARY OF SECURITIES AND INVESTMENT TECHNIQUES
<Table>
<Caption>
AIM GLOBAL AIM GLOBAL AIM GLOBAL
AIM DEVELOPING AIM GLOBAL FINANCIAL HEALTH CARE SCIENCE AND AIM STRATEGIC
FUND MARKETS FUND ENERGY FUND SERVICES FUND FUND TECHNOLOGY FUND AIM LIBRA FUND INCOME FUND
---- -------------- ----------- ------------- ----------- --------------- -------------- -------------
SECURITY/
INVESTMENT
TECHNIQUE
Municipal Lease
Obligations
Investment Grade X X X X X X X
Corporate Debt
Obligations
Junk Bonds X X X X X X
OTHER INVESTMENTS
REITs X X X X X X X
Other Investment X X X X X X X
Companies
Defaulted Securities X
Municipal Forward
Contracts
Variable or Floating X X
Rate Instruments
Indexed Securities X X
Zero-Coupon and X X
Pay-in-Kind
Securities
Synthetic Municipal
Instruments
INVESTMENT TECHNIQUES
Delayed Delivery X X X X X X X
Transactions
When-Issued X X X X X X X
Securities
Short Sales X X X X X X X
Margin Transactions
Swap Agreements X X X X X X X
Interfund Loans X X X X X X X
Borrowing X X X X X X X
</Table>
5
AIM INVESTMENT FUNDS
SUMMARY OF SECURITIES AND INVESTMENT TECHNIQUES
<Table>
<Caption>
AIM GLOBAL AIM GLOBAL AIM GLOBAL
AIM DEVELOPING AIM GLOBAL FINANCIAL HEALTH CARE SCIENCE AND AIM STRATEGIC
FUND MARKETS FUND ENERGY FUND SERVICES FUND FUND TECHNOLOGY FUND AIM LIBRA FUND INCOME FUND
---- -------------- ----------- ------------- ----------- --------------- -------------- -------------
SECURITY/
INVESTMENT
TECHNIQUE
Lending Portfolio X X X X X X X
Securities
Repurchase Agreements X X X X X X X
Reverse Repurchase X X X X X X
Agreements
Dollar Rolls X X X X X
Illiquid Securities X X X X X X X
Rule 144A Securities X X X X X X X
Unseasoned Issuers X
Portfolio
Transactions
Sale of Money Market
Securities
Standby Commitments
DERIVATIVES
Equity-Linked X X X X X X X
Derivatives
Put Options X X X X X X X
Call Options X X X X X X X
Straddles X X X X X X X
Warrants X X X X X X X
Futures Contracts X X X X X X X
and Options on
Futures Contracts
</Table>
6
AIM INVESTMENT FUNDS
SUMMARY OF SECURITIES AND INVESTMENT TECHNIQUES
<Table>
<Caption>
AIM GLOBAL AIM GLOBAL AIM GLOBAL
AIM DEVELOPING AIM GLOBAL FINANCIAL HEALTH CARE SCIENCE AND AIM STRATEGIC
FUND MARKETS FUND ENERGY FUND SERVICES FUND FUND TECHNOLOGY FUND AIM LIBRA FUND INCOME FUND
---- -------------- ----------- ------------- ----------- --------------- -------------- -------------
SECURITY/
INVESTMENT
TECHNIQUE
Forward Currency X X X X X X X
Contracts
Cover X X X X X X X
ADDITIONAL SECURITIES OR INVESTMENT TECHNIQUES
Loan Participations X X
and Assignments
Privatizations X X X X X
Indexed Commercial X X
Paper
Samurai and Yankee X X
Bonds
Premium Securities X X
Structured X X
Investments
Stripped Income X X
Securities
</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 100% of its total assets in foreign
securities, except that AIM Libra Fund may only invest up to 25% of its total
assets 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) have
replaced its local currency with the euro effective January 1, 2002.
Risks of Developing Countries. AIM Developing Markets Fund may invest
up to 80%, AIM Strategic Income Fund may invest up to 65%, AIM Global Energy
Fund, AIM Global Financial Services Fund, AIM Global Health Care Fund and AIM
Global Science and Technology Fund may invest 5% of their total assets in
securities of companies domiciled 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
Funds. 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 are often, but not always, supported by the full faith and credit of
the foreign governments, or their subdivisions, agencies or instrumentalities
that issue them. These securities involve the risk 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 government obligations
of developing countries, and some structures of emerging market debt securities,
both of which are generally below investment grade, are sometimes referred to as
"Brady Bonds."
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.
LIQUID ASSETS. For cash management purposes, the Funds may hold a
portion of their assets in cash or cash equivalents, including shares of
affiliated money market funds. Cash equivalents include money market instruments
(such as certificates of deposit, time deposits, bankers' acceptances from U.S.
or foreign banks, and repurchase agreements), shares of affiliated money market
funds or high-quality
10
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).
Descriptions of debt securities ratings are found in Appendix A.
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES. AIM Strategic Income Fund
may invest in 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.
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.
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
11
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 political, economic or social conditions applicable to such
issuer's country; and, (iii) other considerations deemed appropriate.
AIM Strategic Income Fund cannot invest more than 25% of total assets
in bank securities.
JUNK BONDS. Each of the funds other than AIM Libra Fund may invest in
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.
The Funds may have difficulty selling certain junk bonds because they
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 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. AIM Global Health Care Fund, AIM Global Financial
Services Fund and AIM Global Science and Technology Fund may invest up to 5% of
total assets in junk bonds (up to 20% of net assets for AIM Global Energy Fund,
and up to 50% of total assets for AIM Developing Markets Fund and up to 65% of
total assets for AIM Strategic Income Fund).
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
12
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.
DEFAULTED SECURITIES. AIM Strategic Income Fund may invest in defaulted
securities. In order to enforce its rights in defaulted securities, the Fund may
be required to participate in various legal proceedings or take possession of
and manage assets securing the issuer's obligations on the defaulted securities.
This could increase the Fund's operating expenses and adversely affect its net
asset value. Any investments by the Fund in defaulted securities will also be
considered illiquid securities subject to the limitations described herein,
unless AIM determines that such defaulted securities are liquid under guidelines
adopted by the Board of Trustees.
VARIABLE OR FLOATING RATE INSTRUMENTS. AIM Developing Markets Fund and
AIM Strategic Income Fund may invest in securities which have variable or
floating interest rates which are readjusted on set dates (such as the last day
of the month or calendar quarter) in the case of variable rates or whenever a
specified interest rate change occurs in the case of a floating rate instrument.
Variable or floating interest rates generally reduce changes in the market price
of securities from their original purchase price because, upon readjustment,
such rates approximate market rates. Accordingly, as interest rates decrease or
increase, the potential for capital appreciation or depreciation is less for
variable or floating rate securities than for fixed rate obligations. Many
securities with variable or floating interest rates purchased by a Fund are
subject to payment of principal and accrued interest (usually within seven days)
on the Fund's demand. The terms of such demand instruments require payment of
principal and accrued interest by the issuer, a guarantor, and/or a liquidity
provider. All variable or floating rate instruments will meet the applicable
quality standards of a Fund. AIM will monitor the pricing, quality and liquidity
of the variable or floating rate securities held by the Funds.
INDEXED SECURITIES. AIM Developing Markets Fund and AIM Strategic
Income Fund may invest in indexed securities the value of which is linked to
interest rates, commodities, indices or other financial indicators. Most indexed
securities are short to intermediate term fixed income securities whose values
at maturity (principal value) or interest rates rise or fall according to
changes in the value of one or more specified underlying instruments. Indexed
securities may be positively or negatively indexed (i.e., their principal value
or interest rates may increase or decrease if the underlying instrument
appreciates), and may have return characteristics similar to direct investments
in the underlying instrument or to one or
13
more options on the underlying instrument. Indexed securities may be more
volatile than the underlying instrument itself and could involve the loss of all
or a portion of the principal amount of the indexed security.
ZERO-COUPON AND PAY-IN-KIND SECURITIES. AIM Developing Markets Fund and
AIM Strategic Income Fund may, but do not currently intend to, invest in
zero-coupon or pay-in-kind securities. These securities are debt securities that
do not make regular cash interest payments. Zero-coupon securities are sold at a
deep discount to their face value. Pay-in-kind securities pay interest through
the issuance of additional securities. Because zero-coupon and pay-in-kind
securities do not pay current cash income, the price of these securities can be
volatile when interest rates fluctuate. While these securities do not pay
current cash income, federal tax law requires the holders of zero-coupon and
pay-in-kind securities to include in income each year the portion of the
original issue discount (or deemed discount) and other non-cash income on such
securities accrued during that year. In order to qualify as a "regulated
investment company" under the Internal Revenue Code of 1986, as amended (the
"Code") and to avoid certain excise taxes, the Funds may be required to
distribute a portion of such discount and income, and may be required to dispose
of other portfolio securities, which could occur during periods of adverse
market prices, in order to generate sufficient cash to meet these distribution
requirements.
Investment Techniques
DELAYED DELIVERY TRANSACTIONS. Delayed delivery transactions, also
referred to as 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 basis to the extent it can anticipate
having available cash on settlement date. Delayed delivery agreements will not
be used as a speculative or leveraging 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 basis securities prior to settlement.
A Fund may enter into buy/sell back transactions (a form of delayed
delivery agreement). In a buy/sell back transaction, a Fund enters a trade to
sell securities at one price and simultaneously enters a trade to buy the same
securities at another price for settlement at a future date.
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 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
14
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 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
interest rate, in a particular foreign currency, or in a "basket" of securities
15
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, a 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. Each Fund 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, a 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 being 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.
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 a Fund's
holding period. A Fund may, however, enter into a "continuing contract" or
"open"
16
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.
Repurchase agreements are considered loans by a Fund under the 1940
Act.
REVERSE REPURCHASE AGREEMENTS. Reverse repurchase agreements are
agreements that 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 (i.e., same type, coupon and
maturity) 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, a 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 enhance the Fund's return
either on an income or total return basis or to manage 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.
17
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.
AIM Global Energy Fund, AIM Global Financial Services Fund, AIM Global
Health Care Fund and AIM Global Science and Technology Fund cannot invest more
than 5% of total assets in joint ventures, cooperatives, partnerships and state
enterprises which are illiquid.
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. AIM Libra Fund may invest in equity securities of
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 currency 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 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
18
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 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. A Fund
may only write a call option on a security if it 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 subject to the call option. 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.
A Fund may write a put option without owning the underlying security if
it covers the option as described below in the section "Cover." A Fund may only
write a put option on a security as part of an investment strategy, and not for
speculative purposes. 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.
19
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 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.
The Fund is not required to own the underlying security in order to purchase a
call option, and may only cover this transaction with cash, liquid assets and/or
short-term debt securities. 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 only 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
20
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 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. A 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
21
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
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. The Funds currently
may not invest in any security (including futures contracts or options thereon)
that is secured by physical commodities.
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. The Funds currently may not invest in
any security (including futures contracts or options thereon) that is secured by
physical commodities.
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%.
22
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 currency 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
currency at the maturity of the forward currency 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 currency
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 currency 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 currency 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 currency contracts varies
with factors such as the currencies involved, the length of the contract period
and the market conditions then prevailing. Because forward currency contracts
are usually entered into on a principal basis, no fees or commissions are
involved. The use of forward currency 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
currency 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 currency contracts may require that Fund to set aside assets to reduce
the risks associated with using forward currency 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, in
addition to complying with all the restrictions noted in the disclosure above it
owns either (1) an offsetting ("covered") position in securities, currencies, or
other options, forward currency 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 currency 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, a 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.
23
Assets used as cover cannot be sold while the position in the
corresponding forward currency 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.
(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 currency
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.
Additional Securities or Investment Techniques
PRIVATIZATIONS. Each of the funds other than AIM Libra Fund and AIM
Strategic Income Fund may invest in privatizations. The governments of some
foreign countries have been engaged in selling part or all of their stakes in
government-owned or controlled enterprises ("privatizations"). AIM believes that
privatizations may offer opportunities for significant capital appreciation and
intends to invest assets of the Funds in privatizations in appropriate
circumstances. In certain foreign countries, the ability of foreign entities
such as the Funds to participate may be limited by local law, or the terms on
which a Fund may be permitted to participate may be less advantageous than those
for local investors. There can be no assurance that foreign governments will
continue to sell companies currently owned or controlled by them or that
privatization programs will be successful.
INDEXED COMMERCIAL PAPER. AIM Developing Markets Fund and AIM Strategic
Income Fund may invest without limitation in commercial paper which is indexed
to certain specific foreign currency
24
exchange rates. The terms of such commercial paper provide that its principal
amount is adjusted upwards or downwards (but not below zero) at maturity to
reflect changes in the exchange rate between two currencies while the obligation
is outstanding. The Fund will purchase such commercial paper with the currency
in which it is denominated and, at maturity, will receive interest and principal
payments thereon in that currency, but the amount of principal payable by the
issuer at maturity will change in proportion to the change (if any) in the
exchange rate between the two specified currencies between the date the
instrument is issued and the date the instrument matures. While such commercial
paper entails the risk of loss of principal, the potential for realizing gains
as a result of changes in foreign currency exchange rates enables the funds to
hedge against a decline in the U.S. dollar value of investments denominated in
foreign currencies while seeking to provide an attractive money market rate of
return. The Fund will not purchase such commercial paper for speculation.
LOAN PARTICIPATIONS AND ASSIGNMENTS. AIM Developing Markets Fund and
AIM Strategic Income Fund may invest in fixed and floating rate loans ("Loans")
arranged through private negotiations between a foreign entity and one or more
financial institutions ("Lenders"). The majority of the Fund's investments in
Loans in emerging markets is expected to be in the form of participations in
Loans ("Participations") and assignment of portions of Loans from third parties
("Assignments"). Participations typically will result in the Fund having a
contractual relationship only with the Lender, not with the borrower government.
The Fund will have the right to receive payments of principal, interest and any
fees to which it is entitled only from the Lender selling the Participation and
only upon receipt by the Lender of the payments from the borrower. In connection
with purchasing Participations, the Fund generally will have no right to enforce
compliance by the borrower with the terms of the loan agreement relating to the
loan ("Loan Agreement"), nor any rights or set off against the borrowers, and
the Fund may not directly benefit from any collateral supporting the Loan in
which it has purchased any Participations. As a result, the Fund will assume the
credit risk of both the borrower and the Lender that is selling the
Participation.
In the event of the insolvency of the Lender selling a Participation,
the Fund may be treated as a general creditor of the Lender and may not benefit
from any set off between the Lender and the borrower. The Fund will acquire
Participations only if the Lender interpositioned between the Fund and the
borrower is determined by AIM to be creditworthy. When the Fund purchases
Assignments from Lenders, the Fund will acquire direct rights against the
borrower on the Loan. However, since Assignments are arranged through private
negotiations between potential assignees and assignors, the rights and
obligations acquired by the Fund as the purchaser of an Assignment may differ
from, and be more limited than, those held by the assigning Lender.
The liquidity of Assignments and Participations is limited and the Fund
anticipates that such securities could be sold only to a limited number of
institutional investors. The lack of a liquid secondary market could have an
adverse impact on the value of such securities and on the Fund's ability to
dispose of particular Assignments or Participations when necessary to meet the
Fund's liquidity needs or in response to a specific economic event, such as a
deterioration in the creditworthiness of the borrower. The lack of a liquid
secondary market for Assignments and Participations also may make it more
difficult for the Fund to assign a value to those securities for purposes of
valuing the Fund's portfolio and calculating the portfolio's net asset value.
SAMURAI AND YANKEE BONDS. Subject to its fundamental investment
restrictions, AIM Developing Markets Fund and AIM Strategic Income Fund may
invest in yen-denominated bonds sold in Japan by non-Japanese issuers ("Samurai
bonds"), and may invest in dollar-denominated bonds sold in the United States by
non-U.S. issuers ("Yankee bonds"). As compared with bonds issued in their
countries of domicile, such bond issues normally carry a higher interest rate
but are less actively traded. It is the policy of the Fund to invest in Samurai
or Yankee bond issues only after taking into account considerations of quality
and liquidity, as well as yield.
STRUCTURED INVESTMENTS. AIM Developing Markets Fund and AIM Strategic
Income Fund may invest a portion of its assets in interests in entities
organized and operated solely for the purpose of restructuring the investment
characteristics of Sovereign Debt. This type of restructuring involves the
25
deposit with or purchase by an entity, such as a corporation or trust, of
specified instruments (such as commercial bank loans or Brady Bonds) and the
issuance by that entity of one or more classes of securities ("Structured
Investments") backed by, or representing interests in, the underlying
instruments. The cash flow on the underlying instruments may be apportioned
among the newly issued Structured Investments to create securities with
different investment characteristics such as varying maturities, payment
priorities and interest rate provisions, and the extent of the payments made
with respect to Structured Investments is dependent on the extent of the cash
flow on the underlying instruments. Because Structured Investments of the type
in which the Fund anticipates it will invest typically involve no credit
enhancement, their credit risk generally will be equivalent to that of the
underlying instruments.
AIM Developing Markets Fund and AIM Strategic Income Fund are permitted
to invest in a class of Structured Investments that is either subordinated or
not subordinated to the right of payment of another class. Subordinated
Structured Investments typically have higher yields and present greater risks
than unsubordinated Structured Investments.
Certain issuers of Structured Investments may be deemed to be
"investment companies" as defined in the 1940 Act. As a result, AIM Developing
Markets Fund's and AIM Strategic Income Fund's investment in these Structured
Investments may be limited by the restrictions contained in the 1940 Act
described below under "Investment Strategies and Risks - Other Investment
Companies." Structured Investments are typically sold in private placement
transactions, and there currently is no active trading market for Structured
Investments.
STRIPPED INCOME SECURITIES. AIM Developing Markets Fund and AIM
Strategic Income Fund may invest a portion of its assets in stripped income
securities, which are obligations representing an interest in all or a portion
of the income or principal components of an underlying or related security, a
pool of securities or other assets. In the most extreme case, one class will
receive all of the interest (the "interest only class" or the "IO class"), while
the other class will receive all of the principal (the "principal-only class" or
the "PO class"). The market values of stripped income securities tend to be more
volatile in response to changes in interest rates than are conventional income
securities.
PREMIUM SECURITIES. AIM Developing Markets Fund and AIM Strategic
Income Fund may invest in income securities bearing coupon rates higher than
prevailing market rates. Such "premium" securities are typically purchased at
prices greater than the principal amounts payable on maturity. The Fund will not
amortize the premium paid for such securities in calculating its net investment
income. As a result, in such cases the purchase of such securities provides the
Fund a higher level of investment income distributable to shareholders on a
current basis than if the Fund purchased securities bearing current market rates
of interest. If securities purchased by the Fund at a premium are called or sold
prior to maturity, the Fund will realize a loss to the extent the call or sale
price is less than the purchase price. Additionally, the Fund will realize a
loss if it holds such securities to maturity.
FUND POLICIES
FUNDAMENTAL RESTRICTIONS. Each Fund is subject to the following
investment restrictions, which may be changed only by a vote of such Fund's
outstanding shares, except that AIM Developing Markets Fund and AIM Strategic
Income Fund are not subject to restriction (1) and AIM Global Energy Fund, AIM
Global Financial Services Fund, AIM Global Health Care Fund and AIM Global
Science and Technology Fund are not subject to restriction (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
26
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.
(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 Energy Fund, AIM Global Financial Services Fund, AIM Global
Health Care Fund and AIM Global Science and Technology Fund will each
concentrate (as such term may be defined or interpreted by the 1940 Act Laws,
Interpretations and Exemptions) its investments.
AIM Global Energy Fund will concentrate its investments in the
securities of domestic and foreign issuers in the energy sector.
AIM Global Financial Services Fund will concentrate its investments in
the securities of domestic and foreign financial services companies.
AIM Global Health Care Fund will concentrate its investments in the
securities of domestic and foreign issuers in the health care industry.
27
AIM Global Science and Technology Fund will concentrate its investments
in the securities of domestic and foreign issuers in the science and technology
industries.
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 AIM and AIM Developing Markets
Fund sub-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 that AIM Developing Markets Fund
and AIM Strategic Income Fund are not subject to restriction (1) and AIM Global
Energy Fund, AIM Global Financial Services Fund, AIM Global Health Care Fund and
AIM Global Science and Technology Fund are not subject to restriction (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, (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 33 1/3% 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 33 1/3% 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.
(6) Notwithstanding the fundamental restriction with regard to engaging
in transactions involving futures contracts and options thereon or investing in
securities that are secured by physical commodities, the Fund currently may not
invest in any security (including futures contracts or options thereon) that is
secured by physical commodities.
ADDITIONAL NON-FUNDAMENTAL POLICIES. As non-fundamental policies:
28
(1) AIM Developing Markets Fund normally invests at least 80% of its
assets in securities of companies that are in developing markets countries. For
purposes of the foregoing sentence, "assets" means net assets, plus the amount
of any borrowings for investment purposes. 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.
(2) AIM Global Energy Fund normally invests at least 80% of its assets
in securities of energy sector companies. For purposes of the foregoing
sentence, "assets" means net assets, plus the amount of any borrowings for
investment purposes. 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.
(3) AIM Global Financial Services Fund normally invests at least 80% of
its assets in securities of financial services companies. For purposes of the
foregoing sentence, "assets" means net assets, plus the amount of any borrowings
for investment purposes. 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.
(4) AIM Global Health Care Fund normally invests at least 80% of its
assets in securities of health care industry companies. For purposes of the
foregoing sentence, "assets" means net assets, plus the amount of any borrowings
for investment purposes. 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.
(5) AIM Global Science and Technology Fund normally invests at least
80% of its assets in securities of science and technology industry companies.
For purposes of the foregoing sentence, "assets" means net assets, plus the
amount of any borrowings for investment purposes. 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.
CONCENTRATION OF INVESTMENTS
For purposes of the AIM Global Energy Fund's fundamental investment
restriction regarding industry concentration, a company will be considered in
the energy sector if (1) at least 50% of its gross income or its net sales come
from activities in the energy sector; (2) at least 50% of its assets are devoted
to producing revenues from the energy sector; or (3) based on other available
information, AIM determines that its primary business is within the energy
sector.
For purposes of AIM Global Financial Services Fund's fundamental
investment restriction regarding industry concentration, financial services
companies include those that provide, and derive at least 40% of their revenues
from, financial services (such as commercial banks, insurance companies,
investment management companies, trust companies, savings banks, insurance
brokerages, securities brokerages, investment banks, leasing companies, and real
estate-related companies).
For purposes of AIM Global Health Care Fund's fundamental investment
restriction regarding industry concentration, a company will be considered a
health care company if (1) at least 50% of its gross income or its net sales are
derived from activities in the health care industry; (2) at least 50% of its
assets are devoted to producing revenues from the health care industry; or (3)
based on other available information, AIM determines that its primary business
is within the health care industry.
For purposes of AIM Global Science and Technology Fund's fundamental
investment restriction regarding industry concentration, a company will be
considered in the science industry or the technology industry if (1) at least
50% of its gross income or its net sales are derived from activities in that
industry; (2) at least 50% of its assets are devoted to producing revenues from
that industry; or (3) based on other available information, AIM determines that
its primary business is within either industry.
29
TEMPORARY DEFENSIVE POSITIONS
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, cash equivalents or high-quality debt instruments. Each of the Funds may
also invest up to 25% of its total assets in Affiliated Money Market Funds for
these purposes.
PORTFOLIO TURNOVER
Over the last two fiscal years, AIM Strategic Income Fund has
experienced a significant variation in portfolio turnover due to a rebalancing
of the portfolio holdings.
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, their principal occupations
during at least the last five years and certain other information concerning
them are 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, Lewis F. Pennock and Louis S. Sklar, Dr. Prema Mathai-Davis and Ruth H.
Quigley. The Audit Committee is responsible for: (i) the appointment,
compensation and oversight of independent accountants for each Fund and the
evaluation of 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 October 31, 2002, the Audit Committee held [nine] meetings.
The members of the Investments Committee are Messrs. Bayley, Crockett,
Dowden, Dunn, Fields, Carl 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 October 31,
2002, the Investments Committee held [six] 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;
30
(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 October
31, 2002, the Valuation Committee held [no] meeting[s].
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 disinterested trustees as long as any Fund relies on certain rules
under the 1940 Act; (ii) reviewing from time to time the compensation payable to
the disinterested trustees; and (iii) making recommendations to the Board
regarding matters related to compensation, including deferred compensation plans
and retirement plans for the disinterested trustees. During the fiscal year
ended October 31, 2002, the Committee on Directors/Trustees held seven 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, other
than AIM Libra Fund, by the Trust's Board at a meeting held on May 14-15, 2002,
and was initially approved for AIM Libra Fund by the Trust's Board at a meeting
held on September 26-27, 2002. In evaluating the fairness and reasonableness of
the advisory agreement, the Board 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 their respective shareholders. The Board therefore concluded
that the
31
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 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,
2002 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 benefits 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 Trust's Board of Trustees, in its sole discretion,
may accelerate or extend the distribution of such deferral accounts after the
Deferring
32
Trustee's retirement benefits commence under the Plan. The Board, 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. A I M
Distributors, Inc. ("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 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, AIM Distributors and INVESCO Asset Management Limited
(the sub-advisor to AIM Developing Markets Fund), 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 190 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. The Investment Advisory Agreement
provides that, in fulfilling its responsibilities, AIM may engage the services
of other investment managers with respect to one or more of the Funds. The
investment advisory services of AIM and the
33
investment sub-advisory services of the sub-advisor(s) to the Funds are not
exclusive and AIM and sub-advisor(s) are free to render investment advisory
services to others, including other investment companies.
AIM is also responsible for furnishing to the Funds, at AIM's expense,
the services of persons believed to be competent to perform all supervisory and
administrative services required by the Funds, 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 Investment 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.
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 Developing Markets Fund First $500 million 0.975%
AIM Global Energy Fund Next $500 million 0.95%
AIM Global Financial Services Fund Next $500 million 0.925%
AIM Global Health Care Fund On amounts thereafter 0.90%
AIM Global Science and
Technology Fund
AIM Libra Fund First $1 billion 0.85%
On amounts thereafter 0.80%
AIM Strategic Income Fund First $500 million 0.725%
Next $500 million 0.70%
Next $500 million 0.675%
On amounts thereafter 0.65%
</Table>
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.
34
AIM has voluntarily agreed, effective July 1, 2002, 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 "Investment Strategies and Risks - Other Investments - Other
Investment Companies."
AIM has contractually agreed, effective July 1, 2002 through June 30,
2003, to limit total annual fund operating expenses (excluding interest, taxes,
dividends on short sales, extraordinary items and increases in expenses due to
expense offset arrangements, if any) on (1) AIM Global Energy Fund's and AIM
Global Science and Technology Fund's Class A, Class B and Class C shares to
2.00%, 2.50% and 2.50%, respectively, and (2) on AIM Developing Markets Fund's
Class A, Class B and Class C shares to the extent necessary to limit the total
operating expenses on Class A shares to 2.00% (e.g., if AIM waives 0.10% of
Class A expenses, AIM will also waive 0.10% of Class B and Class C expenses).
AIM has contractually agreed to waive fees and/or reimburse expenses (excluding
interest, taxes, dividends on short sales, extraordinary items and increases in
expenses due to expense offset arrangements, if any) on AIM Strategic Income
Fund's Class A, Class B and Class C shares to the extent necessary to limit the
total operating expenses of Class A shares to 1.50% (e.g., if AIM waives 0.06%
of Class A expenses, AIM will also waive 0.06% of Class B and Class C expenses).
Such contractual fee waivers or reductions are set forth in the Fee Table to
each Fund's Prospectus and may not be terminated or amended to the Funds'
detriment during the period stated in the agreement between AIM and the Fund.
INVESTMENT SUB-ADVISOR
AIM has entered into a Master Sub-Advisory contract with INVESCO Asset
Management Limited ("Sub-Advisor") to provide investment sub-advisory services
to AIM Developing Markets Fund.
The Sub-Advisor is registered as an investment advisor under the
Investment Advisers Act of 1940, as amended (the "Advisers Act").
The Sub-Advisor, 11 Devonshire Square, London, EC2M 4YR, England, has
provided investment management and/or administrative services to pension funds,
insurance funds, index funds, unit trusts, offshore funds and a variety of
institutional accounts since 1967.
AIM and the Sub-Advisor are indirect wholly owned subsidiaries of
AMVESCAP PLC (formerly, AMVESCO PLC and INVESCO PLC).
For the services to be rendered by the Sub-Advisor under its Master
Sub-Advisory Contract, AIM will pay to the Sub-Advisor a fee which will be
computed daily and paid as of the last day of each month on the basis of the
Fund's daily net asset value, using for each daily calculation the most recently
determined net asset value of the Fund. (See "Computation of Net Asset Value.")
On an annual basis, the sub-advisory fee is equal to 40% AIM's compensation of
the sub-advised assets per year, for AIM Developing Markets Fund.
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 October 31
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
35
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 October 31 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 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).
Primerica Shareholder Services, Inc. ("PSS"), 3120 Breckinridge
Boulevard, Duluth, Georgia 30099-0001 has also entered into an agreement with
the Trust (and certain other AIM Funds), and AFS pursuant to which PSS 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
36
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 and
for assessing the risks associated with investing in foreign countries,
including the risk of using eligible foreign securities depositories in a
country; 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
The Sub-Advisor has adopted compliance procedures that cover, among
other items, brokerage allocation and other trading practices. Unless
specifically noted, the Sub-Advisor's procedures do not materially differ from
AIM's procedures (except for "Allocation of Initial Public Offering
Transactions") as set forth below.
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.
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 during the last three
fiscal years ended October 31 are found in Appendix G.
37
COMMISSIONS
During the last three fiscal years ended October 31 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, the providing of
custody services, as well as the providing of equipment used to communicate
research information, and 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,
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
38
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 October 31, 2002 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 October 31, 2002 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.
ALLOCATION OF INITIAL PUBLIC OFFERING ("IPO") TRANSACTIONS
Certain of the AIM Funds or other accounts managed by AIM may become
interested in participating in IPOs. Purchases of IPOs by one AIM Fund or
account may also be considered for purchase by one or more other AIM Funds or
accounts. It shall be AIM's practice to specifically combine or otherwise bunch
indications of interest for IPOs for all AIM Funds and accounts participating in
purchase transactions for that IPO, and to allocate such transactions in
accordance with the following procedures:
39
AIM will determine the eligibility of each AIM Fund and account that
seeks to participate in a particular IPO 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
securities issued in IPOs 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 IPOs 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 IPOs as well as the size of the AIM Fund or account. Each eligible AIM
Fund and account will be placed in one of four 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 four 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 IPOs, 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 IPO transactions will be the same for each
AIM Fund and account.
On occasion, when the Sub-Advisor is purchasing certain thinly-traded
securities or shares in an initial public offering for AIM Developing Markets
Fund, the situation may arise that the Sub-Advisor is unable to obtain
sufficient securities to fill the orders of the Fund or all other relevant
clients. In that situation, the Sub-Advisor is required to use pro-rata
allocation methods that ensure the fair and equitable treatment of all clients.
(Such methods may include, for example, pro-rata allocation on each relevant
trade, or "rotational" allocation).
THE REQUIREMENT OF PRO-RATA ALLOCATION IS SUBJECT TO LIMITED EXCEPTIONS
- - SUCH AS WHEN THE FUND OR ACCOUNT IS SUBJECT TO SPECIAL INVESTMENT OBJECTIVES
OR SIZE CONSTRAINTS ON INVESTMENT POSITIONS.
PURCHASE, REDEMPTION AND PRICING OF SHARES
PURCHASE AND REDEMPTION OF SHARES
Purchases of Class A Shares, Class A3 Shares of AIM Limited Maturity Treasury
Fund and AIM Tax-Free Intermediate Fund 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, Class A3 Shares of AIM
Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund and AIM Cash
Reserve Shares of AIM Money Market Fund are sold without an initial sales
charge.
40
CATEGORY I FUNDS
<Table>
AIM Aggressive Growth Fund AIM Large Cap Core Equity Fund
AIM Asia Pacific Growth Fund AIM Large Cap Growth Fund
AIM Basic Value Fund AIM Libra Fund
AIM Blue Chip Fund AIM Mid Cap Basic Value Fund
AIM Capital Development Fund AIM Mid Cap Core Equity Fund
AIM Charter Fund AIM Mid Cap Growth Fund
AIM Constellation Fund AIM New Technology Fund
AIM Dent Demographic Trends Fund AIM Opportunities I Fund
AIM Emerging Growth Fund AIM Opportunities II Fund
AIM European Growth Fund AIM Opportunities III Fund
AIM European Small Company Fund AIM Premier Equity Fund
AIM Global Utilities Fund AIM Premier Equity II Fund
AIM International Emerging Growth Fund AIM Select Equity Fund
AIM International Growth Fund AIM Small Cap Equity Fund
AIM International Core Equity Fund AIM Small Cap Growth Fund
AIM Large Cap Basic Value Fund AIM Weingarten Fund
AIM Worldwide Spectrum Fund
</Table>
<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 Opportunities I Fund will not accept any single purchase in excess of
$250,000.
41
CATEGORY II FUNDS
<Table>
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 Science and AIM Total Return Bond Fund
Technology Fund
</Table>
<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>
Beginning on October 31, 2002 Class A Shares of AIM Limited Maturity
Treasury Fund and AIM Tax-Free Intermediate Fund were closed to new investors.
Current investors must maintain a share balance in order to continue to make
incremental purchases.
42
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 or II Fund,
however, the shares generally will be subject to a 1.00% 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 and through October 31, 2002 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 by
investors other than the following types of retirement plans: (i) all Section
401 and 457 plans, (ii) Section 403 plans which are sponsored by section
501(c)(3) organizations, and (iii) IRA rollovers from such plans in which any
AIM Fund was offered, AIM Distributors may make the following payments to
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
If an investor made a Large Purchase of Class A shares of a Category
III Fund on and after November 15, 2001 and through October 30, 2002 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 or 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. Beginning February 17, 2003, Class A
Shares of a Category I or II Fund may not be exchanged for Class A Shares of a
Category III Fund.
If an investor makes a Large Purchase of Class A3 shares of a Category
III Fund on and after October 31, 2002 and exchanges those shares for Class A
shares of a Category I or II Fund, AIM Distributors will pay 1.00% of such
purchases as dealer compensation upon the exchange. The Class A Shares of the
Category I or II Fund received in exchange generally will be subject to a 1.00%
CDSC if the investor redeems such shares within 18 months from the date of
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. Beginning on February 17, 2003, Class A Shares of a Category III Fund
may not be exchanged for Class A Shares of another Category III Fund.
Effective November 1, 2002, for 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 retirement plans provided the applicable dealer of record is able to
establish that the retirement plan's purchase of Class A shares is a new
investment (as defined below):
43
PERCENT OF SUCH PURCHASES
0.50% of the first $20 million
plus 0.25% of amounts in excess of $20 million
A "new investment" means a purchase payment consisting of funds that
represent a new investment in the AIM Funds, rather than funds that represent
the proceeds of one or more exchanges of shares that involved shares of an AIM
Fund or funds that represent the proceeds of one or more retirement plan loan
repayments that involved shares of an AIM Fund. If AIM Distributors pays a
dealer concession in connection with a plan's Large Purchase of Class A shares,
such shares will be subject to a CDSC of 1.00% of net assets for 12 months,
commencing on the date the plan first deposits money in the AIM Fund account. If
the applicable dealer of record is unable to establish that a plan's Large
Purchase of Class A shares is a new investment, AIM Distributors will not pay a
dealer concession in connection with such Large Purchase and such Class A shares
will not be subject to a CDSC.
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; and
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; and
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.
44
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; and
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;
b. Salary Reduction and other Elective Simplified Employee
Pension account (SAR-SEP) Plans; and
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:
45
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.
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.
46
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 entered 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 and through
October 30, 2002, 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 or
after October 30, 2002 will not be subject to this CDSC. All LOIs to 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
contracts purchased on or before June 30, 1992.
If an investor's new purchase of Class A shares of a Category I or II
Fund is at net asset value, the newly purchased shares will be subject to a CDSC
if the investor redeems them prior to the end of the 18 month holding period (12
months for Category III Fund shares). For new purchases of Class A shares of
Category III Funds at net asset value made on and after November 15, 2001 and
through October 30, 2002, the newly purchased shares will be subject to a CDSC
if the investor redeems them prior to the end of the 12 month holding period.
47
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, Class A3
Shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate 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.
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.
48
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 Opportunities
I 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;
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.
49
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 CDSC 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
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 CDSC if they redeem their
shares within the first year after purchase (no CDSC applies to Class C shares
of AIM Short Term Bond Fund unless you exchange shares of another AIM Fund that
are subject to a CDSC into AIM Short Term Bond Fund). See the Prospectus for
additional information regarding this CDSC. AIM Distributors may pay sales
commissions to dealers and institutions who sell Class C shares of the AIM Funds
(except for Class C shares of AIM Short Term Bond Fund) 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.
AIM Distributors may pay dealers and institutions who sell Class C
shares of AIM Short Term Bond Fund an annual fee of 0.50% of average daily net
assets. These payments will consist of an asset-based fee of 0.25% and a service
fee of 0.25% and will commence immediately.
Purchases of Class R Shares
Class R shares are sold at net asset value, and are not subject to an
initial sales charge. If AIM Distributors pays a concession to the dealer of
record, however, the Class R shares are subject to a 0.75% CDSC at the time of
redemption if all retirement plan assets are redeemed within one year from the
date of the retirement plan's initial purchase. For purchases of Class R shares
of Category I or II Funds, AIM Distributors may make the following payments to
dealers of record provided that the applicable dealer of record is able to
establish that the purchase of Class R shares is a new investment or a rollover
from a retirement plan in which an AIM Fund was offered:
50
PERCENT OF SUCH PURCHASES
0.75% of the first $5 million
plus 0.50% of amounts in excess of $5 million
A "new investment" means a purchase payment consisting of funds that
represent a new investment in the AIM Funds, rather than funds that represent
the proceeds of one or more exchanges of shares that involved shares of an AIM
Fund or funds that represent the proceeds of one or more retirement plan loan
repayments that involved shares of an AIM Fund. In order to receive such
payments, the dealer of record must sign an agreement with AIM Distributors and
meet certain requirements.
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 than any
applicable contingent deferred sales charge) when shares are redeemed or
repurchased, dealers may charge a fair service fee for handling the transaction.
51
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, Class C or Class R 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 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 (no CDSC applies to Class C shares of AIM Short Term Bond Fund
unless you exchange shares of another AIM Fund that are subject to a CDSC into
AIM Short Term Bond Fund) and, in certain circumstances, upon the redemption of
Class R shares. On and after November 15, 2001 and through October 30, 2002, 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;
52
o Redemptions of shares of Category III Funds purchased prior to
November 15, 2001 or after October 30, 2002;
o Redemptions of shares of Category III Funds purchased on or
after November 15, 2001 and through October 30, 2002 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 on or after November
15, 2001 and through October 30, 2002 with respect to Category
III Funds are redeemed within 18 months of the original
purchase of the exchange 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 and through October 30, 2002,
unless the shares acquired by exchange are redeemed within 18
months of the original purchase of the exchanged Category III
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 on and after November 15, 2001
(and through October 30, 2002 with respect to Category III
Funds), unless the shares acquired by exchange are redeemed
within 12 months of the original purchase of the exchanged
Category III Fund shares;
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; and
o Redemptions of Category I or II Funds by retirement plan
participants resulting from a total redemption of the plan
assets that occurs more than one year from the date of the
plan's initial purchase.
53
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;
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
Core Equity Fund (formerly known as 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
54
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;
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 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 upfront payment otherwise payable to him;
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;
o Redemptions of Class C shares of an AIM Fund other than AIM
Short Term Bond Fund if you received such Class C shares by
exchanging Class C shares of AIM Short Term Bond Fund; and
o Redemptions of Class C shares of AIM Short Term Bond Fund
unless you received such Class C shares by exchanging Class C
shares of another AIM Fund and the original purchase was
subject to a CDSC.
CDSCs will not apply to the following redemptions of Class R shares:
o Class R shares where the retirement plan's dealer of record
notifies the distributor prior to the time of investment that
the dealer waives the upfront payment otherwise payable to
him;
o Redemptions, if you are a participant in a retirement plan and
your plan redeems, at any time, less than all of the Class R
shares held through such plan that would otherwise be subject
to a CDSC; and
o Redemptions, if you are a participant in a retirement plan and
your plan redeems, after having held them for more than one
year from the date of the plan's initial purchase, all of the
Class R shares held through such plan that would otherwise be
subject to a CDSC.
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.
55
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 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
56
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 October 31, 2002, AIM Global
Health Care Fund - Class A shares had a net asset value per share of $22.41. The
offering price, assuming an initial sales charge of 4.75%, therefore was $23.53.
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 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 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 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,
57
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 price, 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,
the Fund is obligated 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 decreases in
phases to 28% for distributions made in the year 2006 and thereafter.
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.
58
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 each Fund to declare and pay annually net
investment income dividends and capital gain distributions, except for AIM
Strategic Income Fund.
It is each 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 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.
Distributions paid by a fund other than daily dividends have 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 principles 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.
59
QUALIFICATION AS A REGULATED INVESTMENT COMPANY. Each Fund has elected
to be taxed under Subchapter M of the Code as a regulated investment company and
intends to maintain its qualification as such in each of its taxable years. 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
gains 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 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"). Under certain circumstances
a Fund may be required to sell portfolio holdings to meet this 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.
60
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.
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
61
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.
For purposes of the excise 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
62
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 a Fund 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 (currently 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.
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.
63
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 amount of the forthcoming distribution. Those purchasing just prior to a
distribution will receive a distribution which generally will be taxable to
them.
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 and any such loss will be disallowed to the extent of
any exempt-interest dividends that were received in a six month period. 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 on disposition.
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
64
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.
Foreign shareholders may be subject to U.S. withholding tax at a rate
of 30% on the income resulting from a 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 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 tax 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
65
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.
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.
Rules of state and local taxation for dividends from income and capital
gain dividends from regulated investment companies may 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.
<Table>
<Caption>
FUND CLASS A CLASS B CLASS C
---- ------- ------- -------
AIM Developing Markets Fund 0.50% 1.00% 1.00%
AIM Global Energy Fund 0.50% 1.00% 1.00%
AIM Global Financial Services Fund 0.50% 1.00% 1.00%
AIM Global Health Care Fund 0.50% 1.00% 1.00%
AIM Global Science
and Technology Fund 0.50% 1.00% 1.00%
AIM Libra Fund 0.35% 1.00% 1.00%
AIM Strategic Income Fund 0.35% 1.00% 1.00%
</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
66
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 or 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.
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 attributable to the customers
of 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 October 31, 2002 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 October 31, 2002.
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
67
shareholder service agents to help 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, 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 other broker dealers 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 4.00% 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 Class C Plan attributable to Class C shares
which constitutes an
68
asset-based sales charge (0.75%) is intended in part to permit AIM Distributors
to recoup a portion of the sales commissions to dealers plus financing costs, if
any. After the first full year, AIM Distributors will make quarterly payments 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. These payments will consist of an asset-based
sales charge of 0.75% and a service fee of 0.25%.
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
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 ended October 31 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:
P(1+T)(n)=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 one, five, or ten year periods).
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000
payment at the end of the one, five, or ten 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 October 31 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.
69
Each Fund's total return is calculated in accordance with a
standardized formula for computation of annualized total return. Standardized
total return for: (1) Class A shares reflects the deduction of a Fund's maximum
front-end sales charge, at the time of purchase; and (2) Class B and Class C
shares reflects the deduction of the maximum applicable CDSC, 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.
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:
P(1+U)(n)=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 October 31 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.
70
The standard formula for calculating average annual total return (after
taxes on distributions) is:
P(1+T)(n) = ATV(D)
Where P = a hypothetical initial payment of $1,000;
T = average annual total return (after taxes on
distributions);
N = number of years; and
ATV(D) = ending value of a hypothetical $1,000 payment made
at the beginning of the one, five, or ten year
periods (or since inception, if applicable) at the
end of the one, five, or ten year periods (or since
inception, if applicable), after taxes on fund
distributions but not after taxes on redemption.
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; and (2) Class B and Class C shares reflects the
deduction of the maximum applicable CDSC on a redemption of shares held for the
period.
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, Class B and Class C shares, for the one,
five and ten year periods (or since inception if less than ten years) ended
October 31 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:
P(1+T)(n) = 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
71
ATV(DR) = ending value of a hypothetical $1,000 payment made
at the beginning of the one, five, or ten year
periods (or since inception, if applicable) at the
end of the one, five, or ten 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: (1) Class A shares reflects the deduction of a Fund's
maximum front-end sales charge at the time of purchase; and (2) Class B and
Class C shares reflects the deduction of the maximum applicable CDSC on a
redemption of shares held for the period.
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 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 October 31 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
72
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:
YIELD = 2[((a-b)/(c x d)+1)(6)-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 that were certified to receive dividends.
d = the maximum offering price per share on the last day of
the period.
A Fund may quote its distribution rate, which uses the most recent
dividend paid annualized as a percentage of the Fund's offering price.
The yield and distribution rate for AIM Strategic Income Fund is found
in Appendix L.
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 affect 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 Fortune Pensions & Investments
Barron's Hartford Courant Inc. Personal Investor
Best's Review Institutional Investor Philadelphia Inquirer
Broker World Insurance Forum USA Today
Business Week Insurance Week U.S. News & World Report
Changing Times Investor's Business Daily Wall Street Journal
Christian Science Monitor Journal of the American Washington Post
Consumer Reports Society of CLU & ChFC
</Table>
73
<Table>
Economist Kiplinger Letter CNN
FACS of the Week Money CNBC
Financial Planning Mutual Fund Forecaster PBS
Financial Product News Nation's Business
Financial World New York Times
Forbes Pension World
</Table>
Each Fund may also compare its performance to performance data of
similar mutual funds as published by the following services:
<Table>
Bank Rate Monitor Stanger
Donoghue's Weisenberger
Mutual Fund Values (Morningstar) Lipper, Inc.
</Table>
Each Fund's performance may also be compared in advertising to the
performance of comparative benchmarks such as the following:
<Table>
Goldman Technology Index Lehman Brothers High Yield Index
J P Morgan Global Government Bond Index MSCI All Country World Free Index
Lipper Emerging Markets Fund Index MSCI All Country World Sector Index
Lipper Natural Resources Fund Index MSCI Emerging Markets Free Index
Lipper Financial Services Fund Index MSCI World Health Care Sector Index
Lipper Multi-Sector Income Fund Index Pacific Stock Exchange Technology 100 Index
Lipper Health/Biotech Fund Index Standard & Poor's Energy Index
Lipper Multi-Sector Income Fund Index Standard & Poor's 500 Stock Index
Lipper Science and Technology Fund Index NASDAQ Index
Lehman Brothers Aggregate Bond Index NYSE Finance 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.
74
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.
A-5
Rating categories are as follows:
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.
A-7
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 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 January 1, 2003
The address of each trustee and officer is 11 Greenway Plaza, Suite 100,
Houston, Texas 77046. Each trustee oversees 89 portfolios in the AIM Funds
complex. Column two below includes length of time served with any predecessor
entities if any.
<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 PERSONS
Robert H. Graham(1)-- 1946 1998 Director and Chairman, A I M Management Group None
Trustee, Chairman and President Inc. (financial services holding company); and
Director and Vice Chairman,
AMVESCAP PLC (parent of AIM and a
global investment management firm);
formerly, President and Chief
Executive Officer, A I M Management
Group Inc.; Director, Chairman and
President, A I M Advisors, Inc.
(registered investment advisor);
Director and Chairman, A I M
Capital Management, Inc.
(registered investment advisor),
A I M Distributors, Inc. (registered
broker dealer), A I M Fund
Services, Inc., (registered
transfer agent), and Fund
Management Company (registered
broker dealer)
Mark H. Williamson(2) -- 1951 2003 Director, President and Chief Executive Officer, Director, Chairman,
Trustee A I M Management Group Inc. (financial services President and Chief
holding company); Director, Chairman and Executive Officer,
President, A I M Advisors, Inc. (registered INVESCO Bond Funds,
investment advisor); Director, A I M Capital Inc., INVESCO
Management, Inc. (registered investment advisor) Combination Stock &
and A I M Distributors, Inc. (registered broker Bond Funds, Inc.,
dealer), Director and Chairman, A I M Fund INVESCO Counselor
Services, Inc. (registered transfer agent), and Series Funds, Inc.,
Fund Management Company (registered broker INVESCO
dealer); and Chief Executive Officer, AMVESCAP International
PLC - AIM Division (parent of AIM and a global Funds, Inc.,
investment management firm); formerly, Chief INVESCO Manager
Executive Officer, INVESCO Funds Group, Inc. Series Funds, Inc.,
INVESCO Money
Market Funds, Inc.,
INVESCO Sector
Funds, Inc.,
INVESCO Stock
Funds, Inc.,
INVESCO Treasurer's
Series Funds, Inc.
and INVESCO
Variable Investment
Funds, Inc.
</Table>
- ----------
(1) Mr. Graham is considered an interested person of the Trust because he is a
director of AMVESCAP PLC, parent of the advisor to the Trust.
(2) Mr. Williamson is considered an interested person of the Trust because he is
an officer and a director of the advisor to, and a director of the principal
underwriter of, the trust.
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
1987 Of Counsel, law firm of Baker & McKenzie Badgley Funds, Inc.
Frank S. Bayley -- 1939 (registered
Trustee investment company)
2001 Chairman, Crockett Technology Associates ACE Limited
Bruce L. Crockett -- 1944 (technology consulting company) (insurance
Trustee company); and
Captaris, Inc.
(unified messaging
provider)
2001 Chairman, Cortland Trust, Inc. (registered None
Albert R. Dowden -- 1941 investment company) and DHJ Media, Inc.;
Trustee 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
2001 Formerly, Chairman, Mercantile Mortgage Corp.; None
Edward K. Dunn, Jr. -- 1935 Vice Chairman, President and Chief Operating
Trustee Officer, Mercantile-Safe Deposit & Trust Co.;
and President, Mercantile Bankshares Corp.
2001 Chief Executive Officer, Twenty First Century Administaff
Jack M. Fields -- 1952 Group, Inc. (government affairs company)
Trustee
2001 Partner, law firm of Kramer Levin Naftalis and Cortland Trust,
Carl Frischling -- 1937 Frankel LLP Inc. (registered
Trustee investment company)
2001 Formerly, Chief Executive Officer, YWCA of the None
Prema Mathai-Davis -- 1950 USA
Trustee
2001 Partner, law firm of Pennock & Cooper None
Lewis F. Pennock -- 1942
Trustee
1987 Retired None
Ruth H. Quigley -- 1935
Trustee
</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
------------------------- ------- ------------------------------------------- ---------------
2001 Executive Vice President, Development and None
Louis S. Sklar -- 1939 Operations, Hines Interests Limited Partnership
Trustee (real estate development company)
OTHER OFFICERS
1998 Director, Chairman and Director of Investments, N/A
Gary T. Crum(3) -- 1947 A I M Capital Management, Inc.; Director and
Senior Vice President 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; formerly,
President, A I M Capital Management, Inc.
1998 Director, Senior Vice President, General Counsel N/A
Carol F. Relihan -- 1954 and Secretary, A I M Advisors, Inc. and A I M
Senior Vice President and Management Group Inc.; Director, Vice President
Secretary 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.
1992 Managing Director and Chief Research Officer - N/A
Stuart W. Coco -- 1955 Fixed Income, A I M Capital Management, Inc.;
Vice President and Vice President, A I M Advisors, Inc.
1998 Vice President and Chief Compliance Officer, N/A
Melville B. Cox -- 1943 A I M Advisors, Inc. and A I M Capital Management,
Vice President Inc.; and Vice President, A I M Fund Services,
Inc.
1999 Vice President A I M Advisors, Inc.; and N/A
Edgar M. Larsen(3) -- 1940 President, Chief Executive Officer and Chief
Vice President Investment Officer; A I M Capital Management,
Inc.
1998 Vice President and Fund Treasurer, A I M N/A
Dana R. Sutton -- 1959 Advisors, Inc.
Vice President and
Treasurer
</Table>
- ----------
(3) Information is current as of January 10, 2003
B-3
TRUSTEE OWNERSHIP OF FUND SHARES AS OF DECEMBER 31, 2002
<Table>
<Caption>
AGGREGATE DOLLAR RANGE OF EQUITY
SECURITIES IN ALL REGISTERED
INVESTMENT COMPANIES OVERSEEN BY
DOLLAR RANGE OF EQUITY SECURITIES TRUSTEE IN THE AIM FAMILY OF
NAME OF TRUSTEE PER FUND FUNDS--Registered Trademark--
--------------- --------------------------------- --------------------------------
Robert H. Graham [Developing Markets $10,001 - $50,000 Over $100,000
Frank S. Bayley [Developing Markets $1 - $10,000] $10,001 - $50,000
[Strategic Income $1 - $10,000]
Bruce L. Crockett [-0-] $1 - $10,000
Albert R. Dowden [-0-] Over $100,000
[Global Science
Edward K. Dunn, Jr. and Technology $1 - $10,000] Over $100,000(1)
Jack M. Fields [-0-] Over $100,000(1)
Carl Frischling [-0-] Over $100,000(1)
Prema Mathai-Davis [-0-] Over $100,000(1)
Lewis F. Pennock [-0-] $10,001 - $50,000
Ruth H. Quigley [Developing Markets $1 - $10,000] $1 -$10,000
Louis S. Sklar [-0-] Over $100,000(1)
</Table>
- ----------
(1) Includes the total amount of compensation deferred by the trustee at his or
her other 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, 2002:
<Table>
<Caption>
RETIREMENT
AGGREGATE BENEFITS TOTAL
COMPENSATION FROM ACCRUED ESTIMATED ANNUAL COMPENSATION
THE BY ALL BENEFITS UPON FROM ALL AIM
TRUSTEE TRUST(1) AIM FUNDS(2) RETIREMENT(3) FUNDS(4)
------- ----------------- ------------ ---------------- ------------
Frank S. Bayley $ 142,800 $90,000 150,000
Bruce L. Crockett 50,132 90,000 149,000
Owen Daly II(5) 40,045 90,000 -0-
Albert R. Dowden 57,955 90,000 150,000
Edward K. Dunn, Jr. 94,149 90,000 149,000
Jack M. Fields 29,153 90,000 153,000
Carl Frischling(6) 74,511 90,000 150,000
Prema Mathai-Davis 33,931 90,000 150,000
Lewis F. Pennock 54,802 90,000 154,000
Ruth H. Quigley 142,502 90,000 153,000
Louis S. Sklar 78,500 90,000 153,000
</Table>
(1) The total amount of compensation deferred by all trustees of the Trust
during the fiscal year ended October 31, 2002, including earnings was
$_____.
(2) During the fiscal year ended October 31, 2002, the total amount of expenses
allocated to the Trust in respect of such retirement benefits was $______.
(3) Amounts shown assume each trustee serves until his or her normal retirement
date.
(4) All trustees currently serve as directors or trustees of seventeen
registered investment companies advised by AIM.
(5) Mr. Daly was a trustee until December 31, 2001, when he retired.
(6) During the fiscal year ended October 31, 2002, the Trust paid $25,413.00 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 February 3, 2003.
AIM DEVELOPING MARKETS 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 7.09% 6.10% 30.61%
FBO The Sole Benefit of Customers
ATTN: Fund Administration
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246
Smith Barney House Account
Attn: Cindy Tempesta, 7th Floor
333 West 34th Street 14.23% 6.38% --
New York, NY 10001-2483
</Table>
AIM GLOBAL ENERGY 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
- ------------------- ------------------- ------------------- -------------------
Deloitte & Touche 16.88% -- --
Profit Sharing Plan
Chase Manhattan Bank Trustee
Attn: Angela Ma
3 Metrotech Center, 6th Floor
Brooklyn, NY 11245-0001
Merrill Lynch Pierce Fenner & Smith
FBO The Sole Benefit of Customers
Attn: Fund Administration
4800 Deer Lake Dr. East, 2nd Floor 5.19% 10.12% 10.77%
Jacksonville, FL 32246
Smith Barney House Account
Attn: Cindy Tempesta, 7th Floor
333 West 34th Street -- 5.37% --
New York, NY 10001-2483
</Table>
D-1
AIM GLOBAL FINANCIAL SERVICES 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 10.96% 8.69% 16.44%
FBO The Sole Benefit of Customers
Attn: Fund Administration
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246
Smith Barney House Account
Attn: Cindy Tempesta, 7th Floor
333 West 34th Street 5.17% 8.91% 7.60%
New York, NY 10001-2483
</Table>
AIM GLOBAL HEALTH CARE 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 9.20% 7.32% 13.13%
FBO The Sole Benefit of Customers
Attn: Fund Administration
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246
Smith Barney House Account
Attn: Cindy Tempesta, 7th Floor
333 West 34th Street 7.75% 7.41% 5.14
New York, NY 10001-2483
</Table>
AIM GLOBAL SCIENCE AND 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
- ------------------- ------------------- ------------------- -------------------
Merrill Lynch Pierce Fenner & Smith 6.49% 5.54% 8.11%
FBO The Sole Benefit of Customers
Attn: Fund Administration
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246
Smith Barney House Account
Attn: Cindy Tempesta, 7th Floor
333 West 34th Street 10.16% 9.80% 5.99%
New York, NY 10001-2483
</Table>
AIM LIBRA 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
- ------------------- ------------------- ------------------- -------------------
A I M Advisors, Inc. -- 59.24% --
Attn: David Hessel
11 Greenway Plaza, Suite 1919
Houston, TX 77046
NFSC FEBO #WRN-151505
Philip C. Cohen
12521 Valley Pines Drive -- 9.77% --
Registertown, MD 21136
Scott Stringfellow, Inc.
909 East Main Street -- 5.94% --
Richmond, VA 23219
</Table>
D-2
AIM STRATEGIC INCOME 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
- ------------------- ------------------- ------------------- -------------------
ANTC Cust Rollover IRAFBO 7.28% 9.58%
David F. Wesolowski
3944 South Camrose Ave
New Berlin, WI 53151-0000
Merrill Lynch Pierce Fenner & Smith
FBO The Sole Benefit of Customers
Attn: Fund Administration 14.26% 8.65% 5.97%
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246
Smith Barney House Account
Attn: Cindy Tempesta, 7th Floor
333 West 34th Street -- -- 6.16%
New York,NY 10001-2483
NFSC FEBO #JH1-088595
Isidro Baranda Suarez
Rosalinda Alonso
Surfside #75 B-14 -- -- 5.74%
Palmas Del Mar
Humacao, PR 00791
</Table>
MANAGEMENT OWNERSHIP
[As of February 3, 2003, the trustees and officers as a group owned less than 1%
of the shares outstanding of each class of any Fund.]
D-3
APPENDIX E
MANAGEMENT FEES
For the last three fiscal years ended October 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 2002 2001 2000
--------- ---------------------------------- ------------------------------------ ------------------------------------
MANAGEMENT NET MANAGEMENT NET MANAGEMENT NET
MANAGEMENT FEE MANAGEMENT MANAGEMENT FEE MANAGEMENT MANAGEMENT FEE MANAGEMENT
FEE PAID WAIVERS FEE PAID FEE PAID WAIVERS FEE PAID FEE PAID WAIVERS FEE PAID
---------- ---------- ---------- ----------- ---------- ----------- ----------- ---------- -----------
AIM Developing
Markets Fund $1,984,365 $1,032,501 $ 951,864 $ 1,720,644 $ 880,540 $ 840,104 $ 2,321,564 $ 195,861 $ 2,125,703
AIM Global Energy
Fund 288,354 233,074 55,280 269,728 231,238 38,490 296,957 242,924 54,033
AIM Global Financial
Services Fund 2,792,762 3,254 2,789,508 2,721,720 1,017 2,720,703 1,192,264 -0- 1,192,264
AIM Global Health
Care Fund 8,509,208 5,611 8,503,597 7,123,437 1,495 7,122,942 4,963,633 -0- 4,963,633
AIM Global Science
and Technology
Fund 5,944,573 3,384,288 2,560,285 13,178,872 728,934 12,499,938 29,880,111 -0- 29,880,111
AIM Libra Fund(1) N/A N/A N/A N/A N/A N/A N/A N/A N/A
AIM Strategic
Income Fund 747,890 600,489 147,401 869,457 619,956 249,501 1,118,206 548,051 570,155
</Table>
(1) Commenced operations November 1, 2002
E-1
APPENDIX F
ADMINISTRATIVE SERVICES FEES
The Funds paid AIM the following amounts for administrative services
for the last three fiscal years ended October 31:
<Table>
<Caption>
FUND NAME 2002 2001 2000
--------- ---- ---- ----
AIM Developing Markets Fund $ 50,000 $ 50,000 $ 50,000
AIM Global Energy Fund 50,000 50,000 50,000
AIM Global Financial Services Fund 77,287 75,830 50,000
AIM Global Health Care Fund 168,501 134,681 117,295
AIM Global Science and Technology Fund 128,170 154,242 202,100
AIM Libra Fund(1) N/A N/A N/A
AIM Strategic Income Fund 50,000 50,000 50,000
</Table>
(1) Commenced operations on November 1, 2002
F-1
APPENDIX G
BROKERAGE COMMISSIONS
Brokerage commissions paid(1) by each of the Funds listed below during the last
three fiscal years were as follows:
<Table>
<Caption>
FUND 2002 2001 2000
---- ----------- ---------- -----------
AIM Developing Markets Fund $ 770,314 $ 847,173 $ 1,647,898
AIM Global Energy Fund 272,129 169,701 139,146
AIM Global Financial Services Fund(2) 436,172 472,634 183,970
AIM Global Health Care Fund 4,231,045 2,571,259 3,030,188
AIM Global Science and Technology Fund 2,312,821 3,403,668 2,967,281
AIM Libra Fund(3) N/A N/A N/A
AIM Strategic Income Fund(4) -0- 5,952 25,100
</Table>
(1) Disclosure regarding brokerage commissions is limited to commissions
paid on agency trades and designated as such on the trade confirm.
(2) The variation in brokerage commission paid by AIM Global Financial
Services Fund for the fiscal year ended October 31, 2001, as compared
to the prior fiscal year was due to a significant increase in assets.
(3) Commenced operations on November 1, 2002.
(4) The variation in brokerage commission paid by AIM Strategic Income Fund
for the fiscal year ended October 31, 2000 as compared to fiscal years
ended October 31, 2001 and 1999, was due to an increase in transactions
executed with commissions.
G-1
APPENDIX H
DIRECTED BROKERAGE (RESEARCH SERVICES) AND PURCHASES OF
SECURITIES OF REGULAR BROKERS OR DEALERS
During the last fiscal year ended October 31, 2002, 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 Developing Markets Fund $ -- $ --
AIM Global Energy Fund -- --
AIM Global Financial Services Fund -- --
AIM Global Health Care Fund -- --
AIM Global Science and
Technology Fund -- --
AIM Libra Fund(1) -- --
AIM Strategic Income Fund -- --
</Table>
(1) Commenced operations on November 1, 2002
During the last fiscal year ended October 31, 2002, 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 Developing Markets Fund N/A
AIM Global Energy Fund N/A
AIM Global Financial Services Fund
Lehman Brothers Holdings Inc. Common Stock $ 7,894,614
Morgan Stanley Dean Witter Common Stock 2,051,084
Goldman Sachs Group, Inc. (The) Common Stock 5,821,080
American Express Co. Common Stock 3,982,515
Merrill Lynch & Co., Inc. Common Stock 6,273,135
AIM Global Health Care Fund N/A
AIM Global Science
and Technology Fund N/A
AIM Strategic Income Fund
Lehman Brothers Holdings Inc. Discount Note 311,278
Morgan Stanley Unsecured Notes 320,244
Lehman Brothers Inc. Senior Subordinate Debenture 180,577
</Table>
H-1
APPENDIX I
AMOUNTS PAID TO A I M DISTRIBUTORS, INC. PURSUANT TO DISTRIBUTION PLANS
A list of amounts paid by each class of shares to AIM Distributors
pursuant to the Plans for the fiscal year or period ended October 31, 2002
follows:
<Table>
<Caption>
CLASS A CLASS B CLASS C
FUND SHARES SHARES SHARES
- ---- ---------- ---------- ----------
AIM Developing Markets Fund $ 682,689 $ 504,496 $ 33,535
AIM Global Energy Fund 80,639 121,290 13,180
AIM Global Financial Services Fund 668,896 1,181,058 345,522
AIM Global Health Care Fund 3,027,390 2,277,903 492,799
AIM Global Science
and Technology Fund 1,965,401 1,952,778 242,286
AIM Libra Fund(1) N/A N/A N/A
AIM Strategic Income Fund 246,894 301,840 24,320
</Table>
(1) Commenced operations on November 1, 2002
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 October 31, 2002, follows:
<Table>
<Caption>
PRINTING & UNDERWRITERS DEALERS
ADVERTISING MAILING SEMINARS COMPENSATION COMPENSATION
------------ ------------ ------------ ------------ ------------
AIM Developing Markets Fund $ 120,848 $ 15,214 $ 45,354 $ -0- $ 501,273
AIM Global Energy Fund 6,482 884 2,455 -0- 70,817
AIM Global Financial Services Fund 51,212 6,397 17,157 -0- 594,139
AIM Global Health Care Fund 223,507 28,292 80,688 -0- 2,694,898
AIM Global Science
and Technology Fund 143,631 18,154 54,629 -0- 1,748,988
AIM Libra Fund(1) N/A N/A N/A N/A N/A
AIM Strategic Income Fund 8,969 1,109 3,359 -0- 233,458
</Table>
An estimate by category of the allocation of actual fees paid by Class
B Shares of the Funds during the year ended October 31, 2002, follows:
<Table>
<Caption>
PRINTING & UNDERWRITERS DEALERS
ADVERTISING MAILING SEMINARS COMPENSATION COMPENSATION
------------ ------------ ------------ ------------ ------------
AIM Developing Markets Fund $ 2,694 $ 326 $ 906 $ 378,372 $ 122,198
AIM Global Energy Fund -0- -0- -0- 90,968 30,323
AIM Global Financial Services Fund 31,467 4,049 10,655 885,794 249,094
AIM Global Health Care Fund 70,034 8,952 25,353 1,708,427 465,137
AIM Global Science
and Technology Fund 21,888 2,807 8,448 1,464,584 455,050
AIM Libra Fund(1) N/A N/A N/A N/A N/A
AIM Strategic Income Fund 4,558 523 1,452 226,380 68,927
</Table>
An estimate by category of the allocation of actual fees paid by Class
C shares of the Funds during the year ended October 31, 2002, follows:
<Table>
<Caption>
PRINTING & UNDERWRITERS DEALERS
ADVERTISING MAILING SEMINARS COMPENSATION COMPENSATION
------------ ------------ ------------ ------------ ------------
AIM Developing Markets Fund $ -0- $ -0- $ -0- $ 9,141 $ 24,394
AIM Global Energy Fund 1,192 262 -0- 4,359 7,367
AIM Global Financial Services Fund 10,661 1,454 4,038 75,715 253,655
AIM Global Health Care Fund 26,122 3,081 9,063 187,306 267,226
AIM Global Science
and Technology Fund 5,661 718 1,595 38,272 196,040
AIM Libra Fund(1) N/A N/A N/A N/A N/A
AIM Strategic Income Fund 2,265 497 -0- 8,288 13,270
</Table>
(1) Commenced operations on November 1, 2002
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 October 31:
<Table>
<Caption>
2002 2001 2000
---------------------------- ---------------------------- ----------------------------
SALES AMOUNT SALES AMOUNT SALES AMOUNT
CHARGES RETAINED CHARGES RETAINED CHARGES RETAINED
------------ ------------ ------------ ------------ ------------ ------------
AIM Developing Markets Fund $ 124,830 $ 22,655 $ 70,148 $ 12,631 $ 135,795 $ 25,847
AIM Global Energy Fund 55,133 9,416 57,259 9,649 35,823 4,984
AIM Global Financial Services Fund 405,658 76,053 1,121,260 189,895 784,002 133,801
AIM Global Health Care Fund 1,703,543 300,015 1,789,730 303,612 554,506 97,946
AIM Global Science
and Technology Fund 511,950 90,080 1,643,392 289,307 9,076,900 1,575,107
AIM Libra Fund(1) N/A N/A N/A N/A N/A N/A
AIM Strategic Income Fund 92,955 17,230 94,909 17,139 71,248 12,841
</Table>
* Commenced operations on November 1, 2002
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 October 31:
<Table>
<Caption>
2002 2001 2000
------------ ------------ ------------
AIM Developing Markets Fund $ 2,677 $ 10,586 $ 45,221
AIM Global Energy Fund 5,122 2,960 516
AIM Global Financial Services Fund 16,136 27,133 10,205
AIM Global Health Care Fund 30,996 25,075 3,020
AIM Global Science and Technology Fund 42,657 55,389 99,517
AIM Libra Fund(1) N/A N/A N/A
AIM Strategic Income Fund 27,915 3,289 17,039
</Table>
(1) Commenced operations on November 1, 2002
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 October 31, 2002 are as follows:
PERIODS ENDED
OCTOBER 31, 2002
<Table>
<Caption>
SINCE INCEPTION
CLASS A SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
--------------- ------------ ------------ ------------ ------------ ------------
AIM Developing Markets Fund 6.15% (10.47)% N/A (6.58)% 01/11/94
AIM Global Energy Fund (0.52)% (11.79)% N/A 0.07% 05/31/94
AIM Global Financial Services Fund (11.95)% 5.88% N/A 9.63% 05/31/94
AIM Global Health Care Fund 17.85% 7.43% 11.81% N/A% 08/07/89
AIM Global Science and
Technology Fund (37.15)% (17.80)% (2.78)% N/A 01/27/92
AIM Libra Fund(1) N/A N/A N/A N/A 11/01/02
AIM Strategic Income Fund (11.35)% (3.11)% 3.81% N/A 03/29/88
</Table>
(1) Commenced operations on November 1, 2002
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 if less than
ten years) ended October 31, 2002 are as follows:
PERIODS ENDED
OCTOBER 31, 2002
<Table>
<Caption>
SINCE INCEPTION
CLASS B SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
--------------- ------------ ------------ ------------ ------------ ------------
AIM Developing Markets Fund 5.83% N/A N/A (11.17)% 11/03/97
AIM Global Energy Fund (0.01)% (11.71)% N/A 0.18% 05/31/94
AIM Global Financial Services Fund (12.61)% 6.08% N/A 9.74% 05/31/94
AIM Global Health Care Fund (17.87)% 7.72% N/A 13.78% 04/01/93
AIM Global Science and
Technology Fund (37.76)% (17.67)% N/A (4.23)% 04/01/93
AIM Libra Fund(1) N/A N/A N/A N/A 11/01/02
AIM Strategic Income Fund (11.84)% (3.08)% 3.77% N/A 10/22/92
</Table>
(1) Commenced operations on November 1, 2002
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 October 31, 2002, are as follows:
PERIODS ENDED
OCTOBER 31, 2002
<Table>
<Caption>
SINCE INCEPTION
CLASS C SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
--------------- ------------ ------------ ------------ ------------ ------------
AIM Developing Markets Fund 9.85% N/A N/A (2.03)% 03/01/99
AIM Global Energy Fund (3.98)% N/A N/A 1.99% 03/01/99
AIM Global Financial Services Fund (8.94)% N/A N/A 3.58% 03/01/99
AIM Global Health Care Fund (14.91)% N/A N/A 8.11% 03/01/99
AIM Global Science and
Technology Fund (35.14)% N/A N/A (26.98)% 03/01/99
AIM Libra Fund(1) N/A N/A N/A N/A 11/01/02
AIM Strategic Income Fund (8.29)% N/A N/A (2.90)% 03/01/99
</Table>
(1) Commenced operations on November 1, 2002
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 October 31, 2002 are as follows:
PERIODS ENDED
OCTOBER 31, 2002
<Table>
<Caption>
SINCE INCEPTION
CLASS A SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
--------------- ------------ ------------ ------------ ------------ ------------
AIM Developing Markets Fund 6.15% (42.48)% N/A (45.08)% 01/11/94
AIM Global Energy Fund 0.52% (46.59)% N/A 0.58% 05/31/94
AIM Global Financial Services Fund (11.95)% 33.09% N/A 116.78% 05/31/94
AIM Global Health Care Fund (17.85)% 43.09% 205.42% N/A 08/07/89
AIM Global Science and
Technology Fund (37.15)% (62.48)% 24.57 N/A 01/27/92
AIM Libra Fund(1) N/A N/A N/A N/A 11/01/02
AIM Strategic Income Fund (11.35)% (14.62)% 45.28% N/A 03/29/88
</Table>
(1) Commenced operation on November 1, 2002
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 October 31, 2002 are as follows:
PERIODS ENDED
OCTOBER 31, 2002
<Table>
<Caption>
SINCE INCEPTION
CLASS B SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
--------------- ------------ ------------ ------------ ------------ ------------
AIM Developing Markets Fund 5.83% N/A N/A (44.64)% 11/03/97
AIM Global Energy Fund (0.01)% (46.36)% N/A 1.53% 05/31/94
AIM Global Financial Services Fund (12.61)% 34.32% N/A 118.77% 05/31/94
AIM Global Health Care Fund (17.87)% 45.01% N/A 244.67% 04/01/93
AIM Global Science and
Technology Fund (37.76)% (62.18)% N/A (33.88)% 04/01/93
AIM Libra Fund(1) N/A N/A N/A N/A 11/01/02
AIM Strategic Income Fund (11.84)% (14.46)% 44.83% N/A 10/22/92
</Table>
(1) Commenced operations on November 1, 2002
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 October 31, 2002 are as follows:
PERIODS ENDED
OCTOBER 31, 2002
<Table>
<Caption>
SINCE INCEPTION
CLASS C SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
--------------- ------------ ------------ ------------ ------------ ------------
AIM Developing Markets Fund 9.85% N/A N/A (7.25)% 03/01/99
AIM Global Energy Fund 3.98% N/A N/A 7.50% 03/01/99
AIM Global Financial Services Fund (8.94)% N/A N/A 13.77% 03/01/99
AIM Global Health Care Fund (14.91)% N/A N/A 33.11% 03/01/99
AIM Global Science and
Technology Fund (35.14)% N/A N/A (68.45)% 03/01/99
AIM Libra Fund(1) N/A N/A N/A N/A 11/01/02
AIM Strategic Income Fund (8.29)% N/A N/A (10.22)% 03/01/99
</Table>
(1) Commenced operations on November 1, 2002
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 than ten years)
ended October 31, 2002 are as follows:
PERIODS ENDED
OCTOBER 31, 2002
<Table>
<Caption>
SINCE INCEPTION
CLASS A SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
--------------- ------------ ------------ ------------ ------------ ------------
AIM Developing Markets Fund 5.69% (11.00)% N/A (7.43)% 01/11/94
AIM Global Energy Fund 0.28% (12.03)% N/A (0.26)% 05/31/94
AIM Global Financial Services Fund (11.95)% 4.24% N/A 8.30% 05/31/94
AIM Global Health Care Fund (20.80)% 3.69% 8.88% N/A% 08/07/89
AIM Global Science and
Technology Fund (37.15)% (19.07)% (4.15)% N/A 01/27/92
AIM Libra Fund(1) N/A N/A N/A N/A 11/01/02
AIM Strategic Income Fund (13.68)% (5.51)% 0.76% N/A 03/29/88
</Table>
(1) Commenced operations on November 1, 2002
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 October 31, 2002 are as follows:
PERIODS ENDED
OCTOBER 31, 2002
<Table>
<Caption>
SINCE INCEPTION
CLASS B SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
--------------- ------------ ------------ ------------ ------------ ------------
AIM Developing Markets Fund 5.60% N/A N/A (11.56)% 11/03/97
AIM Global Energy Fund (0.01)% (11.92)% N/A (0.10)% 05/31/94
AIM Global Financial Services Fund (12.61)% 4.41 N/A 8.43% 05/31/94
AIM Global Health Care Fund (21.16)% 3.76% N/A 10.60% 04/01/93
AIM Global Science and
Technology Fund (37.76)% (19.01)% N/A (5.64)% 04/01/93
AIM Libra Fund(1) N/A N/A N/A N/A 11/01/02
AIM Strategic Income Fund (14.03)% (5.25)% 0.93% N/A 10/22/92
</Table>
(1) Commenced operations on November 1, 2002
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 October 31, 2002 are as follows:
PERIODS ENDED
OCTOBER 31, 2002
<Table>
<Caption>
SINCE INCEPTION
CLASS C SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
--------------- ------------ ------------ ------------ ------------ ------------
AIM Developing Markets Fund 9.61% N/A N/A (2.09)% 03/01/99
AIM Global Energy Fund (3.98)% N/A N/A 1.99% 03/01/99
AIM Global Financial Services Fund (8.94)% N/A N/A 1.74% 03/01/99
AIM Global Health Care Fund 18.21% N/A N/A 5.52% 03/01/99
AIM Global Science and
Technology Fund (35.14)% N/A N/A (28.17)% 03/01/99
AIM Libra Fund(1) N/A N/A N/A N/A 11/01/02
AIM Strategic Income Fund (10.49)% N/A N/A (5.10)% 03/01/99
</Table>
(1) Commenced operations on November 1, 2002
AVERAGE ANNUAL TOTAL RETURN (AFTER TAXES ON DISTRIBUTIONS AND REDEMPTION)
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 October 31, 2002 are as follows:
PERIODS ENDED
OCTOBER 31, 2002
<Table>
<Caption>
SINCE INCEPTION
CLASS A SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
--------------- ------------ ------------ ------------ ------------ ------------
AIM Developing Markets Fund 3.80% (8.10)% N/A (5.18)% 01/11/94
AIM Global Energy Fund (0.31)% (8.94)% N/A (0.01)% 05/31/94
AIM Global Financial Services Fund (7.34)% 4.11% N/A 7.50% 05/31/94
AIM Global Health Care Fund (9.15)% 4.67% 9.93% N/A 08/07/89
AIM Global Science and
Technology Fund (22.81)% (11.03)% (0.86)% N/A 01/27/92
AIM Libra Fund(1) N/A N/A N/A N/A 11/01/02
AIM Strategic Income Fund (6.91)% (3.50)% 1.62% N/A 03/29/88
</Table>
(1) Commenced operations on November 1, 2002
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 October 31, 2002
are as follows:
PERIODS ENDED
OCTOBER 31, 2002
<Table>
<Caption>
SINCE INCEPTION
CLASS B SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
--------------- ------------ ------------ ------------ ------------ ------------
AIM Developing Markets Fund 3.60% N/A N/A (8.54)% 11/03/97
AIM Global Energy Fund (0.01)% (8.86)% N/A 0.11% 05/31/94
AIM Global Financial Services Fund (7.75)% 4.28% N/A 7.63% 05/31/94
AIM Global Health Care Fund (8.93)% 4.87% N/A 10.35% 04/01/93
AIM Global Science and
Technology Fund (23.18)% (10.80)% N/A (1.85)% 04/01/93
AIM Libra Fund(1) N/A N/A N/A N/A 11/01/02
AIM Strategic Income Fund (7.21)% (3.37)% 1.71% N/A 10/22/92
</Table>
(1) Commenced operations on November 1, 2002
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 October 31, 2002
are as follows:
PERIODS ENDED
OCTOBER 31, 2002
<Table>
<Caption>
SINCE INCEPTION
CLASS C SHARES: 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
--------------- ------------ ------------ ------------ ------------ ------------
AIM Developing Markets Fund 6.06% N/A N/A (1.64)% 03/01/99
AIM Global Energy Fund (2.44)% N/A N/A 1.60% 03/01/99
AIM Global Financial Services Fund (5.49)% N/A N/A 2.17% 03/01/99
AIM Global Health Care Fund (7.12)% N/A N/A 6.26% 03/01/99
AIM Global Science and
Technology Fund (21.57)% N/A N/A (17.39)% 03/01/99
AIM Libra Fund(1) N/A N/A N/A N/A 11/01/02
AIM Strategic Income Fund (5.03)% N/A N/A (3.28)% 03/01/99
</Table>
(1) Commenced operations on November 1, 2002
L-6
YIELDS
The yields for the named Fund are as follows:
<Table>
<Caption>
30 DAYS ENDED
OCTOBER 31, 2002
----------------------------------
CLASS A CLASS B CLASS C
------- ------- -------
AIM Strategic Income Fund
with waivers 6.24% 5.88% 5.88%
without waivers 5.63% 5.24% 5.24%
</Table>
DISTRIBUTION RATES
The distribution rates for the named Fund are as follows:
<Table>
<Caption>
30 DAYS ENDED
OCTOBER 31, 2002
----------------------------------
CLASS A CLASS B CLASS C
------- ------- -------
AIM Strategic Income Fund
Distribution rates at maximum offering
price 7.32% 7.02% 7.02%
</Table>
L-7
FINANCIAL STATEMENTS
FS
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees and Shareholders of AIM Developing Markets 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 Developing Markets Fund
(one of the funds constituting AIM Investment Funds; hereafter referred to as
the "Fund") at October 31, 2002, 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, 2002 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion.
/s/ PRICEWATERHOUSECOOPERS LLP
December 12, 2002
Houston, Texas
FS-1
FINANCIALS
Schedule of Investments
October 31, 2002
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
FOREIGN STOCKS & OTHER EQUITY
INTERESTS-96.97%
Argentina-0.00%
Banco Hipotecario S.A.-Wts., expiring
02/02/04 (Banks) (Acquired 01/28/99; Cost
$30,850)(a)(b)(c) 617 $ 0
==========================================================================
Brazil-6.47%
Brasil Telecom Participacoes S.A.-Pfd.
(Integrated Telecommunication Services) 350,300,000 1,995,502
- --------------------------------------------------------------------------
Companhia Siderurgica Nacional S.A. (Steel) 77,676,000 805,688
- --------------------------------------------------------------------------
Petroleo Brasileiro S.A.-ADR (Integrated Oil
& Gas) 108,600 1,309,687
- --------------------------------------------------------------------------
Tele Centro Oeste Celular Participacoes
S.A.-ADR (Wireless Telecommunication
Services) 256,200 755,790
- --------------------------------------------------------------------------
Tele Norte Leste Participacoes S.A.-ADR
(Integrated Telecommunication Services) 234,434 1,622,283
- --------------------------------------------------------------------------
Telesp Celular Participacoes S.A.-Pfd.
(Wireless Telecommunication Services) 760,769,000 793,298
- --------------------------------------------------------------------------
Uniao de Bancos Brasileiros S.A.-GDR (Banks) 137,016 1,245,475
- --------------------------------------------------------------------------
Votorantim Celulose e Papel S.A.-ADR (Paper
Products) 52,254 802,099
- --------------------------------------------------------------------------
Votorantim Celulose e Papel S.A.-Pfd. (Paper
Products) 28,087,000 881,738
==========================================================================
10,211,560
==========================================================================
China-1.05%
China Petroleum and Chemical Corp. (Sinopec)-
Class H (Integrated Oil & Gas) 10,700,000 1,660,010
==========================================================================
Czech Republic-0.56%
Komercni Banka A.S.-GDR (Banks) 41,900 879,900
==========================================================================
Hong Kong-4.19%
China Unicom Ltd. (Wireless Telecommunication
Services)(d) 5,441,000 3,383,468
- --------------------------------------------------------------------------
Cosco Pacific Ltd. (Marine Ports & Services) 1,358,000 1,088,232
- --------------------------------------------------------------------------
TCL International Holdings Ltd. (Consumer
Electronics) 7,970,000 2,145,948
==========================================================================
6,617,648
==========================================================================
Hungary-0.01%
Pannonplast Rt. (Commodity Chemicals) 2,126 12,514
- --------------------------------------------------------------------------
Technoimpex (Multi-Sector Holdings)(c)(d) 1,400 0
==========================================================================
12,514
==========================================================================
India-4.07%
Bharti Televentures Ltd. Equity Participation
Ctfs., expiring 02/19/03 (Goldman Sachs)
(Telecommunications Equipment)(b) 2,005,500 1,099,014
- --------------------------------------------------------------------------
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
India-(Continued)
ICICI Bank Ltd.-ADR (Diversified Financial
Services) 16,098 $ 99,003
- --------------------------------------------------------------------------
India Consumer & Finance Index-Equity
Participation Ctfs., expiring 02/07/03
(Goldman Sachs) (Diversified
Financial Services)(d) 2,374 2,435,178
- --------------------------------------------------------------------------
India Industrial Index Equity Participation
Ctfs., expiring 02/07/03 (Goldman Sachs)
(Computer Hardware)(b) 12,910 2,789,322
==========================================================================
6,422,517
==========================================================================
Indonesia-2.34%
PT Telekomunikusi Indonesia (Integrated
Telecommunication Services) 11,101,500 3,698,495
==========================================================================
Israel-2.30%
IDB Development Corp. Ltd. (Multi-Sector
Holdings)(d) 12,629 186,607
- --------------------------------------------------------------------------
NICE Systems Ltd.-ADR (Telecommunications
Equipment)(d) 59,100 475,755
- --------------------------------------------------------------------------
Teva Pharmaceutical Industries Ltd.-ADR
(Pharmaceuticals) 38,300 2,965,569
==========================================================================
3,627,931
==========================================================================
Luxembourg-1.13%
Realtek Semiconductor-Equity Participation
Ctfs., expiring 01/17/05 (Salomon Smith
Barney) (Semiconductors)(d) 640,538 1,780,055
==========================================================================
Malaysia-6.19%
Genting Berhad (Casinos & Gambling) 545,000 1,893,158
- --------------------------------------------------------------------------
IOI Corp. Berhad (Agricultural Products) 1,985,000 2,925,263
- --------------------------------------------------------------------------
Palmco Holdings Berhad (Agricultural
Products)(c) 62,875 74,126
- --------------------------------------------------------------------------
Public Finance Berhad (Banks) 627,000 1,105,500
- --------------------------------------------------------------------------
RHB Capital Berhad (Banks) 3,177,000 1,538,337
- --------------------------------------------------------------------------
Star Publications Berhad (Publishing) 693,000 1,094,211
- --------------------------------------------------------------------------
Tanjong Public Ltd. Co. (Casinos & Gambling) 466,000 1,140,474
==========================================================================
9,771,069
==========================================================================
Mexico-10.25%
Alfa S.A.-Class A (Industrial Conglomerates) 613,000 1,006,741
- --------------------------------------------------------------------------
America Movil S.A. de C.V.-Series L-ADR
(Wireless Telecommunication Services) 99,500 1,337,280
- --------------------------------------------------------------------------
America Telecom, S.A. de C.V.-Series A1
(Wireless Telecommunication Services)(d) 1,550,000 942,249
- --------------------------------------------------------------------------
Carso Global Telecom-Class A1 (Integrated
Telecommunication Services)(d) 1,550,000 1,644,377
- --------------------------------------------------------------------------
Cemex S.A. de C.V.-CPO (Construction
Materials) 224,400 904,509
- --------------------------------------------------------------------------
</Table>
FS-2
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
Mexico-(Continued)
Cemex S.A. de CV-Wts., expiring 12/21/04
(Construction Materials) (Acquired
12/16/99; Cost $7,704)(a)(b) 22,000 $ 7,766
- --------------------------------------------------------------------------
Coca-Cola Femsa, S.A. de C.V.-ADR (Soft
Drinks) 59,200 1,236,096
- --------------------------------------------------------------------------
Fomento Economico Mexicano, S.A. de C.V.-ADR
(Soft Drinks) 55,424 2,006,349
- --------------------------------------------------------------------------
Grupo Financiero BanCrecer S.A. de
C.V.-Series B (Diversified Financial
Services)(d) 1 0
- --------------------------------------------------------------------------
Grupo Financiero Banorte S.A. de C.V.-Class O
(Banks) 57,000 126,307
- --------------------------------------------------------------------------
Grupo Financiero BBVA Bancomer, S.A. de C.V.-
Class B (Banks)(d) 3,184,490 2,497,884
- --------------------------------------------------------------------------
Grupo Posadas S.A.-Series L (Hotels, Resorts
& Cruise Lines)(d) 752,300 331,930
- --------------------------------------------------------------------------
Grupo Televisa S.A.-ADR (Broadcasting & Cable
TV)(d) 105,728 2,970,957
- --------------------------------------------------------------------------
Tubos de Acero de Mexico S.A. (Oil & Gas
Equipment & Services) 650,000 1,171,389
==========================================================================
16,183,834
==========================================================================
Russia-6.62%
LUKOIL-ADR (Integrated Oil & Gas) 51,858 3,387,199
- --------------------------------------------------------------------------
Mobile Telesystems-ADR (Wireless
Telecommunication Services) 78,300 2,561,976
- --------------------------------------------------------------------------
RAO Unified Energy System-GDR REGS (Electric
Utilities) (Acquired 12/07/00-10/31/01;
Cost $1,131,075)(a) 122,040 1,332,677
- --------------------------------------------------------------------------
YUKOS-ADR (Integrated Oil & Gas) 22,800 3,166,988
==========================================================================
10,448,840
==========================================================================
South Africa-11.45%
Anglo American Platinum Corp. Ltd. (Precious
Metals & Minerals) 62,300 2,242,551
- --------------------------------------------------------------------------
Anglo American PLC (Diversified Metals &
Mining) 645,400 8,442,077
- --------------------------------------------------------------------------
Barloworld Ltd. (Industrial Conglomerates) 213,500 1,193,809
- --------------------------------------------------------------------------
Gold Fields Ltd. (Gold) 178,700 2,045,013
- --------------------------------------------------------------------------
Impala Platinum Holdings Ltd. (Precious
Metals & Minerals) 37,101 2,130,112
- --------------------------------------------------------------------------
Sappi Ltd. (Paper Products)(d) 78,800 944,105
- --------------------------------------------------------------------------
Standard Bank Investment Corp. Ltd. (Banks) 365,900 1,075,962
==========================================================================
18,073,629
==========================================================================
South Korea-22.27%
Daishin Securities Co.-Pfd. (Diversified
Financial Services) 149,500 993,002
- --------------------------------------------------------------------------
Hyundai Development Co. (Construction &
Engineering)(d) 254,000 1,375,833
- --------------------------------------------------------------------------
Kangwon Land Inc. (Casinos & Gambling)(d) 15,200 1,390,850
- --------------------------------------------------------------------------
Kookmin Bank-ADR (Banks) 140,183 4,534,920
- --------------------------------------------------------------------------
KT Corp.-ADR (Integrated Telecommunication
Services) 149,300 3,066,622
- --------------------------------------------------------------------------
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
South Korea-(Continued)
POSCO-ADR (Steel) 97,300 $ 2,250,549
- --------------------------------------------------------------------------
Samsung Electronics Co., Ltd.-GDR REGS
(Electronic Equipment & Instruments)
(Acquired 07/25/01-01/02/02; Cost
$2,157,161)(a) 56,300 3,862,180
- --------------------------------------------------------------------------
Samsung Electronics Co., Ltd.-GDR REGS
(Electronic Equipment & Instruments)
(Acquired 11/03/00-08/29/01; Cost
$3,563,486)(a) 43,023 6,141,533
- --------------------------------------------------------------------------
Samsung Electronics Co., Ltd.-Pfd.
(Electronic Equipment & Instruments)(d) 11,300 1,514,052
- --------------------------------------------------------------------------
Samsung Securities Co. Ltd. (Diversified
Financial Services) 106,200 2,746,103
- --------------------------------------------------------------------------
Shinhan Financial Group Co., Ltd. (Banks) 322,160 3,382,154
- --------------------------------------------------------------------------
SK Telecom Co., Ltd.-ADR (Wireless
Telecommunication Services) 194,092 3,895,426
==========================================================================
35,153,224
==========================================================================
Taiwan-11.83%
Chinatrust Commercial Bank-Equity
Participation Ctfs., expiring 07/18/03 (ABN
AMRO) (Banks) (Acquired 07/19/02-09/20/02;
Cost $3,985,611)(a)(b) 4,782,580 3,789,238
- --------------------------------------------------------------------------
High Tech Computer Corp.-Equity Participation
Ctfs., expiring 08/29/03 (UBS Warburg)
(Computer Hardware)(d) 286,600 1,097,678
- --------------------------------------------------------------------------
Hon Hai Precision Industry Co., Ltd.-GDR REGS
(Computer Storage & Peripherals) (Acquired
04/12/02-08/29/02; Cost $3,252,667)(a) 416,705 3,229,464
- --------------------------------------------------------------------------
Taiwan Index-Equity Participation Ctfs.,
expiring 12/26/02 (Goldman Sachs)
(Multi-Sector Holdings)(d) 420,300 2,387,304
- --------------------------------------------------------------------------
Taiwan Semiconductor Manufacturing Co.
Ltd.-Equity Participation Ctfs., expiring
01/15/04 (Salomon Smith Barney) (Banks)
(Acquired 01/03/02-08/22/02; Cost
$6,334,333)(a)(b) 2,935,958 3,905,118
- --------------------------------------------------------------------------
United Microelectronics Corp.
(Semiconductors)(d) 1,384,128 1,005,188
- --------------------------------------------------------------------------
United Microelectronics Corp. Ltd.-Equity
Participation Ctfs., expiring 03/13/03 (UBS
Warburg) (Semiconductors)(d) 3,398,057 2,446,601
- --------------------------------------------------------------------------
United Microelectronics Corp.-ADR
(Semiconductors) 194,925 808,939
==========================================================================
18,669,530
==========================================================================
Thailand-5.00%
Advanced Info Service (Wireless
Telecommunication Services)(d) 1,430,000 1,147,235
- --------------------------------------------------------------------------
Bangkok Bank Public Co. Ltd.-NVDR
(Banks)(c)(d) 2,112,000 2,511,093
- --------------------------------------------------------------------------
National Finance Public Co. Ltd.-NVDR
(Diversified Financial Services)(c)(d) 3,800,000 1,280,850
- --------------------------------------------------------------------------
Shin Corp. PCL (Wireless Telecommunication
Services)(d) 4,640,000 1,210,481
- --------------------------------------------------------------------------
</Table>
FS-3
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
Thailand-(Continued)
Siam Commercial Bank PCL-$1.37 Conv. Pfd.
(Banks) 2,875,000 $ 1,742,324
==========================================================================
7,891,983
==========================================================================
Turkey-1.24%
Haci Omer Sabanci Holding A.S. (Multi-Sector
Holdings) 385,407,406 1,067,960
- --------------------------------------------------------------------------
Koc Holding A.S. (Multi-Sector Holdings)(d) 83,299,000 881,090
==========================================================================
1,949,050
==========================================================================
Total Foreign Stocks & Other Equity
Interests (Cost $160,806,716) 153,051,789
==========================================================================
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- --------------------------------------------------------------------------
BONDS-0.00%
Brazil-0.00%
Companhia Vale Do Rio Doce, Non Conv. Bond
(Diversified Metals & Mining) 0.00%,
12/31/09 (Cost $0)(c)(e)(f) BRL 276,400 $ 0
==========================================================================
</Table>
<Table>
<Caption>
SHARES
MONEY MARKET FUNDS-2.05%
STIC Liquid Assets Portfolio(g) 1,614,178 $ 1,614,178
- --------------------------------------------------------------------------
STIC Prime Portfolio(g) 1,614,178 1,614,178
==========================================================================
Total Money Market Funds (Cost
$3,228,356) 3,228,356
==========================================================================
TOTAL INVESTMENTS-99.02% (Cost
$164,035,072)(h) 156,280,145
==========================================================================
OTHER ASSETS LESS LIABILITIES-0.98% 1,553,498
==========================================================================
NET ASSETS-100.00% $157,833,643
__________________________________________________________________________
==========================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
BRL - Brazilian Dollar
Conv. - Convertible
CPO - Certificates or Ordinary Participation
Ctfs. - Certificates
GDR - Global Depositary Receipt
NVDR - Non-voting Depository Receipt
Pfd. - Preferred
REGS - Regulation S
Wts. - Warrants
</Table>
Notes to Schedule of Investments:
(a) Securities not registered under the Securities Act of 1933, as amended
(e.g., the security was purchased in a Rule 144A transaction or a Regulation
D transaction); the securities may be resold only pursuant to an exemption
from registration under the 1933 Act, typically to qualified institutional
buyers. The aggregate market value of these securities at 10/31/02 was
$22,267,976, which represented 14.11% of the Fund's net assets. The Fund has
no rights to demand registration of these securities.
(b) Non-income producing security acquired as part of a unit with or in exchange
for other securities.
(c) Security fair valued in accordance with the procedures established by the
Board of Trustees.
(d) Non-income producing security.
(e) Foreign denominated security. Par value is denominated in currency
indicated.
(f) Zero coupon bond issued at a discount.
(g) The money market fund and the Fund are affiliated by having the same
investment advisor.
(h) Lippo Bank security was received through a corporate action and as of
October 31, 2002 it has no market value and no cost basis.
See Notes to Financial Statements.
FS-4
Statement of Assets and Liabilities
October 31, 2002
<Table>
ASSETS:
Investments, at market value (cost
$164,035,072)* $156,280,145
- -------------------------------------------------------------
Foreign currencies, at value (cost $1,109,694) 1,106,258
- -------------------------------------------------------------
Receivables for:
Investments sold 2,283,366
- -------------------------------------------------------------
Fund shares sold 201,479
- -------------------------------------------------------------
Dividends 299,388
- -------------------------------------------------------------
Investment for deferred compensation plan 2,721
- -------------------------------------------------------------
Collateral for securities loaned 14,736,534
- -------------------------------------------------------------
Other assets 33,887
=============================================================
Total assets 174,943,778
_____________________________________________________________
=============================================================
LIABILITIES:
Payables for:
Investments purchased 1,400,406
- -------------------------------------------------------------
Fund shares reacquired 368,204
- -------------------------------------------------------------
Deferred compensation plan 2,721
- -------------------------------------------------------------
Collateral upon return of securities loaned 14,736,534
- -------------------------------------------------------------
Accrued distribution fees 220,424
- -------------------------------------------------------------
Accrued trustees' fees 638
- -------------------------------------------------------------
Accrued transfer agent fees 109,964
- -------------------------------------------------------------
Accrued operating expenses 271,244
=============================================================
Total liabilities 17,110,135
=============================================================
Net assets applicable to shares outstanding $157,833,643
_____________________________________________________________
=============================================================
NET ASSETS:
Class A $123,811,772
_____________________________________________________________
=============================================================
Class B $ 31,465,222
_____________________________________________________________
=============================================================
Class C $ 2,556,649
_____________________________________________________________
=============================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE:
Class A 17,787,047
_____________________________________________________________
=============================================================
Class B 4,566,144
_____________________________________________________________
=============================================================
Class C 371,360
_____________________________________________________________
=============================================================
Class A:
Net asset value per share $ 6.96
- -------------------------------------------------------------
Offering price per share:
(Net asset value of $6.96 divided by
95.25%) $ 7.31
_____________________________________________________________
=============================================================
Class B:
Net asset value and offering price per share $ 6.89
_____________________________________________________________
=============================================================
Class C:
Net asset value and offering price per share $ 6.88
_____________________________________________________________
=============================================================
</Table>
* At October 31, 2002, securities with an aggregate market value of $14,352,238
were on loan to brokers.
Statement of Operations
For the year ended October 31, 2002
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of
$359,307) $ 3,345,311
- ------------------------------------------------------------
Dividends from affiliated money market funds 63,652
- ------------------------------------------------------------
Interest 1,220
- ------------------------------------------------------------
Security lending income 189,590
============================================================
Total investment income 3,599,773
============================================================
EXPENSES:
Advisory fees 1,984,365
- ------------------------------------------------------------
Administrative services fees 50,000
- ------------------------------------------------------------
Custodian fees 171,779
- ------------------------------------------------------------
Distribution fees -- Class A 682,689
- ------------------------------------------------------------
Distribution fees -- Class B 504,496
- ------------------------------------------------------------
Distribution fees -- Class C 33,535
- ------------------------------------------------------------
Interest 27,745
- ------------------------------------------------------------
Transfer agent fees 1,265,090
- ------------------------------------------------------------
Trustees' fees 9,663
- ------------------------------------------------------------
Other 347,191
============================================================
Total expenses 5,076,553
============================================================
Less: Fees waived (1,032,501)
- ------------------------------------------------------------
Expenses paid indirectly (10,740)
============================================================
Net expenses 4,033,312
============================================================
Net investment income (loss) (433,539)
============================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES AND FOREIGN CURRENCIES:
Net realized gain (loss) from:
Investment securities (2,839,030)
- ------------------------------------------------------------
Foreign currencies (342,553)
============================================================
(3,181,583)
============================================================
Change in net unrealized appreciation of:
Investment securities 24,949,663
- ------------------------------------------------------------
Foreign currencies 33,682
============================================================
24,983,345
============================================================
Net gain from investment securities and foreign
currencies 21,801,762
============================================================
Net increase in net assets resulting from
operations $21,368,223
____________________________________________________________
============================================================
</Table>
See Notes to Financial Statements.
FS-5
Statement of Changes in Net Assets
For the years ended October 31, 2002 and 2001
<Table>
<Caption>
2002 2001
- --------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (433,539) $ 3,079,374
- --------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities and
foreign currencies (3,181,583) (64,271,885)
- --------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities and foreign currencies 24,983,345 3,067,104
============================================================================================
Net increase (decrease) in net assets resulting from
operations 21,368,223 (58,125,407)
============================================================================================
Distributions to shareholders from net investment income:
Class A (1,561,040) (702,997)
- --------------------------------------------------------------------------------------------
Class B (329,075) --
- --------------------------------------------------------------------------------------------
Class C (12,188) --
- --------------------------------------------------------------------------------------------
Share transactions-net:
Class A 2,526,300 12,675,071
- --------------------------------------------------------------------------------------------
Class B (28,318,242) (8,454,997)
- --------------------------------------------------------------------------------------------
Class C 681,781 553,866
============================================================================================
Net increase (decrease) in net assets (5,644,241) (54,054,464)
============================================================================================
NET ASSETS:
Beginning of year 163,477,884 217,532,348
============================================================================================
End of year $ 157,833,643 $ 163,477,884
____________________________________________________________________________________________
============================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 432,176,172 $ 459,722,262
- --------------------------------------------------------------------------------------------
Undistributed net investment income (loss) (4,138) 1,748,611
- --------------------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment
securities and foreign currencies (266,567,488) (265,238,741)
- --------------------------------------------------------------------------------------------
Unrealized appreciation (depreciation) of investment
securities and foreign currencies (7,770,903) (32,754,248)
============================================================================================
$ 157,833,643 $ 163,477,884
____________________________________________________________________________________________
============================================================================================
</Table>
See Notes to Financial Statements.
FS-6
Notes to Financial Statements
October 31, 2002
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Developing Markets Fund (the "Fund") is a separate series of AIM Investment
Funds (the "Trust"). The Trust is organized as a Delaware statutory 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
and its secondary objective is income, to the extent consistent with seeking
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
traded in the over-the-counter market (but not securities reported on the
NASDAQ National Market System) is valued at the closing bid price furnished
by independent pricing services or market makers. 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 institution-size trading in similar groups of
securities, developments related to special securities, dividend rate,
yield, quality, type of issue, coupon rate, maturity, 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 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 and
commercial paper 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. 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.
C. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid annually and recorded on ex-dividend date. The
Fund may elect to use a portion of the proceeds from redemptions as
distributions for federal income tax purposes.
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 gain) 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.
FS-7
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 the respective classes' operations. Transfer agency
fees and expenses and other shareholder recordkeeping fees and expenses are
charged to each class pursuant to a transfer agency and service agreement
adopted by the Fund with respect to such class. All other expenses 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.
INVESCO Asset Management Limited is the Fund's sub-advisor and
sub-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 waive fees and reimburse 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 the extent necessary to limit total operating
expenses of Class A shares to 2.00%. 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 October 31, 2002, AIM waived fees of $1,032,501.
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, 2002, 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 October 31, 2002, AFS
retained $800,188 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. NASD Rules
also impose a cap on the total sales charges, including asset-based sales
charges that may be paid by any class of shares of the Fund. Rule 12b-1 Plan
fees on Class A shares issued as a result of the conversion of shares from G.T.
Global Developing Markets Fund, Inc. on October 31, 1997 and in connection with
the AIM Eastern Europe Fund reorganization on September 10, 1999 are limited to
0.25% of the average net assets of the Fund's Class A shares issued in
connection with such transactions. Pursuant to the master distribution
agreements, for the year ended October 31, 2002, the Class A, Class B and Class
C shares paid $682,689, $504,496 and $33,535 respectively.
AIM Distributors retained commissions of $22,655, from sales of the Class A
shares of the Fund during the year ended October 31, 2002. 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, 2002,
AIM Distributors retained $1,482, $0 and $1,195 in contingent deferred sales
charges imposed on redemptions of Class A, Class B and Class C shares,
respectively.
Certain officers and trustees of the Trust are officers and directors of AIM,
AFS and AIM Distributors.
During the year ended October 31, 2002, the Fund paid legal fees of $3,083 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 October 31, 2002, the Fund received reductions in transfer
agency fees from AFS (an affiliate of AIM) of $3,612 and reductions in custodian
fees of $7,128 under expense offset arrangements which resulted in a reduction
of the Fund's total expenses of $10,740.
NOTE 4--TRUSTEES' FEES
Trustees' fees represent remuneration paid to trustees who are not an
"interested person" of AIM. Trustees have the option to defer compensation
payable by the Trust. The Trustees deferring compensation have the option to
select various AIM Funds in which all or part of their deferral accounts shall
be deemed to be invested.
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) $500,000,000 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,
2002, 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-8
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 October 31, 2002, securities with an aggregate value of $14,352,238 were on
loan to brokers. The loans were secured by cash collateral of $14,736,534
received by the Fund and invested in affiliated money market funds as follows:
$7,368,267 in STIC Liquid Assets Portfolio and $7,368,267 in STIC Prime
Portfolio. For the year ended October 31, 2002, the Fund received fees of
$189,590 for securities lending.
NOTE 7--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF BENEFICIAL INTEREST
Distributions to Shareholders:
The tax character of distributions paid during the years ended October 31, 2002
and 2001 were as follows:
<Table>
<Caption>
2002 2001
- --------------------------------------------------------------
Distributions paid from ordinary
income $1,902,303 $702,997
______________________________________________________________
==============================================================
</Table>
Tax Components of Beneficial Interest:
As of October 31, 2002, the components of beneficial interest on a tax basis
were as follows:
<Table>
Unrealized appreciation
(depreciation) -- investments $ (8,838,771)
- -------------------------------------------------------------
Temporary book/tax differences (4,138)
- -------------------------------------------------------------
Capital loss carryforward (265,499,620)
- -------------------------------------------------------------
Shares of beneficial interest 432,176,172
=============================================================
$ 157,833,643
_____________________________________________________________
=============================================================
</Table>
The difference between book-basis and tax basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation (depreciation) difference is attributable primarily to the tax
deferral of losses on wash sales. Amount includes appreciation (depreciation) on
foreign currencies of $(15,975).
The temporary book/tax differences are a result of timing differences between
book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the deferral of trustee compensation and
retirement plan expenses.
The Fund's capital loss carryforward expires as follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD
- ------------------------------------------------------------
October 31, 2003 $ 4,421,874
- ------------------------------------------------------------
October 31, 2005 92,557,012
- ------------------------------------------------------------
October 31, 2006 77,587,890
- ------------------------------------------------------------
October 31, 2007 9,273,499
- ------------------------------------------------------------
October 31, 2008 15,085,807
- ------------------------------------------------------------
October 31, 2009 59,191,538
- ------------------------------------------------------------
October 31, 2010 7,382,000
============================================================
$265,499,620
____________________________________________________________
============================================================
</Table>
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 October 31, 2002 was
$212,906,734 and $241,555,722, respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
for tax purposes, as of October 31, 2002 is as follows:
<Table>
Aggregate unrealized appreciation of investment
securities $ 20,605,812
- -------------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (29,428,608)
=============================================================
Net unrealized appreciation (depreciation) of
investment securities $ (8,822,796)
_____________________________________________________________
=============================================================
Cost of investments for tax purposes is $165,102,941.
</Table>
NOTE 9--RECLASSIFICATION OF PERMANENT DIFFERENCES
As a result of differing book/tax treatment of foreign currency transactions,
capital loss carryforward (limitation and expirations), net operating loss
reclassifications, and other items, on October 31, 2002, undistributed net
investment income was increased by $583,093, undistributed net realized gains
increased by $1,852,836 and shares of beneficial interest decreased by
$2,435,929. This reclassification had no effect on the net assets of the Fund.
FS-9
NOTE 10--SHARE INFORMATION
Changes in shares outstanding during the years ended October 31, 2002 and 2001
were as follows:
<Table>
<Caption>
2002 2001
---------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 18,984,041* $ 151,783,985* 8,529,822 $ 66,809,739
- -------------------------------------------------------------------------------------------------------------------------
Class B 1,757,089 14,693,888 1,134,573 9,569,113
- -------------------------------------------------------------------------------------------------------------------------
Class C 4,399,753 35,723,849 516,122 3,438,363
=========================================================================================================================
Issued as reinvestment of dividends:
Class A 154,286 1,189,539 58,770 501,891
- -------------------------------------------------------------------------------------------------------------------------
Class B 36,032 276,365 -- --
- -------------------------------------------------------------------------------------------------------------------------
Class C 1,387 10,628 -- --
=========================================================================================================================
Issued in connection with acquisitions:
Class A -- -- 4,170,350 29,375,552**
- -------------------------------------------------------------------------------------------------------------------------
Class B -- -- 2,805,581 19,479,675**
- -------------------------------------------------------------------------------------------------------------------------
Class C -- -- 72,210 500,597**
=========================================================================================================================
Reacquired:
Class A (18,869,366) (150,447,224) (10,564,832) (84,012,111)
- -------------------------------------------------------------------------------------------------------------------------
Class B (5,387,213)* (43,288,495)* (4,848,920) (37,503,785)
- -------------------------------------------------------------------------------------------------------------------------
Class C (4,299,081) (35,052,696) (503,177) (3,385,094)
=========================================================================================================================
(3,223,072) $ (25,110,161) 1,370,499 $ 4,773,940
_________________________________________________________________________________________________________________________
=========================================================================================================================
</Table>
* Includes automatic conversion of 2,460,236 shares of Class B shares in the
amount of $20,184,741 to 2,436,361 shares of Class A shares in the amount of
$20,184,741.
** As of the close of business on September 7, 2001, the Fund acquired all the
net assets of AIM Latin American Growth Fund pursuant to a plan of
reorganization approved by AIM Latin American Growth Fund's shareholders on
August 17, 2001. The acquisition was accomplished by a tax-free exchange of
7,048,141 shares of the Fund for 4,138,175 shares of AIM Latin American
Growth Fund shares outstanding as of the close of business on September 7,
2001. AIM Latin American Growth Fund's net assets at that date of $49,355,824
including $(14,203,098) of unrealized (depreciation), were combined with
those of the Fund. The aggregate net assets of the Fund immediately before
the acquisition were $139,205,478.
FS-10
NOTE 11--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,
----------------------------------------------------------
2002 2001 2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 6.32 $ 8.89 $ 9.86 $ 7.53 $ 12.56
- ------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.01)(a) 0.15(a) 0.01(a) 0.06(a) 0.39(a)(b)
- ------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.74 (2.67) (0.95) 2.36 (5.10)
========================================================================================================================
Total from investment operations 0.73 (2.52) (0.94) 2.42 (4.71)
========================================================================================================================
Redemptions fees retained -- -- 0.01 0.03 0.28
- ------------------------------------------------------------------------------------------------------------------------
Less dividends from net investment income (0.09) (0.05) (0.04) (0.12) (0.60)
========================================================================================================================
Net asset value, end of period $ 6.96 $ 6.32 $ 8.89 $ 9.86 $ 7.53
________________________________________________________________________________________________________________________
========================================================================================================================
Total return(c) 11.37% (28.51)% (9.52)% 33.11% (37.09)%
________________________________________________________________________________________________________________________
========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $123,812 $110,756 $136,160 $157,198 $87,517
________________________________________________________________________________________________________________________
========================================================================================================================
Ratio of expenses to average net assets (including interest
expense):
With fee waivers 1.84%(d) 1.76% 1.87% 1.91% 1.93%
- ------------------------------------------------------------------------------------------------------------------------
Without fee waivers 2.35%(d) 2.26% 1.95% 2.38% 2.34%
========================================================================================================================
Ratio of net investment income (loss) to average net assets (0.07)%(d) 1.95% 0.05% 0.68% 3.84%
========================================================================================================================
Ratio of interest expense to average net assets 0.01% -- 0.01% 0.01% 0.20%
________________________________________________________________________________________________________________________
========================================================================================================================
Portfolio turnover rate 109% 144% 192% 125% 111%
________________________________________________________________________________________________________________________
========================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Net investment income per share reflects an interest payment received
from the conversion of Vnesheconombank loan agreements of $0.14 per
share.
(c) Includes adjustments in accordance with generally accepted accounting
principals and does not include sales charges.
(d) Ratios are based on average daily net assets of $149,721,510.
FS-11
NOTE 11--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B
------------------------------------------------------------------
NOVEMBER 3, 1997
(DATE SALES
YEAR ENDED OCTOBER 31, COMMENCED) TO
---------------------------------------------- OCTOBER 31,
2002 2001 2000 1999 1998
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 6.25 $ 8.79 $ 9.79 $ 7.49 $ 12.56
- --------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.05)(a) 0.11(a) (0.06)(a) 0.01(a) 0.31(a)(b)
- --------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.73 (2.65) (0.94) 2.37 (5.07)
================================================================================================================================
Total from investment operations 0.68 (2.54) (1.00) 2.38 (4.76)
================================================================================================================================
Redemptions fees retained -- -- -- -- 0.28
- --------------------------------------------------------------------------------------------------------------------------------
Less dividends from net investment income (0.04) -- -- (0.08) (0.59)
================================================================================================================================
Net asset value, end of period $ 6.89 $ 6.25 $ 8.79 $ 9.79 $ 7.49
________________________________________________________________________________________________________________________________
================================================================================================================================
Total return(c) 10.85% (28.90)% (10.21)% 32.14% (39.76)%
________________________________________________________________________________________________________________________________
================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $31,465 $51,040 $79,754 $49,723 $ 154
________________________________________________________________________________________________________________________________
================================================================================================================================
Ratio of expenses to average net assets (including interest
expense):
With fee waivers 2.38%(d) 2.35% 2.47% 2.51% 2.68%(e)
- --------------------------------------------------------------------------------------------------------------------------------
Without fee waivers 2.89%(d) 2.85% 2.55% 2.98% 3.09%(e)
================================================================================================================================
Ratio of net investment income (loss) to average net assets (0.61)%(d) 1.36% (0.56)% 0.08% 3.09%(e)
================================================================================================================================
Ratio of interest expense to average net assets 0.01% -- 0.01% 0.01% 0.20%(e)
________________________________________________________________________________________________________________________________
================================================================================================================================
Portfolio turnover rate 109% 144% 192% 125% 111%
________________________________________________________________________________________________________________________________
================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Net investment income per share reflects an interest payment received
from the conversion of Vnesheconombank loan agreements of $0.14 per
share.
(c) Includes adjustments in accordance with generally accepted accounting
principals, does not include contingent deferred sales charges and is
not annualized for period less than one year.
(d) Ratios are based on average daily net assets of $50,449,558.
(e) Annualized.
FS-12
NOTE 11--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
--------------------------------------------------
MARCH 1, 1999
(DATE SALES
YEAR ENDED OCTOBER 31, COMMENCED) TO
--------------------------------- OCTOBER 31,
2002 2001 2000 1999
- ----------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 6.25 $ 8.79 $ 9.79 $ 7.47
- ----------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.05)(a) 0.10(a) (0.06)(a) --(a)
- ----------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.72 (2.64) (0.94) 2.32
================================================================================================================
Total from investment operations 0.67 (2.54) (1.00) 2.32
================================================================================================================
Less dividends from net investment income (0.04) -- -- --
================================================================================================================
Net asset value, end of period $ 6.88 $ 6.25 $ 8.79 $ 9.79
________________________________________________________________________________________________________________
================================================================================================================
Total return(b) 10.69% (28.90)% (10.21)% 31.06%
________________________________________________________________________________________________________________
================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $2,557 $ 1,682 $ 1,618 $ 412
________________________________________________________________________________________________________________
================================================================================================================
Ratio of expenses to average net assets (including interest
expense):
With fee waivers 2.38%(c) 2.35% 2.47% 2.51%(d)
- ----------------------------------------------------------------------------------------------------------------
Without fee waivers 2.89%(c) 2.85% 2.55% 2.98%(d)
================================================================================================================
Ratio of net investment income (loss) to average net assets (0.61)%(c) 1.36% (0.56)% 0.08%(d)
================================================================================================================
Ratio of interest expense to average net assets 0.01% -- 0.01% 0.01%(d)
________________________________________________________________________________________________________________
================================================================================================================
Portfolio turnover rate 109% 144% 192% 125%
________________________________________________________________________________________________________________
================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with generally accepted accounting
principals, does not include contingent deferred sales charges and is
not annualized for period less than one year.
(c) Ratios are based on average daily net assets of $3,353,534.
(d) Annualized.
FS-13
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees and Shareholders of AIM Global Energy Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the AIM Global Energy Fund (one of
the funds constituting AIM Investment Funds; hereafter referred to as the
"Fund") at October 31, 2002, 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, 2002 by correspondence with the
custodian, provide a reasonable basis for our opinion.
/s/ PRICEWATERHOUSECOOPERS LLP
December 12, 2002
Houston, Texas
FS-14
FINANCIALS
Schedule of Investments
October 31, 2002
<Table>
<Caption>
MARKET
SHARES VALUE
- -------------------------------------------------------------------------
DOMESTIC COMMON STOCKS-46.68%
Integrated Oil & Gas-3.84%
Murphy Oil Corp. 13,700 $ 1,148,471
=========================================================================
Multi-Utilities & Unregulated Power-0.50%
Equitable Resources, Inc. 4,200 149,520
=========================================================================
Oil & Gas Drilling-14.13%
Grey Wolf, Inc.(a) 229,600 918,400
- -------------------------------------------------------------------------
Parker Drilling Co.(a) 350,000 815,500
- -------------------------------------------------------------------------
Patterson-UTI Energy, Inc.(a) 41,000 1,185,720
- -------------------------------------------------------------------------
Pride International, Inc.(a) 50,300 698,164
- -------------------------------------------------------------------------
Rowan Cos., Inc.(a) 29,700 605,583
=========================================================================
4,223,367
=========================================================================
Oil & Gas Equipment & Services-10.30%
BJ Services Co.(a) 37,700 1,143,441
- -------------------------------------------------------------------------
Key Energy Services, Inc.(a) 124,800 1,114,464
- -------------------------------------------------------------------------
Oceaneering International, Inc.(a) 11,200 310,240
- -------------------------------------------------------------------------
Smith International, Inc.(a) 16,400 512,664
=========================================================================
3,080,809
=========================================================================
Oil & Gas Exploration & Production-15.79%
Apache Corp. 17,800 962,268
- -------------------------------------------------------------------------
BP Prudhoe Bay Royalty Trust 68,400 899,460
- -------------------------------------------------------------------------
Burlington Resources Inc. 6,800 280,160
- -------------------------------------------------------------------------
Devon Energy Corp. 10,600 535,300
- -------------------------------------------------------------------------
Quicksilver Resources Inc.(a) 23,900 525,800
- -------------------------------------------------------------------------
Spinnaker Exploration Co.(a) 27,100 521,675
- -------------------------------------------------------------------------
XTO Energy, Inc. 41,400 995,670
=========================================================================
4,720,333
=========================================================================
Oil & Gas Refining, Marketing &
Transportation-2.12%
Premcor Inc.(a) 5,500 110,275
- -------------------------------------------------------------------------
Valero Energy Corp. 14,900 524,629
=========================================================================
634,904
=========================================================================
Total Domestic Common Stocks (Cost
$15,066,044) 13,957,404
=========================================================================
FOREIGN STOCKS & OTHER EQUITY INTERESTS-47.38%
Canada-45.45%
Canadian Oil Sands Trust (Oil & Gas Exploration &
Production) 29,300 687,321
- -------------------------------------------------------------------------
CE Franklin Ltd. (Oil & Gas Equipment &
Services)(a) 128,800 307,832
- -------------------------------------------------------------------------
CHC Helicopter Corp.-Class A (Oil & Gas Equipment
& Services) 38,800 744,324
- -------------------------------------------------------------------------
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- -------------------------------------------------------------------------
Canada-(Continued)
Clean Power Income Fund (Electric Utilities) 196,500 $ 1,291,419
- -------------------------------------------------------------------------
Crescent Point Energy Ltd.-Class A (Oil & Gas
Exploration & Production)(a) 600,000 1,290,033
- -------------------------------------------------------------------------
Energy Savings Income Fund-Receipts (Electric
Utilities) 16,400 172,094
- -------------------------------------------------------------------------
Ensign Resource Service Group, Inc. (Oil & Gas
Drilling) 97,700 983,208
- -------------------------------------------------------------------------
Gabriel Resources Ltd. (Diversified Metals &
Mining)(a) 175,000 460,497
- -------------------------------------------------------------------------
Ketch Resources Ltd. (Integrated Oil & Gas)(a) 1 1
- -------------------------------------------------------------------------
LionOre Mining International Ltd. (Diversified
Metals & Mining)(a) 93,700 249,570
- -------------------------------------------------------------------------
Oiltec Resources Ltd. (Oil & Gas Exploration &
Production)(a) 200,000 282,395
- -------------------------------------------------------------------------
Olympia Energy Inc. (Oil & Gas Exploration &
Production)(a) 201,400 445,947
- -------------------------------------------------------------------------
PEYTO Exploration & Development Corp. (Oil & Gas
Exploration & Production)(a) 202,600 1,179,374
- -------------------------------------------------------------------------
Placer Dome Inc. (Gold) 64,400 564,187
- -------------------------------------------------------------------------
Precision Drilling Corp. (Oil & Gas Drilling)(a) 32,000 1,093,229
- -------------------------------------------------------------------------
Progress Energy Ltd. (Oil & Gas Exploration &
Production)(a) 169,600 685,758
- -------------------------------------------------------------------------
Provident Energy Trust (Oil & Gas Exploration &
Production) 112,581 769,519
- -------------------------------------------------------------------------
SFK Pulp Fund (Forest Products) (Acquired
07/26/02; Cost $206,145)(b) 32,400 235,872
- -------------------------------------------------------------------------
ShawCor Ltd. (Oil & Gas Equipment & Services) 65,100 568,231
- -------------------------------------------------------------------------
Stuart Energy Systems Corp. (Electrical Components
& Equipment)(a) 38,300 58,995
- -------------------------------------------------------------------------
Talisman Energy Inc. (Oil & Gas Exploration &
Production) 19,300 707,910
- -------------------------------------------------------------------------
Zargon Oil & Gas Ltd. (Oil & Gas Exploration &
Production)(a) 158,600 809,236
=========================================================================
13,586,952
=========================================================================
France-1.93%
L'Air Liquide S.A. (Industrial Gases) 4,503 576,745
=========================================================================
Total Foreign Stocks & Other Equity Interests
(Cost $13,530,630) 14,163,697
=========================================================================
</Table>
FS-15
<Table>
<Caption>
MARKET
SHARES VALUE
- -------------------------------------------------------------------------
MONEY MARKET FUNDS-3.38%
STIC Liquid Assets Portfolio(c) 504,632 $ 504,632
- -------------------------------------------------------------------------
STIC Prime Portfolio(c) 504,632 504,632
=========================================================================
Total Money Market Funds (Cost $1,009,264) 1,009,264
=========================================================================
TOTAL INVESTMENTS-97.44% (Cost $29,605,938) 29,130,365
=========================================================================
OTHER ASSETS LESS LIABILITIES-2.56% 766,790
=========================================================================
NET ASSETS-100.00% $29,897,155
_________________________________________________________________________
=========================================================================
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) Security not registered under the Securities Act of 1933, as amended (e.g.,
the security was purchased in a Rule 144A transaction or a Regulation D
transaction); the security may be resold only pursuant to an exemption from
registration under the 1933 Act, typically to qualified institutional
buyers. The market value of this security at 10/31/02 represented 0.79% of
the Fund's net assets. The Fund has no rights to demand registration of
these securities.
(c) The money market fund and the Fund are affiliated by having the same
investment advisor.
See Notes to Financial Statements.
FS-16
Statement of Assets and Liabilities
October 31, 2002
<Table>
ASSETS:
Investments, at market value (cost
$29,605,938)* $29,130,365
- ------------------------------------------------------------
Foreign currencies, at value (cost $5,064) 5,090
- ------------------------------------------------------------
Receivables for:
Investments sold 3,498,034
- ------------------------------------------------------------
Fund shares sold 35,009
- ------------------------------------------------------------
Dividends 31,122
- ------------------------------------------------------------
Investment for deferred compensation plan 2,482
- ------------------------------------------------------------
Collateral for securities loaned 3,621,821
- ------------------------------------------------------------
Other assets 18,148
============================================================
Total assets 36,342,071
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Investments purchased 2,632,395
- ------------------------------------------------------------
Fund shares reacquired 103,301
- ------------------------------------------------------------
Deferred compensation plan 2,482
- ------------------------------------------------------------
Collateral upon return of securities loaned 3,621,821
- ------------------------------------------------------------
Accrued distribution fees 26,075
- ------------------------------------------------------------
Accrued trustees' fees 795
- ------------------------------------------------------------
Accrued transfer agent fees 15,561
- ------------------------------------------------------------
Accrued operating expenses 42,486
============================================================
Total liabilities 6,444,916
============================================================
Net assets applicable to shares outstanding $29,897,155
____________________________________________________________
============================================================
NET ASSETS:
Class A $18,075,730
____________________________________________________________
============================================================
Class B $10,510,485
____________________________________________________________
============================================================
Class C $ 1,310,940
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE:
Class A 1,629,154
____________________________________________________________
============================================================
Class B 978,993
____________________________________________________________
============================================================
Class C 121,997
____________________________________________________________
============================================================
Class A:
Net asset value per share $ 11.10
- ------------------------------------------------------------
Offering price per share:
(Net asset value of $11.10 divided by
95.25%) $ 11.65
____________________________________________________________
============================================================
Class B:
Net asset value and offering price per share $ 10.74
____________________________________________________________
============================================================
Class C:
Net asset value and offering price per share $ 10.75
____________________________________________________________
============================================================
</Table>
* At October 31, 2002, securities with an aggregate market value of $3,531,838
were on loan to brokers.
Statement of Operations
For the year ended October 31, 2002
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of
$47,024) $ 489,603
- -------------------------------------------------------------
Dividends from affiliated money market funds 30,325
- -------------------------------------------------------------
Interest 369
- -------------------------------------------------------------
Security lending income 32,792
=============================================================
Total investment income 553,089
=============================================================
EXPENSES:
Advisory fees 288,354
- -------------------------------------------------------------
Administrative services fees 50,000
- -------------------------------------------------------------
Custodian fees 22,084
- -------------------------------------------------------------
Distribution fees -- Class A 80,639
- -------------------------------------------------------------
Distribution fees -- Class B 121,290
- -------------------------------------------------------------
Distribution fees -- Class C 13,180
- -------------------------------------------------------------
Transfer agent fees 154,093
- -------------------------------------------------------------
Trustees' fees 8,427
- -------------------------------------------------------------
Printing 55,879
- -------------------------------------------------------------
Professional fees 43,909
- -------------------------------------------------------------
Other 44,731
=============================================================
Total expenses 882,586
=============================================================
Less: Fees waived (223,074)
- -------------------------------------------------------------
Expenses paid indirectly (572)
=============================================================
Net expenses 658,940
=============================================================
Net investment income (loss) (105,851)
=============================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES AND FOREIGN CURRENCIES:
Net realized gain (loss) from:
Investment securities (4,122,316)
- -------------------------------------------------------------
Foreign currencies (2,485)
=============================================================
(4,124,801)
=============================================================
Change in net unrealized appreciation of:
Investment securities 4,563,717
- -------------------------------------------------------------
Foreign currencies 4,368
=============================================================
4,568,085
=============================================================
Net gain from investment securities and foreign
currencies 443,284
=============================================================
Net increase in net assets resulting from
operations $ 337,433
_____________________________________________________________
=============================================================
</Table>
See Notes to Financial Statements.
FS-17
Statement of Changes in Net Assets
For the years ended October 31, 2002 and 2001
<Table>
<Caption>
2002 2001
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (105,851) $ 50,642
- ------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities and
foreign currencies (4,124,801) 1,679,569
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities and foreign currencies 4,568,085 (6,590,217)
==========================================================================================
Net increase (decrease) in net assets resulting from
operations 337,433 (4,860,006)
==========================================================================================
Distributions to shareholders from net investment income:
Class A (71,556) --
- ------------------------------------------------------------------------------------------
Class B (220) --
- ------------------------------------------------------------------------------------------
Class C (16) --
- ------------------------------------------------------------------------------------------
Share transactions-net:
Class A 5,662,718 1,813,664
- ------------------------------------------------------------------------------------------
Class B (1,624,200) 691,805
- ------------------------------------------------------------------------------------------
Class C 421,819 725,619
==========================================================================================
Net increase (decrease) in net assets 4,725,978 (1,628,918)
==========================================================================================
NET ASSETS:
Beginning of year 25,171,177 26,800,095
==========================================================================================
End of year $ 29,897,155 $ 25,171,177
__________________________________________________________________________________________
==========================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 56,355,950 $ 52,082,179
- ------------------------------------------------------------------------------------------
Undistributed net investment income 137,264 42,839
- ------------------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment
securities and foreign currencies (26,123,996) (21,913,693)
- ------------------------------------------------------------------------------------------
Unrealized appreciation (depreciation) of investment
securities and foreign currencies (472,063) (5,040,148)
==========================================================================================
$ 29,897,155 $ 25,171,177
__________________________________________________________________________________________
==========================================================================================
</Table>
See Notes to Financial Statements.
FS-18
Notes to Financial Statements
October 31, 2002
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Global Energy Fund (the "Fund") is a separate series of AIM Investment Funds
(the "Trust"). The Trust is organized as a Delaware statutory 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
traded in the over-the-counter market (but not securities reported on the
NASDAQ National Market System) is valued at the closing bid price furnished
by independent pricing services or market makers. 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 institution-size trading in similar groups of
securities, developments related to special securities, dividend rate,
yield, quality, type of issue, coupon rate, maturity, 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 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 and
commercial paper 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. 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.
C. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid annually and recorded on ex-dividend date. The
Fund may elect to use a portion of the proceeds from redemptions as
distributions for federal income tax purposes.
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 gain) 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. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-
FS-19
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 the respective classes' operations. Transfer agency
fees and expenses and other shareholder recordkeeping fees and expenses are
charged to each class pursuant to a transfer agency and service agreement
adopted by the Fund with respect to such class. All other expenses 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. 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, 2002, AIM waived fees of $233,074.
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, 2002, 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 October 31, 2002, AFS
retained $93,933 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. NASD Rules
also impose a cap on the total sales charges, including asset-based sales
charges that may be paid any class of shares of the Fund. Pursuant to the master
distribution agreements, for the year ended October 31, 2002, the Class A, Class
B and Class C shares paid $80,639, $121,290 and $13,180, respectively.
AIM Distributors retained commissions of $9,416 from sales of the Class A
shares of the Fund during the year ended October 31, 2002. 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, 2002,
AIM Distributors retained $31, $0 and $5,091 in contingent deferred sales
charges imposed on redemptions of Class A, Class B and Class C shares,
respectively.
Certain officers and trustees of the Trust are officers and directors of AIM,
AFS and AIM Distributors.
During the year ended October 31, 2002, the Fund paid legal fees of $2,776 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 October 31, 2002, the Fund received reductions in transfer
agency fees from AFS (an affiliate of AIM) of $504 and reductions in custodian
fees of $68 under expense offset arrangements which resulted in a reduction of
the Fund's total expenses of $572.
NOTE 4--TRUSTEES' FEES
Trustees' fees represent remuneration paid to trustees who are not an
"interested person" of AIM. Trustees have the option to defer compensation
payable by the Trust. The Trustees deferring compensation have the option to
select various AIM Funds in which all or part of their deferral accounts shall
be deemed to be invested.
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) $500,000,000 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,
2002, 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
FS-20
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, 2002, securities with an aggregate value of $3,531,838 were on
loan to brokers. The loans were secured by cash collateral of $3,621,821
received by the Fund and invested in affiliated money market funds as follows:
$1,810,911 in STIC Liquid Assets Portfolio and $1,810,910 in STIC Prime
Portfolio. For the year ended October 31, 2002, the Fund received fees of
$32,792 for securities lending.
NOTE 7--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF BENEFICIAL INTEREST
Distributions to Shareholders:
The tax character of distributions paid during the years ended October 31, 2002
and 2001 were as follows:
<Table>
<Caption>
2002 2001
- ------------------------------------------------------------
Distributions paid from ordinary Income $71,792 $ --
____________________________________________________________
============================================================
</Table>
Tax Components of Beneficial Interest:
As of October 31, 2002, the components of beneficial interest on a tax basis
were as follows:
<Table>
Undistributed ordinary income $ 140,605
- -------------------------------------------------------------
Unrealized appreciation
(depreciation) -- investments (572,088)
- -------------------------------------------------------------
Temporary book/tax differences (3,340)
- -------------------------------------------------------------
Capital loss carryforward (26,023,972)
- -------------------------------------------------------------
Shares of beneficial interest 56,355,950
=============================================================
$ 29,897,155
_____________________________________________________________
=============================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation (depreciation) difference is attributable primarily to the tax
deferral of losses on wash sales, tax treatment of partnership items and other
deferrals. Amount includes appreciation on foreign currencies of $3,510.
The temporary book/tax differences are a result of timing differences between
book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the deferral of trustee compensation.
The Fund's capital loss carryforward expires as follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD
- ----------------------------------------------------------
October 31, 2006 $20,054,017
- ----------------------------------------------------------
October 31, 2007 1,450,461
- ----------------------------------------------------------
October 31, 2008 338,540
- ----------------------------------------------------------
October 31, 2010 4,180,954
==========================================================
$26,023,972
__________________________________________________________
==========================================================
</Table>
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 October 31, 2002 was
$47,215,023 and $42,397,984, respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
for tax purposes, as of October 31, 2002 is as follows:
<Table>
Aggregate unrealized appreciation of investment
securities $ 1,603,253
- -------------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (2,178,851)
=============================================================
Net unrealized appreciation (depreciation) of
investment securities $ (575,598)
_____________________________________________________________
=============================================================
Cost of investments for tax purposes is $29,705,963.
</Table>
NOTE 9--RECLASSIFICATION OF PERMANENT DIFFERENCES
As a result of differing book/tax treatment of foreign currency transactions,
net operating loss, and other items, on October 31, 2002, undistributed net
investment income was increased by $272,068, undistributed net realized gains
decreased by $85,502 and shares of beneficial interest decreased by $186,566.
This reclassification had no effect on the net assets of the Fund.
FS-21
NOTE 10--SHARE INFORMATION
Changes in shares outstanding during the years ended October 31, 2002 and 2001
were as follows:
<Table>
<Caption>
2002 2001
------------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------------------------------
Sold:
Class A 1,372,711* $15,660,046* 737,964 $ 9,417,339
- ------------------------------------------------------------------------------------------------------------------
Class B 505,919 5,786,626 548,545 6,880,493
- ------------------------------------------------------------------------------------------------------------------
Class C 308,554 3,384,904 111,491 1,402,897
==================================================================================================================
Issued as reinvestment of dividends:
Class A 6,136 62,830 -- --
- ------------------------------------------------------------------------------------------------------------------
Class B 18 180 -- --
- ------------------------------------------------------------------------------------------------------------------
Class C 1 12 -- --
==================================================================================================================
Reacquired:
Class A (905,005) (10,060,158) (616,551) (7,603,675)
- ------------------------------------------------------------------------------------------------------------------
Class B (701,012)* (7,411,006)* (528,940) (6,188,688)
- ------------------------------------------------------------------------------------------------------------------
Class C (278,055) (2,963,097) (58,126) (677,278)
==================================================================================================================
309,267 $ 4,460,337 194,383 $ 3,231,088
__________________________________________________________________________________________________________________
==================================================================================================================
</Table>
* Includes automatic conversion of 127,313 shares of Class B shares in the
amount of $1,378,868 to 123,071 shares of Class A shares in the amount of
$1,378,868.
NOTE 11--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,
---------------------------------------------------------------
2002 2001 2000 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.58 $ 12.22 $ 12.12 $ 10.95 $ 20.65
- -----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.01)(a) 0.05(a) 0.02(a) 0.02(a) (0.11)(a)
- -----------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.59 (1.69) 0.08 1.15 (8.91)
=============================================================================================================================
Total from investment operations 0.58 (1.64) 0.10 1.17 (9.02)
=============================================================================================================================
Less distributions:
Dividends from net investment income (0.06) -- -- -- (0.19)
- -----------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- -- -- (0.49)
=============================================================================================================================
Total distributions (0.06) -- -- -- (0.68)
=============================================================================================================================
Net asset value, end of period $ 11.10 $ 10.58 $ 12.22 $ 12.12 $ 10.95
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Total return(b) 5.56% (13.42)% 0.74% 10.68% (45.02)%
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $18,076 $12,224 $12,638 $15,664 $19,463
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 2.00%(c) 2.00% 2.00% 2.00% 1.98%
- -----------------------------------------------------------------------------------------------------------------------------
Without fee waivers 2.76%(c) 2.84% 2.80% 2.30% 2.29%
=============================================================================================================================
Ratio of net investment income (loss) to average net assets (0.13)%(c) 0.45% 0.18% 0.19% (0.75)%
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Portfolio turnover rate 152% 189% 105% 123% 201%
_____________________________________________________________________________________________________________________________
=============================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with generally accepted accounting
principles and does not include sales charges.
(c) Ratios are based on average daily net assets of $16,127,732.
FS-22
NOTE 11--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B
---------------------------------------------------------------
YEAR ENDED OCTOBER 31,
---------------------------------------------------------------
2002 2001 2000 1999 1998
- -------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.23 $ 11.88 $ 11.84 $ 10.75 $ 20.37
- -------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.07)(a) (0.01)(a) (0.04)(a) (0.04)(a) (0.18)(a)
- -------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized
and unrealized) 0.58 (1.64) 0.08 1.13 (8.76)
===================================================================================================================
Total from investment operations 0.51 (1.65) 0.04 1.09 (8.94)
===================================================================================================================
Less distributions:
Dividends from net investment income (0.00) -- -- -- (0.19)
- -------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- -- -- (0.49)
===================================================================================================================
Total distributions (0.00) -- -- -- (0.68)
===================================================================================================================
Net asset value, end of period $ 10.74 $ 10.23 $ 11.88 $ 11.84 $ 10.75
___________________________________________________________________________________________________________________
===================================================================================================================
Total return(b) 4.99% (13.89)% 0.34% 10.14% (45.25)%
___________________________________________________________________________________________________________________
===================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $10,510 $12,010 $13,710 $20,019 $28,996
___________________________________________________________________________________________________________________
===================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 2.50%(c) 2.50% 2.50% 2.50% 2.48%
- -------------------------------------------------------------------------------------------------------------------
Without fee waivers 3.26%(c) 3.34% 3.30% 2.80% 2.79%
===================================================================================================================
Ratio of net investment income (loss) to average
net assets (0.63)%(c) (0.05)% (0.32)% (0.31)% (1.25)%
___________________________________________________________________________________________________________________
===================================================================================================================
Portfolio turnover rate 152% 189% 105% 123% 201%
___________________________________________________________________________________________________________________
===================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with generally accepted accounting
principles and does not include contingent deferred sales charges.
(c) Ratios are based on average daily net assets of $12,129,059.
FS-23
NOTE 11--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
-------------------------------------------------------
MARCH 1, 1999
(DATE SALES
YEAR ENDED OCTOBER 31, COMMENCED) TO
----------------------------------- OCTOBER 31,
2002 2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.24 $ 11.88 $ 11.84 $10.00
- ---------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.07)(a) (0.01)(a) (0.04)(a) (0.03)(a)
- ---------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.58 (1.63) 0.08 1.87
=====================================================================================================================
Total from investment operations 0.51 (1.64) 0.04 1.84
=====================================================================================================================
Less dividends from net investment income (0.00) -- -- --
=====================================================================================================================
Net asset value, end of period $ 10.75 $ 10.24 $ 11.88 $11.84
_____________________________________________________________________________________________________________________
=====================================================================================================================
Total return(b) 4.98% (13.80)% 0.34% 18.40%
_____________________________________________________________________________________________________________________
=====================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 1,311 $ 937 $ 453 $ 41
_____________________________________________________________________________________________________________________
=====================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 2.50%(c) 2.50% 2.50% 2.50%(d)
- ---------------------------------------------------------------------------------------------------------------------
Without fee waivers 3.26%(c) 3.34% 3.30% 2.80%(d)
=====================================================================================================================
Ratio of net investment income (loss) to average net assets (0.63)%(c) (0.05)% (0.32)% (0.31)%(d)
_____________________________________________________________________________________________________________________
=====================================================================================================================
Portfolio turnover rate 152% 189% 105% 123%
_____________________________________________________________________________________________________________________
=====================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with generally accepted accounting
principles, 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 $1,317,975.
(d) Annualized.
FS-24
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees and Shareholders of AIM Global Financial Services Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the AIM Global Financial Services
Fund (one of the funds constituting AIM Investment Funds; hereafter referred to
as the "Fund") at October 31, 2002, 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, 2002 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
/s/ PRICEWATERHOUSECOOPERS LLP
December 12, 2002
Houston, Texas
FS-25
FINANCIALS
Schedule of Investments
October 31, 2002
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
DOMESTIC COMMON STOCKS-72.36%
Banks-23.38%
Bank of America Corp. 137,000 $ 9,562,600
- ------------------------------------------------------------------------
Bank of New York Co., Inc. (The) 91,000 2,366,000
- ------------------------------------------------------------------------
Charter One Financial, Inc. 87,150 2,638,902
- ------------------------------------------------------------------------
Comerica Inc. 102,000 4,453,320
- ------------------------------------------------------------------------
Cullen/Frost Bankers, Inc. 148,000 5,125,240
- ------------------------------------------------------------------------
FleetBoston Financial Corp. 218,900 5,120,071
- ------------------------------------------------------------------------
M&T Bank Corp. 15,000 1,228,800
- ------------------------------------------------------------------------
Mellon Financial Corp. 125,003 3,536,335
- ------------------------------------------------------------------------
Northern Trust Corp. 58,000 2,019,560
- ------------------------------------------------------------------------
Synovus Financial Corp. 141,000 2,889,090
- ------------------------------------------------------------------------
U.S. Bancorp. 70,000 1,476,300
- ------------------------------------------------------------------------
Wachovia Corp. 71,500 2,487,485
- ------------------------------------------------------------------------
Wells Fargo & Co. 112,500 5,677,875
- ------------------------------------------------------------------------
Zions Bancorp. 107,500 4,322,575
========================================================================
52,904,153
========================================================================
Consumer Finance-2.63%
Countrywide Financial Corp. 28,000 1,408,680
- ------------------------------------------------------------------------
MBNA Corp. 223,500 4,539,285
========================================================================
5,947,965
========================================================================
Data Processing Services-1.68%
DST Systems, Inc.(a) 124,000 3,813,000
========================================================================
Diversified Financial Services-28.38%
Alliance Capital Management Holding L.P. 63,000 1,833,930
- ------------------------------------------------------------------------
American Express Co. 109,500 3,982,515
- ------------------------------------------------------------------------
CIT Group Inc. 61,000 1,086,410
- ------------------------------------------------------------------------
Citigroup Inc. 219,501 8,110,562
- ------------------------------------------------------------------------
Eaton Vance Corp. 82,000 2,354,220
- ------------------------------------------------------------------------
Fannie Mae 33,500 2,239,810
- ------------------------------------------------------------------------
Federated Investors, Inc.-Class B 110,000 2,948,000
- ------------------------------------------------------------------------
Freddie Mac 61,000 3,756,380
- ------------------------------------------------------------------------
Goldman Sachs Group, Inc. (The) 81,300 5,821,080
- ------------------------------------------------------------------------
Investors Financial Services Corp. 79,600 2,441,332
- ------------------------------------------------------------------------
Legg Mason, Inc. 151,500 7,038,690
- ------------------------------------------------------------------------
Lehman Brothers Holdings Inc. 148,200 7,894,614
- ------------------------------------------------------------------------
Merrill Lynch & Co., Inc. 165,300 6,273,135
- ------------------------------------------------------------------------
Morgan Stanley 52,700 2,051,084
- ------------------------------------------------------------------------
Principal Financial Group, Inc. 121,000 3,394,050
- ------------------------------------------------------------------------
State Street Corp. 72,000 2,978,640
========================================================================
64,204,452
========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
Insurance Brokers-0.86%
Marsh & McLennan Cos., Inc. 41,600 $ 1,943,136
========================================================================
IT Consulting & Services-1.08%
SunGard Data Systems Inc.(a) 110,000 2,438,700
========================================================================
Life & Health Insurance-3.84%
Nationwide Financial Services, Inc.-Class A 156,200 4,326,740
- ------------------------------------------------------------------------
Prudential Financial, Inc.(a) 38,800 1,132,960
- ------------------------------------------------------------------------
StanCorp Financial Group, Inc. 60,000 3,240,000
========================================================================
8,699,700
========================================================================
Multi-Line Insurance-4.39%
American International Group, Inc. 104,450 6,533,347
- ------------------------------------------------------------------------
Hartford Financial Services Group, Inc. (The) 86,300 3,408,850
========================================================================
9,942,197
========================================================================
Property & Casualty Insurance-6.12%
Allstate Corp. (The) 43,000 1,710,540
- ------------------------------------------------------------------------
Ambac Financial Group, Inc. 33,000 2,039,400
- ------------------------------------------------------------------------
MGIC Investment Corp. 39,000 1,636,440
- ------------------------------------------------------------------------
PMI Group, Inc. (The) 82,000 2,443,600
- ------------------------------------------------------------------------
Radian Group Inc. 82,000 2,892,140
- ------------------------------------------------------------------------
St. Paul Cos., Inc. (The) 58,000 1,902,400
- ------------------------------------------------------------------------
Travelers Property Casualty Corp.-Class B(a) 90,000 1,216,800
========================================================================
13,841,320
========================================================================
Total Domestic Common Stocks (Cost
$175,248,160) 163,734,623
========================================================================
FOREIGN STOCKS & OTHER EQUITY
INTERESTS-23.10%
Australia-0.88%
St. George Bank Ltd. (Banks) 202,000 1,992,015
========================================================================
Bermuda-2.07%
Everest Re Group, Ltd. (Reinsurance) 80,700 4,682,214
========================================================================
Cayman Islands-1.58%
ACE Ltd. (Property & Casualty Insurance) 116,000 3,567,000
========================================================================
Canada-1.49%
Bank of Nova Scotia (Banks) 25,000 736,153
- ------------------------------------------------------------------------
Royal Bank of Canada (Banks) 46,500 1,623,814
- ------------------------------------------------------------------------
Sun Life Financial Services of Canada Inc.
(Life & Health Insurance) 60,400 1,014,872
========================================================================
3,374,839
========================================================================
France-1.77%
BNP Paribas S.A. (Banks) 60,200 2,398,931
- ------------------------------------------------------------------------
</Table>
FS-26
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
France-(Continued)
Credit Agricole S.A. (Banks) 98,650 $ 1,613,075
========================================================================
4,012,006
========================================================================
Germany-0.32%
Muenchener Rueckversicherungs-Gesellschaft
A.G. (Reinsurance) 5,680 725,584
========================================================================
Hong Kong-1.41%
Dah Sing Financial Group (Banks) 686,000 3,184,009
========================================================================
Ireland-3.91%
Anglo Irish Bank Corp. PLC (Banks) 858,800 5,737,772
- ------------------------------------------------------------------------
Bank of Ireland (Banks) 281,200 3,117,316
========================================================================
8,855,088
========================================================================
Italy-2.47%
Banco Popolare di Verona e Novara Scrl
(Banks) 253,000 3,030,075
- ------------------------------------------------------------------------
UniCredito Italiano S.p.A. (Banks) 681,800 2,564,413
========================================================================
5,594,488
========================================================================
Japan-0.32%
Nomura Holdings Inc. (Diversified Financial
Services) 62,000 713,749
========================================================================
Mexico-0.83%
Grupo Financiero BBVA Bancomer, S.A. de C.V.-
Class B (Banks)(a) 2,392,900 1,876,968
========================================================================
Netherlands-0.74%
Van der Moolen Holding N.V. (Diversified
Financial Services) 75,000 1,673,999
========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
South Korea-0.68%
Kookmin Bank-ADR (Banks) 47,300 $ 1,530,155
========================================================================
Spain-1.70%
Banco Popular Espanol S.A. (Banks) 90,100 3,856,186
========================================================================
Sweden-0.49%
Skandinaviska Enskilda Banken AB-Class A
(Banks)(a) 127,000 1,103,455
========================================================================
United Kingdom-2.44%
Man Group PLC (Diversified Financial
Services) 96,300 1,434,846
- ------------------------------------------------------------------------
Northern Rock PLC (Banks) 108,100 1,142,014
- ------------------------------------------------------------------------
Royal Bank of Scotland Group PLC (Banks) 125,100 2,944,742
========================================================================
5,521,602
========================================================================
Total Foreign Stocks & Other Equity
Interests (Cost $50,267,220) 52,263,357
========================================================================
MONEY MARKET FUNDS-3.87%
STIC Liquid Assets Portfolio(b) 4,376,765 4,376,765
- ------------------------------------------------------------------------
STIC Prime Portfolio(b) 4,376,765 4,376,765
========================================================================
Total Money Market Funds (Cost
$8,753,530) 8,753,530
========================================================================
TOTAL INVESTMENTS-99.33% (Cost $234,268,910) 224,751,510
========================================================================
OTHER ASSETS LESS LIABILITIES-0.67% 1,517,132
========================================================================
NET ASSETS-100.00% $226,268,642
________________________________________________________________________
========================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
</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-27
Statement of Assets and Liabilities
October 31, 2002
<Table>
ASSETS:
Investments, at market value (cost
$234,268,910)* $224,751,510
- -------------------------------------------------------------
Foreign currencies, at value (cost $323,133) 324,957
- -------------------------------------------------------------
Receivables for:
Investments sold 3,751,853
- -------------------------------------------------------------
Fund shares sold 236,477
- -------------------------------------------------------------
Dividends 173,494
- -------------------------------------------------------------
Investment for deferred compensation plan 2,855
- -------------------------------------------------------------
Collateral for securities loaned 19,774,354
- -------------------------------------------------------------
Other assets 22,933
=============================================================
Total assets 249,038,433
_____________________________________________________________
=============================================================
LIABILITIES:
Payables for:
Investments purchased 1,895,773
- -------------------------------------------------------------
Fund shares reacquired 707,633
- -------------------------------------------------------------
Deferred compensation plan 2,855
- -------------------------------------------------------------
Collateral upon return of securities loaned 19,774,354
- -------------------------------------------------------------
Accrued distribution fees 212,806
- -------------------------------------------------------------
Accrued trustees' fees 665
- -------------------------------------------------------------
Accrued transfer agent fees 86,716
- -------------------------------------------------------------
Accrued operating expenses 88,989
=============================================================
Total liabilities 22,769,791
=============================================================
Net assets applicable to shares outstanding $226,268,642
_____________________________________________________________
=============================================================
NET ASSETS:
Class A $108,191,449
_____________________________________________________________
=============================================================
Class B $ 90,838,169
_____________________________________________________________
=============================================================
Class C $ 27,239,024
_____________________________________________________________
=============================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE:
Class A 5,736,947
_____________________________________________________________
=============================================================
Class B 5,010,164
_____________________________________________________________
=============================================================
Class C 1,502,434
_____________________________________________________________
=============================================================
Class A:
Net asset value per share $ 18.86
- -------------------------------------------------------------
Offering price per share:
(Net asset value of $18.86 divided by
95.25%) $ 19.80
_____________________________________________________________
=============================================================
Class B:
Net asset value and offering price per
share $ 18.13
_____________________________________________________________
=============================================================
Class C:
Net asset value and offering price per
share $ 18.13
_____________________________________________________________
=============================================================
</Table>
* At October 31, 2002, securities with an aggregate market value of $19,118,335
were on loan to brokers.
Statement of Operations
For the year ended October 31, 2002
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of
$122,904) $ 4,387,225
- -------------------------------------------------------------
Dividends from affiliated money market funds 293,858
- -------------------------------------------------------------
Interest 540
- -------------------------------------------------------------
Security lending income 59,671
=============================================================
Total investment income 4,741,294
=============================================================
EXPENSES:
Advisory fees 2,792,762
- -------------------------------------------------------------
Administrative services fees 77,287
- -------------------------------------------------------------
Custodian fees 72,841
- -------------------------------------------------------------
Distribution fees -- Class A 668,896
- -------------------------------------------------------------
Distribution fees -- Class B 1,181,058
- -------------------------------------------------------------
Distribution fees -- Class C 345,522
- -------------------------------------------------------------
Transfer agent fees 973,918
- -------------------------------------------------------------
Trustees' fees 10,504
- -------------------------------------------------------------
Other 271,701
=============================================================
Total expenses 6,394,489
=============================================================
Less: Fees waived (3,254)
- -------------------------------------------------------------
Expenses paid indirectly (4,705)
=============================================================
Net expenses 6,386,530
=============================================================
Net investment income (loss) (1,645,236)
=============================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES, FOREIGN CURRENCIES
AND OPTION CONTRACTS:
Net realized gain (loss) from:
Investment securities (16,876,997)
- -------------------------------------------------------------
Foreign currencies 19,594
- -------------------------------------------------------------
Option contracts written 950,411
=============================================================
(15,906,992)
=============================================================
Change in net unrealized appreciation
(depreciation) of:
Investment securities (3,665,896)
- -------------------------------------------------------------
Foreign currencies 1,680
=============================================================
(3,664,216)
=============================================================
Net gain (loss) from investment securities,
foreign currencies and option contracts (19,571,208)
=============================================================
Net increase (decrease) in net assets
resulting from operations $(21,216,444)
_____________________________________________________________
=============================================================
</Table>
See Notes to Financial Statements.
FS-28
Statement of Changes in Net Assets
For the years ended October 31, 2002 and 2001
<Table>
<Caption>
2002 2001
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (1,645,236) $ (1,479,394)
- ------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities,
foreign currencies and option contracts (15,906,992) (702,041)
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities and foreign currencies (3,664,216) (55,478,909)
==========================================================================================
Net increase (decrease) in net assets resulting from
operations (21,216,444) (57,660,344)
==========================================================================================
Distributions to shareholders from net realized gains:
Class A -- (1,093,601)
- ------------------------------------------------------------------------------------------
Class B -- (1,042,912)
- ------------------------------------------------------------------------------------------
Class C -- (251,528)
- ------------------------------------------------------------------------------------------
Share transactions-net:
Class A (9,235,195) 58,836,610
- ------------------------------------------------------------------------------------------
Class B (15,032,506) 48,052,092
- ------------------------------------------------------------------------------------------
Class C (2,205,504) 18,437,773
==========================================================================================
Net increase (decrease) in net assets (47,689,649) 65,278,090
==========================================================================================
NET ASSETS:
Beginning of year 273,958,291 208,680,201
==========================================================================================
End of year $226,268,642 $273,958,291
__________________________________________________________________________________________
==========================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $252,308,562 $280,430,611
- ------------------------------------------------------------------------------------------
Undistributed net investment income 137,610 87,996
- ------------------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment
securities, foreign currencies and option contracts (16,661,676) (708,678)
- ------------------------------------------------------------------------------------------
Unrealized appreciation (depreciation) of investment
securities and foreign currencies (9,515,854) (5,851,638)
==========================================================================================
$226,268,642 $273,958,291
__________________________________________________________________________________________
==========================================================================================
</Table>
See Notes to Financial Statements.
FS-29
Notes to Financial Statements
October 31, 2002
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Global Financial Services Fund (the "Fund") is a separate series of AIM
Investment Funds (the "Trust"). The Trust is organized as a Delaware statutory
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
traded in the over-the-counter market (but not securities reported on the
NASDAQ National Market System) is valued at the closing bid price furnished
by independent pricing services or market makers. 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 institution-size trading in similar groups of
securities, developments related to special securities, dividend rate,
yield, quality, type of issue, coupon rate, maturity, 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 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 and
commercial paper 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. 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.
C. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid annually and recorded on ex-dividend date. The
Fund may elect to use a portion of the proceeds from redemptions as
distributions for federal income tax purposes.
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 gain) 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. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-
FS-30
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 the respective classes' operations. Transfer agency
fees and expenses and other shareholder recordkeeping fees and expenses are
charged to each class pursuant to a transfer agency and service agreement
adopted by the Fund with respect to such class. All other expenses 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
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 October 31, 2002, AIM waived fees of
$3,254.
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, 2002, AIM was
paid $77,287 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 October 31, 2002, AFS
retained $540,705 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. NASD Rules
also impose a cap on the total sales charges, including asset-based sales
charges that may be paid by any class of shares of the Fund. Pursuant to the
master distribution agreements, for the year ended October 31, 2002, the Class
A, Class B and Class C shares paid $668,896, $1,181,058 and $345,522,
respectively.
AIM Distributors retained commissions of $76,053 from sales of the Class A
shares of the Fund during the year ended October 31, 2002. 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, 2002,
AIM Distributors retained $6,413, $621 and $9,102 in contingent deferred sales
charges imposed on redemptions of Class A, Class B and Class C shares,
respectively.
Certain officers and trustees of the Trust are officers and directors of AIM,
AFS and AIM Distributors.
During the year ended October 31, 2002, the Fund paid legal fees of $4,141 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 October 31, 2002, the Fund received reductions in transfer
agency fees from AFS (an affiliate of AIM) of $4,442 and reductions in custodian
fees of $263 under expense offset arrangements which resulted in a reduction of
the Fund's total expenses of $4,705.
NOTE 4--TRUSTEES' FEES
Trustees' fees represent remuneration paid to trustees who are not an
"interested person" of AIM. Trustees have the option to defer compensation
payable by the Trust. The Trustees deferring compensation have the option to
select various AIM Funds in which all or part of their deferral accounts shall
be deemed to be invested.
FS-31
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) $500,000,000 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,
2002, 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 October 31, 2002, securities with an aggregate value of $19,118,335 were on
loan to brokers. The loans were secured by cash collateral of $19,774,354
received by the Fund and invested in affiliated money market funds as follows:
$9,887,177 in STIC Liquid Assets Portfolio and $9,887,177 in STIC Prime
Portfolio. For the year ended October 31, 2002, the Fund received fees of
$59,671 for securities lending.
NOTE 7--CALL OPTION CONTRACTS
Transactions in call options written during the year ended October 31, 2002 are
summarized as follows:
<Table>
<Caption>
CALL OPTION CONTRACTS
-----------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
- ------------------------------------------------------------
Beginning of year -- $ --
- ------------------------------------------------------------
Written 10,527 1,306,996
- ------------------------------------------------------------
Closed (7,470) (956,513)
- ------------------------------------------------------------
Exercised (556) (84,220)
- ------------------------------------------------------------
Expired (2,501) (266,263)
============================================================
End of year -- $ --
____________________________________________________________
============================================================
</Table>
NOTE 8--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF BENEFICIAL INTEREST
Distributions to Shareholders:
The tax character of distributions paid during the years ended October 31, 2002
and 2001 were as follows:
<Table>
<Caption>
2002 2001
- ------------------------------------------------------------
Distributions paid from long-term
capital gains $ -- $2,388,041
____________________________________________________________
============================================================
</Table>
Tax Components of Beneficial Interest:
As of October 31, 2002, the components of beneficial interest on a tax basis
were as follows:
<Table>
Unrealized appreciation -- investments $ (9,583,365)
- -------------------------------------------------------------
Temporary book/tax differences (4,734)
- -------------------------------------------------------------
Capital loss carryforward (16,451,821)
- -------------------------------------------------------------
Shares of beneficial interest 252,308,562
=============================================================
$226,268,642
_____________________________________________________________
=============================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains,
losses and income on investments for tax and book purposes. The Fund's
unrealized appreciation (depreciation) is attributable primarily to the tax
deferral of losses on wash sales and the tax recognition of partnership income.
Amount includes appreciation on foreign currencies of $1,546.
The temporary book/tax differences are primarily a result of timing
differences between book and tax recognition of income and/or expenses. The
Fund's temporary book/tax differences are the result of the deferral of trustee
compensation and retirement plan expenses.
The Fund's capital loss carryforward expires as follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD
- -----------------------------------------------------------
October 31, 2009 $ 259,675
- -----------------------------------------------------------
October 31, 2010 16,192,146
===========================================================
$16,451,821
___________________________________________________________
===========================================================
</Table>
FS-32
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 October 31, 2002 was
$137,661,362 and $159,332,982, respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
for tax purposes, as of October 31, 2002 is as follows:
<Table>
Aggregate unrealized appreciation of investment
securities $ 14,557,279
- -------------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (24,142,190)
=============================================================
Net unrealized appreciation (depreciation) of
investment securities $ (9,584,911)
_____________________________________________________________
=============================================================
Cost of investments for tax purposes is $234,336,421.
</Table>
NOTE 10--RECLASSIFICATION OF PERMANENT DIFFERENCES
As a result of differing book/tax treatment of foreign currency transactions,
net operating loss reclassifications, partnership income, and other items, on
October 31, 2002, undistributed net investment income was increased by
$1,694,850, undistributed net realized gains decreased by $46,006 and shares of
beneficial interest decreased by $1,648,844. This reclassification had no effect
on the net assets of the Fund.
NOTE 11--SHARE INFORMATION
Changes in shares outstanding during the years ended October 31, 2002 and 2001
were as follows:
<Table>
<Caption>
2002 2001
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------------
Sold:
Class A 2,922,009* $62,717,219* 5,052,621 $119,437,397
- ----------------------------------------------------------------------------------------------------------------------
Class B 1,253,533 26,379,817 3,478,790 79,898,444
- ----------------------------------------------------------------------------------------------------------------------
Class C 727,708 14,583,074 1,195,608 27,610,451
======================================================================================================================
Issued as reinvestment of dividends:
Class A -- -- 43,536 1,037,039
- ----------------------------------------------------------------------------------------------------------------------
Class B -- -- 42,175 974,682
- ----------------------------------------------------------------------------------------------------------------------
Class C -- -- 10,376 239,794
======================================================================================================================
Reacquired:
Class A (3,401,742) (71,952,414) (2,718,336) (61,637,826)
- ----------------------------------------------------------------------------------------------------------------------
Class B (2,070,585)* (41,412,323)* (1,519,609) (32,821,034)
- ----------------------------------------------------------------------------------------------------------------------
Class C (863,759) (16,788,578) (435,228) (9,412,472)
======================================================================================================================
(1,432,836) $(26,473,205) 5,149,933 $125,326,475
______________________________________________________________________________________________________________________
======================================================================================================================
</Table>
* Includes automatic conversion of 355,226 shares of Class B shares in the
amount of $7,336,625 to 339,373 shares of Class A shares in the amount of
$7,336,625.
FS-33
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 OCTOBER 31,
----------------------------------------------------------------------
2002 2001 2000 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 20.40 $ 24.85 $ 23.23 $ 17.05 $ 17.22
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.07)(a) (0.06)(a) (0.07)(a) (0.02)(a) 0.07(a)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (1.47) (4.13) 5.87 6.25 0.37
=================================================================================================================================
Total from investment operations (1.54) (4.19) 5.80 6.23 0.44
=================================================================================================================================
Less distributions:
Dividends from net investment income -- -- (0.25) (0.02) (0.01)
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- (0.26) (3.93) (0.03) (0.60)
=================================================================================================================================
Total distributions -- (0.26) (4.18) (0.05) (0.61)
=================================================================================================================================
Net asset value, end of period $ 18.86 $ 20.40 $ 24.85 $ 23.23 $ 17.05
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) (7.55)% (17.03)% 30.06% 36.62% 2.53%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $108,191 $126,816 $95,393 $30,987 $28,433
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 1.97%(c) 1.85% 2.00% 1.99% 1.97%
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers 1.97%(c) 1.85% 2.00% 2.12% 1.99%
=================================================================================================================================
Ratio of net investment income (loss) to average net
assets (0.31)%(c) (0.26)% (0.33)% (0.08)% 0.37%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 51% 53% 41% 107% 111%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with generally accepted accounting
principles and does not include sales charges.
(c) Ratios are based on average daily net assets of $133,779,148.
FS-34
NOTE 12--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B
----------------------------------------------------------------
YEAR ENDED OCTOBER 31,
----------------------------------------------------------------
2002 2001 2000 1999 1998
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 19.71 $ 24.14 $ 22.67 $ 16.71 $ 16.97
- --------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.17)(a) (0.17)(a) (0.18)(a) (0.12)(a) (0.02)(a)
- --------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (1.41) (4.00) 5.72 6.11 0.37
================================================================================================================================
Total from investment operations (1.58) (4.17) 5.54 5.99 0.35
================================================================================================================================
Less distributions:
Dividends from net investment income -- -- (0.14) -- (0.01)
- --------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- (0.26) (3.93) (0.03) (0.60)
================================================================================================================================
Total distributions -- (0.26) (4.07) (0.03) (0.61)
================================================================================================================================
Net asset value, end of period $ 18.13 $ 19.71 $ 24.14 $ 22.67 $ 16.71
________________________________________________________________________________________________________________________________
================================================================================================================================
Total return(b) (8.02)% (17.45)% 29.40% 35.91% 2.08%
________________________________________________________________________________________________________________________________
================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $90,838 $114,852 $92,343 $49,619 $48,785
________________________________________________________________________________________________________________________________
================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 2.47%(c) 2.35% 2.50% 2.49% 2.47%
- --------------------------------------------------------------------------------------------------------------------------------
Without fee waivers 2.47%(c) 2.35% 2.50% 2.62% 2.49%
================================================================================================================================
Ratio of net investment income (loss) to average net assets (0.81)%(c) (0.76)% (0.83)% (0.58)% (0.13)%
________________________________________________________________________________________________________________________________
================================================================================================================================
Portfolio turnover rate 51% 53% 41% 107% 111%
________________________________________________________________________________________________________________________________
================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with generally accepted accounting
principles and does not include contingent deferred sales charges.
(c) Ratios are based on average daily net assets of $118,105,820.
FS-35
NOTE 12--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
-----------------------------------------------------------
MARCH 1, 1999
(DATE SALES
YEAR ENDED OCTOBER 31, COMMENCED) TO
-------------------------------------- OCTOBER 31,
2002 2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 19.71 $ 24.14 $ 22.67 $ 19.58
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.17)(a) (0.17)(a) (0.18)(a) (0.08)(a)
- ---------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (1.41) (4.00) 5.72 3.17
===========================================================================================================================
Total from investment operations (1.58) (4.17) 5.54 3.09
===========================================================================================================================
Less distributions:
Dividends from net investment income -- -- (0.14) --
- ---------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- (0.26) (3.93) --
===========================================================================================================================
Total distributions -- (0.26) (4.07) --
===========================================================================================================================
Net asset value, end of period $ 18.13 $ 19.71 $ 24.14 $ 22.67
___________________________________________________________________________________________________________________________
===========================================================================================================================
Total return(b) (8.02)% (17.45)% 29.40% 15.78%
___________________________________________________________________________________________________________________________
===========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $27,239 $32,290 $20,944 $ 605
___________________________________________________________________________________________________________________________
===========================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 2.47%(c) 2.35% 2.50% 2.49%(d)
- ---------------------------------------------------------------------------------------------------------------------------
Without fee waivers 2.47%(c) 2.35% 2.50% 2.62%(d)
===========================================================================================================================
Ratio of net investment income (loss) to average net assets (0.81)%(c) (0.76)% (0.83)% (0.58)%(d)
___________________________________________________________________________________________________________________________
===========================================================================================================================
Portfolio turnover rate 51% 53% 41% 107%
___________________________________________________________________________________________________________________________
===========================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with generally accepted accounting
principles, 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 $34,552,185.
(d) Annualized.
FS-36
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees and Shareholders
of AIM Global Health Care 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 Health Care Fund
(one of the funds constituting AIM Investment Funds; hereafter referred to as
the "Fund") at October 31, 2002, 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, 2002 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion.
/s/ PRICEWATERHOUSECOOPERS LLP
December 12, 2002
Houston, Texas
FS-37
FINANCIALS
Schedule of Investments
October 31, 2002
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
DOMESTIC COMMON STOCKS-65.74%
Biotechnology-5.10%
Affymetrix, Inc.(a) 100 $ 2,610
- ------------------------------------------------------------------------
Alexion Pharmaceuticals, Inc.(a) 659,400 6,719,286
- ------------------------------------------------------------------------
Amgen Inc.(a) 160,000 7,449,600
- ------------------------------------------------------------------------
Charles River Laboratories International,
Inc.(a) 100 3,675
- ------------------------------------------------------------------------
Ciphergen Biosystems, Inc.(a) 101,000 295,930
- ------------------------------------------------------------------------
Corvas International, Inc.(a)(b) 1,865,000 2,405,850
- ------------------------------------------------------------------------
Gen-Probe Inc.(a) 7,740 160,063
- ------------------------------------------------------------------------
Genentech, Inc.(a) 100 3,409
- ------------------------------------------------------------------------
Gilead Sciences, Inc.(a) 100 3,474
- ------------------------------------------------------------------------
Isis Pharmaceuticals, Inc.(a) 2,250,000 21,960,000
- ------------------------------------------------------------------------
Onyx Pharmaceuticals, Inc.(a) 100 377
- ------------------------------------------------------------------------
SangStat Medical Corp.(a) 1,000 18,660
- ------------------------------------------------------------------------
Sequenom Inc.(a) 40,000 93,200
- ------------------------------------------------------------------------
Vertex Pharmaceuticals Inc.(a) 100 1,961
========================================================================
39,118,095
========================================================================
Electronic Equipment & Instruments-0.69%
Varian Inc.(a) 180,000 5,293,800
========================================================================
Environmental Services-0.00%
Stericycle, Inc.(a) 1,000 33,300
========================================================================
Fertilizers & Agricultural Chemicals-0.46%
Monsanto Co. 213,241 3,524,874
========================================================================
Health Care Distributors & Services-0.02%
AmerisourceBergen Corp. 100 7,115
- ------------------------------------------------------------------------
AMN Healthcare Services, Inc.(a) 100 1,446
- ------------------------------------------------------------------------
Apria Healthcare Group Inc.(a) 100 2,439
- ------------------------------------------------------------------------
DaVita, Inc.(a) 1,000 23,970
- ------------------------------------------------------------------------
Express Scripts, Inc.(a) 100 5,418
- ------------------------------------------------------------------------
Lincare Holdings Inc.(a) 100 3,407
- ------------------------------------------------------------------------
Odyssey Healthcare, Inc.(a) 100 3,498
- ------------------------------------------------------------------------
Owens & Minor, Inc. 100 1,472
- ------------------------------------------------------------------------
PSS World Medical, Inc.(a) 100 764
- ------------------------------------------------------------------------
Quintiles Transnational Corp.(a) 10,000 107,500
========================================================================
157,029
========================================================================
Health Care Equipment-4.47%
ATS Medical, Inc.(a)(b) 2,220,000 1,223,220
- ------------------------------------------------------------------------
Baxter International Inc. 700,000 17,514,000
- ------------------------------------------------------------------------
Becton, Dickinson & Co. 168,000 4,957,680
- ------------------------------------------------------------------------
Bruker AXS Inc.(a) 20,000 42,400
- ------------------------------------------------------------------------
Cardiac Science, Inc.(a) 2,465,000 4,683,500
- ------------------------------------------------------------------------
CONMED Corp.(a) 100 1,958
- ------------------------------------------------------------------------
Fisher Scientific International Inc.(a) 1,000 28,600
- ------------------------------------------------------------------------
Mentor Corp. 1,000 37,900
- ------------------------------------------------------------------------
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
Health Care Equipment-(Continued)
St. Jude Medical, Inc.(a) 125,000 $ 4,451,250
- ------------------------------------------------------------------------
Varian Medical Systems, Inc.(a) 1,000 48,220
- ------------------------------------------------------------------------
Wright Medical Group, Inc.(a) 100 1,721
- ------------------------------------------------------------------------
Zimmer Holdings, Inc.(a) 100 4,122
- ------------------------------------------------------------------------
Zoll Medical Corp.(a) 40,000 1,298,000
========================================================================
34,292,571
========================================================================
Health Care Facilities-19.86%
Community Health Systems Inc.(a) 1,900,000 44,650,000
- ------------------------------------------------------------------------
HCA Inc. 850,000 36,966,500
- ------------------------------------------------------------------------
Health Management Associates, Inc.-Class A 80,000 1,529,600
- ------------------------------------------------------------------------
LifePoint Hospitals, Inc.(a) 1,000 31,350
- ------------------------------------------------------------------------
Medcath Corp.(a) 100 1,126
- ------------------------------------------------------------------------
Province Healthcare Co.(a)(b) 450,000 5,872,500
- ------------------------------------------------------------------------
RehabCare Group, Inc.(a) 100 2,103
- ------------------------------------------------------------------------
Select Medical Corp.(a) 100 1,294
- ------------------------------------------------------------------------
Tenet Healthcare Corp.(a) 1,050,000 30,187,500
- ------------------------------------------------------------------------
Triad Hospitals, Inc.(a) 180,000 6,570,000
- ------------------------------------------------------------------------
United Surgical Partners International,
Inc.(a) 100 1,986
- ------------------------------------------------------------------------
Universal Health Services, Inc.-Class B(a) 550,000 26,664,000
========================================================================
152,477,959
========================================================================
Health Care Supplies-1.64%
Bausch & Lomb Inc. 400,000 12,440,000
- ------------------------------------------------------------------------
STAAR Surgical Co.(a) 60,000 183,000
========================================================================
12,623,000
========================================================================
Household Appliances-0.00%
Helen of Troy Ltd.(a) 1,000 9,650
========================================================================
IT Consulting & Services-0.32%
Health Management Systems, Inc.(a) 670,000 2,479,000
========================================================================
Managed Health Care-0.72%
AMERIGROUP Corp.(a) 100 2,921
- ------------------------------------------------------------------------
Anthem, Inc.(a) 206 12,978
- ------------------------------------------------------------------------
CIGNA Corp. 100 3,614
- ------------------------------------------------------------------------
Coventry Health Care, Inc.(a) 100 3,346
- ------------------------------------------------------------------------
PacifiCare Health Systems, Inc.(a) 100 2,956
- ------------------------------------------------------------------------
UnitedHealth Group Inc. 60,000 5,457,000
- ------------------------------------------------------------------------
WellPoint Health Networks Inc.(a) 100 7,521
========================================================================
5,490,336
========================================================================
Pharmaceuticals-32.46%
Abbott Laboratories 890,000 37,264,300
- ------------------------------------------------------------------------
Alpharma Inc.-Class A 60,000 568,800
- ------------------------------------------------------------------------
Barr Laboratories, Inc.(a) 1,000 58,830
- ------------------------------------------------------------------------
Bristol-Myers Squibb Co. 1,530,000 37,653,300
- ------------------------------------------------------------------------
Eli Lilly & Co. 1,000 55,500
- ------------------------------------------------------------------------
</Table>
FS-38
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
Pharmaceuticals-(Continued)
IVAX Corp.(a) 100 $ 1,255
- ------------------------------------------------------------------------
Johnson & Johnson 100 5,875
- ------------------------------------------------------------------------
King Pharmaceuticals, Inc.(a) 148,700 2,282,545
- ------------------------------------------------------------------------
Merck & Co. Inc. 690,000 37,425,600
- ------------------------------------------------------------------------
OraPharma, Inc.(a) 270,000 1,152,900
- ------------------------------------------------------------------------
Pfizer Inc. 1,426,200 45,310,374
- ------------------------------------------------------------------------
Pharmacia Corp. 1,250,000 53,750,000
- ------------------------------------------------------------------------
Schering-Plough Corp. 400,000 8,540,000
- ------------------------------------------------------------------------
Wyeth 750,000 25,125,000
========================================================================
249,194,279
========================================================================
Semiconductor Equipment-0.00%
Varian Semiconductor Equipment Associates,
Inc.(a) 1,000 23,820
========================================================================
Total Domestic Common Stocks (Cost
$497,622,705) 504,717,713
========================================================================
FOREIGN STOCKS & OTHER EQUITY INTERESTS-25.18%
Denmark-0.14%
Novo Nordisk A.S.-Class B (Pharmaceuticals) 40,000 1,103,228
========================================================================
France-9.04%
Aventis S.A. (Pharmaceuticals) 700,000 41,883,387
- ------------------------------------------------------------------------
Sanofi-Synthelabo S.A. (Pharmaceuticals)(a) 450,000 27,504,067
========================================================================
69,387,454
========================================================================
Germany-2.63%
Altana A.G. (Pharmaceuticals) 25,000 1,195,678
- ------------------------------------------------------------------------
Bayer A.G. (Diversified Chemicals) 1,000,000 18,964,568
========================================================================
20,160,246
========================================================================
Israel-3.63%
Teva Pharmaceutical Industries Ltd.-ADR
(Pharmaceuticals) 360,000 27,874,800
========================================================================
Japan-4.98%
Daiichi Pharmaceutical Co., Ltd.
(Pharmaceuticals) 10,000 146,146
- ------------------------------------------------------------------------
Eisai Co., Ltd. (Pharmaceuticals) 200,000 4,319,072
- ------------------------------------------------------------------------
Fujisawa Pharmaceutical Co., Ltd.
(Pharmaceuticals) (Acquired
09/07/01-10/25/02); Cost $4,726,785)(c) 250,000 4,857,936
- ------------------------------------------------------------------------
Kyorin Pharmaceutical Co., Ltd.
(Pharmaceuticals) 300,000 5,339,647
- ------------------------------------------------------------------------
Kyowa Hakko Kogyo Co., Ltd. (Pharmaceuticals) 5,000 21,759
- ------------------------------------------------------------------------
Mitsubishi Pharma Corp. (Pharmaceuticals) 1,000 6,475
- ------------------------------------------------------------------------
Ono Pharmaceutical Co., Ltd.
(Pharmaceuticals) 1,000 31,515
- ------------------------------------------------------------------------
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
Japan-(Continued)
Rohto Pharmaceutical Co., Ltd.
(Pharmaceuticals) 210,000 $ 1,587,688
- ------------------------------------------------------------------------
Sankyo Co., Ltd. (Pharmaceuticals) 600,000 7,073,808
- ------------------------------------------------------------------------
Santen Pharmaceutical Co., Ltd.
(Pharmaceuticals) 1,000 8,908
- ------------------------------------------------------------------------
Shionogi & Co., Ltd. (Pharmaceuticals) 1,000 11,471
- ------------------------------------------------------------------------
Taisho Pharmaceutical Co., Ltd.
(Pharmaceuticals) 60,000 940,072
- ------------------------------------------------------------------------
Takeda Chemical Industries, Ltd.
(Pharmaceuticals) 100,000 4,155,781
- ------------------------------------------------------------------------
Tanabe Seiyaku Co., Ltd. (Pharmaceuticals) 40,000 339,647
- ------------------------------------------------------------------------
Terumo Corp. (Health Care Equipment) 60,000 824,951
- ------------------------------------------------------------------------
Uni-Charm Corp. (Household Products) 1,000 36,986
- ------------------------------------------------------------------------
Yamanouchi Pharmaceutical Co., Ltd.
(Pharmaceuticals) 350,000 8,572,828
========================================================================
38,274,690
========================================================================
Netherlands-2.73%
Akzo Nobel N.V. (Diversified Chemicals) 700,000 20,924,372
========================================================================
New Zealand-0.00%
Fisher & Paykel Healthcare Corp. Ltd.-ADR
(Health Care Equipment) 100 2,159
========================================================================
Switzerland-0.00%
Alcon, Inc. (Health Care Supplies)(a) 100 4,102
- ------------------------------------------------------------------------
Novartis A.G. (Pharmaceuticals) 100 3,812
========================================================================
7,914
========================================================================
United Kingdom-2.03%
GlaxoSmithKline PLC-ADR (Pharmaceuticals) 1,000 37,690
- ------------------------------------------------------------------------
Shire Pharmaceuticals Group PLC
(Pharmaceuticals)(a) 1,900,000 15,314,503
- ------------------------------------------------------------------------
Shire Pharmaceuticals Group PLC-ADR
(Pharmaceuticals)(a) 10,000 233,600
========================================================================
15,585,793
========================================================================
Total Foreign Stocks & Other Equity
Interests (Cost $183,237,897) 193,320,656
========================================================================
MONEY MARKET FUNDS-5.51%
STIC Liquid Assets Portfolio(d) 21,160,369 21,160,369
- ------------------------------------------------------------------------
STIC Prime Portfolio(d) 21,160,369 21,160,369
========================================================================
Total Money Market Funds (Cost
$42,320,738) 42,320,738
========================================================================
TOTAL INVESTMENTS-96.43% (Cost $723,181,340) 740,359,107
========================================================================
OTHER ASSETS LESS LIABILITIES-3.57% 27,409,599
========================================================================
NET ASSETS-100.00% $767,768,706
________________________________________________________________________
========================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
</Table>
FS-39
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) Affiliated issuer in which the Fund's holdings of the issuer represent 5% or
more of the outstanding voting securities of the issuer. The Fund has not
owned enough of the outstanding voting securities of the issuer to have
control (as defined in the Investment Company Act of 1940) of that issuer.
The market value as of 10/31/02 was $9,501,570 which represented 1.24% of
the Fund's net assets. Following is a summary of the transactions with
affiliates for the year ended October 31, 2002.
<Table>
<Caption>
MARKET CHANGE IN MARKET
VALUE PURCHASES SALES UNREALIZED VALUE DIVIDEND REALIZED
10/31/2001 AT COST AT COST (APPR./(DEPR.) 10/31/2002 INCOME GAIN/(LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
ATS Medical Inc.................. $ 952,500 $3,497,816 $ -- $(3,227,096) $1,223,220 $ -- $ --
Corvas International Inc......... -- 5,459,185 -- (3,053,335) 2,405,850 -- --
PRAECIS Pharmaceuticals Inc...... 10,825,000 -- (13,887,081) 3,062,081 -- -- (2,932,512)
Province Healthcare Co........... 39,947,500 -- (48,158,055) 14,083,055 5,872,500 -- 8,910,715
=================================================================================================================================
$51,725,000 $9,501,570 $ -- $5,978,203
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(c) Security not registered under the Securities Act of 1933, as amended (e.g.,
the security was purchased in a Rule 144A transaction or a Regulation D
transaction); the security may be resold only pursuant to an exemption from
registration under the 1933 Act, typically to qualified institutional
buyers. The market value of this security at 10/31/02 represented 0.63% of
the Fund's net assets. The Fund has no rights to demand registration of this
security. This security is considered to be liquid under procedures
established by the Board of Trustees.
(d) The money market fund and the Fund are affiliated by having the same
investment advisor.
See Notes to Financial Statements.
FS-40
Statement of Assets and Liabilities
October 31, 2002
<Table>
ASSETS:
Investments, at market value (cost
$723,181,340)* $740,359,107
- -------------------------------------------------------------
Foreign currencies, at value (cost $2,279) 2,486
- -------------------------------------------------------------
Receivables for:
Investments sold 35,874,348
- -------------------------------------------------------------
Fund shares sold 4,659,254
- -------------------------------------------------------------
Dividends 1,361,714
- -------------------------------------------------------------
Investment for deferred compensation plan 3,651
- -------------------------------------------------------------
Collateral for securities loaned 100,490,099
- -------------------------------------------------------------
Other assets 32,130
=============================================================
Total assets 882,782,789
_____________________________________________________________
=============================================================
LIABILITIES:
Payables for:
Investments purchased 11,820,302
- -------------------------------------------------------------
Fund shares reacquired 1,651,827
- -------------------------------------------------------------
Deferred compensation plan 3,651
- -------------------------------------------------------------
Collateral upon return of securities loaned 100,490,099
- -------------------------------------------------------------
Accrued distribution fees 702,303
- -------------------------------------------------------------
Accrued trustees' fees 973
- -------------------------------------------------------------
Accrued transfer agent fees 297,521
- -------------------------------------------------------------
Accrued operating expenses 47,407
=============================================================
Total liabilities 115,014,083
=============================================================
Net assets applicable to shares outstanding $767,768,706
_____________________________________________________________
=============================================================
NET ASSETS:
Class A $533,216,242
_____________________________________________________________
=============================================================
Class B $187,793,025
_____________________________________________________________
=============================================================
Class C $ 46,759,439
_____________________________________________________________
=============================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE:
Class A 23,793,633
_____________________________________________________________
=============================================================
Class B 9,089,328
_____________________________________________________________
=============================================================
Class C 2,261,750
_____________________________________________________________
=============================================================
Class A:
Net asset value per share $ 22.41
- -------------------------------------------------------------
Offering price per share:
(Net asset value of $22.41 divided by
95.25%) $ 23.53
_____________________________________________________________
=============================================================
Class B:
Net asset value and offering price per share $ 20.66
_____________________________________________________________
=============================================================
Class C:
Net asset value and offering price per share $ 20.67
_____________________________________________________________
=============================================================
</Table>
* At October 31, 2002, securities with an aggregate market value of $97,046,929
were on loan to brokers.
Statement of Operations
For the year ended October 31, 2002
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of
$248,760) $ 5,723,444
- -------------------------------------------------------------
Dividends from affiliated money market funds 640,819
- -------------------------------------------------------------
Interest 2,707
- -------------------------------------------------------------
Security lending income 269,836
=============================================================
Total investment income 6,636,806
=============================================================
EXPENSES:
Advisory fees 8,509,208
- -------------------------------------------------------------
Administrative services fees 168,501
- -------------------------------------------------------------
Custodian fees 254,414
- -------------------------------------------------------------
Distribution fees -- Class A 3,027,390
- -------------------------------------------------------------
Distribution fees -- Class B 2,277,903
- -------------------------------------------------------------
Distribution fees -- Class C 492,799
- -------------------------------------------------------------
Transfer agent fees 2,613,943
- -------------------------------------------------------------
Trustees' fees 11,868
- -------------------------------------------------------------
Other 423,346
=============================================================
Total expenses 17,779,372
=============================================================
Less: Fees waived (5,611)
- -------------------------------------------------------------
Expenses paid indirectly (32,636)
=============================================================
Net expenses 17,741,125
=============================================================
Net investment income (loss) (11,104,319)
=============================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES, FOREIGN CURRENCIES
AND OPTION CONTRACTS:
Net realized gain (loss) from:
Investment securities (25,303,864)
- -------------------------------------------------------------
Foreign currencies 212,299
- -------------------------------------------------------------
Option contracts written 4,218,603
=============================================================
(20,872,962)
=============================================================
Change in net unrealized appreciation
(depreciation) of:
Investment securities (100,727,184)
- -------------------------------------------------------------
Foreign currencies (87,108)
- -------------------------------------------------------------
Option contracts written (352,483)
=============================================================
(101,166,775)
=============================================================
Net gain (loss) from investment securities,
foreign currencies and option contracts (122,039,737)
=============================================================
Net increase (decrease) in net assets
resulting from operations $(133,144,056)
_____________________________________________________________
=============================================================
</Table>
See Notes to Financial Statements.
FS-41
Statement of Changes in Net Assets
For the years ended October 31, 2002 and 2001
<Table>
<Caption>
2002 2001
- -------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (11,104,319) $(10,479,253)
- -------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities,
foreign currencies and option contracts (20,872,962) 137,032,083
- -------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities, foreign currencies and option
contracts (101,166,775) (65,109,810)
===========================================================================================
Net increase (decrease) in net assets resulting from
operations (133,144,056) 61,443,020
===========================================================================================
Distributions to shareholders from net realized gains:
Class A (81,059,596) (50,675,258)
- -------------------------------------------------------------------------------------------
Class B (33,690,875) (17,239,849)
- -------------------------------------------------------------------------------------------
Class C (6,133,328) (1,699,076)
- -------------------------------------------------------------------------------------------
Share transactions-net:
Class A 115,829,342 131,650,882
- -------------------------------------------------------------------------------------------
Class B 37,085,336 77,709,705
- -------------------------------------------------------------------------------------------
Class C 25,381,473 24,665,881
===========================================================================================
Net increase (decrease) in net assets (75,731,704) 225,855,305
===========================================================================================
NET ASSETS:
Beginning of year 843,500,410 617,645,105
===========================================================================================
End of year $ 767,768,706 $843,500,410
___________________________________________________________________________________________
===========================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 774,675,935 $607,263,843
- -------------------------------------------------------------------------------------------
Undistributed net investment income (loss) (7,349) (715)
- -------------------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment
securities, foreign currencies and option contracts (24,051,473) 117,918,914
- -------------------------------------------------------------------------------------------
Unrealized appreciation of investment securities, foreign
currencies and option contracts 17,151,593 118,318,368
===========================================================================================
$ 767,768,706 $843,500,410
___________________________________________________________________________________________
===========================================================================================
</Table>
See Notes to Financial Statements.
FS-42
Notes to Financial Statements
October 31, 2002
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Global Health Care Fund (the "Fund") is a separate series of AIM Investment
Funds (the "Trust"). The Trust is organized as a Delaware statutory 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
traded in the over-the-counter market (but not securities reported on the
NASDAQ National Market System) is valued at the closing bid price furnished
by independent pricing services or market makers. 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 institution-size trading in similar groups of
securities, developments related to special securities, dividend rate,
yield, quality, type of issue, coupon rate, maturity, 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 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 and
commercial paper 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. 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.
C. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid annually and recorded on ex-dividend date. The
Fund may elect to use a portion of the proceeds from redemptions as
distributions for federal income tax purposes.
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 gain) 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. 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
FS-43
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 the respective classes' operations. Transfer agency
fees and expenses and other shareholder recordkeeping fees and expenses are
charged to each class pursuant to a transfer agency and service agreement
adopted by the Fund with respect to such class. All other expenses 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
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 October 31, 2002, AIM waived fees of
$5,611.
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, 2002, AIM was
paid $168,501 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 October 31, 2002, AFS
retained $1,403,878 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. NASD Rules
also impose a cap on the total sales charges, including asset-based sales
charges that may be paid by any class of shares of the Fund. Pursuant to the
master distribution agreements, for the year ended October 31, 2002, the Class
A, Class B and Class C shares paid $3,027,390, $2,277,903 and $492,799,
respectively.
AIM Distributors retained commissions of $300,015 from sales of the Class A
shares of the Fund during the year ended October 31, 2002. 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, 2002,
AIM Distributors retained $2,015, $1,435 and $27,546 in contingent deferred
sales charges imposed on redemptions of Class A, Class B and Class C shares,
respectively.
Certain officers and trustees of the Trust are officers and directors of AIM,
AFS and AIM Distributors.
During the year ended October 31, 2002, the Fund paid legal fees of $5,302 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 October 31, 2002, the Fund received reductions in transfer
agency fees from AFS (an affiliate of AIM) of $13,331 and reductions in
custodian fees of $19,305 under expense offset arrangements which resulted in a
reduction of the Fund's total expenses of $32,636.
NOTE 4--TRUSTEES' FEES
Trustees' fees represent remuneration paid to trustees who are not an
"interested person" of AIM. Trustees have the option to defer compensation
payable by the Trust. The Trustees deferring compensation have the option to
select various AIM Funds in which all or part of their deferral accounts shall
be deemed to be invested.
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) $500,000,000 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,
2002, 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-44
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 October 31, 2002, securities with an aggregate value of $97,046,929 were on
loan to brokers. The loans were secured by cash collateral of $100,490,099
received by the Fund and invested in affiliated money market funds as follows:
$50,245,050 in STIC Liquid Assets Portfolio and $50,245,049 in STIC Prime
Portfolio. For the year ended October 31, 2002, the Fund received fees of
$269,836 for securities lending.
NOTE 7--CALL OPTION CONTRACTS
Transactions in call options written during the year ended October 31, 2002 are
summarized as follows:
<Table>
<Caption>
CALL OPTION CONTRACTS
------------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
- -------------------------------------------------------------
Beginning of year 9,710 $ 3,140,113
- -------------------------------------------------------------
Written 31,756 9,988,269
- -------------------------------------------------------------
Closed (25,801) (8,269,802)
- -------------------------------------------------------------
Exercised (3,348) (839,233)
- -------------------------------------------------------------
Expired (12,317) (4,019,347)
- -------------------------------------------------------------
End of year -- $ --
_____________________________________________________________
=============================================================
</Table>
NOTE 8--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS BENEFICIAL INTEREST
Distributions to Shareholders:
The tax character of distributions paid during the years ended October 31, 2002
and 2001 were as follows:
<Table>
<Caption>
2002 2001
- ----------------------------------------------------------------
Distributions paid from:
Ordinary income $ 46,090,015 $24,377,948
- ----------------------------------------------------------------
Long-term capital gain 74,793,784 53,811,235
================================================================
$120,883,799 $78,189,183
________________________________________________________________
================================================================
</Table>
Tax Components of Beneficial Interest:
As of October 31, 2002, the components of beneficial interest on a tax basis
were as follows:
<Table>
Unrealized appreciation - investments $ 16,009,273
- -------------------------------------------------------------
Temporary book/tax differences (7,349)
- -------------------------------------------------------------
Capital loss carryforward (22,909,153)
- -------------------------------------------------------------
Shares of beneficial interest 774,675,935
=============================================================
$767,768,706
_____________________________________________________________
=============================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation difference is attributable primarily to the tax deferral of losses
on wash sales and on straddles. Amount includes appreciation (depreciation) on
foreign currencies of $(26,174).
The temporary book/tax differences are a result of timing differences between
book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the deferral of Trustee compensation and
retirement plan expenses.
The Fund's capital loss carryforward expires as follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD
- ---------------------------------------
October 31, 2010 $22,909,153
_______________________________________
=======================================
</Table>
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 October 31, 2002 was
$1,417,801,819 and $1,285,161,332, respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
for tax purposes, as of October 31, 2002 is as follows:
<Table>
Aggregate unrealized appreciation of investment
securities $ 66,784,688
- -------------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (50,749,241)
=============================================================
Net unrealized appreciation of investment
securities $ 16,035,447
_____________________________________________________________
=============================================================
Cost of investments for tax purposes is $724,323,660.
</Table>
NOTE 10--RECLASSIFICATION OF PERMANENT DIFFERENCES
As a result of differing book/tax treatment of foreign currency transactions,
net operating loss, and other items, on October 31, 2002, undistributed net
investment income was increased by $11,097,685, undistributed net realized gains
decreased by $213,626 and shares of beneficial interest decreased by
$10,884,059. This reclassification had no effect on the net assets of the Fund.
FS-45
NOTE 11--SHARE INFORMATION
Changes in shares outstanding during the years ended October 31, 2002 and 2001
were as follows:
<Table>
<Caption>
2002 2001
--------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- -----------------------------------------------------------------------------------------------------------------------
Sold:
Class A 7,468,100* $ 196,827,955* 6,036,134 $182,779,234
- -----------------------------------------------------------------------------------------------------------------------
Class B 4,072,845 101,210,611 4,479,506 126,599,025
- -----------------------------------------------------------------------------------------------------------------------
Class C 1,519,053 37,639,046 1,095,249 31,149,126
=======================================================================================================================
Issued as reinvestment of dividends:
Class A 2,814,476 75,259,155 1,674,855 47,029,924
- -----------------------------------------------------------------------------------------------------------------------
Class B 1,272,073 31,496,539 607,446 16,042,076
- -----------------------------------------------------------------------------------------------------------------------
Class C 231,214 5,727,184 62,106 1,640,220
=======================================================================================================================
Reacquired:
Class A (6,136,679) (156,257,768) (3,349,804) (98,158,276)
- -----------------------------------------------------------------------------------------------------------------------
Class B (4,071,994)* (95,621,814)* (2,348,659) (64,931,396)
- -----------------------------------------------------------------------------------------------------------------------
Class C (785,681) (17,984,757) (292,645) (8,123,465)
=======================================================================================================================
6,383,407 $ 178,296,151 7,964,188 $234,026,468
_______________________________________________________________________________________________________________________
=======================================================================================================================
</Table>
* Includes automatic conversion of 1,029,485 shares of Class B shares in the
amount of $24,572,842 to 950,595 shares of Class A shares in the amount of
$24,572,842.
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 OCTOBER 31,
--------------------------------------------------------------------
2002 2001 2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 29.93 $ 30.12 $ 24.00 $ 20.15 $ 27.98
- ------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.29)(a) (0.39)(a) (0.22)(a) (0.19)(a) (0.21)(a)
- ------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized
and unrealized) (3.17) 3.44 8.62 4.04 (0.91)
========================================================================================================================
Total from investment operations (3.46) 3.05 8.40 3.85 (1.12)
========================================================================================================================
Less distributions:
Distributions from net realized gains (4.06) (3.24) (2.28) -- (6.70)
========================================================================================================================
Returns of capital -- -- -- -- (0.01)
========================================================================================================================
Total distributions (4.06) (3.24) (2.28) -- (6.71)
========================================================================================================================
Net asset value, end of period $ 22.41 $ 29.93 $ 30.12 $ 24.00 $ 20.15
________________________________________________________________________________________________________________________
========================================================================================================================
Total return(b) (13.76)% 10.85% 38.49% 19.11% (4.71)%
________________________________________________________________________________________________________________________
========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $533,216 $588,072 $460,445 $357,747 $357,534
________________________________________________________________________________________________________________________
========================================================================================================================
Ratio of expenses to average net assets 1.86%(c) 1.75% 1.73% 1.82% 1.84%
========================================================================================================================
Ratio of net investment income (loss) to average
net assets (1.10)%(c) (1.28)% (0.85)% (0.81)% (0.98)%
========================================================================================================================
Portfolio turnover rate 153% 207% 242% 123% 187%
________________________________________________________________________________________________________________________
========================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with generally accepted accounting
principles and does not include sales charges.
(c) Ratios are based on average daily net assets of $605,477,955.
FS-46
NOTE 12--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B
--------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
--------------------------------------------------------------------
2002 2001 2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 28.03 $ 28.53 $ 22.96 $ 19.37 $ 27.27
- ------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.38)(a) (0.51)(a) (0.34)(a) (0.30)(a) (0.30)(a)
- ------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized
and unrealized) (2.93) 3.25 8.19 3.89 (0.89)
========================================================================================================================
Total from investment operations (3.31) 2.74 7.85 3.59 (1.19)
========================================================================================================================
Less distributions:
Distributions from net realized gains (4.06) (3.24) (2.28) -- (6.70)
- ------------------------------------------------------------------------------------------------------------------------
Returns of capital -- -- -- -- (0.01)
========================================================================================================================
Total distributions (4.06) (3.24) (2.28) -- (6.71)
========================================================================================================================
Net asset value, end of period $ 20.66 $ 28.03 $ 28.53 $ 22.96 $ 19.37
________________________________________________________________________________________________________________________
========================================================================================================================
Total return(b) (14.21)% 10.32% 37.78% 18.53% (5.20)%
________________________________________________________________________________________________________________________
========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $187,793 $219,036 $144,861 $102,916 $100,311
________________________________________________________________________________________________________________________
========================================================================================================================
Ratio of expenses to average net assets 2.36%(c) 2.25% 2.23% 2.33% 2.34%
========================================================================================================================
Ratio of net investment income (loss) to average
net assets (1.60)%(c) (1.78)% (1.35)% (1.32)% (1.48)%
________________________________________________________________________________________________________________________
========================================================================================================================
Portfolio turnover rate 153% 207% 242% 123% 187%
________________________________________________________________________________________________________________________
========================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with generally accepted accounting
principles and does not include contingent deferred sales charges.
(c) Ratios are based on average daily net assets of $227,790,345.
FS-47
NOTE 12--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
-------------------------------------------------------
MARCH 1, 1999
YEAR ENDED (DATE SALES
OCTOBER 31, COMMENCED) TO
----------------------------------- OCTOBER 31,
2002 2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 28.03 $ 28.53 $ 22.96 $22.50
- ---------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.38)(a) (0.51)(a) (0.34)(a) (0.21)(a)
- ---------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (2.92) 3.25 8.19 0.67
=====================================================================================================================
Total from investment operations (3.30) 2.74 7.85 0.46
=====================================================================================================================
Less distributions from net realized gains (4.06) (3.24) (2.28) --
=====================================================================================================================
Net asset value, end of period $ 20.67 $ 28.03 $ 28.53 $22.96
_____________________________________________________________________________________________________________________
=====================================================================================================================
Total return(b) (14.18)% 10.32% 37.77% 2.04%
_____________________________________________________________________________________________________________________
=====================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $46,759 $36,366 $12,339 $1,278
_____________________________________________________________________________________________________________________
=====================================================================================================================
Ratio of expenses to average net assets 2.36%(c) 2.25% 2.23% 2.33%(d)
=====================================================================================================================
Ratio of net investment income (loss) to average net assets (1.60)%(c) (1.78)% (1.35)% (1.32)%(d)
_____________________________________________________________________________________________________________________
=====================================================================================================================
Portfolio turnover rate 153% 207% 242% 123%
_____________________________________________________________________________________________________________________
=====================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with generally accepted accounting
principles, 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 $49,279,944.
(d) Annualized.
FS-48
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees and Shareholders
of AIM Global Science and 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 Global Science and
Technology Fund (formerly known as AIM Global Telecommunications and Technology
Fund) (one of the funds constituting AIM Investment Funds; hereafter referred to
as the "Fund") at October 31, 2002, 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, 2002 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
/s/ PRICEWATERHOUSECOOPERS LLP
December 12, 2002
Houston, Texas
FS-49
FINANCIALS
Schedule of Investments
October 31, 2002
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-94.38%
Aerospace & Defense-9.81%
Alliant Techsystems Inc.(a)(b) 174,300 $ 10,484,145
- ------------------------------------------------------------------------
L-3 Communications Holdings, Inc.(a) 342,800 16,111,600
- ------------------------------------------------------------------------
Lockheed Martin Corp. 216,200 12,517,980
========================================================================
39,113,725
========================================================================
Application Software-6.96%
Activision, Inc.(a) 282,900 5,799,450
- ------------------------------------------------------------------------
Cerner Corp.(a) 146,700 5,223,987
- ------------------------------------------------------------------------
Electronic Arts Inc.(a) 92,900 6,049,648
- ------------------------------------------------------------------------
Intuit Inc.(a) 104,400 5,420,448
- ------------------------------------------------------------------------
Mercury Interactive Corp.(a) 200,000 5,274,000
========================================================================
27,767,533
========================================================================
Auto Parts & Equipment-1.65%
Gentex Corp.(a) 223,200 6,579,936
========================================================================
Biotechnology-6.70%
Cephalon, Inc.(a) 77,800 3,908,672
- ------------------------------------------------------------------------
Chiron Corp.(a) 24,000 947,040
- ------------------------------------------------------------------------
Gilead Sciences, Inc.(a) 326,200 11,332,188
- ------------------------------------------------------------------------
IDEC Pharmaceuticals Corp.(a) 170,000 7,823,400
- ------------------------------------------------------------------------
SangStat Medical Corp.(a) 146,200 2,728,092
========================================================================
26,739,392
========================================================================
Computer & Electronics Retail-2.01%
Best Buy Co., Inc.(a) 208,500 4,297,185
- ------------------------------------------------------------------------
CDW Computer Centers, Inc.(a) 70,000 3,711,400
========================================================================
8,008,585
========================================================================
Computer Hardware-3.59%
Dell Computer Corp.(a) 500,000 14,305,000
========================================================================
Computer Storage & Peripherals-4.64%
Imation Corp.(a) 56,200 2,299,704
- ------------------------------------------------------------------------
Lexmark International, Inc.(a) 35,500 2,109,410
- ------------------------------------------------------------------------
SanDisk Corp.(a) 268,500 5,308,245
- ------------------------------------------------------------------------
Storage Technology Corp.(a) 362,900 6,416,072
- ------------------------------------------------------------------------
Western Digital Corp.(a) 384,400 2,379,436
========================================================================
18,512,867
========================================================================
Electronic Equipment & Instruments-5.30%
Samsung Electronics Co., Ltd. (South Korea) 75,000 21,139,706
========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
Health Care Distributors & Services-3.46%
DIANON Systems, Inc.(a) 87,500 $ 3,500,000
- ------------------------------------------------------------------------
Express Scripts, Inc.(a) 38,400 2,080,512
- ------------------------------------------------------------------------
Laboratory Corp. of America Holdings(a) 62,100 1,496,610
- ------------------------------------------------------------------------
Quest Diagnostics Inc.(a)(b) 105,300 6,721,299
========================================================================
13,798,421
========================================================================
Health Care Equipment-0.47%
Boston Scientific Corp.(a) 49,900 1,877,737
========================================================================
Health Care Facilities-0.52%
United Surgical Partners International,
Inc.(a) 105,200 2,089,272
========================================================================
Internet Retail-1.74%
eBay Inc.(a) 110,000 6,958,600
========================================================================
Internet Software & Services-3.99%
Expedia, Inc.-Class A(a) 51,900 3,511,554
- ------------------------------------------------------------------------
Hotels.com-Class A(a)(b) 50,500 3,148,170
- ------------------------------------------------------------------------
Overture Services, Inc.(a) 297,900 8,201,187
- ------------------------------------------------------------------------
PEC Solutions, Inc.(a) 30,000 1,039,500
========================================================================
15,900,411
========================================================================
IT Consulting & Services-3.10%
Affiliated Computer Services, Inc.-Class
A(a)(b) 144,000 6,631,200
- ------------------------------------------------------------------------
Computer Sciences Corp.(a) 178,100 5,750,849
========================================================================
12,382,049
========================================================================
Networking Equipment-1.47%
Cisco Systems, Inc.(a) 525,000 5,869,500
========================================================================
Pharmaceuticals-2.45%
Allergan, Inc. 25,000 1,361,250
- ------------------------------------------------------------------------
American Pharmaceutical Partners, Inc.(a) 10,000 200,000
- ------------------------------------------------------------------------
Biovail Corp. (Canada)(a) 170,000 5,380,500
- ------------------------------------------------------------------------
Forest Laboratories, Inc.(a)(b) 17,000 1,665,830
- ------------------------------------------------------------------------
Teva Pharmaceutical Industries Ltd.-ADR
(Israel) 15,000 1,161,450
========================================================================
9,769,030
========================================================================
Semiconductor Equipment-7.37%
Applied Materials, Inc.(a) 450,000 6,763,500
- ------------------------------------------------------------------------
KLA-Tencor Corp.(a) 120,000 4,275,600
- ------------------------------------------------------------------------
Lam Research Corp.(a) 475,000 5,980,250
- ------------------------------------------------------------------------
Novellus Systems, Inc.(a) 261,000 8,247,600
- ------------------------------------------------------------------------
Teradyne, Inc.(a) 92,000 1,114,120
- ------------------------------------------------------------------------
Varian Semiconductor Equipment Associates,
Inc.(a) 125,900 2,998,938
========================================================================
29,380,008
========================================================================
</Table>
FS-50
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
Semiconductors-15.61%
Analog Devices, Inc.(a) 301,300 $ 8,074,840
- ------------------------------------------------------------------------
Fairchild Semiconductor Corp.-Class A(a) 331,800 3,948,420
- ------------------------------------------------------------------------
Intersil Corp.-Class A(a) 162,300 2,757,477
- ------------------------------------------------------------------------
LSI Logic Corp.(a) 570,000 3,363,000
- ------------------------------------------------------------------------
Marvell Technology Group Ltd. (Bermuda)(a) 85,300 1,382,713
- ------------------------------------------------------------------------
Microchip Technology Inc.(b) 600,000 14,640,000
- ------------------------------------------------------------------------
QLogic Corp.(a) 260,000 9,037,600
- ------------------------------------------------------------------------
STMicroelectronics N.V. (Netherlands) 225,000 4,465,235
- ------------------------------------------------------------------------
Texas Instruments Inc. 920,000 14,591,200
========================================================================
62,260,485
========================================================================
Systems Software-7.26%
Microsoft Corp.(a) 250,000 13,367,500
- ------------------------------------------------------------------------
Network Associates, Inc.(a) 174,900 2,779,161
- ------------------------------------------------------------------------
Symantec Corp. (a)(b) 320,000 12,800,000
========================================================================
28,946,661
========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
Telecommunications Equipment-1.07%
UTStarcom, Inc.(a) 250,000 $ 4,270,000
========================================================================
Wireless Telecommunication Services-5.21%
Nextel Communications, Inc.-Class A (a)(b) 1,500,000 16,920,000
- ------------------------------------------------------------------------
United States Cellular Corp.(a) 140,000 3,864,000
========================================================================
20,784,000
========================================================================
Common Stocks & Other Equity Interests
(Cost $439,481,397) 376,452,918
========================================================================
MONEY MARKET FUNDS-3.47%
STIC Liquid Assets Portfolio(c) 6,914,345 6,914,345
- ------------------------------------------------------------------------
STIC Prime Portfolio(c) 6,914,345 6,914,345
========================================================================
Total Money Market Funds (Cost
$13,828,690) 13,828,690
========================================================================
TOTAL INVESTMENTS-97.85% (Cost $453,310,087) 390,281,608
========================================================================
OTHER ASSETS LESS LIABILITIES-2.15% 8,575,640
========================================================================
NET ASSETS-100.00% $398,857,248
________________________________________________________________________
========================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) A portion of this security is subject to call options written. See Note 7.
(c) The money market fund and the Fund are affiliated by having the same
investment advisor.
See Notes to Financial Statements.
FS-51
Statement of Assets and Liabilities
October 31, 2002
<Table>
ASSETS:
Investments, at market value (cost
$453,310,087)* $390,281,608
- -------------------------------------------------------------
Foreign currencies, at value (cost $12,389,103) 12,389,282
- -------------------------------------------------------------
Receivables for:
Investments sold 625,320
- -------------------------------------------------------------
Fund shares sold 1,002,617
- -------------------------------------------------------------
Dividends 46,935
- -------------------------------------------------------------
Investment for deferred compensation plan 3,466
- -------------------------------------------------------------
Collateral for securities loaned 118,459,571
- -------------------------------------------------------------
Other assets 33,686
=============================================================
Total assets 522,842,485
_____________________________________________________________
=============================================================
LIABILITIES:
Payables for:
Investments purchased 1,998,280
- -------------------------------------------------------------
Fund shares reacquired 1,936,105
- -------------------------------------------------------------
Options written (premiums received $453,826) 489,863
- -------------------------------------------------------------
Deferred compensation plan 3,466
- -------------------------------------------------------------
Collateral upon return of securities loaned 118,459,571
- -------------------------------------------------------------
Accrued distribution fees 323,831
- -------------------------------------------------------------
Accrued trustees' fees 1,020
- -------------------------------------------------------------
Accrued transfer agent fees 492,886
- -------------------------------------------------------------
Accrued operating expenses 280,215
=============================================================
Total liabilities 123,985,237
=============================================================
Net assets applicable to shares outstanding $398,857,248
_____________________________________________________________
=============================================================
NET ASSETS:
Class A $280,426,370
_____________________________________________________________
=============================================================
Class B $102,469,882
_____________________________________________________________
=============================================================
Class C $ 15,960,996
_____________________________________________________________
=============================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE:
Class A 57,390,013
_____________________________________________________________
=============================================================
Class B 22,452,284
_____________________________________________________________
=============================================================
Class C 3,497,045
_____________________________________________________________
=============================================================
Class A:
Net asset value per share $ 4.89
- -------------------------------------------------------------
Offering price per share:
(Net asset value of $4.89 divided by
95.25%) $ 5.13
_____________________________________________________________
=============================================================
Class B:
Net asset value and offering price per share $ 4.56
_____________________________________________________________
=============================================================
Class C:
Net asset value and offering price per share $ 4.56
_____________________________________________________________
=============================================================
</Table>
Statement of Operations
For the year ended October 31, 2002
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of
$77,870) $ 515,038
- -------------------------------------------------------------
Dividends from affiliated money market funds 427,739
- -------------------------------------------------------------
Interest 3,454
- -------------------------------------------------------------
Security lending income 542,030
=============================================================
Total investment income 1,488,261
=============================================================
EXPENSES:
Advisory fees 5,944,573
- -------------------------------------------------------------
Administrative services fees 128,170
- -------------------------------------------------------------
Custodian fees 92,510
- -------------------------------------------------------------
Distribution fees -- Class A 1,965,401
- -------------------------------------------------------------
Distribution fees -- Class B 1,952,778
- -------------------------------------------------------------
Distribution fees -- Class C 242,286
- -------------------------------------------------------------
Transfer agent fees 5,431,147
- -------------------------------------------------------------
Trustees' fees 10,411
- -------------------------------------------------------------
Printing 848,229
- -------------------------------------------------------------
Other 149,120
=============================================================
Total expenses 16,764,625
=============================================================
Less: Fees waived (3,384,288)
- -------------------------------------------------------------
Expenses paid indirectly (12,084)
=============================================================
Net expenses 13,368,253
=============================================================
Net investment income (loss) (11,879,992)
=============================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES, FOREIGN CURRENCIES
AND OPTION CONTRACTS:
Net realized gain (loss) from:
Investment securities (245,567,272)
- -------------------------------------------------------------
Foreign currencies 273,984
- -------------------------------------------------------------
Option contracts written 4,324,492
=============================================================
(240,968,796)
=============================================================
Change in net unrealized appreciation of:
Investment securities 27,107,318
- -------------------------------------------------------------
Foreign currencies 34,077
- -------------------------------------------------------------
Option contracts written 395,431
=============================================================
27,536,826
=============================================================
Net gain (loss) from investment securities,
foreign currencies and option contracts (213,431,970)
=============================================================
Net increase (decrease) in net assets
resulting from operations $(225,311,962)
_____________________________________________________________
=============================================================
</Table>
* At October 31, 2002, securities with an aggregate market value of $115,759,188
were on loan to brokers.
See Notes to Financial Statements.
FS-52
Statement of Changes in Net Assets
For the years ended October 31, 2002 and 2001
<Table>
<Caption>
2002 2001
- ------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (11,879,992) $ (25,069,378)
- ------------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities,
foreign currencies and option contracts (240,968,796) (1,198,211,906)
- ------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities, foreign currencies and option
contracts 27,536,826 (872,582,166)
================================================================================================
Net increase (decrease) in net assets resulting from
operations (225,311,962) (2,095,863,450)
================================================================================================
Distributions to shareholders from net realized gains:
Class A -- (193,140,722)
- ------------------------------------------------------------------------------------------------
Class B -- (182,354,331)
- ------------------------------------------------------------------------------------------------
Class C -- (14,882,483)
- ------------------------------------------------------------------------------------------------
Share transactions-net:
Class A (5,159,028) 182,460,304
- ------------------------------------------------------------------------------------------------
Class B (122,002,616) 7,506,235
- ------------------------------------------------------------------------------------------------
Class C (3,417,367) 7,846,180
================================================================================================
Net increase (decrease) in net assets (355,890,973) (2,288,428,267)
================================================================================================
NET ASSETS:
Beginning of year 754,748,221 3,043,176,488
================================================================================================
End of year $ 398,857,248 $ 754,748,221
________________________________________________________________________________________________
================================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 1,903,878,159 $ 2,046,057,315
- ------------------------------------------------------------------------------------------------
Undistributed net investment income (loss) (6,681) (816)
- ------------------------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment
securities, foreign currencies and option contracts (1,441,949,989) (1,200,707,211)
- ------------------------------------------------------------------------------------------------
Unrealized appreciation (depreciation) of investment
securities, foreign currencies and option contracts (63,064,241) (90,601,067)
================================================================================================
$ 398,857,248 $ 754,748,221
________________________________________________________________________________________________
================================================================================================
</Table>
See Notes to Financial Statements.
FS-53
Notes to Financial Statements
October 31, 2002
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Global Science and Technology Fund (the "Fund"), formerly AIM Global
Telecommunications and Technology Fund, is a separate series of AIM Investment
Funds (the "Trust"). The Trust is organized as a Delaware statutory 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
traded in the over-the-counter market (but not securities reported on the
NASDAQ National Market System) is valued at the closing bid price furnished
by independent pricing services or market makers. 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 institution-size trading in similar groups of
securities, developments related to special securities, dividend rate,
yield, quality, type of issue, coupon rate, maturity, 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 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 and
commercial paper 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. 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.
C. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid annually and recorded on ex-dividend date. The
Fund may elect to use a portion of the proceeds from redemptions as
distributions for federal income tax purposes.
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 gain) 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. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-
FS-54
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 the respective classes' operations. Transfer agency
fees and expenses and other shareholder recordkeeping fees and expenses are
charged to each class pursuant to a transfer agency and service agreement
adopted by the Fund with respect to such class. All other expenses 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. 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 October 31, 2002, AIM waived fees of $3,384,288.
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, 2002, AIM was
paid $128,170 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 October 31, 2002, AFS
retained $3,594,899 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. NASD Rules
also impose a cap on the total sales charges, including asset-based sales
charges that may be paid by any class of shares of the Fund. Pursuant to the
master distribution agreements, for the year ended October 31, 2002, the Class
A, Class B and Class C shares paid $1,965,401, $1,952,778 and $242,286,
respectively.
AIM Distributors retained commissions of $90,080 from sales of the Class A
shares of the Fund during the year ended October 31, 2002. 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, 2002,
AIM Distributors retained $35,193, $18 and $7,446 in contingent deferred sales
charges imposed on redemptions of Class A, Class B and Class C shares,
respectively.
Certain officers and trustees of the Trust are officers and directors of AIM,
AFS and AIM Distributors.
During the year ended October 31, 2002, the Fund paid legal fees of $4,928 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 October 31, 2002, the Fund received reductions in transfer
agency fees from AFS (an affiliate of AIM) of $11,990 and reductions in
custodian fees of $94 under expense offset arrangements which resulted in a
reduction of the Fund's total expenses of $12,084.
NOTE 4--TRUSTEES' FEES
Trustees' fees represent remuneration paid to trustees who are not an
"interested person" of AIM. Trustees have the option to defer compensation
payable by the Trust. The Trustees deferring compensation have the option to
select various AIM Funds in which all or part of their deferral accounts shall
be deemed to be invested.
FS-55
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) $500,000,000 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,
2002, 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 October 31, 2002, securities with an aggregate value of $115,759,188 were
on loan to brokers. The loans were secured by cash collateral of $118,459,571
received by the Fund and invested in affiliated money market funds as follows:
$59,229,786 in STIC Liquid Assets Portfolio and $59,229,785 in STIC Prime
Portfolio. For the year ended October 31, 2002, the Fund received fees of
$542,030 for securities lending.
NOTE 7--CALL OPTION CONTRACTS
Transactions in call options written during the year ended October 31, 2002 are
summarized as follows:
<Table>
<Caption>
CALL OPTION CONTRACTS
------------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
- -------------------------------------------------------------
Beginning of year 10,095 $ 2,707,097
- -------------------------------------------------------------
Written 42,275 9,820,842
- -------------------------------------------------------------
Closed (34,928) (8,534,311)
- -------------------------------------------------------------
Exercised (12,185) (3,319,028)
- -------------------------------------------------------------
Expired (1,512) (220,774)
=============================================================
End of year 3,745 $ 453,826
_____________________________________________________________
=============================================================
</Table>
Open call option contracts written at October 31, 2002 were as follows:
<Table>
<Caption>
OCTOBER 31,
2002 UNREALIZED
CONTRACT STRIKE NUMBER OF PREMIUMS MARKET APPRECIATION
ISSUE MONTH PRICE CONTRACTS RECEIVED VALUE (DEPRECIATION)
- ----------------------------------------------------------------------------------------------------
Affiliated Computer
Services, Inc.-Class
A Nov-02 $ 50 300 $ 42,599 $ 21,750 $ 20,849
- ----------------------------------------------------------------------------------------------------
Alliant Techsystems
Inc. Nov-02 65 175 23,974 17,063 6,911
- ----------------------------------------------------------------------------------------------------
Forrest Laboratories
Inc. Nov-02 100 20 4,840 3,550 1,290
- ----------------------------------------------------------------------------------------------------
Hotels.com-Class A Nov-02 65 100 11,325 16,250 (4,925)
- ----------------------------------------------------------------------------------------------------
Microchip Technology
Inc. Nov-02 25 900 142,952 101,250 41,702
- ----------------------------------------------------------------------------------------------------
Nextel
Communications,
Inc.-Class A Nov-02 10 1,500 145,495 221,250 (75,755)
- ----------------------------------------------------------------------------------------------------
Quest Diagnostics
Inc. Nov-02 65 100 21,699 17,750 3,949
- ----------------------------------------------------------------------------------------------------
Symantec Corp. Nov-02 40 650 60,942 91,000 (30,058)
====================================================================================================
3,745 $453,826 $489,863 $(36,037)
____________________________________________________________________________________________________
====================================================================================================
</Table>
NOTE 8--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF BENEFICIAL INTEREST
Distributions to Shareholders:
The tax character of distributions paid during the years ended October 31, 2002
and 2001 were as follows:
<Table>
<Caption>
2002 2001
- ------------------------------------------------------------
Distributions paid from long-term
capital gain $-- $390,377,536
============================================================
</Table>
Tax Components of Beneficial Interest:
As of October 31, 2002, the components of beneficial interest on a tax basis
were as follows:
<Table>
Unrealized appreciation
(depreciation) -- investments $ (64,198,108)
- --------------------------------------------------------------
Temporary book/tax differences (6,681)
- --------------------------------------------------------------
Capital loss carryforward (1,440,816,122)
- --------------------------------------------------------------
Shares of beneficial interest 1,903,878,159
==============================================================
$ 398,857,248
______________________________________________________________
==============================================================
</Table>
The difference between book-basis and tax basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation (depreciation) difference is attributable primarily to the tax
deferral of losses on wash sales and other deferrals. Amount includes
appreciation (depreciation) on foreign currencies and options written of
$(35,761).
The temporary book/tax differences are a result of timing differences between
book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the deferral of trustee compensation and
retirement plan expenses.
The Fund's capital loss carryforward expires as follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD
- -------------------------------------------------------------
October 31, 2009 $1,181,366,577
- -------------------------------------------------------------
October 31, 2010 259,449,545
=============================================================
$1,440,816,122
_____________________________________________________________
=============================================================
</Table>
FS-56
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 October 31, 2002 was
$674,273,137 and $809,876,271, respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
for tax purposes, as of October 31, 2002 is as follows:
<Table>
Aggregate unrealized appreciation of
investment securities $ 31,046,576
- -------------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (95,208,923)
=============================================================
Net unrealized appreciation (depreciation) of
investment securities $(64,162,347)
_____________________________________________________________
=============================================================
Cost of investments for tax purposes is $454,443,955.
</Table>
NOTE 10--RECLASSIFICATION OF PERMANENT DIFFERENCES
As a result of differing book/tax treatment of foreign currency transactions and
net operating losses, shares of beneficial interest was decreased by
$11,600,145, undistributed net investment income was increased by $11,874,127
and undistributed net realized gains was decreased by $273,982. This
reclassification had no effect on the net assets of the Fund.
NOTE 11--SHARE INFORMATION
Changes in shares outstanding during the years ended October 31, 2002 and 2001
were as follows:
<Table>
<Caption>
2002 2001
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 34,707,240* $ 227,772,981* 20,449,981 $ 233,919,662
- --------------------------------------------------------------------------------------------------------------------------
Class B 2,939,110 19,257,843 6,719,273 89,717,986
- --------------------------------------------------------------------------------------------------------------------------
Class C 1,050,513 6,971,729 1,715,379 22,049,203
==========================================================================================================================
Issued as reinvestment of dividends:
Class A -- -- 8,804,839 178,558,019
- --------------------------------------------------------------------------------------------------------------------------
Class B -- -- 8,822,895 168,780,846
- --------------------------------------------------------------------------------------------------------------------------
Class C -- -- 739,056 14,130,718
==========================================================================================================================
Reacquired:
Class A (36,509,509) (232,932,009) (19,515,999) (230,017,377)
- --------------------------------------------------------------------------------------------------------------------------
Class B (21,786,550)* (141,260,459)* (22,756,386) (250,992,597)
- --------------------------------------------------------------------------------------------------------------------------
Class C (1,669,762) (10,389,096) (2,270,767) (28,333,741)
==========================================================================================================================
(21,268,958) $(130,579,011) 2,708,271 $ 197,812,719
__________________________________________________________________________________________________________________________
==========================================================================================================================
</Table>
* Includes automatic conversion of 9,000,274 shares of Class B shares in the
amount of $56,174,791 to 8,433,047 shares of Class A shares in the amount of
$56,174,791.
FS-57
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 OCTOBER 31,
-------------------------------------------------------------------------
2002 2001 2000 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 7.41 $ 30.61 $ 26.44 $ 16.28 $ 18.04
- -----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.12)(a) (0.20)(a) 0.06(a)(b) (0.25) (0.17)(a)
- -----------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) (2.40) (19.12) 7.23 10.97 (0.39)
=============================================================================================================================
Total from investment operations (2.52) (19.32) 7.29 10.72 (0.56)
=============================================================================================================================
Less distributions from net realized gains -- (3.88) (3.12) (0.56) (1.20)
=============================================================================================================================
Net asset value, end of period $ 4.89 $ 7.41 $ 30.61 $ 26.44 $ 16.28
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Total return(c) (34.01)% (71.16)% 27.52% 67.63% (3.16)%
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $280,426 $438,702 $1,513,595 $1,023,124 $713,904
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 2.01%(d) 1.98% 1.63% 1.77% 1.88%
- -----------------------------------------------------------------------------------------------------------------------------
Without fee waivers 2.56%(d) 2.03% 1.63% 1.77% 1.88%
=============================================================================================================================
Ratio of net investment income (loss) to average
net assets (1.76)%(d) (1.57)% 0.16% (1.11)% (0.93)%
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Portfolio turnover rate 115% 173% 111% 122% 75%
_____________________________________________________________________________________________________________________________
=============================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Net investment income per share reflects dividend income of $0.49 per
share recognized from the spin-off of Nortel Networks Corp. from BCE,
Inc.
(c) Includes adjustments in accordance with generally accepted accounting
principals and does not include sales charges.
(d) Ratios are based on average daily assets of $393,080,194.
FS-58
NOTE 12--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B
----------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
----------------------------------------------------------------------------
2002 2001 2000 1999 1998
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 6.96 $ 29.17 $ 25.43 $ 15.76 $ 17.58
- --------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.14)(a) (0.25)(a) (0.11)(a)(b) (0.35) (0.25)(a)
- --------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) (2.26) (18.08) 6.97 10.58 (0.37)
================================================================================================================================
Total from investment operations (2.40) (18.33) 6.86 10.23 (0.62)
================================================================================================================================
Less distributions from net realized gains -- (3.88) (3.12) (0.56) (1.20)
================================================================================================================================
Net asset value, end of period $ 4.56 $ 6.96 $ 29.17 $ 25.43 $ 15.76
________________________________________________________________________________________________________________________________
================================================================================================================================
Total return(c) (34.48)% (71.30)% 26.87% 66.84% (3.67)%
________________________________________________________________________________________________________________________________
================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $102,470 $287,394 $1,414,915 $898,400 $614,715
________________________________________________________________________________________________________________________________
================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 2.51%(d) 2.48% 2.13% 2.28% 2.38%
- --------------------------------------------------------------------------------------------------------------------------------
Without fee waivers 3.06%(d) 2.53% 2.13% 2.28% 2.38%
================================================================================================================================
Ratio of net investment income (loss) to average
net assets (2.26)%(d) (2.07)% (0.34)% (1.62)% (1.43)%
________________________________________________________________________________________________________________________________
================================================================================================================================
Portfolio turnover rate 115% 173% 111% 122% 75%
________________________________________________________________________________________________________________________________
================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Net investment income per share reflects dividend income of $0.49 per
share recognized from the spin-off of Nortel Networks Corp. from BCE,
Inc.
(c) Includes adjustments in accordance with generally accepted accounting
principals and does not include contingent deferred sales charges.
(d) Ratios are based on average daily net assets of $195,277,846.
FS-59
NOTE 12--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
--------------------------------------------------------------
MARCH 1, 1999
(DATE SALES
YEAR ENDED OCTOBER 31, COMMENCED) TO
--------------------------------------- OCTOBER 31,
2002 2001 2000 1999
- ------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 6.96 $ 29.16 $ 25.43 $ 19.23
- ------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.14)(a) (0.25)(a) (0.11)(a)(b) (0.11)
- ------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) (2.26) (18.07) 6.96 6.31
==================================================================================================================
Total from investment operations (2.40) (18.32) 6.85 6.20
==================================================================================================================
Less distributions from net realized gains -- (3.88) (3.12) --
==================================================================================================================
Net asset value, end of period $ 4.56 $ 6.96 $ 29.16 $ 25.43
__________________________________________________________________________________________________________________
==================================================================================================================
Total return(c) (34.48)% (71.29)% 26.83% 32.24%
__________________________________________________________________________________________________________________
==================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $15,961 $28,652 $114,667 $12,352
__________________________________________________________________________________________________________________
==================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 2.51%(d) 2.48% 2.13% 2.28%(e)
- ------------------------------------------------------------------------------------------------------------------
Without fee waivers 3.06%(d) 2.53% 2.13% 2.28%(e)
==================================================================================================================
Ratio of net investment income (loss) to average
net assets (2.26)%(d) (2.07)% (0.34)% (1.62)%(e)
__________________________________________________________________________________________________________________
==================================================================================================================
Portfolio turnover rate 115% 173% 111% 122%
__________________________________________________________________________________________________________________
==================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Net investment income per share reflects dividend income of $0.49 per
share recognized from the spin-off of Nortel Networks Corp. from BCE,
Inc.
(c) Includes adjustments in accordance with generally accepted accounting
principals and 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 $24,228,588.
(e) Annualized.
FS-60
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of AIM Strategic Income Fund
and Board of Trustees of AIM Investment Funds:
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 Strategic Income Fund (one
of the funds constituting AIM Investment Funds; hereafter referred to as the
"Fund") at October 31, 2002, 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, 2002 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion.
/s/ PRICEWATERHOUSECOOPERS LLP
December 12, 2002
Houston, Texas
FS-61
FINANCIALS
Schedule of Investments
October 31, 2002
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- -----------------------------------------------------------------------
U.S. DOLLAR DENOMINATED BONDS & NOTES-65.50%
Advertising-1.44%
Lamar Advertising Co., Conv. Unsec. Notes,
5.25%, 09/15/06 $1,300,000 $ 1,309,750
=======================================================================
Aerospace & Defense-1.00%
Lockheed Martin Corp., Unsec. Gtd. Unsub.
Notes, 7.25%, 05/15/06 500,000 568,340
- -----------------------------------------------------------------------
Raytheon Co., Notes, 6.75%, 08/15/07 315,000 342,355
=======================================================================
910,695
=======================================================================
Airlines-0.16%
Northwest Airlines Inc., Sr. Unsec. Gtd.
Notes, 8.88%, 06/01/06 280,000 141,400
=======================================================================
Apparel Retail-0.40%
Gap, Inc. (The), Unsec. Unsub. Notes, 9.90%,
12/15/05 365,000 366,825
=======================================================================
Apparel, Accessories & Luxury Goods-0.22%
Russell Corp., Sr. Notes, 9.25%, 05/01/10
(Acquired 04/11/02; Cost $90,000)(a) 90,000 93,150
- -----------------------------------------------------------------------
William Carter Co. (The), Sr. Unsec. Gtd.
Sub. Notes, 10.88%, 08/15/11 95,000 103,075
=======================================================================
196,225
=======================================================================
Automobile Manufacturers-0.79%
General Motors Corp., Unsec. Putable Deb.,
8.80%, 03/01/21 750,000 721,222
=======================================================================
Banks-4.74%
Bank One Corp., Sr. Unsec. Unsub. Notes,
7.63%, 08/01/05 400,000 451,852
- -----------------------------------------------------------------------
Citicorp, Jr. Unsec. Sub. Notes, 6.38%,
01/15/06 300,000 324,180
- -----------------------------------------------------------------------
KeyBank N.A., Sr. Notes, 4.10%, 06/30/05 300,000 309,447
- -----------------------------------------------------------------------
Santander Finance Issuances (Cayman Islands),
Unsec. Gtd. Sub. Yankee Notes, 7.00%,
04/01/06 150,000 155,829
- -----------------------------------------------------------------------
Wachovia Corp., Unsec. Putable Sub. Deb.,
6.55%, 10/15/05 900,000 981,414
- -----------------------------------------------------------------------
7.50%, 04/15/05 1,200,000 1,413,180
- -----------------------------------------------------------------------
Washington Mutual, Inc., Jr. Unsec. Sub.
Notes, 8.25%, 04/01/10 575,000 673,428
=======================================================================
4,309,330
=======================================================================
Broadcasting & Cable TV-6.79%
Adelphia Communications Corp.
Sr. Unsec. Notes, 10.88%, 10/01/10(b) 550,000 182,875
- -----------------------------------------------------------------------
Series B, Sr. Unsec. Notes, 9.88%,
03/01/07(b) 140,000 46,550
- -----------------------------------------------------------------------
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- -----------------------------------------------------------------------
Broadcasting & Cable TV-(Continued)
British Sky Broadcasting Group PLC (United
Kingdom), Unsec. Gtd. Yankee Notes, 7.30%,
10/15/06 $ 750,000 $ 779,722
- -----------------------------------------------------------------------
Charter Communications Holdings, LLC/Charter
Communications Holdings Capital Corp., Sr.
Unsec. Sub. Notes,
10.75%, 10/01/09 420,000 187,950
- -----------------------------------------------------------------------
11.13%, 01/15/11 220,000 98,450
- -----------------------------------------------------------------------
Charter Communications, Inc., Sr. Conv.
Notes, 5.75%, 10/15/05 (Acquired 10/25/00;
Cost $1,500,000)(a) 1,500,000 330,000
- -----------------------------------------------------------------------
Comcast UK Cable Partners Ltd. (Bermuda), Sr.
Unsec. Yankee Disc. Deb., 11.20%, 11/15/07 250,000 181,250
- -----------------------------------------------------------------------
Cox Communications, Inc., Sr. Unsec. RAPS
Notes, 2.47%, 11/07/02 350,000 350,878
- -----------------------------------------------------------------------
CSC Holdings Inc., Sr. Unsec. Deb., 7.88%,
02/15/18 1,250,000 968,750
- -----------------------------------------------------------------------
CSC Holdings Inc., Sr. Unsec. Notes,
7.25%, 07/15/08 500,000 407,500
- -----------------------------------------------------------------------
7.88%, 12/15/07 700,000 581,000
- -----------------------------------------------------------------------
ONO Finance PLC (United Kingdom), Sr. Unsec.
Gtd. Euro Notes, 13.00%, 05/01/09 300,000 58,500
- -----------------------------------------------------------------------
Pegasus Communications Corp.-Series B, Sr.
Notes, 9.63%, 10/15/05 500,000 202,500
- -----------------------------------------------------------------------
Sinclair Broadcast Group, Inc., Sr. Unsec.
Gtd. Sub. Notes, 8.75%, 12/15/11 100,000 105,500
- -----------------------------------------------------------------------
TCI Communications, Inc., Sr. Unsec. Deb.,
7.88%, 02/15/26 200,000 197,986
- -----------------------------------------------------------------------
8.75%, 08/01/15 500,000 469,375
- -----------------------------------------------------------------------
Time Warner Inc., Unsec. Deb., 9.15%,
02/01/23 1,000,000 1,017,500
=======================================================================
6,166,286
=======================================================================
Casinos & Gambling-0.97%
Boyd Gaming Corp., Sr. Unsec. Gtd. Notes,
9.25%, 08/01/09 210,000 227,850
- -----------------------------------------------------------------------
8.75%, 04/15/12 215,000 218,225
- -----------------------------------------------------------------------
Mohegan Tribal Gaming Authority, Sr. Unsec.
Gtd. Sub. Notes, 8.00%, 04/01/12 270,000 278,100
- -----------------------------------------------------------------------
Park Place Entertainment Corp., Sr. Unsec.
Notes, 7.50%, 09/01/09 155,000 156,162
=======================================================================
880,337
=======================================================================
Commodity Chemicals-0.08%
ISP Chemco Inc.-Series B, Sr. Unsec. Gtd.
Sub. Notes, 10.25%, 07/01/11 70,000 71,400
=======================================================================
Computer Hardware-0.71%
Candescent Technologies Corp., Sr. Conv.
Unsec. Gtd. Sub. Putable Deb., 8.00%,
05/01/03 (Acquired 03/07/00; Cost
$480,000)(a)(b)(c) 600,000 31,800
- -----------------------------------------------------------------------
</Table>
FS-62
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- -----------------------------------------------------------------------
Computer Hardware-(Continued)
IBM Corp., Deb., 8.38%, 11/01/19 $ 500,000 $ 611,190
=======================================================================
642,990
=======================================================================
Construction Materials-0.38%
MMI Products, Inc.-Series B, Sr. Unsec. Sub.
Notes, 11.25%, 04/15/07 360,000 349,200
=======================================================================
Consumer Finance-1.68%
Ford Motor Credit Co., Unsec. Notes, 6.88%,
02/01/06 750,000 697,582
- -----------------------------------------------------------------------
General Motors Acceptance Corp., Unsec.
Unsub. Notes, 7.63%, 06/15/04 175,000 180,488
- -----------------------------------------------------------------------
Household Finance Corp., Sr. Unsec. Notes,
6.50%, 01/24/06 200,000 178,720
- -----------------------------------------------------------------------
8.00%, 05/09/05 500,000 471,410
=======================================================================
1,528,200
=======================================================================
Distillers & Vintners-0.39%
Diageo PLC, Sr. Unsec. Gtd. Putable Notes,
7.45%, 04/15/05 300,000 350,277
=======================================================================
Diversified Chemicals-0.20%
Equistar Chemicals LP/Equistar Funding Corp.,
Sr. Unsec. Gtd. Notes, 10.13%, 09/01/08 200,000 181,000
=======================================================================
Diversified Financial Services-3.84%
Associates Corp. of North America, Sr. Notes,
5.80%, 04/20/04 200,000 209,846
- -----------------------------------------------------------------------
Citigroup Capital II, Jr. Gtd. Sub. Bonds,
7.75%, 12/01/36 180,000 188,005
- -----------------------------------------------------------------------
Citigroup Inc.
Sr. Unsec. Notes, 4.13%, 06/30/05 100,000 104,070
- -----------------------------------------------------------------------
Unsec. Sub. Notes, 6.63%, 06/15/32 625,000 636,731
- -----------------------------------------------------------------------
Fidelity Investments, Bonds, 7.57%, 06/15/29
(Acquired 07/25/02; Cost $218,316)(a) 200,000 219,310
- -----------------------------------------------------------------------
General Electric Capital Corp.-Series A,
Medium Term Notes, 6.80%, 11/01/05 100,000 111,217
- -----------------------------------------------------------------------
John Hancock Global Funding II
Medium Term Notes, 6.50%, 03/01/11
(Acquired 07/24/02; Cost $295,243)(a) 280,000 300,947
- -----------------------------------------------------------------------
Notes, 5.00%, 07/27/07 (Acquired 06/12/02;
Cost $99,945)(a) 100,000 104,254
- -----------------------------------------------------------------------
Lehman Brothers Holdings Inc.-Series E,
Medium Term Disc. Notes, 9.94%, 02/10/28(d) 2,200,000 311,278
- -----------------------------------------------------------------------
Lehman Brothers Inc., Sr. Sub. Deb., 11.63%,
05/15/05 150,000 180,577
- -----------------------------------------------------------------------
Morgan Stanley, Unsec. Notes, 6.30%, 01/15/06 300,000 320,244
- -----------------------------------------------------------------------
Washington Mutual Financial, Sr. Unsec.
Notes, 8.25%, 06/15/05 325,000 367,699
- -----------------------------------------------------------------------
Wells Fargo Financial, Inc., Notes, 6.13%,
02/15/06 400,000 436,680
=======================================================================
3,490,858
=======================================================================
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- -----------------------------------------------------------------------
Electric Utilities-7.57%
AES Corp. (The), Sr. Unsec. Unsub. Notes,
8.75%, 12/15/02 $1,000,000 $ 895,000
- -----------------------------------------------------------------------
Calpine Canada Energy Finance ULC (Canada),
Sr. Unsec. Gtd. Yankee Notes, 8.50%,
05/01/08 560,000 184,800
- -----------------------------------------------------------------------
CenterPoint Energy, Inc., Conv. ZENS, 2.00%,
09/15/29 17,000 369,920
- -----------------------------------------------------------------------
Cleveland Electric Illuminating Co. (The),
First Mortgage Bonds, 6.86%, 10/01/08 400,000 414,396
- -----------------------------------------------------------------------
CMS Energy Corp., Sr. Unsec. Unsub. Notes,
8.90%, 07/15/08 695,000 517,775
- -----------------------------------------------------------------------
Cogentrix Energy, Inc.-Series B, Sr. Unsec.
Gtd. Notes, 8.75%, 10/15/08 550,000 165,000
- -----------------------------------------------------------------------
Duke Energy Corp., Bonds, 6.45%, 10/15/32 200,000 186,652
- -----------------------------------------------------------------------
Hydro-Quebec (Canada), Gtd. Yankee Bonds,
9.40%, 02/01/21(e) 385,000 536,070
- -----------------------------------------------------------------------
Mission Energy Holding Co., Sr. Sec. Notes,
13.50%, 07/15/08 365,000 93,075
- -----------------------------------------------------------------------
Niagara Mohawk Power Corp.-Series H, Sr.
Unsec. Disc. Notes, 8.50%, 07/01/10(f) 1,150,000 1,223,773
- -----------------------------------------------------------------------
Public Service Company of New Mexico-Series
A, Sr. Unsec. Notes, 7.10%, 08/01/05 300,000 321,558
- -----------------------------------------------------------------------
Texas-New Mexico Power Co., Sr. Unsec. Notes,
6.25%, 01/15/09 2,000,000 1,967,120
=======================================================================
6,875,139
=======================================================================
Electrical Components & Equipment-1.13%
ASM Lithography Holding N.V. (Netherlands),
Conv. Yankee Bonds, 4.25%, 11/30/04
(Acquired 04/05/00; Cost $1,507,813)(a) 1,250,000 1,029,750
=======================================================================
Electronic Equipment & Instruments-0.14%
Solectron Corp., Sr. Unsec. Notes, 9.63%,
02/15/09 140,000 126,700
=======================================================================
Forest Products-0.12%
Louisiana-Pacific Corp., Sr. Unsec. Notes,
8.50%, 08/15/05 110,000 111,650
=======================================================================
Gas Utilities-0.47%
El Paso Corp., Sr. Medium Term Notes, 8.05%,
10/15/30 200,000 118,750
- -----------------------------------------------------------------------
TransCanada Pipelines Ltd. (Canada), Unsec.
Yankee Deb., 8.63%, 05/15/12 250,000 305,098
=======================================================================
423,848
=======================================================================
Health Care Equipment-0.09%
Radiologix, Inc.-Series B, Sr. Unsec. Gtd.
Notes, 10.50%, 12/15/08 85,000 84,575
=======================================================================
Health Care Facilities-0.63%
Hanger Orthopedic Group, Inc., Sr. Unsec.
Gtd. Notes, 10.38%, 02/15/09 400,000 428,000
- -----------------------------------------------------------------------
</Table>
FS-63
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- -----------------------------------------------------------------------
Health Care Facilities-(Continued)
Select Medical Corp., Sr. Unsec. Sub. Notes,
9.50%, 06/15/09 $ 140,000 $ 140,700
=======================================================================
568,700
=======================================================================
Homebuilding-0.91%
Beazer Homes USA, Inc., Sr. Unsec. Gtd.
Notes, 8.38%, 04/15/12 115,000 117,875
- -----------------------------------------------------------------------
K Hovnanian Enterprises, Inc., Sr. Unsec.
Gtd. Notes, 10.50%, 10/01/07 400,000 422,000
- -----------------------------------------------------------------------
WCI Communities, Inc., Sr. Unsec. Gtd. Sub.
Notes, 9.13%, 05/01/12 350,000 288,750
=======================================================================
828,625
=======================================================================
Hotels, Resorts & Cruise Lines-0.29%
John Q. Hammons Hotels, Inc., Sr. 1st
Mortgage Notes, 8.88%, 05/15/12 120,000 116,400
- -----------------------------------------------------------------------
Kerzner International Ltd. (Bahamas), Sr.
Unsec. Gtd. Sub. Yankee Notes, 8.88%,
08/15/11 150,000 148,500
=======================================================================
264,900
=======================================================================
Industrial Machinery-0.35%
NMHG Holding Co., Unsec. Gtd. Notes, 10.00%,
05/15/09 60,000 57,600
- -----------------------------------------------------------------------
Pall Corp., Notes, 6.00%, 08/01/12 (Acquired
08/01/02; Cost $249,873)(a) 250,000 258,825
=======================================================================
316,425
=======================================================================
Integrated Oil & Gas-3.42%
BP Canada Finance Co. (Canada), Yankee Bonds,
3.38%, 10/31/07 750,000 754,523
- -----------------------------------------------------------------------
El Paso Energy Partners, L.P.-Series B, Sr.
Unsec. Gtd. Sub. Notes, 8.50%, 06/01/11 200,000 180,500
- -----------------------------------------------------------------------
Husky Oil Ltd. (Canada), Sr. Unsec. Yankee
Bonds, 8.90%, 08/15/28 625,000 688,619
- -----------------------------------------------------------------------
Occidental Petroleum Corp.
Sr. Putable Deb., 9.25%, 08/01/04 950,000 1,213,549
- -----------------------------------------------------------------------
Sr. Unsec. Notes, 6.50%, 04/01/05 250,000 269,765
=======================================================================
3,106,956
=======================================================================
Integrated Telecommunication Services-0.99%
GTE Hawaiian Telephone Co., Inc.-Series A,
Unsec. Deb., 7.00%, 02/01/06 140,000 149,793
- -----------------------------------------------------------------------
NTELOS Inc., Sr. Unsec. Notes, 13.00%,
08/15/10 250,000 50,000
- -----------------------------------------------------------------------
Sprint Capital Corp.
Sr. Unsec. Gtd. Notes, 6.00%, 01/15/07 255,000 206,869
- -----------------------------------------------------------------------
Sr. Unsec. Unsub. Gtd. Notes, 6.13%,
11/15/08 440,000 344,300
- -----------------------------------------------------------------------
Unsec. Gtd. Notes, 8.75%, 03/15/32 200,000 150,750
=======================================================================
901,712
=======================================================================
Life & Health Insurance-0.19%
American General Corp., Unsec. Notes, 7.50%,
08/11/10 150,000 171,480
=======================================================================
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- -----------------------------------------------------------------------
Multi-Line Insurance-0.33%
AIG SunAmerica Global Financing IX, Bonds,
6.90%, 03/15/32 (Acquired 07/31/02; Cost
$287,306)(a) $ 275,000 $ 299,417
=======================================================================
Oil & Gas Drilling-0.82%
Northern Natural Gas, Notes, 5.38%, 10/31/12
(Acquired 10/09/02; Cost $164,767)(a) 165,000 160,769
- -----------------------------------------------------------------------
Transocean Inc., Unsec. Notes, 6.95%,
04/15/08 525,000 585,858
=======================================================================
746,627
=======================================================================
Oil & Gas Equipment & Services-0.57%
Smith International, Inc., Notes, 6.75%,
02/15/11 500,000 518,790
=======================================================================
Oil & Gas Exploration & Production-9.08%
Amerada Hess Corp., Unsec. Notes, 5.30%,
08/15/04 200,000 209,464
- -----------------------------------------------------------------------
Anadarko Petroleum Corp., Unsec. Putable
Deb., 7.73%, 09/15/26 1,000,000 1,144,410
- -----------------------------------------------------------------------
Canadian Oil Sands Ltd. (Canada), Sr. Yankee
Notes, 7.90%, 09/01/21 (Acquired 07/31/02;
Cost $228,582)(a) 225,000 232,391
- -----------------------------------------------------------------------
Chesapeake Energy Corp., Sr. Unsec. Gtd.
Notes, 8.38%, 11/01/08 240,000 246,000
- -----------------------------------------------------------------------
Colorado Interstate Gas Co., Sr. Unsec. Deb.,
10.00%, 06/15/05 350,000 315,438
- -----------------------------------------------------------------------
Devon Energy Corp., Sr. Unsec. Deb., 7.95%,
04/15/32 400,000 462,232
- -----------------------------------------------------------------------
Devon Financing Corp. ULC, Unsec. Gtd. Unsub.
Deb., 7.88%, 09/30/31 300,000 347,802
- -----------------------------------------------------------------------
Frontier Oil Corp., Sr. Unsec. Notes, 11.75%,
11/15/09 390,000 391,950
- -----------------------------------------------------------------------
Kerr-McGee Corp., Jr. Conv. Sub. Unsec. Deb.,
5.25%, 02/15/10 1,000,000 1,081,250
- -----------------------------------------------------------------------
Louis Dreyfus Natural Gas Corp., Unsec.
Notes, 6.88%, 12/01/07 550,000 592,312
- -----------------------------------------------------------------------
Newfield Exploration Co., Sr. Unsec. Unsub.
Notes, 7.63%, 03/01/11 1,500,000 1,575,000
- -----------------------------------------------------------------------
Noble Energy, Inc., Sr. Unsec. Deb., 7.25%,
08/01/97 1,760,000 1,582,662
- -----------------------------------------------------------------------
Swift Energy Co., Sr. Unsec. Sub. Notes,
9.38%, 05/01/12 70,000 64,750
=======================================================================
8,245,661
=======================================================================
Oil & Gas Refining, Marketing &
Transportation-1.34%
Petroleos Mexicanos (Mexico)
Sr. Unsec. Gtd. Yankee Bonds, 9.38%,
12/02/08 600,000 657,750
- -----------------------------------------------------------------------
Series P, Unsec. Putable Unsub. Yankee
Bonds, 9.50%, 03/15/06 500,000 559,390
=======================================================================
1,217,140
=======================================================================
Packaged Foods & Meats-0.30%
Dole Foods Co., Inc., Sr. Unsec. Notes,
7.25%, 05/01/09 300,000 273,750
=======================================================================
</Table>
FS-64
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- -----------------------------------------------------------------------
Paper Products-0.30%
Appleton Papers Inc.-Series B, Sr. Unsec.
Gtd. Sub. Notes, 12.50%, 12/15/08 $ 260,000 $ 271,700
=======================================================================
Pharmaceuticals-1.49%
aaiPharma Inc., Sr. Unsec. Gtd. Sub. Notes,
11.00%, 04/01/10 250,000 238,750
- -----------------------------------------------------------------------
Biovail Corp. (Canada), Sr. Sub. Yankee
Notes, 7.88%, 04/01/10 200,000 204,000
- -----------------------------------------------------------------------
Johnson & Johnson, Unsec. Deb., 8.72%,
11/01/24 400,000 446,852
- -----------------------------------------------------------------------
Roche Holding A.G., Conv. Putable LYONS,
0.32%, 01/19/04 (Acquired 03/10/00; Cost
$624,813)(a)(d) 650,000 464,750
=======================================================================
1,354,352
=======================================================================
Publishing-3.47%
News America Holdings,
Putable Notes, 8.45%, 08/01/06 1,200,000 1,300,428
- -----------------------------------------------------------------------
Sr. Gtd. Deb., 9.25%, 02/01/13 1,450,000 1,648,041
- -----------------------------------------------------------------------
News America Inc., Sr. Putable Deb., 6.75%,
01/09/10 200,000 198,382
=======================================================================
3,146,851
=======================================================================
Railroads-0.66%
CSX Corp., Sr. Unsec. Putable Deb., 7.25%,
05/01/05 250,000 274,275
- -----------------------------------------------------------------------
Railamerica Transportation Corp., Sr. Unsec.
Gtd. Sub. Notes, 12.88%, 08/15/10 325,000 326,625
=======================================================================
600,900
=======================================================================
Real Estate Investment Trusts-1.77%
EOP Operating L.P., Sr. Unsec. Notes, 6.50%,
01/15/04 150,000 155,849
- -----------------------------------------------------------------------
Health Care REIT, Inc., Sr. Unsec. Notes,
7.50%, 08/15/07 500,000 523,190
- -----------------------------------------------------------------------
Host Marriott L.P.
Series E, Sr. Sec. Gtd. Notes, 8.38%,
02/15/06 270,000 263,250
- -----------------------------------------------------------------------
Series I, Unsec. Gtd. Notes, 9.50%,
01/15/07 450,000 450,000
- -----------------------------------------------------------------------
iStar Financial Inc., Sr. Unsec. Notes,
8.75%, 08/15/08 210,000 211,050
=======================================================================
1,603,339
=======================================================================
Semiconductors-0.11%
ON Semiconductor Corp., Sr. Sec. Gtd. Notes,
12.00%, 05/15/08 (Acquired 05/01/02; Cost
$116,282)(a) 120,000 73,800
- -----------------------------------------------------------------------
TranSwitch Corp., Conv. Unsec. Unsub. Notes,
4.50%, 09/12/05 (Acquired 09/06/00; Cost
$37,000)(a) 37,000 21,506
=======================================================================
95,306
=======================================================================
Sovereign Debt-1.16%
Export Development Canada (Canada), Yankee
Bonds, 4.00%, 08/01/07 185,000 191,714
- -----------------------------------------------------------------------
Region of Lombardy (Italy), Unsec. Yankee
Notes, 5.80%, 10/25/32 370,000 375,758
- -----------------------------------------------------------------------
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- -----------------------------------------------------------------------
Sovereign Debt-(Continued)
United Mexican States-Series A (Mexico),
Yankee Medium Term Notes, 9.88%, 02/01/10 $ 420,000 $ 487,200
=======================================================================
1,054,672
=======================================================================
Specialty Chemicals-0.04%
OM Group, Inc., Sr. Unsec. Gtd. Sub. Notes,
9.25%, 12/15/11 100,000 39,500
=======================================================================
Specialty Stores-0.42%
CSK Auto, Inc., Sr. Unsec. Gtd. Notes,
12.00%, 06/15/06 360,000 379,800
=======================================================================
Telecommunications Equipment-1.40%
Comverse Technology, Inc., Sr. Unsec. Conv.
Sub. Notes, 1.50%, 12/01/05 (Acquired
12/05/00; Cost $1,537,500)(a) 1,500,000 1,228,125
- -----------------------------------------------------------------------
Kestrel Solutions, Conv. Sub. Notes, 5.50%,
07/15/05 (Acquired 07/20/00; Cost
$750,000)(a)(b)(c) 750,000 39,750
=======================================================================
1,267,875
=======================================================================
Trucking-0.47%
North American Van Lines, Sr. Unsec. Gtd.
Sub. Notes, 13.38%, 12/01/09 435,000 428,475
=======================================================================
Wireless Telecommunication Services-1.68%
iPCS, Inc., Sr. Unsec. Disc. Notes, 14.00%,
07/15/10(f) 350,000 19,250
- -----------------------------------------------------------------------
IWO Holdings, Inc., Sr. Unsec. Gtd. Notes,
14.00%, 01/15/11 400,000 82,000
- -----------------------------------------------------------------------
Nextel Communications, Inc.
Sr. Conv. Notes, 5.25%, 01/15/10 (Acquired
02/15/00; Cost $1,055,000)(a) 1,000,000 695,000
- -----------------------------------------------------------------------
Sr. Unsec. Notes, 9.50%, 02/01/11 600,000 513,000
- -----------------------------------------------------------------------
SBA Communications Corp., Sr. Unsec. Notes,
10.25%, 02/01/09 440,000 213,400
=======================================================================
1,522,650
=======================================================================
Total U.S. Dollar Denominated Bonds &
Notes (Cost $67,294,111) 59,493,260
=======================================================================
<Caption>
PRINCIPAL
AMOUNT(g)
NON-U.S. DOLLAR DENOMINATED NON-CONVERTIBLE
BONDS & NOTES-5.64%
Germany-4.31%
Bundesrepublik Deutschland (Sovereign Debt)-
Series 2002, Bonds, 5.00%, 07/04/12 EUR 2,800,000 2,880,233
- -----------------------------------------------------------------------
Kreditanstalt fuer Wiederaufbau (Banks), Sr.
Unsec. Unsub. Notes, 5.25%, 07/04/12 EUR 1,000,000 1,034,915
=======================================================================
3,915,148
=======================================================================
United Kingdom-1.33%
ONO Finance PLC (Broadcasting & Cable TV),
Sr. Unsec. Gtd. Euro Notes, 13.00%,
05/01/09 EUR 300,000 56,463
- -----------------------------------------------------------------------
</Table>
FS-65
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT(G) VALUE
- -----------------------------------------------------------------------
United Kingdom-(Continued)
United Kingdom (Treasury of) (Sovereign
Debt), Bonds, 7.25%, 12/07/07 EUR 650,000 $ 1,151,689
=======================================================================
1,208,152
=======================================================================
Total Non-U.S. Dollar Denominated Non-
Convertible Bonds & Notes (Cost
$5,139,787) 5,123,300
=======================================================================
<Caption>
SHARES
COMMON STOCKS & OTHER EQUITY INTERESTS-1.74%
Fertilizers & Agricultural Chemicals-0.08%
Monsanto Co. 4,334 71,641
=======================================================================
Home Furnishings-0.00%
O'Sullivan Industries, Inc.
Series B-Pfd. Wts., expiring 11/15/09
(Acquired 06/13/00; Cost $0)(a)(h) 960 10
- -----------------------------------------------------------------------
Wts., expiring 11/15/09 (Acquired 06/13/00;
Cost $0)(a)(h) 960 10
=======================================================================
20
=======================================================================
Multi-Utilities & Unregulated Power-0.46%
Mirant Trust I-Series A, $3.13 Conv. Pfd. 28,300 414,595
=======================================================================
Pharmaceuticals-1.20%
Pharmacia Corp. 25,407 1,092,501
=======================================================================
Railroads-0.00%
Railamerica Inc.-Wts., expiring 08/15/10
(Acquired 10/05/00; Cost $0)(a)(h) 325 3,981
=======================================================================
Wireless Telecommunication Services-0.00%
IWO Holdings Inc.-Wts., expiring 01/15/11
(Acquired 08/24/01; Cost $0)(a)(h) 400 100
- -----------------------------------------------------------------------
NTELOS Inc.-Wts., expiring 08/15/10 (Acquired
11/15/00; Cost $0)(a)(h) 425 4
=======================================================================
104
=======================================================================
Total Common Stocks & Other Equity
Interests (Cost $2,836,465) 1,582,842
=======================================================================
<Caption>
PRINCIPAL
AMOUNT
U.S. GOVERNMENT AGENCY SECURITIES-8.90%
Federal Home Loan Mortgage Corp.
(FHLMC)-3.29%
Pass Through Ctfs.,
6.00%, 05/01/17 to 06/01/17 $ 914,375 $ 952,842
- -----------------------------------------------------------------------
6.50%, 04/01/16 to 01/01/31 1,919,605 2,003,108
- -----------------------------------------------------------------------
Pass Through Ctfs.,
7.00%, 07/01/29 32,357 33,815
=======================================================================
2,989,765
=======================================================================
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- -----------------------------------------------------------------------
Federal National Mortgage Association
(FNMA)-5.61%
Pass Through Ctfs.,
6.50%, 10/01/16 to 11/01/16 $ 83,903 $ 88,126
- -----------------------------------------------------------------------
Pass Through Ctfs.,
6.50%, 03/01/29 to 11/01/31 1,399,344 1,451,988
- -----------------------------------------------------------------------
7.00%, 09/01/31 to 12/01/31 1,216,663 1,271,453
- -----------------------------------------------------------------------
7.50%, 08/01/29 to 04/01/31 990,361 1,048,266
- -----------------------------------------------------------------------
Pass Through Ctfs.,
8.00%, 06/01/31 643,018 687,814
- -----------------------------------------------------------------------
Pass Through Ctfs.,
8.50%, 02/01/28 450,590 488,265
- -----------------------------------------------------------------------
Unsec. Notes,
6.00%, 05/15/11 54,000 60,247
=======================================================================
5,096,159
=======================================================================
Total U.S. Government Agency Securities
(Cost $7,882,758) 8,085,924
=======================================================================
U.S. TREASURY SECURITIES-8.94%
U.S. Treasury Bonds-1.76%
7.25%, 05/15/16 900,000 1,137,366
- -----------------------------------------------------------------------
6.25%, 08/15/23 400,000 459,684
=======================================================================
1,597,050
=======================================================================
U.S. Treasury Notes--7.18%
4.75%, 11/15/08 6,000,000 6,519,780
=======================================================================
Total U.S. Treasury Securities (Cost
$8,090,214) 8,116,830
=======================================================================
ASSET-BACKED SECURITIES-2.42%
Airlines-0.98%
Continental Airlines, Inc.,
Series 974A, Pass Through Ctfs., 6.90%,
01/02/18 435,430 345,831
- -----------------------------------------------------------------------
Series 2000-1, Class A-1, Sr. Sec. Pass
Through Ctfs., 8.05%, 11/01/20 283,293 216,011
- -----------------------------------------------------------------------
Series 2000-2, Class A-1, Sr. Sec. Pass
Through Ctfs., 7.71%, 04/02/21 437,459 329,188
=======================================================================
891,030
=======================================================================
Diversified Financial Services-1.00%
Citicorp Lease
Class A1, Series 1999-1, Pass Through
Ctfs., 7.22%, 06/15/05 (Acquired 05/08/02;
Cost $329,488)(a) 312,504 340,082
- -----------------------------------------------------------------------
Class A2, Series 1999-1, Pass Through
Ctfs., 8.04%, 12/15/19 (Acquired 06/01/00;
Cost $493,835)(a) 500,000 563,835
=======================================================================
903,917
=======================================================================
Electric Utilities-0.44%
Beaver Valley II Funding Corp., SLOBS, 9.00%,
06/01/17 400,000 403,668
=======================================================================
Total Asset-Backed Securities (Cost
$2,324,175) 2,198,615
=======================================================================
</Table>
FS-66
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
MONEY MARKET FUNDS-3.75%
STIC Liquid Assets Portfolio(i) 1,703,510 $ 1,703,510
- -----------------------------------------------------------------------
STIC Prime Portfolio(i) 1,703,510 1,703,510
=======================================================================
Total Money Market Funds (Cost
$3,407,020) 3,407,020
=======================================================================
TOTAL INVESTMENTS-96.89% (Cost $96,974,530) 88,007,791
=======================================================================
OTHER ASSETS LESS LIABILITIES-3.11% 2,823,159
=======================================================================
NET ASSETS-100.00% $90,830,950
_______________________________________________________________________
=======================================================================
</Table>
Investment Abbreviations:
<Table>
Conv. - Convertible
Ctfs. - Certificates
Deb. - Debentures
Disc. - Discounted
EUR - Euro
Gtd. - Guaranteed
Jr. - Junior
LYONS - Liquid Yield Option Notes
Pfd. - Preferred
RAPS - Redeemable & Putable Securities
REIT - Real Estate Investment Trust
Sec. - Secured
SLOBS - Secured Lease Obligation Securities
Sr. - Senior
Sub. - Subordinated
Unsec. - Unsecured
Unsub. - Unsubordinated
Wts. - Warrants
ZENS - Zero Exchange Sub. Notes
</Table>
Notes to Schedule of Investments:
(a) Securities not registered under the Securities Act of 1933, as amended
(e.g., the security was purchased in a Rule 144A transaction or a Regulation
D transaction); the securities may be resold only pursuant to an exemption
from registration under the 1933 Act, typically to qualified institutional
buyers. The aggregate market value of these securities at 10/31/02 was
$6,491,566, which represented 7.15% of the Fund's net assets. The Fund has
no rights to demand registration of these securities. 2.57% of the aggregate
market value of these securities is considered to be liquid under procedures
established by the Board of Trustees.
(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) Zero coupon bond issued at a discount. The interest rate shown represents
the yield to maturity at issue.
(e) Secured by bond insurance provided by Ambac Assurance Corp.
(f) Discounted bond at issue. The interest rate represents the coupon rate at
which the bond will accrue at a specified future date.
(g) Foreign denominated security. Par value is denominated in currency
indicated.
(h) Non-income producing security acquired as part of a unit with or in exchange
for other securities.
(i) The money market fund and the Fund are affiliated by having the same
investment advisor.
See Notes to Financial Statements.
FS-67
Statement of Assets and Liabilities
October 31, 2002
<Table>
ASSETS:
Investments, at market value (cost $96,974,530) $88,007,791
- ------------------------------------------------------------
Receivables for:
Investments sold 1,826,992
- ------------------------------------------------------------
Fund shares sold 9,996
- ------------------------------------------------------------
Dividends and interest 1,569,185
- ------------------------------------------------------------
Investment for deferred compensation plan 2,593
- ------------------------------------------------------------
Other assets 22,059
============================================================
Total assets 91,438,616
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Fund shares reacquired 450,729
- ------------------------------------------------------------
Deferred compensation plan 2,593
- ------------------------------------------------------------
Accrued distribution fees 74,142
- ------------------------------------------------------------
Accrued trustees' fees 907
- ------------------------------------------------------------
Accrued transfer agent fees 25,552
- ------------------------------------------------------------
Accrued operating expenses 53,743
============================================================
Total liabilities 607,666
============================================================
Net assets applicable to shares outstanding $90,830,950
____________________________________________________________
============================================================
NET ASSETS:
Class A $67,474,736
____________________________________________________________
============================================================
Class B $21,109,630
____________________________________________________________
============================================================
Class C $ 2,246,584
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE:
Class A 9,091,648
____________________________________________________________
============================================================
Class B 2,836,051
____________________________________________________________
============================================================
Class C 302,140
____________________________________________________________
============================================================
Class A:
Net asset value per share $ 7.42
- ------------------------------------------------------------
Offering price per share:
(Net asset value of $7.42 divided by
95.25%) $ 7.79
____________________________________________________________
============================================================
Class B:
Net asset value and offering price per share $ 7.44
____________________________________________________________
============================================================
Class C:
Net asset value and offering price per share $ 7.44
____________________________________________________________
============================================================
</Table>
Statement of Operations
For the year ended October 31, 2002
<Table>
INVESTMENT INCOME:
Interest $ 8,302,878
- -------------------------------------------------------------
Dividends 140,032
- -------------------------------------------------------------
Dividends from affiliated money market funds 20,636
=============================================================
Total investment income 8,463,546
=============================================================
EXPENSES:
Advisory fees 747,890
- -------------------------------------------------------------
Administrative services fees 50,000
- -------------------------------------------------------------
Custodian fees 13,564
- -------------------------------------------------------------
Distribution fees -- Class A 246,894
- -------------------------------------------------------------
Distribution fees -- Class B 301,840
- -------------------------------------------------------------
Distribution fees -- Class C 24,320
- -------------------------------------------------------------
Transfer agent fees 332,320
- -------------------------------------------------------------
Trustees' fees 9,953
- -------------------------------------------------------------
Other 173,168
=============================================================
Total expenses 1,899,949
=============================================================
Less: Fees waived (600,489)
- -------------------------------------------------------------
Expenses paid indirectly (1,925)
=============================================================
Net expenses 1,297,535
=============================================================
Net investment income 7,166,011
=============================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES, FOREIGN CURRENCIES AND
FOREIGN CURRENCY CONTRACTS:
Net realized gain (loss) from:
Investment securities (10,473,236)
- -------------------------------------------------------------
Foreign currencies (18,307)
- -------------------------------------------------------------
Foreign currency contracts (46,401)
=============================================================
(10,537,944)
=============================================================
Change in net unrealized appreciation
(depreciation) of:
Investment securities (4,125,616)
- -------------------------------------------------------------
Foreign currencies 1,621
- -------------------------------------------------------------
Foreign currency contracts (15,178)
=============================================================
(4,139,173)
=============================================================
Net gain (loss) from investment securities,
foreign currencies and foreign currency
contracts (14,677,117)
=============================================================
Net increase (decrease) in net assets resulting
from operations $ (7,511,106)
_____________________________________________________________
=============================================================
</Table>
See Notes to Financial Statements.
FS-68
Statement of Changes in Net Assets
For the years ended October 31, 2002 and 2001
<Table>
<Caption>
2002 2001
- --------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 7,166,011 $ 9,122,003
- --------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities,
foreign currencies and foreign currency contracts (10,537,944) (7,077,279)
- --------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities, foreign currencies and foreign
currency contracts (4,139,173) 107,182
============================================================================================
Net increase (decrease) in net assets resulting from
operations (7,511,106) 2,151,906
============================================================================================
Distributions to shareholders from net investment income:
Class A (4,831,416) (4,180,316)
- --------------------------------------------------------------------------------------------
Class B (1,935,024) (4,789,082)
- --------------------------------------------------------------------------------------------
Class C (149,195) (94,741)
- --------------------------------------------------------------------------------------------
Return of Capital:
Class A (723,193) (65,346)
- --------------------------------------------------------------------------------------------
Class B (272,948) (81,727)
- --------------------------------------------------------------------------------------------
Class C (25,019) (1,579)
- --------------------------------------------------------------------------------------------
Share transactions-net:
Class A 15,596,092 16,986,137
- --------------------------------------------------------------------------------------------
Class B (22,216,782) (25,288,755)
- --------------------------------------------------------------------------------------------
Class C 522,395 1,712,350
============================================================================================
Net increase (decrease) in net assets (21,546,196) (13,651,153)
============================================================================================
NET ASSETS:
Beginning of year 112,377,146 126,028,299
============================================================================================
End of year $ 90,830,950 $ 112,377,146
____________________________________________________________________________________________
============================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 230,984,335 $ 238,103,790
- --------------------------------------------------------------------------------------------
Undistributed net investment income (283,734) (20,429)
- --------------------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment
securities, foreign currencies and foreign currency
contracts (130,904,332) (120,728,575)
- --------------------------------------------------------------------------------------------
Unrealized appreciation (depreciation) of investment
securities, foreign currencies and foreign currency
contracts (8,965,319) (4,977,640)
============================================================================================
$ 90,830,950 $ 112,377,146
____________________________________________________________________________________________
============================================================================================
</Table>
See Notes to Financial Statements.
FS-69
Notes to Financial Statements
October 31, 2002
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Strategic Income Fund (the "Fund") is a separate series of AIM Investment
Funds (the "Trust"). The Trust is organized as a Delaware statutory 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 high current income, and
its secondary investment objective is 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
traded in the over-the-counter market (but not securities reported on the
NASDAQ National Market System) is valued at the closing bid price furnished
by independent pricing services or market makers. 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 institution-size trading in similar groups of
securities, developments related to special securities, dividend rate,
yield, quality, type of issue, coupon rate, maturity, 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 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 and
commercial paper 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. 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.
C. DISTRIBUTIONS -- Distributions from income are declared daily and paid
monthly. Distributions from net realized capital gain, if any, are
generally paid annually and recorded on ex-dividend date. The Fund may
elect to use a portion of the proceeds from redemptions as distributions
for federal income tax purposes.
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 gain) 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.
FS-70
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. DOLLAR ROLL TRANSACTIONS -- 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 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 that 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.
H. EXPENSES -- Distribution expenses directly attributable to a class of
shares are charged to the respective classes' operations. Transfer agency
fees and expenses and other shareholder recordkeeping fees and expenses are
charged to each class pursuant to a transfer agency and service agreement
adopted by the Fund with respect to such class. All other expenses are
allocated among the classes based on relative net assets.
NOTE 2--CHANGE IN ACCOUNTING PRINCIPLE
As required, effective November 1, 2001, the Fund adopted the provisions of the
AICPA Audit and Accounting Guide for Investment Companies and began amortizing
premium on debt securities and began recording paydown gains and losses on
mortgage and asset-backed securities as adjustments to interest income. Prior to
November 1, 2001, the Fund did not amortize premiums on debt securities and
recorded paydown gains and losses on mortgage and asset-backed securities as
realized gains and losses. The cumulative effect of this accounting change had
no impact on total net assets of the Fund, but resulted in a $151,494 reduction
in the cost of securities and a corresponding $151,494 increase in net
unrealized gains and losses, based on securities held by the Fund on November 1,
2001.
The effect of this change in the current period was to decrease net investment
income by $186,664, to increase net unrealized appreciation (depreciation) by
$145,517 and to increase net realized gains and losses by $41,147. 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 0.18%.
NOTE 3--ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
A I M Advisors, Inc. ("AIM") is the Fund's investment manager and administrator.
INVESCO (NY), Inc. is the Fund's subadvisor. The Fund pays AIM investment
management and administration fees at an annual rate of 0.725% on the first $500
million of the Fund's average daily net assets, plus 0.70% on the next $1
billion of the Fund's average daily net assets, plus 0.675% on the next $1
billion of the Fund's average daily net assets, plus 0.65% on the Fund's average
daily net assets exceeding $2.5 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 shares to 1.50%. In addition, AIM has
voluntarily agreed to limit total annual operating expenses, subject to the
exclusions previously listed, for Class A to 1.05% and this limitation may be
terminated or modified at any time. 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
October 31, 2002, AIM waived fees of $600,489.
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, 2002, 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 October 31, 2002, AFS
retained $210,352 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. NASD Rules
also impose a cap on the total sales charges, including asset-based sales
charges that may be paid by any class of shares of the Fund. Pursuant to the
master distribution agreements, for the year ended
FS-71
October 31, 2002, the Class A, Class B and Class C shares paid $246,894,
$301,840 and $24,320, respectively.
AIM Distributors retained commissions of $17,230 from sales of the Class A
shares of the Fund during the year ended October 31, 2002. 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, 2002,
AIM Distributors retained $22,686, $757 and $4,472 in contingent deferred sales
charges imposed on redemptions of Class A, Class B and Class C shares,
respectively.
Certain officers and trustees of the Trust are officers and directors of AIM,
AFS and AIM Distributors.
During the year ended October 31, 2002, the Fund paid legal fees of $2,827 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 October 31, 2002, the Fund received reductions in transfer
agency fees from AFS (an affiliate of AIM) of $1,573 and reductions in custodian
fees of $352 under an expense offset arrangement which resulted in a reduction
of the Fund's total expenses of $1,925.
NOTE 5--TRUSTEES' FEES
Trustees' fees represent remuneration paid to trustees who are not an
"interested person" of AIM. Trustees have the option to defer compensation
payable by the Trust. The Trustees deferring compensation have the option to
select various AIM Funds in which all or part of their deferral accounts shall
be deemed to be invested.
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) $500,000,000 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,
2002, 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.
During the year ended October 31, 2002, there were no securities on loan.
NOTE 8--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF BENEFICIAL INTEREST
Distributions to Shareholders:
The tax character of distributions paid during the years ended October 31, 2002
and 2001 were as follows:
<Table>
<Caption>
2002 2001
- ---------------------------------------------------------------
Distributions paid from:
Ordinary income $6,915,635 $9,064,139
- ---------------------------------------------------------------
Return of capital 1,021,160 148,652
===============================================================
$7,936,795 $9,212,791
_______________________________________________________________
===============================================================
</Table>
Tax Components of Beneficial Interest:
As of October 31, 2002, the components of beneficial interest on a tax basis
were as follows:
<Table>
Unrealized appreciation
(depreciation) -- investments $ (9,245,462)
- ----------------------------------------------------------
Temporary book/tax differences (3,591)
- ----------------------------------------------------------
Capital loss carryforward (130,904,332)
- ----------------------------------------------------------
Shares of beneficial interest 230,984,335
==========================================================
$ 90,830,950
__________________________________________________________
==========================================================
</Table>
The difference between book-basis and tax basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation (depreciation) difference is attributable primarily to the
treatment of bond premium amortization and the treatment of defaulted bonds.
Amount includes appreciation on foreign currencies of $1,419.
The temporary book/tax differences are a result of timing differences between
book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the deferral of trustee compensation and
retirement plan expenses.
The Fund's capital loss carryforward expires as follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD
- ---------------------------------------------------------
October 31, 2003 $ 65,749,433
- ---------------------------------------------------------
October 31, 2006 6,435,251
- ---------------------------------------------------------
October 31, 2007 15,371,600
- ---------------------------------------------------------
October 31, 2008 26,076,211
- ---------------------------------------------------------
October 31, 2009 7,031,872
- ---------------------------------------------------------
October 31, 2010 10,239,965
=========================================================
$130,904,332
_________________________________________________________
=========================================================
</Table>
FS-72
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 October 31, 2002 was
$79,704,327 and $89,555,784, respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
for tax purposes, as of October 31, 2002 is as follows:
<Table>
Aggregate unrealized appreciation of
investment securities $ 2,827,456
- -------------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (12,074,337)
=============================================================
Net unrealized appreciation (depreciation) of
investment securities $ (9,246,881)
_____________________________________________________________
=============================================================
Cost of investments for tax purposes is $97,254,672.
</Table>
NOTE 10--RECLASSIFICATION OF PERMANENT DIFFERENCES
As a result of differing book/tax treatment of foreign currency transactions,
net operating loss reclassifications, bond premium amortization, and other
items, on October 31, 2002, undistributed net investment income was increased by
$658,973, undistributed net realized gains increased by $362,187 and shares of
beneficial interest decreased by $1,021,160. This reclassification has no affect
on the net assets of the Fund.
NOTE 11--SHARE INFORMATION
Changes in shares outstanding during the years ended October 31, 2002 and 2001
were as follows:
<Table>
<Caption>
2002 2001
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------------
Sold:
Class A 5,001,503* $ 41,194,962* 4,333,296 $ 38,745,589
- ----------------------------------------------------------------------------------------------------------------------
Class B 1,655,813 13,336,970 1,325,776 12,001,880
- ----------------------------------------------------------------------------------------------------------------------
Class C 346,563 2,765,379 329,487 2,937,367
======================================================================================================================
Issued as reinvestment of dividends:
Class A 452,544 3,624,472 334,882 2,995,798
- ----------------------------------------------------------------------------------------------------------------------
Class B 168,966 1,373,554 319,936 2,878,924
- ----------------------------------------------------------------------------------------------------------------------
Class C 14,404 116,302 8,539 75,695
======================================================================================================================
Reacquired:
Class A (3,625,489) (29,223,342) (2,735,274) (24,755,250)
- ----------------------------------------------------------------------------------------------------------------------
Class B (4,488,382)* (36,927,306)* (4,495,292) (40,169,559)
- ----------------------------------------------------------------------------------------------------------------------
Class C (300,290) (2,359,286) (149,291) (1,300,712)
======================================================================================================================
(774,368) $ (6,098,295) (727,941) $ (6,590,268)
______________________________________________________________________________________________________________________
======================================================================================================================
</Table>
* Includes automatic conversion of 1,951,299 shares of Class B shares in the
amount of $16,080,092 to 1,961,322 shares of Class A shares in the amount of
$16,080,092.
FS-73
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 OCTOBER 31,
--------------------------------------------------------------------
2002 2001 2000 1999 1998
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.63 $ 9.17 $ 10.13 $ 10.80 $ 12.00
- -------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.58(a)(b) 0.72 0.77(b) 0.68 0.91(b)(c)
- -------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (1.15) (0.53) (0.99) (0.66) (1.27)
===============================================================================================================================
Total from investment operations (0.57) 0.19 (0.22) 0.02 (0.36)
===============================================================================================================================
Less distributions:
Dividends from net investment income (0.56) (0.72) (0.52) (0.65) (0.65)
- -------------------------------------------------------------------------------------------------------------------------------
Returns of capital (0.08) (0.01) (0.22) (0.04) (0.19)
===============================================================================================================================
Total distributions (0.64) (0.73) (0.74) (0.69) (0.84)
===============================================================================================================================
Net asset value, end of period $ 7.42 $ 8.63 $ 9.17 $ 10.13 $ 10.80
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Total return(d) (6.93)% 2.05% (2.35)% 0.06% (3.41)%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $67,475 $62,708 $48,865 $68,675 $102,280
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 1.05%(e) 1.05% 1.21% 1.41% 1.56%
- -------------------------------------------------------------------------------------------------------------------------------
Without fee waivers 1.63%(e) 1.57% 1.57% 1.41% 1.56%
===============================================================================================================================
Ratio of net investment income to average net assets 7.15%(a)(e) 7.94% 7.84% 6.44% 7.73%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Portfolio turnover rate 80% 89% 309% 235% 306%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
</Table>
(a) As required, effective November 1, 2001, the Fund has adopted the
provisions of the AICPA Audit and Accounting Guide for Investment
Companies and began amortizing premium on debt securities. Had the Fund
not amortized premiums on debt securities, the net investment income per
share would have been $0.59 and the ratio of net investment income to
average net assets would have been 7.33%. In accordance with the AICPA
Audit and Accounting Guide for Investment Companies, per share and
ratios for periods prior to November 1, 2001 have not been restated to
reflect this change in presentation.
(b) Calculated using average shares outstanding.
(c) Net investment income per share reflects an interest payment received
from the conversion of Vnesheconombank loan agreements of $0.11 per
share.
(d) Includes adjustments in accordance with generally accepted accounting
principles and does not include sales charges.
(e) Ratios are based on average daily net assets of $70,541,187.
FS-74
NOTE 12--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B
---------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
---------------------------------------------------------------------
2002 2001 2000 1999 1998
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.65 $ 9.18 $ 10.15 $ 10.81 $ 12.01
- --------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.53(a)(b) 0.65 0.71(b) 0.62 0.84(b)(c)
- --------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (1.16) (0.51) (1.01) (0.66) (1.28)
================================================================================================================================
Total from investment operations (0.63) 0.14 (0.30) (0.04) (0.44)
================================================================================================================================
Less distributions:
Dividends from net investment income (0.50) (0.66) (0.45) (0.58) (0.57)
- --------------------------------------------------------------------------------------------------------------------------------
Returns of capital (0.08) (0.01) (0.22) (0.04) (0.19)
================================================================================================================================
Total distributions (0.58) (0.67) (0.67) (0.62) (0.76)
================================================================================================================================
Net asset value, end of period $ 7.44 $ 8.65 $ 9.18 $ 10.15 $ 10.81
________________________________________________________________________________________________________________________________
================================================================================================================================
Total return(d) (7.54)% 1.47% (3.11)% (0.52)% (4.04)%
________________________________________________________________________________________________________________________________
================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $21,110 $47,582 $76,680 $118,904 $188,660
________________________________________________________________________________________________________________________________
================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 1.70%(e) 1.70% 1.86% 2.07% 2.21%
- --------------------------------------------------------------------------------------------------------------------------------
Without fee waivers 2.28%(e) 2.22% 2.22% 2.07% 2.21%
================================================================================================================================
Ratio of net investment income to average net assets 6.50%(a)(e) 7.29% 7.18% 5.78% 7.08%
________________________________________________________________________________________________________________________________
================================================================================================================================
Portfolio turnover rate 80% 89% 309% 235% 306%
________________________________________________________________________________________________________________________________
================================================================================================================================
</Table>
(a) As required, effective November 1, 2001, the Fund has adopted the
provisions of the AICPA Audit and Accounting Guide for Investment
Companies and began amortizing premium on debt securities. Had the Fund
not amortized premiums on debt securities, the net investment income per
share would have been $0.54 and the ratio of net investment income to
average net assets would have been 6.68%. In accordance with the AICPA
Audit and Accounting Guide for Investment Companies, per share and
ratios for periods prior to November 1, 2001 have not been restated to
reflect this change in presentation.
(b) Calculated using average shares outstanding.
(c) Net investment income per share reflects an interest payment received
from the conversion of Vnesheconombank loan agreements of $0.11 per
share.
(d) Includes adjustments in accordance with generally accepted accounting
principles and does not include contingent deferred sales charges.
(e) Ratios are based on average daily net assets of $30,183,980.
FS-75
NOTE 12--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
-------------------------------------------------------
MARCH 1, 1999
(DATE SALES
YEAR ENDED OCTOBER 31, COMMENCED) TO
---------------------------------- OCTOBER 31,
2002 2001 2000 1999
- -----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.64 $ 9.17 $10.14 $10.67
- -----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.53(a)(b) 0.65 0.70(b) 0.33
- -----------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (1.15) (0.51) (1.00) (0.47)
=======================================================================================================================
Total from investment operations (0.62) 0.14 (0.30) (0.14)
=======================================================================================================================
Less distributions:
Dividends from net investment income (0.50) (0.66) (0.45) (0.36)
- -----------------------------------------------------------------------------------------------------------------------
Returns of capital (0.08) (0.01) (0.22) (0.03)
=======================================================================================================================
Total distributions (0.58) (0.67) (0.67) (0.39)
=======================================================================================================================
Net asset value, end of period $ 7.44 $ 8.64 $ 9.17 $10.14
_______________________________________________________________________________________________________________________
=======================================================================================================================
Total return(c) (7.43)% 1.47% (3.12)% (1.35)%
_______________________________________________________________________________________________________________________
=======================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $2,247 $2,087 $ 484 $ 251
_______________________________________________________________________________________________________________________
=======================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 1.70%(d) 1.70% 1.86% 2.07%(e)
- -----------------------------------------------------------------------------------------------------------------------
Without fee waivers 2.28%(d) 2.22% 2.22% 2.07%(e)
=======================================================================================================================
Ratio of net investment income to average net assets 6.50%(a)(d) 7.29% 7.18% 5.78%(e)
_______________________________________________________________________________________________________________________
=======================================================================================================================
Portfolio turnover rate 80% 89% 309% 235%
_______________________________________________________________________________________________________________________
=======================================================================================================================
</Table>
(a) As required, effective November 1, 2001, the Fund has adopted the
provisions of the AICPA Audit and Accounting Guide for Investment
Companies and began amortizing premium on debt securities. Had the Fund
not amortized premiums on debt securities, the net investment income per
share would have been $0.54 and the ratio of net investment income to
average net assets would have been 6.68%. In accordance with the AICPA
Audit and Accounting Guide for Investment Companies, per share and
ratios for periods prior to November 1, 2001 have not been restated to
reflect this change in presentation.
(b) Calculated using average shares outstanding.
(c) Includes adjustments in accordance with generally accepted accounting
principles, 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 $2,432,027.
(e) Annualized.
FS-76
APPENDIX II
SEMIANNUAL REPORT / JUNE 30, 2002
AIM NEW TECHNOLOGY FUND
[COVER IMAGE]
[AIM FUNDS LOGO]
--Registered Trademark--
================================================================================
[COVER IMAGE]
LOUIS PASTEUR, FRENCH CHEMIST AND BIOLOGIST,
IN HIS LABORATORY BY ALBERT GUSTAF A. EDELFELT
THE FRENCH CHEMIST LOUIS PASTEUR DEVOTED HIS LIFE TO SOLVING PRACTICAL PROBLEMS
THROUGH DISCOVERIES THAT REVOLUTIONIZED CHEMISTRY, INDUSTRY, AGRICULTURE AND
MEDICINE. HIS DISCOVERIES GREATLY IMPROVED THE HUMAN CONDITION AND CREATED NEW
TECHNOLOGIES FROM WHICH THE WORLD COULD PROFIT. MANAGERS OF AIM NEW TECHNOLOGY
FUND SEEK TO INVEST IN COMPANIES THAT CONTINUE TO EMBODY PASTEUR'S SPIRIT OF
INNOVATION AND DISCOVERY.
================================================================================
AIM New Technology Fund seeks long-term growth of capital by investing primarily
in stocks of technology and science companies.
ABOUT FUND PERFORMANCE AND PORTFOLIO DATA THROUGHOUT THIS REPORT:
o The 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 absorbed fund expenses, total returns would have been
lower.
o When sales charges are included in performance figures, Class A share
performance reflects the maximum 5.50% sales charge, and Class B and Class C
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 The fund's average annual total returns (including sales charges) for
periods ended 6/30/02 are as follows: Class A shares, inception (8/31/00),
-53.46%, one year, -45.96%. Class B shares, inception (8/31/00), -53.45%,
one year -46.22%. Class C shares, inception (8/31/00), -52.30%, one year
-43.74%.
o Past performance cannot guarantee comparable future results. 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.
o 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.
o Investing in a single-sector mutual fund may involve greater risk and
potential reward than investing in a more diversified fund.
o The value of the fund's shares is particularly vulnerable to factors
affecting the technology and science industries, such as substantial
government regulations and the need for governmental approvals, dependency
on consumer and business acceptance as new technologies evolve, and large
and rapid price movements resulting from, among other things, fierce
competition in these industries. Additional factors affecting the technology
and science industries and the value of fund shares include rapid
obsolescence of products and services, short product cycles and aggressive
pricing. Many technology and science companies are small and at an early
state of development and, therefore, may be subject to risks such as limited
product lines, markets, and financial and managerial resources.
o Investing in small and mid-size companies may involve risks not associated
with investing in more established companies. Also, small companies may have
business risk, significant stock price fluctuations and illiquidity.
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 Lipper Science and Technology Fund Index represents an average
of the performance of the 30 largest science and technology funds tracked by
Lipper, Inc., an independent mutual fund performance monitor.
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 unmanaged Pacific Stock Exchange Technology 100 Index (the PSE
Technology 100) is a price-weighted index of 100 listed and over-the-counter
technology stocks from 15 technology-related industries.
o An investment cannot be made in an index. Unless otherwise indicated, index
results include reinvested dividends, and they do not reflect sales charges.
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 Our nation and markets have been shaken lately by terrorism
ROBERT H. and war, an economic downturn, and a two-year bear market
GRAHAM] for equities. But perhaps most seriously for us as
investors, reports of accounting and other irregularities at
a few companies have damaged confidence in corporate
governance and financial reporting. Such confidence is
essential to the efficient functioning of financial markets.
We will support legislative or regulatory changes that may
be desirable to assure accurate financial disclosure and
sounder business ethics.
It is worth noting that, despite extensive media
coverage of these stories, the number of firms involved is
very small considering that there are about 17,000 publicly
traded companies in the U.S. Financial and regulatory
institutions and individual firms are already responding.
For example, by the time you receive this, the New York Stock Exchange
likely will have implemented new standards governing companies listed there.
These standards increase the authority of and tighten the definition of
independent directors. They raise qualification requirements for audit committee
members and grant them sole authority for hiring auditors. They mandate
shareholder votes on equity-based compensation such as stock options. They
require chief executives to attest to the accuracy and completeness of
information provided to investors. As companies and regulators focus on
improving standards in this area, I am certain our markets, and investors' trust
in them, will become stronger.
It is also worth noting, as Federal Reserve Chairman Alan Greenspan did in
recent Congressional testimony, that our economy is sound, with manufacturing
and services expanding. Inflation is under control, and productivity and profits
are rising.
As I write this, the disconnect between the health of the economy and the
bearishness of the equity markets is unusual. Major equity indexes are off from
30% to 75% from their highs. AIM's funds have not been immune. I am well aware
that your investments in our funds may have declined, perhaps significantly.
Since I and the vast majority of AIM employees invest in our funds, directly or
through AIM's retirement plans, we understand how unpleasant this has been. All
of us at AIM thank you for staying with us during this period. We are working
diligently to maintain your trust and confidence.
While we certainly believe that the worst is behind us, unfortunately we
cannot assure you that you will not experience even further declines if equity
markets continue to weaken. All we can be sure of is that at some point,
hopefully soon, equities will recover. We continue to position our funds for
that recovery.
As always, we encourage you to see your financial advisor for a portfolio
checkup and a fresh look at your investing objectives. Especially during such a
tough market, it can be difficult to focus on the long term. Your financial
advisor can help.
REASONS FOR LONG-TERM OPTIMISM
Despite recent scandals, we caution shareholders against becoming unduly
pessimistic. I am optimistic about the long-term prospects for the U.S. and our
markets. A great deal of the world's intellectual capital resides within our
borders, and our political and business structure has provided unparalleled
incentive for hard work and innovation. As noted investor Warren Buffett
observed, anyone who has bet against America the past 250 years has lost.
Other investments also have appealing potential. The likelihood of stable
interest rates is strong, and bonds typically do well in such an environment.
Internationally, European economic data point to a pickup in manufacturing and
consumer confidence, and in Asia, export-led recovery is a dominant theme.
However, no one anticipates a return to the heady days of the 1990s.
Realistic expectations would serve us all well. Over the very long term, annual
returns for domestic equities have averaged approximately 10%; fixed-income
investments typically return less.
As we all know, bull markets do end. So do bear markets. We are hopeful that
the equity markets, which many experts consider significantly undervalued right
now, will soon recover.
The following pages contain your fund managers' discussion of factors that
influenced your fund and how they managed the fund during the six months covered
by this report.
Briefly, technology stocks remained under pressure. For the six months
covered by this report, Class A shares of AIM New Technology Fund produced a
total return of -32.03% at net asset value while similar funds in the Lipper
Science and Technology Index produced an almost identical average return of
- -32.67%.
You can find timely information about your fund and the markets on our Web
site, www.aimfunds.com. Our Client Services Department can be reached during
regular business hours at 800-959-4246.
Thank you for your continued participation in The AIM Family of
Funds--Registered Trademark--.
Sincerely,
/s/ ROBERT H. GRAHAM
Robert H. Graham
Chairman
July 29, 2002
TECH STOCKS OUT OF FAVOR AS MARKETS REMAIN VOLATILE
HOW DID AIM NEW TECHNOLOGY FUND PERFORM?
Tech stocks fared poorly during the six months ended June 30, 2002. The fund's
market benchmark, the Pacific Stock Exchange Technology 100, a tech-sector
index, returned -25.29% and the Lipper Science and Technology Fund Index
returned -32.67%. Fund shares sustained similar losses. At net asset value,
meaning excluding sales charges, the fund's Class A, Class B and Class C shares
returned -32.03%, -32.55% and -32.28%, respectively, for the six-month reporting
period.
WHAT WERE THE TRENDS IN THE ECONOMY AND THE STOCK MARKET?
The economy showed signs of improvement throughout the reporting period. Gross
domestic product (GDP), the broadest measure of U.S. economic activity, grew at
an annualized rate of 5.0% in the first quarter of 2002, and retail sales and
consumer confidence generally remained strong. The government's initial estimate
of GDP for the second quarter was 1.1%. The U.S. Federal Reserve (the Fed) held
short-term interest rates at 40-year lows as it waited for more definitive signs
of recovery; it was able to do so in part because inflation remained under
control and energy prices moderated somewhat.
But investors shrugged off generally positive economic news. The possibility
of additional terrorist attacks, and geopolitical developments in the Middle
East and on the Indian subcontinent, put investors on edge. Also, a series of
high-profile accounting scandals and alleged corporate misdeeds seriously
undermined investor confidence and caused some investors to seek safety in
fixed-income or money market investments. This lack of investor confidence
caused the major market indexes to decline for most of the reporting period,
with large-cap stocks and growth stocks being hardest hit.
WHY WERE TECH STOCKS WEAKER THAN THE BROAD STOCK MARKET?
In addition to investor unease about the stock market generally, several factors
contributed to weakness in the tech sector specifically. A flurry of earnings
warnings from tech companies, brokerage downgrades of a number of high-profile
tech companies, stagnant or even deteriorating corporate IT budgets, and a
slower-than-expected economic recovery caused many investors to abandon the
sector. Additionally, weak earnings, bankruptcy filings and allegations of fraud
by a few well-known telecommunications companies cast a pall over virtually all
technology-related stocks. Weak corporate profits prompted a number of companies
to postpone new technology-related capital expenditures, particularly software
upgrades. An exception was security software, which remained strong for most of
the reporting period.
HOW DID YOU MANAGE THE FUND?
In an extraordinarily difficult environment, bottom-up research proved important
in helping us select individual stocks and industries within the information
technology sector. A long-term investment perspective and our continuing belief
that technology will reshape how we live, communicate, work, shop, entertain
ourselves, and do business helped as well. At the close of the reporting period,
we were focused on four areas that accounted for approximately two-thirds of the
fund's total net assets.
o Semiconductors--The semiconductor industry has often been among the first
technology-related industries to benefit from economic recoveries.
Semiconductors continue to be the "brains" behind more and more consumer
products.
================================================================================
PERFORMANCE: S&P 500 INFORMATION TECHNOLOGY SECTOR 6/30/98-6/30/02
The chart shows the performance of the S&P 500 information technology sector for
the five years ended June 30, 2002. The fund's inception on August 31, 2000 came
near the beginning of a massive decline in the information technology sector,
which has adversely affected the fund's performance.
[LINE GRAPH]
<Table>
6/98 $335.89 8/99 $597.16 10/00 $674.3 12/01 $352.7
7/98 350.48 9/99 594.47 11/00 535.41 1/02 357.53
8/98 293 10/99 605 12/00 476.64 2/02 307.34
9/98 331.83 11/99 673.12 1/01 562.02 3/02 326.35
10/98 354.04 12/99 807.44 2/01 404.58 4/02 285.9
11/98 394.69 1/00 745.4 3/01 353.1 5/02 274.82
12/98 452.51 2/00 845.94 4/01 412.85 6/02 241.37
1/99 530.69 3/00 916.71 5/01 392.18
2/99 465.45 4/00 833.68 6/01 396.69
3/99 507.55 5/00 746.2 7/01 373.09
4/99 513.17 6/00 831.85 8/01 325.98
5/99 506.62 7/00 792.1 9/01 261.85
6/99 566.61 8/00 880.71 10/01 307.35
7/99 562.7 9/00 715.78 11/01 359.73
</Table>
Source: Bloomberg
================================================================================
2
PORTFOLIO COMPOSITION
As of 6/30/02, based on total net assets
<Table>
<Caption>
========================================================================================================
TOP 10 HOLDINGS TOP 10 INDUSTRIES
- --------------------------------------------------------------------------------------------------------
1. Integrated Circuit Systems, Inc. 3.7% 1. Semiconductors 24.5%
2. Microchip Technology Inc. 3.0 2. Application Software 12.5
3. Taiwan Semiconductor Manufacturing 2.7 3. Internet Software & Services 8.7
Co. Ltd.-ADR (Taiwan)
4. ESS Technology, Inc. 2.7 4. Biotechnology 8.2
5. Activision, Inc. 2.4 5. Semiconductor Equipment 7.7
6. Dell Computer Corp. 2.3 6. Aerospace & Defense 6.7
7. Electronic Arts Inc. 2.3 7. Electronic Equipment & Instruments 5.4
8. eBay Inc. 2.3 8. Computer Storage & Peripherals 2.7
9. Symantec Corp. 2.3 9. Computer Hardware 2.3
10. Gilead Sciences, Inc. 2.3 10. Internet Retail 2.3
TOTAL NET ASSETS: $46.2 MILLION TOTAL HOLDINGS: 80
The fund's portfolio is subject to change, and there is no assurance the fund will continue to hold
any particular security.
========================================================================================================
</Table>
o Software--Software companies have some of the best profit margins within the
IT sector. While the industry as a whole was weak during the reporting
period, we concentrated on security and gaming software, which remained
strong.
o Biotechnology--While the industry as a whole suffered, many of our
biotechnology holdings beat earnings estimates and/or reported that their
sales and earnings per share continued to grow.
o Aerospace & Defense--Our technology-related aerospace and defense stocks
were among the fund's best-performing holdings. Given geopolitical
developments and the government's emphasis on homeland security, we believe
many of these stocks have the potential for continued appreciation.
WHAT WERE SOME OF THE FUND'S MAJOR HOLDINGS AT THE CLOSE OF THE REPORTING
PERIOD?
We'll mention two top-10 holdings that performed well for the fund, and one that
did not, but still has long-term potential.
o Activision, the second-largest U.S. video game publisher, continues to grow
despite the weak economy and stock market. The company develops its own
games and licenses properties from Disney and Marvel (not fund holdings) for
games that run on all three major console game systems. Sales of video games
and console systems have been strong in 2002 and appear poised to remain so.
o Gilead Sciences is developing treatments for infectious diseases (including
the flu, HIV and infections related to AIDS) and cancer. The company's broad
and diverse product line has attracted the attention of investors as well as
larger pharmaceutical companies. The company has marketing alliances with
Pharmacia and Hoffman-LaRoche (not fund holdings).
o Dell Computer is the world's largest direct-sale computer manufacturer and
the industry's low-cost producer. While Dell has not been able to escape the
effects of sharply lower corporate IT spending, it has managed to turn a
profit in a very difficult environment. While the stock fell in value
slightly during the reporting period, it fared much better than the stock
market generally or tech stocks in particular.
WHAT WERE CONDITIONS LIKE AT THE CLOSE OF THE REPORTING PERIOD?
In June, the Fed acknowledged that the economy was growing, albeit moderately
and somewhat unevenly. The Fed cited continued improvement in the manufacturing
sector, increased semiconductor orders, and continued strength in the
residential real estate market. But it also found that manufacturing gains were
uneven across industries, telecommunications equipment sales remained weak, and
commercial real estate markets were sluggish.
In the last several weeks of the reporting period, a lack of investor
confidence overshadowed generally improving economic statistics. What
corporations, investment firms and government officials do in the months ahead
to bolster investor confidence will significantly influence stock market
performance going forward. A recovery in the tech sector will require
unambiguous signs that corporate profits are improving and that businesses are
increasing their IT budgets. While we cannot predict precisely when such signs
will become clear, we remain convinced that technological innovations will, on a
long-term basis, continue to reshape our lives.
PORTFOLIO MANAGEMENT TEAM
Abel Garcia (Lead Manager)
David P. Barnard
Robert Lloyd
See important fund and index disclosures inside front cover.
3
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
JUNE 30, 2002
(UNAUDITED)
<Table>
<Caption>
MARKET
SHARES VALUE
COMMON STOCKS & OTHER EQUITY INTERESTS-96.57%
AEROSPACE & DEFENSE-6.69%
Alliant Techsystems Inc.(a) 10,050 $ 641,190
- ---------------------------------------------------------------------
Armor Holdings, Inc.(a) 10,000 255,000
- ---------------------------------------------------------------------
Engineered Support Systems, Inc. 19,700 1,030,310
- ---------------------------------------------------------------------
L-3 Communications Holdings, Inc.(a) 16,400 885,600
- ---------------------------------------------------------------------
Rockwell Collins, Inc. 10,000 274,200
=====================================================================
3,086,300
=====================================================================
APPLICATION SOFTWARE-12.53%
Activision, Inc.(a) 37,400 1,086,844
- ---------------------------------------------------------------------
Cerner Corp.(a) 13,600 650,488
- ---------------------------------------------------------------------
Documentum, Inc.(a) 18,100 217,200
- ---------------------------------------------------------------------
Electronic Arts Inc.(a) 16,000 1,056,800
- ---------------------------------------------------------------------
FileNet Corp.(a) 20,800 301,600
- ---------------------------------------------------------------------
HPL Technologies, Inc.(a) 42,800 644,568
- ---------------------------------------------------------------------
Intuit Inc.(a) 4,900 243,628
- ---------------------------------------------------------------------
JDA Software Group, Inc.(a) 19,000 536,940
- ---------------------------------------------------------------------
Mercury Interactive Corp.(a) 26,700 613,032
- ---------------------------------------------------------------------
Secure Computing Corp.(a) 27,300 206,115
- ---------------------------------------------------------------------
Take-Two Interactive Software, Inc.(a) 11,100 228,549
=====================================================================
5,785,764
=====================================================================
AUTO PARTS & EQUIPMENT-0.55%
Gentex Corp.(a) 9,200 252,724
=====================================================================
BIOTECHNOLOGY-8.19%
Cephalon, Inc.(a) 4,100 185,320
- ---------------------------------------------------------------------
Gilead Sciences, Inc.(a) 31,900 1,048,872
- ---------------------------------------------------------------------
Harvard Bioscience, Inc.(a) 62,800 351,052
- ---------------------------------------------------------------------
IDEC Pharmaceuticals Corp.(a) 14,000 496,300
- ---------------------------------------------------------------------
Medarex, Inc.(a) 14,800 109,816
- ---------------------------------------------------------------------
OraSure Technologies, Inc.(a) 23,500 152,750
- ---------------------------------------------------------------------
PRAECIS Pharmaceutical Inc.(a) 72,100 250,908
- ---------------------------------------------------------------------
SangStat Medical Corp.(a) 37,200 854,856
- ---------------------------------------------------------------------
Trimeris, Inc.(a) 7,500 332,925
=====================================================================
3,782,799
=====================================================================
COMPUTER & ELECTRONICS RETAIL-0.79%
CDW Computer Centers, Inc.(a) 7,800 365,118
=====================================================================
COMPUTER HARDWARE-2.34%
Dell Computer Corp.(a) 41,400 1,082,196
=====================================================================
COMPUTER STORAGE & PERIPHERALS-2.74%
Lexmark International, Inc.(a) 2,100 114,240
- ---------------------------------------------------------------------
</Table>
<Table>
MARKET
SHARES VALUE
<Caption>
COMPUTER STORAGE & PERIPHERALS-(CONTINUED)
Overland Storage, Inc.(a) 22,200 $ 365,856
- ---------------------------------------------------------------------
Storage Technology Corp.(a) 22,800 364,116
- ---------------------------------------------------------------------
Western Digital Corp.(a) 129,000 419,250
=====================================================================
1,263,462
=====================================================================
DATA PROCESSING SERVICES-1.37%
Concord EFS, Inc.(a) 14,500 437,030
- ---------------------------------------------------------------------
Fiserv, Inc.(a) 5,300 194,563
=====================================================================
631,593
=====================================================================
ELECTRONIC EQUIPMENT & INSTRUMENTS-5.38%
FLIR Systems, Inc.(a) 6,000 251,820
- ---------------------------------------------------------------------
Itron, Inc.(a) 31,900 836,737
- ---------------------------------------------------------------------
OSI Systems, Inc.(a) 37,000 733,710
- ---------------------------------------------------------------------
Photon Dynamics, Inc.(a) 22,100 663,000
=====================================================================
2,485,267
=====================================================================
HEALTH CARE DISTRIBUTORS & SERVICES-1.51%
Accredo Health, Inc.(a) 9,900 456,786
- ---------------------------------------------------------------------
IMPATH Inc.(a) 13,400 240,530
=====================================================================
697,316
=====================================================================
HEALTH CARE EQUIPMENT-0.95%
Endocare, Inc.(a) 33,300 439,893
=====================================================================
HEALTH CARE SUPPLIES-0.82%
ICU Medical, Inc.(a) 12,300 380,070
=====================================================================
INTEGRATED TELECOMMUNICATION SERVICES-1.51%
Intrado Inc.(a) 35,900 695,024
=====================================================================
INTERNET RETAIL-2.28%
eBay Inc.(a) 17,100 1,053,702
=====================================================================
INTERNET SOFTWARE & SERVICES-8.72%
Expedia, Inc.-Class A(a) 8,400 498,036
- ---------------------------------------------------------------------
Hotels.com-Class A(a) 5,200 219,596
- ---------------------------------------------------------------------
McAfee.com Corp.(a) 39,100 572,424
- ---------------------------------------------------------------------
Overture Services, Inc.(a) 34,200 854,316
- ---------------------------------------------------------------------
Retek Inc.(a) 22,900 556,470
- ---------------------------------------------------------------------
WebEx Communications, Inc.(a) 38,500 612,150
- ---------------------------------------------------------------------
Websense, Inc.(a) 27,800 710,846
=====================================================================
4,023,838
=====================================================================
IT CONSULTING & SERVICES-1.44%
Affiliated Computer Services, Inc.-Class A(a) 14,000 664,720
=====================================================================
</Table>
4
<Table>
<Caption>
MARKET
SHARES VALUE
NETWORKING EQUIPMENT-1.60%
Emulex Corp.(a) 32,900 $ 740,579
=====================================================================
PHARMACEUTICALS-0.72%
Ligand Pharmaceuticals Inc.-Class B(a) 23,000 333,500
=====================================================================
PUBLISHING-0.60%
Getty Images, Inc.(a) 12,600 274,302
=====================================================================
SEMICONDUCTOR EQUIPMENT-7.67%
ASE Test Ltd. (Taiwan)(a) 58,000 562,600
- ---------------------------------------------------------------------
Brooks-PRI Automation, Inc.(a) 24,600 628,776
- ---------------------------------------------------------------------
Cymer, Inc.(a) 3,000 105,120
- ---------------------------------------------------------------------
KLA-Tencor Corp.(a) 16,100 708,239
- ---------------------------------------------------------------------
Lam Research Corp.(a) 28,100 505,238
- ---------------------------------------------------------------------
Novellus Systems, Inc.(a) 18,900 642,600
- ---------------------------------------------------------------------
Varian Semiconductor Equipment Associates,
Inc.(a) 11,500 390,195
=====================================================================
3,542,768
=====================================================================
SEMICONDUCTORS-24.53%
Analog Devices, Inc.(a) 20,300 602,910
- ---------------------------------------------------------------------
ChipPAC, Inc.-Class A(a) 43,000 265,740
- ---------------------------------------------------------------------
Cirrus Logic, Inc.(a) 76,100 569,989
- ---------------------------------------------------------------------
ESS Technology, Inc.(a) 71,500 1,254,110
- ---------------------------------------------------------------------
Integrated Circuit Systems, Inc.(a) 84,000 1,695,960
- ---------------------------------------------------------------------
Intersil Corp.-Class A(a) 44,900 959,962
- ---------------------------------------------------------------------
Marvell Technology Group Ltd. (Bermuda)(a) 34,200 680,238
- ---------------------------------------------------------------------
Microchip Technology Inc.(a) 50,100 1,374,243
- ---------------------------------------------------------------------
</Table>
<Table>
MARKET
SHARES VALUE
<Caption>
SEMICONDUCTORS-(CONTINUED)
QLogic Corp.(a) 16,700 $ 636,270
- ---------------------------------------------------------------------
RF Micro Devices, Inc.(a) 7,800 59,436
- ---------------------------------------------------------------------
Semtech Corp.(a) 34,300 915,810
- ---------------------------------------------------------------------
Silicon Laboratories Inc.(a) 37,200 1,041,228
- ---------------------------------------------------------------------
Taiwan Semiconductor Manufacturing Co.
Ltd.-ADR (Taiwan) 97,460 1,266,980
=====================================================================
11,322,876
=====================================================================
SYSTEMS SOFTWARE-2.28%
Symantec Corp.(a) 32,000 1,051,200
=====================================================================
TELECOMMUNICATIONS EQUIPMENT-1.36%
Polycom, Inc.(a) 12,700 152,273
- ---------------------------------------------------------------------
UTStarcom, Inc.(a) 23,600 476,012
=====================================================================
628,285
=====================================================================
Total Common Stocks & Other Equity
Interests (Cost $50,422,903) 44,583,296
=====================================================================
MONEY MARKET FUNDS-3.72%
STIC Liquid Assets Portfolio(b) 858,778 858,778
- ---------------------------------------------------------------------
STIC Prime Portfolio(b) 858,778 858,778
=====================================================================
Total Money Market Funds (Cost
$1,717,556) 1,717,556
=====================================================================
TOTAL INVESTMENTS-100.29% (Cost $52,140,459) 46,300,852
=====================================================================
OTHER ASSETS LESS LIABILITIES-(0.29%) (133,291)
=====================================================================
NET ASSETS-100.00% $46,167,561
_____________________________________________________________________
=====================================================================
</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.
5
STATEMENT OF ASSETS AND LIABILITIES
- ---------------------------------------------------------------
JUNE 30, 2002
(UNAUDITED)
<Table>
ASSETS:
Investments, at market value (cost
$52,140,459) $46,300,852
- -----------------------------------------------------------
Receivables for:
Investments sold 646,451
- -----------------------------------------------------------
Fund shares sold 58,640
- -----------------------------------------------------------
Dividends 2,449
- -----------------------------------------------------------
Investment for deferred compensation plan 10,506
- -----------------------------------------------------------
Other assets 22,354
===========================================================
Total assets 47,041,252
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Investments purchased 507,271
- -----------------------------------------------------------
Fund shares reacquired 221,180
- -----------------------------------------------------------
Deferred compensation plan 10,506
- -----------------------------------------------------------
Accrued distribution fees 60,699
- -----------------------------------------------------------
Accrued trustees' fees 302
- -----------------------------------------------------------
Accrued transfer agent fees 42,737
- -----------------------------------------------------------
Accrued operating expenses 30,996
===========================================================
Total liabilities 873,691
===========================================================
Net assets applicable to shares outstanding $46,167,561
___________________________________________________________
===========================================================
NET ASSETS:
Class A $24,751,202
___________________________________________________________
===========================================================
Class B $14,517,252
___________________________________________________________
===========================================================
Class C $ 6,899,107
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE:
Class A 9,499,759
___________________________________________________________
===========================================================
Class B 5,638,885
___________________________________________________________
===========================================================
Class C 2,678,173
___________________________________________________________
===========================================================
Class A:
Net asset value per share $ 2.61
- -----------------------------------------------------------
Offering price per share:
(Net asset value of $2.61 divided
by 94.50%) $ 2.76
___________________________________________________________
===========================================================
Class B:
Net asset value and offering price per
share $ 2.57
___________________________________________________________
===========================================================
Class C:
Net asset value and offering price per
share $ 2.58
___________________________________________________________
===========================================================
</Table>
STATEMENT OF OPERATIONS
- ---------------------------------------------------------------
FOR THE SIX MONTHS ENDED JUNE 30, 2002
(UNAUDITED)
<Table>
INVESTMENT INCOME:
Dividends from affiliated money market
funds $ 25,247
- -----------------------------------------------------------
Dividends 1,272
===========================================================
Total investment income 26,519
===========================================================
EXPENSES:
Advisory fees 299,897
- -----------------------------------------------------------
Administrative services fees 24,795
- -----------------------------------------------------------
Custodian fees 11,992
- -----------------------------------------------------------
Distribution fees -- Class A 57,790
- -----------------------------------------------------------
Distribution fees -- Class B 90,846
- -----------------------------------------------------------
Distribution fees -- Class C 43,937
- -----------------------------------------------------------
Transfer agent fees 207,918
- -----------------------------------------------------------
Trustees' fees 4,965
- -----------------------------------------------------------
Other 59,285
===========================================================
Total expenses 801,425
===========================================================
Less: Fees waived (111,542)
- -----------------------------------------------------------
Expenses paid indirectly (619)
===========================================================
Net expenses 689,264
===========================================================
Net investment income (loss) (662,745)
===========================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES AND OPTION
CONTRACTS:
Net realized gain (loss) from:
Investment securities (8,030,424)
- -----------------------------------------------------------
Option contracts written 26,729
===========================================================
(8,003,695)
===========================================================
Change in net unrealized appreciation
(depreciation) of investment securities (14,544,793)
===========================================================
Net gain (loss) from investment securities
and option contracts (22,548,488)
===========================================================
Net increase (decrease) in net assets
resulting from operations $(23,211,233)
___________________________________________________________
===========================================================
</Table>
See Notes to Financial Statements.
6
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED JUNE 30, 2002 AND THE YEAR ENDED DECEMBER 31, 2001
(UNAUDITED)
<Table>
<Caption>
JUNE 30, DECEMBER 31,
2002 2001
------------ ------------
OPERATIONS:
Net investment income (loss) $ (662,745) $ (1,199,640)
- ------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities and
option contracts (8,003,695) (57,039,237)
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities (14,544,793) 19,156,038
==========================================================================================
Net increase (decrease) in net assets resulting from
operations (23,211,233) (39,082,839)
==========================================================================================
Share transactions-net:
Class A (2,623,663) 18,653,815
- ------------------------------------------------------------------------------------------
Class B 266,499 11,339,309
- ------------------------------------------------------------------------------------------
Class C (143,545) 5,592,841
==========================================================================================
Net increase (decrease) in net assets (25,711,942) (3,496,874)
==========================================================================================
NET ASSETS:
Beginning of period 71,879,503 75,376,377
==========================================================================================
End of period $ 46,167,561 $ 71,879,503
__________________________________________________________________________________________
==========================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $129,256,145 $131,756,854
- ------------------------------------------------------------------------------------------
Undistributed net investment income (loss) (672,159) (9,414)
- ------------------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment
securities and option contracts (76,576,818) (68,573,123)
- ------------------------------------------------------------------------------------------
Unrealized appreciation (depreciation) of investment
securities (5,839,607) 8,705,186
==========================================================================================
$ 46,167,561 $ 71,879,503
__________________________________________________________________________________________
==========================================================================================
</Table>
See Notes to Financial Statements.
7
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
JUNE 30, 2002
(UNAUDITED)
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
traded in the over-the-counter market (but not securities reported on the
NASDAQ National Market System) is valued at the closing bid price furnished
by independent pricing services or market makers. 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 institution-size trading in similar groups of
securities, developments related to special securities, dividend rate,
yield, quality, type of issue, coupon rate, maturity, 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 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.
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.
8
The Fund's capital loss carryforward of $66,633,491 as of December 31,
2001 expires as follows:
<Table>
<Caption>
CAPITAL LOSS
CARRYFORWARD EXPIRATION
------------ ----------
$ 1,713,194 December 31, 2008
-------------------------------
64,920,297 December 31, 2009
-------------------------------
$66,633,491
______________________________
===============================
</Table>
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 the respective classes' operations. Transfer agency
fees and expenses and other shareholder recordkeeping fees and expenses are
charged to each class pursuant to a transfer agency and service agreement
adopted by the Fund with respect to such class. All other expenses 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. AIM has contractually agreed to waive fees and/or
reimburse 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 the extent
necessary to limit the total annual fund operating expenses of Class A to 2.00%.
Further, AIM has voluntarily agreed to waive advisory fees of the Fund in the
amount of 25% of the advisory fee AIM receives from the affiliated money market
fund of which the Fund has invested. For the six months ended June 30, 2002, AIM
waived fees of $111,542.
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 six months ended June 30, 2002, AIM was
paid $24,795 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 six months ended June 30, 2002, AFS
retained $130,914 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 six months ended June 30,
2002, the Class A, Class B and Class C shares paid AIM Distributors $57,790,
$90,846 and $43,937, respectively, as compensation under the Plans.
AIM Distributors retained commissions of $18,053 from sales of the Class A
shares of the Fund during the six months ended June 30, 2002. 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 six months ended June 30,
2002, AIM Distributors retained $2,465, $52 and $946 in contingent deferred
sales charges imposed on redemptions of Class A, Class B and Class C shares,
respectively.
Certain officers and trustees of the Trust are officers and directors of AIM,
AFS and AIM Distributors.
During the six months ended June 30, 2002, the Fund paid legal fees of $1,298
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 six months ended June 30, 2002, the Fund received reductions in transfer
agency fees from AFS (an affiliate of AIM) of $554 and reductions in custodian
fees of $65 under expense offset arrangements which resulted in a reduction of
the Fund's total expenses of $619.
NOTE 4--TRUSTEES' FEES
Trustees' fees represent remuneration paid to trustees who are not an
"interested person" of AIM. Trustees have the option to defer compensation
payable by the Trust. The Trustees deferring compensation have the option to
select various AIM Funds in which all or part of their deferral accounts shall
be deemed to be invested.
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) $500,000,000 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
9
basis. During the six months ended June 30, 2002, 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
As of December 31, 2001, the components of distributable earnings (accumulated
losses) on a tax basis were as follows:
<Table>
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 six months ended June 30, 2002 was
$47,757,212 and $48,191,263, respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
for tax purposes, as of June 30, 2002 is as follows:
<Table>
Aggregate unrealized appreciation of
investment securities $ 2,756,339
- -----------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (8,693,893)
===========================================================
Net unrealized appreciation (depreciation)
of investment securities $(5,937,554)
___________________________________________________________
===========================================================
Cost of investments for tax purposes is $52,238,406.
</Table>
NOTE 8--CALL OPTION CONTRACTS
Transactions in call options written during the six months ended June 30, 2002
are summarized as follows:
<Table>
<Caption>
CALL OPTION CONTRACTS
---------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
--------- --------
Beginning of period -- $ --
- ---------------------------------------------------------
Written 270 54,783
- ---------------------------------------------------------
Closed (200) (38,899)
- ---------------------------------------------------------
Exercised (70) (15,884)
=========================================================
End of period -- $ --
_________________________________________________________
=========================================================
</Table>
NOTE 9--SHARE INFORMATION
Changes in shares outstanding during the six months ended June 30, 2002 and the
year ended December 31, 2001 were as follows:
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2002 DECEMBER 31, 2001
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
Sold:
Class A 2,858,825 $ 9,968,002 10,000,780 $ 42,952,707
- ----------------------------------------------------------------------------------------------------------------------
Class B 941,575 3,090,158 4,015,952 17,550,457
- ----------------------------------------------------------------------------------------------------------------------
Class C 1,109,411 3,614,598 2,552,966 10,916,402
======================================================================================================================
Reacquired:
Class A (3,791,298) (12,591,665) (6,054,184) (24,298,892)
- ----------------------------------------------------------------------------------------------------------------------
Class B (898,156) (2,823,659) (1,587,360) (6,211,148)
- ----------------------------------------------------------------------------------------------------------------------
Class C (1,176,270) (3,758,143) (1,346,193) (5,323,561)
======================================================================================================================
(955,913) $ (2,500,709) 7,581,961 $ 35,585,965
______________________________________________________________________________________________________________________
======================================================================================================================
</Table>
10
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
SIX MONTHS (DATE OPERATIONS
ENDED YEAR ENDED COMMENCED) TO
JUNE 30, DECEMBER 31, DECEMBER 31,
2002 2001 2000
---------- ------------ ----------------
Net asset value, beginning of period $ 3.84 $ 6.74 $ 10.00
- -------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.03) (0.06)(a) (0.02)(a)
- -------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (1.20) (2.84) (3.24)
=============================================================================================================
Total from investment operations (1.23) (2.90) (3.26)
=============================================================================================================
Net asset value, end of period $ 2.61 $ 3.84 $ 6.74
_____________________________________________________________________________________________________________
=============================================================================================================
Total return(b) (32.03)% (43.03)% (32.60)%
_____________________________________________________________________________________________________________
=============================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $24,751 $40,097 $43,732
_____________________________________________________________________________________________________________
=============================================================================================================
Ratio of expenses to average net assets:
With fee waivers 2.00%(c) 1.86% 1.72%(d)
- -------------------------------------------------------------------------------------------------------------
Without fee waivers 2.37%(c) 2.40% 2.47%(d)
=============================================================================================================
Ratio of net investment income (loss) to average net assets (1.91)%(c) (1.52)% (0.66)%(d)
_____________________________________________________________________________________________________________
=============================================================================================================
Portfolio turnover rate 84% 215% 54%
_____________________________________________________________________________________________________________
=============================================================================================================
</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 daily net assets of
$33,296,420.
(d) Annualized.
<Table>
<Caption>
CLASS B
----------------------------------------------
AUGUST 31, 2000
SIX MONTHS (DATE OPERATIONS
ENDED YEAR ENDED COMMENCED) TO
JUNE 30, DECEMBER 31, DECEMBER 31,
2002 2001 2000
---------- ------------ ----------------
Net asset value, beginning of period $ 3.81 $ 6.72 $ 10.00
- ---------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.04) (0.09)(a) (0.04)(a)
- ---------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (1.20) (2.82) (3.24)
===============================================================================================================
Total from investment operations (1.24) (2.91) (3.28)
===============================================================================================================
Net asset value, end of period $ 2.57 $ 3.81 $ 6.72
_______________________________________________________________________________________________________________
===============================================================================================================
Total return(b) (32.55)% (43.30)% (32.80)%
_______________________________________________________________________________________________________________
===============================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $14,517 $21,318 $21,296
_______________________________________________________________________________________________________________
===============================================================================================================
Ratio of expenses to average net assets:
With fee waivers 2.65(%)(c) 2.51% 2.41%(d)
- ---------------------------------------------------------------------------------------------------------------
Without fee waivers 3.02%(c) 3.05% 3.16%(d)
===============================================================================================================
Ratio of net investment income (loss) to average net assets (2.56)%(c) (2.17)% (1.36)%(d)
_______________________________________________________________________________________________________________
===============================================================================================================
Portfolio turnover rate 84% 215% 54%
_______________________________________________________________________________________________________________
===============================================================================================================
</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
$18,319,769.
(d) Annualized.
11
NOTE 10--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
----------------------------------------------
AUGUST 31, 2000
SIX MONTHS (DATE OPERATIONS
ENDED YEAR ENDED COMMENCED) TO
JUNE 30, DECEMBER 31, DECEMBER 31,
2002 2001 2000
---------- ------------ ----------------
Net asset value, beginning of period $ 3.81 $ 6.73 $ 10.00
- ------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.04) (0.09)(a) (0.04)(a)
- ------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (1.19) (2.83) (3.23)
============================================================================================================
Total from investment operations (1.23) (2.92) (3.27)
____________________________________________________________________________________________________________
============================================================================================================
Net asset value, end of period $ 2.58 $ 3.81 $ 6.73
____________________________________________________________________________________________________________
============================================================================================================
Total return(b) (32.28)% (43.39)% (32.70)%
____________________________________________________________________________________________________________
============================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $6,899 $10,465 $10,349
____________________________________________________________________________________________________________
============================================================================================================
Ratio of expenses to average net assets:
With fee waivers 2.65%(c) 2.51% 2.41%(d)
- ------------------------------------------------------------------------------------------------------------
Without fee waivers 3.02%(c) 3.05% 3.16%(d)
============================================================================================================
Ratio of net investment income (loss) to average net assets (2.56)%(c) (2.17)% (1.35)%(d)
____________________________________________________________________________________________________________
============================================================================================================
Portfolio turnover rate 84% 215% 54%
____________________________________________________________________________________________________________
============================================================================================================
</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
$8,860,236.
(d) Annualized.
12
AS OF JUNE 30, 2002
<Table>
<Caption>
BOARD OF TRUSTEES OFFICERS OFFICE OF THE FUND
Robert H. Graham Robert H. Graham 11 Greenway Plaza
Chairman and President Suite 100
Frank S. Bayley Houston, TX 77046
Carol F. Relihan
Bruce L. Crockett Senior Vice President and Secretary INVESTMENT ADVISOR
Albert R. Dowden Gary T. Crum A I M Advisors, Inc.
Senior Vice President 11 Greenway Plaza
Edward K. Dunn Jr. Suite 100
Dana R. Sutton Houston, TX 77046
Jack M. Fields Vice President and Treasurer
TRANSFER AGENT
Carl Frischling Robert G. Alley
Vice President A I M Fund Services, Inc.
Prema Mathai-Davis P.O. Box 4739
Stuart W. Coco Houston, TX 77210-4739
Lewis F. Pennock Vice President
CUSTODIAN
Ruth H. Quigley Melville B. Cox
Vice President State Street Bank and Trust Company
Louis S. Sklar 225 Franklin Street
Karen Dunn Kelley Boston, MA 02110
Vice President
COUNSEL TO THE FUND
Edgar M. Larsen
Vice President Ballard Spahr
Andrews & Ingersoll, LLP
1735 Market Street
Philadelphia, PA 19103
COUNSEL TO THE TRUSTEES
Kramer, Levin, Naftalis & Frankel LLP
919 Third Avenue
New York, NY 10022
DISTRIBUTOR
A I M Distributors, Inc.
11 Greenway Plaza
Suite 100
Houston, TX 77046
</Table>
<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 manages approximately $135 billion in
assets for more than 9 million shareholders,
AIM Opportunities I(1,2) AIM Developing Markets including individual investors, corporate
AIM Opportunities II(1,2) AIM European Small Company clients and financial institutions.*
AIM Opportunities III(1,2) AIM Asia Pacific Growth(2)
AIM Emerging Growth AIM International Emerging Growth The AIM Family of Funds--Registered Trademark--
AIM Small Cap Growth(3) AIM Global Aggressive Growth is distributed nationwide. AIM is a subsidiary
AIM Aggressive Growth AIM European Growth(2) of AMVESCAP PLC, one of the world's largest
AIM Mid Cap Growth AIM Euroland Growth(4) independent financial services companies with
AIM Dent Demographic Trends AIM International Growth(2) $364 billion in assets under management.*
AIM Constellation AIM Global Growth
AIM Large Cap Growth AIM Worldwide Spectrum
AIM Weingarten AIM Global Trends
AIM Small Cap Equity AIM International Core Equity(2)
AIM Capital Development
AIM Mid Cap Core Equity(2) MORE CONSERVATIVE
AIM Select Equity
AIM Premier Equity II(2) SECTOR EQUITY FUNDS
AIM Premier Equity(2)
AIM Blue Chip MORE AGGRESSIVE
AIM Mid Cap Basic Value
AIM Large Cap Core Equity AIM New Technology
AIM Charter AIM Global Science and Technology(2)
AIM Basic Value AIM Global Energy(5)
AIM Large Cap Basic Value AIM Global Infrastructure(4)
AIM Balanced AIM Global Financial Services
AIM Basic Balanced AIM Global Health Care
AIM Global Utilities
AIM Real Estate
MORE CONSERVATIVE 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 Total Return Bond MORE CONSERVATIVE
AIM Intermediate Government
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) The following fund name changes became effective
7/1/02: AIM Asian Growth Fund renamed AIM Asia Pacific Growth Fund; AIM European
Development Fund renamed AIM European Growth Fund; AIM Global Telecommunications
and Technology Fund renamed AIM Global Science and Technology Fund; AIM
International Equity Fund renamed AIM International Growth Fund; AIM
International Value Fund renamed AIM International Core Equity Fund; AIM Large
Cap Opportunities Fund renamed AIM Opportunities III Fund; AIM Mid Cap Equity
Fund renamed AIM Mid Cap Core Equity Fund; AIM Mid Cap Opportunities Fund
renamed AIM Opportunities II Fund; AIM Small Cap Opportunities Fund renamed AIM
Opportunities I Fund; AIM Value Fund renamed AIM Premier Equity Fund; AIM Value
II Fund renamed AIM Premier Equity II Fund. (3) On 3/18/02, AIM Small Cap Growth
Fund was closed to most investors. For more information on who may continue to
invest in the fund, please contact your financial advisor. (4) On 8/23/02, AIM
Euroland Growth Fund and AIM Global Infrastructure Fund were closed to new
investors. (5) On 9/1/01 AIM Global Resources Fund was renamed AIM Global Energy
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 October 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.
*As of 6/30/02 [AIM LOGO APPEARS HERE]
--Registered Trademark--
INVEST WITH DISCIPLINE
--Registered Trademark--
NTE-SAR-1
A I M DISTRIBUTORS, INC.
APPENDIX III
ANNUAL REPORT / DECEMBER 31, 2001
AIM NEW TECHNOLOGY FUND
[COVER IMAGE]
[AIM LOGO]
[COVER IMAGE]
------------------------------------
LOUIS PASTEUR, FRENCH CHEMIST AND BIOLOGIST, IN HIS LABORATORY
BY ALBERT GUSTAF A. EDELFELT
THE FRENCH CHEMIST LOUIS PASTEUR DEVOTED HIS LIFE TO SOLVING
PRACTICAL PROBLEMS THROUGH DISCOVERIES THAT REVOLUTIONIZED CHEMISTRY,
INDUSTRY, AGRICULTURE AND MEDICINE. HIS DISCOVERIES GREATLY IMPROVED THE
HUMAN CONDITION AND CREATED NEW TECHNOLOGIES FROM WHICH THE WORLD COULD PROFIT.
MANAGERS OF AIM NEW TECHNOLOGY FUND SEEK TO INVEST IN COMPANIES
THAT CONTINUE TO EMBODY PASTEUR'S SPIRIT OF INNOVATION AND DISCOVERY.
------------------------------------
ABOUT PERFORMANCE AND PORTFOLIO DATA THROUGHOUT THIS REPORT:
o AIM New Technology 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 absorbed fund expenses 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 5.50% sales charge, and Class B and Class C
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 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 decrease the fund's total return.
o Investing in a single-sector mutual fund may involve greater risk and
potential reward than investing in a more diversified fund.
o Investing in small and mid-size companies may involve risks not associated
with investing in more established companies. Also, small companies may have
business risk, significant stock price fluctuations and illiquidity.
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 Lipper Science and Technology Fund Index represents an average
of the performance of the 30 largest science and technology funds tracked by
Lipper, Inc., an independent mutual fund performance monitor.
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.
An investment cannot be made in an index. Unless otherwise indicated, index
results include reinvested dividends, and they do not reflect 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 has been. For equity investors, the years 2000 and
GRAHAM] 2001 were unlike anything we had seen in a generation. For
the first time since the 1970s, the S&P 500 and other major
domestic stock benchmarks produced negative returns two years
in a row. And there was no comfort overseas; the MSCI World
Index also produced negative returns both years.
As usually occurs during difficult stock markets,
fixed-income investments, particularly high-quality ones, did
well. The domestic, investment-grade Lehman Aggregate Bond
Index produced positive returns both years.
Conditions were trying on many levels. Geopolitically,
the appalling terrorist attacks of September 11 led to a serious decline in
markets, though initial success in our ensuing war in Afghanistan helped markets
advance later in the year. Macroeconomically, the United States officially
slipped into recession in March, the first such slowdown in a decade.
And at the individual firm level, the Enron bankruptcy has occasioned a
confidence crisis that has markets unsettled. As I write this, several weeks
into the new year, several Congressional committees, the Securities and Exchange
Commission and the Justice Department are conducting investigations of Enron.
While we do not yet have all the details about what happened at Enron, it
clearly has resulted in a new level of skepticism of the financial statements of
even the soundest companies. AIM strongly believes that sound accounting
policies, full and accurate financial disclosure, and independent audits are
absolutely essential to maintain the integrity of the markets and the confidence
of investors, and will support any legislative or regulatory changes that may be
desirable to further these objectives.
WHAT SHOULD INVESTORS DO NOW?
Mindful of recent events and scandals and in view of the two-year bear market in
equities, many of our shareholders have asked us what they should do about their
investments. We cannot offer individualized advice--that is the role of your
financial advisor. But we can once again offer insights we have gained over many
years in this business.
First is the crucial importance of diversification when investing--a major
lesson of the Enron story that is reinforced by the disparate performance of
equity and fixed-income investments during this fiscal year. Relying on one
stock to build financial security has once again proven to be downright
dangerous, but mutual fund investors should also keep in mind that whole sectors
and investment approaches do go in and out of favor. A diversified portfolio
that embraces different classes of securities and various investment strategies
can offer protection from these shifts in sentiment.
A second insight is the importance of a long time horizon. Whatever current
market conditions are like, we at AIM intend to stay focused on the long term.
Our portfolio managers will continue to invest your money using the time-tested
disciplines AIM has employed for more than a quarter century. We consider a
long-term perspective the most advisable course for our shareholders too.
Changing your portfolio on the basis of short-term events and market moves
rarely proves beneficial. As we have reminded you on many occasions, data show
that pulling out of the market even for a short period and missing a few of its
best days is likely to have a negative effect on your long-term returns. In
investing, it is time in the markets, not market timing, that counts.
Now more than ever, we encourage you to stay in touch with your financial
advisor. He or she is familiar with the goals and time horizon you have
established for your investments and can help you build a diversified portfolio
and stay focused on those goals.
YOUR FUND'S PERFORMANCE
Most technology, telecommunications and science-related stocks, and funds that
invest in them, remained volatile for the six months since our June 30, 2001,
report to you, though the situation improved as the year progressed. For
example, Class A shares of AIM New Technology Fund returned -15.79% at net asset
value during the second half of 2001. By comparison the Lipper Science and
Technology Fund Index returned -16.20% for the same period. The fund rebounded
in the fourth quarter, and Class A shares returned 31.51% for the three-month
period as the fundamentals of the information technology sector--and the economy
as a whole--appeared to improve.
For the fiscal year as a whole, AIM New Technology Fund Class A shares
returned -43.03%.
The following pages contain your portfolio managers' discussion of how they
have managed the portfolio during the fiscal year, how the markets affected the
fund, and the fund's long-term record. We hope you find their discussion
informative.
If you have questions or comments about this report, please contact us
anytime through our Web site, www.aimfunds.com. 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
February 12, 2002
DESPITE WEAK ECONOMY, FUND REBOUNDS IN 4TH QUARTER
HOW DID AIM NEW TECHNOLOGY FUND PERFORM FOR THE YEAR?
Stocks in general--and information technology and telecommunications stocks in
particular--were weak during much of 2001 due to the slowing economy and
deteriorating corporate earnings. This weakness hurt the fund's one-year
performance, but renewed confidence that the economy will strengthen in 2002
helped the fund rebound sharply in the fourth quarter.
For the year ended December 31, 2001, the fund's Class A shares returned
- -43.03%, and the fund's Class B and Class C shares returned -43.39%. These
figures are at net asset value, meaning they exclude sales charges. In
comparison, the average technology fund, as represented by the Lipper Science
and Technology Fund Index, returned -34.72% for the year.
Despite being down for the year, the fund performed strongly in both the
second and fourth quarters. In the fourth quarter, the fund's Class A, Class B
and Class C shares returned 31.51%, 31.38% and 31.38%, respectively, at net
asset value.
WHAT WERE THE MAJOR TRENDS IN THE ECONOMY AND THE FINANCIAL MARKETS DURING THE
FISCAL YEAR?
The economy remained weak even as ~the U.S. Federal Reserve (the Fed)
aggressively cut short-term interest rates and Congress approved $35 billion in
tax rebates to 83 million American taxpayers. In 11 separate rate cuts, the most
ever in a calendar year, the Fed reduced its key fed funds rate (the rate banks
charge one another for overnight loans) from 6.50% to 1.75% (the lowest level in
40 years)--hoping that lower interest rates would spur consumers to spend and
businesses to expand.
But neither the economy nor the stock markets responded until the fourth
quarter of the year. Indeed, U.S. gross domestic product (the broadest measure
of economic activity) contracted at an annualized rate of 1.3% in the third
quarter of 2001. Unemployment rose from 4.2% in January to 5.8% in December as
employers announced nearly 2 million job cuts during the year. Deteriorating
corporate earnings prompted many investors to abandon higher-priced growth
stocks for lower priced, more defensive value stocks--or to abandon the stock
market altogether in favor of fixed-income or money market investments. While
value stocks outperformed growth stocks for much of the year, both actually
ended the year in negative territory.
The terrorist attacks of September 11 exacerbated an already difficult
market. Following the attacks, markets closed for nearly a week--the longest
suspension of trading since the Great Depression. After the markets reopened on
September 17, the Dow experienced its worst week in more than 60 years, falling
more than 14% in just five days. But by early November, major market indexes had
recouped all of their post-attack losses.
WHAT WERE CONDITIONS LIKE IN THE INFORMATION TECHNOLOGY SECTOR?
Many tech companies spent 2001 reporting disappointing earnings, laying off
employees and steadfastly refusing to predict when conditions might improve.
Just when the first hopeful signs of a recovery began to appear, the terrorist
attacks of September 11 set back any potential improvement.
During the fourth quarter, it became clear that the sector's fundamentals
were improving and that tech was far from dead. During the quarter:
ORDERS GREW--Durable goods orders declined sharply in September, but were
incrementally positive in October and November. Computer, communications
equipment and semiconductor companies in particular reported increased demand
for their products.
INVENTORIES WERE REDUCED--Many tech companies slashed inventories while also
launching new products.
FUND AT A GLANCE
AIM New Technology Fund seeks long-term growth of capital by investing
primarily in stocks of technology and science companies.
(Detail of Cover Image)
INVESTMENT STYLE: GROWTH (Focuses on the growth potential of a company's
earnings, the most tangible measure of growth and success)
o Invests in companies that fund managers believe will benefit from new or
innovative products, services or processes
o Invests without regard to market capitalization--but may invest a
significant portion of assets in small-cap companies
2
PORTFOLIO COMPOSITION
As of 12/31/01, based on total net assets
==========================================================================================================
TOP 10 EQUITY HOLDINGS TOP 10 INDUSTRIES
- ----------------------------------------------------------------------------------------------------------
1. PeopleSoft, Inc. 3.1% 1. Semiconductors 23.6%
2. IDEC Pharmaceuticals Corp. 2.8 2. Application Software 11.7
3. Genesis Microchip Inc. (Canada) 2.8 3. Internet Software & Services 9.5
4. Integrated Circuit Systems, Inc. 2.3 4. Biotechnology 7.4
5. NVIDIA Corp. 2.1 5. Systems Software 6.7
6. VERITAS Software Corp. 2.1 6. Networking Equipment 4.6
7. Kronos, Inc. 2.0 7. Telecommunications Equipment 4.3
8. UTStarcom, Inc. 2.0 8. Health Care Equipment 4.1
9. Network Associates, Inc. 1.9 9. Electronic Equipment & Instruments 4.0
10. Microsemi Corp. 1.8 10. Aerospace & Defense 2.9
The Fund's portfolio composition is subject to change, and there is no guarantee
that the fund will continue to hold any particular security.
==========================================================================================================
EARNINGS WERE REVISED UPWARD--
A number of large, established companies in a variety of technology-related
industries reported better-than-expected earnings, and the number of
disappointing earnings pre-announcements declined.
While we're not out of the woods yet, several factors point to a return to
growth for information technology companies. Just as analysts were probably too
bullish on tech stocks at the market top, we believe they may be too bearish at
the market bottom.
HOW DID YOU MANAGE THE FUND THIS YEAR?
We positioned the fund to benefit from the recovery of the economy and the
information technology sector--both of which, we believe, are beginning to take
hold. In preparation for their recovery, we have positioned the portfolio a bit
more aggressively, and we will continue this process as we see additional signs
of improving earnings.
The fund's investment discipline has not changed; we continue to seek out
companies with strong fundamentals and earnings growth in new and developing
areas of technology. Although we traditionally focus on small and mid-size
companies, we added some large-cap names to the fund's holdings in recent months
to improve liquidity. We also increased the number of fund holdings in an
effort to provide shareholders with greater diversification within the highly
volatile information technology sector.
At the close of the year, we were focusing on the personal computer,
semiconductor, storage technology and biotechnology industries because:
o We believe we may be nearing a new upgrade cycle in the PC industry.
o We've seen in the past that the semiconductor industry is often among the
first technology-related industries to recover from economic downturns.
o We know that a staggering amount of new data is generated each business
day--and it needs to be stored somewhere.
o And we see more and more biotechnology companies turning profitable as the
number of new drug compounds and processes grows rapidly.
WHAT WERE SOME HOLDINGS THAT DID WELL FOR THE FUND DURING THE YEAR?
At the close of the year, stocks that had performed well for the fund included
the following:
PEOPLESOFT is a leading provider of software applications that
tie together a company's back-office human resources operations. Services such
as consulting and maintenance account for two-thirds of sales.
IDEC PHARMACEUTICALS develops treatments for cancer and autoimmune diseases. The
company's first FDA-approved product is Rituxan, which treats non-Hodgkin's
lymphoma.
NVIDIA is a leading manufacturer of high-definition 2-D and 3-D graphics
processors for gaming and industrial design applications. Its chips are used by
leading personal computer makers.
WHAT WERE CONDITIONS LIKE AT THE CLOSE OF THE YEAR?
As the year ended, there were signs that the economy was improving--or at least
stabilizing. Signs of stabilization in the labor market, improving consumer
confidence, expanding manufacturing activity--along with continued strength in
the housing market, low energy prices and an absence of inflation--reinforced
the consensus view among economists that a recovery will take hold at some point
in 2002.
Meanwhile, the United States achieved its initial anti-terrorism goals in
Afghanistan more quickly and more easily than many had expected. Despite
fourth-quarter gains that were dramatic in some sectors, stocks remained
favorably priced and a considerable amount of cash remained in money market
accounts--money that could potentially be deployed into stocks.
See important fund and index
disclosures inside front cover.
3
YOUR FUND'S LONG TERM PERFORMANCE
AVERAGE ANNUAL TOTAL RETURNS
As of 12/31/01, including sales charges
================================================================================
CLASS A SHARES
Inception (8/31/00) -53.21%
1 Year -46.14
CLASS B SHARES
Inception (8/31/00) -52.94%
1 Year -46.22
CLASS C SHARES
Inception (8/31/00) -51.48%
1 Year -43.95
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.
(HYPO CHART)
================================================================================
RESULTS OF A $10,000 INVESTMENT
8/31/00-12/31/01
================================================================================
(HYPO Chart)
AIM NEW AIM NEW AIM NEW
TECHNOLOGY TECHNOLOGY TECHNOLOGY
DATE FUND, CLASS FUND, CLASS FUND, CLASS LIPPER, SCIENCE &
C SHARES B SHARES A SHARES S&P 500 TECH FUND INDEX
08/00 $10,000 $10,000 $9,450 $10,000 $10,000
09/00 10,130 10,130 9,592 8,045 8,975
10/00 8,800 8,800 8,335 9,595 7,990
11/00 6,310 6,310 5,973 8,871 5,931
12/00 6,730 6,730 6,370 9,549 5,868
01/01 6,640 6,629 6,285 9,762 6,463
02/01 4,379 4,389 4,159 9,205 4,779
03/01 3,440 3,440 3,270 8,521 4,079
04/01 4,370 4,380 4,159 9,461 4,875
05/01 4,370 4,369 4,149 9,681 4,648
06/01 4,540 4,539 4,310 9,643 4,571
07/01 4,030 4,030 3,837 9,499 4,205
08/01 3,660 3,650 3,478 9,188 3,679
09/01 2,900 2,900 2,760 8,045 2,890
10/01 3,330 3,330 3,176 8,401 3,327
11/01 3,660 3,650 3,478 9,045 3,812
12/01 3,810 3,658 3,629 9,125 3,830
Past performance cannot guarantee comparable future results.
This chart compares AIM New Technology Fund's Class A, Class B and Class C
shares to benchmark indexes. It is intended to give you a general idea of how
your fund performed compared to these indexes over the period 8/31/00-12/31/01.
It is important to understand the difference between your fund and an index.
An index measures the performance of a hypothetical portfolio. A market index
such as the S&P 500 is not managed 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 your return. An index of funds such as the
Lipper Science and Technology Fund Index includes a number of mutual funds
grouped by investment objective. Each of these funds interprets that objective
differently, and each employs a different management style and investment
strategy.
Keep in mind that the S&P 500 is a broad market index that includes stocks
of the 500 largest publicly traded American companies. The S&P 500 also includes
stocks of companies in many sectors of the economy. The fund, in contrast,
invests primarily in stocks of technology-related and science-related companies,
and can invest in companies regardless of their size.
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
to different sales charge structures and class expenses.
Performance shown in the chart and table does not reflect taxes a
shareholder would pay on fund distributions or on redemption of fund shares.
Performance for the indexes does not reflect deduction of taxes either.
4
FACTORS THAT INFLUENCE INTEREST RATE CHANGES
ECONOMIC INDICATORS THAT HELP SHAPE FEDERAL RESERVE POLICY
The Federal Reserve Board (the Fed) periodically adjusts short-term interest
rates to either stimulate or slow economic growth. In making decisions about
interest rates, the Fed considers key economic data. Just as a dip in barometric
pressure can signal a squall, changes in economic indicators can point to a
shift in the economy and the markets. Here are some of the top indicators used
by the Fed, economists, financial analysts and professional money managers to
identify economic trends:
GROSS DOMESTIC PRODUCT (GDP)
GDP is the total value of all products and services produced in the country in a
year. It's compiled quarterly by the U.S. Department of Commerce. GDP measures
the pace of U.S. economic growth, and changes in this indicator can signal the
direction of the economy. For example, a decline in the GDP for two consecutive
quarters constitutes a recession. Drops in the GDP can cause equity and bond
prices to fall, as investors become concerned about an economic slowdown. On the
other hand, a steep spike in the GDP can signal that the economy is growing too
fast, and higher inflation could ensue. Inflation, also known as rising prices,
creates problems for consumers and the markets. In an inflationary environment,
consumers must spend more money to buy the same amount of goods and services.
When consumers buy less, the economy slows and markets decline. The markets
usually react favorably to slight increases in the GDP, which indicate moderate,
controlled growth.
HOUSING STARTS
Housing starts measure the construction
of new single-family houses, townhouses
and apartment buildings. Compiled
monthly by the U.S. Department of (GRAPHIC)
Commerce, this figure is based on the
number of new foundations dug. This
indicator signals consumer confidence. If consumers feel financially secure,
they're more likely to take on a mortgage. Home purchases also trigger other
consumer spending (for sofas, lawnmowers, curtains, etc.). A moderate increase
in housing starts usually bodes well for the markets. As with GDP, a sharp
increase in housing starts can signal inflation.
CONSUMER PRICE INDEX (CPI)
Also called the cost-of-living index,
the CPI measures the prices of products
and services bought by typical (GRAPHIC)
consumers. Each month, the U.S. Bureau
of Labor Statistics checks the prices of
a specific basket of items, including
food, clothing, transportation, shelter, utilities, health care and
entertainment. The CPI is one of the government's main ways to gauge inflation,
and changes in this indicator usually affect the markets. A sharp increase in
the CPI can indicate inflation, while a moderate rise in the CPI shows that
inflation is under control. The core inflation rate is a separate indicator from
the CPI. The core rate excludes energy and food, which fluctuate seasonally and
more sharply than other elements.
PRODUCER PRICE INDEX (PPI)
The Producer Price Index measures the
price changes of manufactured goods that (GRAPHIC)
are ready to be distributed. Hikes in
the PPI signal that retailers may soon raise prices to pass the increase on to
consumers. Rising prices signal inflation. Unlike the CPI, this index doesn't
measure services.
CONSUMER CONFIDENCE INDEX (CCI)
The CCI measures how consumers feel
about the economy, their job status and
their finances. Consumer attitudes are (GRAPHIC)
important because consumer spending
accounts for about two-thirds of the
economy. To compile the index, The
Conference Board conducts a monthly survey of 5,000 U.S. households. The survey
asks questions about consumer attitudes, buying plans, present conditions and
expectations for the future. A declining CCI usually means that Americans are
tightening their purse strings. Decreased spending may mean slower economic
growth.
THINKING LONG-TERM
As an investor, you can better understand broad economic trends by watching
these indicators. A word of caution: You shouldn't overhaul your portfolio every
time there is a blip in consumer confidence. Indicators signal potential market
fluctuations, and they can help you adjust your long-term strategy.
As always, we suggest that you visit your financial advisor to determine
whether any changes to your investment plan are necessary.
5
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>
6
<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.
7
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.
8
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.
9
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.
10
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.
11
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>
12
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.
13
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.
14
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.
PRICEWATERHOUSECOOPERS LLP
February 14, 2002
Houston, Texas
15
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 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS OTHER DIRECTORSHIP(S)
NAME, YEAR OF BIRTH AND AND/OR HELD BY TRUSTEE
POSITION(S) HELD WITH OFFICER
THE TRUST SINCE
- -------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSON
Robert H. Graham* - 1946 1992 Chairman, President and Chief Executive Officer, A I M None
Trustee, Chairman and Management Group Inc. (financial services holding
President 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. (registered
Trustee investment company)
Bruce L. Crockett - 1944 1987 Chairman, Crockett Technology Associates (technology ACE Limited (insurance
Trustee consulting company) company); and Captaris, Inc.
(unified messaging provider)
Albert R. Dowden - 1941 2000 Chairman, Cortland Trust, Inc. (registered investment None
Trustee 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
Edward K. Dunn, 1998 Formerly, Chairman, Mercantile Mortgage Corp.; Vice None
Jr. - 1935 Chairman, President and Chief Operating Officer,
Trustee Mercantile-Safe Deposit & Trust Co.; and President,
Mercantile Bankshares Corp.
Jack M. Fields - 1952 1997 Chief Executive Officer, Twenty First Century Group, Inc. Administaff
Trustee (government affairs company)
Carl Frischling** - 1937 1993 Partner, law firm of Kramer Levin Naftalis and Frankel Cortland Trust, Inc.
Trustee LLP (registered investment company)
Prema 1998 Formerly, Chief Executive Officer, YWCA of the USA None
Mathai-Davis - 1950
Trustee
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 Operations, None
Trustee Hines Interests Limited Partnership (real estate
development company)
</Table>
* Mr. Graham is considered an interested person of the fund because he is an
officer and a director of the advisor to, and a director of the principal
underwriter of, the Trust.
** The law firm in which Mr. Frischling is a partner is counsel to the
independent directors/trustees of the AIM Funds and the AIM Funds pay such
firm's fees. The AIM Funds believe that Mr. Frischling is not an interested
person of the AIM Funds solely as a result of this relationship and are
currently communicating with the SEC to confirm their view.
Trustees and Officers (continued)
- --------------------------------------------------------------------------------
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 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS OTHER DIRECTORSHIP(S)
NAME, YEAR OF BIRTH AND AND/OR HELD BY TRUSTEE
POSITION(S) HELD WITH OFFICER
THE TRUST SINCE
- -------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
Gary T. Crum - 1947 1992 Director and President, A I M Capital Management, Inc.; N/A
Senior Vice President 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 (parent of AIM and a global investment
management firm)
Carol F. Relihan - 1954 1992 Director, Senior Vice President, General Counsel and N/A
Senior Vice President Secretary, A I M Advisors, Inc. and A I M Management
and Secretary 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, Inc.; N/A
Vice President and Vice President, A I M Advisors, Inc.
Stuart W. Coco - 1955 1992 Senior Vice President-Director of Fixed Income Research, N/A
Vice President A I M Capital Management, 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-Director of Cash Management, A I M N/A
Vice President Capital Management, 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 Capital N/A
Vice President Management, Inc.
Dana R. Sutton - 1959 1992 Vice President and Fund Treasurer, A I M Advisors, Inc. N/A
Vice President and
Treasurer
</Table>
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.347.4246.
- --------------------------------------------------------------------------------
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, Inc. PricewaterhouseCoopers
Suite 100 11 Greenway Plaza 11 Greenway Plaza LLP
Houston, TX 77046 Suite 100 Suite 100 1201 Louisiana, Suite
Houston, TX 77046 Houston, TX 77046 2900
Houston, TX 77002
COUNSEL TO THE FUND COUNSEL TO THE TRUSTEES TRANSFER AGENT CUSTODIAN
Ballard Spahr Kramer, Levin, Naftalis A I M Fund Services, Inc. State Street Bank and
Andrews & Ingersoll, LLP & Frankel LLP P.O. Box 4739 Trust Company
1735 Market Street 919 Third Avenue Houston, TX 77210-4739 225 Franklin Street
Philadelphia, PA 19103 New York, NY 10022 Boston, MA 02110
</Table>
EQUITY FUNDS FIXED-INCOME FUNDS
DOMESTIC EQUITY FUNDS INTERNATIONAL/GLOBAL EQUITY FUNDS TAXABLE FIXED-INCOME FUNDS
MORE AGGRESSIVE MORE AGGRESSIVE MORE AGGRESSIVE
AIM Small Cap Opportunities(1) AIM Developing Markets AIM High Yield II
AIM Mid Cap Opportunities(1) AIM European Small Company AIM High Yield
AIM Large Cap Opportunities(1) AIM Asian Growth AIM Strategic Income
AIM Emerging Growth AIM International Emerging Growth AIM Income
AIM Small Cap Growth AIM Global Aggressive Growth AIM Global Income
AIM Aggressive Growth AIM European Development AIM Total Return Bond
AIM Mid Cap Growth AIM Euroland Growth AIM Intermediate Government
AIM Dent Demographic Trends AIM International Equity AIM Floating Rate
AIM Constellation AIM Global Growth AIM Limited Maturity Treasury
AIM Large Cap Growth AIM Worldwide Spectrum AIM Money Market
AIM Weingarten AIM Global Trends
AIM Small Cap Equity AIM International Value(1) MORE CONSERVATIVE
AIM Capital Development
AIM Charter MORE CONSERVATIVE TAX-FREE FIXED-INCOME FUNDS
AIM Mid Cap Equity
AIM Select Equity(2) SECTOR EQUITY FUNDS MORE AGGRESSIVE
AIM Value II
AIM Value MORE AGGRESSIVE AIM High Income Municipal
AIM Blue Chip AIM Municipal Bond
AIM Mid Cap Basic Value AIM New Technology AIM Tax-free Intermediate
AIM Large Cap Core Equity AIM Global Telecommunications and Technology AIM Tax-Exempt Cash
AIM Basic Value AIM Global Energy(4)
AIM Large Cap Basic Value AIM Global Infrastructure MORE CONSERVATIVE
AIM Balanced AIM Global Financial Services
AIM Basic Balanced AIM Global Health Care
AIM Global Utilities
MORE CONSERVATIVE AIM Real Estate(5)
MORE CONSERVATIVE
(INVEST WITH DISCIPLINE LOGO)
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 April 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.
A I M Management Group Inc. has provided leadership in the mutual fund industry
since 1976 and manages approximately $158 billion in assets for more than 9
million shareholders, including individual investors, corporate clients and
financial institutions.*
The AIM Family of Funds--Registered Trademark-- is distributed nationwide.
AIM is a subsidiary of AMVESCAP PLC, one of the world's largest independent
financial services companies with $398 billion in assets under management.*
*As of 12/31/01
[AIM LOGO APPEARS HERE]
--Registered Trademark--
INVEST WITH DISCIPLINE
--Registered Trademark--
A I M Distributors, Inc. NTE-AR-1
PART C. OTHER INFORMATION
Item 15. Indemnification.
The Registrant's Amended and Restated Agreement and
Declaration of Trust, dated May 15, 2002, as amended,
provides, among other things (i) that trustees and officers
of the Registrant, when acting as such, shall not be
personally liable for any act, omission or obligation of the
Registrant or any trustee or officer (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, officers, employees and agents of
the Registrant to the fullest extent permitted by the
Delaware Statutory Trust Act and Bylaws and other applicable
law; (iii) that shareholders of the Registrant shall not be
personally liable for the debts, liabilities, obligations or
expenses of the Registrant or any portfolio or class; and
(iv) for the indemnification by the Registrant, out of the
assets belonging to the applicable portfolio, of shareholders
and former shareholders of the Registrant in case they are
held personally liable solely by reason of being or having
been shareholders of the Registrant or any portfolio or class
and not because of their acts or omissions or for some other
reason.
A I M Advisors, Inc. ("AIM"), the Registrant and other
investment companies managed by AIM and 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.
C-1
Section 7 of the Master Intergroup Sub-Advisory Contract for
Mutual Funds between AIM and INVESCO Asset Management Limited
(the "Sub-Advisory Contract") provides that the Sub-advisor
shall not be liable for any costs or liabilities arising from
any error of judgment or mistake of law or any loss suffered
by any series of the Registrant or the Registrant in
connection with the matters to which the Sub-Advisory
Contract relates except a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of the
Sub-advisor in the performance by the Sub-advisor of its
duties or from reckless disregard by the Sub-advisor of its
obligations and duties under the Sub-Advisory Contract.
Item 16. Exhibits.
1 (a) - (1) Amended and Restated Agreement and Declaration of
Trust of Registrant, dated May 15, 2002 was filed
electronically as an Exhibit to Post-Effective
Amendment No. 62, filed on August 14, 2002, and is
hereby incorporated by reference.
- (2) Amendment No. 1, dated July 1, 2002, to Amended and
Restated Agreement and Declaration of Trust of
Registrant was filed electronically as an Exhibit to
Post-Effective Amendment No. 62, filed on August 14,
2002, and is hereby incorporated by reference.
- (3) Amendment No. 2, dated August 8, 2002, to Amended
and Restated Agreement and Declaration of Trust of
Registrant was filed electronically as an Exhibit to
Post-Effective Amendment No. 62, filed on August 14,
2002, and is hereby incorporated by reference.
- (4) Amendment No. 3, dated September 23, 2002, to
Amended and Restated Agreement and Declaration of Trust
of Registrant is filed herewith electronically.
- (5) Amendment No. 4, dated February 6, 2003, to Amended
and Restated Agreement and Declaration of Trust of
Registrant is filed herewith electronically.
2 (a) - Amended and Restated By-Laws of Registrant, adopted
effective May 15, 2002 was filed electronically as an
Exhibit to Post-Effective Amendment No. 62, filed on
August 14, 2002, and is hereby incorporated by
reference.
3 - Voting Trust Agreements - None.
4 - Form of Agreement and Plan of Reorganization by and
between the Registrant, AIM Funds Group and A I M
Advisors, Inc. 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.
6 (a) - (1) Master Investment Advisory Agreement, dated
September 11, 2000, between Registrant and A I M
Advisors, Inc. was filed electronically as an Exhibit
to Post-Effective Amendment No. 59, filed on February
28, 2001, and is hereby incorporated by reference.
C-2
- (2) Amendment No. 1, dated September 1, 2001, to the
Master Investment Advisory Agreement, dated September
11, 2000, between Registrant and A I M Advisors, Inc.
was filed electronically as an Exhibit to
Post-Effective Amendment No. 60, filed on October 12,
2001, and is hereby incorporated by reference.
- (3) Amendment No. 2, dated December 28, 2001, to the
Master Investment Advisory Agreement, dated September
11, 2000, between Registrant and A I M Advisors, Inc.
was filed electronically as an Exhibit to
Post-Effective Amendment No. 61, filed on January 30,
2002, and is hereby incorporated by reference.
- (4) Amendment No. 3, dated July 1, 2002, to the Master
Investment Advisory Agreement, dated September 11,
2000, between Registrant and A I M Advisors, Inc. was
filed electronically as an Exhibit to Post-Effective
Amendment No. 62, filed on August 14, 2002, and is
hereby incorporated by reference.
- (5) Form of Amendment No. 4 to the Master Investment
Advisory Agreement, dated September 11, 2000, between
Registrant and A I M Advisors, Inc. was filed
electronically as an Exhibit to Post-Effective
Amendment No. 62, filed on August 14, 2002, and is
hereby incorporated by reference.
(b) - Master Intergroup Sub-Advisory Contract for Mutual
Funds, dated September 1, 2001, between A I M Advisors,
Inc. and INVESCO Asset Management Limited was filed
electronically as an Exhibit to Post-Effective
Amendment No. 60, filed on October 12, 2001, and is
hereby incorporated by reference.
7 (a) - (1) First Amended and Restated Master Distribution
Agreement, dated July 1, 2000, between Registrant (on
behalf of its Class A and Class C Shares) and A I M
Distributors, Inc. was filed electronically as an
Exhibit to Post-Effective Amendment No. 59, filed on
February 28, 2001, and is hereby incorporated by
reference.
- (2) Amendment No. 1, dated September 10, 2001, to the
First Amended and Restated Master Distribution
Agreement, dated July 1, 2000, between Registrant (on
behalf of its Class A and Class C Shares) and A I M
Distributors, Inc. was filed electronically as an
Exhibit to Post-Effective Amendment No. 60, filed on
October 12, 2001, and is hereby incorporated by
reference.
- (3) Amendment No. 2, dated December 28, 2001, to the
First Amended and Restated Master Distribution
Agreement, dated July 1, 2000, between Registrant (on
behalf of its Class A and Class C Shares) and A I M
Distributors, Inc. was filed electronically as an
Exhibit to Post-Effective Amendment No. 61, filed on
January 30, 2002, and is hereby incorporated by
reference.
- (4) Amendment No. 3, dated July 1, 2002, to the First
Amended and Restated Master Distribution Agreement,
dated July 1, 2000, between Registrant (on behalf of
its Class A and Class C Shares) and A I M Distributors,
Inc. was filed electronically as an Exhibit to
Post-Effective Amendment No. 62, filed on August 14,
2002, and is hereby incorporated by reference.
- (5) Form of Amendment No. 4 to the First Amended and
Restated Master Distribution Agreement, dated July 1,
2000, between Registrant (on behalf of its Class A and
Class C Shares) and A I M Distributors, Inc. was filed
electronically as an Exhibit to Post-Effective
Amendment No. 62, filed on August 14, 2002, and is
hereby incorporated by reference.
C-3
(b) - (1) First Amended and Restated Master Distribution
Agreement, dated December 31, 2000, between Registrant
(on behalf of its Class B Shares) and A I M
Distributors, Inc. was filed electronically as an
Exhibit to Post-Effective Amendment No. 59, filed on
February 28, 2001, and is hereby incorporated by
reference.
- (2) Amendment No. 1, dated September 10, 2001, to the
First Amended and Restated Master Distribution
Agreement, dated December 31, 2000, between Registrant
(on behalf of its Class B Shares) and A I M
Distributors, Inc. was filed electronically as an
Exhibit to Post-Effective Amendment No. 60, filed on
October 12, 2001, and is hereby incorporated by
reference.
- (3) Amendment No. 2, dated December 28, 2001, to the
First Amended and Restated Master Distribution
Agreement, dated December 31, 2000, between Registrant
(on behalf of its Class B Shares) and A I M
Distributors, Inc. was filed electronically as an
Exhibit to Post-Effective Amendment No. 61, filed on
January 30, 2002, and is hereby incorporated by
reference
- (4) Amendment No. 3, dated July 1, 2002, to the First
Amended and Restated Master Distribution Agreement,
dated December 31, 2000, between Registrant (on behalf
of its Class B Shares) and A I M Distributors, Inc. was
filed electronically as an Exhibit to Post-Effective
Amendment No. 62, filed on August 14, 2002, and is
hereby incorporated by reference.
- (5) Form of Amendment No. 4 to the First Amended and
Restated Master Distribution Agreement, dated December
31, 2000, between Registrant (on behalf of its Class B
Shares) and A I M Distributors, Inc. was filed
electronically as an Exhibit to Post-Effective
Amendment No. 62, filed on August 14, 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. 59, filed on February 28, 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. 57, filed
on February 22, 1999, and is hereby incorporated by
reference.
8 (a) - Form of AIM Funds 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. 62, filed on August 14, 2002, and is
hereby incorporated by reference.
(b) - AIM Funds Retirement Plan for Eligible
Directors/Trustees, as restated October 1, 2001 was
filed electronically as an Exhibit to Post-Effective
Amendment No. 61, filed on January 30, 2002, and is
hereby incorporated by reference.
9 (a) - (1) 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. 59, filed on February 28,
2001, and is hereby incorporated by reference.
- (2) Amendment, dated May 1, 2000, to Master Custodian
Contract, dated May 1, 2000, between Registrant and
State Street Bank and Trust Company was filed
C-4
electronically as an Exhibit to Post-Effective
Amendment No. 59, filed on February 28, 2001, and is
hereby incorporated by reference.
- (3) Amendment, dated June 29, 2001, to 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. 61, filed on January 30, 2002, and is
hereby incorporated by reference.
- (4) Amendment, dated April 2, 2002, to 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. 62, filed on August 14, 2002, and is
hereby incorporated by reference.
(b) - (1) Subcustodian Agreement, dated September 9, 1994,
between 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. 60, filed on
October 12, 2001, and is hereby incorporated by
reference.
- (2) Amendment No. 1, dated October 2, 1998, to
Subcustodian Agreement, dated September 9, 1994,
between 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. 60, filed on October 12, 2001, and is
hereby incorporated by reference.
- (3) Amendment No. 2, dated March 15, 2002, to
Subcustodian Agreement, dated September 9, 1994,
between Registrant, JP Morgan Chase Bank (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. 62, filed on August 14, 2002, and is
hereby incorporated by reference.
(c) - Subcustodian Agreement, dated January 20, 1993, between
State Street Bank and Trust Company and The Bank of New
York. was filed electronically as an Exhibit to
Post-Effective Amendment No. 61, filed on January 30,
2002, and is hereby incorporated by reference.
(d) - Foreign Assets Delegation Agreement, dated June 29,
2001, between Registrant and A I M Advisors, Inc. was
filed electronically as an Exhibit to Post-Effective
Amendment No. 61, filed on January 30, 2002, and is
hereby incorporated by reference.
10 (a) - (1) Second Amended and Restated Master Distribution
Plan of Registrant, effective as of July 1, 2000, with
respect to Class A and Class C Shares was filed
electronically as an Exhibit to Post-Effective
Amendment No. 59, filed on February 28, 2001, and is
hereby incorporated by reference.
- (2) Amendment No. 1, dated September 10, 2001, to
Registrant's Second Amended and Restated Master
Distribution Plan on behalf of its Class A and Class C
Shares was filed electronically as an Exhibit to
Post-Effective Amendment No. 60, filed on October 12,
2001, and is hereby incorporated by reference.
- (3) Amendment No. 2, dated December 28, 2001, to
Registrant's Second Amended and Restated Master
Distribution Plan on behalf of its Class A and Class C
Shares was filed electronically as an Exhibit to
Post-Effective Amendment No. 61, filed on January 30,
2002, and is hereby incorporated by reference.
C-5
- (4) Amendment No. 3, dated July 1, 2002, to
Registrant's Second Amended and Restated Master
Distribution Plan on behalf of its Class A and Class C
Shares was filed electronically as an Exhibit to
Post-Effective Amendment No. 62, filed on August 14,
2002, and is hereby incorporated by reference.
- (5) Form of Amendment No. 4 to Registrant's Second
Amended and Restated Master Distribution Plan on behalf
of its Class A and Class C Shares was filed
electronically as an Exhibit to Post-Effective
Amendment No. 62, filed on August 14, 2002, and is
hereby incorporated by reference.
(b) - (1) First Amended and Restated Master Distribution
Plan, effective as of December 31, 2000, with respect
to Class B Shares was filed electronically as an
Exhibit to Post-Effective Amendment No. 59, filed on
February 28, 2001, and is hereby incorporated by
reference.
- (2) Amendment No. 1, dated September 10, 2001, to
Registrant's First Amended and Restated Master
Distribution Plan on behalf of its Class B Shares was
filed electronically as an Exhibit to Post-Effective
Amendment No. 60, filed on October 12, 2001, and is
hereby incorporated by reference.
- (3) Amendment No. 2, dated December 28, 2001, to
Registrant's First Amended and Restated Master
Distribution Plan on behalf of its Class B Shares was
filed electronically as an Exhibit to Post-Effective
Amendment No. 61, filed on January 30, 2002, and is
hereby incorporated by reference.
- (4) Amendment No. 3, dated July 1, 2002, to
Registrant's First Amended and Restated Master
Distribution Plan on behalf of its Class B Shares was
filed electronically as an Exhibit to Post-Effective
Amendment No. 62, filed on August 14, 2002, and is
hereby incorporated by reference.
- (5) Form of Amendment No. 4 to Registrant's First
Amended and Restated Master Distribution Plan on behalf
of its Class B Shares was filed electronically as an
Exhibit to Post-Effective Amendment No. 62, filed on
August 14, 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. 60, filed on October 12,
2001, and is hereby incorporated by reference.
(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. 60, filed 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. 60, filed 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. 62, filed on August 14,
2002, and is hereby incorporated by reference.
C-6
(g) - Form 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 was filed electronically as an Exhibit to
Post-Effective Amendment No. 60, filed on October 12,
2001, and is hereby incorporated by reference.
(h) - Form of Shareholder Service Agreement for Shares of the
AIM Mutual Funds to be used in connection with
Registrant's Master Distribution Plan was filed
electronically as an Exhibit to Post-Effective
Amendment No. 60, filed on October 12, 2001, and is
hereby incorporated by reference.
(i) - Multiple Class Plan of The AIM Family of
Funds--Registered Trademark--, effective December 12,
2001 was filed electronically as an Exhibit to
Post-Effective Amendment No. 62, filed on August 14,
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
September 8, 1998, between Registrant and A I M Fund
Services, Inc was filed electronically as an Exhibit to
Post-Effective Amendment No. 56, filed on December 30,
1998, and is hereby incorporated by reference.
- (2) Amendment No. 1, dated March 1, 1999, to Transfer
Agency and Service Agreement, dated September 8, 1998,
between Registrant and A I M Fund Services, Inc was
filed electronically as an Exhibit to Post-Effective
Amendment No. 58, filed on February 24, 2000, and is
hereby incorporated by reference.
- (3) Amendment No. 2, dated July 1, 1999, to Transfer
Agency and Service Agreement, dated September 8, 1998,
between Registrant and A I M Fund Services, Inc. was
filed electronically as an Exhibit to Post-Effective
Amendment No. 58, filed on February 24, 2000, and is
hereby incorporated by reference.
- (4) Amendment No. 3, dated July 1, 1999, to Transfer
Agency and Service Agreement, dated September 8, 1998,
between Registrant and A I M Fund Services, Inc. was
filed electronically as an Exhibit to Post-Effective
Amendment No. 58, filed on February 24, 2000, and is
hereby incorporated by reference.
- (5) Amendment No. 4, dated February 11, 2000, to
Transfer Agency and Service Agreement, dated September
8, 1998, between Registrant and A I M Fund Services,
Inc. was filed electronically as an Exhibit to
Post-Effective Amendment No. 58, filed on February 24,
2000, and is hereby incorporated by reference.
- (6) Amendment No. 5, dated July 1, 2000, to the
Transfer Agency and Service Agreement, dated September
8, 1998, between Registrant and A I M Fund Services,
Inc. was filed electronically as an Exhibit to
Post-Effective Amendment No. 59, filed on February 28,
2001, and is hereby incorporated by reference.
- (7) Amendment No. 6, dated March 4, 2002, to Transfer
Agency and Service Agreement, dated September 8, 1998,
between Registrant and A I M Fund Services, Inc. was
filed electronically as an Exhibit to Post-Effective
Amendment
C-7
No. 62, filed on August 14, 2002, and is hereby
incorporated by reference.
(b) - (1) Remote Access and Related Services Agreement, dated
December 23, 1994, between Registrant and The
Shareholder Services Group, Inc. (TSSG). was filed
electronically as an Exhibit to Post-Effective
Amendment No. 55, filed on August 26, 1998, and is
hereby incorporated by reference.
- (2) Amendment No. 1, dated October 4, 1995, to the
Remote Access and Related Services Agreement, dated
December 23, 1994, between Registrant and TSSG. was
filed electronically as an Exhibit to Post-Effective
Amendment No. 55, filed on August 26, 1998, and is
hereby incorporated by reference.
- (3) Addendum No. 2, dated October 12, 1995, to the
Remote Access and Related Services Agreement, dated
December 23, 1994, between Registrant and TSSG. was
filed electronically as an Exhibit to Post-Effective
Amendment No. 55, filed on August 26, 1998, and is
hereby incorporated by reference.
- (4) Amendment No. 3, dated February 1, 1997, to the
Remote Access and Related Services Agreement, dated
December 23, 1994, between Registrant and First Data
Investor Services Group, Inc. (FDISG) (formerly known
as TSSG). was filed electronically as an Exhibit to
Post-Effective Amendment No. 55, filed on August 26,
1998, and is hereby incorporated by reference.
- (5) Exhibit 1, effective as of August 4, 1997, to the
Remote Access and Related Services Agreement, dated
December 23, 1994, between Registrant and FDISG. was
filed electronically as an Exhibit to Post-Effective
Amendment No. 55, filed on August 26, 1998, and is
hereby incorporated by reference.
- (6) Amendment No. 4, dated June 30, 1998, to the Remote
Access and Related Services Agreement, dated December
23, 1994, between Registrant and FDISG. was filed
electronically as an Exhibit to Post-Effective
Amendment No. 56, filed on December 30, 1998, and is
hereby incorporated by reference.
- (7) Amendment No. 5, dated July 1, 1998, to the Remote
Access and Related Services Agreement, dated December
23, 1994, between Registrant and FDISG. was filed
electronically as an Exhibit to Post-Effective
Amendment No. 56, filed on December 30, 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 FDISG. was
filed electronically as an Exhibit to Post-Effective
Amendment No. 59, filed on February 28, 2001, 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, for IMPRESSPlus Forms Processing
Software between Registrant and FDISG. was filed
electronically as an Exhibit to Post-Effective
Amendment No. 59, filed on February 28, 2001, and is
hereby incorporated by reference.
- (10) Amendment No. 8, dated June 26, 2000, to the
Remote Access and Related Services Agreement, dated
December 23, 1994, for AccessTA Services, dated
December 23, 1994, between Registrant and PFPC Inc.
(formerly known as FDISG). was filed electronically as
an Exhibit to Post-Effective Amendment No. 59, filed on
February 28, 2001, and is hereby incorporated by
reference.
C-8
- (11) Amendment No. 9, dated June 26, 2000, to the
Remote Access and Related Services Agreement for
IMPRESSNet--Trademark-- Services, dated December 23,
1994, between Registrant and PFPC Inc. was filed
electronically as an Exhibit to Post-Effective
Amendment No. 62, filed on August 14, 2002, and is
hereby incorporated by reference, was filed
electronically as an Exhibit to Post-Effective
Amendment No. 62, filed on August 14, 2002, and is
hereby incorporated by reference. was filed
electronically as an Exhibit to Post-Effective
Amendment No. 59, filed on February 28, 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. 59, filed on February 28, 2001, and is
hereby incorporated by reference.
- (13) Letter amendment, dated August 22, 2000, to the
Remote Access and Related Services Agreement, dated
December 23, 1994 for IMPRESSNet--Trademark-- Services,
between Registrant and PFPC Inc. was filed
electronically as an Exhibit to Post-Effective
Amendment No. 59, filed on February 28, 2001, and is
hereby incorporated by reference.
(c) - Preferred Registration Technology Escrow Agreement,
dated September 10, 1997 was filed electronically as an
Exhibit to Post-Effective Amendment No. 55, filed on
August 26, 1998, and is hereby incorporated by
reference.
(d) - (1) Master Administrative Services Agreement, dated
September 11, 2000, between Registrant and A I M
Advisors, Inc. was filed electronically as an Exhibit
to Post-Effective Amendment No. 59, filed on February
28, 2001, and is hereby incorporated by reference.
- (2) Amendment No. 1, dated September 1, 2001, to the
Master Administrative Services Agreement, dated
September 11, 2000, between Registrant and A I M
Advisors, Inc. was filed electronically as an Exhibit
to Post-Effective Amendment No. 60, filed on October
12, 2001, and is hereby incorporated by reference.
- (3) Amendment No. 2, dated December 28, 2001, to the
Master Administrative Services Agreement, dated
September 11, 2000, between Registrant and A I M
Advisors, Inc. was filed electronically as an Exhibit
to Post-Effective Amendment No. 61, filed on January
30, 2002, and is hereby incorporated by reference.
- (4) Amendment No. 3, dated July 1, 2002, to the Master
Administrative Services Agreement, dated September 11,
2000, between Registrant and A I M Advisors, Inc. was
filed electronically as an Exhibit to Post-Effective
Amendment No. 62, filed on August 14, 2002, and is
hereby incorporated by reference.
- (5) Form of Amendment No. 4 to the Master
Administrative Services Agreement, dated September 11,
2000, between Registrant and A I M Advisors, Inc. was
filed electronically as an Exhibit to Post-Effective
Amendment No. 62, filed on August 14, 2002, and is
hereby incorporated by reference.
(e) - Memorandum of Agreement, regarding securities lending,
dated September 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. 61, filed on January 30, 2002, and is
hereby incorporated by reference.
C-9
(f) - Memorandum of Agreement, regarding expense limitations,
dated July 1, 2001, between Registrant (on behalf of
all Funds) and A I M Advisors, Inc. was filed
electronically as an Exhibit to Post-Effective
Amendment No. 61, filed on January 30, 2002, 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. 60, filed on October 12, 2001, and is
hereby incorporated by reference.
14 - Consent of PricewaterhouseCoopers LLP is filed herewith
electronically.
15 - Omitted Financial Statements - None.
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 New Technology 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.
C-10
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 12th day of February, 2003.
REGISTRANT: AIM INVESTMENT FUNDS
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 February 12, 2003
- ---------------------------------------- (Principal Executive Officer)
(Robert H. Graham)
/s/ FRANK S. BAYLEY Trustee February 12, 2003
- ----------------------------------------
(Frank S. Bayley)
/s/ BRUCE L. CROCKETT Trustee February 12, 2003
- ----------------------------------------
(Bruce L. Crockett)
/s/ ALBERT R. DOWDEN Trustee February 12, 2003
- ----------------------------------------
(Albert R. Dowden)
/s/ EDWARD K. DUNN, JR. Trustee February 12, 2003
- ----------------------------------------
(Edward K. Dunn, Jr.)
/s/ JACK M. FIELDS Trustee February 12, 2003
- ----------------------------------------
(Jack M. Fields)
/s/ CARL FRISCHLING Trustee February 12, 2003
- ----------------------------------------
(Carl Frischling)
/s/ PREMA MATHAI-DAVIS Trustee February 12, 2003
- ----------------------------------------
(Prema Mathai-Davis)
/s/ LEWIS F. PENNOCK Trustee February 12, 2003
- ----------------------------------------
(Lewis F. Pennock)
/s/ RUTH H. QUIGLEY Trustee February 12, 2003
- ----------------------------------------
(Ruth H. Quigley)
/s/ LOUIS S. SKLAR Trustee February 12, 2003
- ----------------------------------------
(Louis S. Sklar)
/s/ MARK H. WILLIAMSON Trustee February 12, 2003
- ----------------------------------------
(Mark H. Williamson)
/s/ DANA R. SUTTON Vice President & Treasurer February 12, 2003
- ---------------------------------------- (Principal Financial and
(Dana R. Sutton) Accounting Officer)
</Table>
EXHIBIT INDEX
<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
1 (a)(4) Amendment No. 3, dated September 23, 2002, to Amended and
Restated Agreement and Declaration of Trust of Registrant
1 (a)(5) Amendment No. 4, dated February 6, 2003, to Amended and
Restated Agreement and Declaration of Trust of Registrant
11 Consent 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>